Hanesbrands Inc., one of the world’s largest producers of underwear and hosiery, yesterday reported results for the 2009 third quarter. The company increased earnings and profit margins in the third quarter and reduced debt and third-quarter sales declined, in line with the company’s stated expectations. Hanesbrands owns the Playtex, Leggs, Champion, Wonderbra and Duofold brands amongst others.

Q3 EPS of $0.43, up 153 percent; EPS excluding actions of $0.63, up 21 percent.

Q3 sales of $1.06 billion, down 8 percent.

Year-to-date debt reduction of $134 million.

2010 incremental sales of approximately 5 percent expected from net shelf-space gains at retailers.

“Given that we are in the midst of a recession, we had very good profit growth in the quarter and solidified business momentum for 2010,” Hanesbrands Chairman and Chief Executive Officer Richard A. Noll said. “We have built a platform for future growth through our continued brand investments and low-cost global supply chain. We are protecting margins, reducing debt and substantially ramping up our production capacity to support a strong 2010, in which we expect shelf-space and distribution gains to add approximately 5 percent to our sales.”

Noteworthy Financial Highlights

Selected highlights for the quarter ended Oct. 3, 2009, compared with the year-ago quarter ended Sept. 27, 2008, include:

•             Third-quarter sales were consistent with the company’s previously announced expectations at $1.06 billion, compared with $1.15 billion a year ago. The company increased trade spending, especially for back-to-school programs, to support retailers and position the company for future growth opportunities.

Sales for the Innerwear segment declined by 10 percent with weakness in intimate apparel and socks. Male underwear sales were comparable to last year. Outerwear segment sales decreased by 5 percent with sales strength to retailers, including increased Champion brand activewear sales, offset by lower sales to the wholesale channel.

International segment sales decreased by 8 percent, and Hosiery segment sales declined by 12 percent.

The company’s sales planning assumption continues to be that consumer-spending levels remain constant through 2009.

•             Operating profit was $93.3 million in the quarter, up from $58.2 million a year ago. Operating profit excluding actions increased by 9 percent to $111.1 million. The operating profit improvement resulted from cost-reduction initiatives and lower commodities.

The third quarter’s operating profit margin excluding actions was 10.5 percent, compared with 8.9 percent in last year’s third quarter.

•             Diluted EPS increased to $0.43 from $0.17, while diluted EPS excluding actions increased by 21 percent to $0.63 from $0.52 a year ago.

EPS benefited from higher operating profit and a lower effective income tax rate. The effective income tax rate was 14 percent in the quarter, down from a rate of 24 percent in last year’s quarter. The company expects the tax rate for the year to be 16 percent, reflecting a higher mix of foreign profit due in part to domestic restructuring charges.

•             Hanesbrands paid down debt by $177 million in the quarter. The company’s debt is now $134 million lower than the beginning of the year, and the company’s goal remains to end the year with debt that is $300 million lower than the start of the year. The company’s strong cash flow is benefiting from reduced inventory.

For 2010, Hanesbrands says it has the potential for robust cash flow, and its major priority is to pay down debt by another $300 million. The company also continues to consider refinancing its debt as the debt markets allow, possibly as early as the fourth quarter. Refinancing would provide even greater strategic flexibility in 2010 to reduce leverage and consider bolt-on acquisitions that could take advantage of the company’s low-cost global supply chain.

“We continue to invest in our business while reducing debt and expanding margins in a difficult economic environment,” Hanesbrands Executive Vice President and Chief Financial Officer E. Lee Wyatt said. “We also continue to strategically manage our capital structure. The company has set a new long-term leverage ratio target of 2 to 3 times debt to EBITDA, and we have the potential to reach that range in 2011. This would radically change our leverage profile over the next two years.”