HANESBRANDS INC GOING COMMANDO September 13, 2016 DISCLAIMER

Home , Bonds (clothing), Boxer briefs, Fruit of the Loom, Hanes, Hanesbrands

BRIAN MCGOUGH ALEC RICHARDS JEREMY MCLEAN

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*ANSWERED AT THE END OF THE CALL STILL CALLING IT LIKE WE SEE IT 1) Core business weakening. Barriers to entry falling. 2) Gildan pressuring low end, athletic giants and new boutiques pressuring high 3) Margins at Peak and Headed 400bp Lower • Utilization beyond peak (most retail analysts don’t appreciate this leverage) • Input costs near trough and headed higher. 4) Tax rate unsustainably low 5) Organic EPS unlikely to grow again through the end of this decade 6) We’re 19% below consensus next year, and ≈ 40% thereafter 7) HBI is the king of special charges, with GAAP EPS 30% below ‘adjusted’ EPS 8) 10 year CEO Rich Noll stepping down at what we think is the peak. 9) HBI is pretty good at Insider Selling too. 10) Accelerated deal activity: questionable brands, wrong time and wrong price 11) Balance sheet and valuation support is not what it used to be 12) Upside on a non-GAAP (i.e. fake) $2.20 at 14 -15x is $33. Downside on our $1.50 is to about $12 on 7.0x EBITDA. That’s $5 up, $15 down. DATA SOURCE: HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 4

NEVER BEEN A SELL ON HBI

HBI SELL SIDE RATINGS – NEVER A SELL Though short interest has been rising (now 8.5% of the float), this is a very ‘high-expectations’ stock by the Sell- Side.

HBI (Hanesbrands Inc.) $26.40 Financial and Valuation Summary Targeted Valuation Range FY16 ends Dec 2016 3QE 2016E 2017E 2018E 2019E EPS % P/E Price EV/EBITDA Hedgeye EPS ($) 0.57 1.85 1.69 1.47 1.42 2016E 11.8% 12.0 x 22 11.0 x Consensus ($) 0.56 1.92 2.21 2.51 2.74 2017E -8.6% 11.0 x 19 10.7 x Variance % 0.9% -3.5% -23.4% -41.3% -48.1% 2018E -13.0% 10.0 x 15 10.1 x 2019E -3.6% 10.0 x 14 10.1 x Sales ($MM) 6,115 6,692 6,813 6,879 Investment Thesis Snapshot: EBIT Margin 15.1% 13.5% 11.7% 11.2% EBITDA ($MM) 1,011 996 892 866 1. Core business weakening at accelerated pace. FCF Per Share ($) -1.77 0.84 1.05 1.06 Book Value Per Share ($) 3.25 4.27 4.87 5.36 2. Utilization at peak, input costs at trough. Net Debt to Total Capital 73.0% 64.9% 62.6% 61.3% Margins at all time highs. 3. Management incentivized to make mediocre P/E 14.2 x 15.6 x 17.9 x 18.6 x acquisitions, and obfuscate real growth trend EV/EBITDA 12.6 x 13.7 x 15.2 x 15.4 x by taking 'special' charges. Price/Book 8.1 x 6.2 x 5.4 x 4.9 x 4. Acquisitions are happening at dangerously Cash Yield -6.7% 3.2% 4.0% 4.0% high and very deceptive multiples. Australia is severely misunderstood = imminent risk.

DATA SOURCE: HEDGEYE RISK MANAGEMENT, COMPANY REPORTS, FACTSET © Hedgeye Risk Management LLC, All Rights Reserved. 6 STAGES OF HANESBRANDS Sara Lee Underwear Balance Sheet Fixer Acquirer $40 Step-Child Company 10x PE & 8.5x EBITDA 16x PE & 12x EBITDA $35 12x PE & 7x EBITDA $30

$25

$20

$15

$10

$5 Spin-Off -Paid $670mm in LT Debt- 1st Dividend $0 Jul-11 Jul-13 Jul-14 Jul-12 Jul-15 Jul-16 Jul-10 Jan-11 Mar-11 Jul-07 Sep-11 Jul-08 Nov-11 Jan-13 Jan-14 Jul-09 Jan-12 Jan-15 Jan-16 May-11 Jan-10 Mar-13 Mar-14 Mar-12 Mar-15 Mar-16 Sep-13 Mar-10 Sep-14 Sep-12 Sep-15 Sep-16 Nov-13 Nov-14 Sep-10 Jan-07 Nov-12 Nov-15 Nov-10 May-13 May-14 Jan-08 May-12 May-15 May-16 Jan-09 May-10 Mar-07 Sep-07 Mar-08 Mar-09 Nov-07 Sep-08 Sep-06 Sep-09 May-07 Nov-08 Nov-06 Nov-09 May-08 May-09 HBI STAGES OVER TIME HBI has gone through several stages with showing a different MO, and getting very different valuation multiples.

