HanesBrands Reports Third-Quarter 2012 Results

  HanesBrands Reports Third-Quarter 2012 Results

Business Wire

WINSTON-SALEM, N.C. -- October 23, 2012

HanesBrands (NYSE: HBI), a leading marketer of everyday branded basic apparel,
today reported third-quarter net sales increased 3 percent, earnings per
diluted share for continuing operations increased 31 percent to $1.11, and
free cash flow totaled $287 million.

Net sales for the quarter ended Sept. 29, 2012, totaled $1.22 billion, up from
$1.19 billion a year ago. EPS growth contributors included Innerwear segment
performance and across-the-board tight expense control. (Unless noted, all
performance measures are for continuing operations. Discontinued operations
are discussed later in this press release.)

For 2012 full-year guidance, the company increased the low end of its EPS
range by 4 cents to $2.54 to $2.60. It expects net sales of approximately
$4.52 billion and free cash flow of approximately $500 million, the high end
of its previous range.

“We are executing well and had a very good quarter as reflected in our
operating margin, free cash flow and EPS, all of which are all-time quarterly
records,” Hanes Chairman and Chief Executive Officer Richard A. Noll said.
“Cotton inflation is behind us, and we are generating momentum for continued
growth.”

Third-Quarter Business Highlights

  *The company’s overall operating profit margin increased 60 basis points to
    12.8 percent in the quarter, reflecting continuous sequential improvement
    since the first quarter. Selling, general and administrative expenses
    decreased as a percentage of net sales, mitigating the impact of higher
    cotton costs.

    The company generated free cash flow of $287 million in the quarter and
    has now completed the retirement of approximately $300 million of
    floating-rate bond debt as planned in 2012.
  *Innerwear segment net sales increased 3 percent in the quarter and
    operating profit increased 10 percent. Excluding sales declines to a
    mid-tier retail customer that is undergoing a major strategic shift,
    Innerwear sales would have increased 5 percent in the third quarter versus
    last year.

    Innerwear sales growth has increased for three consecutive quarters in
    2012. The 3 percent growth in the third quarter built on 2 percent growth
    in the second quarter and 1 percent growth in the first quarter. Hanes and
    Champion underwear combined for double-digit growth and women’s panties
    growth was in the mid-single digits. New-product innovation contributed to
    growth, including Hanes ComfortBlend men’s underwear, Hanes Classics slim
    fit and stretch premium underwear T-shirts, and Bali and Barely There
    Smart Size seamless bras.

  *Outerwear segment net sales increased 5 percent in the quarter, while
    operating profit declined 4 percent. Sales for Champion activewear and
    Gear for Sports licensed apparel increased, but higher cotton costs
    suppressed segment operating profitability.
  *International segment net sales declined 3 percent, while increasing 2
    percent on a constant currency basis, and operating profit increased 19
    percent on a reported basis.
  *Net sales for the Direct to Consumer segment increased 2 percent, and
    operating profit increased 18 percent.

2012 Guidance

Hanes’ revised 2012 full-year guidance for continuing operations is diluted
EPS of $2.54 to $2.60, compared with previous guidance of $2.50 to $2.60. Net
sales are expected to increase approximately 2 percent to approximately $4.52
billion, compared with previous guidance of $4.52 billion to $4.57 billion.
Full-year free cash flow is expected to be approximately $500 million, the
high end of the previous range of $400 million to $500 million.

The corresponding guidance for the fourth-quarter is net sales of
approximately $1.13 billion to $1.17 billion and EPS of $1.00 to $1.06. The
company expects a gross margin percentage in the mid-30s and an operating
profit margin of slightly more than 13 percent. Interest expense is expected
to be approximately $33 million, and the effective tax rate is expected to be
in the midteens.

The company’s guidance for continuing operations is based on the following
facts. Product pricing, shelf space, and promotion plans for the remainder of
2012 have been finalized with major retail accounts. All commodity costs have
been fixed for the remainder of the year, with the company incurring
significantly lower cotton and other inflation impacts for the remainder of
the year.

The company will continue to focus its use of free cash flow on debt
retirement. In 2012, the company retired all of its approximately $300 million
of floating rate notes. For 2013, the company remains committed to prepaying
all of its $500 million of 8 percent fixed-rate notes.

The company continues to believe that a reasonable estimate of EPS potential
in 2013 is in the low $3 range.

Discontinued Operations

In May 2012, the company announced exiting certain international and domestic
imagewear businesses that are all now classified as discontinued operations.

On May 30, Hanes sold its European imagewear business, and the company has
substantially completed the discontinuation of its private-label and Outer
Banks domestic imagewear operations serving wholesalers that sell to the
screen-print industry. In accordance with GAAP requirements, the company
reported results for the second and third quarters on a continuing-operations
basis and revised prior-period results to reflect continuing operations. The
company’s branded printwear operations will continue to operate and serve the
branded domestic screen-print market.

