Hanesbrands Inc. Reports Third-Quarter Results

October 28, 2009 4:18 PM EDT

WINSTON-SALEM, N.C.--(BUSINESS WIRE)-- Hanesbrands Inc. (NYSE: HBI), one of the world's largest apparel essentials companies, today reported results for the 2009 third quarter and announced expected net shelf-space gains for 2010.

The company increased earnings and profit margins in the third quarter and reduced debt. Third-quarter sales declined, in line with the company's stated expectations.

    --  Q3 EPS of $0.43, up 153 percent; EPS excluding actions of $0.63, up 21
        percent.
    --  Q3 sales of $1.06 billion, down 8 percent.
    --  Year-to-date debt reduction of $134 million.
    --  2010 incremental sales of approximately 5 percent expected from net
        shelf-space gains at retailers.

"Given that we are in the midst of a recession, we had very good profit growth in the quarter and solidified business momentum for 2010," Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. "We have built a platform for future growth through our continued brand investments and low-cost global supply chain. We are protecting margins, reducing debt and substantially ramping up our production capacity to support a strong 2010, in which we expect shelf-space and distribution gains to add approximately 5 percent to our sales."

Noteworthy Financial Highlights

Selected highlights for the quarter ended Oct. 3, 2009, compared with the year-ago quarter ended Sept. 27, 2008, include:

    --  Third-quarter sales were consistent with the company's previously
        announced expectations at $1.06 billion, compared with $1.15 billion a
        year ago. The company increased trade spending, especially for
        back-to-school programs, to support retailers and position the company
        for future growth opportunities.
        Sales for the Innerwear segment declined by 10 percent with weakness in
        intimate apparel and socks. Male underwear sales were comparable to last
        year. Outerwear segment sales decreased by 5 percent with sales strength
        to retailers, including increased Champion brand activewear sales,
        offset by lower sales to the wholesale channel.

        International segment sales decreased by 8 percent, and Hosiery segment
        sales declined by 12 percent.

        The company's sales planning assumption continues to be that
        consumer-spending levels remain constant through 2009.

    --  Operating profit was $93.3 million in the quarter, up from $58.2 million
        a year ago. Operating profit excluding actions increased by 9 percent to
        $111.1 million. The operating profit improvement resulted from
        cost-reduction initiatives and lower commodities.

        The third quarter's operating profit margin excluding actions was 10.5
        percent, compared with 8.9 percent in last year's third quarter.
    --  Diluted EPS increased to $0.43 from $0.17, while diluted EPS excluding
        actions increased by 21 percent to $0.63 from $0.52 a year ago.

        EPS benefited from higher operating profit and a lower effective income
        tax rate. The effective income tax rate was 14 percent in the quarter,
        down from a rate of 24 percent in last year's quarter. The company
        expects the tax rate for the year to be 16 percent, reflecting a higher
        mix of foreign profit due in part to domestic restructuring charges.
    --  Hanesbrands paid down debt by $177 million in the quarter. The company's
        debt is now $134 million lower than the beginning of the year, and the
        company's goal remains to end the year with debt that is $300 million
        lower than the start of the year. The company's strong cash flow is
        benefiting from reduced inventory.

        For 2010, Hanesbrands has the potential for robust cash flow, and its
        major priority is to pay down debt by another $300 million. The company
        also continues to consider refinancing its debt as the debt markets
        allow, possibly as early as the fourth quarter. Refinancing would
        provide even greater strategic flexibility in 2010 to reduce leverage
        and consider bolt-on acquisitions that could take advantage of the
        company's low-cost global supply chain.

        "We continue to invest in our business while reducing debt and expanding
        margins in a difficult economic environment," Hanesbrands Executive Vice
        President and Chief Financial Officer E. Lee Wyatt said. "We also
        continue to strategically manage our capital structure. The company has
        set a new long-term leverage ratio target of 2 to 3 times debt to
        EBITDA, and we have the potential to reach that range in 2011. This
        would radically change our leverage profile over the next two years."

