HanesBrands (HBI) Boosts FY16 Outlook

HanesBrands (NYSE: HBI) announced that it has updated its 2016 financial guidance, including increased expectations for net sales, to reflect pending acquisitions and debt refinancing.

The company updated its financial guidance in conjunction with investor meetings and scheduled participation Wednesday, June 1, 2016, at the Citi 2016 Retail Seminar in New York City. Hanes Chief Operating Officer Gerald W. Evans Jr. and Chief Financial Officer Richard D. Moss are scheduled to attend the conference.

Hanes’ updated 2016 guidance reflects the expected contributions from the pending acquisitions of Champion Europe, expected to close in late June, and Pacific Brands Limited, which is expected to close in July.

Hanes now expects 2016 net sales of approximately $6.15 billion to $6.25 billion, up from the previous guidance range of $5.8 billion to $5.9 billion.

*** The Street sees FY16 sales of $5.84 billion.

On a GAAP basis, diluted EPS is expected in the range of $1.51 to $1.57, compared with previous guidance of $1.63 to $1.73 as a result of acquisition-related charges, and GAAP operating profit is expected to be in the range of $780 million to $815 million, compared with previous guidance of $835 million to $865 million as a result of acquisition-related charges.

On a non-GAAP basis adjusted to exclude acquisition-related actions, EPS is expected to be in the range of $1.89 to $1.95, up from previous guidance of $1.85 to $1.91, and operating profit is expected to be in the range of $940 million to $975 million, up from previous guidance of $920 million to $950 million.

*** The Street sees FY16 EPS of $1.90.

(See Note on Adjusted Measures and Reconciliation to GAAP Measures below for a description of non-GAAP adjusted operating profit and adjusted EPS and the reconciliation to the nearest comparable GAAP financial measures.)

“Our Sell More, Spend Less and Make Acquisitions strategy continues to create value,” Evans said. “The acquisitions of Champion Europe and Pacific Brands will make meaningful contributions to our ongoing success and growth, and we are looking forward to adding these operations and their strong management teams to our worldwide portfolio.”

On an annualized basis, Hanes expects the acquisitions of Champion Europe and Pacific Brands to contribute approximately $800 million in net sales and approximately $70 million in operating profit before synergies. The annualized interest expense to fund the acquisitions is expected to be $40 million. Due to the timing of the expected acquisition closings and the seasonality of the businesses, in 2016 Hanes expects to benefit from approximately one-third of annualized profitability while incurring approximately three-fourths of annualized interest expense.

In addition to expected post-closing acquisition contributions for the balance of the year, the guidance reflects debt refinancing and the tax-rate effect of the new FASB Accounting Standards Update related to accounting for stock compensation and excludes non-core Pacific Brands businesses that are expected to be divested and reported on a discontinued-operations basis. Guidance for adjusted operating profit and adjusted EPS accounts for an estimated $160 million of pretax charges related to debt refinancing and the acquisitions and integrations of Hanes Europe Innerwear, Knights Apparel, Champion Japan, Champion Europe and Pacific Brands.

Hanes continues to expect record net cash from operations of $750 million to $850 million, unchanged from prior guidance. The company expects capital expenditures of approximately $75 million, up from previous guidance of approximately $70 million.

Hanes expects interest expense and other expenses to be approximately $150 million combined, an increase from previous guidance of $115 million to $120 million, reflecting the financing of the Champion Europe and Pacific Brands acquisition, including approximately $6 million of prefunding expense in the second quarter. The 2016 full-year tax rate percentage is expected to be in the high single-digits, versus previous guidance of 10 percent to 11 percent.

Hanes has updated its frequently-asked-questions document, which is available at www.Hanes.com/faq.

Note on Adjusted Measures and Reconciliation to GAAP Measures

To supplement its financial guidance prepared in accordance with generally accepted accounting principles, Hanes provides guidance concerning certain non-GAAP financial measures historically provided to its investors, including adjusted operating profit and adjusted EPS. Adjusted EPS is defined as diluted EPS excluding actions. Adjusted operating profit is defined as operating profit excluding actions.

Hanes expects to incur approximately $160 million in pretax charges related to debt refinancing and the acquisitions and integrations of Hanes Europe Innerwear, Knights Apparel, Champion Japan, Champion Europe and Pacific Brands.

GAAP operating profit guidance of $780 million to $815 million and EPS guidance of $1.51 to $1.57 reflect the company’s expectations for net sales, operating profit, interest expense, and tax rate as detailed in this news release. Non-GAAP adjusted operating profit of $940 million to $975 million and adjusted EPS of $1.89 to $1.95 reflect the GAAP guidance adjusted by adding back the approximately $160 million of expected pretax charges for debt refinancing and acquisition and integration expenses to adjusted operating profit.

The company believes guidance for adjusted EPS and adjusted operating profit provides investors with an additional means of analyzing the company’s performance absent the effect of acquisition-related expenses and other actions. However, non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

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