Management needs Business Cycle: We Are Here… to increase sales -Peak Margins Acquisitions/ -Peak Utilization Core Growth Increased Slows Leverage -Trough Tax Rate -Trough Cotton Price Competition & Worse assets at -End of Economic Cycle Cycle Impact higher prices -Slowing Core Growth Value Destruction Management Meets Cycle Increased Non- Performance GAAP Criteria Gets Paid Adjustments Aggressive Risky incentive Accounting structure Adjusted EPS Growth – Organic EPS Decline

DATA SOURCE: HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 8 EARNINGS VARIANCE HEDGEYE VS. CONSENSUS $3.00 30% Hedgeye EPS ($) $2.74 Consensus ($) 20% Variance % $2.51 $2.50 10%

$2.21 0% 44% below the street in out $1.92 $2.00 $1.85 -10% years. $1.69 -20%

$1.50 $1.47 $1.42 -30% -40% $1.00 -50% 2016E 2017E 2018E 2019E

HBI: RNOA ANALYSIS This analysis is

15% absolutely critical 2016E 2015A for an acquisition- 14% focused, asset- 13% heavy company Peak Multiples at peak margins. 12% 2017E

11% Up and to the 2018E Trough 10% Multiples right = good, and 2019E down + to the left 9% = bad. 8% 2008A Axis = Tax Adjusted Operating Margins - HBI = Very Bad Y 7% 1.2x 1.3x 1.4x 1.5x 1.6x 1.7x 1.8x 1.9x X-Axis = Asset Turnover

DATA SOURCE: COMPANY REPORTS & HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 10 TOP LINE IS SLOWING NOT A BAD INDUSTRY U.S. UNDERWEAR SALES VS APPAREL SALES Apparel Sales YY% The U.S. has a 8% Underwear Sales YY% $16.9bn 6% underwear market, only 6% 4% of total US apparel sales. 2% 0% Underwear sales growth has -2% outpaced apparel for the -4% last 5 yrs. -6%

DATA SOURCE: EUROMONITOR © Hedgeye Risk Management LLC, All Rights Reserved. 12 GLOBAL UNDERWEAR ASP GROWTH GLOBAL UNDERWEAR ASP YY% 8% Women's Underwear ASP YY% Men's Underwear ASP YY% Underwear ASP YY%

-2%

-4%

LOW END MEN’S UNDERWEAR $6 Price per Unit ($USD)

$2 $3.99 $2.66 $2.58 $1 $2.49 $2.47

$0 Life by Jockey 3 Pack Knocker 6 Men's Hanes Men's Long Leg Gildan Men's Boxer Brief Fruit of the Loom Men's Asst Cotton Boxer Brief Seamless Boxer Briefs Boxer Brief 5 Pack 4 Pack Assorted Color Boxer Underwear Briefs, 5-Pack Jockey Knocker Hanes Gildan Fruit of the Loom COMPETITION GETTING TOUGHER Several similar competitors at the low end. Gildan launched branded underwear just 3 years ago, and is already at 9% unit share.

$35 $34 $30 $30 $28 $25 $24 $25 $20 $15 $10 $5 $16.5/3 $0 Men's X-Temp® No Boxer Boxer UA Original SWING SHIFT 6" LIQUID STRETCH Second Skin Active Cool Dyed Series Twist 6" BOXER BRIEF MICRO BOXER Boxer Brief Boxer Briefs Boxerjock BRIEF Hanes Lululemon Under Armour 2Undr Calvin Klein Tommy John

DATA SOURCE: COMPANY WEBSITES © Hedgeye Risk Management LLC, All Rights Reserved. 16 NEW PRODUCT, NEW CHANNEL New media, de- facto marketing and sales channels are taking down the barriers to entry in this business.

Retails for $24-$28

If this was an add for Hanes, people probably would not click. Why? Bc it’s Hanes.

