Hanes

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Hanes

founded: 1965

Contact Information:

headquarters: 3 1st national plz.
chicago, il 60602-4260 phone: (312)726-2600 fax: (312)558-8653 url: http://www.onehanesplace.com

OVERVIEW

Headquartered in Winston-Salem, North Carolina, Hanes is the world's leading apparel brand and a key part of the $20-billion Sara Lee Corporation. Sara Lee Corporation is a global manufacturer and marketer of brand name products ranging from packaged meats, coffee, and baked goods, to household goods, body care products, and "personal products," which include the various Hanes brands.

Sara Lee Corporation's Personal Products line includes the Intimates, Accessories, Knit Products, and Hosiery business groups, and in 1997 accounted for more than $2 billion of the corporation's nearly $20 billion in sales. The Intimates group primarily markets bras and panties that are manufactured and distributed under several labels including Hanes Her Way. Sara Lee Knit Products manufactures and distributes underwear and active wear for men, women, and children in North America, South and Central America, Europe, and the Asia-Pacific region. Principal brands in this category include Hanes and Hanes Her Way in North America, and Hanes in Europe. The Hosiery group (which also includes the Hanes brand) is the market leader in hosiery markets in North America, western Europe, Australia, New Zealand, and South Africa. Hanes' fiscal 1996 launch of Resilience hosiery was the corporation's most successful.

Hanes Printables is a division of Sara Lee Knit Products, part of the Sara Lee Corporation. Hanes Printables, Hanes Activewear, Hanes Underwear divisions, Hanes Hosiery, and several other Sara Lee divisions/companies are based in Winston-Salem, North Carolina. The division markets high quality blank apparel designed specifically for use in screen printing, embroidery, heat transfers, and so on.

Hanes and other Sara Lee Corporation hosiery products are sold in channels ranging from department and specialty stores to supermarkets, warehouse clubs, discount chains, and convenience stores. Hosiery products are also distributed through catalog sales, the Internet, and Sara Lee stores. In its 1997 Annual Report, the company reported that Hanes, together with the company's other knit products, accounted for 10 percent or more of Sara Lee Corporation's consolidated revenues during each of the previous three fiscal years.

COMPANY FINANCES

In 1997 Sara Lee Corporation's net sales increased 6 percent to $19.7 billion from $18.6 billion in 1996. with growth in the company's Coffee, Knit Products, and Intimate Apparel businesses primarily responsible for the sales growth. For the full year, worldwide Knit Products units increased 9 percent, global Intimate Apparel unit sales rose 1 percent, and worldwide legwear sales fell 2 percent. On the downside, lower margins in the Personal Products segment pushed down the gross profit margin from 38.4 percent in 1996 to 37.8 percent in 1997. Operating income (pretax earnings before interest and corporate expenses) kept pace with sales, however, increasing by 6.2 percent, while net income for 1997 increased 10.1 percent to $1.0 billion and primary earnings per share increased 10.9 percent to $2.03. Similar results were achieved the previous year when net sales increased 5.1 percent to $18.6 billion in 1996 from $17.7 billion in 1995. Over the long term, Sara Lee's focus on consumer fundamentals such as food and undergarments has resulted in steady, if unspectacular, growth.

ANALYSTS' OPINIONS

Sara Lee Corporation is seen by some analysts as a "comfort" stock. Established brand names and a range of products that cover many of life's essentials have made the company a safe, reliable bet for investors. The company's restructuring efforts were also praised. As PaineWebber analyst Roger Spencer told the Charlotte Observer in 1994, "This is how you stay good, big and strong, by taking remedial action before you get sick. Good management is supposed to address realities of the marketplace, adjust to them and try to make money. Rather than sit around hoping for a turnaround . . . they're adjusting to what might be a long-term trend."

HISTORY

The history of the Hanes brand is long and complicated. It all began in the 1800s when brothers J. Wesley and Pleasant Hanes formed the P.H. Hanes Tobacco Company, which they later sold to R.J. Reynolds for $175,000. Flush with cash, the brothers immediately launched new ventures with J. Wesley forming Shamrock Mills Co. (men's hosiery) and Pleasant forming P.H. Hanes Knitting Co., which introduced the first set of two-piece men's underwear.

