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The athletic apparel industry has been one of the best places to invest in the broader retail industry in recent years. Top brands like lululemon athletica and Adidas have seen sales boom and margins expand this year thanks to strong demand.
The athleisure trend doesn't seem to be going away. Instead, it's becoming a wardrobe staple for many. The trend has culminated with sportswear, streetwear, and luxury fashion all meshed together, and Hanesbrands' (NYSE: HBI) Champion apparel line has been a major beneficiary.
IMAGE SOURCE: CHAMPION.COM.
Those grey sweatshirts and sweatpants you wore in the 1990s are now considered high fashion. In even better news for investors, Hanesbrands stock is as cheap as a pair of socks.
Champion rides the athleisure trend
In the third quarter, Champion sales grew 30% year over year on a constant-currency basis, and 40% excluding the "mass channel" (i.e. sales at mass-market retailers like Walmart and Target). During the conference call to discuss the results, CEO Gerald Evans said, "Even though we're cycling tougher comparisons, Champion's growth rate continues to accelerate, with this quarter's 40% growth coming on top of last year's 33% increase."
This growth was broad-based across all regions of the world where Hanesbrands operates, and across all sales channels, including wholesale, owned retail, and online. The brand has generated $1.2 billion of sales outside the mass channel over the last year, which is 18% of Hanesbrands' total sales.
However, the rest of the business -- which is basically sales of underwear and socks -- is not doing that great. The innerwear segment made up a third of total sales in the third quarter. But some sales of underwear and socks are also included in the international segment, which made up 34% of total sales last quarter and grew 11% year over year.
| Segment | TTM Through Q3 2018 | Growth (YOY) |
|---|---|---|
| Innerwear | $2.38 billion | (3.2%) |
| Activewear | $1.73 billion | 7.1% |
| International | $2.28 billion | 13.2% |
| Other | $285.7 million | (7.5%) |
| Total sales | $6.68 billion | 3.2% |
Data source: Hanesbrands. TTM = trailing 12 months. YOY = Year over year. Chart by author.
All in all, this is not a stock you want to buy for the growth in socks and underwear. It's a highly competitive category, and large retailers are starting to invest more in private-label brands, which will be a headwind for the innerwear segment moving forward. The growth story right now is all about the Champion brand.
Champion's long-term trajectory is up
Management expects the Champion brand to reach $1.3 billion in total sales outside the mass channel for 2018. By 2022, Champion sales outside the mass channel are expected to reach $2 billion. By contrast, Champion's mass channel sales were up only 5% year over year last quarter.