HanesBrands Reports Second-Quarter 2013 Financial Results

  HanesBrands Reports Second-Quarter 2013 Financial Results

Significant Margin Improvement as a Result of the Company’s
Innovate-to-Elevate Initiatives and Lower Cotton Costs

Company Raises Guidance for Full-Year Earnings, Operating Profit and Free Cash
Flow

Business Wire

WINSTON-SALEM, N.C. -- July 30, 2013

HanesBrands (NYSE: HBI), a leading marketer of everyday branded basic apparel,
today reported significantly higher second-quarter 2013 earnings and margins
on 2 percent net sales growth.

For the quarter ended June 29, 2013, net sales increased 2 percent to $1.2
billion, operating profit increased 51 percent to $181.4 million, and diluted
earnings per share increased 78 percent to $1.19 from $0.67 a year ago.
(Unless noted, all performance measures for the year-ago period are for
continuing operations. See discontinued operations section in this press
release.)

The company’s Innovate-to-Elevate platforms, which integrate the strengths of
the company’s iconic brands, low-cost supply chain and product innovation,
continue to help drive results, while the year-ago quarter had substantially
higher cotton costs.

While the sales increase reflected a soft retail sales environment, gross and
operating margins were strong, each up by approximately 500 basis points.
Operating margins increased in each of the company’s four business segments
with Activewear achieving record double-digit margins for the second quarter
and the first half.

Based on year-to-date results and the economic environment, Hanes has
increased its 2013 guidance for EPS, operating profit and free cash flow,
while slightly lowering expectations for sales. The company’s new full-year
guidance anticipates net sales of approximately $4.55 billion; operating
profit of $550 million to $575 million; EPS of $3.50 to $3.65; and free cash
flow of $450 million to $550 million.

“We achieved record profit margins and EPS in the second quarter with each
business segment achieving improved profitability,” Hanes Chairman and CEO
Richard A. Noll said. “Our Innovate-to-Elevate platforms continue to excel and
are quickly delivering results for us and our retail partners. We are on solid
footing to continue to deliver value for consumers, retailers and investors.
We have moved into the low end of our target range for sustained operating
profitability sooner than anticipated, and our cash flow and solid balance
sheet have allowed us to begin paying quarterly dividends and agree to acquire
Maidenform Brands.”

Second-Quarter and First-Half 2013 Financial Highlights and Business Segment
Summary

Key accomplishments for the second quarter and first half include:

  *Innovate-to-Elevate Platforms Driving New-Product Success. The company’s
    Innovate-to-Elevate product platforms continue to perform well. In
    particular, Hanes Comfort Blend and X-Temp underwear and socks are driving
    strong growth in Innerwear basics, and Smart Size bras are performing well
    across brands in Innerwear intimate apparel.
  *Strong Second-Quarter and First-Half Operating Margin. The company
    achieved record profitability in the second quarter with an operating
    margin of 15.1 percent, up 490 basis points over the prior-year quarter.
    Operating margins increased in each business segment in the second
    quarter. For the first half, the company’s 12.4 percent operating margin
    increased 630 basis points over the previous year’s first half.

Key segment highlights include:

Innerwear Segment. Despite the continued soft retail environment, Innerwear
net sales increased 3 percent and operating profit increased 23 percent for
the second quarter. New products continued to perform well.

  *Strong Operating Margin Improvement. Innerwear operating margin increased
    to 22 percent in the second quarter and was 21 percent for the first half.
    Both basics (socks and underwear) and intimates (bras, panties, shapewear
    and hosiery) achieved margin expansion in the half.
  *Socks and Men’s Underwear Thrive. The segment’s net sales increase was
    driven by strong sales of socks and men’s underwear, each of which
    increased by double digits and achieved strong margin expansion. For
    intimates, hosiery sales increased while bra and panty sales declined.

Activewear Segment. The Activewear segment, formerly named Outerwear, achieved
strong profitability improvement on flat sales in the second quarter.