For the first nine months, discontinued operations reported a loss per diluted
share of $0.70 – a loss of $0.03 in the first quarter, a loss of $0.66 in the
second quarter, and a loss of $0.01 in the third quarter.

More information on discontinued operations and financial results for
prior-period continuing operations is available in the investors section of
the company’s corporate website, http://tiny.cc/HanesBrandsIR, and will be
available in the company’s Form 10-Q filing for the third quarter.

Note on Non-GAAP Terms and Definitions

Free cash flow and EBITDA are not generally accepted accounting principle
measures.

Free cash flow is defined as net cash from operating activities less net
capital expenditures. Free cash flow may not be representative of the amount
of residual cash flow that is available to the company for discretionary
expenditures since it may not include deductions for mandatory debt-service
requirements and other nondiscretionary expenditures. The company believes,
however, that free cash flow is a useful measure of the cash-generating
ability of the business relative to capital expenditures and financial
performance. See Table 4 and its footnotes attached to this press release to
reconcile free cash flow for the year to date and third quarter to the GAAP
measure of net cash provided by operating activities.

EBITDA is defined as earnings from continuing operations before interest,
taxes, depreciation, and amortization. Although the company does not use
EBITDA to manage its business, it believes that EBITDA is another way that
investors measure financial performance. See Table 2 attached to this press
release to reconcile EBITDA to the GAAP measure of net income from continuing
operations.

Hanes has chosen to provide these measures to investors to enable additional
analyses of past, present and future operating performance and as a
supplemental means of evaluating company operations. Non-GAAP information
should not be considered a substitute for financial information presented in
accordance with GAAP and may be different from non-GAAP or other pro forma
measures used by other companies.

Webcast Conference Call

Hanes will host a live Internet webcast of its quarterly investor conference
call at 4:30 p.m. EDT today. The broadcast may be accessed on the home page of
the HanesBrands corporate website, www.HanesBrands.com. The call is expected
to conclude by 5:30 p.m.

An archived replay of the conference call webcast will be available in the
investors section of the HanesBrands website. A telephone playback will be
available from approximately midnight EDT today through midnight EDT Oct. 30,
2012. The replay will be available by calling toll-free (855) 859-2056, or by
toll call at (404) 537-3406. The replay pass code is 40224335.

Cautionary Statement Concerning Forward-Looking Statements

Statements in this press release that are not statements of historical fact
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including those regarding our long-term goals and trends associated with our
business, as well as guidance as to future performance. Examples of such
statements include the statements included in this press release in the
section titled 2012 Guidance. These and other forward-looking statements are
made only as of the date of this press release and are based on our current
intent, beliefs, plans and expectations. They involve risks and uncertainties
that could cause actual future results, performance or developments to differ
materially from those described in or implied by such forward-looking
statements. These risks and uncertainties include the following: current
economic conditions, including consumer spending levels and the price
elasticity of our products; the impact of significant fluctuations and
volatility in various input costs, such as cotton and oil-related materials,
utilities, freight and wages; the highly competitive and evolving nature of
the industry in which we compete; our ability to successfully manage social,
political, economic, legal and other conditions affecting our domestic and
foreign operations and supply-chain sources, such as political instability and
acts of war or terrorism, natural disasters, disruption of markets,
operational disruptions, changes in import and export laws, currency
restrictions and currency exchange rate fluctuations; the impact of the loss
of one or more of our suppliers of finished goods or raw materials; our
ability to effectively manage our inventory and reduce inventory reserves; our
ability to optimize our global supply chain; our ability to continue to
effectively distribute our products through our distribution network;
financial difficulties experienced by, or loss of or reduction in sales to,
any of our top customers or groups of customers; gains and losses in the shelf
space that our customers devote to our products; our ability to accurately
forecast demand for our products; increasing pressure on margins; our ability
to keep pace with changing consumer preferences; the impact of any inadequacy,
interruption or failure with respect to our information technology or any data
security breach; our ability to protect our reputation and brand images; our
ability to protect our trademarks, copyrights and patents; our debt and debt
service requirements that restrict our operating and financial flexibility and
impose interest and financing costs; the financial ratios that our debt
instruments require us to maintain; future financial performance, including
availability, terms and deployment of capital; our ability to comply with
environmental and occupational health and safety laws and regulations; costs
and adverse publicity from violations of labor or environmental laws by us or
our suppliers; and other risks identified from time to time in our most recent
Securities and Exchange Commission reports, including our annual report on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,
registration statements, press releases and other communications, as well as
in the investors section of our corporate website at
http://tiny.cc/HanesBrandsIR. Except as required by law, the company
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results over time.

