Q2 2020 HanesBrands Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Hanesbrands second quarter 2020 earnings Conference call.
This time, all participant lines are in listen only mode.
After the speakers presentation, there will be a question and answer session.
I'll ask the question during the session you will need to buy Star then one on your telephone keypad.
Please be advised to today's conference maybe recorded.
If you acquire operator assistance. Please press Star then zero.
I'd now like to have the conference over to your house today, mR.T.C. Robillard, Chief Investor Relations Officer. Please go ahead Sir.
Good day, everyone and welcome to the Hanesbrands quarterly Investor Conference call and webcast. We're pleased to be here today to provide an update on our progress after the second quarter of 2020.
Hopefully everyone has had a chance to review the news release, we issued earlier today. The news release updated I think you documents in the replay of this call can be found any investor section of our Haynes Dot com website.
On the call today, we may make forward looking statements either in our prepared remarks, we're in the associated question and answer session. These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially.
These risks include those related to the impact of the covert 19 pandemic and measures by governmental or regulatory authorities to combat the pandemic on our business and operations as well as the business and operations of the consumer our customers suppliers business partners and Labor Force. These risks also include those detailed.
In our various filings with the FCC, which may be found on our website as well as in our news releases.
The company does not undertake to update or revise any forward looking statements, which speak only to the time at which they are made.
Unless otherwise noted today's references to our consolidated financial results exclude all restructuring and other action related charges in expenses.
The use of the term P. P E relates to our personal protection garment business, including face masks faced coverings and gallons.
Also please note that unless otherwise stated all prior year comparisons are to 2019 results that have been rebased to reflect the exited cnine champion program at target and the Dk and why intimates license.
Information, including a reconciliation of these and other non-GAAP performance measures to gap can be found in today's press release.
With me on the call today, our Gerald Evans, our Chief Executive Officer, and Scott Lewis, Our Chief Accounting Officer in interim Chief Financial Officer for today's call Gerald and Scott will provide some brief remarks and then we'll open it up to your questions I'll now turn the call over to Gerald.
Thank you TC with my retirement next week after 37 years with Hanesbrands. This will be my last quarterly earnings call as CEO.
This quarter I have never been more proud of this organization and our employees ability to rise to the occasion and meet challenges to deliver exceptional performance even in the midst of a devastating pandemic.
Despite the economic disruption of Cobot 19 around the globe Hanesbrands delivered strong second quarter results driven by better than expected performance in both our apparel and our new PE businesses for the quarter revenue increased 6% operating profit increased 41% earnings per share increased 58% and we.
Generated $65 million of operating cash flow.
Our strong second quarter performance in one of the most challenging retail and consumer environments in decades underscores the strength of our brand portfolio. The agility of our organization the scale of our company owned supply chain and the cash generating power of our business model.
In my view there are four key highlights in the quarter that speak to the strength of our underlying model and our ability to grow this business going forward.
First our apparel business outperformed second the organization quickly pivoted to create a new PE business.
Third we generated positive cash flow and fourth we ended the quarter with $1.8 billion of liquidity.
Touching on our apparel business performance, which excludes PE our strong second quarter results were meaningfully ahead of our base case scenario in each of our three main segments us Innerwear us activewear and international.
Point of sale trends improved sequentially through the second quarter in all of our key geographies with a positive momentum carrying into July as consumers settled into new routines stimulus initiatives were rolled out and retail doors reopened around the world.
In fact point of sale in our us basics and champion businesses in May and June exceeded pre cobot levels.
And us innerwear point of sale trends accelerated through the quarter moving from down 29% in April two up 8% in may and up 11% in June.
We experienced strong momentum in our basics business with mid teens point of sale growth, yielding more than 300 basis points of market share gains in the quarter.
Within our intimates business point of sale returned to essentially flat in June and improved to up 3% in July.
Regaining its pre cobot momentum as the mid tier and department store channels reopened.
We experienced a similar trend in our champion business within the U.S. Activewear segment in the quarter champion point of sale accelerated from down 14% in April two up nearly 40% in may and up more than 70% in June as consumers continue to actively seek out the brand, particularly within the online Chan.
