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An aerial view of HanesBrands corporate headquarters on Hanes Mill Road.
Five years ago, HanesBrands was in an envious position of being a preferred and frequent acquirer of basic apparel manufacturers.
HanesBrands, one of Forsyth County and the Triad’s larger private employers, satisfied investors’ desire for growth from 2012 to 2018 by employing all three pillars that bolster shareholder value: acquisitions, share repurchases and dividend increase.
The company’s $3 billion buying spree included such global brands as Maidenform Brands Inc., Pacific Brands Inc., Bras N Things, Parisian manufacturer DBApparel, GearCo Inc., Knights Apparel, the brand rights to Champion in Europe and Japan, and Australian apparel distributor TNF Apparel.
Fast forward to today, and inflationary and investor pressures may be pushing — if not forcing — HanesBrands to sell its global Champion business, which includes its U.S. operations, and return nearly back to square one of its September 2006 spinoff from Sara Lee Corp.
HanesBrands’ board of directors and executive management team recently disclosed they are considering such a drastic move as part of “a broad range of alternatives to maximize shareholder value.”
Although keeping the brand remains an option, companies that announce plans to explore strategic options typically complete a sale more often than not.
Such a sale would be a blow not only financially — with Champion representing nearly a third of its $6.2 billion in fiscal 2022 sales — but also symbolically. Champion, along with Hanes, are the manufacturer’s two primary brands.
The potential sale represents a reversal from its 2016 all-cash acquisitions of Champion Europe for $228 million and Champion Japan for $30 million.
HanesBrands Chairman Ronald Nelson said the manufacturer believes there is significant value in Champion as “a renowned global lifestyle brand with a storied heritage in sports as the pioneer of American athletic wear.”
Stifel analyst Jim Duffy estimated HanesBrands could get $1.3 billion for the global Champion business but isn’t confident it could happen. It would represent a significant discount considering the $3.2 billion in fiscal 2024 revenue that management has projected.
At fiscal 2023’s revenue pace, Champion may produce $1.75 billion in revenue.
Duffy said upon a sale of the global Champion business, HanesBrands investors “would be left with the global innerwear business, and other activewear business, which has inherently lower growth potential.”
The Champion announcement comes about six weeks after investor Barington Capital Group challenged HanesBrands’ board to take steps to reduce corporate debt and reverse a steep share-price decline over the past 2½ years.
Barington called for a major board shakeup and the ouster of chief executive Steve Bratspies.
“While we believe a separation of the Champion business makes strategic sense, it is critical that, despite recent performance, the company achieves appropriate value for this iconic brand,” said James Mitarotonda, chairman and chief executive of Barington.
“We will continue to closely monitor further developments and urge Hanesbrands to rapidly pursue all opportunities to create long-term shareholder value.”
Bratspies opened the curtain in May 2021 on its Full Potential initiative, which is focused on its core strengths: its globally recognized basic apparel brands, foremost Champion and Hanes; domestic, Central and Latin America and Asian supply chain; “deep consumer loyalty”; broad channel distribution; and global footprint.
Full Potential is not all that different from the 2012 “Innovate to Elevate” initiative from its first chief executive Richard Noll and the 2017 “Project Booster” initiative from Noll’s successor Gerald Evans Jr.
Bratspies, like his predecessors, touted to analysts and investors plans to promote the Champion brand globally, drive growth in its Innerwear division with brands and products that appeal to younger consumers, build a top-level e-commerce platform and streamline its global portfolio.
The companies’ three chief executives have faced numerous challenges in their quests for growth.
Establishing a lower-cost global supply chain controlled by the company from 2006 to 2012 required offshoring most of its production and eliminating more than half of its Forsyth County workforce — from 4,900 to fewer than 2,000 now.
HanesBrands confirmed in August it had eliminated at least 250 U.S. corporate jobs, sending the work to international operations.
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Wells Fargo Securities analyst Ike Boruchow said inflationary pressures “continue to weigh” on consumers, particularly those in what he called the “low-end/value” retail customers.
Those pressures are “driving lower replenishment orders and order cancellations at key mass retailers,” Boruchow explained. “We are seeing our global brand names significantly revise down their expectations for their wholesale businesses.”
Boruchow said that most global brands “remain cautious on retail partners orderbooks through the balance of 2023 and consumer demand continues to slow, particularly at the low end.”
