HanesBrands Inc. said it is considering selling its global Champion as part of “a broad range of alternatives to maximize shareholder value.”

Champion, along with Hanes, are the basic apparel manufacturer’s two primary brands.

The board of directors and executive management team said they are “undertaking an evaluation of strategic options for the global Champion business” with the help of financial and legal advisors. Other options listed included “other strategic transaction” as well as continuing to operate the business as part of HanesBrands.

Tuesday’s announcement came six weeks to the day after Barington Capital Group LP of New York and its chairman James Mitarotonda announced it had written to Hanesbrands’ board complaining of a 52 percent decline in share price in the past year and questioning its ability and that of CEO Stephen Bratspies. HanesBrands’ board defended management but said it was open to options.

“HanesBrands’ Board and executive leadership team continuously evaluate the company’s operations and brands to ensure HanesBrands is best-positioned to grow and create value for shareholders as the market evolves,” said HBI Chairman Ronald L. Nelson in a release. “Champion is a renowned global lifestyle brand with a storied heritage in sports as the pioneer of American athletic wear. In recent years, the executive leadership team has implemented significant structural improvements within Champion that have resulted in greater distinction between the company’s innerwear and activewear businesses. With this in mind, and after careful consideration, we have commenced a comprehensive review of strategic options for the global Champion business. We are committed to working with our advisors to identify the right path forward that enables both Champion and HanesBrands to reach their fullest potential and maximize value.”

HanesBrands CEO Steve Bratspies added, “We are executing a strategy that is based on leveraging our iconic brands and competitive advantages to drive accelerated growth and profitability while simplifying and focusing all aspects of the business. With this as our foundation, we are continuing to take the actions necessary to adapt and ensure all of our brands, in both innerwear and activewear around the world, are on the optimal path to achieve long-term success. As the Board pursues this review of strategic options with the support of our advisors, our team remains focused on executing across our operations, continuing to serve our customers and consumers globally and advancing our initiatives to drive revenue growth, margin improvement and greater cash flow.”

The release from HBI said there can be no assurance that the company’s assessment process for the global Champion business would result in the company pursuing any specific transaction or other strategic outcome regarding Champion. The company said it had not set a timetable for completing the process and could suspend or terminate the review at any time. 

The company said it did not intend to make further announcements regarding the process unless and until it determined that additional disclosure was appropriate or necessary.

Goldman Sachs & Co. LLC and Evercore are serving as financial advisors to HanesBrands and Jones Day and Kirkland & Ellis LLP as its legal advisors.

Champion for years had been HanesBrand’s primary growth vehicle as the brand became trendy in the streetwear space.

Champion, riding steady double-digit quarterly sales growth, reached its goal of $2 billion in global sales in 2019 and set a plan to reach $3 billion in revenues over the next few years. To support the brand’s global approach, HanesBrands completed the 2016 all-cash acquisitions of Champion Europe (also including the Middle East and Africa) for $228 million and Champion Japan for $30 million.

Lately, the Champion brand has been impacted by destocking challenges across U.S. retail that have particularly impacted apparel categories. In the second quarter, global Champion brand sales decreased 16 percent year-over-year on a reported basis, with a 25 percent decline in the U.S. and a 1 percent decline internationally. In constant-currency terms, global Champion brand sales decreased 15 percent, with international consistent with the prior year. The constant-currency sales decline was said to be driven primarily by challenging activewear market dynamics and the near-term impact from the company’s strategic brand-related actions in the U.S.

On HanesBrands’ second-quarter analyst call, Bratspies, called Champion “a great brand,” with over 80 percent domestic and 65 percent global awareness “and a significant global growth opportunity.” He added, “We’ve made solid progress on improving the operations and processes within the Champion business that position us for future growth. However, the timing of these actions translating to financial results has been mixed.”

He said Champion is seeing strong growth in Asia and inferred the business remains stable in Europe, but the U.S. is seeing shortfalls.

“In the U.S., Champion is not where we expected it to be at this point in time,” the CEO stated at the time. “This is clear in our results and our outlook. And as a result, we’re actively taking steps that we believe will drive the long-term success of the brand. We’ve brought in new leadership, which is driving new talent in design, merchandising and sales. We’ve coordinated and launched our new brand purpose of Champion a better tomorrow.”

He said HanesBrands has completed the first full global product line from the new Champion team, which is based on their “disciplined global segmentation approach,” and will be available for the 2024 fall/winter selling season.

In the quarterly report, in August, HanesBrands confirmed personnel reductions of about 250 people as it reported net sales were down about 4 percent on a constant-currency basis to $1.44 million, and an operating loss of 6 cents per share or $22 million.

Among analysts, Paul Lejuez, at Citi Research, estimated that the global Champion business is on pace to reach $1.6 billion in sales in the current year, down from a peak of $2.1 billion in 2021. He estimated EBIT margin is likely close to breakeven given the challenges this year versus low double-digit margins last year.

“At a high level, this doesn’t seem like the best time to maximize the value of the Champion biz, given its current struggles, so an evaluation process feels a little panicky, in our view,” said Lejuez in a note. “With $3BN+ in net debt, the balance sheet may be driving their decision to do something sooner rather than later. We believe this is unlikely to unlock value that makes HBI more attractive at this stage.”

Lejuez estimated Champion’s sales price could range between $1.2 billion and $1.7 billion with Champion’s operating margin unknown but assumed to be higher than HanesBrands’ overall Activewear segment margin. Citi has a “Neutral” rating on HBI’s stock.

Stifel’s Jim Duffy, who has a “Hold” rating on HanesBrands, believes HanesBrands is seeking to reduce balance sheet risk but he isn’t confident Champion will receive an “accretive sales price” given the brand’s deceleration seen in the second quarter. Duffy estimates Champion could fetch $1.3 billion in a sale. The analyst added, “For equity value creation for the remain co. business, Champion would have to fetch an 8X or better TEV/EBITDA multiple. In the current interest rate and economic environment, we see this as ambitious. Balanced against risk in the domestic wholesale business and financial leverage, we do not see a compelling valuation case for upside and remain Hold rated.”

Photo courtesy of Champion/Rennie Solis