  *Strong Profitability. The segment delivered record profitability with an
    operating margin of 12.6 percent for the second quarter and 10.4 percent
    for the first half. Each of the segment’s categories – retail activewear,
    branded printwear and Gear for Sports – achieved double-digit operating
    margins in the second quarter.
  *Sales Stability. Activewear net sales were comparable to the year-ago
    quarter, but sales increased by 2 percent excluding the wholesale branded
    printwear category, which is reducing low-margin sales as planned. Retail
    Champion and C9 by Champion sales increased by mid-single digits, and Gear
    for Sports sales increased by double digits.

International Segment. International segment net sales decreased 1 percent in
the second quarter as a result of unfavorable currency exchange rates, while
operating profit increased 7 percent and the operating margin was 10.2
percent. On a constant currency basis, net sales increased 5 percent and
operating profit increased 18 percent in the second quarter.

Direct to Consumer Segment. Direct to Consumer sales for the quarter declined
2 percent, while operating profit increased 30 percent. The segment’s
operating margin for the quarter was 9.8 percent.

2013 Guidance

Based on year-to-date results and the near-term economic outlook, Hanes has
updated its full-year guidance. The company now anticipates net sales of
approximately $4.55 billion; operating profit of $550 million to $575 million;
EPS of $3.50 to $3.65; and free cash flow of approximately $450 million to
$550 million. The guidance implies an operating margin between 12 percent and
13 percent, which is in the lower half of the company’s longer-term goal of
sustained operating margin of 12 percent to 14 percent.

Hanes’ previous guidance for the year was net sales of approximately $4.6
billion; operating profit of $500 million to $550 million; EPS of $3.25 to
$3.40; and free cash flow of $350 million to $450 million.

Hanes continues to expect a decline in branded printwear sales in 2013 of $40
million to $50 million from rationalization that began in mid-2012; of the
expected decline, $20 million occurred in the first half of 2013.

The company continues to expect its overall media investment to increase in
2013 with higher media spending of $20 million to $30 million in the second
half of the year.

Full-year interest expense and other expense are expected to total $120
million, including approximately $15 million in prepayment expenses to retire
the remaining $250 million of 8 percent senior notes due 2016. The full-year
tax rate is expected to be in the teens.

The free cash flow guidance for 2013 was increased $100 million to $450
million to $550 million as a result of improved first-half profitability, an
improved outlook, and higher working capital productivity. Free cash flow
guidance includes expected pension contributions of approximately $38 million
and net capital expenditures of approximately $50 million.

Current and previous guidance for 2013 excludes any potential effects of or
contributions from the pending acquisition of Maidenform Brands, Inc. Hanes
announced on July 24, 2013, that it entered into a definitive agreement to
acquire Maidenform, and the company expects to close the acquisition in the
fourth quarter of 2013 pending regulatory and Maidenform shareholder approval
and other customary closing conditions.

Hanes continues to expect to retire all of the remaining $250 million of 8
percent senior notes in the fourth quarter of 2013 and expects to end the year
with $1 billion in bond debt. If the Maidenform acquisition closes in the
fourth quarter, as expected, the company expects to end the year with a ratio
of long-term debt to EBITDA within the company’s previously disclosed target
range of 1.5 to 2.5 times.

“The true earnings power of our business is only beginning to shine through,”
Noll said. “Significant earnings potential remains as we push toward the
higher end of the range for our longer-term operating margin goal. When you
couple the current momentum in our business with a 10- to 15-cent contribution
from Maidenform, a reasonable goal for 2014 EPS is in the low $4 range.”

Discontinued Operations

In 2012, the company announced it was exiting certain international and
domestic imagewear businesses that are now classified as discontinued
operations. Discontinued operations have no effect on 2013 results.

On May 30, 2012, Hanes sold its European imagewear business, and the company
subsequently completed in 2012 the discontinuation of its private-label and
Outer Banks domestic imagewear operations serving wholesalers that sell to the
screen-print industry. In accordance with generally accepted accounting
principles, the company reported results for the second, third and fourth
quarters of 2012 on a continuing-operations basis and revised prior-period
results, including the first quarter of 2012, to reflect continuing
operations. The company’s branded printwear operations continue to operate and
serve the domestic screen-print market with Hanes and Champion brand products.