(See Table 4 for details and reconciliation with reported operating results consistent with generally accepted accounting principles. Diluted EPS excluding actions, operating profit excluding actions, gross profit excluding actions, SG&A excluding actions, net income excluding actions, EBITDA or earnings before interest, taxes, depreciation and amortization, and the margins on sales of these measures are non-GAAP measures used to better assess underlying business performance because they exclude the effect of unusual actions that are not directly related to operations. The unusual actions in the current or year-ago periods were restructuring and related charges, nonrecurring spinoff-related and other expenses, other expenses, and the tax effect on these items.)

Other Comments

Continued investment in brand-building programs has solidified significant net shelf-space and distribution gains, starting primarily in early 2010. Program gains significantly outnumber program losses, and the company expects the net space gains to generate approximately 5 percent incremental sales growth in 2010. The growth expectation pertains only to the net space and distribution gains and is not dependent on a consumer spending rebound. In early 2010, Hanesbrands will provide its expectations for total 2010 net sales growth based on the space gains, point-of-sale trends for the holiday period, the outlook for the consumer climate in 2010, and other factors.

Hanesbrands is increasing its production capacity to meet 2010 growth expectations. In early October production began at the company's new Nanjing, China, fabric production plant, which will supply the company's Southeast Asia sewing facilities. The company is also substantially ramping up contract production as needed.

As a result of the continuing long-term trend of declining sheer hosiery consumption in the United States, the company announced this week that it expects to close a sheer hosiery manufacturing facility in Winston-Salem with 240 employees in 2010.

The company today closed on the previously announced sale of its yarn production plants to Parkdale America, LLC. Exiting yarn production and entering a supply agreement is expected to generate a $100 million balance sheet improvement within six months as a result of working capital improvement and sale proceeds.

"We are pleased with our profit and margin performance and our readiness to take advantage of opportunities in 2010," Noll said. "This year is playing out consistent with our expectations, and we have continued to invest during the recession. We will begin 2010 with momentum. We have retail shelf-space gains, a recapitalized global supply chain and opportunities for a very good year."

Webcast Conference Call

Hanesbrands will host a live Internet audio webcast of its quarterly investor conference call at 5 p.m. EDT today to review third-quarter results, fourth-quarter assumptions and 2010 space gains. The live Internet broadcast may be accessed on the home page of the Hanesbrands corporate Web site, www.hanesbrands.com. The call is expected to conclude by 6 p.m. EDT.

An archived replay of the conference call webcast will be available in the investors section of the Hanesbrands corporate Web site. A telephone playback will be available from approximately 7 p.m. EDT today until midnight EST on Nov. 4, 2009. The replay will be available by calling toll-free (800) 642-1687, or via toll call at (706) 645-9291. The replay pass code is 33254168.

Cautionary Statement Concerning Forward-Looking Statements

Statements in this press release that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including those regarding our long-term goals and trends associated with our business, expected reduction in debt, and the net retail space gains that have been secured for 2010 and the expected impact of the space gains. These forward-looking statements are made only as of the date of this press release and are based on our current intent, beliefs, plans and expectations. They involve risks and uncertainties that could cause actual future results, performance or developments to differ materially from those described in or implied by such forward-looking statements. These risks and uncertainties include the following: our ability to execute our consolidation and globalization strategy, including migrating our production and manufacturing operations to lower-cost locations around the world; our ability to successfully manage social, political, economic, legal and other conditions affecting our foreign operations and supply chain sources; current economic conditions; consumer spending levels; the risk of inflation or deflation; financial difficulties experienced by, or loss of or reduction in sales to, any of our top customers or groups of customers; gains and losses in the shelf space that our customers devote to our products; our debt and debt service requirements that restrict our operating and financial flexibility, and impose interest and financing costs; the financial ratios that our debt instruments require us to maintain; failure to protect against dramatic changes in the volatile market price of cotton; the impact of increases in prices of other materials used in our products and increases in other costs; our ability to effectively manage our inventory and reduce inventory reserves; retailer consolidation and other changes in the apparel essentials industry; the highly competitive and evolving nature of the industry in which we compete; our ability to keep pace with changing consumer preferences; costs and adverse publicity from violations of labor or environmental laws by us or our suppliers; and other risks identified from time to time in our most recent Securities and Exchange Commission reports, including the 2008 Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, registration statements, press releases and other communications. The company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Hanesbrands Inc.

