Hanesbrands 4th Quarter 2008 Earnings

Hanesbrands Inc. Reports Fourth-Quarter 2008 Results

WINSTON-SALEM, N.C.--(BUSINESS WIRE)-- Hanesbrands Inc. (NYSE: HBI), a leading marketer of innerwear, outerwear and hosiery apparel, today reported results for the 2008 fourth quarter.
Total net sales in the fourth quarter declined by $124 million to $1.04 billion, and net sales for the full fiscal year declined by 5 percent to $4.25 billion. GAAP earnings per diluted share in the quarter were $0.19, and for the full year were $1.34, up slightly from a year ago.
Excluding actions, non-GAAP earnings per diluted share in the fourth quarter increased by 32 percent to $0.50, and for the full year non-GAAP EPS increased by 27 percent to $2.09.
Hanesbrands prepaid $139 million of long-term debt in the fourth quarter, compared with its goal of $75 million to $125 million. The company ended the year with inventory of $1.3 billion, approximately $50 million better than its goal. And the company ended the year with a similar level of cushion in its bank covenant debt-to-EBITDA ratio as it had at the end of the third quarter.
“We are pleased with our accomplishments in a year in which we faced rising commodity costs and an unprecedented collapse in the consumer retail sales environment,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll. “We successfully controlled year-end inventories, paid down debt, reduced costs, executed our supply chain strategy ahead of schedule, announced a price increase, and we delivered EPS growth of more than 25 percent for the year despite sales declines.
“We are now sharply focused on execution, conservative inventory and cost management and using available cash to pay down debt over the next 12 months. Our goal is to come out of this economic environment with momentum and as an even stronger company.”

Noteworthy Financial Highlights
The fourth quarter and full fiscal year, which ended Jan. 3, 2009, contained one additional week than the previous quarter and fiscal year ended Dec. 29, 2007. Selected highlights include:
Total net sales in the quarter declined by 11 percent to $1.04 billion, compared with $1.16 billion a year ago. Sales declined in each business segment. For the full year, total net sales were down by 5 percent to $4.25 billion, compared with $4.47 billion a year ago. By the end of the fourth quarter, sales weakness was broad-based, although a few of the bright spots for the year were men’s underwear, Champion brand sales, Playtex brand intimate apparel sales, and the International segment. For the rolling 12-month period through November 2008, consumer panel data showed that Hanesbrands increased its market share for total innerwear by 1 share point, including a men’s underwear market share increase of 3 share points, women’s intimate apparel increase of 1 share point, and a socks increase of one-half of a share point.
GAAP earnings per diluted share in the quarter decreased by $0.33 to $0.19, which included a $0.31 reduction per diluted share for restructuring and related charges. For the year, GAAP diluted EPS was $1.34 versus $1.30 a year ago.
Excluding actions, non-GAAP diluted EPS for the full year increased by 27 percent to $2.09, which exceeded the company’s growth goal for the year despite severe economic conditions, particularly the consumer market collapse in the fourth quarter. The earnings growth was driven by strategic execution that reduced costs, lowered base interest rates, lowered income tax expense, and reduced long-term debt. For the quarter, which also benefited from favorable selling, general and administrative expense timing and one-time retroactive duty refunds, non-GAAP diluted EPS increased by 32 percent to $0.50, up from $0.38 a year ago.
GAAP operating profit was $58.4 million in the quarter, down $67.5 million, and was $317.5 million for the year, down $71.1 million. Both comparisons include a one-time $32.1 million gain in last year’s periods.Excluding actions, Hanesbrands was able to protect its margins through cost-reduction efforts despite sales declines. For the full year, the operating profit margin was the same as last year at 9.7 percent of sales.
By prepaying $139 million in long-term debt in the quarter, the company ended the year with long-term debt of $2.18 billion. Since its spinoff in September 2006, Hanesbrands has reduced long-term debt by $423 million.
(Diluted EPS excluding actions, operating profit excluding actions, and operating profit margin excluding actions 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, gain on curtailment of postretirement benefits, amortization of gain on postretirement benefits, separation of pension plan assets and liabilities, nonrecurring spinoff and related charges, other income and expense, and the tax effect on these items. See Table 4 for details and reconciliation with reported operating results consistent with generally accepted accounting principles.)

Other Comments
Hanesbrands made significant progress in its sell more, spend less and generate cash strategic initiatives in 2008.

Brand Strength. The company invested in its brands, announced an average domestic gross price increase of 4 percent, drove market share growth in a down economy, and achieved superior consumer preference for its brands.
In 2008, Hanes was No. 1 for the fifth consecutive year on the Women’s Wear Daily “Top 100 Brands Survey” for apparel and accessory brands that women know best and was No. 1 for the fifth consecutive year as the most preferred men’s, women’s and children’s apparel brand of consumers in Retailing Today magazine’s “Top Brands Study.” Additionally, the company had five of the top 10 intimate apparel brands preferred by consumers in the Retailing Today study - Hanes, Playtex, Bali, Just My Size and L’eggs.

Significant Supply Chain Progress. In executing its global supply chain strategy of operating fewer, larger facilities in lower-cost countries, Hanesbrands reduced the number of company-owned and operated manufacturing and distribution facilities in 2008 from 102 to 88. The company expanded its operations in Asia, adding three sewing plants in Thailand and Vietnam and increasing employment in Asia from approximately 2,000 to 5,500.
In the fourth quarter, the company also acquired an embroidery and screen-print facility in Honduras and began production at its new sock knitting and finishing plant in El Salvador. Earlier this month, the company announced that it will close its Barnwell, S.C., sock knitting plant by the end of April, moving production to the new sock facility in El Salvador. Approximately 310 jobs will be eliminated.
Additionally, the company improved its product quality by 27 percent and reduced complexity by eliminating 12 percent of its product SKUs.

Cost Reduction Progress. Hanesbrands made significant progress in its multiyear goal of generating gross savings that could approach or exceed $200 million. The company recognized approximately $76 million of the incremental gross savings in 2008.
The company is close to completing its cumulative $250 million of restructuring expected in the three years ending in 2009. With the Barnwell plant closure plan, the company has announced 89 percent of its expected restructuring charges, or $222 million.

Strategic Debt Structure. Hanesbrands strategically improved its debt structure by increasing the percentage of its debt that is capped or at fixed-rates to 82 percent for 2009. The company ended the year with a bank covenant defined debt-to-EBITDA ratio of 3.3 times, affording the company similar cushion of meeting this covenant measure as it had at the end of the third quarter. Hanesbrands has been exploring and will continue to explore the multiple options available, including amendments to its credit facility, to ensure that it remains in compliance with its bank covenants in this uncertain economic environment.