In the first half of 2012, discontinued operations reported a loss per diluted
share of $0.69 – a loss of $0.03 in the first quarter and a loss of $0.66 in
the second quarter.

The company has provided information on discontinued operations and financial
results for prior periods, including posting a five-year history of results
from continuing operations. The information is available in the investors
section of the company’s corporate website, http://tiny.cc/HanesBrandsIR.

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 first half of the fiscal year and 2013
guidance 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 Hanes 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 corporate website. A telephone playback will be
available from approximately midnight EDT today through midnight EDT Aug. 6,
2013. 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 21222455.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains certain “forward-looking statements,” as defined
under U.S. federal securities laws, with respect to our long-term goals and
trends associated with our business, as well as guidance as to future
performance. In particular, among others, statements following the heading
“2013 Guidance,” as well as statements about the proposed acquisition of
Maidenform, including the expected timing for closing the acquisition, are
forward-looking statements. These forward-looking statements are based on our
current intent, beliefs, plans and expectations. Readers are cautioned not to
place any undue reliance on any forward-looking statements. Forward-looking
statements necessarily involve risks and uncertainties, many of which are
outside of our control, that could cause actual results to differ materially
from such statements and from our historical results and experience. These
risks and uncertainties include such things as: 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;
financial difficulties experienced by, or loss of or reduction in sales to,
any of our top customers or groups of customers; our ability to effectively
manage our inventory and reduce inventory reserves; our ability to optimize
our global supply chain; the risk of significant fluctuations in foreign
currency exchange rates; 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 and quarterly reports on Form 10-Q, as well as in the
investors section of our corporate website at http://tiny.cc/HanesBrandsIR.
With respect to the proposed acquisition of Maidenform, these factors include,
but are not limited to: events that could give rise to a termination of the
merger agreement or failure to receive necessary approvals or funding for the
acquisition, the outcome of any litigation related to the acquisition, the
level of expenses and other charges related to the acquisition and the funding
thereof, and our ability to achieve expected synergies and successfully
complete the integration of Maidenform. For further information regarding the
risks associated with Hanes’ and Maidenform’s businesses, please refer to
their respective filings with the SEC and the proxy statement and other
materials that will be filed with the SEC by Maidenform in connection with the
acquisition. There can be no assurance that the acquisition will be completed,
or if it is completed, that it will close within the anticipated time period
or that the expected benefits of the acquisition will be realized. Since it is
not possible to predict or identify all of the risks, uncertainties and other
factors that may affect future results, the above list should not be
considered a complete list. Any forward-looking statement speaks only as of
the date on which such statement is made, and HanesBrands undertakes no
obligation to update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise, other than as required
by law.

Additional Information and Where to Find It

In connection with the acquisition, Maidenform will file a proxy statement and
other materials with the SEC. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO
READ THE PROXY STATEMENT AND OTHER RELEVANT MATERIALS WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT MAIDENFORM AND
THE ACQUISITION. Investors and security holders may obtain free copies of
these documents (when they are available) and other documents filed with the
SEC at the SEC’s website at www.sec.gov. In addition, the documents filed by
Maidenform with the SEC may be obtained free of charge by contacting
Maidenform’s investor relations department by telephone at (732) 621-2300 or
via email at ir@maidenform.com.

Participants in the Solicitation

Maidenform and its officers and directors and HanesBrands and its officers and
directors may be deemed to be participants in the solicitation of proxies from
Maidenform stockholders with respect to the acquisition. Information about
Maidenform’s officers and directors and their ownership of Maidenform common
shares is set forth in the proxy statement for Maidenform’s 2013 Annual
Meeting of Stockholders, which was filed with the SEC on April 10, 2013.
Information about HanesBrands’ officers and directors is set forth in the
proxy statement for HanesBrands’ 2013 Annual Meeting of Stockholders, which
was filed with the SEC on Feb. 21, 2013. Investors and security holders may
obtain more detailed information regarding the direct and indirect interests
of the participants in the solicitation of proxies in connection with the
acquisition by reading the preliminary and definitive proxy statements
regarding the acquisition, which will be filed by Maidenform with the SEC.