13x 10% EV/EBITDA Multiple Gildan Unit Market Share 12.5x 9% 9% 12x Gildan Branded Hanes Announces Underwear Launch 2Q13 Maidenform Acquisition *As of 2Q16 8% 7/2013 11x 7% 7% 10.0x 10x 6% 6% 9.5x 5% 9x 4% 8.0x 8x 3% 3% 7.5x 7.5x 2% 7x 1% 6x 0% 0% Gear for Sports Maidenform DBApparel Knights Champion Pacific Brands Brands, Inc. SAS Apparel, Inc. Europe 2010 2011 2012 2013 2014 2015 2016

DATA SOURCE: GIL & HBI COMPANY REPORTS © Hedgeye Risk Management LLC, All Rights Reserved. 18 CUSTOMER/CHANNEL BREAKOUT HBI CHANNELS - % OF TOTAL SALES Traditional wholesale Other Other Mid-Tier Dept Stores (M, JCP) AMZN DTC KSS TGT WMT 100% channels shrinking as sales go online. 90%

80% WMT 23% 70% TGT 15% 60% KSS 5% 50% JCP 5%

40% M 4% $ Stores 10% 30% AMZN 1.2% 20% DTC 6.7% 10% Int’l 25% 0% Other 5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 DATA SOURCE: COMPANY REPORTS, HEDGEYE ESTIMATES © Hedgeye Risk Management LLC, All Rights Reserved. 19 ORGANIC GROWTH SLOWING

HBI GROWTH EXCLUDING ACQUISITION $ We’re seeing lower Growth Ex Acquisitions 2 Year Avg peaks and lower 6% 4.8% valleys in the core 4% 3.0% business… And this 2% 1.6% 1.2% has not been in a 0.2% 0.6% 0.6% 0% recessionary period. -0.4% -2% -1.2% -0.9% -1.8% 2H expectations are -4% -2.8% -3.3% -3.2% high. We think -6% management may be downplaying -8% acquisition benefit -10% as a cushion. -10.0% -12% WMT BETTER be restocking

DATA SOURCE: COMPANY REPORTS, HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 20 CORE CUSTOMERS ARE/WERE IN BAD SHAPE SOFTLINE RETAIL INDUSTRY SIGMA Inventory position is improving, and there is a call out there that WMT is restocking. That’s only half right.

Import growth is near 0% with the usual July pickup absent this year.

GIII noted weak seasonal ordering hurting revenue.

Profitability is still down… Should HBI be at Peak margins???

DATA SOURCE: COMPANY REPORTS, FACTSET, HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 21 MARGINS HEADED LOWER UNPRECEDENTED MARGINS 18% Fruit of the Loom may be the closest compare given the products, regional exposure, 16% 16% 15% distribution, and owned manufacturing. Fruit had a margin of 10.5% in 2014, we think 14% cotton benefit brings that to about 12.5% in 2016… still 300bps+ below HBI. 14% 13% 13% 12% 12% 10% 10% 10% 9% 8% 8% 7%

6% 5% 4% 4% 3% 3% 2% 2% 0% HBI GIL NKE CRI FRUIT KATE RL PVH UA KSS TGT WMT GES AMZN JCP ANF NTM EBIT MARGIN HBI has a demonstrably higher than the following companies – UA, RL, PVH, GES, CRI, ANF, KATE, and yes – even NKE.

Owned Manufacturing Outsourced Manufacturing High Utilization

Cash Flow Cash Flow

Low Utilization Demand Demand DEMAND AND CASH FLOW OF MANUFACTURING MODELS We need to think of the asset base as a cross between a Consumer Non-durable and an Industrial hypercyclical like CAT.

DATA SOURCE: COMPANY REPORTS, HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 24 FACTORY COUNT DOWN, REV UP REVENUE AND HBI FACTORY COUNT 75 Total Revenue HBI Operated Manufacturing Facilities $6,000 The company 70 70 clearly got $5,500 much more 65 62 efficient after 60 $5,000 its IPO.

55 52 $4,500 50 47 45 46 $4,000 43 43 41 41 40 39 $3,500 35

FACTORY PRODUCTIVITY Productivity, as $140 Revenue Per Facility YY Growth 40% measured by 35% $120 rev per factory, 30% is up 125% in a $100 decade, but has 25% clearly started $80 20% to flatten out.

