Hanesbrands Inc.
(336) 519-8080
news
release
FOR IMMEDIATE RELEASE
News
Media, contact:
Matt Hall, (336) 519-3386
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HANESBRANDS
REPORTS FISCAL 2010 RESULTS AND FISCAL 2011 GUIDANCE
2010 Net Sales Increased by 11%
to $4.3 Billion, Fueled by Accelerated Growth Rates in Each Consecutive Quarter;
2010 Earnings Per Share Were $2.16
For 2011, Hanes Discusses
Guidance for Continued Double-Digit Sales Growth
Hanes’ net sales for the
year increased by 11.2 percent to $4.33 billion, driven by significant share
gains and consecutive quarterly sales growth rates of 8 percent, 9 percent, 11
percent and 16 percent, respectively.
Earnings per share were $2.16, compared with $0.54 last year, and
exceeded the company’s previous guidance of $2.07 to $2.12 as a result of lower-than-expected
expenses related to debt refinancing.
For 2011, Hanes expects continued double-digit growth with projected net sales of approximately $4.85 billion to $5.0 billion and EPS of approximately $2.60 to $2.80.
“We had a great year in which we significantly exceeded our initial sales expectations by generating double-digit growth and gaining significant market share,” Hanes’ Chairman and Chief Executive Officer Richard A. Noll said. “Our growth platform is working and we are focused on continued share gains. With our strong brands and global supply chain, we are in good position to address the challenges of inflation with our retail partners and continue increasing sales and market share.”
2010 Financial Highlights and Business Segment Summary
Fourth-quarter 2010 EPS of $0.29 reflects a reduction of $0.14 for expenses related to debt refinancing. The company had previously estimated that debt-refinancing expenses would reduce EPS by $0.20 in the quarter. As expected, the quarter’s EPS was also impacted by higher cotton costs and higher expenses to service sales growth.
Last year’s fourth-quarter EPS was a loss of $(0.01), including the impact of $0.57 for debt refinancing and restructuring and related costs. Excluding these expenses, the company would have earned $0.56 in last year’s fourth quarter.
Sales growth for the year and fourth quarter were driven by significant market-share gains, positive retail sell-through of the company’s products, and retail inventory restocking. Net shelf-space and distribution gains contributed 5 percentage points of growth in the fourth quarter and 6 percentage points for the year. The Gear For Sports acquisition, completed Nov. 1, 2010, added 4 percentage points of sales growth in the fourth quarter.
“Our sales growth in 2010 was broad-based with increases in
nearly every country and in every category except sheer hosiery,” Noll said.
“Sales increased with nine of our top 10
Key business segment highlights include:
· Innerwear segment sales increased 12 percent in the fourth quarter and 10 percent for the year. Male underwear full-year sales were up 19 percent, in part on the strength of product innovation such as Hanes Lay Flat Collar T-shirts and Hanes Comfortsoft waistband briefs and boxers. Innerwear operating profit decreased 10 percent in the fourth quarter, reduced by input-cost inflation and service expenses, and increased 12 percent for the full year.
· Outerwear segment sales increased 31 percent in the fourth quarter and 20 percent for the year with across-the-board strength in retail activewear (Champion), retail casualwear (Just My Size) and wholesale casualwear (Hanes). The segment’s operating profit was down slightly in the fourth quarter and increased 46 percent for the year.
· International segment sales increased 21 percent in the quarter and 16 percent for the year, and operating profit increased by approximately 33 percent in both time periods. Excluding foreign currency exchange rates, international sales increased 18 percent in the quarter and 11 percent for the year.
2011 Guidance and Macro
Trend Discussion
Following strong performance in 2010, Hanes expects continued double-digit growth in 2011 with projected net sales of approximately $4.85 billion to $5.0 billion, compared with $4.33 billion in 2010, and EPS of approximately $2.60 to $2.80, compared with $2.16 in 2010.
“We have visibility to macro trends from the consumer all the way back through the supply chain to cotton, and 2011 looks to be unfolding as we expected,” Noll said. “We believe this visibility coupled with our brand strength gives us a competitive advantage to manage our business in this inflationary environment.”