Hanesbrands Inc. is a leading marketer of innerwear, outerwear and hosiery apparel under strong consumer brands, including Hanes, Champion, Playtex, Bali, JMS/Just My Size, barely there and Wonderbra. The company designs, manufactures, sources and sells T-shirts, bras, panties, men's underwear, children's underwear, socks, hosiery, casualwear and activewear. Hanesbrands has approximately 45,000 employees in more than 25 countries. More information may be found on the company's Web site at www.hanesbrands.com.

TABLE 1

HANESBRANDS INC.

Condensed Consolidated Statements of Income

(Amounts in thousands, except per-share amounts)

(Unaudited)

                Quarter Ended                           Nine Months Ended

                October 3,     September 27,            October 3,     September 27,
                                              %         2009                          %
                2009           2008           Change                   2008           Change

Net sales:

Innerwear       $ 585,327      $ 650,372                $ 1,710,920    $ 1,830,437

Outerwear         329,721        348,467                  776,282        880,809

Hosiery           43,944         50,197                   139,300        166,672

International     107,399        116,581                  294,674        352,120

Other             3,745          4,769                    12,022         20,064

Total segment     1,070,136      1,170,386                2,933,198      3,250,102
net sales

Less:             11,463         16,751                   30,662         36,449
Intersegment

Total net         1,058,673      1,153,635    -8.2   %    2,902,536      3,213,653    -9.7   %
sales

Cost of sales     701,993        811,851                  1,960,589      2,145,949

Gross profit      356,680        341,784      4.4    %    941,947        1,067,704    -11.8  %

As a % of net     33.7      %    29.6      %              32.5      %    33.2      %
sales

Selling,
general and

administrative    248,267        255,228                  702,204        776,267
expenses

As a % of net     23.5      %    22.1      %              24.2      %    24.2      %
sales

Restructuring     15,104         28,355                   46,319         32,355

Operating         93,309         58,201       60.3   %    193,424        259,082      -25.3  %
profit

As a % of net     8.8       %    5.0       %              6.7       %    8.1       %
sales

Other expenses    2,423          -                        6,537          -

Interest          42,941         37,253                   124,548        115,282
expense, net

Income before
income                           20,948
                  47,945                                  62,339         143,800
tax expense

Income tax        6,807          5,028                    9,974          34,512
expense

Net income      $ 41,138       $ 15,920       158.4  %  $ 52,365       $ 109,288      -52.1  %

Earnings per
share:

Basic           $ 0.43         $ 0.17                   $ 0.55         $ 1.16

Diluted         $ 0.43         $ 0.17         152.9  %  $ 0.55         $ 1.14         -51.8  %

Weighted
average shares

outstanding:

Basic             95,247         93,992                   94,880         94,283

Diluted           96,422         95,018                   95,469         95,483

TABLE 2

HANESBRANDS INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

                                            October 3, 2009    January 3, 2009

Assets

Cash and cash equivalents                    $ 38,617          $ 67,342

Trade accounts receivable, net                 538,540           404,930

Inventories                                    1,137,077         1,290,530

Other current assets                           324,352           347,523

 Total current assets                          2,038,586         2,110,325

Property, net                                  612,911           588,189

Intangible assets and goodwill                 460,893           469,445

Other noncurrent assets                        379,523           366,090

 Total assets                                $ 3,491,913       $ 3,534,049

Liabilities

Accounts payable and accrued liabilities     $ 612,423         $ 640,910

Notes payable                                  62,158            61,734

Accounts receivable securitization             249,043           45,640
facility

 Total current liabilities                     923,624           748,284

Long-term debt                                 1,793,680         2,130,907

Other noncurrent liabilities                   481,425           469,703

 Total liabilities                             3,198,729         3,348,894

Equity                                         293,184           185,155

 Total liabilities and equity                $ 3,491,913       $ 3,534,049

TABLE 3

HANESBRANDS INC.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

                                             Nine Months Ended

                                             October 3, 2009  September 27, 2008

Operating Activities:

