Hanes Brands at a Crossroads: Divest or Retain the Champion Brand?

Hanes Brands at a Crossroads: Divest or Retain the Champion Brand? Hanes Brands Inc. (HBI) is a multinational company headquartered in Winston-Salem, North Carolina which employs approximately 51.000 employees across 32 countries. The company is a leading manufacturer and marketer of global innerwear and outerwear apparel and owns iconic brands such as Hanes, Champion, Maidenform, Bali, Playtex, Just My Size, Wonderbra, Bonds, and Bras N Things. HBI has 3 business segments Innerwear, Outerwear and International which operate as separate profit and loss units. Barrington LLC, an activist shareholder firm acquired a 3% stake in HBI and raised several concerns. · 1. HBI’s declining shareholder value where share prices dropped by 51.6% in 2022. · 2, Increase in corporate expenses by $57.4 million with a decrease in revenues of 6.5% ·3. Excessive levels of inventories that used too much cash. · 4. HBI was Highly leveraged with $1.5 billion in long term debt with an average interest hrate of 8.7%. · 5. The upper management team (particularly the CEO) and Board of Directors were perceived to lack expertise in the apparel industry. In response to Barrington’s concerns, HBI decided to examine all strategic options, including divestment of the Champion product brand that was part of its active wear division. Divesting the Champion brand would generate badly needed cash to pay down long-term debt, shore up shareholder value, and restart suspended dividend payments. Two firms, WHP and Authentic Brands expressed an interest in acquiring Champion. Divesting the Champion brand raises several concerns. First, divesting Champion would remove a key branded asset leaving a big void in the company’s growth strategy. Second, Champion is the best-known active wear brand owned by HBI bringing in $2 billion of sales. Without Champion, HBI’s ability to effectively compete in the activewear apparel category may be impacted. Third, HBI is a vertically integrated company and over 60% of all its apparel is manufactured company owned plants. The potential sale of Champion could significantly change their supply chain dynamics negatively affecting other brands. Several scenarios were possible in 2024. # 1: HBI may decide to move ahead with its sale of the Champion in 2024. The monies may be used to payoff the long-term debt and increase cashflow. # 2: HBI may decide to retain Champion and make it a central part of its rejuvenation and growth strategy. In this scenario, HBI will undertake an aggressive approach to shore up Champion’s market share in a highly competitive athleisure marketplace. # 3: HBI may decide to spin-off Champion as a separate business segment with its own profit and loss structure. In this set up, the Champion brand will be established as an independent premium brand distinct from Hanes. Each of these options has their advantages and disadvantages. Which option could be completed in a timely manner while simultaneously maximizing shareholder value at the same time? Should other options be considered?