$60 15% 10% $40 5% $20 0%

$0 -5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$1.50 $0.80 Cotton #2 Price Linear (Cotton #2 Price) OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT $0.75 $1.25

$0.70 $1.00 $0.65

$0.75 $0.60

$0.50 $0.55 Mar-11 Sep-11 Mar-13 Mar-14 Mar-12 Mar-15 Mar-16 Sep-13 Sep-14 Mar-10 Sep-12 Sep-15 Sep-10 Sep-07 Mar-08 Mar-09 Sep-08 Sep-09 COTTON #2 TTM AVG PRICE YTD PRICE – TRENDING UP Cotton appears to have found a bottom. The Cotton prices have been climbing year to date. A 10% tailwind should be fully recognized, as price move in cotton will have a 40-60bps impact to gross changes take 4-5 quarters to flow through to the margin. On July 2Q call Gildan mgmt. implied that current P&L due to hedging and the production process levels warrant price increases in 2017 (ie margin pressure).

End Retail: $20 End Retail: $10 Wholesale: $10 Wholesale Price: $5 $20 FOB: $0 FOB: $5.25 $10 Materials: $2.50 Vertical Costs Labor: $0.75 Materials: $1.25 Transport: $0.75 Labor: $0.75 Duties/Other: $0.50 Transport: $0.50 Factory Profit: $0.75 Duties/Other: $0.25

Brand Profit: $4.75 HBI Profit = $2.25

COTTON VS GROSS MARGIN Back when cotton TTM Cotton #2 Avg Price HBI TTM Gross Margin *INVERTED was at similar prices, margins were still ~400bps below today. +400bps Via Cotton Half of the move from 2012 trough was cotton, half +400bps Via from supply chain Utilization efficiency with increased utilization.

Some DBA (Higher GM) Mix Impact About a 12month lag to hit the P&L.

RELATIVE INNOVATION IS WHAT MATTERS

MENS PERFORMANCE UNDERWEAR BRANDS ARE PLENTIFUL UnderArmour was the pioneer in mens performance underwear, now there are dozens of gimmicky brands. Unlike years past where you needed manufacturing assets, now you need a design and link to Asia.

DATA SOURCE: COMPANY WEBSITES, LINKEDIN, YOUTUBE © Hedgeye Risk Management LLC, All Rights Reserved. 31 INNOVATE-TO-ELEVATE PRODUCT IN INNOVATION PIPELINE STRONGER THAN EVER? 2012- Instant Slimmer underwear: uses Novarel yarn tech to reduce appearance of cellulite • Maidenform shapeware tiny caffeine capsules embedded in it to promote fat destruction • Resulted in class action lawsuit claiming false advertising

2016- Fresh IQ: Odor-control technology designed to mechanically attack bacteria • Is anti-odor or antimicrobial really new? • We can’t find specifics on how this new tech works.

…any real innovation since tagless?

BEHAVIORAL CONSIDERATIONS COMPENSATION FUELS THE FIRE

MANAGEMENT PERFORMANCE CRITERIA 60% of incentive compensation is Acquisitions and Charges boost this piece of performance directly benefitted by the rate of acquisition and the magnitude of charges.

The price and quality of acquisitions has minimal significance CHANGES OVER TIME 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 in the short to Sales 20% 20% 25% 25% 25% 20% 20% 20% 20% 20% Operating Profit 75% intermediate term. NOPAT 80% 80% EPS Ex Actions 75% 75% 40% 40% 40% 40% 40% Cash Flow From Operations 40% 40% 40% Free Cash Flow (CFFO - Capex) 40% 40%

DATA SOURCE: COMPANY PROXY STATEMENTS © Hedgeye Risk Management LLC, All Rights Reserved. 34 STAGES OF HANESBRANDS (AGAIN) Sara Lee Underwear Balance Sheet Fixer Acquirer $40 Step-Child Company 10x PE & 8.5x EBITDA 16x PE & 12x EBITDA $35 12x PE & 7x EBITDA $30

$25

$20

$15

$10

$5 Spin-Off -Paid $670mm in LT Debt- 1st Dividend $0 Oct-11 Apr-11 Jun-11 Feb-11 Dec-11 Oct-13 Oct-14 Apr-13 Apr-14 Aug-11 Jun-13 Jun-14 Oct-12 Oct-15 Apr-12 Apr-15 Apr-16 Jun-12 Oct-10 Jun-15 Apr-10 Jun-10 Feb-13 Feb-14 Feb-12 Feb-15 Feb-16 Feb-10 Dec-13 Dec-14 Aug-13 Aug-14 Oct-07 Dec-12 Apr-07 Dec-15 Jun-07 Dec-10 Aug-12 Aug-15 Aug-10 Oct-08 Apr-08 Oct-06 Oct-09 Apr-09 Jun-08 Jun-09 Feb-07 Feb-08 Dec-07 Feb-09 Aug-07 Dec-08 Dec-06 Dec-09 Aug-08 Aug-06 Aug-09 LET’S LOOK AT THIS AGAIN … Let’s look at this again in the context of HBI’s capex spend.