With store Reopenings underway and our international business, we saw monthly progression within our innerwear businesses in Europe, and Australia as well as within our champion businesses in Europe and Asia.
Strengthen our online business continued globally in the second quarter with sales up more than 70% over prior year, we experienced strong growth across our key regions in the quarter with triple digit online growth at some of our largest customers and nearly 200% growth on our newly enhanced champion Dot com website.
Within our apparel business, which excludes PPD online represented over 30% of total sales in the quarter.
We're encouraged by the strong Pos trends, which we believe points to the improving shipment and revenue trends in our apparel business as we move through the second half and into next year.
Turning to the second highlight of the quarter, our newly created PE business generated over $750 million of revenue.
This was well ahead of our initial expectation as we benefited from additional government contracts for both mask and reasonable gallons and we were able to fulfill demand for a number of businesses.
We recently launched our consumer PE face mask business at retail.
We expect to generate more than $150 million of additional PE revenue in the second half of the year.
Looking forward, we continue to believe this consumer product line represents a meaningful ongoing business opportunity.
The third highlighted the quarter was cash flow as we generated $65 million of cash flow from operations.
Year to date operating cash flow was $40 million better than last year.
With a majority of retail doors closed for half a quarter. This performance speaks to the cash generating power of our model and the discipline of the organization to aggressively manage operating cost and working capital.
We continue to expect to generate positive operating cash flow for the second half the year.
And finally in terms of liquidity, we said on our last call that our focus in this environment was on managing cash while positioning the company to be able to take advantage of opportunities.
This focus allowed us to capture stronger than expected demand for our products in the quarter as well as maintain our dividend.
We ended the quarter with $1.8 billion of liquidity, which we believe provides us ample capital to maximize our operating flexibility and positions us to grow the business going forward.
Looking ahead, there remains uncertainty about the extent and pace of reopening economies in the midst of cobot 19, and we're planning accordingly.
Absent any rollbacks the story openings, we expect year over year revenue trends in our apparel business to improve sequentially in the second half.
Our core brands are healthy, we're gaining market share point of sale trends remained strong our back to school and holiday plans are set an initial spring 21 bookings of global champion are up meaningfully over prior year in each region.
We believe the positive underlying trends in our business both prior to and during the pandemic positions us for growth and oppose pandemic environment.
So in closing we delivered a strong quarter in very challenging global environment.
Momentum is building in our apparel business and we believe we have ample liquidity, we believe our diversified global business model continues to position us to drive growth and take advantage of opportunities over the next several years.
Before I turn the call over I'd like to take a moment to which those of you from the investment community. The best in the years ahead.
Enjoyed getting to know you and exchanging points of view over the years.
To the Hanesbrands team, it's been an honor to be part of the Hbr family for so many years together, we build a company and successfully expanded it to be a global leader in our categories.
These are things that could only be achieved by the determine efforts of 60000 team members around the world pulling together.
Look forward to watching Hanesbrands continue to prosper under leadership of Steve breads fees in the years ahead.
And with that I'll turn the call over to Scott.
Thanks, Joel our strong second quarter results, including double digit growth and adjusted and GAAP EPS underscore the earnings and cash flow leverage our vertically integrated business model can generate.
Sales for the quarter or $1.74 billion, which includes $752 million of ERP revenue.
As compared to last year sales increased 6% on reported basis and 7% on a constant currency basis.
Excluding PPD apparel revenue declined approximately 40% over prior year. This was well ahead of our expectation and accounted for more than half of the upside in the quarter relative to our base case scenario.
Adjusted gross margin of 37.9% decreased approximately 180 basis points over last year.
Let me 50 basis points of the decline was result of de leverage from minimum royalty payments on our sports license business.
The remainder of the decline was driven by coated related door closings, which had a greater sales impact our core international and our champion us activewear businesses.
As a reminder, these businesses carry higher gross margins, but they also carry higher SGN expense.
Adjusted operating margin for the quarter increased approximately 430 basis points over prior year to 17.5%.
Our sales drove meaningful SDMA leverage which was further benefited by our temporary cost savings initiatives.
Interest and other expense declined $8 million over prior year to approximately $47 million due primarily to lower average rates in the quarter.
