By  on February 25, 2008

Hanesbrands Inc. appears to be on a roll despite the difficult economy.

At a time when apparel companies are pulling back on advertising and marketing, Hanesbrands is continuing to make an aggressive push for its megabrands, particularly the big names such as the $2.4 billion Hanes brand, the $1.5 billion Champion label and the $1.2 billion Playtex line. The company's annual ad budget for its portfolio of brands, which includes Bali, Barely There, Wonderbra, L'eggs and Just My Size, is in excess of $125 million, according to industry estimates.

Kevin Hall, chief marketing officer at Hanesbrands, said the company continues to invest in its largest and strongest brands in core categories such as bras, particularly Playtex bras with its "Girl Talk" TV campaign launched in September, and activewear and sports bras by Champion, a brand that has generated 10 to 20 percent sales gains over the past year. It's a category he described as "booming."

"We expect Playtex to be the turnaround brand for 2008," Hall said. "The Girl Talk ads have had very positive consumer response. Playtex may be a mature brand, but we discovered when we went back into the archives that Girl Talk was not a new idea. We just brought it back in a fresh, modern way."

The Girl Talk ads depict women wearing Playtex bras in various scenarios as they talk about their needs for comfort, fit and aesthetics in an active lifestyle.

Based on the success of TV spots in 2007 and this year on Hanes' ComfortSoft Waistband underwear for men featuring celebrities like Cuba Gooding Jr. and Michael Jordan, Hanes will unveil a new TV and national print campaign in the women's arena beginning next month through holiday with Sarah Chalke, who plays an ambitious, quirky doctor in the TV sitcom "Scrubs."

Jennifer Love Hewitt continues to be the celebrity image in ads for the highly successful Hanes All-Over Comfort Bra, which posted 18 percent sales growth in the higher media test markets nationwide last year.

As for why the company selected Chalke for its latest product launch and a "very strong media buy," Hall said, "We wanted someone America finds charming and humorous. We wanted someone to deliver product in an amusing way, but get the news established. We looked at her [TV] ratings as part of the appeal and how she connected to America, just like Cuba did."Hall would not give an ad budget for the launch, but combined media and marketing is over $20 million, according to industry estimates.

"We are shipping the ComfortSoft panties now," he said. "The new panty is constructed to deliver the number-one consumer need, which is no ride-up or wedgies. It's all part of a new comfort fit line by Hanes in which we're looking to deliver better fit. We did quantitative testing with hundreds of thousands of consumers for the women's and girls' lines. The idea of a comfort-fit promise was successful."

The ComfortSoft launch for women will initially take place in the U.S. and will later be expanded globally, he said.

Addressing the tough retail climate, Hall said, "We are expecting another good year given the difficult environment. We have strong national brands and that's a way to drive traffic into the stores, especially when brands have meaningful news. That's what the retailers have told us."

Among the major strategies Hanesbrands is incorporating to build sales are:

l Drive megabrands in core categories with key items and innovation to gain a larger presence at retail.

l Invest in areas like active apparel that have a multigenerational or lifestyle-driven appeal and provide above average growth.

l Foster strategic retail partnerships through organizational or "team selling."

Hanesbrands capped a successful first year following its spin-off from the Sara Lee Corp. in September 2006. The momentum is underscored by a stellar fourth quarter led by its Champion and Playtex brands. Despite a challenging year where overall income dropped 39.4 percent to $126.1 million, sales rose 1.6 percent to $4.48 billion. Income in the fourth quarter ended Dec. 29 leapt 109.3 percent to $49.8 million from the year-ago period and sales gained 2.4 percent to $1.16 billion. For the year, overall income dropped 39.4 percent to $126.1 million, while sales rose 1.6 percent to $4.48 billion.

Over the next two years, the specialist of innerwear, activewear, hosiery and socks is projecting annual sales increases of 1 to 3 percent, operating profit gains of 6 to 8 percent and a spike in operating margin of 50 to 100 basis points, according to Richard A. Noll, chief executive officer of Hanesbrands. Noll spoke at an investors meeting last Tuesday at the Jumeirah Essex House in Manhattan with several Hanesbrands executives — chief financial officer E. Lee Wyatt, chief global supply officer Gerald Evans and chief commercial officer William J. Nictakis."Our goal remains to achieve double-digit growth for diluted [earnings per share], excluding actions [that impact volume], for the next three to five years," Noll told analysts. "While a year from now we may narrow our annual EPS growth goal to be in the range of 15 to 25 percent, for now we will maintain the more general double-digit goal because 2008 has the potential for EPS growth above this range. Our post-spin-off growth model is pretty straightforward. Our generation of strong, consistent cash flow combined with cost-reduction efforts and modest sales growth yields significant opportunity to continue growth."

Noll noted the opportunity for EPS growth this year is based on declining interest expense as a result of lower debt levels and interest rates, a lower effective tax rate and the prospect of future improvements in operating performance generated by beefing up brands and cost-reduction incentives. However, the sour economy could impact some potential for improved operating performance, he said.

Since its spin-off, the company has repaid $285 million in debt, contributed $96 million to its pension plans, which are now 97 percent funded, and repurchased $44 million in company stock. Hanesbrands has $2.3 billion of long-term debt and its debt leverage as measured by adjusted debt to earnings before interest, taxes, depreciation, amortization and rent ratio, decreased from 5.2 in September 2007 to a current 4.6. Noll said the company's leverage goal is adjusted debt to EBITDAR of 4 times, with a target range of between 3.5 and less than 5 times. The company's long-term debt does not begin to mature until 2012. After financial markets stabilize, Hanesbrands plans to refinance its debt.

Wyatt said because of "strong cash flow due to the replenishment nature of our core categories [bras, underwear, T-shirts], a leveraged profile of Hanesbrands is desirable.

"Our first priority is always to use cash to invest in our business and meet our obligations," he continued. "With excess cash, we believe we have greater potential for value creation by repurchasing shares or making acquisitions than continuing to reduce our debt leverage below the 3.5 ratio."

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