Barington Capital, an activist shareholder group, issued a letter calling for changes in the Board of Directors of Hanesbrands, possibly the CEO and other operational changes to reduce debt.
In response, Hanesbrands highlighted progress under its Full Potential strategy and said it remains committed to driving shareholder value.
Hanesbrands’ major brands include Hanes, Champion and Bond, and an underwear, babywear and sock brand in Australia. Other brands include Maidenform, Bali, Bras N Things, Playtex, JMS/Just My Size, Gear for Sports, Wonderbra, Berlei, Comfortwash, and Alternative.
Barington Capital, which has built an undetermined stake in Hanesbrands, did not indicate whether it would seek to nominate a director candidate ahead of Hanesbrands’ coming shareholder meeting or encourage the company to refresh its Board.
In the letter to Ronald L. Nelson, Hanesbrands Chairman, Barington Capital noted that shares of Hanesbrands had declined by 51.6 percent in the last year and “underperformed the proxy statement peer group (adjusted for the separation of L Brands), the Russell 2000 and the S&P 500 Index over the last 1-, 3-, 5-, 10-, 15-, and 17-year periods.”
The letter stated, “We believe that Hanesbrands currently sits at a critical juncture and must immediately focus on cash generation and debt reduction in order to create long-term value for shareholders. We believe that management’s largely ineffective response to recent market challenges is responsible for the company’s rapidly deteriorating results. Further, Hanesbrands’ excessive debt burden appears to amplify the impact of poor operating performance on Hanesbrands’ ability to create value for shareholders.”
Barington Capital called on Hanesbrands to reduce SG&A expenses by at least $300 million per year and steadily reduce inventory to generate cash and reduce debt. It also recommended further facility consolidation and operating process improvements to accelerate gross margin recovery.
Barington Capital also questioned the ability of the incumbent Board and management team to guide the company through its current challenge and whether Hanesbrands CEO, Stephen Bratspies, had enough experience.
The investor group said, “We would argue that Mr. Bratspies’ experience with electronics, toys, and baked goods at Walmart, Sam’s Club, and FritoLay has not prepared him to lead a global vertically integrated apparel business. The company’s significant turnover of senior managers in the last two years appears to be a direct indictment of Mr. Bratspies’ leadership.
James Mitarotonda, chairman of Barington, said in a press release, “We invested in Hanesbrands because we believe in its recognized portfolio of value brands, strong distribution capabilities, and unique vertically integrated operating model. However, the company’s poor execution and performance under current leadership has destroyed substantial shareholder value and left the company in a precarious position.”
He continued, “In order to reverse Hanesbrands’ rapidly declining share price, we believe the company must immediately focus on cash generation and debt reduction while also considering new management and directors to implement these performance-enhancing initiatives. Barington has a proven track record of successfully investing in consumer and retail and apparel companies, and we look forward to bringing this considerable sector experience to assist in the creation of long-term value for Hanesbrands shareholders.”
In response, Hanesbrands wrote in a statement, “The HanesBrands Board of Directors and management team are committed to moving the company forward with a clear priority to deliver sustainable value creation for shareholders. We regularly engage with shareholders to understand their perspectives and to share ours. Consistent with this practice, members of HanesBrands’ management team have held discussions with Barington over the past year, and the Chairman of our Board engaged with Barington in recent weeks prior to Barington publicly issuing its letter.
“The Board and management team believe initiatives that are being executed as part of the company’s Full Potential plan will unlock significant opportunities, which we look forward to discussing later this week as part of our second quarter 2023 earnings report. We are also, however, open-minded with regard to additional paths to improve performance and create value.
“HanesBrands’ Board actively oversees the development and execution of our strategy, operations and capital allocation decisions in collaboration with the management team. The Board and management team are deeply experienced in areas relevant to our strategy and portfolio, including, among other things, apparel, global manufacturing and supply chain management, retail, e-commerce, branding and marketing. Further, the Board is committed to ongoing refreshment and having the right mix of expertise and diversity, as demonstrated by the addition of three independent directors to our Board over the last four years.
“We will continue to act in the best interests of the company and all HanesBrands shareholders.”
Photo courtesy Hanesbrands
