Hanesbrands Inc. has ambitious plans for Maidenform Brands Inc.
At the company’s annual investor’s meeting in New York Thursday, Hanesbrands executives outlined the $4.63 billion innerwear and activewear giant’s margin-enhancing “innovate-to-elevate” strategy and priorities for use of cash flow. The growth potential for the 92-year-old Maidenform brand, which was acquired in October for about $583 million, was also reviewed.
Richard A. Noll, chairman and chief executive officer, said the “innovate-to-elevate” strategy — which is designed to harness brand power, innovation platforms and a low-cost supply chain — will continue to drive profitability improvement. “Since 2010, we grew revenue $500 million, operating profit more than $200 million, [earnings per share] nearly $2 and generated cumulative cash flow of nearly $1.5 billion. And we accomplished this feat by focusing on high-quality revenue growth, driving our innovate-to-elevate strategy, and wisely deploying our cash flow,” said Noll.
“Given that these results happened in spite of cost inflation, it demonstrates that our innovate-to-elevate strategy is working, that we have pricing power, and that we can successfully manage volatility….We’re not done. Looking to 2014, we are confident that the momentum we have in innovate-to-elevate should continue. Using the midpoint of our guidance, we intend to grow sales another $500 million, operating profit more than $50 million, EPS nearly 80 cents, and generate another half-billion dollars of cash,” Noll said.
The company is in the process of integrating its trademark “I2E” strategy into the Maidenform business, where, based on Hanesbrands’ guidance for synergies from the Maidenform acquisition, operating margins are projected to improve about 1,000 basis points over a three-year period.
Bill Nictakis, chief commercial officer of Hanesbrands, said the acquisition of Maidenform will establish a beachhead in Europe from which the company can grow.
“We are [pleased] to have this business in our fold, not just because of the strong brand, but also because of the opportunity it represents to gain a footprint in Europe” Nictakis told analysts. “In Europe, Maidenform has distribution in key countries such as England, France, Germany and Spain through a combination of direct selling and distributors. The brand is well regarded, point-of-sale is growing in our key accounts and we are confident we should be able to significantly improve the efficiency of their operations. Over time, we will have the opportunity to extend some of our own core brands such as Bali and Hanes.”
Gerald Evans, chief operating officer, said Hanesbrands is successfully integrating the Maidenform business into the company’s innerwear, international and direct-to-consumer segments.
“Maidenform has strengthened our portfolio of intimate apparel brands in all of our business categories and positioned us well across classic and contemporary consumers. In a few short months, we have created one U.S. sales team, merged Maidenform marketing into our brand marketing team, and we have created one design team focused on creating fewer, bigger ideas for bras and shapewear,” said Evans. “Over the next three quarters, we will complete integration of the various support functions into Hanes. We will also begin internalizing Maidenform production into our supply chain in the third quarter of this year.”
Evans noted that while “I2E” started in the branded underwear business, the company is “rapidly pushing it across our intimates business, as well as activewear, international and now Maidenform, as we consistently drive margin expansion.
“We believe we are positioned to unleash the full potential of Maidenform with our innovate-to-elevate strategy, and contribute over $500 million in revenue and, by 2016, we should see $80 million in operating profit,” said Evans.
Howard Upchurch, president of the innerwear segment — which includes Hanes with more than $3.6 billion in retail sales — gave a rundown of Maidenform’s current and former business model.
“To understand the opportunity with Maidenform, you need to understand how the business was managed over the past few years. In a nutshell, we adhere to our strict seven-step, big-idea process to drive after fewer, bigger ideas, driving profitable growth, while Maidenform focused primarily on the product step and pursued many smaller ideas that drove sales, but were margin dilutive. From 2007 to 2012, sales grew 42 percent, but operating income dropped 22 percent and operating margin declined 728 basis points,” explained Upchurch.
“New product introductions were dilutive to margins. For example, the new Comfort Devotion line grew to over 40 percent of bra sales for Maidenform. However, the margins were significantly below the core One Fab Fit [brand]. Unfocused new product development led to high sku counts with large inventory write-offs, which left little money for brand building. As a result, Maidenform spent less than $1 million in consumer media. We will manage very differently and leverage all three parts of the Innovate-to-Elevate strategy.”
Upchurch concluded by saying, “We will focus on four major product lines, some of which leverage the core heritage such as One Fab Fit, and others that revolve around new benefits such as Comfort Devotion. We have begun rationalizing the Maidenform sku count with a 56 percent reduction already being executed. New design concepts for 2015 will come down 65 percent. We will leverage our big-idea process for summer 2015, the first season where we can begin development using our innovation process.”