Hanesbrands' CEO Discusses Q2 2012 Results - Earnings Transcript

Hanesbrands Inc (HBI)

Q2 2012 Earnings Call

July 26, 2012 4:30 p.m. ET


Charlie Stack – Head-Investors Relations

Richard Noll – Chairman, Chief Executive Officer

Gerald Evans – Co-Chief Operating Officer

Richard Moss – Chief Financial Officer, Treasurer


Omar Saad – ISI Group

Eric Tracy – Janney Capital Markets

Susan Anderson – Citigroup

David Glick – Buckingham Research

Joan Payson – Barclays

Scott Krasik – BB&T Capital

Steven Marotta – CL King & Associates

Eric Alexander – Stifel Nicolaus

Danielle McCoy – Brean, Murray

Andrew Burns – DA Davidson



Good afternoon. May name is Jay and I will be your conference operator today. At this time, I would like to welcome everyone to the Hanesbrands’ Second Quarter 2012 Earning Conference Call and webinar.

All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

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

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 second 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 Investors section of our Hanesbrands.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 and may be found on our website and in 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.

Please also note, Hanesbrands recently announced exiting certain international and domestic imagewear businesses that are now classified as discontinued operations and as noted in today’s press release, additional information will be in our 10-Q and has been provided in the Investors section of our Hanesbrands.com website. Unless otherwise noted, today’s speakers will be discussing our performance from our continuing operations.

With me on the call today are Rich Noll, our Chief Executive Officer; Gerald Evans, one of our two Co-Chief Operating Officers; and Rick Moss, our Chief Financial Officer. For today’s call, Rich will highlight a few of our accomplishments through the first half of the year, Gerald will provide a sense of what is happening in a few of our businesses, and Rick will emphasize some of the financial aspects of our results.

I will now turn the call over to Rich.

Rich Noll

Thank you, Charlie. When we started the year we outlined two goals, to successfully manage through the cotton bubble and to derisk our business. When you look at this quarter’s solid results, you will see we’re making good progress towards both. We’ve accomplished much over the past six months and remain pleased with sales, profit and cash flow, all running at or better than our plans. And in fact from an EPS basis, we’re running a little over a dime ahead of where we thought would be at mid-year and I am sure somebody will ask me about that in the Q&A section.

So let’s start with an update on our efforts to derisk our business and then follow with how our core business is navigating the cotton bubble. First let me speak to the major actions we’ve undertaken to reduce risk and volatility in the imagewear category. In May, we announced our plans to sell the European imagewear operations and to exit private label and Outer Banks in the U.S. These moves allow us to devote our energy and resources to our branded businesses while removing volatility inherent in the sectors we exited.

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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