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, and activewear produced in the company’s
low-cost global supply chain. Ranked No. 512 on the Fortune 1000 list, Hanes
has approximately 51,500 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 2013 and 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.

HANESBRANDS INC.

Condensed Consolidated Statements of Income (Loss)

(Amounts in thousands, except per-share amounts)

(Unaudited)
                                                                                    
               Quarter Ended                            Six Months Ended
               June 29, 2013  June 30, 2012   %        June 29, 2013  June 30, 2012   % Change
                                               Change
Net sales      $ 1,199,205     $ 1,180,651     1.6  %   $ 2,144,666     $ 2,153,784     (0.4  )%
Cost of sales  763,723        813,719                 1,381,885      1,531,738   
Gross profit   435,482         366,932         18.7 %   762,781         622,046         22.6  %
As a % of net  36.3        %   31.1        %            35.6        %   28.9        %
sales
Selling,
general and    254,035         246,981                  496,191         491,450
administrative
expenses
As a % of net  21.2        %   20.9        %            23.1        %   22.8        %
sales
Operating      181,447         119,951         51.3 %   266,590         130,596         104.1 %
profit
As a % of net  15.1        %   10.2        %            12.4        %   6.1         %
sales
Other expenses 751             811                      1,215           1,456
Interest       25,221         36,611                  50,844         73,606      
expense, net
Income from
continuing
operations
before         155,475         82,529                   214,531         55,534

income tax
expense
Income tax     33,889         15,213                  41,566         12,489      
expense
Income from
continuing     121,586         67,316          80.6 %   172,965         43,045          301.8 %
operations
Loss from
discontinued   —              (66,085     )            —              (68,644     )
operations,
net of tax
Net income     $ 121,586      $ 1,231        NM       $ 172,965      $ (25,599   )   NM
(loss)
                                                                                        
Earnings
(loss) per
share - basic:
Continuing     $ 1.22          $ 0.68          79.4 %   $ 1.74          $ 0.44          295.5 %
operations
Discontinued   —              (0.67       )   NM       —              (0.70       )   NM
operations
Net income     $ 1.22         $ 0.01         NM       $ 1.74         $ (0.26     )   NM
(loss)
                                                                                        
Earnings
(loss) per
share -
diluted:
Continuing     $ 1.19          $ 0.67          77.6 %   $ 1.70          $ 0.43          295.3 %
operations
Discontinued   —              (0.66       )   NM       —              (0.69       )   NM
operations
Net income     $ 1.19         $ 0.01         NM       $ 1.70         $ (0.26     )   NM
(loss)
                                                                                        
Weighted
average shares
outstanding:
Basic          99,855          98,572                   99,624          98,553
Diluted        102,013         100,066                  101,729         99,962
                                                                                        

HANESBRANDS INC.

Supplemental Financial Information

(Dollars in thousands)

(Unaudited)
                                                                                     
               Quarter Ended                             Six Months Ended
               June 29, 2013  June 30, 2012   %         June 29, 2013  June 30, 2012   % Change
                                               Change
Segment net
sales¹:
Innerwear      $ 687,319       $ 664,940       3.4  %    $ 1,184,344     $ 1,173,978     0.9   %
Activewear     294,231         295,424         (0.4 )%   561,417         567,988         (1.2  )%
Direct to      92,633          94,572          (2.1 )%   172,716         179,285         (3.7  )%
Consumer
International  125,022        125,715        (0.6 )%   226,189        232,533        (2.7  )%
Total net      $ 1,199,205    $ 1,180,651    1.6  %    $ 2,144,666    $ 2,153,784    (0.4  )%
sales
                                                                                         
Segment
operating
profit
(loss)¹:
Innerwear      $ 152,702       $ 124,460       22.7 %    $ 242,444       $ 177,668       36.5  %
Activewear     37,120          2,061           NM        58,429          (16,617     )   NM
Direct to      9,064           6,969           30.1 %    9,196           6,208           48.1  %
Consumer
International  12,732          11,887          7.1  %    15,014          16,786          (10.6 )%
General
corporate      (30,171     )   (25,426     )   18.7 %    (58,493     )   (53,449     )   9.4   %
expenses/other
Total
operating      $ 181,447      $ 119,951      51.3 %    $ 266,590      $ 130,596      104.1 %
profit
                                                                                         
