Hanesbrands Inc. 2007 first quarter total net sales increased slightly to $1.04 billion, and earnings per diluted share were 12 cents, which were significantly lower than a year ago primarily because of several factors related to the company's new independent structure following its spinoff in September 2006.
In addition to operating performance, results in the quarter reflect costs associated with restructuring, stand-alone independent company costs, increased interest expense and other actions.
“Our performance was on track with our expectations for the quarter,” Hanesbrands Chief Executive Officer Richard A. Noll said. “We increased sales, made strategic advances in operations and generated cash for investment in our business. We are off to a solid start in our first full year, which is the foundation for achieving our long-term growth goals.”
Total net sales increased by $7 million, or 0.7 percent, to $1.04 billion, up from $1.03 billion in the year-ago quarter ended April 1, 2006.
Growth in the outerwear segment resulted from double-digit gains for Champion activewear and increases for Hanes casualwear and more than offset generally flat sales in the innerwear segment and declines in other segments.
Operating profit, as measured under generally accepted accounting principles, was $68.9 million, a decrease of 28.4 percent from $96.2 million a year ago. The profit decline primarily reflected restructuring and related charges for plant closures, higher cotton costs and increased investment in business operations.
“While we had a number of costs this quarter associated with
becoming an independent company that we did not have in the
year-ago quarter, we are benefiting from past cost-reduction
efforts, corporate consolidation and streamlining, and continued
progress with our global supply chain strategy of moving
production to lower-cost countries,” Noll said. “Our operating
margin excluding actions, which we use to measure and manage our
business, was on track with our expectations for the quarter.”
The operating profit margin excluding actions was 8.6 percent in
the quarter, compared with 9.8 percent a year ago, down primarily
due to higher cotton costs and selected investment behind business
initiatives. (Operating profit excluding actions is a non-GAAP
measure used to better assess underlying business performance
because it excludes the effect of unusual actions that are not
directly related to operations. The unusual actions in the quarter
were restructuring and related charges, nonrecurring spinoff and
related costs, and amortization of a gain on postretirement
benefits. See Table 4A for details and reconciliation with
reported operating results.)
Net income for the quarter was $12.0 million, down from $74.6 million a year ago, primarily as a result of the company's new independent structure. The decrease in net income reflected increased interest expense, reduced operating profit and a higher effective income tax rate.
Interest expense increased in the quarter by $48.6 million to
$51.7 million, up from $3.1 million a year ago as a result of
debt incurred in the company's spinoff. The effective income tax
rate for the quarter was 30.0 percent, up from 19.9 percent a year
ago as a result of Hanesbrands' tax structure as an independent
company.
Using cash flow from operations, the company made a voluntary $42 million pension contribution in the quarter, reducing the company's underfunded liability for qualified pension plans to approximately $131 million. The company's qualified pension plan liability is now 84 percent funded, which meets the company's 2007 goal.
Other Quarter Comments
Hanesbrands continues to make progress on its strategy of building its largest and strongest brands in core categories through innovation in key items.
In March, the Hanes brand launched a new national television, print and Internet advertising campaign for its Hanes All-Over Comfort Bra with ComfortSoft Straps featuring celebrity Jennifer Love Hewitt. Since the campaign was launched, we have seen accelerated retail sell-through of the All-Over Comfort Bra.
The Champion brand has achieved annual compound growth of more than 15 percent over the past two years and has increased distribution penetration in the mid-tier department store, sporting goods and mass retail channels. Innovative additions to the Champion product lines of performance apparel, activewear, sports bras, socks and underwear include double-dry fabric jerseys, shorts and other products.
Hanesbrands continues to execute its long-term global supply chain strategy of moving production to lower-cost countries to increase competitiveness. In the first quarter of 2007, the company announced plans to close two domestic textile facilities and two domestic distribution centers. The company also ended operations at three facilities for which closure plans had been previously announced. The company recognized $21.5 million in restructuring and related charges in the quarter, $4.6 million of which were noncash.
“We continue to successfully execute our core improvement strategies of reducing costs, increasing investment in our strongest brands and generating cash,” Noll said. “These efforts are fundamental to our model to create value and drive growth in sales, operating profit and diluted earnings per share beyond this baseline year.”