Restructuring and other related charges were approximately $63 million in the quarter, our plan supply chain restructuring actions and program exit costs, which remain unchanged accounted for $11 million of these costs.
The remaining approximately $52 million or nonrecurring totally related costs in the quarter, which are noncash. These include a $20 million intangible asset write down $11 million of bad debt expense and approximately $21 million of inventory adjustments primarily related such canceled orders from retailers for seasonal product we've already made.
The tax rate is 17.8% was higher than our expectation is better than expected performance and us innerwear and PE, resulting in a higher mix of us profit in the quarter.
And adjusted and GAAP earnings per share increased 58% and 12% over prior year to 60 cents and 46 cents respectively.
Now let me take you through our segment performance from a high level all of our segment experienced a similar progression through the quarter.
We saw significant year over year pressure in April as regions sheltered place. This was followed by sequential improvement in May and June as consumers shifted to open channels, including online and closed stores began to reopen.
For the quarter Us innerwear sales increased approximately 67% over prior year, while the operating margin expanded nearly 550 basis points to 27.8%.
Both revenue and operating profit exceeded our base case scenario driven by better than expected sales in both our core innerwear and new pp businesses, a significant fixed cost leverage from higher sales and by lower SDMA expense due to our temporary cost reduction initiatives.
Adjusting for sales from our PE business for US Innerwear performed significantly better than our base case scenario.
Core revenue declined approximately 27% over prior year with basics down, 18% and intimates down 52%.
These better than base case results were driven by the strong performance of our basics and intimates businesses with within the channels that remain open as well as the reopening of mid peer and department store channels late in the quarter on the Bakken improved point of sale during the quarter, we have seen booking trends in both basics and intimate strengthened through July.
Turning to US activewear revenue declined 52% over prior year, which was better than our base case scenario the year over year decline was due to currency related door closures as well as school closings and fewer group evasiveness that significantly impacted our sports apparel in Printwear businesses.
As expected Activewear is operating margin declined over prior year, the leverage from lower sales deleverage from minimum royalty payments and our sports license business.
And our decision to hold champion marketing investment flat over prior year more than offset our temporary cost savings initiatives.
I'll champion experienced headwinds due to co related channel closures, we were encouraged by the accelerating point of sale trends through the quarter and the continued Pos strength in July.
We believe this underscores the consumers ongoing desire for the brand and points to improving revenue trends going forward.
Switching to our international segment revenue was well ahead of our base case scenario.
As compared to last year revenue decline approximately 20% on reported basis and 17% on a constant currency basis.
Adjusting for PE sales for international revenue declined 44% as compared to prior year.
The better than base case performance in our core international business was driven by online as well as the performance of our company owned stores as they reopened.
The International segment operating margin of 17.3% increased 310 basis points over prior year, driven by lower SDMA costs as we benefited from various temporary cost savings initiatives.
Touching briefly on our global champion business, excluding seeing on revenue declined 46% over prior year with declines in both our domestic and international businesses.
Like other parts of our business Global champion was hindered by closures of our company owned stores and channel partner doors early in the quarter.
As stores, we opened global champion trends improved through the quarter with momentum continuing through July reinforcing our expectation for sequential improvement and champion sales through the balance of the year.
Turning to cash flow in the balance sheet, we delivered a strong cash flow performance in the quarter generating $65 million of cash flow from operations year to date operating cash flow was approximately $40 million above last year.
The strong performance was driven by previously planned inventory reduction efforts temporary cost savings initiatives continue working capital discipline and timely actions taken within our manufacturing network.
With respect to our balance sheet inventory declined approximately $265 million or 12% compared to last year.
Leverage was 3.4 times on a net debt to adjusted EBITDA basis down from 3.5 times last year.
We ended the quarter with approximately $1.8 billion liquidity, which we believe provides us with significant cash capital cushion in this uncertain environment.
Through the uncertainty and unpredictability of the Kobin 19 pandemic as well as the current lack of visibility in our business environment, you're not providing third quarter full year 2020 guidance. At this time, however, I would like to share a few thoughts to help frame some of the key levers within our business model.
