Hanesbrands is under duress this week ahead of its second quarter earnings release Thursday.
Company chair Ronald Nelson received a letter Monday from activist investment firm Barington Capital Group that outlines steps the innerwear and basics giant should take in order to ameliorate its debt and fix its market position.
The list of demands signed by Barington CEO James Mitarotonda included a suggestion to replace current Hanes CEO Stephen Bratspies, the former Walmart exec who joined Hanes in 2020.
“We believe that the Company may need to retain a new chief executive officer with the necessary operating and merchandising skills and the industry experience to lead the business,” the letter stated. “Moreover, we believe the board must, in any event, add directors with relevant apparel, fashion, and manufacturing experience to assist and support management in restoring and enhancing shareholder value.”
The letter also added, “Hanesbrands has lost $2.6 billion, or 59.2% of its market value, under CEO Stephen Bratspies’ leadership.”
Barington went on to criticize the overall Hanes response to current economic conditions, and said the company needed to deal more proactively with its debt.
“Hanesbrands currently sits at a critical juncture and must immediately focus on cash generation and debt reduction in order to create long-term value for shareholders,” Barington said. “We believe that management’s largely ineffective response to recent market challenges is responsible for the Company’s rapidly deteriorating results. Further, Hanesbrands’ excessive debt burden appears to amplify the impact of poor operating performance on Hanesbrands’ ability to create value for shareholders.”
Hanes has $3.6 billion in debt as of its first-quarter earnings statement, and Barington’s letter noted that the company’s share price declined by 51.6% “in the last year alone.”
Barington suggested that Hanes could “reduce annual cost of goods sold and SG&A expenses by over $300 million” if it were to make “a combination of permanent and temporary cost cuts." Furthermore, it suggested that excess inventory was eating up funds and better inventory management could free up “more than $200 million in cash.”
In response, Hanes released a statement yesterday reiterating its commitment to shareholders. “The Board and management team believe initiatives that are being executed as part of the Company’s Full Potential plan will unlock significant opportunities, which we look forward to discussing later this week as part of our second quarter 2023 earnings report,” Hanes said. “We are also, however, open-minded with regard to additional paths to improve performance and create value.”
Hanes is expected to announce second-quarter results on August 10.
