INSIGHT: Hanesbrands' enviable three-card trick
By combining a creditable set of third quarter results with some upbeat news about its prospects for 2010, Hanesbrands has pulled off an enviable three-card trick.
One - it has slashed its production costs through a long-term shift of manufacturing from its traditional North American base to lower-cost Asian facilities.
Two - it has made great strides in reducing debt, cutting US$177m in the third quarter alone to help meet its goal of a $300m reduction in FY 2009, with a similar cut to follow in fiscal 2010.
And three - it has delivered (or rather promised) results at the sharp end, with a distribution rejig on course to produce a 5% sales increase in the core US market during 2010.
Welcome news when third quarter revenues have dipped 8%.
Taking the last first, it's important to note that this 5% increase, the company assures us, is not dependent on any uptick in consumer spending - it's simply the result of getting more shelf space in more shops.
"While we were number one or number two in all our core categories, we are not number one or number two in all accounts or in all of our core programmes," CEO Rich Noll explained to analysts.
"In 2010, we are growing our market share by capitalising on these distribution opportunities - sort of filling in the holes in our distribution grid…Retailers are seeing that they can use our brands to drive traffic to their store and help them drive both their sales and profits."
Reducing debt - and also mulling over the renegotiation of current lending - is another popular and necessary move in the current climate.
But Hanesbrands' transformation of its manufacturing base has won it fewer Brownie points among its workers, with something approaching 30 plants closing down around the world over the past three years.
That risks courting domestic unpopularity - a sheer hosiery facility in Winston-Salem is the latest to go, with the loss of 240 jobs - but has been a crucial element in the company's transformation, focusing on fewer production centres with lower running costs.
And it's left Hanesbrands perfectly positioned to drive market share through its formidable roster of brands as the US emerges from recession.
"We've still got a lot of distribution voids out there to gain share," promised Noll. "And we are going to aggressively go after it."
Click here to view Hanesbrands third quarter results.
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