Looking at our apparel business, which excludes PT revenue declined approximately 40% over prior year in the second quarter. After any rollbacks of story openings, we currently PC and environment for the year over year decline in our apparel business to improve sequentially and boast a third and fourth quarter.
With respect to our PPD business, we currently expect more than $150 million of ERP revenue in the second half the vast majority of which is expected in the third quarter.
While we continue to tightly manage SDMA expenses the amount of temporary cost savings from the second quarter are currently not expected to repeat in the second half.
Combined with lower overall unit and sales volume, we believe it is reasonable to assume year over year pressure on margins in both the third and fourth quarters.
With respect to our tax rate. We currently expect delay of approximately 17.5% for the second half and in terms of cash flow. We continue to expect to generate positive cash flow in the second half of the year.
So in closing we delivered strong second quarter results, our balance sheet is healthy and we believe we have ample liquidity.
While there remains a significant amount of uncertainty we're encouraged by the positive underlying momentum in our apparel business, which we believe points to a returned to pre coated levels and our business wants the pandemic has passed and with that I'll turn the call back over to Tc.
Thanks, Scott that concludes our prepared remarks, we will now begin taking your questions and will continue as time allows I'll turn the call back over to the operator to begin the question and answer session operator.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press Star then the number one key on your touched on telephone.
In the interest of time, we ask that you limit yourself to one question and rejoin the queue for any further questions.
Our first question comes from Omar Saad with Evercore ISI. Your line is now open.
Good morning, Thanks for taking my question great quarter guys.
Gerald I love, the Mike drop its a great way to walk off the stage, congratulations and best wishes on your retirement.
Thank you.
Sure I wanted to ask my one question around PPD.
This new business that you have 752 million.
Could you dive in a little bit more how much of that as government was any of that consumer in the quarter.
Is there any recurring element to the government side a bit and then how do we think about the consumer piece.
Is it mostly a mask business and wholesale versus DTC and then if you could also talked about on the manufacturing side, how youre able to switch over your manufacturing are there kind of nuances and complexities investors should be aware of and then is it easy to switch it back as the traditional innerwear business ramps back up again, and you need to use that capacity.
How easy is it to build additional capacity kind of all of that kind of.
Discussion around that PV business, I think will be really helpful. Thanks sure happy to provides more color about than in I would just say first it. We're just delighted with how the big quarter came out and we exceeded our expectations and certainly the PE portion you're asking about but also meaningfully in our apparel business and it's just an extraordinary effort by the organization.
And in total so very pleased with it from the PE standpoint that business within the quarter was was predominantly government and there was business to business element of it as well, we we did add some more contracts on the government side in mask and gallons late in the quarter, which caused the over delivering on that side as well as bit.
Businesses began to open up in particular, they were seeking mask for their their employees and so forth as I noted in my comments as we're moving now into the the third quarter. We are focusing on shipping our consumer businesses that are showing a bit at retail and that was the over 150 million dollar number we put out for that.
For the balance of the year those are in store now heavily into the Haynes name, but also on a champion names selling through extremely well very strong reaction to those businesses as well our research tells us the consumers really looking for a trusted brand and innovation and it's right up our alley and good response, and so we're pleased with that Dan.
I would think that alone could be a $2 million to $300 million kind of business on an annualized basis.
In the future relative to future government business. There is certainly could be additional opportunities out there and we'll certainly seek those as the opportunity emerges, but those would be incremental and opportunistic at this point relative to where our guidance on the consumer side of things.
From the standpoint of manufacturing certainly to ramp at the pace. We did in Q2, we used internal production and used outside production as well to bring up a very quick ramp to the total production as its come down to a more level production for the consumer side of things, we've fallen back into our own manufacturing facilities.
And thats not a big switch for us, it's very similar in production to our our panty or underwear products and we make alongside in the same facilities and we can certainly.
Support that going forward, there's not a capital intensive move on our our parts. So we founded very complimentary to what we are already do so with the change in consumer behavior in the emerging mandates by states. We feel this could be a business that it goes on for blood for a long period of time.
Our next question comes from Susan Anderson with B. Riley FBR. Your line is now open.
