Hanesbrands Inc. (HBI)

HBI 
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Hanesbrands Inc. (HBI)

Q4 2009 Earnings Call

January 27, 2010 5:00 pm ET

Executives

Brian Lantz – Vice President, Investor Relations

Richard Noll – Chairman, Chief Executive Officer

Lee Wyatt – Executive Vice President, Chief Financial Officer

Analysts

Eric Tracy – FBR Capital Markets

Jim Duffy – Thomas Weisel Partners

Omar Saad – Credit Suisse

Scott Krasik – C.L. King

Jennifer for Eric Beder – Brean Murray

Michael Binetti – UBS

Carla Casella – J.P. Morgan

[William Ruter – Bank of America/Merrill Lynch]

[Caro Martinson – Deutsche Bank]

Presentation

Operator

I would like to welcome everyone to the Hanesbrands fourth quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn today’s conference over to Brian Lantz, Vice President of Investor Relations.

Brian Lantz

Good afternoon everyone and welcome to the Hanesbrands Inc. 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 2009.

Hopefully everyone had 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 sections of our Hainesbrands.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 filing with the SEC such as our most recent Forms 10-K and 10-Q as well as 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.

Also, any references to gross margin, SG&A, operating profit, earnings per share or EBITDA on today’s call will focus on our results excluding restructuring and other actions unless otherwise specified.

With me on the call today are Rich Noll, our Chairman and Chief Executive Officer and Lee Wyatt, our Chief Financial Officer. Rich will highlight our 2010 growth expectations and comment on our business performance for the quarter. Lee with then provide further detail on 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 remind everyone that we are planning our Third Annual Investor Day on Tuesday, February 23 in New York. We will again have our extended management team review our achievements, strategies and opportunities in detail.

Registration is required for all attendees so make certain to RSVP to our offices as soon as possible to ensure your participation. If you haven’t received our invitation, please contact me and I will ensure that you do.

I would now turn the call over to Rich.

Richard Noll

Thank you Brian. The fourth quarter of 2009 played out as expected and we feel very good about our opportunities for 2010. 2010 has great potential. We estimate sales growth of approximately 5% due to shelf space gains. We have a goal to improve operating profit margins 50 to 100 basis points and interest expense should decline $20 million to $25 million.

When we add all this together, we can see earnings per share growth of at least 25% and up to 35% or more in 2010. To reach the higher levels, we may need a little help from the consumer, possibly a little price and we need to effectively use our potential $300 million or more of cash flow. All of these numbers are directional and we plan to share more specific guidance with you in our February Investor meeting.

Before I discuss 2010 in more detail, let me touch briefly on Q4. As I said, the quarter played out as expected with sales increasing 1% after adjusting for last year’s 53rd week. Our innerwear retail sell through was flat for the quarter, slightly down in November, turning positive in December with the last two weeks of December being particularly strong, and we have seen slightly positive sell through for the first three weeks of January.

On the cost side, we discussed on the third quarter call needing to make $10 million of investments in Q4 to drive 2010 sales growth. We also said that if we felt good about business, we might decide to invest even more.

We did invest more, nearly $7 million more with over half being spent on media. While these investments did weigh on the quarter and the year, we feel they were a wise choice.

We generated strong cash flow during the year, paying down nearly $300 million in debt despite having cash outlays of approximately $75 million due to refinancing.

Turning back to 2010, we have begun shipping the new retail programs. These programs should result in 5% sales growth or approximately $200 million. The gains are driven by the simple fact that while we are number one or number two in all of our core categories, we are not yet number one or number two in all accounts or in all of our core programs. In 2010 we are growing our market share by capitalizing on these distribution voids.

These space gains should generated sales growth of approximately 6% in the first half and 4% in the second half. If we see consumer spending pick up, there could be upside to the 4% second half estimate.

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