Hanesbrands, Inc. (HBI)
Q2 2008 Earnings Call Transcript
July 29, 2008 4:30 pm ET
Brian Lantz – VP, IR
Rich Noll – CEO
Lee Wyatt, Jr. – EVP and CFO
Omar Saad – Credit Suisse
Eric Tracy – BB&T Capital
Scott Krasik – CL King
Jared Orr – Morgan Keegan
Clark Orsky – KDP Investment Advisors
Reed Kim – Merrill Lynch
Robyn Browdy – Highline
Kenric Tyghe – CIBC World Markets.
Jake Crandlemire – Ramsey Asset Management.
Karru Martinson – Deutsche Bank
Neal Halpert – Davenport and Company
Jacob Strumwasser [ph] – Salem Capital [ph]
Dennis O’Rourke – Regiment Capital
Janet Clay – Liberty Mutual
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After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)
I'll now turn the call over to Mr. Brian Lantz, Vice President of Investor Relations, Hanesbrands Incorporated. Sir, you may begin your conference.
Good morning 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 second quarter of 2008.
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 www.Hanesbrands.com web site.
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 10K and 10Q, 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. With me on the call today are Rich Noll, our Chief Executive Officer; and Lee Wyatt; our Chief Financial Officer.
Rich will give a summary of our business performance and trends for the second quarter. Lee will then provide detail on various aspects of our financial performance. Following our prepared remarks, we have allowed ample time to address any questions that you may have.
I'll now turn the call over to Rich.
Thank you, Brian, and thank all of you for joining us today. We continue to create double-digit earnings per share growth through the execution of our strategies in the midst of a very challenging economic environment.
We had strong earnings growth in a period of lower sales, reinforcing the fact that we have many ways to create value. We continue to improve our earnings primarily through cost reduction initiatives and management of our debt structure.
Let me now provide more detail on our business. Our earnings per share excluding actions rose 20%, or $0.11 to $0.65 per share. Net income excluding actions similarly rose 19% or $10 million as a result of lower long term debt, lower base interest rates, lower income taxes and the benefit of cost reduction efforts.
Partially offsetting the increase, operating profit excluding actions decreased $6 million due to lower sales. We were able to mitigate SG&A deleveraging and maintain our operating profit margin excluding actions at 11.2%, the same as the second quarter last year.
Operating profits continued to benefit from our globalization and consolidation initiatives. Gross margins benefited from savings directly attributable to our offshore textile ramp up, consolidation into fewer larger facilities and our lean process improvement program. SG&A also benefited from cost reduction efforts.
Sales declined $50 million in the quarter. Half of our shipment performance was driven by soft consumer trends especially in intimate apparel. The other half was due to back-to-school timing shift at our largest retailers. This timing shift is masking what we believe is our true underlying performance for the second quarter.
And two facts provide evidence of this timing shift. First, our retail sell-through rates at mass for the second quarter substantially exceeded our shipments. Second, our shipments for the first four weeks of July are up over $25 million. It is important to note that although this July increase is positive, no one should extrapolate these results into an indication of what our total sales results will be for the third quarter.
While we are confident that we have strong back-to-school plans in place, we are still dependent on consumers driving to stores to buy our products. Through May, our market share remained strong even though our categories remained soft. Importantly, private label market share has been down or flat, indicating that retailers are increasingly focused on national brands like Hanes as they strive to improve their retail performance. Remember, unlike many other categories, the price difference between large national brands and private label in our categories is small and this share data shows that consumers are not trading down to save a few cents per item.
Despite the back-to-school timing shift, our solid market shares and a tough economic environment, I am not satisfied with our sales results in the quarter and a half. To improve these trends, we are now turning our attention to the next key selling period, holiday, and we will continue our strategy of driving our largest strongest brands in core categories with key items. These are tried and true strategies that work in good times and bad, and they will get us through the current environment as well.
In the second quarter, we made significant progress with our Asia supply chain network. Construction is well under way on our first Asian textile plant in Nanjing, China, which will be essential to our network. It is scheduled to start production in 2009.
We have also added three company-owned sewing plants in Southeast Asia, two in Vietnam and one in Thailand, giving us a total of four sewing facilities in Asia. In fact, we have more than doubled our number of employees in Asia just this year, from 2,000 in December to 4,000 today. We have plans to add another 2,000 by the end of this year.