2023-08-08 10:42:29 ET
Barington Capital Group is calling for change at HanesBrands ( NYSE: HBI ) to reduce costs and debt, and said new leadership may be required.
The activist investor questioned the ability of the board and management to effectively lead the business in a letter sent yesterday to the chair of the board Ronald Nelson. Barington called for “immediate and decisive actions to create long-term value for shareholders.”
The apparel company’s shares are down more than 54% over the past 12 months.
“Barington believes this destruction in value is due to the company’s largely ineffective response to recent market challenges, poor operating performance and excessive debt burden,” the firm said, noting the company has underperformed the Russell 2000 and the S&P 500.
The stock rose 1.5% on Tuesday.
HanesBrands responds
In response to Barington’s letter, HBI said the board of directors and management “are committed to moving the company forward with a clear priority to deliver sustainable value creation for shareholders. We regularly engage with shareholders to understand their perspectives and to share ours.”
“Consistent with this practice, members of HanesBrands’ management team have held discussions with Barington over the past year, and the chairman of our board engaged with Barington in recent weeks, prior to Barington publicly issuing its letter.”
The activist investor said that in order to generate cash, reduce debt and create sustainable value for shareholders, HBI should:
- Reduce SG&A expense by at least $300 million per year and use the resulting cash savings primarily to reduce debt.
- Ensure the reduction of inventories to less than 170 days outstanding.
- Accelerate gross margin recovery through further facility consolidation and operating process improvements.
Barington said HBI may need a new chief executive officer and directors with relevant skills and industry experience.
“We invested in HanesBrands because we believe in its recognized portfolio of value brands, strong distribution capabilities, and unique vertically integrated operating model,” Barington Chair James Mitarotonda said.
“However, the company’s poor execution and performance under current leadership has destroyed substantial shareholder value and left the Company in a precarious position.”
Tough quarter
HanesBrands ( HBI ) said that it believes “initiatives that are being executed as part of the company’s Full Potential plan will unlock significant opportunities... We are also, however, open-minded with regard to additional paths to improve performance and create value."
The company also noted its board and management are “deeply experienced” and the board “is committed to ongoing refreshment and having the right mix of expertise and diversity, as demonstrated by the addition of three independent directors.”
For the first quarter, HBI reported its first loss in at least five years. EPS for the second quarter is expected to come in at -$0.02. The apparel company is scheduled to report earnings on August 10.
The stock has one Strong Buy rating from Wall Street analysts, six Holds, one Sell and one Strong Sell.
HBI is down 22% so far this year and up 16% over the past month.
More on HanesBrands:
- Hanesbrands: Decline In Progress
- Hanesbrands gains amid trader chatter about the potential for an activist play
- HanesBrands gets a permanent finance officer
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HanesBrands pushes back after Barington calls for change after a year of weak performance