For the next 65 years the two companies operated in parallel while remaining independent. In 1910 Shamrock Mills changed its name to Hanes Hosiery Mill Co. and began to make women's hosiery. A decade later it pulled out of the vanishing men's hosiery business altogether and focused on the fast-growing women's business. Meanwhile, P.H. Hanes expanded into undershirts, briefs, sleepwear, and knitted shorts. In 1965 the two companies merged to form Hanes Corporation, and the new company was listed on the New York Stock Exchange.

FAST FACTS: About Hanes

Ownership: Sara Lee Corporation, the parent company of Hanes, is a publicly owned company traded on the New York, Chicago, and Pacific Stock Exchanges. The stock also is traded in London and Amsterdam; on the Swiss stock exchanges in Zurich, Geneva, and Basel; and on the Paris Bourse. Options are traded on the American Stock Exchange.

Ticker symbol: SLE

Officers: John H. Bryan, Chmn. & CEO Sara Lee Corporation; C. Steven McMillan, Pres. & COO Sara Lee Corporation; Jonathan Letzler, Pres., Hanes Hosiery; Art Gibel, Pres. & CEO, Hanes Printables

Employees: 141,000 (Sara Lee Corporation)

Principal Subsidiary Companies: Sara Lee Corporation is the parent company of Hanes.

Chief Competitors: Hanes' leading products include underwear, T-shirts, and women's hosiery, putting it in direct competition with Fruit of the Loom and Calvin Klein.

In 1972 Hanes "hatched" what was to be the world's most successful hosiery brand ever, L'eggs. The new brand was so successful that it quickly spun off as its own company. Hanes' success and strong brand recognition soon attracted the attention of other corporations and in 1979 the Consolidated Foods Corporation (now Sara Lee Corporation) acquired the Hanes Corporation, including L'eggs. A few years later, in 1986, Hanes introduced yet another brand that was to prove enormously successful—the Hanes Her Way brand of women's apparel—starting with women's panties and quickly expanding to other categories. Hanes Her Way soon rivaled L'eggs for brand recognition and popularity. Hanes scored another coup shortly after, signing up the young basketball star, Michael Jordan, to promote a line of men's underwear.

Through the 1990s Hanes continued to play a key role in Sara Lee's success, generating more than $2 billion in sales in 1997 and helping Sara Lee Corporation maintain its number one position in the intimate apparel markets in the United States, Canada, and Mexico.

STRATEGY

Brands are the key to Sara Lee's success and throughout the 1990s the company's main focus was to build brand equity and improve returns by developing new, value-added products, expanding existing products into new markets, and providing extensive marketing support in order to build leadership brands. As of 1998 Sara Lee had 31 "megabrands," (a brand with sales of more than $100 million) and, in 1997 the company spent almost $2 billion to increase brand recognition with customers.

Sara Lee's strategic focus for the U.S. underwear market was to develop new, value-added products. This included an expanded array of boxer-brief styles, fashion underwear for men, and more upscale panty styles for women. In 1997 the Hanes megabrand was the number one apparel label in the mass channel of distribution for the fourth consecutive year. To counter the effects of the slumping legwear business, Sara Lee planned to increase marketing support for its leading hosiery brands, improve operating efficiencies, and develop high-margin, value-added products that would give consumers more choices in legwear. One of the best-known examples of the company's drive to promote its hosiery products was the Tina Turner Hanes hosiery campaign, which included print, billboard, and television advertising, as well as sponsorship of a North American concert tour.

For all apparel categories, Sara Lee capitalized on its partnership agreement with the 1996 Olympic Games to strengthen the equity of the Hanes and Champion brands.

Hanes and other Sara Lee hosiery continued to respond to changing market forces in the hosiery area during fiscal 1996 through the introduction of shaping and toning products, new colors and textures, increased durability, and special occasion hosiery. The global market for sheer hosiery continued to exhibit weakness, and unit volumes fell 9 percent. However, profits for Sara Lee's worldwide sheer hosiery business increased. In the United States, Hanes and other Sara Lee hosiery continued to decrease production capacity and improve inventory flow to maximize returns and profitability. In Europe, Sara Lee continued to reduce manufacturing overhead and excess sheer hosiery capacity.

