Barington Capital Group, a New York hedge fund manager, fired off a five-page letter to Hanesbrands’ Chairman Ronald L. Nelson on Aug. 7 demanding significant changes at the apparel firm and parent of Champion. The activist investor, led by James Mitarotonda, wants the underwear and activewear company to create long-term shareholder value through its suggested actions.
Among them: slashing SG&A costs at Hanesbrands by at least $300 million annually, cutting inventory levels to less than 170 days as soon as possible, accelerating gross margin through facility optimization and operating process improvements, and naming a new company CEO and directors with relevant apparel, fashion, and manufacturing experience.
“We believe that Hanesbrands currently sits at a critical juncture and must immediately focus on cash generation and debt reduction in order to create long-term value for shareholders,” Mitarotonda wrote. Subsequently, he criticized the company’s “largely ineffective response to recent challenges” as the primary reason for its “rapidly deteriorating results.”
The activist investor appears most irked at the company’s gross and operating margin deterioration, which it attributes to management missteps that have been intensified by a challenging macro environment. Barington contends that the group’s focus on increasing market share and sales have contributed to its failures and its decisions to make more product than needed and failure to respond to rising input costs.
Hanesbrands is scheduled to report Q2 results on Aug. 10. During its last earnings announcement, the group lost $34.4 million on an 11.8 percent revenue decline to $1.39 billion, with reported global Champion sales down by 17 percent. Activewear sales tumbled 19 percent to $314.9 million.
At the time, CEO Steve Bratspies expressed his confidence in the long-term outlook for Champion.
Barington, whose specific stake in Hanesbrands is unknown, has significant prior experience investing in consumer, retail, and apparel companies, it wrote, citing five including Steve Madden, Warnaco, and Avon Products.
A message left on Mitarotonda’s voicemail by SGI Europe was not returned.