CAPEX AS % OF SALES When acquisition 3% 25% TTM Capex % of Sales TTM SG&A % of Sales activity kicked into high gear, 24% capex started to decline 2% 23% materially.

22% Is this the new JNY? 1% 21%

20%

0% 19% 1Q11 3Q11 1Q13 4Q11 1Q14 2Q11 1Q12 1Q15 1Q16 1Q10 3Q13 4Q13 3Q14 4Q14 3Q12 2Q13 4Q12 2Q14 3Q15 4Q15 3Q10 4Q10 2Q12 2Q15 2Q16 2Q10

BALANCE SHEET TEMPORARILY IMPROVED HBI LEVERAGE SINCE IPO 100% 97% LT Debt to Capital This used to 95% 92% be a great 90% 89% deleveraging 84% story… 85% 80% 78%

75% 73% 72% 70% 65% 64% 60% 60% 54% 55% 54% 50% 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016E DATA SOURCE: COMPANY REPORTS © Hedgeye Risk Management LLC, All Rights Reserved. 37 INCREASING LEVERAGE AT CYCLE END $4.0 Net Debt (Billions) Net Debt / EBITDA 5 $3.5 $3.5 4.5 $3.0 4 $2.5 $2.4 $2.3 $2.2 $2.2 $2.0 $2.1 $2.0 $2.0 $1.7 3.5 $1.5 $1.6 $1.5 3 $1.0 2.5 $0.5 $0.0 2 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016E NET DEBT TO EBITDA SINCE IPO Company borrowed in Q1 to buy back stock, announced 2 acquisitions for ~$1.05bn, then did 2 debt offerings. We could argue on GAAP #s HBI is in violation of its debt covenants. Dangerous for equity value heading into recession.

HBI reported a 10x Multiple for Pacific Brands Press Release the deal.

Hanesbrands Press Release Pacific Reported a 12x multiple.

“Clearly, everybody can calculate the trailing 12-month multiples. What we wanted to provide was We estimate the line of sight into what we believe the earnings power is for calendar 2016 for the total Company and Real Multiple is use that multiple, since that is generally how stocks are valued… If you actually go and look at consensus earnings down there for Pac Brands and actually more like 12.5x extrapolate that to calendar 2016, you will see a multiple that is right about 11 because they have been growing pretty substantially... We actually think they can do a little bit better than that. They have been handling foreign exchange and prices and stuff like that, and so we get to a multiple that is just slightly over 10.”

DATA SOURCE: COMPANY REPORTS, HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 39 RICHARD NOLL HBI OWNERSHIP % NOLL OWNERSHIP SINCE IPO SALES SINCE MAIDENFORM ANNOUNCED 0.9% % OS Price $40 $140 Cumulative Value Sold in Open Market (mm) 0.8% $35 $120 $116 0.7% $30 $100 0.6% $25 0.5% $80 $20 0.4% $60 $15 0.3% $40 0.2% $10 0.1% $5 $20 0.0% $0 $0

NOLL SELLING STOCK Noll owned 0.8% of the company in 2013 … now owns just 0.2% after selling at the highs. Now he is stepping down from his CEO position at age 58, after cashing in $116mm.

DATA SOURCE: FACTSET, COMPANY REPORTS © Hedgeye Risk Management LLC, All Rights Reserved. 40 EXPECTATIONS ACQUISITION BUMP, BUT TOUGH 2H Acquisition Impact 2ND HALF CASH FROM OPS $1,000 $929 2016 $900 Revenue: $365mm $800 Adjustments: $100mm in charges $700 EBIT: $20-25mm in EBIT $600 $536 $573 $503 Interest: $30mm $500 $460 $388 EPS: +$0.04 with lower tax rate $400 Annualized $300 $236 $227 $197 Revenue: ~820mm $200 EPS: $0.07, +4% $100 Price: $1.03bn $0 2H08 2H09 2H10 2H11 2H12 2H13 2H14 2H15 2H16 Guide OVERVIEW OF REVISED GUIDANCE AFTER ACQUISITIONS Expensive deal for minimal near term benefit. Expectations for second half cash flow are unprecedented.

