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TheStreet Open House

HanesBrands Reports Second-Quarter 2012 Results

Stocks in this article: HBI

EBITDA is defined as earnings from continuing operations before interest, taxes, depreciation, and amortization. Although the company does not use EBITDA to manage its business, it believes that EBITDA is another way that investors measure financial performance. See Table 2 attached to this press release to reconcile EBITDA to the GAAP measure of net income from continuing operations.

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 company operations. 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.

Webcast Conference Call

Hanes 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 midnight EDT today through midnight EDT Aug. 7, 2012. The replay will be available by calling toll-free (855) 859-2056, or by toll call at (404) 537-3406. The replay pass code is 12858065.

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, as well as guidance as to future performance. 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: current economic conditions, including consumer spending levels and the price elasticity of our products; the impact of significant fluctuations and volatility in various input costs, such as cotton and oil-related materials, utilities, freight and wages; the highly competitive and evolving nature of the industry in which we compete; our ability to successfully manage social, political, economic, legal and other conditions affecting our domestic and foreign operations and supply-chain sources, such as political instability and acts of war or terrorism, natural disasters, disruption of markets, operational disruptions, changes in import and export laws, currency restrictions and currency exchange rate fluctuations; the impact of the loss of one or more of our suppliers of finished goods or raw materials; our ability to effectively manage our inventory and reduce inventory reserves; our ability to optimize our global supply chain; our ability to continue to effectively distribute our products through our distribution network; 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; our ability to accurately forecast demand for our products; increasing pressure on margins; our ability to keep pace with changing consumer preferences; the impact of any inadequacy, interruption or failure with respect to our information technology or any data security breach; our ability to protect our reputation and brand images; our ability to protect our trademarks, copyrights and patents; 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, as well as in the investors section of our corporate website at http://tiny.cc/HanesBrandsIR. 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 is a socially responsible 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. Ranked No. 512 on the Fortune 1000 list, Hanes has approximately 53,300 employees in more than 25 countries and takes pride in its strong reputation for ethical business practices. Hanes is a U.S. Environmental Protection Agency Energy Star 2012 Sustained Excellence Award winner and 2010 and 2011 Partner of the Year. The company ranks No. 152 on Newsweek magazine’s list of Top 500 greenest U.S. companies. 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.

TABLE 1          
HANESBRANDS INC.
Condensed Consolidated Statements of Income (Loss)
(Amounts in thousands, except per-share amounts)
(Unaudited)
 
Quarter Ended Six Months Ended
June 30, 2012 July 2, 2011 % Change June 30, 2012 July 2, 2011 % Change
Net sales $ 1,180,651 $ 1,167,986 1.1% $ 2,153,784 $ 2,148,036 0.3%
Cost of sales   813,719   757,962   1,531,738   1,397,054
 
Gross profit 366,932 410,024 -10.5% 622,046 750,982 -17.2%
As a % of net sales 31.1% 35.1% 28.9% 35.0%
 
Selling, general and
administrative expenses 246,981 274,202 491,450 523,068
As a % of net sales   20.9%   23.5%   22.8%   24.4%
 
Operating profit 119,951 135,822 -11.7% 130,596 227,914 -42.7%
As a % of net sales 10.2% 11.6% 6.1% 10.6%
 
Other expenses 811 814 1,456 1,415
Interest expense, net   36,611   39,127   73,606   80,228
 
Income from continuing operations
before income tax expense 82,529 95,881 55,534 146,271
Income tax expense   15,213 18,121   12,489 27,544
Income from continuing operations 67,316 77,760 -13.4% 43,045 118,727 -63.7%
Income (loss) from discontinued
operations, net of tax   (66,085)   9,022 NM   (68,644)   16,164 NM
Net income (loss) $ 1,231 $ 86,782 -98.6% $ (25,599) $ 134,891 NM
 
Earnings (loss) per share - basic:
Continuing operations $ 0.68 $ 0.80 -15.0% $ 0.44 $ 1.22 -63.9%
Discontinued operations   (0.67)   0.09 NM   (0.70)   0.17 NM
Net income (loss) $ 0.01 $ 0.89 -98.9% $ (0.26) $ 1.39 NM
 
Earnings (loss) per share - diluted:
Continuing operations $ 0.67 $ 0.78 -14.1% $ 0.43 $ 1.20 -64.2%
Discontinued operations   (0.66)   0.09 NM   (0.69)   0.16 NM
Net income (loss) $ 0.01 $ 0.87 -98.9% $ (0.26) $ 1.36 NM
 
Weighted average shares outstanding:
Basic 98,572 97,537 98,553 97,366
Diluted 100,066 99,224 99,962 98,927
 
TABLE 2            
HANESBRANDS INC.
Supplemental Financial Information
(Dollars in thousands)
(Unaudited)
 
