漢佰 (HBI) 2009 Q4 法說會逐字稿

Good afternoon. My name is Holly and I will be your conference operator today. At this time, I would like to welcome everyone to the Hanesbrands fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn today's conference over to Brian Lantz, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and welcome to the Hanesbrands Inc. quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the fourth quarter of 2009.

Hopefully, everyone has had a chance to review the news release we issued earlier today. The news release and the audio replay of the webcast of this call can be found in the Investor section of our Hanesbrands.com website.

I want to remind everyone that we may make forward-looking statements on the call today, either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations, and are subject to certain risks and uncertainties that may cause actual results to differ materially.

These risks are detailed in our various filings with the SEC, such as our most recent Forms 10-K and 10-Q, as well as our news releases and other communications. The Company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made.

Also, any references to gross margin, SG&A, operating profit, earnings per share, or EBITDA on today's call will focus on our results excluding restructuring and other actions unless otherwise specified.

With me on the call today are Rich Noll, our Chairman and Chief Executive Officer, and Lee Wyatt, our Chief Financial Officer. Rich will highlight our 2010 growth expectations and comment on our business performance for the quarter. Lee will then provide further detail on various aspects of our financial performance. Following our prepared remarks, we've allowed ample time to address any questions that you may have.

Before I turn the call over to Rich, I wanted to take a moment to remind everyone that we are planning our third annual Investor Day on Tuesday, February 23 in New York. We will again have our extended management team review our achievements, strategies and opportunities in detail. Registration is required for all attendees, so make certain to RSVP to our offices as soon as possible to ensure your participation. If you haven't received our invitation, please contact me and I will ensure that you do.

I will now turn the call over to Rich.

Thank you, Brian. The fourth quarter of 2009 played out as expected and we feel very good about our opportunities for 2010. 2010 has great potential.

We estimate sales growth of approximately 5% due to shelf space games; we have a goal to improve operating profit margins 50 to 100 basis points; and interest expense should decline $20 million to $25 million. When you add all of this together, we could see earnings per share growth of at least 25% and up to 35% or more in 2010. To reach the higher levels, we may need a little help from the consumer, possibly a little price, and we need to effectively use our potential $300 million or more of cash flow.

Now, all of these numbers are directional and we plan to share more specific guidance with you in our February investor meeting.

Before I discuss 2010 in more detail, let me touch briefly on Q4. As I said, the quarter played out as expected, with sales increasing 1% after adjusting for last year's 53rd week. Our innerwear retail sell-through was flat for the quarter, slightly down in November, turning positive in December, with the last two weeks of December being particularly strong. We have seen slightly positive sell-through for the first three weeks of January.

On the cost side, we discussed on the third quarter call needing to make $10 million of investments in Q4 to drive 2010 sales growth. We also said that if we felt good about business, we might decide to invest even more. We did invest more -- nearly $7 million more, with over half being spent on media. While these investments did weigh on the quarter and the year, we feel they were a wise choice.

We generated strong cash flow during the year, paying down nearly $300 million in debt despite having cash outlays of approximately $75 million due to refinancing.

Turning back to 2010, we have begun shipping the new retail programs. These programs should result in 5% sales growth or approximately $200 million. The gains are driven by the simple fact that while we are number one or number two in all of our core categories, we are not yet number one or number two in all accounts or in all of our core programs. In 2010, we are growing our market share by capitalizing on these distribution voids.

These space gains should generate sales growth of approximately 6% in the first half and 4% in the second half. If we see consumer spending pick up, there could be upside to the 4% second-half estimate. The two months with the largest increase are March and April, so calling growth by quarter is challenging because $20 million to $25 million can easily shift between months; and in this case, potentially impact the quarter.

By segment, two-thirds of the increases are in innerwear, and most of the remainder in outerwear. However, both our direct-to-consumer and international businesses should also see mid-single-digit growth.

Specifically for innerwear, the bulk of the gains are in men's underwear and intimate apparel. The new programs in men's underwear have already begun to ship, with the new intimate apparel program starting to ship in Q2. The remaining growth in the back half of the year will be driven by replenishment of these new programs.

For the outerwear segment, growth will be driven by the expansion of our Just My Size brand in the first half. In the second half, Champion has confirmed space and distribution gains in fleece, performance apparel and sports bras across a broad set of accounts.

To support this growth, we have increased our production capacity. Our Nanjing textile facility started production in Q4 and is right on plan. We also secured additional capacity with outside contractors. The earthquake in Haiti is causing some short-term disruption in incremental costs; but at this point, we do not believe it will have a material impact on our ability to grow.

Turning to profit, we still have a goal to increase operating margins 50 to 100 basis points per year. Our continued planned cost savings in both cost of goods sold and SG&A will go a long way in helping us achieve or exceed our goal for 2010.

On our last call, we stated that we could achieve these goals even with minor commodity headwinds, as cotton costs had risen to $0.65 per pound. While we are now seeing even higher commodity costs, we believe we can achieve or slightly exceed our operating profit goal through a combination of cost reduction and pricing. As I have said before, if inflation becomes systemic, with our strong brands, we have the ability to price.

