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Men'sWeek issue 02/16/2012

A torrent of retail de-stocking activity, comparable in intensity to the aftermath of the 2008 financial crisis, took a heavy toll on Hanesbrands Inc.’s fourth-quarter sportswear business, pushing down quarterly revenues and pulling profits below expectations.

This story first appeared in the February 16, 2012 issue of WWD. Subscribe Today.

Richard Noll, chairman and chief executive officer of the Winston-Salem, N.C.-based apparel giant, said the quarter began with sales at the company and the sell-through of its products at retail conforming to expectations.

That all changed in December when retailers, rather than waiting until January to reduce stock levels, the customary practice, pulled the trigger early.

“In fact, the only other time I’ve seen that in 20 years of being in these types of businesses was in December of 2008, and [this] inventory pulldown equaled that level,” Noll told analysts on a Wednesday afternoon conference call. “It didn’t have to do as much with our categories as retailers were worried about their overall apparel levels of inventory because they were dealing with inflation. Cold-weather gear was starting to mount up.”

The rapid erosion of business in the quarter’s final month limited net income for the three months ended Dec. 31 to $41 million, or 41 cents a diluted share, 46 percent higher than the $28.1 million, or 29 cents, registered in the 2010 quarter but 10 cents below the 51 cent EPS level anticipated by analysts. Sales, expected by Wall Street to rise 8.3 percent, fell 0.4 percent to $1.15 billion. Gross margin receded to 29.1 percent of sales from 30.3 percent a year ago.

The company’s outerwear segment, which includes sportswear, saw a sales decline of just 0.1 percent, to $364.9 million, while operating profit within the segment shrank 34.8 percent, to $16.6 million. Sales of innerwear, including its large underwear and intimate apparel businesses, were down 0.7 percent, to $486.7 million, while operating profit improved 20.4 percent to $54.7 million.

The firm projected 2013 earnings per share of $2.50 to $2.60, including a 30-cent loss in the imagewear segment of its outerwear business.

Shares Wednesday rose 0.1 percent to $27.03 but were off 9 percent in the early stage of after-hours trading following the earnings release.

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