Q2 2013 Earnings Call
July 30, 2013 4:30 pm ET
Richard A. Noll - Chairman and Chief Executive Officer
Gerald W. Evans - Co-Chief Operating Officer
Richard D. Moss - Chief Financial Officer
Omar Saad - ISI Group Inc., Research Division
Eric B. Tracy - Janney Montgomery Scott LLC, Research Division
Taposh Bari - Goldman Sachs Group Inc., Research Division
Matthew McClintock - Barclays Capital, Research Division
Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division
Scott D. Krasik - BB&T Capital Markets, Research Division
Andrew Burns - D.A. Davidson & Co., Research Division
Eric M. Beder - Brean Capital LLC, Research Division
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Thank you. 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 second 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 or beliefs 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 as well as 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 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 respect to the pending acquisition of Maidenform brands, any reference from our call today regarding our 2013 guidance excludes any potential effects or contributions from Maidenform. While any reference to our outlook for 2014 excludes any restructuring or any other transition-related costs associated with this acquisition. In addition, our discussion of the pending acquisition of Maidenform also includes forward-looking statements that are subject to risks and uncertainties, many of which are described in the press release announcing the proposed acquisition.
For further information regarding the risks associated with Hanes' and Maidenform's businesses, please refer to their respective filings with the SEC and the proxy statement and other materials that will be filed with the SEC by Maidenform in connection with the acquisition.
With me on the call today are Rich Noll, our Chief Executive Officer; Gerald Evans, our Chief Operating Officer; 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 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, T.C. Let me start off by saying how pleased we are to report strong second quarter results that include record operating margins and earnings. When you consider the current soft retail environment, this is a significant accomplishment and one that underscores a very simple message. Our Innovate-to-Elevate strategy is working very well. We had a record 15% operating margin in the quarter and our success is broad-based. We saw all 4 segments improve versus last year and our 3 largest segments: Innerwear, Activewear and International produced double-digit operating margins.
The core tenant of our Innovate-to-Elevate strategy is straightforward, expand our margins by leveraging our strong brands, innovation platforms and our global supply chain. And we are seeing it work across all of our innovation platforms: Smart Sizes; TAGLESS; ComfortBlend and now, X-TEMP. And these platforms are not only benefiting our financial performance, they are also helping our retail partners, as our innovative products drive higher consumer demand, higher average unit selling prices and higher productivity levels.
The momentum we are seeing from Innovate-to-Elevate, along with our strong first half results, gives us confidence to raise our 2013 guidance. We're taking up our EPS range $0.25 and our free cash flow range, $100 million. This updated guidance places us firmly within our target operating margin range of 12% to 14%, a year earlier than anticipated. And we are just getting started. The true earnings power of our business is only beginning to shine through. Significant earnings potential remains as we push to the higher end of our operating margin goal.
When you combine the current momentum in our business, coupled with a $0.10 to $0.15 contribution from Maidenform, a reasonable goal for 2014 EPS is in the low $4 range.
So to wrap up, our Innovate-to-Elevate strategy is working, our margins are expanding, our cash flow is increasing and when you couple all that with Maidenform, we see significant earnings potential that could drive performance for many years to come.