We are already seeing prices move in the industry and we may see this trend continue.

To maintain our strong brands, we have a goal to restore our media spending to $100 million from $82 million in 2009. In 2010, we are planning to spend approximately $90 million, closing the gap only if we see further upside momentum.

In terms of free cash flow, we see the potential for over $300 million. Now that we have refinanced our debt, we are positioned to use that strong cash flow to create value. As we have stated, we want to continue to lower our debt leverage with potential bolt-on acquisitions that leverage our low-cost global supply chain, may become an important part of our strategy. We are beginning to think about acquisitions much more seriously and will share our thoughts on criteria, priorities, and timing in February.

During this recession, our people truly rose to the occasion. Through their collective efforts, we have overcome these tough times and have laid a solid foundation for a very successful 2010.

Lee?

Thank you, Rich. Before we review the fourth quarter financial results, let me highlight two decisions that had a financial impact on our results.

First, we increased investment spending in the quarter versus the prior year by $17 million to support the 2010 space gains -- $13 million in incremental trade spending, which was slightly higher than we discussed on the third quarter earnings call; and $4 million of incremental media, to reinstate a portion of the first half media cuts.

And second, we completed the refinancing of our debt structure in the fourth quarter. The refinancing impacted our results in two ways. We incurred charges that reduced GAAP earnings. And while the charges did not impact [XA] earnings, they contributed to reducing the full year tax rate to 12%. Additionally, fee payments reduced short-term cash available to pay down debt. And I'll talk more about these two items as we review the financial results.

Let me also call your attention to a segment change that we made in the fourth quarter. We're now reporting our direct-to-consumer retail business as a separate segment. Direct-to-consumer was previously included in innerwear, but with our strategy to drive retail sales with both the Hanes and Champion brands, we made the decision to report it as a separate segment.

So, to summarize the fourth quarter results, EPS, excluding action, were $0.56, 12% above last year; sales were $989 million, down 4.5%; but excluding last year's 53rd week, sales increased 1%. This is consistent with our previously stated expectations for the fourth quarter.

Operating profit was $95 million or 9.6% of sales compared to 9.2% last year. And for the full year, we paid down $284 million of debt. We're pleased with these results, especially considering our incremental spending to support the 2010 space gains, as well as refinancing our debt to allow more flexibility for additional growth in the future.

Restructuring and related charges were $17 million in the fourth quarter and $73 million for the full year. These charges were incurred primarily as a result of plant closures and consolidation actions. Total charges since the spin-off have been $281 million and approximately half of the charges have been non-cash. Since the majority of the restructuring charges are now complete, we do not intend to report results on an XA basis going forward.

Now turning to fourth quarter sales by segment. Excluding the 53rd week from last year, total sales increased 1%. Innerwear and direct-to-consumer each increased 5%. International increased 2% and hosiery declined only 1%, while the outerwear segment decreased 6%.

The gross margin rate was 33.4% in the fourth quarter. The fourth quarter rate was higher than the 2008 rate, due primarily to the benefits of our price increase, cost savings initiatives, and lower cotton costs. These benefits more than offset the $13 million in incremental trade spending discussed earlier.

Cotton costs for the fourth quarter was $0.47 per pound, approximately an $18 million positive impact. We have visibility that cotton costs for the first three quarters of 2010. The first quarter should reflect costs of $0.52 a pound; the second quarter, $0.59; and the third quarter, $0.73, generating a negative impact of only $10 million through the first three quarters, which we should be able to offset with cost reductions.

If cotton remains in the mid-$0.70 range for the fourth quarter of 2010 and the increase appears sustainable, pricing becomes an option, and we have shown the ability to increase price in the past. Commodity costs are higher than they were three months ago when cotton was around $0.65, but we're confident we can overcome these headwinds.

Turning to SG&A. Fourth quarter SG&A expenses were $235 million or 23.8% of sales. Media, including the incremental $4 million discussed earlier, was $10 million higher than last year, as we chose to invest in our brands to position ourselves for a strong 2010. The quarter also reflected a $9 million benefit from cost savings initiatives that offset a $9 million higher pension expense.

Operating profit of $95 million in the fourth quarter generated an operating margin of 9.6%, compared to 9.2% last year, despite the decision to invest in the incremental trade spend in media. Interest expense for the fourth quarter was $39 million, slightly lower than the same period last year.

Our full year tax rate was reduced to 12%, due to a higher mix of offshore profit, primarily as a result of domestic restructuring charges and the fourth quarter debt refinancing costs. Our income tax rate, excluding actions, in the fourth quarter was 3%, as we trued up our full year tax rate. With the restructuring and refinancing behind us, we expect our tax rate to be in the 20% to 25% range for 2010. And EPS, excluding actions, for the fourth quarter were $0.56 -- 12% above last year.

Turning to the year-end balance sheet. Inventories were $1.05 billion -- $241 million less than the prior year. We exceeded our goal of reducing inventory $150 million during the year. For 2009, our full-year cash flow statement reflected $415 million of net cash provided from operations, and reflected a reduction in inventory and cash outlays of $53 million, due to the refinancing in the fourth quarter. Gross capital expenditures for 2009 were $127 million, with $37 million of proceeds from property sales, reducing net expenditures to $90 million.

