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The Street does not like the numbers. I like how the company is proactively managing its balance sheet. HBI’s forecasts are mixed, but as of now are netting out better than I previously modeled.
Here are some quick nuggets…

1) Could see low to mid teen unit volume declines in Q1 and Q2, improving to flat vs. last year – this could be mitigated by incremental promotion opportunities in spring and BTS. (Bill Nictakis noted that outerwear orders are up 25% for Spring and BTS. Outerwear is 28% of total.)
2) Net net is annual sales decline of 4-5% (Street is -7%) assuming similar consumer behavior with scenario of down 8% if Q4 has similar decline as 2008.
GM:
3) Goal for GM rate to increase 10-100bps above 2008
4) Cotton costs easing after 1Q
a. Q1 +$15mm ($0.74/lb)
b. Q2 -$8mm ($0.49/lb)
c. Q3 -$12mm (0.49/lb)
d. Q4 30% locked at $0.45 could save $20mm
Annual tailwind of $25mm (+$0.20 to EPS)
SG&A:
5) Pension expense of $21mm in 2009 (~$0.18 EPS impact) compared to $12mm income in 2008 – will remain at these levels until market conditions improve
6) Goal to reduce media and IT by $40mm – mostly in 1H
Restructuring:
7) $250mm over 3 yrs after spinoff
8) $222mm announced to date
9) Goal in 2009 to announce final restructuring charges during year

Interest details will become available when amendment is solidified.

LT tax rate 22%-25% (bottom of range in 2009)

2009 1H operating profit depressed below 2009

D&A ~$100mm

CapEx: $300-$350mm over 3 yrs
2009: $100-$130mm in 2009
WC: needs now ~$50-$75mm reduce Inventory to $1.15B by early 2010


Casey Flavin
Brian McGough