Hi, good morning, nice job on the quarter and congrats channels on your retirement and best of luck as you may flow I guess definitely been asked thanks.
So it sounds like Pos significantly exceeded results, especially as you enter band June So I'm curious how that tied with PR replenishment in the quarter and if you can we talk about what you've experienced so far in July involved in our land active wear.
Sure ill be happy too we did have extraordinary Pos is as you mentioned in and through the through the second quarter net ramp very nicely and was really above pre cobot levels in both our innerwear and our our champion businesses and as our international markets open. They also.
Performed very well and ramped very nicely back to to pace.
As we've gone into July our POS has continued to be favorable and as shipments are following and impacting our early starts where we're ahead of our early expectations in July as the momentum as in our business and certainly gives us.
More confidence about our ability to continue to sequentially improve our apparel business.
As we work through the year.
Our next question comes from Michael Binetti with Credit Suisse. Your line is now open.
Hey, guys. Congrats on a nice quarter in general let me I might add my congrats as move on to the to the next adventure.
I'd Love to you know.
I'd love to hear little bit more about the innerwear trends that you did see in the quarter led market growth versus you did mention some share gains.
Particularly the share gains would love to know.
What areas those were in what channels what categories in the how you see that is being you know.
What is the sustainability of Vasily Innerwear business.
And I'd also like to know.
You know if you receive replenishment orders into Q on Innerwear, how production is ramping up.
And our capacity constrained at all in that category right now.
Sure happy to provide some more color on that.
Our Pos did ramp nicely through Q2, as we commented basics first in intimates. Following is clear indication that our innovations are working.
And certainly we did see nice Pos trends and we've seen those continue into two July I would say that an important achievement during that period of time as in the large retailer we completed the placement of the replacement of their underwear Department and we captured space there and we've seen nice performance is that's come through.
The placement I would say overall, we gained 300 basis points of share and basics and it was across a number of areas across Sox was across women's panties and it was across underwear and certainly underwear been benefiting from that that retail space expansion. So there's a lot activity. There we can now see or back to school bookings in our solid as well and then back to school is a very important.
Period for our Innerwear businesses. In addition, we can I'll see all the way out the holiday and we see a nice increase in and holiday bookings at this point in time, So theres, just a lotta energy in and Innerwear that gives us a lot of good feeling about it and we feel it's on pace to potentially get back to stability as we work to the latter half of the year. So really good performance coming out of universe.
Segment.
Our next question comes from Matt Mcclintock with Raymond James Your line is now open.
Hi, Yes, good morning, everyone, a gerald I have to say, it's been a pleasure knowing you.
Can only wish you the best its thanks, so much for the years.
My question will be on champion I'm, just really curious about you mentioned I think 21, you talked about strength. There can you kind of parse helped the quarter on champions growth this quarter between E Commerce, and just point of sale on physical locations and I think can you kind of talk about where the strength is coming from all as you're starting to get bookings now.
For the future. Thanks.
Sure happy to Matt and thanks for your comments.
Certainly from the standpoint of champion early in the second quarter with much of the specialty and department stores channels closed champion saw very nice growth online and as we mentioned we had at 40% increase for example on the us in our Pos relative to prior year, driven heavily by online Thats online and and third party brick and mortar where we.
We're seeing sometime triple digit rates in the U.S. as well as our own champion Dot Com, which you may recall, we just sort of upgraded it was in the 200% increase level if I take internationally, we so as the markets reopen the brand also ramped very quickly back to sort of pre coded kind of momentum in it.
Ramp very nice thing all that momentum has carried for us into.
Early July as we look forward I did mention in my comments that we can now see.
Farther out even as far as and into next year in our bookings have been very favorable it there and then theres no doubt that the retailers witness the strength around the world champion even online as markets were closed in his create a lot of interest in our brand. They clearly see the consumers is pursuing the brand even.
Even when channels are close are pursuing an online. So there's a lot of momentum in that business and so those bookings were very favorable as we look to two this spring of next year and it was it was around the world. It was no one market. It was a global market I would add to that that are we still anticipate our champion.
Second partner ramping their stores in champion in the second half of this year, they've already brought our online business on in.