We paid down $284 million of debt in 2009 in addition to the $75 million in refinancing costs for the full year. Year-end debt was $1.89 billion. Our debt structure is simpler and gives us greater flexibility to execute multiple strategies for earnings growth, including debt reduction and selective bolt-on acquisitions.

For example, our leverage covenants provide increased cushion; there are no specific restrictions on domestic acquisitions; and share buybacks, if we choose to do them, could be a high percentage of free cash flow. And our debt maturities were pushed out to 2013 through 2016.

In summary, the fourth quarter results were very much as expected. Most importantly, we made investments in our business to support the substantial sales gains we expect for 2010. And in the year, we significantly paid down debt and reduced inventories.

The completed re-financing provides a flexible capital structure that is aligned with our efforts to drive growth by taking advantage of our strong brands and our low-cost global supply chain. We're excited about the prospects for 2010 sales and earnings growth, and the opportunity to utilize our robust cash flow to create value.

I'll now turn the call back to Brian.

Thanks, Lee. That concludes the recap of our 2010 growth expectations and our performance for the fourth quarter of 2009.

Now we will begin taking your questions and will continue as time allows. Since there may be a number of you who'd like to ask a question, I'll ask that you limit your initial questions to two or three, and then reenter the queue to ask additional questions.

I will now turn the call back over to the Operator to begin the question-and-answer session. Operator?

(Operator Instructions). Eric Tracy, FBR Capital Markets.

First, thanks for a lot of great detail. If I could, maybe just get right to the -- in terms of the guidance for next year, particularly on the top line. Maybe talk through a little bit, again, the space gains contributing the 5%. One, talk about the potential for additional programs, probably in the back half; and secondly, just the aspect of replenishment. We saw significant destocking Q4, Q1 last year. I would think that that might be coming through but it sounds like you would anticipate that more as a back half event?

Yes. First of all, I'm feeling really good about 2010 in total and the potential for good sales growth based on what we've already confirmed. And in fact, as the consumer spending may in fact pick up and you may start to see some upside from that as well.

If that happens, you would start to see, I think, retailers also then increase their inventory levels for this new higher level of demand. Right now, we're seeing retailers have their inventories in line and we don't think we're either going to see a benefit nor a negative from retailer destocking. But that could change, in fact, if you start to see consumer spending pick up.

In terms of new programs for the back half -- now, generally, in the back half, there's less opportunities for gains and losses than there is in the beginning of the year, but we've already started to hear some positive things. And while we don't have anything additional confirmed than what we've already talked about, I think the likelihood could be there for late in the year. It would probably be more a late third quarter or fourth quarter.

So I'm feeling really good about our opportunities. And I think the biggest single thing we need to do is keep an eye on the short-term sell-through metrics to make sure we take advantage of any upside that materializes.

Okay. And then on the margin front for next year as well, kind of talked about the 50 to 100 basis points that I know you guys have planned on an annual basis. A lot of puts and takes there in their ability of how things could play out, but one -- just on cotton, you talked about being bought through Q3 and exposure in Q4.

Can you just talk about how retailer reception or your feeling of being able to be proactive with price increases, as opposed to maybe being a little more reactive 12 months ago when it went through, and how receptive they might be, or --?

Well, there's no question I think that we've learned and our retail partners have learned that price may, in fact, be much more part of the equation going forward than it has been over the last 10 years. There is no question in my mind that this era of apparel deflation is probably over now that a lot of the supply chain moves in the industry have sort of played out. And that bodes well for companies that have strong brands such as us, because we'll have the ability to take price much better than those that have weak brands or that are private-label suppliers.

I also think that the retailers started to see some advantages -- as their costs go up over time, that inflation can work itself through the chain and actually be a good thing for them. So I think we will be more proactive. We've got much more line of sight to it now than we did towards the end of 2008, whereas it came late in the game.

If you remember, it was sort of like really late summer when we were really figuring out what was going on. And so then our first ability to increase price was in February. We're now seeing it early enough that we could actually affect price in 2010. That wouldn't be very early in the year, but you could see something summer or definitely by fourth quarter.

So I think we're covered through the first three quarters. If we see cotton and other commodities stay at these levels, pricing is certainly on the table and we're comfortable in our ability to get it.

Okay. And then in terms of just supply chain moves largely now completed; Nanjing continues to ramp. How should we think about -- are their incremental costs still to come through, maybe in the first half? Or should we really start to feel the realization of that move?

So, remember, Nanjing was just starting up in the fourth quarter and really doesn't start to -- of '09 -- and really doesn't start to substantially contribute to production until the back half of the year; that's an 18-month ramp-up cycle. So the benefits really start to show up in '11 and '12. We've already got the startup costs built into all of our guidance for 2010.

The cost benefits that we're seeing in 2010 aren't from Nanjing; they're from other actions that we had done in Central America and the DR, and now they're cascading. So we think with this operating margin improvement is sustainable for the next three or four years just with the programs and things that we've identified, through our overall supply chain strategy over the last couple of years.

