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Hanesbrands' CEO Discusses Q3 2011 Results - Earnings Call Transcript

I will now turn the call over to Rich.

Richard A. Noll

Thank you, Charlie. Let me address three topics that I’m sure are on top of mind. Profits being above our expectations, sales being below, and how has pricing impacted our results. The top line answer for pricing being very well.

Third quarter profit results were very strong, our operating margin of 12.4% is at the highest level in our history. And our year-to-date EPS of $2.28 already exceeds 2010 full year EPS of $2.16.

Profit increases were driven by Innerwear, up $24 million to 44%. And Gear for Sports added an additional $13 million of profit. Profits also grew 10% in the rest of Outerwear, and 16% in our Direct to Consumer business.

Price, mix and cost control fueled significant gross margin expansions, and overcame higher commodity costs. Gross margins increased 360 basis points, leading to a 270 basis point increase in operating margin. With these results, we’re well on our way to having a record year.

Next, let me talk about pricing. Our approach, pricing to at least maintain operating margin is working, while units do in fact decline, they declined much less than price increases, and are driving good results for us, and our retail partners.

Let me highlight two categories that had some of our largest price increases, socks and male underwear. These categories grew 4% and 10% respectively in Q3. In fact it’s a great story, that further the retail sell through dollars are up nicely, and units are only down a few points. And actually price increase did dampen unit demand, in case it is mitigated by other tactical changes to measure up programs to drive sales and we’re extremely pleased with these results.

Our male underwear business is also performing very well. While units have declined, sales dollars are still quite strong, and even with the third price increase that was effective in late September, sell through data across our major accounts indicate the elasticity is at or better than our expectations. It is also driving good dollar comp for our retail partners.

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