Excluding actions, non-GAAP earnings per diluted share were 3 cents a share, down 39 cents from a year ago amid “tight cost control but lower sales.” Restructuring charges amounted to $18.7 million in the latest period versus $2.6 million a year ago.
“Our overall results were in line with our expectations and were significantly impacted by the economic recession,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “Sales declined in the quarter at a rate consistent with what we had communicated to investors, and we tightly controlled expenses to mitigate the impact of reduced consumer spending. The second quarter looks as if both the sales and operating profit rate of decline could improve.”
Hanesbrands said sales declined in each segment, with a single-digit decline in the Innerwear segment and double-digit declines in the Outerwear, International and Hosiery segments. In the first quarter, the Innerwear sales decline of 6% was less severe than the 11% decline in the fourth quarter 2008. As expected, the Outerwear sales decline of 21% was more severe than the 8% decline in the fourth quarter, primarily due to lower casualwear sales in the retail and wholesale channels.
Based on advanced booked sales, the company expects improvement in the sales decline rate for the Outerwear segment to a decline in the mid-single digits in the third quarter. Hosiery products continue to be more adversely impacted by reduced consumer discretionary spending than other apparel categories. Hosiery segment sales declined by 21% in the first quarter, similar to the decline in the fourth quarter. The decline in International segment sales accelerated from 9% in the fourth quarter to 21%as the impact of the recession intensified overseas and the dollar strengthened against foreign currencies.
“Retailers are still experiencing soft sell-through but are beginning to loosen inventory constraints,” Noll said. “We have secured or are in the process of securing an incremental $75 million to $90 million of promotional and new-product programs that will ship in the second through fourth quarters. Given all of this, we may see improvements in the second-quarter sales rate with total sales potentially declining in the single digits. For the full year, the sales scenarios that we depicted in our February investor day meeting still remain intact.”
GAAP operating profit was $16.0 million in the quarter, compared with $87.8 million a year ago. The quarter included $24.4 million in restructuring and related charges. Excluding actions, non-GAAP operating profit declined to $40.7 million and the operating profit margin declined to 4.7%, as a result of lower sales volume, higher commodity costs and higher pension costs, partially offset by increased product pricing and lower other selling, general and administrative expenses. As a percentage of sales, SG&A excluding actions was 26%, comparable to the year-ago quarter.
The unusual actions in the current or year-ago quarter were restructuring and related charges, spinoff-related expenses, other expenses, and the tax effect on these items.
In March, Hanesbrands announced that it amended its first-lien credit agreement with debt holders to delay the covenant's most restrictive debt-leverage ratio from the fourth quarter 2009 until the third quarter 2011.
Based on its cash-flow expectations, the company reiterates its goal to reduce its long-term debt by at least $300 million in 2009 and its goal to reduce its year-end inventory by $150 million.
After assessing product demand modeling, the company has decided to start production Oct. 12, 2009, at its new
The company also announced that it will continue to exercise tight cost controls in light of the economic environment and will lay off 250 management employees. The company expects to incur restructuring and related charges, including severance costs, totaling approximately $15 million, primarily in the second quarter of fiscal 2009.
“So far, this year is unfolding as we thought,” Noll said. “We are conservatively managing costs and inventory while we continue execution of our key strategies, including debt reduction of $300 million this year.”