Okay. And then just lastly, and I'll hop off, just in terms of the free cash flow, it sounds like -- I mean, again, a sort of reiteration of the $300 million to $400 million, but it does seem a little bit like you have better visibility to or greater comfort around simultaneously pursuing or at least assessing acquisitions as well as delevering. Or is it still, okay, let's reach that two to three times debt to EBITDA and then start to look at acquisitions?

No, we've always talked about the two to three times debt to EBITDA as being more of a longer-term goal. If we solely focused on debt paydown, we could reach that goal as early as 2011; but we've also talked about acquisitions becoming possibly a more important part of our overall strategy.

We've got this global low-cost supply chain and the best way to leverage it is pump more apparel essentials volume through it. And so there may be the opportunity to create value with acquisitions.

Clearly, we want to continue to delever, and debt paydown will be our default. But if we see opportunities to create value with small acquisitions of maybe of a couple hundred million dollars, you know, we'll take advantage of that.

Okay. Great. Thanks, guys. Look forward to seeing you in February.

Jim Duffy, Thomas Weisel Partners.

A couple of questions for you. With regard to your free cash flow objective of $300 million for 2010, you're ahead of your inventory reduction objectives in '09. With that in mind, can you speak to how you would get to that $300 million cash flow objective with the various components you'd CR? Is there further inventory reduction opportunity you see in 2010?

Yes, Jim, we'll give you more -- this is Lee -- we'll give you more in February on the details of how to model that. But keep in mind as we now move into '10, we're into that phase where we're going to leverage what we've already invested in. Our capital spending as we've said, should go -- be lower.

And while we'll always work on working capital, I think what you'll see is some improvements just from the sales gains that we've projected in the earnings gains. So we'll get there a little bit differently; but as Rich said in his comments, 300 plus million is still clearly our goal. And again, we'll give you more details in February.

Okay, great. And then a follow-up on Eric's question about the price increases. Rich, you hinted or maybe suggested that you're starting to see this from other vendors in the space -- is that in the categories in which you compete? And have you had any preliminary discussion with the retailers about the possibility of passing through higher costs?

So let me hit the last part of that question first, which is have we had any discussions? You know, it's in the early phases -- three months ago, in -- on the October third quarter earnings call, cotton, for example, was at $0.65. Really, nobody -- we didn't have a line of sight to this; nobody really did. It popped up for a couple of months. Today, it's actually back down -- at least mid-day, it was around $0.69.

So was it a two-month-wonder and it's all sort of just going to dissipate? Or is it systemic? It's a little too early to tell. So, any discussions that are happening now are in the very early formative stages because we don't yet know if it's systemic. So that's one thing.

We are seeing, though, some movement. If you remember when we instituted our price increase last year, we did have some competitors who matched us right away. We had others who took price but not to the same degree. And then we had some others, for example, in the bra category, that decided not to take price. In that category in particular, we have now seen competitors actually increase price just recently to finally match our last year's price increase. So, again, we are seeing prices move up at retail and with competitors.

Additionally was -- we have a lot of visibility through the supply chain since we own a lot of it. And you can start to see cost push inflation potentially building out there. Oil's been up. That can ultimately drive freight rates up. Asia came out of the recession earlier and you're starting to hear about wage pressure a little bit -- it's not happening yet, but you're starting to have people focus on it in Asia and Central America and places like that, so that could be coming.

A lot of industries, like, for example, shipping, took a tremendous amount of capacity out of their systems during the recession. You see an uptick in demand; you're going to see prices firm there. So there's a potential for cost push inflation to come through and work its way through the supply chain over the next 12 months or so.

We feel very good that that doesn't actually hurt our business model; it actually puts us in a stronger position relative to our competition, because we've got strong brands and we've demonstrated that we can take price. And it actually worked for us and it works for our retailers. And so I feel very comfortable that we've got the right business model, even if going forward, you see the apparel industry have moderate inflation over the next couple of years.

Makes a lot of sense. And then, Lee, as you look through the line items, different elements of cost of goods, what do you see as kind of the biggest opportunities to provide an offset to the inflationary pressures on the cost side, aside from the pricing?

Yes, we'll still have the initiative savings from supply chain, would always be a large driver of that. And actually, as we look at our mix for 2010, it looks very favorable with innerwear being a large piece of the growth.

So there's several ways to do that. And we can always look at SG&A and we continually do that. I think we've done a good job on SG&A and we'll continue to.

So I presume at the Analysts Day we'll get more detail on the supply chain cost savings looking forward?

Yes.

Great. Looking forward to it. Thanks.

Omar Saad, Credit Suisse.

Rich, if you could, I mean, you guys have exposure to a number of different channels out there, even different geographies. You talked a little bit about some things you saw in December and into January. What's your kind of view at this point?

I know you're not assuming in your outlook a big rebound in demand -- prudently so; but what's your sense out there? Can you talk a little bit from more of a high-level macro perspective? How do you feel consumers are spending and behaving? And what do you think the key factors are to getting consumer demand for the basic apparel categories that you're in, to go higher from here?

You know, well, when we're talking about overall levels of consumer spending, I don't think there's anything any of us can do; it's all about what they're collectively doing in deciding how much they're going to spend and how much they're going to go to stores.

