Hanesbrands Inc. (HBI)

HBI 
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Industry: Consumer Services
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Hanesbrands (HBI)

Q1 2013 Earnings Call

April 23, 2013 4:30 pm ET

Executives

Charlie Stack

Richard A. Noll - Chairman and Chief Executive Officer

William J. Nictakis - Co-Chief Operating Officer

Richard D. Moss - Chief Financial Officer

Analysts

Matthew McClintock - Barclays Capital, Research Division

Taposh Bari - Goldman Sachs Group Inc., Research Division

Susan K. Anderson - Citigroup Inc, Research Division

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

David J. Glick - The Buckingham Research Group Incorporated

Omar Saad - ISI Group Inc., Research Division

Kelly L. Halsor - BB&T Capital Markets, Research Division

Steven Louis Marotta - CL King & Associates, Inc., Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Eric M. Beder - Brean Capital LLC, Research Division

William M. Reuter - BofA Merrill Lynch, Research Division

Paul Simenauer

Presentation

Operator

Good afternoon. My name is Laurel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hanesbrands First Quarter 2013 Earnings Call. [Operator Instructions] Thank you. I would 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 first quarter of 2013. 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 Investors 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 at which they are made.

Please also note, in May 2012, Hanesbrands announced exiting certain international and domestic Imagewear categories that are now classified as discontinued operations. Unless otherwise noted, today's speakers will be discussing our performance from our continuing operations. Additional information, including reconciliation to GAAP performance measures, can be found in today's press release and in the Investors sections of our hanesbrands.com website.

With me on the call today are Rich Noll, our Chief Executive Officer; Bill Nictakis, one of our 2 Co-Chief Operating Officers; and Rick Moss, our Chief Financial Officer. Also with us today is T.C. Robillard, who will be assuming the Vice President of Investor Relations role beginning May 1.

For today's call, Rich will highlight a few big picture themes. Bill 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 will now turn the call over to Rich.

Richard A. Noll

Thank you, Charlie. At our recent Investor Day, we highlighted 3 aspects of our company that should allow us to drive superior shareholder returns for many years to come. All 3 of these aspects are evident in our first quarter results. Let me recap them for you.

First, we have a strong consumer franchise, a hallmark of any good CPG company and is reflected in the stability of our financial performance even in very volatile times. For us, short-term volatility within a quarter or 2 tends to revert to the mean, delivering the annual consistency more typical of a CPG company. In Q1, while sales were somewhat soft due to macro issues that we discussed at our recent Investor Meeting, due to the consistent replenishment nature of our categories, sell-through at retail has already rebounded and is back on track.

Second, our Innovate-to-Elevate strategy allows us to leverage our most precious assets; our strong brands, our approach to consumer-driven innovation and our great global supply chain, all of which combined to allow us to increase operating margins towards our 12% to 14% goal. In Q1, our margins expanded considerably, allowing us to deliver excellent profit results with an operating margin of 9% and record first quarter EPS of $0.51. And we are just beginning. Many of our current new products are just being rolled out nationally this quarter, and with our robust pipeline, we should enjoy the benefits for many years to come.

And third, our strong free cash flow. With a price to free cash flow ratio of approximately 10, our cash flow is substantial relative to our valuation. And that by itself creates many opportunities for materially increasing shareholder returns. This month's initiation of a regularly quarterly dividend is a great example. And as we said, we envision a dividend payout of around 20% to 25% of free cash flow. We're starting at the lower end of the range with the intent to increase our dividend over time. And we are not done. At some point, we plan to also employ bolt-on acquisitions and share repurchases as part of our strategy to maximize the value of our strong cash flows. As you can see from our first quarter results, our strategies are working, and they give us great confidence in our guidance for 2013.

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