The company expects high single-digit net sales growth in the first quarter and double-digit growth thereafter. The primary contributors to sales growth are expected to be price increases partially offset by demand elasticity, the Gear For Sports acquisition (≈5 points of growth), and net shelf-space and consumer spending increases (≈1 to 2 points each).
The company expects to take price increases throughout 2011 as warranted by cost inflation, including multiple increases already put in place through late summer. The timing and frequency of price increases will vary by product category, channel of trade, and country, with some increases as frequently as quarterly. The magnitude of price increases also will vary – from flat to low-single digits up to 30 percent or more for cotton-intensive categories. Demand elasticity effects, which could be significant for higher double-digit price increases implemented later in the year, are manageable and will have a muted impact in 2011.
For profitability, the cadence of growth will vary by quarter. In the first quarter, both operating profit and EPS are expected to decrease slightly with higher input costs only being partially offset due to the timing of mid-quarter price increases. In the second quarter, operating profit is expected to increase by double-digits while EPS may decrease slightly due to a very low income tax rate in last year’s second quarter.
For the first three quarters, Hanes knows the majority of its costs, with cotton fixed through October. Current earnings expectations assume: fourth-quarter costs at existing market levels with product pricing adjusted accordingly; efficiency savings from supply chain optimization and the expected nonrecurrence of added 2010 costs to service strong growth; continued investment in trade and media spending consistent with the company’s historical rate; stable interest expense; and a higher full-year tax rate that could range from a percentage in the teens to the low 20s.
Given input inflation and higher product pricing, Hanes expects increased working capital needs, in particular for higher accounts receivables and inventories somewhat offset by increased inventory turns. A preliminary projection of free cash flow in 2011 is in the range of $100 million to $200 million but will depend on the effects of fourth-quarter costs and pricing on inventories and receivables, respectively. As is typical for Hanes, the company uses cash for the first two quarters and generates most of its cash late in the year.
For debt leverage, if the company achieves the midpoint of its EPS expectations, Hanes’ 2011 year-ending leverage ratio would be between 3.0 to 3.5 times EBITDA. Subsequent to the company’s debt refinancing in the fourth quarter, Moody’s Investor Services upgraded the company’s senior secured revolving credit facility to investment grade Baa3.
Note on Proprietary
Information
Because Hanes believes
that it has a competitive advantage in managing its business during an
inflationary environment as a result of both its supply chain visibility and
its extensive knowledge of consumer purchasing behavior, the company intends to
treat certain data as proprietary information until actual results are
reported. The company will refrain from disclosing cotton purchasing practices,
forward-looking cotton-cost positions, the specific timing and magnitude of
price increases, the effect of pricing on margins, and the expected elasticity effects
of price increases on unit demand.
Note on Non-GAAP Terms and Definitions
Free cash flow, EBITDA and debt-to-EBITDA leverage ratio are not generally accepted accounting principle measures. Free cash flow is defined as net cash provided by operating activities less net capital expenditures. EBITDA is earnings before interest, taxes, depreciation and amortization. The debt-to-EBITDA ratio is calculated by dividing total debt by EBITDA. Hanes has chosen to provide these measures to investors to enable additional analyses of past, present and future operating performance and as a supplemental means of evaluating Hanes’ operations. This non-GAAP information should not be considered a substitute for financial information presented in accordance with GAAP and may be different from non-GAAP or other pro forma measures used by other companies. See Table 2 for more EBITDA information.
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. Examples of such statements include the
statements that follow the heading “2011 Guidance and Macro Trend Discussion”
above. These and other 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 domestic
and 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; our ability to optimize our global
supply chain; consumer spending levels and the price elasticity of our products;
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
HanesBrands (NYSE:HBI) is a leading marketer of everyday
basic apparel under some of the world’s strongest apparel brands, including Hanes, Champion, Playtex, Bali, JMS/Just My Size, barely
there, Wonderbra and Gear For Sports. 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. Hanes has more than 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 environmental, social compliance and community improvement
achievements, may be found on the Hanes corporate website at www.hanesbrands.com. Hanes is a U.S.
Environmental Protection Agency 2010 Energy Star Partner of the Year and ranks
No. 91 on Newsweek magazine’s list of Top 500 greenest
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