So, I think what you're really asking is -- what are those independent variables other than the things we're out there driving, like gaining share?

And we watch weekly sell-through, and for us, I think the best barometer of consumer spending behavior is our innerwear category because it's replenishment. And we didn't have very many space changes actually at our top five retailers between 2007, '08 and '09. So we actually have a sort of unique window in being able to watch it.

And we've started to see it stabilize, actually, a little bit during the back-to-school period in August and a little bit in September. It was still volatile, though. Remember October was cold? We saw it strengthen a little bit, but then it got warm again and we saw it pull back a little. November was soft for us as well as overall retail so our trends were mirroring overall retail.

But then December came, and it was pretty strong and it made up for the declines that we saw in November. But those last couple of weeks of December were very strong. And so that sort of gave me some hope. And I don't want to call it more than right now hope, that we could be trending out of this.

As I said in my comments, the first three weeks of January were slightly positive, so it's not like there was this blip at the end of December and then it all fell apart. Actually, it's starting -- it seems like it's maintaining it.

You know, for our categories now over the next few months, this is the slow period of time. So a big uptick in consumer spending won't have a material impact on our top line. It's really going to be towards the summer, maybe late spring and in the fourth quarter that consumer spending can really kick in and actually give us some upside. And right now, I'm hopeful; but I don't want to say more than hopeful.

Okay, good. That's helpful. And on the (multiple speakers) --

You know what? They're -- hold on, I'm sorry, Omar. Let me interrupt -- there is one other piece of information that's quite interesting. For the first time, we're starting to see a little bit more strength in the mid tier or higher price channels relative to mass. It's not out there long enough to be a strong trend, but it is some glimmers that maybe people are feeling a little bit more comfortable in spending a tad more.

Interesting. Interesting, okay. Thank you. In the shelf space gains -- did any of those -- that 5%, any of that get shipped in the fourth quarter? Or is that kind of basically all kicking off in the first quarter?

You know, there was a few million that would have gotten shipped in that quarter but it was fairly small. And actually, for example, Penney's, which was slated -- some of Penney's, which was slated to go in January, got moved up a little bit early into December because we were ready to ship it. But it was a couple of million dollars.

So the bulk of the programs really start going for male underwear, for example, in Q1. And most of the intimate apparel, or virtually all of the intimate apparel, doesn't even start shipping until Q2, in April.

Okay. And then you think about these drivers and the great job the team has done, and the retailer responsiveness and willingness to give you guys more shelf space, how do we think about that long-term? I mean, are those shelf space gains sustainable? Do you think there's more opportunity? Where is the opportunity? Why are you getting the opportunity on a more sustainable basis?

I know when you spun off, you talked about kind of a 2%-ish long-term growth rate. How do we think about that? Or is this shelf space gain, is it really just a 2010 -- you did a great job this year and you don't actually want to bank on taking it higher in the future?

Momentum builds and breeds momentum. And I think that's the situation we're in. And we've got good strong, positive momentum. And that means people will actually want to do more with you, not less. So most of the things that we're hearing from retailers are how do we now start to build upon these programs that are -- that we've already started to lock in for '10? So I'm feeling good about our long-term potential.

What are the drivers? -- is clearly having strong brands that help the retailers realize that if they push our brands, they're going to bring more people into their store, into their apparel pad, sell them our products as well as a broader set of products. And it's working for them. They gravitated toward it in a recession and I think they're going to keep doing it coming out of the recession.

In terms of our long-term growth rates, both from a sales and EPS perspective, let me hold off on exactly what those may be. In February, that will be the perfect topic to talk about then. But I'm feeling good about our potential -- not just for '10, but '11, '12 and beyond.

Okay, great. Thanks. Good luck.

Scott Krasik, CL King.

Lee, first, the other big moving part of gross margin next year I think is incremental or the additional volume. What's the flow-through rate, as best as you can model? Help us out with what the additional volume means for gross margin increases.

You know what we'll do -- let's wait till February if we could, because we'll lay out all the details of -- and allowing you to model then. And then we'll talk about volume and mix and initiative savings out of the supply chain and things like that. But we'd rather wait until February, if we could.

Okay. Then, Rich, maybe it's early, obviously, but you mentioned the sell-throughs or there's some positive evidence of more elevated channels. Who are your competitors there? Is private-label a bigger factor, less of a factor? Maybe just talk about what the opportunity is at the Kohl's and the Penney's and whoever else.

You know, we've got strong shares in mid-tier, strong shares in mass. We've got really strong shares in selected -- certain categories, especially intimate apparel and in traditional department stores. And all of those things we're gaining share in the categories that we're not as strong in.

So, for example, Penney's is now taking men's underwear for the first time. And so I think we can continue to build our business.

In our shares overall, in the mid-tier channel, for example, are pretty similar to what they are in mass, in terms of total innerwear. So any channel shift that's happening isn't really a disadvantage for us. Actually, whether there was a channel shift towards mass or towards mid-tier, we'll capitalize on either one.

