Hanesbrands Inc. (HBI)

HBI 
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Hanesbrands, Inc. (HBI)

Q4 2012 Earnings Call

February 5, 2013, 4:30 p.m. ET

Executives

Charlie Stack - Chief Investor Relations Officer

Rich Noll – CEO

Gerald Evans – Co-COO

Rick Moss – CFO

Analysts

Susan Anderson – Citi

Eric Tracy - Janney Capital Markets

David Glick - Buckingham Research

Omar Saad - ISI Group

Jim Duffy - Stifel Nicolaus

Bob Drbul (Joan)– Barclays Capital

Scott Krasik - BB&T Capital Markets

Steve Marotta - C.L. King & Associates

Carla Casella– JP Morgan

John Malcolm - Citi

Presentation

Operator

Good afternoon, ladies and gentlemen. My name is Alan and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Hanesbrands fourth quarter 2012 earnings call. (Operator Instructions).

I'd now like to turn the call over to Mr. Charlie Stack, Chief Investor Relations Officer. Please go ahead, Sir.

Charlie Stack

Good afternoon everyone. And welcome to the Hanesbrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the fourth quarter of 2012. Hopefully, everyone has had a chance to review the news release we issued earlier today. The news release and the audio replay of the webcast 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, such as our most recent forms 10-K and 10-Q. And may be found on our website and in our news releases and other communications. The company does not undertake to update or revise any forward-looking statements, which speak only to the time in which they are made.

Please also note in May, 2012, Hanesbrands announced exiting certain international and domestic inventory categories that are now classified as discontinued operations. Unless otherwise noted, today's speakers will be discussing our performance from our continuing operations.

Also, today's references to earnings per share and EBITDA represent continuing operations excluding the charge for bond prepayment associated with retiring $250 million of the company's 8% senior notes due 2016.

Additional information including reconciliation to GAAP performance measures can be found in today's press release and in the investor section of our Hanesbrands.com website.

With me on the call today are Rich Noll, our Chief Executive Officer, Gerald Evans, one of two co-Chief Operating Officers, and Rick Moss, our Chief Financial Officer.

For today's call, Rich will highlight a few big picture themes. Gerald will provide a sense of what is happening in a few of our businesses. And Rick will emphasize some of the financial aspects of our results.

I'd now like to turn the call over to Rich.

Rich Noll

Thank you, Charlie.

Normally, I start by discussing earnings, but not today. Today, I want to stop and pause and talk about achieving a major milestone. We ended the year with a long-term debt to EBITDA ratio of 2.5. 2.5, that has been a long time coming and it feels really good.

Fifteen months ago, we told you we would reduce our debt substantially and we did. Paying down ¾ of a billion dollars at a very short period of time. The era of high leverage is now a thing of the past. Going forward, we are targeting a long-term debt to EBITDA ratio of 1.5 to 2.5 times. We accomplished this monumental achievement by focusing on free-cash flow. Both our profit and working capital improvement efforts are paying off. In 2012, we generated $500 million of cash, the highest in our history. And we expect another great year in 2013 generating $350 to $450 million. In just these two years, we will generate more cash than in the previous five years combined. And we are committed to using this cash wisely. Over time, we will consider a mix of dividends, share buy-backs, and quickly accretive bolt on acquisitions to create further value for our shareholders.

Now turning to earnings, the back half of 2012 showed our true earnings power. The operating margin of 13% demonstrates the benefits of our multi-year efforts of building our brand, filling our innovation pipeline, and transforming our supply chain to build a more profitable business. More specifically, our leading brands remain strong and should only strengthen as we increase our media spending this year. The innovation we have at retail and in the pipeline through our innovate to elevate strategy is contributing sales and importantly margins for 2013. This strategy is designed to drive value added higher priced and higher margin items for both us and our retail partners. And we're seeing the results as our core businesses are performing very well. You'll hear specifics about all of these topics plus many more exciting initiatives at our upcoming investor day.

A year ago, we laid out our guidance for both 2012 and for 2013. Not only did we hit our metrics for 2012, we are on track for 2013 raising this year's guidance to $3.25 to $3.40 per share. When you combine this level of earnings with our low level of debt, we have truly improved our financial profile in a very short period of time.

To wrap up, 2012 was a very successful year under very challenging circumstances. And we are coming out stronger, more innovative, and more profitable. I believe we are only seeing the beginning of our true earnings power. And I look forward to a successful 2013.

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