CHRONOLOGY: Key Dates for Hanes

1900:: P.H. Hanes Tobacco Company sold to R.J. Reynolds for $175,000
1901:: J. Wesley Hanes forms Shamrock Mills Co., specializing in men's hosiery
1910:: Shamrock Mills changes name to Hanes Hosiery Mill Co. and makes women's hosiery
1920:: Hanes Hosiery pulls out of men's hosiery business to focus on women's hosiery business
1920:: P.H. Hanes expands into undershirts, briefs, sleepwear, and knitted shorts
1965:: Hanes Corporation is formed when the two Hanes companies merge
1972:: Releases the most successful hosiery brand ever, L'eggs,
1979:: Hanes Corporation is acquired by the Sara Lee Corporation
1986:: Introduces Hanes Her Way women's apparel brand
1989:: Signs basketball star Michael Jordan
1992:: Introduces new logo and advertising campaign, "Just Can't Wait'll We Get Our Hanes On You."
1997:: Generates $19.7 billion in sales, helping Sara Lee maintain number one position in the intimate apparel markets in the United States, Canada, and Mexico

In late 1997 Sara Lee announced a three-year strategic program designed to increase its competitiveness through a combination of cost-reductions, outsourcing, and elimination of assets "that Sara Lee has determined it does not need to own in order to fulfill its primary mission of building brands on a global basis."

INFLUENCES

In the highly competitive knit products market, success depends on brand recognition, quality, price, and loyalty—all elements that Sara Lee focuses on. Through its combination of superior value, low-cost sourcing, and "megabranding," the company has established itself as a market leader in hosiery and intimate apparel products worldwide. The hosiery business, in particular, is very competitive in both the United States and Europe. In the United States, where Sara Lee's major competitors are other hosiery companies, the company must compete on quality, value, function, service, and distribution. In Europe the primary focus is on quality.

For most of Sara Lee's competitors, the small companies who compete in the unbranded sector of the market, the primary focus is on quality. In a bid to counter slumping sales and increase market share in 1997, Sara Lee launched a new series of hosiery products offering superior fit, durability, and figure control, while continuing its efforts to enhance brand identity and consumer awareness of new products.

CURRENT TRENDS

The T-shirt industry, once a cottage industry populated by tie-dyers, protesters, and small-time rock concert promoters, has become a big-time business for companies such as Hanes. According to a 1996 U. S. News & World Report article, 1 billion T-shirts were bought in the United States in 1995 with total sales of $10 billion. "Hanes and Fruit of the Loom are looking to sign a slew of big-name music acts to shirt contracts," the article said. "If they succeed, they will be able to establish huge, vertically integrated T-shirt businesses that control everything from silk-screening to shelf space in stores."

In 1996 Hanes paid $100 million to gain sponsorship and licensing rights for apparel at the Olympic Games in Atlanta. "By the time the sports spectacle is over," said the article, "the company expects to have sold between $400 million and $500 million worth of Olympic T-shirts, about half of all Olympic-licensed merchandise," explains Mike Davis, vice president of Olympic licensing for Hanes. "The Olympics are the equivalent of two Super Bowls a day for 17 days."

By 1998 women's hosiery products had been on a downward slide for several years as trousers and other casual clothes became increasingly popular. To counter this trend, Sara Lee emphasized a wider range of products that offered better fit and control, and increased its marketing activities on behalf of these products.

PRODUCTS

Hanes hosiery products include pantyhose, stockings, combination panty and pantyhose garments, tights, knee-highs, and socks, many of which are available in both sheer and opaque styles.

Hanes Printables products include Hanes T-shirts: Beefy-T, Heavyweight, Standard Weight, and Heavyweight 50/50; Hanes Her Way Essential Accents (includes T-shirts and tank tops for women); fleece products such as Hanes Superheavy Cotton, Ultimate Cotton, Heavyweight, and Activewear.

Hanes also manufactures and distributes men's, women's, and children's underwear and activewear (T-shirts, fleecewear, and other jersey products for casual-wear) in North America, South and Central America, Europe and the Asia-Pacific countries.

In April 1997 Hanes announced a new product line centered on National Basketball Association star Michael Jordan. The Michael Jordan Collection by Hanes, a line of men's underwear, includes ribbed briefs, ribbed boxer briefs, and T-shirts. All the garments are made of cotton and priced from $6 to $13. Jordan helped design the new product. Hanes packaged it in red, white, and black—the colors of Jordan's team, the Chicago Bulls—with a picture of Jordan and the M.J. logo.

