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Hanesbrands Reveals Restructuring Plans

Firm plans to bolster its branded Hanes and Champion businesses in the U.S. while shifting its focus to emerging hot spots in Asia and the Americas.

Hanesbrands Inc. is cleaning up its house.

The $4.61 billion innerwear and sportswear powerhouse plans to bolster its branded Hanes and Champion businesses in the U.S. while shifting its focus away from a mature European market to emerging hot spots in Asia and the Americas.

The strategy, which is part of Hanes’ restructuring plan, was underscored Wednesday with two major changes: The company is divesting its Outer Banks brand and eliminating its private label business in the U.S., and is selling the European screen print division, which accounts for 8 percent of the company’s sales, to an affiliate of Netherlands-based Smartwares BV for 15 million euros, or about $20 million. The sale is expected to close this week.

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To reflect the new strategic direction, Hanes will change the name of its imagewear operations to branded printwear, which will be focused on the Hanes and Champion megabrands in the U.S. with improved operating margins. Annual sales are expected to be about $150 million in 2013.

The company has informed its U.S. wholesale screen-print channel customers of the decision to discontinue private label production and exit the Outer Banks business. Hanes will work with retailers on transition plans.

Richard A. Noll, chairman and chief executive officer, said the company is narrowing the focus of its worldwide imagewear business to exit noncore segments and reduce risk.

“We are a branded company. That includes being committed to branded printwear in the United States, where we can partner with our wholesale customers to take advantage of our strong consumer brands and product differentiation,” said Noll. “With our exit from Europe, we can devote all of our energies to growing our branded portfolio in core geographies in the Americas and Asia.”

Further details from Noll were not available Wednesday.

Matt Hall, vice president of corporate communications, acknowledged that the European market was volatile, competitive and unpredictable.

“When the company was spun off [from Sara Lee Corp. in September 2006], we indicated that we are a company that’s focused on Asia, North America and South America. Our key markets are Canada, the U.S., Mexico, Brazil, Argentina and Asia, where we’ve had a presence in Japan for 30 years and are just getting started in China,” said Hall. “We did a review of the screen-print business in the U.S. and Europe.…It’s our only business in Europe, but with the volatility of the European market, we decided the most appropriate course was to exit the European business.”

The screen-print business, which is primarily T-shirts, is sold mainly at mass merchants. But that segment is highly competitive and has been impacted by the euro zone’s financial woes and sporadic tourist trade.

“The screen-print industry definitely has been susceptible to the [euro] economy and that also pulls back on tourism.…You’ll see the screen-print business as definitely susceptible to the tourist market,” said Hall. “At one time, Sara Lee did have a European apparel division, but that was sold off before Hanesbrands, and there’s plenty of competition out there.”

Hanesbrands expects to incur pretax charges in the second quarter of up to $85 million to $95 million for the write-off of intangibles, the loss on the sale of the European business, inventory markdowns and other related items to the imagewear actions. Hanes is reconfirming its previous 2012 guidance of $2.50 to $2.60 for diluted earnings per share and free cash flow in the range of $400 million to $500 million.

Last month, the company posted a loss of $26.8 million, or 27 cents a share, for the first quarter and sales fell 2.7 percent to $1.01 billion.

Higher cotton costs helped drag Hanesbrands into the red for the first quarter, but the company beat analysts’ estimates and said the worst had passed.