Hanesbrands Inc. Reports Fourth-Quarter 2007 Results

Hanesbrands Inc. (NYSE: HBI), a leading marketer of innerwear, outerwear and hosiery apparel, today reported results for the 2007 fourth quarter.

Diluted earnings per share in the fourth quarter increased to $0.52 from $0.25. Non-GAAP diluted earnings per share, which exclude actions, increased by 31 percent in the quarter to $0.38 as a result of increased sales and cost-reduction initiatives. (See non-GAAP description below.)

Total net sales in the quarter increased by 2.4 percent to $1.16 billion.

We capped a successful first year, in which we exceeded our financial goals, with solid performance in the fourth quarter in a tough consumer climate, said Hanesbrands Chief Executive Officer Richard A. Noll. And, as we have done all year, we continued to generate strong cash flow, using it to reduce long-term debt by an additional $50 million in the quarter.

Noteworthy Financial Highlights

Selected highlights for the fourth quarter and fiscal year ended Dec. 29, 2007, include:

  • Total net sales in the quarter increased by 2.4 percent to $1.16 billion the fourth consecutive quarter of sales growth. By sequential quarter, sales in the fiscal year grew by 0.7 percent, 0.2 percent, 3.1 percent and 2.4 percent. Total net sales for the full fiscal year increased by $71 million, or 1.6 percent, to $4.47 billion.

One of our strategies is to invest in our largest and strongest brands with innovative key items supported by great media, Noll said. This strategy is delivering results.

For the quarter and the full year, Hanes, Champion and Bali brand sales increased. The Champion brand has recorded double-digit sales growth for three consecutive years. For the full year, sales to each of the companys top three customers increased.

  • Diluted earnings per share in the quarter were $0.52, up from $0.25 a year ago, while diluted EPS for the year was $1.30 versus $2.16 a year ago. The full-year decline reflected increased interest expense as a result of the companys independent structure, higher restructuring costs and a higher tax rate.

Non-GAAP diluted EPS increased by 31 percent in the quarter to $0.38 from $0.29 a year ago. The increase was primarily a result of increased sales and operating profit and lower interest expense.

  • Operating profit in the quarter, based on generally accepted accounting principles, increased to $125.9 million, from $96.2 million a year ago. For the year, operating profit increased to $388.6 million compared with $366.2 million a year ago.

Non-GAAP operating profit increased by 6.6 percent in the quarter and 3.3 percent in the year, to $101.8 million and $432.0 million, respectively. The companys non-GAAP operating profit margin, a measure the company uses to better assess underlying performance because it excludes actions, was 9.7 percent for the year, compared with 9.5 percent last year.

We achieved operating profit growth and improved our margins during a year of significant change, Noll said. We exceeded our goal to offset our stand-alone company costs and selected increased investment in our business with cost savings from consolidation and moving supply chain operations to lower cost countries.

  • Hanesbrands used its continued strong cash flow from operations to prepay long-term debt in the quarter by $50 million. Cash flow from operations for the year increased by 28 percent to $359 million. In fiscal 2007, Hanesbrands repaid $178 million of long-term debt, repurchased $44 million in company stock and voluntarily contributed $48 million to its qualified pension plans.

Since Hanesbrands spun off in September 2006, the company has reduced long-term debt by $285 million and voluntarily contributed $96 million to its qualified pension plans.

(Operating profit excluding actions and diluted EPS 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 quarter and full year were plant closings and reorganization, 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 expenses, and the tax effect on these items. See Table 4A and 4B for details and reconciliation with reported operating results.)

Other Highlights

As part of continued investment in brands and marketing, the Champion brand launched its How You Play advertising campaign on Nov. 7, the first campaign for the brand since 2003. On Oct. 31, Hanesbrands announced a 10-year strategic alliance with The Walt Disney Company that includes basic apparel exclusivity for the Hanes and Champion brands, product co-branding, attraction sponsorships and other brand visibility and signage at Disney properties. The alliance included the naming rights for the stadium at Disneys Wide World of Sports Complex, now known as Champion Stadium.

As part of its global supply chain strategy, Hanesbrands acquired in December the Inversiones Bonaventure S.A. de C.V. hosiery sewing operation in Las Lourdes, El Salvador. The 900-employee Bonaventure plant had been a contract sewing supplier for Hanesbrands for 12 years.

We are very pleased with our performance in our first year of independence, Noll said. We delivered sales growth, margin expansion and continued strong cash generation. This puts us in good position as we seek to achieve our long-term growth goals for sales, operating profit and earnings per share.

This would not have been possible without the significant efforts of our worldwide workforce to manage change, embrace our improvement strategies and focus on our competitiveness. I appreciate all of their efforts and commitment to our success.