HanesBrands

HanesBrands is a socially responsible leading marketer of everyday basic
apparel under some of the world’s strongest apparel brands, including Hanes,
Champion, Playtex, Bali, JMS/Just My Size, barely there, Wonderbra and Gear
for Sports. The company sells T-shirts, bras, panties, men’s underwear,
children’s underwear, socks, hosiery, casualwear and activewear produced in
the company’s low-cost global supply chain. Ranked No. 512 on the Fortune 1000
list, Hanes has approximately 53,300 employees in more than 25 countries and
takes pride in its strong reputation for ethical business practices. Hanes is
a U.S. Environmental Protection Agency Energy Star 2012 Sustained Excellence
Award winner and 2010 and 2011 Partner of the Year. The company ranks No. 141
on Newsweek magazine’s list of Top 500 greenest U.S. companies. More
information about the company and its corporate social responsibility
initiatives, including environmental, social compliance and community
improvement achievements, may be found on the Hanes corporate website at
www.hanesbrands.com.

TABLE 1                                                                   
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(Amounts in thousands, except per-share amounts)
(Unaudited)
                                                                                
               Quarter Ended                        Nine Months Ended
               September     October 1,    %        September     October 1,    %
               29, 2012      2011          Change   29, 2012      2011          Change
Net sales      $ 1,218,681   $ 1,185,304   2.8%     $ 3,372,465   $ 3,333,340   1.2%
Cost of sales   818,751      771,251               2,350,489    2,168,305
                                                                                
Gross profit     399,930       414,053     -3.4%      1,021,976     1,165,035   -12.3%
As a % of net    32.8%         34.9%                  30.3%         35.0%
sales
                                                                                
Selling,
general and
administrative   243,422       269,109                734,872       792,177
expenses
As a % of net   20.0%        22.7%                 21.8%        23.8%
sales
                                                                                
Operating        156,508       144,944     8.0%       287,104       372,858     -23.0%
profit
As a % of net    12.8%         12.2%                  8.5%          11.2%
sales
                                                                                
Other expenses   3,373         880                    4,829         2,295
Interest        32,897       38,255                106,503      118,483
expense, net
                                                                                
Income from
continuing
operations
before income    120,238       105,809                175,772       252,080
tax expense
Income tax      9,055         20,739                21,544        48,283
expense
Income from
continuing       111,183       85,070      30.7%      154,228       203,797     -24.3%
operations
Income (loss)
from
discontinued
operations,     (1,291)      5,762                 (69,935)     21,926
net of tax
Net income     $ 109,892     $ 90,832      21.0%    $ 84,293      $ 225,723     -62.7%
                                                                                
Earnings
(loss) per
share - basic:
Continuing     $ 1.13        $ 0.87        29.9%    $ 1.56        $ 2.09        -25.4%
operations
Discontinued    (0.01)       0.06        NM        (0.71)       0.22        NM
operations
Net income     $ 1.11        $ 0.93        19.4%    $ 0.85        $ 2.31        -63.2%
                                                                                
Earnings
(loss) per
share -
diluted:
Continuing     $ 1.11        $ 0.85        30.6%    $ 1.54        $ 2.05        -24.9%
operations
Discontinued    (0.01)       0.06        NM        (0.70)       0.22        NM
operations
Net income     $ 1.09        $ 0.91        19.8%    $ 0.84        $ 2.28        -63.2%
                                                                                
Weighted
average shares
outstanding:
Basic            98,707        97,925                 98,611        97,559
Diluted          100,472       99,535                 100,131       99,200
                                                                                

TABLE 2                                                                    
HANESBRANDS INC.
Supplemental Financial Information
(Dollars in thousands)
(Unaudited)
                                                                                  
                 Quarter Ended                        Nine Months Ended
                 September     October 1,    %        September     October 1,    %
                 29, 2012      2011          Change   29, 2012      2011          Change
Segment net
sales¹:
Innerwear        $ 574,278     $ 558,422     2.8%     $ 1,748,256   $ 1,711,802   2.1%
Outerwear          413,033       392,683     5.2%       981,021       970,776     1.1%
Direct to          99,111        97,565      1.6%       278,396       277,819     0.2%
Consumer
International     132,259      136,634     -3.2%     364,792      372,943     -2.2%
Total net        $ 1,218,681   $ 1,185,304   2.8%     $ 3,372,465   $ 3,333,340   1.2%
sales
                                                                                  
Segment
operating
profit¹:
Innerwear        $ 96,841      $ 88,372      9.6%     $ 269,718     $ 265,974     1.4%
Outerwear          46,339        48,379      -4.2%      24,118        94,265      -74.4%
Direct to          14,412        12,268      17.5%      24,773        21,955      12.8%
Consumer
International      17,574        14,797      18.8%      33,964        43,275      -21.5%
General
corporate         (18,658)     (18,872)    -1.1%     (65,469)     (52,611)    24.4%
expenses/other
Total
operating        $ 156,508     $ 144,944     8.0%     $ 287,104     $ 372,858     -23.0%
profit
                                                                                  
