Basic apparel and activewear manufacturer Hanesbrands (NYSE:HBI) didn't disappoint when it reported its fourth-quarter results Thursday morning. Strong organic sales growth, driven by its Champion brand of activewear and its international business, led to margin improvements and earnings growth, excluding the effects of a higher tax rate. Hanesbrands easily beat analyst estimates for both revenue and earnings, and its revenue guidance was ahead of expectations.

A successful holiday quarter

Here are the key metrics that sum up Hanesbrands' fourth quarter:

Metric

Q4 2018

Q4 2017

Change (YOY)

Revenue

$1.77 billion

$1.65 billion

7.5%

U.S. innerwear segment sales

$594.2 million

$594.6 million

(0.1%)

U.S. activewear segment sales

$485.4 million

$427.7 million

13.5%

International segment sales

$608.9 million

$545.3 million

11.7%

Gross margin

39.9%

38.1%

1.8 percentage points

Operating margin

13.9%

7.6%

6.3 percentage points

Non-GAAP earnings per share

$0.48

$0.52

(9.6%)

Data source: Hanesbrands. YOY = year over year.

Hanesbrands' constant-currency organic sales rose 6% during the fourth quarter, marking the sixth consecutive quarter of organic sales growth. The Champion brand was the star of the show: Global Champion revenue at constant currency, and excluding the mass channel, soared more than 50% year over year. Outside of the mass channel, Champion generated $1.36 billion of revenue in 2018, up from about $1 billion in 2017.

The international business also posted strong growth, despite currency exchange rates hurting the numbers. At constant currency, international sales rose 16%, driven by the Champion brand in Europe and Asia, as well as innerwear sales growth in Australia, Asia, and the Americas.

The domestic innerwear business was essentially flat, with 2% growth in basics offset by a 7% decline in intimates. The intimates business is more dependent on mid-tier retailers and department stores, and store closings are weighing on the business.

Hanesbrands managed to boost both its gross margin and its operating margin in the fourth quarter thanks to strong sales growth and improving profitability in the international business. International segment operating income soared 27.7% year over year.

Non-GAAP earnings per share declined in the fourth quarter, but a higher tax rate was the sole reason. If the tax rate for the fourth quarter of 2017 were applied to the fourth quarter of 2018, non-GAAP earnings per share would have increased by 12% year over year.

The Hanes logo.

Image source: Hanesbrands.

Solid guidance

On top of beating analyst estimates for the fourth quarter, Hanesbrands provided revenue guidance for the first quarter of 2019 and for the full year that came in ahead of expectations:

Metric

Guidance

Average Analyst Estimate

First-quarter revenue

$1.52 billion to $1.55 billion

$1.48 billion

First-quarter non-GAAP EPS

$0.24 to $0.26

$0.28

2019 revenue

$6.885 billion to $6.985 billion

$6.79 billion

2019 non-GAAP EPS

$1.72 to $1.80

$1.80

Data source: Hanesbrands and Yahoo! Finance.

Hanesbrands' guidance accounts for a cautious outlook for the U.S. brick-and-mortar retail market and the expectations of additional store closings. The U.S. innerwear business is expected to continue to make progress, while currency will continue to have a negative effect. Hanesbrands also expects to boost its marketing spending to support its brands, which will weigh on the bottom line.

For the full year, U.S. innerwear sales are expected to decline by about 2%. Planned price increases in the first quarter are expected to help improve trends throughout the year. Full-year U.S. activewear are expected to grow by about 2.5%, driven by double-digit growth of Champion outside of the mass channel, and offset by a low-teens percentage decline in Champion sales within the mass channel. The international business is expected to grow by 6% in 2019.

Hanesbrands' earnings guidance was a little short of expectations, but its revenue guidance provides some evidence that the company's recent streak of organic growth won't end in 2019. With shares now trading for just 10 times earnings guidance, the stock could continue to soar this year if the company can keep up the momentum.

Timothy Green owns shares of Hanesbrands. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.