Hanesbrands Policy on Guidance

Hanesbrands follows a policy of not providing quarterly or annual EPS guidance. The company plans to communicate appropriately to provide investors with an understanding of long-term goals, the trends associated with its business and current financial performance.

Webcast Conference Call

Hanesbrands will host a live Internet webcast of its quarterly investor conference call at 10 a.m. EST today. The broadcast may be accessed on the home page of the Hanesbrands corporate Web site, www.hanesbrands.com. The call is expected to conclude by 11 a.m.

An archived replay of the conference call webcast will be available in the investors section of the Hanesbrands Web site. A telephone playback will be available from approximately noon EST today until midnight on Feb. 7, 2008. The replay will be available by calling toll-free (800) 642-1687, or by toll call at (706) 645-9291. The replay pass code is 29092926.

Cautionary Statement Concerning Forward-Looking Statements

Statements in this press release that are not statements of historical fact are forward-looking statements, including those regarding our launch as an independent company and the benefits expected from that launch, our long-term goals, and trends associated with our business. These 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: our ability to migrate our production and manufacturing operations to lower-cost countries around the world; our ability to effectively implement other components of our business strategy; costs and adverse publicity from violations of labor or environmental laws by us or our suppliers; our ability to successfully manage adverse changes in social, political, economic, legal and other conditions affecting our foreign operations; retailer consolidation and other changes in the apparel essentials industry; our ability to keep pace with changing consumer preferences; loss of or reduction in sales to, or financial difficulties experienced by, any of our top customers; fluctuations in the price or availability of cotton or labor; our substantial debt and debt-service requirements that restrict our operating and financial flexibility and impose significant interest and financing costs; and other risks identified from time to time in our most recent Securities and Exchange Commission reports, including the 2006 Annual Report on Form 10-K, 2007 quarterly reports on Form 10-Q and current reports on Form 8-K, registration statements, press releases and other communications. 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 Inc.

Hanesbrands Inc. is a leading marketer of innerwear, outerwear and hosiery apparel under strong consumer brands, including Hanes, Champion, Playtex, Bali, Just My Size, barely there and Wonderbra. The company designs, manufactures, sources and sells T-shirts, bras, panties, mens underwear, childrens underwear, socks, hosiery, casualwear and activewear. Hanesbrands has approximately 50,000 employees in more than 25 countries. More information may be found on the companys Web site at www.hanesbrands.com.

TABLE 1
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(Amounts in thousands, except per-share amounts)
(Unaudited)
Quarter EndedYear Ended
December 29, 2007December 30, 2006

% Change

December 29, 2007December 30, 2006

% Change

Net sales:
Innerwear $ 639,788 $ 644,685 $ 2,556,906 $ 2,574,967
Outerwear 325,262 297,978 1,221,845 1,154,107
Hosiery 76,983 87,359 266,198 278,253
International 118,779 104,603 421,898 400,167
Other 10,291 8,585 56,920 44,670
Total segment net sales 1,171,103 1,143,210 4,523,767 4,452,164
Less: Intersegment 11,973 11,705 49,230 48,698
Total net sales 1,159,130 1,131,505 2.4% 4,474,537 4,403,466 1.6%
Cost of sales 799,275 776,782 3,033,627 2,960,759
Gross profit 359,855 354,723 1.4% 1,440,910 1,442,707 -0.1%
As a % of net sales 31.0%31.3%32.2%32.8%

Selling, general and administrative expenses

266,937 285,043 1,040,754 1,093,436
As a % of net sales 23.0%25.2%23.3%24.8%

Gain on curtailment of postretirement benefits

(32,144) (28,467) (32,144) (28,467)
Restructuring (802) 1,965 43,731 11,516
Operating profit 125,864 96,182 30.9% 388,569 366,222 6.1%
As a % of net sales 10.9%8.5%8.7%8.3%
Other expenses 3,795 7,401 5,235 7,401
Interest expense, net 46,991 53,184 199,208 79,621

Income before income tax expense

75,078 35,597 184,126 279,200
Income tax expense 25,285 11,803 57,999 71,184
Net income $ 49,793 $ 23,794 109.3% $ 126,127 $ 208,016 -39.4%
Earnings per share:
Basic $ 0.52 $ 0.25 $ 1.31 $ 2.16
Diluted $ 0.52 $ 0.25 $ 1.30 $ 2.16

Weighted average shares outstanding:

