Hanesbrands' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Hanesbrands Inc. (HBI)

Q1 2012 Earnings Call

April 19, 2012 4:30 PM ET

Executives

Charlie Stack – Chief Investor Relations Officer

Rich Noll – Chairman and CEO

Bill Nictakis – Co-COO

Rick Moss – CFO

Analysts

Bob Drbul – Barclays

Eric Tracy – Janney Capital Markets

Susan Anderson – Citi

two things going on with Bras

David Glick – Buckingham Research

Eric Alexander – Stifel Nicolaus

Omar Saad – ISI Group

Steve Marotta – C.L. King & Associates

Scott Krasik – BB&T Capital

Andrew Burns – D.A. Davidson

Eric Beder – Brean Murray

Emily Shanks – Barclays

Carla Casella – JPMorgan

Presentation

Operator

Good afternoon. My name is Mike and I will be your conference operator today. At this time I would like to welcome everyone to the Hanesbrands’ First Quarter 2012 Earnings Conference Call. (Operator Instructions) Thank you.

Mr. Charlie Stack, Chief Investor Relations Officer, you may begin your conference call.

Charlie Stack

Good afternoon, everyone, and welcome to the Hanesbrands’ Quarterly Investor Conference Call and Webcast. We are pleased to be here today to provide an update on our progress after the first quarter of 2012. Hopefully everyone has had a chance to review the news release we issued earlier today. The news release and the audio replay of the webcast of this call can be found in the Investor section of our Hansbrands.com website.

I want to remind everyone that we may make forward-looking statements on the call today either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks are detailed in our various filings with the SEC such as our most recent Forms 10-K and 10-Q as well as our news releases and other communications. The company does not undertake to update or revise any forward-looking statements which speak only to the time at which they are made.

Before we begin as a result of the reduce size of share hosiery and changing trends, Hanesbrands decided in the first quarter of 2012 to change its external segment exporting to include hosiery operations within 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.

With me on the call today are Rich Noll, our Chief Executive Officer; Bill Nictakis, one of our two Co-Chief Operating Officers and Rick Moss, our Chief Financial Officer. For today’s call Rich will highlight a few big picture themes. Bill will provide a sense of what’s happening in a few our businesses and Rick will emphasize some of the financial aspects of our results.

I’ll now turn the call over to Rich.

Rich Noll

Thank you, Charlie. Well obviously we are not pleased with the loss in Q1. We are tracking well relative to our expectations with sales, profits and cash flow running at or above our plans.

When you couple that with the visibility of our pricing and costs for the rest of the year we feel very good about our momentum and our ability to achieve our full year guidance. Let me give you a few specifics.

First our core categories which sustained price increases of more than 20%, such as underwear and panties, continue to perform well with both retail sales growth and our shipments being at or above our plans. Champion was also very strong with sales increases in the mid-teens.

Second we’ve made good progress repositioning our U.S. Imagewear to focus more on branded sectors and de-emphasized the low end commodity segments. And in fact we’re a little ahead of that schedule.

Third we executive the majority of our previously announced supply chain actions to adjust capacities and these actions costs us a little less than planned.

So we’ve had very good visibility for the remainder of the year for both price and costs as I said. Cotton costs are locked through December. And we’ve confirmed pricing with our retailers for over 95% of our expected U.S. volume. And finally we’re making good progress on de-risking our balance sheet.

Our inventories have peaked for the year and as they decline they will begin to generate substantial cash. We remain firmly committed to using that cash to pay down debt for the rest of 2012 and 2013.

So to sum up, the largest margin impacts of cotton inflation, the supply chain realignment and the operating losses associated with Imagewear are now behind us. Therefore, as planned our operating margins for the rest of the year should return to a more normal average of low double digits.

I’ll now turn the call over to Bill to give you a little bit more detail. Bill?

Bill Nictakis

Thanks, Rich. We saw a solid performance in our core domestic retail categories in both Innerwear and Outerwear segments during the first quarter. Our consumers and retail partners continue to prefer our leading brands as evidenced by retail sell through in the first quarter that was at or better than planned and the continued increases in shelf space that we have achieved across our businesses.

Let me touch on a few highlights for the quarter starting with Innerwear, and first let me discuss price. The short answer is that the pricing strategies and tactics that we have implemented are meeting or exceeding both our expectations and those of our customers.

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