Hanesbrands' CEO Discusses Q2 2012 Results - Earnings Transcript

The result of these actions is our newly named branded printwear, which should be a smaller, but more profitable and less volatile, where we remain committed to growing both the Hanes and Champion brands. We believe this is the right strategy for the category going forward and in hindsight only regret not taking these actions sooner.

Our other major derisking strategy is strengthening our balance sheet by focusing on cash generation and debt reduction. Through the first half of 2012, inventory is falling, free cash flow is strong, we continue to pay down debt, and we remain committed to further reducing bond debt to $1 billion by the end of 2013. These actions by themselves should not only significantly reduce volatility, but also power EPS growth, especially in 2014.

Turning to our core business, we have successfully managed through a significant cotton bubble. In 2011, cotton inflation impacted us by about $200 million and 2012 has seen a similar headwind through the first half. With that now behind us, we are pleased to see our margins returning to historical levels.

The best evidence of how we have navigated through the cotton bubble is innerwear. We saw at least mid-single-digit sales growth with our top three customers and our substantial profit turnaround as first-half operating margins were only 70 basis points below last year’s first half, when cotton was over 50% lower.

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