Investment firm Barington Capital Group L.P., which is a shareholder of retailer Hanesbrands, has sent a letter to the company’s board chairman, Ronald L. Nelson, calling for "immediate and decisive actions to create long-term value for shareholders".
In the letter, Barington's chairman James Mitarotonda says: "We invested in Hanesbrands because we believe in its recognised portfolio of value brands, strong distribution capabilities, and unique vertically integrated operating model."
However, he continues: "The company’s poor execution and performance under current leadership has destroyed substantial shareholder value and left the company in a precarious position.”
Mitarotonda highlights that Hanesbrands' share price share price has declined by -51.6% in the last year and suggests this is due to "the management's largely ineffective response to recent market challenges".
He also suggests Hanesbrands’ excessive debt burden has amplified the impact of poor operating performance on Hanesbrands’ ability to create value for shareholders.
Mitarotonda says Barington believes that in order to reverse the downward spiral in Hanesbrands' stock price, the company must prioritise cash generation and debt reduction, alongside evaluating fresh leadership and board members who can effectively execute these performance-enhancing strategies.”
Barington's recommendations for Hanesbrands
- Significant SG&A expense reduction: Hanesbrands should promptly reduce its Selling, General, and Administrative (SG&A) expenses by at least $300m annually. This move aligns with more realistic market expectations for growth. The funds saved from this effort should be channelled primarily toward debt reduction.
- Aggressive inventory management: The company must take measures to curtail its inventory levels to under 170 days outstanding by the end of the current calendar year, through vigilant monitoring of production, stock levels, and purchases. Subsequent operational improvements should then target reducing inventory to 150 days outstanding within the following 18 months. The funds garnered from these reductions should likewise be allocated to debt reduction.
- Accelerate gross margin recovery: Barington recommends further consolidation of facilities and operational processes to accelerate the recovery of gross margins.
Hanesbrands maintains commitment to moving company forward
In response to the letter, Hanesbrands has issued a statement reiterating its commitment to moving the company forward with a clear priority to deliver sustainable value creation for shareholders.
The statement reads: “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."
Hanesbrands explains the board and management team believe the initiatives that are being executed as part of the company’s Full Potential plan "will unlock significant opportunities".
It continues: "We look forward to discussing [this] later this week as part of our second quarter 2023 earnings report. We are also, however, open-minded with regard to additional paths to improve performance and create value.”
Hanesbrands also shares its response to Barington's criticism of the board and its suggestion that Hanesbrands "may need to retain a new chief executive officer and add directors with the relevant skills and industry experience required to implement its plan to create long-term shareholder value".
Hanesbrands argues its board and management team are deeply experienced in areas relevant to its strategy and portfolio, including among other things, apparel, global manufacturing and supply chain management, retail, e-commerce, branding and marketing.
The statement continues: "Further, 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 to our board over the last four years."
