NEW YORK — The most recognized brand in America is about to stand on its own.
Hanesbrands Inc. will become a separate publicly traded entity on Wednesday, instantly creating one of the largest apparel companies in the world, with sales of $4.5 billion. The company will be almost as big as Liz Claiborne Inc., and bigger than Kellwood and other industry stalwarts such as Warnaco Group and Victoria’s Secret.
The new firm will control a stable of world-class innerwear, hosiery and casualwear brands, including Hanes, Champion, Playtex, Bali, L’eggs, Barely There and Wonderbra.
The former Sara Lee branded apparel division of Sara Lee Corp. will officially claim its turf in the marketplace Wednesday as a separate, publicly traded company when Hanesbrands’ executive chairman Lee A. Chaden and chief executive officer Rich Noll ring the opening bell at the New York Stock Exchange. Trading in shares of Hanesbrands will begin that day under the symbol HBI. Hanesbrands will be based in Winston-Salem, N.C.
The Chicago-based Sara Lee Corp., which generated $15.9 billion in sales of continuing operations for the fiscal year ended July 1, made a decision last year to focus on its core food, beverage and household and body-care businesses. A spin-off was viewed as a logical idea to create a major company that would focus on apparel.
The formation of a freestanding multibillion-dollar vendor will be a boon to the fashion apparel industry, observers believe, as consolidation rolls on in the wholesale and retail sectors. Apparel retailers and wholesalers are rushing toward greater and greater bulk as companies seek to remain competitive with the $312 billion Wal-Mart Stores Inc. and other retail giants such as Target Corp. and J.C. Penney Co. Inc. Hanesbrands does about 30 percent of its business with Wal-Mart, primarily with Hanes, and expects that level to continue.
The $12.6 billion intimate apparel segment is especially dominated by a handful of big-time public players. These include VF Corp., the $6.1 billion apparel and jeanswear conglomerate; Warnaco, the $1.5 billion lingerie and swimwear specialist; the $2.1 billion Kellwood Co.; Liz Claiborne, which has sales of $4.8 billion, and Victoria’s Secret, the $4.5 billion lingerie, dress and fragrance powerhouse division of Limited Brands Inc.
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The capital structure for the spin-off is a $2.6 billion loan from Sara Lee to the new company, for which Sara Lee will receive a onetime payment of $2.4 billion from Hanesbrands, funded by new borrowings. Sara Lee finalized the spin-off Aug. 18 by distributing Hanesbrands common stock in a pro rata dividend to Sara Lee shareholders, who received one share of Hanesbrands common stock for every eight shares of Sara Lee common stock. All the Hanesbrands shares owned by Sara Lee shareholders will be distributed to Sara Lee shareholders today. The distribution ratio will be determined shortly before the spin-off takes place, although Sara Lee estimates 95 million shares will be traded.
In a telephone interview, Noll said price targets for HBI shares had not been determined. “As the company grows, the share value will follow,” he said.
However, future shares of HBI already have been trading in a “when first issued market” since Aug. 18, said Thomas S. Ramey, a chartered financial analyst at Portland, Ore.-based D.A. Davidson & Co., an institutional equity research firm.
“Market capitalization is around $1.9 billion,” said Ramey, who served as a vice president and corporate officer of Sara Lee Corp. until September 2002, and was a member of its executive management team. “Sara Lee is trading at 760 million shares, with 95 million [HBI common stock] shares outstanding.” He added that 283,000 HBI shares were traded on Thursday and 1,400 by noon on Friday at $19.80 a share.
In comparison, Liz Claiborne Inc. has a market capitalization of $3.89 billion.
Noll noted the Hanesbrands mission is to “profitably grow our leading brands by intimately understanding our consumers, by out-executing our competition and by leveraging our sustainable competitive advantage.” He added the company’s strategy for growth will be to maintain a “world-class consumer goods company” with expertise and competence in operating a low-cost, global supply chain.
Assessing the challenges that confront Hanesbrands, Allan Ellinger, managing partner of MMG, a consulting firm, said: “The product categories they are in are highly competitive and very price-sensitive, and to a great extent replenishment-driven. That means they are taking a risk in inventory. So they will be challenged. But I think the fact they’ve been spun off from a consumer products company will give them the energy to build brands.”