Quarter Ended Six Months Ended
June 30, 2012 July 2, 2011 % Change June 30, 2012 July 2, 2011 % Change
Segment net sales¹:
Innerwear $ 664,940 $ 650,697 2.2% $ 1,173,978 $ 1,153,380 1.8%
Outerwear 295,424 291,788 1.2% 567,988 578,093 -1.7%
Direct to Consumer 94,572 97,456 -3.0% 179,285 180,254 -0.5%
International   125,715   128,045 -1.8%   232,533   236,309 -1.6%
Total net sales $ 1,180,651 $ 1,167,986 1.1% $ 2,153,784 $ 2,148,036 0.3%
 
Segment operating profit¹:
Innerwear 121,235 102,837 17.9% 172,877 177,602 -2.7%
Outerwear (977) 27,254 NM (22,221) 45,886 NM
Direct to Consumer 9,279 9,360 -0.9% 10,361 9,687 7.0%
International 11,694 11,724 -0.3% 16,390 28,478 -42.4%
General corporate expenses/other   (21,280)   (15,353) 38.6%   (46,811)   (33,739) 38.7%
Total operating profit $ 119,951 $ 135,822 -11.7% $ 130,596 $ 227,914 -42.7%
 
EBITDA²:
Net income from continuing operations $ 67,316 $ 77,760 $ 43,045 $ 118,727
Interest expense, net 36,611 39,127 73,606 80,228
Income tax expense 15,213 18,121 12,489 27,544
Depreciation and amortization   23,404   21,986     46,266   43,213  
Total EBITDA $ 142,544 $ 156,994 -9.2% $ 175,406 $ 269,712 -35.0%
 
¹ As a result of the reduced size of sheer hosiery and changing trends, HanesBrands decided in the first quarter of 2012 to change its external segment reporting to include hosiery operations within the Innerwear segment. Hosiery had previously been reported as a separate segment. Prior-year segment sales and operating profit results, including other minor allocation changes, have been revised to conform to the current-year presentation. In addition, in May 2012, HanesBrands sold its European imagewear business, and the Company is completing the discontinuation of its private label and Outer Banks domestic imagewear operations serving wholesalers that sell to the screen-print industry. As a result, the current year and prior-year segment disclosures do not reflect the sales and operating profit results of these discontinued businesses.
 
² Earnings from continuing operations before interest, taxes, depreciation and amortization is a non-GAAP financial measure.
 
TABLE 3    
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
 
June 30, 2012 December 31, 2011
Assets
Cash and cash equivalents $ 29,662 $ 35,345
Trade accounts receivable, net 585,979 470,713
Inventories 1,435,850 1,607,555
Other current assets   204,037   217,178
Total current assets   2,255,528   2,330,791
 
Property, net 612,515 635,406
Intangible assets and goodwill 558,115 603,071
Other noncurrent assets   459,898   465,401
Total assets $ 3,886,056 $ 4,034,669
 
Liabilities
Accounts payable and accrued liabilities $ 598,552 $ 703,711
Notes payable 46,693 63,075
Accounts Receivable Securitization Facility 170,106 166,933
Current portion of long-term debt   148,092   -
Total current liabilities   963,443   933,719
Long-term debt 1,660,685 1,807,777
Other noncurrent liabilities   604,170   612,112
Total liabilities   3,228,298   3,353,608
 
Equity   657,758   681,061
Total liabilities and equity $ 3,886,056 $ 4,034,669
 
TABLE 4    
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Six Months Ended
June 30, 2012 July 2, 2011
 
Operating Activities:
Net income (loss) $ (25,599) $ 134,891
Depreciation and amortization 47,049 44,135
Impairment of intangibles 37,597 -
Loss on disposition of business 31,616 -
Other noncash items 5,415 18,371
Changes in assets and liabilities, net   (83,338)   (265,650)
Net cash provided by (used in) operating activities   12,740   (68,253)
 
Investing Activities:
Capital expenditures (19,005) (35,540)
Acquisition of business - (9,154)
Disposition of business   12,903   -
Net cash used in investing activities   (6,102)   (44,694)
 
Financing Activities:
Net borrowings (repayments) on notes payable, debt and other   (11,614)   113,201
 
Effect of changes in foreign currency exchange rates on cash   (707)   730
Increase (decrease) in cash and cash equivalents (5,683) 984
 
Cash and cash equivalents at beginning of year   35,345   43,671
Cash and cash equivalents at end of period $ 29,662 $ 44,655
 
Supplemental cash flow information¹:
Net cash provided by (used in) operating activities $ 12,740 $ (68,253)
Capital expenditures   (19,005)   (35,540)
Free cash flow $ (6,265) $ (103,793)

 

¹ Free cash flow is a non-GAAP measure. For 2012 guidance, net cash provided by operating activities (GAAP) is expected to be between $445 million and $545 million and net capital expenditures are expected to be approximately $45 million, resulting in expectations for free cash flow of $400 million to $500 million, which is a non-GAAP measure.

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