Net income                                 $ 52,365           $ 109,288

Depreciation and amortization              66,769             77,613

Other noncash items                        40,681             15,655

Changes in assets and liabilities, net         50,992         (221,177     )

Net cash provided by (used in) operating       210,807        (18,621      )
activities

Investing Activities:

Purchases of property and equipment, net,      (83,885   )    (109,644     )
and other

Financing Activities:

Net borrowings on notes payable, debt,
stock repurchases and                          (155,935  )    40,776
other

Effect of changes in foreign currency          288            (535         )
exchange rates on cash

Decrease in cash and cash equivalents          (28,725   )    (88,024      )

Cash and cash equivalents at beginning of      67,342         174,236
year

Cash and cash equivalents at end of          $ 38,617         $ 86,212
period

TABLE 4

HANESBRANDS INC.

Supplemental Financial Information

(Amounts in thousands, except per-share amounts)

(Unaudited)

Reconciliation of Reported Operating Results with

Certain Information Excluding Actions

                          Quarter Ended               Nine Months Ended

A. Excluding actions      October 3,   September 27,  October 3,   September 27,
data                                                  2009
                          2009         2008                        2008

Gross profit              $ 357,067    $ 359,822      $ 947,855    $ 1,092,933

SG&A                      $ 245,927    $ 257,715      $ 699,149    $ 777,533

Operating profit          $ 111,140    $ 102,107      $ 248,706    $ 315,400

Net income                $ 60,645     $ 49,289       $ 104,293    $ 152,090

Earnings per diluted      $ 0.63       $ 0.52         $ 1.09       $ 1.59
share

Weighted average diluted    96,422       95,018         95,469       95,483
shares outstanding

As a % of net sales

Gross profit                33.7    %    31.2    %      32.7    %    34.0      %

SG&A                        23.2    %    22.3    %      24.1    %    24.2      %

Operating profit            10.5    %    8.9     %      8.6     %    9.8       %

Net income                  5.7     %    4.3     %      3.6     %    4.7       %

B. Operating results
excluding actions

Gross profit as reported  $ 356,680    $ 341,784      $ 941,947    $ 1,067,704

Accelerated depreciation
included in Cost of         118          4,011          2,392        11,202
sales

Inventory write-off
included in Cost of         269          14,027         3,516        14,027
sales

Gross profit excluding    $ 357,067    $ 359,822      $ 947,855    $ 1,092,933
actions

SG&A as reported          $ 248,267    $ 255,228      $ 702,204    $ 776,267

Spinoff-related and
other expenses included     (2,157  )    -              (2,517  )    -
in SG&A

Accelerated depreciation    (183    )    2,487          (538    )    1,266
included in SG&A

SG&A excluding actions    $ 245,927    $ 257,715      $ 699,149    $ 777,533

Operating profit as       $ 93,309     $ 58,201       $ 193,424    $ 259,082
reported

Gross profit actions        387          18,038         5,908        25,229

SG&A actions                2,340        (2,487  )      3,055        (1,266    )

Restructuring               15,104       28,355         46,319       32,355

Operating profit          $ 111,140    $ 102,107      $ 248,706    $ 315,400
excluding actions

C. Net income excluding
actions

Net income as reported    $ 41,138     $ 15,920       $ 52,365     $ 109,288

Gross profit actions        387          18,038         5,908        25,229

SG&A actions                2,340        (2,487  )      3,055        (1,266    )

Restructuring               15,104       28,355         46,319       32,355

Other expenses              2,423        -              6,537        -

Tax effect on actions       (747    )    (10,537 )      (9,891  )    (13,516   )

Net income excluding      $ 60,645     $ 49,289       $ 104,293    $ 152,090
actions

D. EBITDA

Net income                $ 41,138     $ 15,920       $ 52,365     $ 109,288

Interest expense, net       42,941       37,253         124,548      115,282

Income tax expense          6,807        5,028          9,974        34,512

Depreciation and            21,140       22,653         66,769       77,613
amortization

Total EBITDA              $ 112,026    $ 80,854       $ 253,656    $ 336,695

    Source: Hanesbrands Inc.

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