Professor Mike Lord Comments on Hanesbrands’ Decision to Sell European Division

5.30.2012

Hanesbrands sells European division, puts U.S. brand on the market
Reposted from Winston-Salem Journal | by Richard Craver

Hanesbrands Inc. said Wednesday that it is getting out of European apparel sales by selling its imagewear division there for $20 million to an affiliate of Smartwares B.V.

The deal was signed Friday. It is expected to close this week.

“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,” Richard Noll, the company’s chairman and chief executive, said in a statement.

Hanesbrands also said it is putting its Outer Banks brand on the block as part of an overall strategy to “exit noncore segments and reduce risk.”

Analysts said the decisions are not unexpected because Hanesbrands said in April that it was reviewing its plans for the European imagewear division, which sells basic apparel to wholesalers in the screen-print market.

Hanesbrands had a European imagewear business since 1990. All 80 employees in that business will become employees of Smartwares, spokesman Matt Hall said.

“Virtually all of the product sold by European imagewear was sourced from suppliers, so no impact on company-owned production facilities,” Hall said. “This was our only existing European business.”

The decision to leave Europe is likely larger than just imagewear margins, said Michael Lord, an associate professor of strategy and entrepreneurship at Wake Forest University.

“Besides the imagewear concerns in general, Europe obviously is deep in economic turmoil,” Lord said. “It’s a big source of uncertainty and volatility for many companies, whether U.S. firms or even European firms themselves.

“Everyone is reexamining their Europe strategy.”

Imagewear had accounted for 8 percent of the company’s sales.

However, the company reported a loss of 18 cents a share in the first quarter related to the wholesale imagewear screen-print category. It projected a fiscal 2012 loss of 30 cents a share.

Jim Duffy, an analyst with Stifel Nicolaus, said he was encouraged by Hanesbrands’ decision to leave the European imagewear business because of its lower profit margins when compared with U.S.-branded printwear.

The company will change the name of its imagewear operations to branded printwear, which will focus on Hanes and Champion brands in the United States. The company projects annual sales of $150 million in 2013.

“We are a branded company,” Noll said. “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.”

Lord said the imagewear and Outer Banks decision represent “a bit of pruning” for Hanesbrands. “Sometimes it’s better to cut your losses than to hope for a turnaround.”

Hall said there are no job cuts planned with the company’s departure from private-label apparel and the selling of the Outer Banks brand.

“It’s too early to tell if there will be any effect on temp employee levels ‰- the exit of private label will take many months,” Hall said.

Hanesbrands said it expects to have pretax charges in the second quarter ranging from $85 million to $95 million, substantially all noncash, related to the restructuring and branded decisions.

The company expects no other restructuring actions for imagewear or any additional charges related to imagewear or any other aspect of its business this year.

The restructuring will reduce net sales by $60 million, primarily in the second half of fiscal 2012. But it said the sales decrease “will have an insignificant impact on operating profit.”

The company affirmed its previous 2012 diluted earnings guidance of a range of $2.50 to $2.60 a share.