In China, we've seen very nice growth their online as well. So there's just a lot energy and champion we remain very bullish on our ability to our ability to reach our $3 billion goal over time.
Our next question comes from Jim Duffy with Stifel. Your line is now open.
Thank you good morning.
Thank you to for all helpful. This year's wishes vessel luck.
Okay I wanted to ask questions on the state of generally well tolerated was.
Improving strength that you're seeing.
Let's say some channels.
Chasing products your inventories are tight relative to where they historically my feet at this point in the season just.
It's about the flow of inventories.
In the channel and as it relates to euro balances.
Yes, Jim Thanks, and thanks for your comments first of all but yes, and I meant to include isn't in Anshan part of Michael's questions. I. Appreciate the follow up on this the strong Pos that we've experienced has it we have it was demand certainly higher than we expected in there are holes in inventory in certain cases, particularly in basics and we're chasing that back.
In in that to get really speaks to the opportunity for us as we move into the third quarters, we have the inventory and flow now and on top of the Pos we've gotten some some opportunity to fill up some some holds out there. So that obviously answers. We are Lee we were lean on inventory and we are ramping backup to to match demand on the the innerwear side.
Of things on the champion side is the channels have opened up we've gotten a clearer view of bookings out of some of the channels that were close we're ramping that reduction as well and what we expected a nice sequential improvement in champion in Q3 for example in the U.S market, but we would expect to further ramping of that scale of improvement in Q4, as we fully bring all day.
The inventory in and service all the demand.
Our next question comes from Paul Newman with Citi. Your line is now open.
Hey, Thanks, sorry, if I Miss.
There is have you quantified what you're seeing in your champion stores as they as they reopen and how that has looked over the past several weeks.
And also curious if you could talk about any investments that you might need to make to support further increases in the E com business. Thanks.
Sure I'm happy to do that answer that question banks it's.
If I take this store question first Pos is or the traffic is generally ramped.
Back into it as sequentially improving paces, we've we've opened the doors most of the doors and recall, we have champion doors around the world. So it's in there is no one answer to this summer faster than others, but if I'd give you a couple of for example in Europe, where in Italy stores reopened.
No late May into June we saw the traffic began to ramp nicely as soon as they were opened its not yet in generally back to last years levels, but it is ramping nicely in Australia. When we have a few champion stores, there as well as well as many bonds stores as the markets open we saw very quick ramp back in traffic there.
Approaching last years levels in the US has been sort of a mix of both of those rents a little slower but in our outlet stores, our us outlet stores.
Traffic spent a little slower, but we've seen higher conversion. So the shoppers that comment all those channels are very determined in their buying more in general as they come to the store. So generally I would summarize a little slower traffic in maybe a little higher conversion.
In total.
From the standpoint of capital investment in our online we don't expect dramatic capital investment to support our growth here remember our gross coming from a a combination of working very carefully with the large pure play and brick and mortar players that are out there and that's always been a wholesale.
Business for us directly to their warehouses and they handle it in our surging are growing online here, we have plenty of distribution space. We've done we've spent the last year, so investing in our systems and upgrading our systems and we believe those are scalable with reasonable investment.
Our next question comes from Jay sole with CBS. Your line is now open.
Great. Thanks, so much I'm talking about the contribution to EBIT within the innerwear and the international segments from the from the PPD business in the quarter.
Yes.
Yes, so for the for the PDP business like Gerald mentioned earlier we.
Again very pleased with the.
The volume there somewhere between $2 million within the quarter.
We will speak to the kind of profit level information that a product level.
We typically are so much.
Within our business between international and the the enter in the Innerwear segments of the this pp business would flow through the supply chain network kind of supports all of them all the products and so we typically don't disclose separately profit margins across or individual product lines within the segments, but again, we're very pleased with the volume of the business.
And Doug Elijio mentioned earlier see this as a continuing business going forward, yes, I'd just add to that data from the standpoint of of how at work. We ran it through the infrastructure the innerwear and the international business and as you can see it gave us tremendous leverage because it worked we had to effectively lowered our EPS DNA through cost cuts and so forth of businesses like innerwear and costs.