And I do want to stress, though -- we're just starting to see glimmers of that. I wouldn't yet call it a trend. But it is the first time in probably 12 to 15 months that we're starting to see any types of those glimmers.

Is that the biggest opportunity -- I know you don't want to talk about beyond 2010, but could that be additional avenue of growth?

When you look at each of our businesses, whether it's innerwear, outerwear, international, or now what we're starting to separate out, our direct-to-consumer business, we've got long-term growth opportunities in each and every business. I have talked about two areas historically that I think will have -- that have opportunities for above Company average growth, and those are international as well as our direct-to-consumer business.

And in our investor call, we're going to have -- or in our Analyst Day in February, we'll have Bill Nictakis, who's President of the US wholesale business, talking about some of those opportunities in innerwear, outerwear, and the direct-to-consumer business. And Gerald Evans, who's President of the International business, will talk about the great growth opportunities they have as well. So you get a lot more color and detail about it on that day.

Okay. Lee, do you have, just for modeling purposes, the direct-to-consumer figures for Q1, Q2, and Q3?

Yes. In terms of sales, for example, and profit?

Yes.

I'll tell you what, we can -- I do have that -- for '09?

For '09.

Yes, just quickly -- first quarter gross sales, $38 million; Q2, $49 million; Q3, $53 million; Q4, $48 million.

Okay, thank you.

And let me just follow-up. Direct-to-consumer, I think actually had a great year, considering the recession. When you exclude the 53rd week, they were up 2% for the year; up 5% in the quarter. Our total comp in our outlet stores was down minus 0.6% for the full year, and our Internet business continues to grow.

And we feel really good about our ability to drive our Hanes and Champion franchises through what had traditionally been an intimate apparel business. So we think they've got good long-term growth prospects.

Good. Thanks, guys.

Eric Beder, Brean Murray.

This is actually (inaudible) filling in for Eric. But I'm just wondering, can you give us -- do you foresee yourself being in any of the upper tier channels in addition to the mid-tier ones that you're in now? Like, do you see that as a potential opportunity going forward?

And then in regards to the gains you're experiencing in men's underwear and intimate apparel sales, do you think they're back to normalized levels at this point? Or can you just give a little bit more color around that?

In terms of department stores, traditional department stores are actually about 8% of our sales. Our intimate apparel is where we're actually strongest there. We did talk about programs that we're rolling out at Macy's, for example. Champion fleece is now at Macy's and we've been expanding programs there. So we've got a lot of good opportunities for continued growth in the traditional department store channel.

Above Macy's, we actually do sell through hosiery to Nordstrom's and places like that, some of our intimate apparel brands as well as some of our hosiery brands. So we feel that that is an opportunity -- we're broadly distributed across all channels.

In terms of your second question, could you repeat that for me again, please?

Just for the gains that you're experiencing, you mentioned that the gains you're experiencing in men's underwear and intimate apparel sales -- do you think that's back to a normalized level at this point? Or, I mean, has it stabilized?

You mean in terms of the overall share gains that we're seeing?

Yes.

Yes, you know, we are gaining shelf space because our brands continue to grow and they're the ones that consumers want. And I believe that until you have 100% of the market, you've always got opportunities to continue to grow share. And we'll continue working on that.

Michael Binetti, UBS.

Hey, guys, good afternoon and congrats on a good quarter there. (multiple speakers) Just like to ask you if we could get a little color around the incremental investments in the brand that you mentioned. I think you said -- you talked about taking up media spending on the brand for opportunities related to 2010, but the revenue outlook stuck around at 5%.

I'm curious if you could give us any way to help us think about the -- maybe how to measure the lift you're seeing from the incremental spending that prompted the decision to go ahead with that?

And also, did you see -- did something change since the last call, in your underlying thoughts about the consumer that kept the revenue guidance at 5%? Or do you think there's a chance that the incremental spending could perhaps let us get a little more optimistic related to the revenue outlook for the year in our models, as the year goes on?

Yes. So, let me hit the sales growth first and then I'll talk about overall media spending. The 5% that we're talking about is still just due to the confirmed space gains that we have. So, clearly, if their consumer spending levels increase, there is upside to those numbers.

Right now, we can't sit there and say definitively we see that trend happening and it's worth this much. If it's there, it will be there and we'll make sure we take advantage of it. Whether or not you want to try and figure out what that levels could be, that's up to you. Once we start to see the trend and we get our arms around it, we'll make sure we share that with our investors. So that 5% is still like we were talking about in October -- just based on confirmed net space changes.

In terms of media, last year -- literally a year ago, we talked about cutting media from our -- what we believe is the right run rate level of about $100 million, cutting it about -- or so -- cutting it about $25 million because of the recession. So we pulled it down, figuring that if there's not a lot of people going to stores, there's no reason to be spending that level of media.

We always talked about from back then and throughout the year, that if we started to see momentum in our overall sales level, we'll want to restore -- begin restoring that media to get back to that $100 million level. And if we saw some momentum, we'd start to do that in 2009 and not just wait for 2010.

We ended up spending about $82 million of media in '09. Some of that we decided to spend literally as late as November, mainly in the Hanesbrands on socks. We have not advertised the socks category for a number of years.