$1,200 CFFO Free Cash Flow (Excluding Acquisitions) $1,045 $1,000 $938 $829 $800 $706 $722 $591 $621 $600 $549 $542 PEAK $512 $504 $508

$400 $227 $200 $168 $147 $85 $0 2011 2012 2013 2014 2015 2016E 2017E 2018E OPERATING AND FREE CASH FLOW HISTORY/EXPECTATIONS Expectations for over $900mm in FCF, or $2.45 per share? That’s 9.4% FCF Yield today, on a fictitious number three years out that likely won’t happen.

DATA SOURCE: FACTSET © Hedgeye Risk Management LLC, All Rights Reserved. 43 CATALYST – AUSTRALIA? THE AUSTRALIAN BUBBLE One Trick Pony – ~ 30% of Australian GDP revolves around building, selling, and financing property.

Over-construction - There’s 15x as many res. construction cranes in Australia per capita as the major cities of N.A.

King of the Bubbles - Australia’s real home prices rose +120% between 1Q90 and 4Q14. Canada (another short) rose +67% over the same time.

Timing Matters - Over-supply at a tipping point with demand waning HEDGEYE FINANCIALS SHORTING AUSTRALIAN HOUSING & BANKING The Australian economy is facing a worse housing bubble than the US saw in 2008, with even greater implications for the consumer. HBI due diligence was questionable assessing this market.

DATA SOURCE: HEDGEYE © Hedgeye Risk Management LLC, All Rights Reserved. 45 HOME EQUITY WITHDRAWAL AUSTRALIA UNITED STATES The IMF (Klyuev and Mills) and HEW reached a peak of 4~4.5% consumer’s the Australian Housing and spending in the US in 2004-2006. Urban Research Institute (Ong) find HEW to have been 13-15% of disposable income in any given year during 2001-08. USA saw a 400bps disposable

income growth headwind from

HEW decline Source: Melbourne Institute https://www.melbourneinstitute.com/downloads/hilda/Bibliography/Other_Publica tions/2013/Ong_etal_Assets_debt_and_the_drawdown_of_housing_equity_by_ an_ageing_population.pdf Source: Financial Times AUSTRALIANS HAVE BEEN SUPPLEMENTING THEIR INCOME FOR A LONG TIME IMF estimates find that Australian Home Equity Withdrawal has been fueling as much as 13-15% of disposable income from the 2001-2008 period – the period evaluated in the study.

DATA SOURCE: HEDGEYE FINANCIALS © Hedgeye Risk Management LLC, All Rights Reserved. 46 DISPOSABLE INCOME DOWN 750BPS US DISPOSABLE INCOME IN RECESSION Takeaway: With 8.0% YY Chg in TTM Disp Income a 400 bps 7.0% headwind from HEW, the US 6.0% saw a 750bps 5.0% slowdown in 4.0% US saw a discretionary 3.0% 750bps decline income growth. in disposable 2.0% income growth Australia has an 1.0% HEW rate about 0.0% 3x that of USA -1.0% in 2006. Jul-10 Jul-07 Jul-08 Jul-06 Jul-09 Jan-10 Mar-10 Sep-10 Jan-07 Nov-10 Jan-08 Jan-06 Jan-09 May-10 Mar-07 Sep-07 Mar-08 Mar-06 Mar-09 Nov-07 Sep-08 Sep-06 Sep-09 May-07 Nov-08 Nov-06 Nov-09 May-08 May-06 May-09 DATA SOURCE: BEA © Hedgeye Risk Management LLC, All Rights Reserved. 47 US RECESSION SLOWDOWN U.S. UNDERWEAR & APPAREL IN RECESSION Apparel Sales YY% US saw 1000bps 8% Underwear Sales YY% slowdown in 6% underwear sales growth in last 4% recession.

2% We think Australia 0% could see up to 1500bps ~1000bps slowdown in -2% slowdown Underwear/Apparel in -4% US financial crisis

-6%

Market Share: Pacific Brands Australasia Market Share Other Pacific has #1 Price: $800mm 15% market share position in Revenue: $600mm Australasia at 15%. 2016 Est EBIT Margin: 9%

2018 EBIT Margin Target: 14%

Brands:

PACIFIC BRANDS STOCK PRICE HBI is offering VS Here? $1.4 about 3x what $1.2 Pacific was Why Not Buy Here? worth less than a $1.0 year ago.

