HBI's CFO departure is absolutely not a surprise to us. In fact, we're wondering why it didn't happen sooner. But that hardly changes the fact that a CFO change is never without its stress points -- espec with margin complexities that lie ahead.
Why are we not surprised that Lee Wyatt is moving on? The reality is that Rich Knoll rules with an iron fist. He has done so quite well, so we can not knock it. He's extremely motivated and incentivized with stock, which in his mind equates to growth. Growth in top-line, that is.
Even though the message on conference calls has been coherent between the two, in speaking to Wyatt along the way, it's clear that his focus has been on improving the balance sheet. A wise philosophy for a company that was saddled with $2.6bn in debt upon the spin-off from Sarah Lee.
Did the recent Gear for Sports acquisition make sense? Yes, we think so. But it clearly widened the philosophical gap between Wyatt and Knoll. Then on May 4th HBI announced that it acquired a small Australian distributor for $9mm.
This deal was a speck on HBI's balance sheet. But our sense is that it was the terminal blow in marking philosophical differences between the two.
The reality is that at this stage of the economic cycle, we like Wyatt's strategy better -- use cash flow from recent successes to lower debt levels, boost EPS, and become a more formidable (not just larger) competitor.