(Filed Under Financial and General Interest News). While HanesBrands profits for 2012 were down significantly compared to 2011, fourth quarter profits almost doubled and the company expects both sales and profits to increase for 2013. In the fiscal year ended December 29, 2012 Hanes earned $164.7 million on sales of $4.5 billion compared to net income of $266.7 million on sales of $4.4 billion in 2011. But for the latest quarter, HanesBrands earned $80.4 million on sales of $1.2 billion compared to $41.0 million on sales of $1.1 billion in the final quarter of 2011.
Emphasizing “strong second-half momentum,” and that “The Innerwear segment was the strongest contributor to full-year results, delivering 18 percent growth in operating profit,” the company predicted 2013 “Net sales of approximately $4.6 billion, earnings per share of $3.25 to $3.40, free cash flow of $350 million to $450 million, and further debt reduction of $250 million.”
Last year the company generated $508 million of free cash flow and “prepaid $550 million of long-term bonds. “By reducing bond debt by $750 million over the past 13 months, we have ended our era of high debt leverage, and the momentum of strong results in the back half of 2012 positions us well for continued profit growth in 2013,” declared Hanes chairman and CEO Richard Noll in a statement that accompanied the year end results.
The company listed its “financial highlights” of 2012, including a summary of its various business segments, starting with a description of its record free cash flow. “Solid performance and a focus on reducing inventory resulted in record free cash flow of $508 million in 2012. Year-end inventories improved to $1.25 billion, a decline of $354 million from $1.61 billion a year earlier.”
The company also congratulated itself on its deleveraged balance sheet. “The company significantly reduced its debt and no longer considers itself highly leveraged. Hanes prepaid $550 million in long-term bonds in 2012 and $750 million over the past five quarters.” The firm also cited the “Successful exit from under performing businesses,” a process in which “The company successfully undertook an effort to reduce risk in its business and create more consistent results by quickly exiting its European imagewear screen-print business and reorganizing its domestic screen-print channel business as branded printwear focusing on higher-margin branded Hanes and Champion products.”
Hanes cheered its “Return of earnings power” in 2012, explaining it “generated record profitability in the second half, with sales growth of 4 percent, an operating profit margin of 13 percent, and adjusted EPS growth of 75 percent. The company successfully managed through significant cotton inflation and returned to performance in the second half that reflects the company’s earnings potential for 2013 and beyond.” CFO Richard Moss stated, “We had a very successful year under difficult circumstances. We managed through a $160 million cotton inflation bubble with a successful pricing strategy and came out stronger, more innovative and more profitable. We achieved the guidance we laid out at the beginning of the year even with our decision to exit certain under performing businesses.”
Pointing out “Key segment highlights,” the company began by describing the results of its Innerwear segment which “delivered progressively improving performance through the year resulting in record profitability in the fourth quarter and year.” Hanes added that “Innerwear operating profit increased 80 percent in the fourth quarter, resulting in an operating margin of 22 percent. For the year, operating profit increased 18 percent with an operating margin of 17 percent.” The company emphasized sales growth noting “Net sales increased 7 percent in the quarter and 3 percent for the year as a result of successful product innovation, new-product introductions and shelf-space gains. The rate of sales growth for the year overcame a nearly $40 million decline in sales to a mid-tier retailer that is in the midst of executing a new strategic direction. Excluding this retailer’s decline, Innerwear sales growth was 5 percent for the year.” HanesBrands explained that “sales of Hanes and Champion men’s underwear, Hanes panties and Bali bras all increased by double digits in the fourth quarter,” and it emphasized product innovation. “New products, 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, continue to exceed expectations.”
The firm also described a 2 percent sales increase with its Outerwear segment and a 1 percent decrease in direct to consumer sales (along with an operating profit increase of 16 percent “as a result of tight cost control and a manage-for-profit emphasis.”
Providing guidance for 2013, “Hanes expects net sales of approximately $4.6 billion; operating profit of $500 million to $550 million; and EPS of $3.25 to $3.40. The company expects a decline in branded printwear sales of $40 million to $50 million, with approximately half of the decline occurring in the first quarter, reflecting rationalization that started in mid-2012.” In addition, “The company intends to increase its overall media investment in 2013 by $30 million to $40 million, of which more than two-thirds will occur in the second half.”
“Interest expense and other expense are expected to be a combined $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. However, due to enacted tax-law changes and anticipated discrete tax items, Hanes expects its tax rate will fluctuate by quarter, with the first- and third-quarter rates expected to be toward the lower end of the range and second- and fourth-quarter rates being at the high end of the range.”
“Free cash flow is expected to be approximately $350 million to $450 million, including expected pension contributions of approximately $38 million and net capital expenditures of approximately $50 million.
“The company ended 2012 with $1.25 billion in bond debt. In 2013, the company expects its primary use of free cash flow will be for the prepayment of the remaining $250 million of 8 percent notes.”
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