HanesBrands (asi/59528) continues to contend with a slew of challenges in its efforts to drive revenue among its segments and increase operating margins.

The global apparel company in Winston-Salem, NC, reported this week that total global sales in fiscal Q2 fell 5% compared to the same quarter in 2022, to $1.44 billion. That includes an $18 million shortfall due to unfavorable exchange rates.

Meanwhile, gross profit dropped nearly 16% to $483 million, and the quarter ended with a loss of $22 million, or -$0.06 per diluted share. Following the earnings report, shares of HanesBrands were down 7.6% in early Aug. 10 trading.

The company cites a number of factors for the decline in addition to exchange rates, including high commodity and ocean freight costs; high labor rates; and efforts to sell through higher-cost inventory. Positives for the quarter included lower costs for air freight compared to 2022 and internal cost-savings initiatives.

5%
The percentage year-over-year decline in Q2 revenue for HanesBrands.

U.S. Activewear sales – which includes T-shirt and sweatshirt basics sold by promo distributors and decorators – fell 19% to $267.5 million due to soft consumer demand and excess inventory, according to the company.

The company did see gains in its U.S. Innerwear segment and in its Champion brand in Asia.

HanesBrands also reported it had reduced total debt by almost $100 million in Q2 and plans to pay down over $400 million worth of debt this year. In addition, it reduced inventory by 12% ($255 million) and generated $88 million in cash flow from operations.

Since Q1 2023, the company has lowered its expectations for full-year 2023 revenue, mainly due to challenging conditions in the U.S. and Australian consumer markets. While expectations stood at between $6.05 billion and $6.2 billion for the year in Q1, they’re now between $5.8 billion to $5.9 billion, which includes an estimated $37 million shortfall due to unfavorable exchange rates. The midpoint of that range would represent a reported annual sales decline of about 6%.

HanesBrands launched its Full Potential initiative in 2021, with the aim of driving $1.2 billion in incremental revenue and achieving operating margins above 14% by 2024. Still, the supplier had a tough 2022, with a net loss for the year of $127.2 million, and reported a $34 million drop in Q1 of 2023.

“Looking at our Full Potential strategy, we’re progressing on or ahead of plan in several areas, while other areas are not delivering results in the timeline we anticipated,” said CEO Steve Bratspies. “We’re taking a number of actions, including additional cost-saving initiatives, to improve performance, as well as actively looking across the business at additional options to enhance shareholder value.”

The Wall Street Journal reported that the company is being pushed by an activist investor to make significant changes to address its stock price and financial performance. Barington Capital has previously called for changes at companies such as Avon Products and L Brands (which formerly owned Bath and Body Works and Victoria’s Secret).

“We believe that Hanesbrands currently sits at a critical juncture and must immediately focus on cash generation and debt reduction,” Barington Founder James Mitarotonda said in a letter that published earlier this week. “We believe that management’s largely ineffective response to recent market challenges is responsible for the company’s rapidly deteriorating results.”