Hanesbrands Inc.
(336) 519-8080
news
release
FOR IMMEDIATE RELEASE
News
Media, contact:
Matt
Hall, (336) 519-3386
Analysts
and Investors, contact:
HANESBRANDS
INC. REPORTS SECOND-QUARTER 2010 RESULTS
Second-Quarter Net Sales
Increased by 9.1% and Earnings Per Share More Than Doubled
Company Raises 2010 Net Sales
and EPS Guidance
An income tax rate adjustment
in the quarter increased EPS by $0.20 compared with last year’s quarter. Excluding the tax rate adjustment, EPS of
$0.67 in the quarter increased by $0.35, driven by higher sales, improved
operating profit margin, and year-ago restructuring, which added $0.32 combined.
Net sales increased by $90 million to $1.08 billion with double-digit increases for the company’s three largest business segments – Innerwear, Outerwear and International.
Based on performance in
the first two quarters, Hanesbrands is raising its 2010 guidance. Full-year net sales growth is expected to be 8
percent to 10 percent, up from the previous guidance of 6 percent to 8 percent
issued after first-quarter results. EPS is
expected to be in the range of $2.25 to $2.35, up from previous guidance of $2.15
to $2.27.
“We continued our strong start in 2010,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “Our brands are performing well with consumers, helping drive share gains in core categories and delivering strong productivity for the new sales programs we secured for this year.”
Business Segment Summary and Highlights
The company secured numerous new sales programs that resulted in significant shelf-space gains for 2010. These programs contributed approximately 6 percentage points of the quarter’s 9.1 percent sales growth. Increased retail sell through, retailer inventory restocking, and foreign currency exchange rates drove approximately 3 percentage points of growth.
Double-digit sales increases in the Innerwear, Outerwear and International segments combined for $103 million in sales growth, partially offset by a combined $14 million decrease in the Hosiery and Other segments. Direct to Consumer sales were up slightly.
The company’s operating profit margin improved to 11.4 percent of sales in the quarter, up from 8.5 percent a year ago. The Innerwear, Outerwear and International segments generated $21 million of increased operating profit in the quarter, partially offset by lower operating profit in the Hosiery and Direct to Consumer segments. Restructuring and related actions reduced operating profit in last year’s quarter by $13 million.
Key business segment highlights include:
·
The 10
percent increase in Innerwear sales was driven by increases in all product
categories except women’s panties. Men’s
underwear recorded its second consecutive quarter of double-digit sales growth
with strong share gains, while socks delivered mid-single-digit growth. The segment had operating profit growth even
with increased investment in media and marketing in the quarter.
During the quarter, the Hanes
brand launched television advertising featuring Michael Jordan for new men’s
underwear products, and Playtex began airing a new television ad for 18 Hour
bras. Additionally, the Barely There and Hanes brands launched new Smart Size bras featuring proprietary
shape-to-fit technology in mass merchants and department stores.
·
Across-the-board
growth in the Outerwear segment, led by the Just
My Size, Champion and Hanes brands, resulted in a 16 percent sales
increase for the quarter and a doubling of operating profit over weak levels
last year. Retail casualwear sales more
than doubled, fueled by growth of the company’s Just My Size brand of plus-size apparel, while retail activewear
and wholesale casualwear had mid-single-digit sales gains.
·
International segment sales increased by 14
percent, with double-digit gains in all countries, except low single-digit
growth in
Guidance
Hanesbrands has raised its 2010 net sales guidance to 8 percent to 10 percent growth, up from 6 percent to 8 percent. The company raised guidance as a result of additional new sales programs for the second half of the year, higher than expected productivity of new programs from previously announced shelf-space gains, and expectations of a continued overall increase in consumer spending and retailer inventory restocking.
Based on expected sales growth and operating margin expansion, Hanesbrands has raised its 2010 EPS guidance to $2.25 to $2.35, up from the previous guidance of $2.15 to $2.27.
