New Economic Realities   //   June 11, 2024

What Champion’s future looks like under Authentic Brands Group

Champion is hoping to turn its business around under new owner Authentic Brands Group. But the athletic-wear brand may have a fraught path to victory.

Last week, HanesBrands announced it would sell Champion to Authentic for $1.2 billion, with the possibility of an extra $300 million of performance-related payouts. The news came nine months after HanesBrands embarked on a review of Champion while looking to reduce its costs.

Despite its name, Champion had long been a drag on HanesBrands’ earnings. As of May, Champion’s quarterly sales were down 26% year over year globally. Its U.S. sales, meanwhile, were down 35% year over year. As of March 30, HanesBrands had $3.237 billion in long-term debt.

Financially, it was time for HanesBrands to shed the dead weight of Champion, analysts told Modern Retail. “That’s always going to be helpful for a company that is struggling,” Jessica Ramírez, senior research analyst at Jane Hali & Associates, said.

Without Champion, HanesBrands can trim its losses, or, as HanesBrands’ CEO said last week, “ensure [it has] the right operating structure in place.” However, it’s now on Authentic to turn Champion around and position it for growth. That could be difficult considering the tough competition in the athletic apparel space.

Champion, which began in 1919, was once one of the biggest sportswear names around. Initially founded as Knickerbocker Knitting Mills, Champion claims to have invented the hoodie sweatshirt and the sports bra. It was particularly popular among hip-hop artists in the 1990s and has rolled out collaborations with the likes of the Beastie Boys and Supreme, Business Insider reported. Food company Sara Lee acquired Champion in 1989, then spun it off as part of HanesBrands in 2006.

In recent years, though, Champion’s sales started to stumble. It began to lose market share as companies like Nike, Adidas and Lululemon grew. And in 2018, it discontinued its popular line with Target, C9. At the time, HanesBrand said its profit the previous quarter fell 18% year over year due to mounting costs and expenses. A Target spokesperson told CNN that discontinuing the C9 line was part of a “multi-year, broad strategy” to overhaul the exclusive brands it sold in stores.

Over the next few years, demand for HanesBrands fell and wholesalers cut orders. The company racked up debt, and in February 2023, it directed its entire free cash flow toward paying it down. Last year, HanesBrands laid out a performance plan for the ill-performing Champion that involved “$59 million of inventory write-downs” and “$29 million of charges related to professional fees, supply chain segmentation, store closures, severance and other costs.”

Selling Champion frees HanesBrands from having to make that investment — but it also frees up the company from a merchandise point of view. The two companies have different offerings; Champion largely sells running shorts, leggings and joggers, while HanesBrands mostly sells undershirts, underwear and other intimates. In a statement, HanesBrands’ CEO acknowledged that after selling Champion, HanesBrands can now be in “an even stronger position” to focus on innerwear.

HanesBrands’ other properties include Hanes, Wonderbra, Playtex, Bali and Maidenform. “Something like Champion [is] not necessarily Hanes’s bread and butter,” Tom Nikic, svp of equity research at Wedbush Securities, told Modern Retail. “What we’re seeing is Champion move from a company that has one set of core competencies to a company that has a completely different set of core competencies.”

Champion’s new owner Authentic is likely a better fit for the company than HanesBrands is, Nikic said. Authentic’s portfolio, for instance, includes other athletic-adjacent brands like Billabong and Quiksilver. What’s more, he said, “Authentic Brands Group is very good at taking a brand that has name recognition and finding ways to optimize distribution and find licensing arrangements.” Authentic, for example, licenses out properties such as Sports Illustrated and Elvis Presley.

Authentic is no stranger to acquisitions. In January, it bought the boat shoe brand Sperry from Wolverine, and in April 2023, it acquired Boardriders, a sports lifestyle company. In June 2023, it nabbed intellectual property rights for the boot brand Hunter.

Authentic oversees more than 40 properties today, but Ramírez is skeptical that Authentic is the best home for Champion. Many of Authentic’s biggest names — Aéropostale, Forever 21, Lucky Brand and Roxy, among them — are brands that were popular in the 1990s or early 2000s, she pointed out. “Authentic Brands owns a lot of brands, but they’re not relevant brands in today’s market,” she said.

Authentic was last valued at $20 billion in June 2023, per Bloomberg. At the time, the company raised $500 million from the growth-equity investor General Atlantic. Two years before — in July 2021 — Authentic filed plans to go public in what would be a $1.5 billion IPO. It scrapped the plans four months later but now is mulling going public again by mid-2025, Axios reported in January.

Still, there are challenges ahead for Authentic. The company is taking over Champion at a time of steep competition in the athletic apparel space. Athleisure brand Vuori is launching more products than ever before, its founder told Modern Retail earlier this year. Lululemon’s first-quarter revenue was up 10% to total $2.2 billion. Hoka is using its new flagship store in New York as a clothing testing ground. And Alo brought in more than $1 billion in sales in 2022, per the Wall Street Journal.

“It’s a competitive environment, and there are brands out there that are much stronger than Champion is,” Ramírez said.