Hanesbrands Inc. unveiled Tuesday its latest growth-focused initiative which involves, among other things, pruning several products and taking steps to expand its appeal to younger consumers and its use of e-commerce.
The company will write down its entire $400 million inventory in personal protection equipment, consisting of masks and medical gowns and $611 million in overall write-downs during the quarter.
Investors responded to the unveiling by sending the share price up as much as 25.2% from its opening share price of $15.97 before the stock closed up 20%, or by $4 to $19.97.
The Winston-Salem Fortune 500 company announced in November that its new chief executive, Stephen Bratspies, was undertaking what he called a Day One "detailed objective assessment of the business."
Bratspies, who took over as chief executive on Aug. 3, told analysts that management is "evaluating our entire global portfolio" over multiple years.
"This is what I call the unvarnished truth," Bratspies told analysts. "It will define our opportunities, as well as the challenges we must address to be successful and reach our full potential."
The company said Tuesday it has started implementing what it is calling its "Full Potential" plan, which has four pillars and 20 strategic components overall. They are:
- Grow the Champion brand globally;
- Drive growth in its Innerwear division with brands and products that appeal to younger consumers;
- Build e-commerce excellence across channels; and
- Streamline global portfolio.
In terms of initial cost-cutting steps, Hanesbrands "determined that it no longer views PPE as a long-term growth opportunity," according to its press release.
Hanesbrands said it was writing off the remainder of its PPE inventory, valued at about $400 million. It took an equivalent inventory charge for the quarter.
During the second quarter, Hanesbrands completed production and distribution of more than 450 million all-cotton cloth face coverings ordered by the U.S. government for use during the pandemic. The company also made more than 20 million medical gowns for the federal government.
Altogether, those face masks and medical gowns represented $752 million in sales, or 43% of its second-quarter revenue.
Hanesbrands decided to sell those same products to businesses and consumers. The products, sold under the Champion and Hanes brands, feature all-cotton, nylon and polyester-blend face masks. The products are available online, in retail stores and in Hanesbrands outlet stores.
In July, the company projected more than $152 million in PPE sales to businesses and consumers in the second half of fiscal 2020. It achieved $179 million in just the third quarter.
However, after projecting $50 million in fourth-quarter PPE sales, Hanesbrands reported Tuesday having $28 million.
Another cost-cutting step involves reducing its SKUs (stock keeping units) by 20% "to enable greater focus on its highest-volume, fastest-growing and most profitable products."
A SKU is defined by Shopify.com as "a unique code consisting of letters and numbers that identify characteristics about each product, such as manufacturer, brand, style, color and size."
Hanesbrands took a $211 million write-down associated with the SKU initiative.
A third step involves Hanesbrands announcing it is "exploring strategic alternatives for its European Innerwear business in order to further simplify its operations and focus resources on its strategic growth opportunities."
Bratspies said in November that the assessment will include "reviewing historical performance, category trends, channel dynamics and competitive landscape across geographies and business segments."
"We’re analyzing our cost structure across spend categories. We’re analyzing the current level and mix of our inventory, and we’re looking at how we’re organized."
On Tuesday, Hanesbrands said Full Potential will take multiple years to achieve all goals, with the intent "to substantially self-fund the investments necessary to achieve objectives."
A more comprehensive overview of the plan will be provided at its virtual Investor Day in May.
Stifel analyst Jim Duffy said that "big picture, we are encouraged by strategic focus of the Full Potential plan and expect the resulting revenue base will be a better foundation upon which to grow."
"Given the current leverage profile and plans that imply shrinking the revenue base, however, balance sheet flexibility is limited and we see it unlikely that equity value improves until visibility to the restructured business and traction with new initiatives becomes more tangible."