Basic 95,381 96,309 95,936 96,309
Diluted 96,650 96,620 96,741 96,390
TABLE 2
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
December 29, 2007December 30, 2006
Assets
Cash and cash equivalents $ 174,236 $ 155,973
Trade accounts receivable 575,069 488,629
Inventories 1,117,052 1,216,501
Other current assets 227,977 210,077
Total current assets 2,094,334 2,071,180
Property, net 534,286 556,866
Intangible assets and goodwill 461,691 418,706
Other noncurrent assets 349,172 388,868
Total assets $ 3,439,483 $ 3,435,620
Liabilities
Accounts payable and accrued liabilities $ 669,405 $ 587,542
Other current liabilities 19,577 23,639
Total current liabilities 688,982 611,181
Long-term debt 2,315,250 2,484,000
Other noncurrent liabilities 146,347 271,168
Total liabilities 3,150,579 3,366,349
Equity 288,904 69,271
Total liabilities and equity $ 3,439,483 $ 3,435,620
TABLE 3
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Year Ended
December 29, 2007December 30, 2006
Operating activities:
Net income $ 126,127 $ 208,016
Depreciation and amortization 131,676 133,161
Changes in assets and liabilities, net, and other 101,237 (60,964 )
Net cash from operating activities 359,040 280,213
Investing Activities:
Purchases of property and equipment, net, and other (101,085 ) (81,102 )
Financing Activities:
Transactions with parent companies and other (243,379 ) (555,876 )
Effect of changes in foreign currency exchange rates on cash 3,687 2,106
Increase (decrease) in cash and cash equivalents 18,263 (354,659 )
Cash and cash equivalents at beginning of year 155,973 510,632
Cash and cash equivalents at end of year $ 174,236 $ 155,973
TABLE 4
HANESBRANDS INC.
Supplemental Financial Information
(Dollars in thousands, except per-share amounts)
(Unaudited)
Reconciliation of Reported Operating Results with Certain Information Excluding Actions
Quarter EndedYear Ended
A. Operating profit excluding actionsDecember 29, 2007December 30, 2006December 29, 2007December 30, 2006
Operating profit as reported $ 125,864 $ 96,182 $ 388,569 $ 366,222
Plant closings and reorganization 7,457 18,771 83,183 32,715

Gain on curtailment of postretirement benefits

(32,144) (28,467) (32,144) (28,467)

Amortization of gain on postretirement benefits included in SG&A

(1,341) - (7,377) -

Separation of pension plan assets and liabilities included in SG&A

1,409 - (3,408) -

Spinoff and related charges included in SG&A

509 8,977 3,209 47,887
Operating profit excluding actions $ 101,754 $ 95,463 $ 432,032 $ 418,357

Percentage of net sales

8.8% 8.4% 9.7% 9.5%
B. Net income excluding actions
Net income as reported $ 49,793 $ 23,794 $ 126,127 $ 208,016
Plant closings and reorganization 7,457 18,771 83,183 32,715

Gain on curtailment of postretirement benefits

(32,144) (28,467) (32,144) (28,467)

Amortization of gain on postretirement benefits included in SG&A

(1,341) - (7,377) -

Separation of pension plan assets and liabilities included in SG&A

1,409 - (3,408) -

Spinoff and related charges included in SG&A

509 8,977 3,209 47,887

Other expenses (Losses on early extinguishment of debt)

3,795 7,401 5,235 7,401

Tax effect on plant closings and reorganization, gain on curtailment, amortization of gain, separation of pension plan assets and liabilities, spinoff and related charges, and other expenses

6,842 (2,216) (15,340) (15,179)
Net income excluding actions $ 36,320 $ 28,260 $ 159,485 $ 252,373

Diluted earnings per share excluding actions

$ 0.38 $ 0.29 $ 1.65 $ 2.62
C. Supply chain actions
Plant closings and reorganization

-Accelerated depreciation included in Cost of sales

$ 7,616 $ 16,806 $ 36,912 $ 21,199

-Accelerated depreciation included in SG&A

643 - 2,540 -
-Restructuring (802) 1,965 43,731 11,516
Total $ 7,457 $ 18,771 $ 83,183 $ 32,715
Noncash amount $ 9,398 $ 16,806 $ 38,970 $ 17,318
D. EBITDA
Net income $ 49,793 $ 23,794 $ 126,127 $ 208,016
Interest expense, net 46,991 53,184 199,208 79,621
Income tax expense 25,285 11,803 57,999 71,184
Depreciation and amortization 31,755 43,839 131,676 133,161
Total EBITDA $ 153,824 $ 132,620 $ 515,010 $ 491,982

Contacts:

Hanesbrands Inc.
News Media:
Matt Hall, 336-519-3386
or
Analysts and Investors:
Brian Lantz, 336-519-7130

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