CORPORATE CITIZENSHIP

In an unprecedented demonstration of corporate generosity, Sara Lee Corporation announced in June 1998 that it would be giving its renowned art collection to 20 American museums. Calling it a "millennium gift to America," the company promised to donate 35 to 40 paintings and sculptures by the French Impressionists and other popular artists of the modern era. According to Sara Lee CEO John H. Bryant, "Our purpose in making this gift is to demonstrate our strong belief in the importance of good corporate citizenship, and in the positive influence of art on society." President Bill Clinton's wife, Hillary Rodham Clinton, applauded the gift, saying, "In making this gift, Sara Lee Corporation sets an example of involved citizenship that we hope many others will emulate - corporations and individuals alike."

After an internal environmental audit revealed a number of environmentally harmful practices, Sara Lee implemented a program to make sure its production methods and packaging complied with environmental laws and intensified its efforts to reduce its use of natural resources.

GLOBAL PRESENCE

Sara Lee hosiery brands dominate the markets in North America, western Europe, Australia, New Zealand, and South Africa, while its underwear (for men, women, and children) holds the leading market share in the United States. It also holds the leading position in men's and boys' underwear in Mexico. In 1996 the Hanes Her Way brand was a leader in the Mexican bra market and a strong seller in Canada.

Sara Lee's Personal Products business is handled overseas by foreign subsidiaries in dozens of countries around the world. Some of these companies include: Dim S.A.; Grupo Sans, a division of Sara Lee/DE Espana S.A.; Sara Lee Personal Products, S.p.A.; Sara Lee Personal Products (Australia) Pty. Ltd.; Pretty Polly, a division of Sara Lee UK Holdings Ltd.; Vatter GmbH; the Filodoro Group; Sara Lee Hosiery, S.A. de C.V.; Bellia S.p.A. Hanes de Centroamerica S.A.; Hanes de El Salvador, S.A. de C.V; Hanes de Mexico, S.A. de C.V.; Hanes (Deutschland) GmbH; Hanes Dominican Incorporated; Hanes France S.A., France; Hanes Hellas S.A.; Hanes Jamaica Limited; Hanes Panama Incorporated; Hanes Tejidos Costa Rica Limited; and Hanes U.K. Limited.

EMPLOYMENT

During fiscal 1996 Sara Lee Corporation's worldwide restructuring program resulted in 9,422 layoffs. The company announced its restructuring program in 1994, the year it laid off more than 8,000 workers, or about 6 percent of its workforce worldwide. The layoffs came in the wake of slumping U.S. hosiery sales brought on by an increasingly casual lifestyle, and they were heaviest in the company's Winston-Salem, North Carolina-based textile division. At the same time, margins were shrinking as Wal-Mart and other discounters were wrung price concessions from suppliers.

As Sara Lee Corporation is the world's largest company named after a woman, the company believes strongly in promoting the role of women in the modern workforce. Nearly 60 percent of Sara Lee Corporation's employees are women.

SOURCES OF INFORMATION

Bibliography

"about hanes printables," 9 may 1997. available at http://www.hanesprintables.com/about.htm.

"corporate info.," 9 may 1997. available at http://www.hanes2u.com/corp.html.

"dressing down for dollars/the booming $10 billion t-shirt industry is now a big-time business." u.s. news & world report, 13 may 1996.

edgar archives, september 1996. available at http://www.sec.gov.

hanes corporate web site, 9 may 1997. available at http://www.hanes.com.

"hanes credits jordan with assist on its new line of men's underwear." charlotte observer, 2 april 1997.

"j. gordon hanes, industrialist, dies/hosiery business head also longtime arts supporter." charlotte observer, 2 september 1995.

sara lee corporation 1997 annual report. chicago, il: sara lee corporation, september 1997. available at http://www.sec.gov.

"sara lee corporation donates its renowned art collection to 20 american museums." sara lee corporation press release, 3 june 1998.

"sara lee corporation names letzler president of hanes hosiery." sara lee corporation press release, 30 march 1998.

"sara lee corp. to lay off 8,000/n.c.-based textile division will bear the brunt of the action; company stock rises." charlotte observer, 7 june 1994.

For an annual report:

on the internet at: http://www.sec.gov/archives/edgar/data/23666/0000912057-97-031412.txtor telephone: (800)654-sara or write: sara lee corporation, investor relations and corporate affairs department, 3 1st national plz., chicago, il 60602-4260