Hanesbrands Sees 5% Revenue Growth in 2010

In the 2009 fourth quarter, Hanesbrands' net sales run rate was consistent with the company's stated expectations, and the company generated strong free cash flow. Also in the quarter, the company refinanced its capital structure to provide better flexibility for growth.

Key fourth-quarter and full-year 2009 performance measures include:

    * Q4 EPS loss of $(0.01) but Q4 non-GAAP EPS excluding actions up 12% to $0.56.
    * Q4 net sales of $988.7 million up 1% after adjusting for the company's 53rd week last year.
    * Full-year free cash flow generation of $326 million, with proceeds used to reduce debt by $284 million and fund $75 million in cash fees and costs associated with debt refinancing during the year.

“We successfully navigated the recession of 2009 and emerged with momentum for growth in 2010,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “We are fully focused on leveraging the growth platform that we have built. With our strong brands and our low-cost global supply chain, we are in a great position to expand market share in all of our key geographies.”

2009 Noteworthy Financial Highlights

Selected highlights for the full year and quarter ended Jan. 2, 2010, compared with the year-ago periods ended Jan. 3, 2009, include:

Excluding last year's 53rd week, net sales were $988.7 million in the fourth quarter, up 1%, and were $3.9 billion for the full year, down 7%.

  Fourth-quarter sales for the company's largest segment, Innerwear, increased by 5%, excluding last year's extra week, with strong shipments for male underwear.
    * Operating profit was $270.9 million in 2009, down from $317.5 million a year ago. Excluding actions, the operating profit margin for the year was 8.8%, compared with 9.7% a year ago.

      The company opportunistically invested an incremental $17 million in trade spending, media and other items in the fourth quarter to support its 2010 space gains.

“We took advantage of investment opportunities to support the strong growth prospects we have for 2010,” Noll said. “With these investments, our full-year operating profit margin slipped below 9%.”

 The effective income tax rate decreased to 12% for the full year, reflecting a higher mix of foreign profit due in part to domestic restructuring charges and debt refinancing costs.

In 2010, the company expects interest expense to decrease by $20 million to $25 million due to deleveraging.

“We have potential for significant earnings growth in 2010,” Noll said. “When you combine the benefits of expected sales growth, operating margin improvement, and lower interest expense, we could see EPS growth of at least 25% and possibly up to 35% or more in 2010. To reach the higher levels of growth, we may need a slight increase in overall consumer-spending levels, potential price increases to offset any systemic inflation, or additional effective use of free cash flow.”

In 2009, the company generated $326 million in free cash flow. The company used $53 million in cash in the fourth quarter to complete its debt refinancing that created a growth-focused capital structure. For the year, the company reduced debt by $284 million and reduced its year-end inventory by $241 million, beating its inventory-reduction goal of $150 million.

Hanesbrands' new strategic capital structure enables the company to simultaneously reduce leverage and consider acquisition opportunities.  In addition to giving the company much more flexibility in its use of cash flow, the refinancing provides a stable long-term capital structure with extended debt maturities and comparable rates.

“We are in a good position for 2010 with our capital structure solidly aligned with our efforts to drive growth by taking advantage of our strong brands and our low-cost global supply chain,” Hanesbrands Executive Vice President and Chief Financial Officer E. Lee Wyatt said.

(Free cash flow is defined as net cash provided by operating activities, which was $415 million in 2009, less net capital expenditures, which totaled $89 million in 2009. Also, see Table 4 for details and reconciliation with reported operating results consistent with generally accepted accounting principles. Diluted EPS excluding actions, operating profit excluding actions, gross profit excluding actions, SG&A excluding actions, net income excluding actions, EBITDA, or earnings before interest, taxes, depreciation and amortization, and the margins on sales of these measures are non-GAAP measures used to better assess underlying business performance because they exclude the effect of unusual actions that are not directly related to operations. The unusual actions in the current or year-ago periods were restructuring and related charges, nonrecurring spinoff-related and other expenses, other expense (income), and the tax effect on these items.)

Other Comments

Sales and Brand Building. The company solidified significant net shelf-space and distribution gains, starting primarily in early 2010. Program gains significantly outnumber program losses, and the company expects the net space gains to generate approximately 5% incremental sales growth in 2010, or approximately $200 million, independent of a consumer spending rebound. If consumer spending does rebound, the company has potential for additional upside sales growth in the second half of 2010.

The company's brands continue to dominate in Retailing Today magazine's “Top Brands Study,” with Hanes ranked as the consumer preferred apparel brand in 2009 for men's, children's and intimate apparel.

Update on Haiti Contract Operations

Production has resumed and is ramping up at the company's contract T-shirt sewing operations that were affected by the Jan. 12 earthquake in Haiti. With resumption of production, the addition of new contract suppliers, and added production at company-owned plants, Hanesbrands expects full pre-earthquake levels of T-shirt production as soon as mid-February. The temporary production suspension in Haiti should not have a material impact on sales of the company's T-shirts.