Activist investment firm Barington Capital Group is pressuring Hanesbrands to reduce its costs, generate cash and perhaps pick a new CEO as the apparel maker's market cap shrinks, the firm announced Tuesday.
In a Monday letter to Hanesbrands Chairman Ronald Nelson, Barington's CEO, James Mitarotonda, outlined the issues facing the company and called for a series of changes.
"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," he wrote.
"We believe that management's largely ineffective response to recent market challenges is responsible for the Company's rapidly deteriorating results," Mitarotonda added. "Further, Hanesbrands' excessive debt burden appears to amplify the impact of poor operating performance on Hanesbrands' ability to create value for shareholders."
Hanesbrands, which is known for its line of basic T-shirts, bras and underwear, has seen its stock plummet about 17% this year. It has grappled with soft sales and plunging profits as wholesalers pull back on ordering.
The company's shares closed 5% higher on Tuesday.
Barington wants to see Hanesbrands reduce selling, general and administrative expenses by at least $300 million per year and use the savings to pay down debt. It also wants the company to improve its inventory practices.
Further, Barington believes Hanesbrands needs new board members with "more relevant skills and experience," and perhaps a new CEO, to turn its business around, the letter said.
"We believe that the right board and management team and an immediate focus on cash generation and debt reduction can position Hanesbrands to become a best-in-class, vertically integrated apparel company and achieve durable profitable growth," Mitarotonda wrote.
In response, Hanesbrands, which is due to report earnings on Thursday, said it stands by its current growth plans but is "open-minded with regard to additional paths to improve performance and create value."
It also appeared resistant to any changes to its board.
"HanesBrands' Board actively oversees the development and execution of our strategy, operations and capital allocation decisions, in collaboration with the management team. The Board and management team are deeply experienced in areas relevant to our strategy and portfolio," the company said in a press release.
"Further, the Board is committed to ongoing refreshment and having the right mix of expertise and diversity, as demonstrated by the addition of three independent directors to our Board over the last four years," Hanesbrands said.
It's not clear how large Barington's stake in Hanesbrands is, and whether it will try to nominate any board members.