Hanesbrands Inc. (HBI)

HBI 
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Handesbrands Inc. (HBI)

Q3 2008 Earnings Call

October 29, 2008 4:30 pm ET

Executives

Rich Noll – Chief Executive Officer

Lee Wyatt – Chief Financial Officer

Analysts

Eric Tracy – BB&T

Omar Saad – Credit Suisse

Scott Krasik – C. L. King

Reade Kim – Merrill Lynch

[Arthur Rollack – CAI]

[Kenneth Tighe – CIBC World Markets]

Andrea Cohen – Aries Management

Presentation

Operator

I would like to welcome everyone to the Hanesbrands third quarter earnings release call. (Operator Instructions) Mr. Brian Lance, you may begin your call.

Brian Lance

Welcome to the Hanesbrands Inc. quarterly investor conference call and web cast. We are pleased to be here today to provide an update on our progress after the third quarter of 2008. Hopefully everyone has had a chance to review the news release we issued earlier today. The news release and the replay of the audio web cast of this call can be found in the investor section of our Hanesbrands.com website.

I want to remind everyone that we may make forward-looking statements on the call today either in our prepared remarks or in the associated question and answer session. These statements are based on current expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks are detailed in our various filings with the SEC and our most recent Forms 10-K and 10-Q as well as our new releases and other communications. The company does not undertake to revise any forward-looking statements which speak only to the time at which they are made.

With me on the call today are Rich Noll, our Chief Executive Officer and Lee Wyatt, our Chief Financial Officer. Rich will give a summary of business performance and trends for the third quarter. Lee with then provide further detail on the various aspects of our financial performance. Following our prepared remarks, we've allowed ample time to address any questions that you may have.

Before I turn the call over to Rich I want to take a moment to let everyone know that we are planning our Second Annual Investor Day for Tuesday, February 24 in New York. We will again have our extended management team review our achievements and opportunities in detail, particularly as they related to 2009. We will send invitations out in the fourth quarter and look forward to seeing you all there.

Now, I will turn the call over to Rich.

Rich Noll

Thank all of you for joining us today. I'd like to start with our performance in the third quarter and then I'd like to focus on three major topics; our view of the fourth quarter, our comfort with our debt structure and our 2009 price increase.

Total sales were unchanged at $1.2 billion. Hanes male underwear, Playtex and Champion active wear were all up double digits for the quarter. The international businesses, the Ballard brand and the sox category also performed well. The soft spots were in sheer hosiery and the small intimate apparel brands.

Even though our categories remained soft, our retail partners continue to focus on national brands like Hanes as they strive to improve their retail performance. This focus is reflected in our market share. In the latest market share data available through August, our rolling 12 months share remains strong in key categories with notable increases for Hanes men's underwear, up over two share points, and Hanes men's and women's socks also up over two share points.

When we focus in on our back to school share, we achieved gains in men's underwear and socks as well as women's intimate apparel and socks. Overall, our share gains are coming at the expense of other national brands and private label.

Excluding the effect of restructuring actions and the Mervyn's retail liquidation, Q3 EPS increased $0.08 as we continue to benefit from lower interest expense. However, operating profit was down $8 million as we were unable to fully offset with our cost savings efforts the $19 million of increased cotton and petroleum costs.

In terms of the fourth quarter, while sales will be a challenge in this environment, and most likely decline, we are optimistic about our operating profit and EPS potential. Versus Q4 last year, we will benefit from increased savings which has the potential to more than offset higher commodity costs allowing our gross margins to increase.

SG&A may be $15 to $20 million lower due to previously discussed expense time and other cost reduction efforts. And interest expense and taxes will remain favorable.

Given those positives and even with the sales decline of a few percent or more in Q4, exceeding 25% earning per share growth for the total year still remains a viable goal. Back in February, we stated that goal and it is an understatement to say that much has changed since then.

We have incurred $52 million of commodity cost increases, multiple retailer bankruptcies and liquidations, the worst consumer spending environment in decades and the worst financial and credit crisis since the great depression. But we still remain focused on achieving that earnings per share goal and it is within our grasp.

Our organizations' ability to perform while absorbing these issues is something for which we can all be proud. It demonstrates our people's resilience, fortitude, flexibility and commitment is why we will come through these difficult and uncertain times stronger. But we are not done.

Turning to the longer term, we are implementing an average gross domestic price increase of 4% effective mid first quarter of '09. We able to solidify this price increase because of our strong brands and the investment that we've made in those brands over the last few years. The range of price increases will vary by product category.

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