Hanesbrands Inc. (HBI)

HBI 
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Hanesbrands (HBI)

Q4 2013 Earnings Call

January 29, 2014 4:30 pm ET

Executives

T.C. Robillard

Richard A. Noll - Chairman and Chief Executive Officer

Gerald W. Evans - Chief Operating Officer

Richard D. Moss - Chief Financial Officer

Analysts

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

Eric A. Alexander - Stifel, Nicolaus & Co., Inc., Research Division

Matthew McClintock - Barclays Capital, Research Division

Susan K. Anderson - FBR Capital Markets & Co., Research Division

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

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

Kate McShane - Citigroup Inc, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

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

Taposh Bari - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the HanesBrands Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand the conference over to T.C. Robillard, Vice President of Investor Relations. Sir, please go ahead.

T.C. Robillard

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 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 Investor section of our Hanes.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.

Unless otherwise noted, today's references to our consolidated financial results as well as to our 2014 guidance exclude all onetime charges and expenses. Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP can be found in today's press release which is available in the Investor section of our Hanes.com website.

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. 2013 was a record year for HanesBrands in terms of sales, profitability and cash flow. Our operating profit increased $156 million, operating margins expanded 320 basis points, earnings per share grew 49% and we generated cash flow from operations of nearly $600 million. We also instituted a regularly quarter dividend, purchased Maidenform and completed our multiyear promise to reduce our long-term bond debt to $1 billion. What's even more remarkable is we accomplished all of this in a very challenging retail environment.

We built great momentum all year by remaining focused on our long-term goals and executing on the things we could control. This is most evident in the re-acceleration of Innerwear's revenue growth and the consistent double-digit margin performance in our Activewear segment.

Our Maidenform integration is also on-track and we remain confident in our ability to deliver $0.60 of incremental earnings per share within 3 years. We are fully-integrated on the front-end where our focus is on leveraging our full intimates portfolio to maximize productivity for our retail partners. All personnel decisions have been made and the impact should begin to flow through our P&L later this year and beyond.

2013 was clearly a great year, but I'd like to put our results in a broader context. When you look back over the last 5 years, which included a recession and a period of hyperinflation in cotton, since 2008, we grew sales at a compound annual growth rate of 3%. We were able to magnify that growth rate by driving our Innovate-to-Elevate strategy to deliver an operating profit CAGR of 9%. And by wisely deploying our free cash flow, we were able to magnify that growth rate into an EPS CAGR of 16%. So 3% magnified to 9% and, again, to 16%. And we're not done. As we continue to execute, we see significant opportunity to drive additional leverage in our P&L for many years to come.

Looking to 2014, we are confident that the momentum we have in Innovate-to-Elevate will continue and we're reflecting that confidence by raising our EPS guidance $0.30 to a range of $4.60 to $4.80. As we look to deploy our cash flow going forward, we remain committed to our goal of delivering superior long-term shareholder returns through a combination of dividends, bolt-on acquisitions and, potentially, share repurchases. We delivered on this commitment last year and we're already off to a strong start this year with yesterday's announcement that our Board approved a 50% increase in our quarterly dividend to $0.30 per share. Our strong cash flow generation should allow us to increase the amount of cash we can return to shareholders while retaining ample flexibility to pursue other growth opportunities.

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