And I think that, in hindsight, we need to be taking care of all of our branded categories -- socks included. And when we advertise it over time, it grows sales. It makes it much more impervious to secondary brand encroachment and/or private label. And so that's where we actually put those funds. And our expectation in 2010 is we want to keep restoring media to get back to that $100 million level.

Right now, we'll plan it right around $90 million and close the gap as we see further upside, for example, from consumer spending increases later in 2010.

All right, if I could just ask a quick follow-up. It sounds like you're paying a little more attention to the M&A market out there, today even. Maybe you could give us some thoughts on what you're seeing in the market. Are the multiples and valuations you're seeing getting more attractive lately? Or do you think multiples are still too high for us to start thinking about any kind of big wave of M&A coming through the industry at this point?

Well, I don't know if you'll see a big wave, so I don't want to extrapolate all of there. But clearly, there's people that have gotten through the recession but have gotten through with sound business models, but may have still a little bit too much leverage; or other situations that have created an environment where you can find some good deals.

Now, rubber always meets the road when you're finally negotiating something and all that stuff. But you've got an opportunity where strategic buyers are there. Private equity is not back in yet, and you may have the opportunity to get some very reasonable deals that can create long-term value for our shareholders.

Lee, do you agree?

Yes, I think we are at a point where you might start seeing more. I think the credit markets have stayed strong. They got strong in the second half of '09. We're seeing them still strong, so there is some credit available. There's cash on the sidelines for private equity -- from private equity.

So I think there are a lot of things in place that you could start seeing some opportunities around M&A. And I think the recession has taken some price expectation down, probably. So I think the conditions are ripe; it's just a matter of when it starts.

Thanks a lot, guys.

Carla Casella, JPMorgan.

Can you talk specifically what debt was paid down during the fourth quarter? Was it all just revolver and term loans?

Yes, we basically -- we took out the term loan A. We took out the second lien, where the two big pieces of it.

Okay. And did you give -- I may have missed it -- revolver availability?

Pardon me?

Did you say what the revolver availability is at the end of the quarter, net of the LCs?

Yes. The line is $400 million. We have around $25 million in LC usage.

Okay, great. And then one other housekeeping -- the stock compensation for the quarter?

Yes, relatively small number. For the quarter, around $8 million or $9 million, I believe.

Okay, great. Thanks a lot.

Bill Reuter, Bank of America Merrill Lynch.

In terms of the $100 million of working capital that you guys expect to receive from the sale of the yarn facility, do you have a sense for how much you guys have currently realized?

Yes, we think we realized around $50 million to $60 million of that.

Okay. And we would expect -- we still expect to see the rest of that in 2010, right?

Yes, generally the first half or so.

Okay. And, I guess, looking forward with your goal of debt reduction of $300 million, do you have a sense for which piece of debt you guys will be going after?

You know, we really -- right now, we ended the year with $51 million on the revolver and $100 million on the AR securitization. Those are the most flexible pieces we have; so as we were paying down debt, we'd probably want to take those down first, to be honest with you, because then you can fill those buckets back up if you need, so you don't lose capacity. So the first $150 million probably would go there.

Okay. And then just one last one. Just remind me, can you tell me what maintenance Capex is for you guys?

You know, it's interesting. We're moving into a period where Capex is much smaller than it has been, because we've built out so much. Really don't know. I'd say it's probably no less than $25 million, no more than $50 million or so.

Great. That's all for me. Thanks, guys.

Karru Martinson, Deutsche Bank.

I certainly saw the sock advertisement, so you guys were indeed blanketing the airwaves this past quarter.

That's great. Hopefully, you bought some socks after it.

Oh, my wife may have. When I look at the bolt-on acquisitions here, what's the size that you guys are looking at? And I know we're going to get more color here in February, but what's kind of areas that we're looking at, in terms of fit?

You know, we've talked about numbers maybe from $100 million to $300 million; so, think of it as a meeting of $200 million or so. That would be purchase price.

That'd be the purchase price. And from your comments, I'm gathering there's nothing imminent on the horizon; this is just you guys kind of looking out at the year.

That's correct. We're not in negotiations but we have started to seriously look.

Okay. And so when we look at the cash flow usage for the year, the $300 million plus, I mean, is there any point in time where you guys are going to say, we've looked. If we haven't found anything in the first half of the year, either we do a value creation for the shareholders or we look at paying down debt. Is there any kind of deadlines that you're working off of?

No, we've really got nice flexibility. Now, we generate normally the majority of our cash flow in the second half of the year, so we've got a lot of flexibility around that time.

Okay. And just lastly, with all the conversation on the price increases, the potential in the later half of the year, where do we stand right now, broadly speaking, in the difference between branded pricing versus where private-label stands?

At retail, we generally see -- I'm going to use men's underwear, for example, as a proxy, or socks -- so, versus us and Fruit of the Loom, it might be $0.50 a package. And then you're going to see private-label; so, Fruit would be about $0.50 a package lower than us. You're going to see private-label generally be about $0.50 a package lower than Fruit.

And that tends to be the pricing premium structure that's been out there from a long-term perspective. And as we exited holiday, those were the types of price differentials that we were seeing in the marketplace. So, no real change.

