Alternative Apparel

Hanesbrands Inc.’s $60 million acquisition of Alternative Apparel is teeing up some significant sourcing changes for the eco-minded brand. 

Marketed as a largely sustainable manufacturer of sweatshirts, T-shirts, lounge pants and activewear, Alternative’s production will likely be picked up by Hanesbrands, which produces goods at its own facilities and through contractorsWhether this will see a change in Alternative’s use of sustainable and recycled materials remains to be seen, but in Hanesbrands’ view, the eco-aspect is one of Alternative’s strengths as a brand.

“[Alternative] has an identity it’s carved out, a hard-earned identity, and we don’t want to tinker with that DNA,” said Matt Hall, Hanesbrands’ chief communications officer. “If you start to tinker with something like that, usually bad things happen.”

But Hall admitted that Hanesbrands already produces “a vast majority” of the type of products Alternative offers and said bringing the brand’s manufacturing in-house is “probably the biggest driver of value in this, but we don’t have a specific plan yet.”

The deal closed on Friday and the companies have yet to decide exactly what the integration process will look like.

“We would do the same fabrications,” Hall said when asked whether the use of sustainable and recycled fabrics for Alternative will be maintained. “We just have a supply chain based on very efficient energy use, efficient emissions, ethical employment practices, so we get the scale while also doing it in a way that’s possibly even better than what [Alternative is] getting now. Sometimes it’s hard to know what’s going on with a contractor, even when you try your best. We have 68,000 employees around the world…we’re very transparent in our sustainability.”

While Hanesbrands does have a focus on running its manufacturing plants efficiently, with reduced energy and water use and greenhouse gas emissions, the use of sustainable and recycled fabrics and dyes is not part of the company’s general manufacturing practices. Alternative Apparel holds itself out as a “fabric first company” that uses recycled and organic materials and eco-friendly dyes.

As for whether Hanes’ employee count is expected to change with the acquisition, Evan Toporek, Alternative’s chief executive officer since 2011 who is set to remain in the role, said “none of that as been discussed” as of yet.

“[Layoffs are] a possibility at every company, but we’re not thinking about that,” Toporek said, adding that the company has about 150 employees.

Toporek lauded Hanesbrands as “one of the leading eco, socially and environmentally conscious companies in the industry.”

“We’re certainly taking our time to integrate pieces of the business thoughtfully and certainly with their scale and expertise we see [the manufacturing] part of our business getting far greater or better — giving us the ability to manufacture more efficiently,” Toporek added. “The plan is to continue to operate as we have been and enter new markets.”

Toporek seemed keen for the deal with Hanesbrands to boost the brand’s still “small global business.” Hall agreed that the acquirer, as a large global operator, is in a position to expand Alternative, but he’s not sure that’s on the horizon.

“Whether [a bigger global business potential] exists or not, we don’t know that yet,” Hall said.

Alternative’s sales for the full year are expected to hit $70 million, Hanesbrands said.

He did note that Alternative’s three retail stores in Venice, Calif., the SoHo neighborhood of New York and San Francisco are staying open and that the brand’s web site will continue to operate independently, as is the case for most of Hanesbrands’ sites.

Hanesbrands is also “in acquisition mode,” Hall said, while staying mum on any particulars or whether the company is focused on a specific space or market.

“At any given time we’re speaking with someone [about an acquisition],” Hall said.

Wall Street had a subdued reaction to the deal, which Hanes paid for out of available cash and its revolving credit facility. The company’s stock rose 0.3 Wednesday to $23.30.

Ike Boruchow of Wells Fargo said the acquisition “could add approximately $20 million to top line” in the fourth quarter alone.

He pointed out that over the past four years, Hanesbrands has spent $2.6 billion on a string of acquisitions, including Maidenform, Champion Europe and Pacific Brands that have turned “highly accretive,” mainly due to its “highly leverageable supply chain.”    

In tandem with the Alternative deal, Hanesbrands said it expects third-quarter net sales to total $1.8 billion and earnings per share of 55 cents. Income from operations should come in at $330 million, which the company said was in line with its guidance. Third-quarter results will be released Nov. 1.

But Hanesbrands did not reaffirm its full-year guidance of net sales between $6.45 billion to $6.55 and operating profit of $845 million to $895 million, something that left investors wondering.

“We believe the non-reaffirmed full-year guidance and still murky details on the precise drivers of the quarterly performance (organic versus inorganic sales, top-line performance by segment, etc.) could limit some of the near-term relief in shares,” Barclays analyst Chethan Mallela said in a note. “On the other hand, while admittedly small, we do see the Alternative Apparel acquisition as consistent with HBI’s [merger and acquisition] strategy and view the post-synergy purchase multiple as attractive.”

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