Hanesbrands has a sizeable arsenal of powerhouse brands spanning underwear, T-shirts, hosiery, activewear, casualwear, foundations and daywear. Specifically, they include:
- Hanes, an underwear, daywear, bra, shapewear, sleepwear, casualwear and hosiery brand with estimated retail volume of $2.3 billion. The brand is the best-known label in America, according to the annual WWD survey of most-recognized brands.
- Champion, an estimated $550 million activewear, innerwear, legwear, accessories and sports bra label that ranked 42nd in the WWD survey.
- Playtex, America’s 17th best-known label with approximate sales of $1.1 billion in bras and shapewear for hard-to-fit figures.
- Bali, an estimated $700 million to $750 million full-support bra, panties and shapewear brand.
- Barely There, a full-support and average-size bra, panties and shapewear label with retail sales of approximately $200 million to $250 million.
- L’eggs hosiery, which generates annual estimated retail revenues of $380 million and is the seventh most-recognized brand in the U.S.
- Wonderbra, a sexy full-figure and average-size label that generates about $250 million in annual retail revenues.
- Just My Size, a full-figure, underwear, daywear, hosiery, casualwear, dress and coat brand with estimated yearly retail sales of $1.3 billion.
Hanesbrands also will produce, market and distribute businesses with revenues of more than $50 million apiece, such as embellished knit shirts by Outer Banks; Duofold, an outdoor apparel brand, and the licensed collection of hosiery and legwear by Donna Karan.
Hanesbrands also controls its Hanes business in Europe, which generates annual sales of $350 million, said Noll.
However, Sara Lee sold its $1.2 billion European apparel business in February to an affiliate of Sun Capital Partners Inc. That business includes several important lingerie brands for the European market such as Gossard, Dim, Shock-Absorber, Wonderbra, Lovable, Playtex, Abanderado, Berlie, Nur Die and Unno.
In fiscal 2006, the branded apparel division’s net sales declined 4 percent to $4.5 billion from $4.7 billion in the previous year. This was due to planned discontinuations of several low-margin fleece and sleepwear programs, a softness in the hosiery category and an unfavorable sales mix. However, operating segment income for fiscal 2006 increased 12 percent to $501 million from $448 million in fiscal 2005.
In the fourth quarter ended July 1, branded apparel had net sales of $1.13 billion, down 2 percent. The decline was attributed to lower shipments to the mass channel, consolidation in the department store sector and the planned exit from some low-margin product lines. Operating income jumped 57 percent in the fourth quarter to $98 million, compared with $62 million in the year-ago quarter, largely attributed to a workforce reduction.
The branded apparel division of Sara Lee employs 50,000 workers in 22 countries, 80 percent of whom are outside the U.S., primarily in Mexico, the Caribbean Basin and the Dominican Republic. However, Noll said sourcing and production expansion is being aggressively planned for Asia.
“Ninety-two percent of our sales are in the U.S., and 8 percent are international,” said Noll. “We believe we have great potential internationally. We have a $100 million business in Japan and we began selling Hanes in China 18 months ago. We believe there’s tremendous potential in Asia.”
Noll noted that, while “82 percent of sales are conducted in the U.S., we believe we have tremendous growth potential internationally.” The company plans to make a big push in Asia over the next couple of years. “Our American brands have a certain cachet we think we can leverage,” he said.
Addressing the future of the company’s labels, Noll said innovation and quality will maintain brand integrity. He also would like to grow brand franchises into subbrands and additional product categories. For example, he singled out two introductions: the Hanes Tagless T-shirt, which was launched in 2003 and has since generated annual sales gains from 2 percent to its current 8 percent, and a line of women’s and men’s undies by Hanes called Comfortsoft, which features comfortable, cotton-wrapped waistbands so no elastic compresses the skin.
As for changes in the company’s advertising budget, which is estimated to be in excess of $75 million, Noll said: “The strategy is to be consistent, rather than to try to predict the right mix three to four years from now. We will reevaluate and re-optimize the mix over time. TV, print and Internet ads have been working very well.”
Michael Jordan as well as Jennifer Love Hewitt, Matthew Perry and Damon Wayans have appeared in TV and print ads for Hanes, and the celebrity-undies legacy continues with a new “Look Who We’ve Got Our Hanes on Now” TV campaign featuring Christina Applegate and Kevin Bacon.