$0.8 Why weren’t $0.6 they in the market making $0.4 offers before the asset doubled in $0.2 price? $0.0 Jul-14 Jul-15 Oct-14 Jan-14 Apr-14 Jun-14 Jan-15 Oct-15 Jan-16 Apr-15 Apr-16 Jun-15 Mar-14 Feb-14 Mar-15 Mar-16 Feb-15 Sep-14 Feb-16 Sep-15 Dec-14 Nov-14 Aug-14 Dec-15 Nov-15 Aug-15 May-14 May-15 May-16

DATA SOURCE: FACTSET © Hedgeye Risk Management LLC, All Rights Reserved. 51 PACIFIC HAS DECEPTIVE GROWTH UNDERWEAR SEGMENT BREAKOUT Retail channel Retail % of sales Wholesale % of sales Underwear Sales YY% 100% 12% approaching 1/3 17% of underwear 90% 22% 25% 10.0% 29% 33% 10% sales. 80%

70% 8% Channel Mix 60% Boosting Rev: 6.4% 50% 6% 5.7% Underwear sales 40% grew 6.3% in 4.2% 4% 30% 3.8% 1H16, but sales up just 2.5% for 20% 2% brand at retail. 10% 0% 0% 1H14 2H14 1H15 2H15 1H16 DATA SOURCE: COMPANY REPORTS © Hedgeye Risk Management LLC, All Rights Reserved. 52 THE PACIFIC RISK

25% 23% 10-15% hit to Pacific OLD FORMAT = $800/SQUARE FT NEW• FORMAT = $1,300 SQ FT 20% Revenue

15% • ~400-500bps Pacific margin compression 10% 6% • EBIT 50-75% below guide 5% • = ~5-10% EPS Hit vs 0% Expectation in 2017-2018 Pacific Retail HBI DTC DIRECT AS % OF REVENUE EARNINGS DOWNSIDE Higher Retail/Direct distribution means more risk in a When Australia rolls, we’ll see earnings coming consumer collapse. down and multiple compression as it vastly underperforms expectations. REMINDER they paid 12.5x EBITDA for this asset… heading to 20x+.

Men's Underwear -- AusAsia Market Share Women's Underwear -- AusAsia Market Share Hosiery -- AusAsia Market Share

10% 10% 4%

9% 9% 3% 8% 8%

7% 7% 3%

6% 6% 2%

5% 5%

2% 4% 4%

3% 3% 1%

2% 2%

1% 1% 1%

0% 0% 0% Pacific Brands PVH Corp Private Label Jockey Billabong Pacific Brands BB Retail Private Label Bendon PVH Corp Pacific Brands Pacific Brands Pacific Brands Pacific Brands Cotton On International International Capital Pty Group Clothing Pty Bonds Calvin Klein Private label Jockey Billabong Bonds Bras N Things Private label Elle Calvin Klein Razzamatazz Bonds Holeproof Rio Cotton On Macpherson

18% TTM Tax Rate OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT

12%

HBI TAX RATE OVER PAST 3 YEARS REGULATORY RISK Tax rate at 6.7% ~650bps below MGMT LT guide. The winds are changing on tax rate tricks for “And we think there's no reason why acquisitions multinationals: The EU is saying Apple owes shouldn't enable us to … sustain a tax rate in the low to $14.5bn from its transfer pricing strategies. US is mid teens really for the foreseeable future.” Jan ‘14 cracking down on inversions.

DATA SOURCE: COMPANY REPORTS, HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 56 REPO WHEN IT CAN, NOT WHEN IT SHOULD $40 800 HBI Price 400% TTM Share repurchases % of TTM CFFO Share Repurchase Price TTM ($mm) $35 700 350%

$30 600 300% $25 500 250% $20 400 200% 363% $15 300 150% $10 200 100% 221% $5 100 155% 50% 120% $0 0 0% 3Q15 4Q15 1Q16 2Q16 HBI SHARE BUYBACK AND % OF CFFO After years without buying stock, as of 1Q16 HBI has repurchased 363% of CFFO on a TTM basis. Borrowing against its revolver in 1Q. This at the same time CEO Noll is selling stock.

