Hanesbrands Inc. (HBI) is Accelerating at High Speed

Some strategic moves:

When something is not working out, it’s better to stop trying and focus on what’s really working well to get the best out of it. That’s the exact strategy that HanesBrands followed. In the first half of 2012, due to rising cotton prices and increased competition, HanesBrands made constant losses in some quarters. Thus it was time for them to do some restructuring. As we all know there has been a huge financial crisis in Europe and almost all the companies that are carrying out their business operations in Europe are feeling the pinch of the recent contraction in the European economy. So the first step the company took was to exit its entire Imagewear division from Europe. The company also planned to narrow the focus of its worldwide imagewear business, and in order to restructure it, HanesBrands planned to exit all the noncore segments and thus reduce the risk. In the US the company discontinued its  private-label production and exited its Outer Banks business. Thus the company re-organized its domestic screen print business and devoted all of its energies to grow its branded portfolio in core geographies in the Americas and Asia. HanesBrands’ decision to exit from unprofitable businesses worked well and helped the company to report positive numbers on its balance sheet.

Along with reporting strong quarterly sales, HanesBrands also generated $508 million of free cash flow in the year and prepaid $550 million of long-term bonds.

Foolish bottom line:

Due to the cotton inflation in the first half of the year HanesBrands’ profitability has suffered a lot. However, with the company’s successful pricing strategies and introduction of a series of new products, the company survived the cotton inflation bubble and has performed brilliantly in this quarter. Adding to that, once the cotton prices lower, I think there will be more improvement in the company’s top and bottom lines. Again, as HanesBrands has decided to increase media spending by around $30 to $40 million, this will surely act as a driving factor towards the further growth of the company’s leading brands. Investors should thus keep an eye on this stock.

The article This Apparel Company is Accelerating at High Speed originally appeared on Fool.com and is written by Satarupa Bose.

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