EBITDA²:
Net income
from             $ 111,183     $ 85,070               $ 154,228     $ 203,797
continuing
operations
Interest           32,897        38,255                 106,503       118,483
expense, net
Income tax         9,055         20,739                 21,544        48,283
expense
Depreciation
and               23,047       21,972               69,313       65,185      
amortization
Total EBITDA     $ 176,182     $ 166,036     6.1%     $ 351,588     $ 435,748     -19.3%
                                                                                  
¹ As a result of the reduced size of sheer hosiery and changing trends, HanesBrands
decided in the first quarter of 2012 to change its external segment reporting to include
hosiery operations within the Innerwear segment. Hosiery had previously been reported as
a separate segment. Prior-year segment sales and operating profit results, including
other minor allocation changes, have been revised to conform to the current-year
presentation. In addition, in May 2012, HanesBrands sold its European imagewear
business, and the company is completing the discontinuation of its private label and
Outer Banks domestic imagewear operations serving wholesalers that sell to the
screen-print industry. As a result, the current year and prior-year segment disclosures
do not reflect the sales and operating profit results of these discontinued businesses.
                                                                                  
² Earnings from continuing operations before interest, taxes, depreciation and
amortization is a non-GAAP financial measure.


TABLE 3                                                   
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
                                                                 
                                        September 29, 2012   December 31, 2011
Assets
Cash and cash equivalents               $   182,269          $   35,345
Trade accounts receivable, net              585,490              470,713
Inventories                                 1,340,776            1,607,555
Other current assets                       210,319            217,178    
Total current assets                       2,318,854          2,330,791  
                                                                 
Property, net                               606,011              635,406
Intangible assets and goodwill              556,392              603,071
Other noncurrent assets                    458,302            465,401    
Total assets                            $   3,939,559       $   4,034,669  
                                                                 
Liabilities
Accounts payable and accrued            $   688,938          $   703,711
liabilities
Notes payable                               50,778               63,075
Accounts Receivable Securitization          193,975              166,933
Facility
Current portion of long-term debt          145,185            -          
Total current liabilities                  1,078,876          933,719    
Long-term debt                              1,500,000            1,807,777
Other noncurrent liabilities               583,616            612,112    
Total liabilities                          3,162,492          3,353,608  
                                                                 
Equity                                     777,067            681,061    
Total liabilities and equity            $   3,939,559       $   4,034,669  
                                                                 
                                                                 
TABLE 4
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
                                                                 
                                        Nine Months Ended
                                        September 29, 2012   October 1, 2011
                                                                 
Operating Activities:
Net income                              $   84,293           $   225,723
Depreciation and amortization               70,096               66,568
Impairment of intangibles                   37,425               -
Loss on disposition of business             31,811               -
Other noncash items                         4,943                25,598
Changes in assets and liabilities,         80,837             (344,763   )
net
Net cash provided by (used in)             309,405            (26,874    )
operating activities
                                                                 
Investing Activities:
Capital expenditures                        (29,162     )        (56,085    )
Acquisition of business                     -                    (9,154     )
Disposition of business                    12,708             -          
Net cash used in investing activities      (16,454     )       (65,239    )
                                                                 
Financing Activities:
Net borrowings (repayments) on notes       (146,189    )       97,492     
payable, debt and other
                                                                 
Effect of changes in foreign currency      162                (1,053     )
exchange rates on cash
Increase in cash and cash equivalents       146,924              4,326
                                                                 
Cash and cash equivalents at               35,345             43,671     
beginning of year
Cash and cash equivalents at end of     $   182,269         $   47,997     
period
                                                                 
Supplemental cash flow information¹:
Net cash provided by (used in)          $   309,405          $   (26,874    )
operating activities
Capital expenditures                       (29,162     )       (56,085    )
Free cash flow                          $   280,243         $   (82,959    )


¹ Free cash flow is a non-GAAP measure. For the quarter ended September 29,
2012, net cash provided by operating activities (GAAP) was $297 million and
net capital expenditures were $10 million, resulting in non-GAAP free cash
flow of $287 million. For 2012 guidance, net cash provided by operating
activities (GAAP) is expected to be approximately $545 million and net capital
expenditures are expected to be approximately $45 million, resulting in
expectations for non-GAAP free cash flow of approximately $500 million.

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Contact:

HanesBrands
News Media: Matt Hall, 336-519-3386
Analysts and Investors: Charlie Stack, 336-519-4710
 
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