HanesBrands Inc. announced plans Wednesday to sell its iconic global Champion brand for between $1.2 billion and $1.5 billion to聽Authentic Brands Group.
The pairing had been rumored by industry analysts and media sources since Nov. 1聽鈥 about six weeks after HanesBrands' board of directors and executive management said that selling off Champion was an option as part of 鈥渁 broad range of alternatives to maximize shareholder value.鈥
Champion apparel sales are in more than 90 countries, with more than 40% of its $2 billion in fiscal 2023 sales hailing from outside North America.聽
Several media outlets, foremost Women's Wear Daily (WWD.com), reported in early April that the companies has agreed on Authentic as the buyer, but still were negotiating between HanesBrands' request for $1.4 billion and Authentic's $1 billion offer.
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Such a sale 鈥 with a projected completion in the second half of 2024 鈥斅爓ould be a blow not only financially with Champion representing about $2 billion of HanesBrands' $5.6 billion in fiscal 2023 sales, but also symbolically as its top activewear brand.
The additional $300 million potential to $1.5 billion is "based on achievement of performance thresholds," HanesBrands said.
The manufacturer projects聽$900 million in net proceeds, which it will dedicate primarily "to accelerate its reduction of debt."
HanesBrands chief executive Bill Simon said the Champion sale "maximizes value for Champion and best positions HanesBrands for long-term success."
"Importantly, we believe this transaction will enable the company to accelerate its debt reduction while positioning HanesBrands to deliver consistent growth and cash flow generation through a focused strategy on advancing its leading innerwear brands and optimizing its world-class supply chain.鈥
Authentic plans
Authentic said the acquisition of Champion will increase its system-wide annual retail sales to more than $32 billion worldwide.
"We are excited to acquire Champion, a brand that shares our pioneering spirit," said聽Jamie Salter, Authentic's chairman and chief executive.
"Over the last few years, the addition of new brands, together with the expansion of live events, has grown Authentic into a world leading sports and entertainment licensing company. Bringing Champion into the fold further expands our position in this space."
Authentic said its interest in Champion was spurred by its Reebok operations "having created a playbook to achieve a similar feat with Champion,鈥 said Nick Woodhouse, the company's president and chief brand officer.
鈥淲ith expansive reach, differentiated channel strategy and a balanced strength across its women鈥檚 and men鈥檚 businesses, Champion has profoundly influenced sports culture.
"This is the perfect time for the brand to make a significant impact as Women's sports continue to broaden their presence and fandom worldwide.鈥澛
Workforce impact
The transition could come with significant production and operations job cuts in the U.S. since Authentic prefers to outsource manufacturing and most operational production, while most of HanesBrands鈥 production and operations are handled internally.
Axios Pro reported聽that part of the difference in the potential sale prices is 鈥淐hampion has manufacturing assets that are expensive to operate and will be costly to wind down, and are likely the reason for the price reduction.鈥
HanesBrands reported having 48,000 employees in 29 countries as of Dec. 31, of which 88% are located outside the United States, mostly in supply chain facilities in Central America, the Caribbean Basin and Asia.
Authentic plans to convert the Champion business into a licensed model.
The company said it is in discussions with several existing and potential operators in key regions to manage the manufacturing, physical retail, e-commerce and wholesale operations of the business and maintain the brand鈥檚 global footprint.聽
HanesBrands said it will provide certain post-sale production services for Champion, including operating the business in select regions through a transition period.聽
Authentic Brands Group already has a significant presence in both North Carolina and the apparel industry through its eclectic portfolio of more than 50 celebrity-driven, trendy and traditional consumer brands. Familiar brands with North Carolina roots include Nautica, Thomasville Furniture and Van Heusen.
Other well-known brands include Sports Illustrated, Brooks Brothers, Aeropostale, Eddie Bauer, Izod, Forever 21 and Arrow. They also own the rights or estates of several celebrities, including actress Marilyn Monroe, rock icon Elvis Presley and soccer star David Beckham.
Neil Saunders, a retail analyst and managing director with GlobalData, told CNBC in November 鈥渢hat this is exactly what these companies do. They buy up different brands that are struggling, and they have a pretty good track record of turning them around and trying to reengineer performance.鈥澛
Back to basic apparel
HanesBrands said selling off about 40% of annual sales would not be a major blow since it "has made significant progress in recent years to reignite its innerwear business, increase market share, attract younger consumers, and strengthen its operating model."
The manufacturer said it will increased investment across its portfolio of leading basic apparel brands, including Hanes, Bonds, Maidenform and Bali.
鈥淭oday鈥檚 announcement is the culmination of significant effort by our teams to position all of our brands on the optimal path for the future," HanesBrands chief executive Stephen Bratspies said.
"Over the past three years, we have taken necessary actions to enhance the company鈥檚 operations and financial performance聽鈥 returning to historical gross margins, reducing our cost structure, lowering our debt levels and generating consistent cash flow.
"The successful completion of this transaction further simplifies our business, deleverages our balance sheet and enhances the company鈥檚 operations and financial performance."
Bratspies cautioned that even with selling of Champion, Hanesbrands will continue to "pursue new cost-reduction opportunities as we ensure we have the right operating structure in place, and advance our multi-year flywheel to drive strong shareholder returns.鈥
HanesBrands intends to classify Champion as discontinued operations in the second quarter and as a result, expects to update its full-year 2024 guidance in conjunction with the release of its second-quarter earnings results.
Ripple effect
Bratspies and the board have been criticized by some investor groups in recent months because of lagging Champion sales 鈥 down 26% in the first quarter alone 鈥 and an underperforming share price.
The Champion announcement on Sept. 19 came about six weeks after investor Barington Capital Group challenged HanesBrands鈥 board to take steps to reduce corporate debt and reverse a steep share-price decline over the past 2陆 years.
Barington called for a major board shakeup and the ouster of Bratspies.
鈥淲hile we believe a separation of the Champion business makes strategic sense, it is critical that, despite recent performance, the company achieves appropriate value for this iconic brand,鈥 said James Mitarotonda, chairman and chief executive of Barington.
HanesBrands鈥 52-week share-price range has been stuck between $3.54 to $5.86 for several months.
Stifel analyst Jim Duffy estimated HanesBrands could get $1.3 billion for the global Champion business. Upon a sale of the global Champion business, HanesBrands investors 鈥渨ould be left with the global innerwear business, and other activewear business, which has inherently lower growth potential.鈥
Tony Plath, a retired finance professor at UNC-Charlotte, said HanesBrands鈥 balance sheet will end up stronger.
鈥淏ut long term?鈥 he asked. 鈥淚ts growth engine is now largely gone, and along with it HanesBrands鈥 principal source of product differentiation and marketing buzz.
"The sale of Champion transforms HanesBrands from a 'leader in iconic brands' into a commodity-driven sock-and-underwear company. Is this progress?
"Hardly. It鈥檚 more like surrender."
