Hanes plans more SKU cuts to lower bloated inventory levels

Dive Brief:

HanesBrands is looking to significantly reduce inventory over the coming months, executives said on an August 11 earnings call.
The clothing company plans to cut 30% of SKUs and temporarily reduce production shifts at manufacturing facilities in an attempt to lower inventories compared to 2021 levels, CFO Michael Dastugue said.
The SKU slash follows a 35% SKU cut made last year, and the company "may continue beyond that" in order to make room for new product rollouts, CEO Steve Bratspies said on the call.

Dive Insight:

Hanes is taking measures to slim down its inventory after a quarter that left it cash strapped and with products clogging its shelves.

The company was left with even more excess inventory than expected last quarter after a cyberattack paralyzed parts of its global supply chain network and limited its ability to fulfill orders for nearly three weeks, Bratspies said.

The clothing maker disclosed in a May 31 securities filing that it "had become subject to a ransomware attack," which Dastugue noted ultimately cost the company $100 million in sales and $35 million in operating profits over the quarter. The clothing company noted in its earnings report that it believes the incident has been "contained" and that there is no ongoing operational impact.

The inability to move products for several weeks put a "near-term drag on cash flow," Bratspies said, compounding other issues that were already creating an inventory pileup. The CEO said the company faced "some service challenges" and product delays at the beginning of Q2, as well as a consumer slowdown mid-quarter and COVID-19 headwinds in the China market.

Inventory levels at the end of Q2 were up 19% YOY on a per unit basis, according to Hanes’ Q2 earnings report.

The onslaught of inventory challenges pushed Hanes to roll out an aggressive inventory management plan as it works to make space for its product innovation pipeline, Bratspies said.

"Fundamentally, we have to create space for [new product], both at the retail shelf and inside our pipeline and how we operate going forward," the CEO said. "We have not historically been as disciplined as we need to be on SKU management. And we have a long tail that I think can be cleaned up."

Executives said they expect the SKU cuts will lead inventory levels to fall below 2021 levels by the end of the year.