Operating margin improvement for the year is expected to be at the high end of the company’s previously stated goal of 50 to 100 basis points. This improvement includes the negative impact of an approximate $25 million to $30 million in expected incremental short-term costs to secure product, service customers and maximize potential sales growth in 2010. Interest expense for the year is expected to be approximately $150 million to $153 million, and the full-year tax rate, including the second-quarter adjustment, is expected to be approximately 14 percent to 15 percent, up from the 2009 rate of 12 percent.
Inventories at the end of the quarter were $1.3 billion, up $61 million, or 5 percent, from the end of last year’s second quarter. Year-end inventories are expected to increase by up to $100 million over last year, an increase of approximately 9 to 10 percent, which is in line with expected 2010 sales growth. Strong profit growth partially offset by working capital investment is expected to yield free cash flow of $200 million to $250 million in 2010. Based on the 2010 performance guidance, the company’s debt-to-EBITDA leverage ratio could fall to less than 3.5 times assuming free cash flow were used entirely to pay down debt to the $1.65 billion to $1.7 billion level. Hanesbrands’ EBITDA leverage ratio was 4.6 times at the end of 2009.
Because of systemic cost inflation, particularly for cotton, energy and labor, Hanesbrands is working with its customers to offset 2011 cost increases through joint efficiency initiatives as well as price increases. The timing and size of price increases will vary by product category. While some price increases will take effect in the third and fourth quarters of 2010, the majority of the pricing impact will begin in 2011.
Certain Financial Measures
Earnings before interest, taxes, depreciation and amortization is a non-GAAP financial measure. The debt-to-EBITDA leverage ratio is calculated by dividing total debt by EBITDA. Hanesbrands has chosen to provide the EBITDA measure to investors to enable additional analyses of past, present and future operating performance and as a supplemental means of evaluating Hanesbrands’ operations. This non-GAAP information should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles and may be different from non-GAAP or other pro forma measures used by other companies. See Table 2 for reconciliation.
Webcast Conference Call
Hanesbrands will host a live Internet webcast of its quarterly investor conference call at 4:30 p.m. EDT today. The broadcast may be accessed on the home page of the Hanesbrands corporate website, www.hanesbrands.com. The call is expected to conclude by 5:30 p.m.
An archived replay of the conference call webcast will be available in the investors section of the Hanesbrands website. A telephone playback will be available from approximately 7 p.m. EDT today through midnight July 28, 2010. The replay will be available by calling toll-free (800) 642-1687, or by toll call at (706) 645-9291. The replay pass code is 83956551.
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. 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 successfully
manage social, political, economic, legal and other conditions affecting our
foreign operations and supply-chain sources; the impact of natural disasters;
the impact of dramatic changes in the volatile market price of cotton and
increases in prices of other materials used in our products; the impact of increases
in prices of oil-related materials and other costs such as energy and utility
costs; our ability to effectively manage our inventory and reduce inventory
reserves; our ability to continue to effectively distribute our products
through our distribution network as we continue to consolidate our distribution
network; our ability to optimize our global supply chain; 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; the highly competitive and evolving nature of the
industry in which we compete; our ability to keep pace with changing consumer
preferences; 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; future
financial performance, including availability, terms and deployment of capital;
our ability to comply with environmental and occupational health and safety
laws and regulations; 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 our 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. Except as required by law, 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 everyday apparel essentials under some of the
world’s strongest apparel brands, including Hanes, Champion, Playtex, Bali,
JMS/Just My Size, barely there and Wonderbra. The company sells T-shirts, bras, panties,
men’s underwear, children’s underwear, socks, hosiery, casualwear and
activewear produced in the company’s low-cost global supply chain. Hanesbrands has approximately 50,000
employees in more than 25 countries and takes pride in its strong reputation
for ethical business practices. More
information about the company and its corporate social responsibility
initiatives, including the company’s 2010 U.S. Environmental Protection Agency
Energy Star Partner of the Year Award, may be found on the Hanesbrands Internet
website at www.hanesbrands.com.
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