Hanesbrands is sticking to its long-term plan and it’s working.
CEO Gerald Evans told analysts on a conference call with analysts Friday that over the past several years, the company has executed a strategy to diversify the business and position the company for increased earnings growth and shareholder returns.
“To accomplish this, we set five specific goals and we’ve delivered on each as highlighted by our fourth quarter and full-year results,” Evans said. “First, we have diversified our revenue. International revenue now accounts for 36 percent of sales, up from 11 percent in 2013. Consumer-direct revenue, which represented 30 percent of fourth quarter sales and 25 percent of full-year sales, is up from 9 percent in 2013. And on a constant currency basis, global Champion, excluding C9, generated more than $1.9 billion of revenue in 2019, an increase of more than $1.1 billion in just three years.”
The C9 brand, was an exclusive with Target Stores that was discontinued at year’s end. But Evans said C9 continued to perform well through 2019, and the company may be looking to a new partner platform for it.
“It’s clear to us that there is a strong consumer base out there that’s very loyal to that brand,” he said. “We are in the final stages of discussions with a new partner and we expect to launch that program…in the second half of this year.”
Second in Hanesbrands’ plan, is to consistently deliver organic revenue growth. The fourth quarter marked the 10th consecutive quarter of constant currency growth, Evans noted, which he noted was accomplished “despite challenges in our U.S. business that included a muted holiday and a $46 million headwind from exited programs.”
“Third, we’ve positioned the business for higher levels of profitability over the next several years by exiting unprofitable businesses and restructuring our supply chain to lower cost,” he said. “We believe our supply chain restructuring initiatives have positioned U.S. innerwear and the company for improving margins over the next two years.”
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The fourth goal was to generate higher levels of operating cash flow and 2019 operating cash flow increased 25 percent over the prior year to more than $800 million. And fifth, the company reduced net debt by more than $1.1 billion in less than two years, ending 2019 at 2.9 times levered on a net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis.
“The focus of our entire organization for the past several years has been on strengthening our business to return to a model that is able to magnify sales growth into faster operating profit growth and ultimately even faster EPS (earnings per share) growth,” Evans said. “With a lot of heavy lifting done and our program exits behind us, we believe 2020 represents an inflection point for our company, one that reveals the underlying strength of our ongoing business and unleashes the full potential of our capital allocation model to drive accelerated shareholder returns.”