29% WMT 23% 12% TGT 15% 6% KSS 5% 13% JCP/M 10% AMZN 1% 8% DTC 7% 32% OTHER 39%

58% INNERWEAR 46% 27% OUTERWEAR 27%

75% MEN’S 65% 25% WOMEN’S 35%

30% 28.2% 28% share in its core business – 25% and that share 20% has not moved 15.1% 15% for the past three years. 10% 9.2% 8.8%

0% Hanes Hanes Hanes Hanes L'eggs Champion Champion Champion Champion Maidenform Maidenform Market Share Market Share Market Share Market Share Men's . Women's . Hosiery . Underwear Underwear Underwear DATA SOURCE: EUROMONITOR © Hedgeye Risk Management LLC, All Rights Reserved. 59 COMPETITIVE OVERVIEW

Men's Underwear Market Women's Underwear All Underwear Market share Fruit of Market Share Share Hanes VS Fruit of the the Loom VS Loom

All Others All All Others Others

Fruit of the Americ Loom an Jockey Hanes Private Hanes Eagle label Nike Maiden Private Vanity Jockey label Fair form Maiden Jockey form THIS HAS BEEN A CONSOLIDATED INDUSTRY Though that seems to be changing on the margin.

Cotton in HBI Owned Production 2015 +10% Cotton 10% increase in HBI Revenue $5,732 $5,732 cotton price COGS $3,532 $3,557 means a ~40bps $ Value of Cotton in HBI Produced Goods $247 $272 hit to HBI margins Cotton Price COGS Increase $25 within its own Gross Margin Impact in BPS -43bps production.

This will take 9-12 Assuming goods not produced by HBI months to hit the have the same cotton use and cost P&L, plus possible dynamics which get passed on to HBI, we delay/ offset from get upwards of ~65bps of gross margin hit hedging. for a 10% increase in cotton price.

DATA SOURCE: FACTSET, COMPANY REPORTS, HEDGEYE RISK MANAGEMENT © Hedgeye Risk Management LLC, All Rights Reserved. 61 TAX HAVENS HBI % Sales % Long-Lived Assets 80% 70% 60% 50% 42% 40% 80% 30% 20% 20% 16% 12% 12% 10% 8% 2% 0% 2% 0% 2% 1% 0% 1% 1% 0% 0% 0% United States Europe Japan Canada Other Mexico Brazil China C. America + Caribbean Basin U.S. IS 80% SALES, ONLY 20% LONG-LIVED ASSETS Inverse correlation between Sales and Long-Lived assets. Low tax rate due to earnings fed through foreign subsidiaries, mainly in the Cayman Islands.

1.05 Cotton Price Cotton Total Stock:Use 1.25 0.95 0.85 1.05 0.75 0.85 0.65 0.55 0.65 0.45 0.45 0.35 0.25 0.25

USDA PREDICTS CONSUMPTION WILL EXCEED PRODUCTION FOR 1ST TIME IN 6 YEARS Responding to lower prices, world consumption is projected to exceed production by 3 million bales in 2015/16. When stock to use ratio goes back down, HBI’s COGS will go up.

25% 1300bps

5% 300bps

(15%) -700bps

(35%) -1700bps

(55%) -2700bps

DATA SOURCE: USDA © Hedgeye Risk Management LLC, All Rights Reserved. 64 COTTON PRODUCTION & SUPPLY 30% Total Supply YY % change 25% Production YY % change International 20% production is 15% slowing on 10% the margin. 5% 0% -5% -10% -15% -20% 2011/12 2010/11 2013/14 2012/13 2014/15 1991/92 1990/91 1987/88 1986/87 1997/98 1996/97 1993/94 1992/93 1994/95 1988/89 1985/86 1998/99 1995/96 1989/90 1999/00 2001/02 2009/10 2000/01 2007/08 2006/07 2003/04 2002/03 2004/05 2008/09 2005/06 2015/16 (est) 2015/16 DATA SOURCE: USDA © Hedgeye Risk Management LLC, All Rights Reserved. 65 HANES SKU BREAKOUT HANES SKU BREAKOUT To its credit, the 100% average SKU Other 8.5% 90% 27.2% price on 80% 23.4% hanes.com has 70% Shirts 16.8% 60% 12.8% increased more 50% Briefs 14.9% than 50% since 40% 26.4% 30% Boxers 2010. 20% 40.4% 29.6% 10% Boxer Briefs 0% 2010 2016