All right. Thank you very much, guys.

Eric Tracy, FBR Capital Markets.

Just a couple of quick follow-ups. I know you mentioned in your prepared remarks on Haiti, but maybe just talk through -- is it possible to sort of quantify, be it the downtime or disruption that you may have experienced? And I know it kind of reverts back to pre-quake levels in February; but just talk through logistically beyond just the damage into the buildings, but logistically the flow of product there and shifting of capacity.

Yes, well, first of all, if I talk about Haiti, I have to say that my heart goes out to everybody down there. It's just truly a horrific situation.

Fortunately, the facilities where we've got major contractors were either far from Port-au-Prince -- one of them is on the DR border and that hasn't lost any time. And the two large ones that are in Port-au-Prince were actually not right on the quake fault line; they're actually sort of around the -- you've seen a map of that, there's a bay and they're sort of in the northern part of Port-au-Prince.

So the buildings are structurally sound. Those two facilities employ about 3,200 people. As of today, 2,000 people were back to work; so we're 10 days into it. And at a run rate, they were producing today at about 40% of their pre-quake levels. And as you had said, we are expecting to get back to the pre-earthquake levels by mid-February and feel good about our ability to do that.

We've also secured outside contractors and ramped up production capacity in our facilities elsewhere. And we actually will not only be able to recover by early March, but even have some opportunity for upside if it, in fact, materializes by Q2.

I think that this really does reinforce that our strategy to diversify across hemispheres and across countries into three different clusters makes a lot of sense. Because while this was a lot of our T-shirt production, it was less than 5% of our total production, and we really have the ability to flex into different places around the world to be able to supplement the shortfall that we had. So, we're feeling real good about our ability to recoup.

Now, you brought up the next topic, which is -- okay, you're making this stuff; what about the supply lines and the logistics?

As of today, we've been successful in being able to get cut parts from our textile facility in the DR, and from Central America into Port-au-Prince and actually into the facilities. And we're actually starting to successfully ship from there. We're not actually doing it from the major Port-au-Prince, but there's a port that's about 20 miles north of Port-au-Prince that we're able to do it. So we're starting to see the flow of goods.

So we really feel good about our ability to operate there. And I will say that our team and the contractor teams, the people that own these contract operations and all the people there, have done an absolutely superb job in rising to this occasion and really dealing with a tough situation. And not only are they worried about getting people back to work, so people can keep earning money and get their lives back in order, we've also -- and our contract partners -- have provided a lot of humanitarian aid. We've actually donated about $2 million worth of basic apparel products, which people are going to need.

Additionally, we are providing food -- the contractors are providing food for the employees and giving them food kits to be able to take home, so that they can have hot meals to feed their family. And we're in the process of trying to find about 2,000 tents to be able to provide for a lot of the people in these local communities.

So, it's a devastating situation, but people are starting to work through it and we really feel good about the fact that we've been there for the last 15 years. We're committed to the area and we're going to do everything we can to not only get production back onstream, but also help those people.

Okay, thanks for that. And not easy to segueway out of that difficult topic, but into the wholesale screenprint channel -- I know it's not a huge piece, but just kind of curious the trends you're seeing there from a demand, restocking and pricing -- maybe just touch on that a little bit.

Sure. Let me start with the overall market trends. So, as I've always talked about, that channel is much more susceptible to recession than some of the other channels. And as we saw last fourth quarter, the industry sell-through dropped double-digits, has been there until the December earning quarter. And actually, the decline, I think, was in the mid-single digits. So I think December was down about 6%.

So we're starting to see those trends improve. And I think we'll continue to see the overall macro industry trend in Imagewear improve in 2010.

Now, what's interesting about that category is it's not going to be a slow decline and a slow recovery. It's going to just sort of chug along, I think, at its current level. And then when it snaps back, it will snap back fast. Because it's going to be driven by the fact that corporations are starting to do conferences more and giving away T-shirts, and so on and so forth.

The hard part is you can't predict when it's going to snap back. So you've got to watch it really close and then be prepared for it if, in fact, it does snap back. One of the factors, though, is that while Haiti isn't big from our overall production standpoint and clearly, isn't big for retail, about one-third of the T-shirts for the Imagewear market are produced in Haiti.

So we could see some short-term disruptions in that overall marketplace. And you could start to see a tightening of capacity. That's one of the reasons that we want to make sure we've got excess T-shirts, in fact, are there.

You take that, coupled with commodity prices, and we're even starting to hear from our customers that there's an expectation that they believe that prices could get back to even pre-September levels or above, relatively quickly. So we're going to keep an eye on that and watch the developments every week. It's going to change because of the Haiti situation, but we want to make sure we can capitalize on it, if we can.

Okay. Great. Thanks, guys.

That concludes the allotted time for questions and answers. I would now like to turn the call back over to Brian for closing remarks.

Thank you. We'd like to thank everyone for attending our call today and we look forward to seeing many of you in our February meeting. Thank you very much.

Thank you for participating in today's Hanesbrands fourth quarter 2009 earnings conference call. You may now disconnect.