EBITDA²:
Net income
from           $ 121,586       $ 67,316                  $ 172,965       $ 43,045
continuing
operations
Interest       25,221          36,611                    50,844          73,606
expense, net
Income tax     33,889          15,213                    41,566          12,489
expense
Depreciation
and            22,409         23,404                  45,630         46,266         
amortization
Total EBITDA   $ 203,105      $ 142,544      42.5 %    $ 311,005      $ 175,406      77.3  %

  In the first quarter of 2013, Hanesbrands renamed the Outerwear segment to
  Activewear to reflect the trend of this category becoming a part of
  consumers’ active lifestyles and more aptly describe the competitive space
¹ of this business. In addition, certain prior-year segment operating profit
  disclosures have been revised to conform to the current-year presentation.
  These changes were primarily the result of Hanesbrands’ decision to revise
  the manner in which Hanesbrands allocates certain selling, general and
  administrative expenses.
² Earnings from continuing operations before interest, taxes, depreciation and
  amortization (EBITDA) is a non-GAAP financial measure.
  

HANESBRANDS INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)
                                                          
                                            June 29, 2013   December 29, 2012
Assets
Cash and cash equivalents                   $ 82,305        $    42,796
Trade accounts receivable, net              616,622         506,278
Inventories                                 1,337,174       1,253,136
Other current assets                        223,863        225,315
Total current assets                        2,259,964      2,027,525
                                                            
Property, net                               576,580         596,158
Intangible assets and goodwill              547,475         553,414
Other noncurrent assets                     465,511        454,603
Total assets                                $ 3,849,530    $    3,631,700
                                                            
Liabilities
Accounts payable and accrued liabilities    $ 693,223       $    675,616
Notes payable                               30,305          26,216
Accounts Receivable Securitization Facility 170,479        173,836
Total current liabilities                   894,007        875,668
Long-term debt                              1,374,500       1,317,500
Other noncurrent liabilities                536,885        551,666
Total liabilities                           2,805,392      2,744,834
                                                            
Equity                                      1,044,138      886,866
Total liabilities and equity                $ 3,849,530    $    3,631,700
                                                                 

HANESBRANDS INC.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)
                                                 
                                                 Six Months Ended
                                                 June 29, 2013  June 30, 2012
Operating Activities:
Net income (loss)                                $  172,965      $  (25,599  )
Depreciation and amortization                    45,630          47,049
Impairment of intangibles                        —               37,597
Loss on disposition of business                  —               31,616
Other noncash items                              10,805          5,415
Changes in assets and liabilities, net           (211,074    )   (83,338     )
Net cash provided by operating activities        18,326         12,740      
                                                                 
Investing Activities:
Capital expenditures                             (16,173     )   (19,005     )
Disposition of business                          —              12,903      
Net cash used in investing activities            (16,173     )   (6,102      )
                                                                 
Financing Activities:
Net borrowings (repayments) on notes payable,    38,555         (11,614     )
debt and other
Effect of changes in foreign currency exchange   (1,199      )   (707        )
rates on cash
Increase (decrease) in cash and cash equivalents 39,509          (5,683      )
Cash and cash equivalents at beginning of year   42,796         35,345      
Cash and cash equivalents at end of period       $  82,305      $  29,662   
                                                                 
Supplemental cash flow information¹:
Net cash provided by operating activities        $  18,326       $  12,740
Capital expenditures                             (16,173     )   (19,005     )
Free cash flow                                   $  2,153       $  (6,265   )

  Free cash flow is a non-GAAP measure. For 2013 guidance, net cash provided
  by operating activities is expected to be approximately $500 million to $600
¹ million and net capital expenditures are expected to be approximately $50
  million, resulting in expectations for non-GAAP free cash flow of
  approximately $450 million to $550 million.

Contact:

HanesBrands
News Media:
Matt Hall, 336-519-3386
or
Analysts and Investors:
T.C. Robillard, 336-519-2115
 
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