The Champion brand was down 13% in sales in fiscal 2022 and dropped 26% in the second quarter in the U.S, but international sales limited the overall sales decline to just 1%.
“The (Champion) brand is not where we expected it to be at this point in the U.S.,” Bratspies said in the company’s second-quarter report. “Sales are going to remain pressured through the back half of this year. We’re seeing soft point-of-sale right now in a challenging category as we go forward.”
Boruchow said investors “recognize that new leadership has recently been put in place, which may help the brand.”
In July, HanesBrands named Scott Lewis as its chief financial officer, effective immediately, while retaining his chief accounting officer role. Lewis, a 17-year veteran with HanesBrands, became interim chief financial officer on March 1 following the departure of Michael Dastugue “for family reasons.”
“However, we believe any turnaround in the brand will likely take time,” Boruchow said.
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Duffy said HanesBrands is carrying currently an estimated $2.9 billion in net debt.
It’s a staggering reversal considering HanesBrands spun out of Sara Lee carrying $2.6 billion in debt.
Top HanesBrands officials were so focused on debt reduction that the manufacturer didn’t offer its first quarterly dividend until April 2013. It didn’t begin making share repurchases until 2016.
Fast forward to February: HanesBrands’ board disclosed it had chosen to eliminate the quarterly dividend — worth 15 cents a share at that time — to concentrate on reducing debt.
Bratspies said the decision “was not made lightly. We believe a meaningful reduction in our debt will drive significantly higher shareholder returns long term.”
Investors responded Feb. 2 by sending HanesBrands’ share price down as much as an all-time single-day record of 29.3% before closing down 28% — or by $2.44 to $6.27.
Local investors, consumers and employees may see HanesBrands veering on an all-too-familiar financial and debt path to R.J. Reynolds Tobacco Co.
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Local investors, consumers and employees may see HanesBrands veering on an all-too-familiar financial and debt path to R.J. Reynolds Tobacco Co.
The impact of F. Ross Johnson on Reynolds rippled through the former Fortune 500 company long after his inglorious departure in 1988 and his death at age 85 in December 2016.
The $25.4 billion-leverage buyout by Kohlberg Kravis Roberts in November 1988, which Johnson set in motion as RJR Nabisco’s chief executive through his management buyout attempt, unleashed a painful cycle of deals and restructuring.
Those moves were deemed necessary as the company tried to reduce its massive debt and match its workforce to the shrinking demand for cigarettes.
The New York investment group borrowed $20.4 billion to buy RJR Nabisco. That arrangement forced the company’s management to focus on servicing debt rather than product innovation
Even though Reynolds eventually regained its independence in March 1995, and Winston-Salem regained the company headquarters, small ripples had been set in motion.
The potential Reynolds parallel with HanesBrands occurred in March 1999 when Reynolds split itself from Nabisco and agreed to sell the international rights to its cigarette brands to Japan Tobacco Inc. for $8 billion.
That move reduced Reynolds’ debt at that time from $6.5 billion to $1 billion.
However, with that move, Reynolds essentially conceded any global foothold until British American Tobacco Plc completed its complete purchase of Reynolds in July 2017.
Since the March 1999 sale of the international brands rights. Reynolds’ local workforce has shrunk from about 5,700 to less than 2,150.
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Tony Plath, a retired finance professor at UNC-Charlotte, said that with institutional investors owning about 83% of HanesBrands’ stock, it’s not surprising the level of pressures the board and executive management is feeling.
“HanesBrands’ institutional owners are pretty much demanding that management do something, do anything, and do it now, to turn the company around,” he said.
Plath said that not only the potential sale of the global Champion business is an option, but also there could be “more corporate consolidation, cost-cutting and mass layoffs. Ironically for HanesBrands, the company’s salvation as an independent company may lie in the fact that there’s nobody else out there in the industry that’s willing to step up and buy them for a price that would satisfy.
“That’s likely what’s driving all the institutional investors that have sold HanesBrands shares this year away from the company. They’ve simply given up hope that this thing is fixable or even marketable.”
Bratspies
[email protected]
336-727-7376
@rcraverWSJ
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An aerial view of HanesBrands corporate headquarters on Hanes Mill Road.
Bratspies
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