Hanesbrands Inc. (NYSE: HBI), one of the world’s largest apparel essentials companies, yesterday reported results for the fourth-quarter and full-year 2009, a year in which the company managed through the recession and created strong momentum for growth in 2010.
“We are fully focused on leveraging the growth platform that we have built. With our strong brands and our low-cost global supply chain, we are in a great position to expand market share in all of our key geographies.”
The company reaffirmed that it expects sales growth of approximately 5 percent in 2010, led by significant shelf-space and distribution gains, and expects free cash flow generation of $300 million or more.
In the 2009 fourth quarter, Hanesbrands’ net sales run rate was consistent with the company’s stated expectations, and the company generated strong free cash flow. Also in the quarter, the company refinanced its capital structure to provide better flexibility for growth.
Key fourth-quarter and full-year 2009 performance measures include:
Q4 EPS loss of $(0.01) but Q4 non-GAAP EPS excluding actions up 12 percent to $0.56.
Q4 net sales of $988.7 million up 1 percent after adjusting for the company’s 53rd week last year.
- Full-year free cash flow generation of $326 million, with proceeds used to reduce debt by $284 million and fund $75 million in cash fees and costs associated with debt refinancing during the year.
“We successfully navigated the recession of 2009 and emerged with momentum for growth in 2010,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “We are fully focused on leveraging the growth platform that we have built. With our strong brands and our low-cost global supply chain, we are in a great position to expand market share in all of our key geographies.”
2009 Noteworthy Financial Highlights
Selected highlights for the full year and quarter ended Jan. 2, 2010, compared with the year-ago periods ended Jan. 3, 2009, include:
Excluding last year’s 53rd week, net sales were $988.7 million in the fourth quarter, up 1 percent, and were $3.9 billion for the full year, down 7 percent.
Fourth-quarter sales for the company’s largest segment, Innerwear, increased by 5 percent, excluding last year’s extra week, with strong shipments for male underwear.
Operating profit was $270.9 million in 2009, down from $317.5 million a year ago. Excluding actions, the operating profit margin for the year was 8.8 percent, compared with 9.7 percent a year ago.
The company opportunistically invested an incremental $17 million in trade spending, media and other items in the fourth quarter to support its 2010 space gains.
“We took advantage of investment opportunities to support the strong growth prospects we have for 2010,” Noll said. “With these investments, our full-year operating profit margin slipped below 9 percent.”
The company believes its ongoing operating profit margin improvement goal of 50 to 100 basis points annually is reasonable for 2010, even with the current commodity cost levels.
- Diluted earnings per share for the year were $0.54 compared with $1.34 a year ago, and diluted EPS for the fourth quarter decreased to a loss of $(0.01) from earnings of $0.19.
The effective income tax rate decreased to 12 percent for the full year, reflecting a higher mix of foreign profit due in part to domestic restructuring charges and debt refinancing costs.
In 2010, the company expects interest expense to decrease by $20 million to $25 million due to deleveraging.
“We have potential for significant earnings growth in 2010,” Noll said. “When you combine the benefits of expected sales growth, operating margin improvement, and lower interest expense, we could see EPS growth of at least 25 percent and possibly up to 35 percent or more in 2010. To reach the higher levels of growth, we may need a slight increase in overall consumer-spending levels, potential price increases to offset any systemic inflation, or additional effective use of free cash flow.”
- In 2009, the company generated $326 million in free cash flow. The company used $53 million in cash in the fourth quarter to complete its debt refinancing that created a growth-focused capital structure. For the year, the company reduced debt by $284 million and reduced its year-end inventory by $241 million, beating its inventory-reduction goal of $150 million.
Hanesbrands’ new strategic capital structure enables the company to simultaneously reduce leverage and consider acquisition opportunities. In addition to giving the company much more flexibility in its use of cash flow, the refinancing provides a stable long-term capital structure with extended debt maturities and comparable rates.
“We are in a good position for 2010 with our capital structure solidly aligned with our efforts to drive growth by taking advantage of our strong brands and our low-cost global supply chain,” Hanesbrands Executive Vice President and Chief Financial Officer E. Lee Wyatt said.
(Free cash flow is defined as net cash provided by operating activities, which was $415 million in 2009, less net capital expenditures, which totaled $89 million in 2009. Also, 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 expense (income), and the tax effect on these items.)
Sales and Brand Building. The company 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, or approximately $200 million, independent of a consumer spending rebound. If consumer spending does rebound, the company has potential for additional upside sales growth in the second half of 2010.
The company’s brands continue to dominate in Retailing Today magazine’s “Top Brands Study,” with Hanes ranked as the consumer preferred apparel brand in 2009 for men’s, children’s and intimate apparel.
Supply Chain Globalization. Hanesbrands has substantially completed its global supply chain realignment with the October start-up of its Nanjing, China, fabric production plant, which is ramping up on schedule. The company is focused on leveraging and optimizing its supply chain organized around three clusters of fabric and finished-goods production in the Caribbean Basin, Central America and Asia.
Segment Reporting. Beginning with the reporting of fourth quarter 2009 financial results, the company has added Direct to Consumer retail operations as a reporting segment. In the company’s upcoming 10-K annual report, the past three years of financial performance will be restated to reflect the new segment. Direct to Consumer sales, which were previously reported within the Innerwear segment, are increasingly composed of Outerwear product sales and therefore are most appropriately represented as a separate segment.
Update on Haiti Contract Operations
Production has resumed and is ramping up at the company’s contract T-shirt sewing operations that were affected by the Jan. 12 earthquake in Haiti. With resumption of production, the addition of new contract suppliers, and added production at company-owned plants, Hanesbrands expects full pre-earthquake levels of T-shirt production as soon as mid-February. The temporary production suspension in Haiti should not have a material impact on sales of the company’s T-shirts.
The company has three primary contract sewing operations in Haiti, two of which were affected by the earthquake. The company is supplying humanitarian aid to the contract workers and to relief agencies working throughout Haiti.
Webcast Conference Call
Hanesbrands will host a live Internet audio webcast of its quarterly investor conference call at 5 p.m. EST today to review full-year and fourth-quarter results. 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. EST.
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. EST today until midnight EST on Feb. 3, 2010. 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 50975568.
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