Cost savings in the pandemic, but we put tremendous volume through it in the fixed costs. It was left gave his tremendous margin leverage that you can see and it really speaks to the I think leverageability. This whole whole company were fairly low SGN, a fairly lean and so when you put volume through it like that you get tremendous leverage across the business.
Our next question comes from Vasilescu with Exane BNP Paribas. Your line is now open.
Good morning, Thanks for taking my question congrats on the very strong quarter.
Gerald I wanted to follow up on the champion business I think historically in prior quarters, you would parse out the performance of court champion in the us versus international on the year over year basis could you, possibly parse out for this quarter and then secondly.
I think the July 2nd press release.
With regards to the government contract had Haynes and champion branded.
Asks can you, possibly parse out just how big the mass business was for that was branded champion that would be very helpful. Thank you.
I'm on the champion side in General let me just to answer it was pretty much the same around the world. Thanks, Scott referenced it was down about 46% or something like that and it's pretty much the same around the world is.
Again back to my earlier comments the businesses as a combination is heavily distributed in.
In specialty and department stores and those were close heavily for the the period. That's the results actually exceeded what we expected in our our base case or better best case scenario going into the the quarter and we see with those channels opening we're seeing a nice quick ramp in certainly the Pos is the customers there when they can find that online they went and found it and now that is open in retail there.
I wanted to both places so we're very encouraged for this and the expectation in what we see in bookings for sequential improvement in that business lot of strength there from the mass standpoint, the vast majority of the mask were Haynes Mac. There was a small element of of champion primarily sold on our online sites I think speaking to the the strength of the brand we put them out.
There and they sold out immediately so we've gone back and where.
We're making more but it was a smaller portion of our focus our initial focus with the government and certainly the retailers with there are more broadly distributed Haynes brand in our we're looking at adding some champion more broadly and distribution.
Our next question comes from Ike Boruchow with Wells Fargo. Your line is now open.
Hey, everyone. Good morning, good quarter, and Gerald Congrats and on what we'll Miss you.
[music].
Two questions we had just.
First I.
I guess scatter or journal for the back half the commentary on us United with some of the temporary cost initiatives in Twoq. You. Obviously not repeating is there any help you could kind of give us for for the back half for Q3 Q4 should I mean, obviously, you're going to have as much of an us unit decline, but should dollars still be down I mean, I'm, just kind of curious and how we should think about the expense dollars.
In the business on the other things are reopened and then just the second question is just on people who use are great revenue stream business do you guys. I guess, just trying to think about that business into into the next year and beyond I mean, I think we're probably all hopeful that were not wearing masks.
This time next year to just how do we think about how much of that revenue is really sticky and how we should think about that revenue base as we move into next year, who would be really helpful. Thank you.
Yes, good morning, and thanks for your question, so regarding risk DNA spending and our cost saving initiatives in one of our key priorities as the crisis emerged as reducing our cash base expenses. So that was really important to us as we manage cash and our liquidity balances and so as we think about the.
Second half of the year again of course, we're not giving specific guidance for the rest of the year for there is a are still in the middle the pandemic and there's still a lot of uncertainty there as you think about SGN egg and we're going to continuing continued to tightly manage our spending in the second half.
And we do expect some of our cost savings to flow through the second half, but they won't be nearly as much as we sold in the second quarter and it's also important to note as you think about the back half of the year and as Joe was mentioning earlier with the but our core apparel trends improving and sequentially improving the rest of the year as the business improves and continues to recover and naturally.
Yes, they are spending levels increase to support our business. Good example that as our investment our brands.
All right, let me take to second half of that on the PD business.
What we we believe that there's a permanent there.
Consumer behavior change it is going to last for some time certainly as we we've been first mandated aware mask in most states as part of the pandemic and that we believe this will go on the wearing a match for some period of time as I noted in my earlier comments that certainly would be what our consumer business and mask represents we expected to be over $150 million.
And in the year, we expected it could be a $200 million to $300 million business on on annualized basis going forward.
Our next question comes from Adrian you with Barclays. Your line is now open.
Good morning, and let me add my congratulations as well and happy retirement free accounts. Thank you.
On the ecommerce penetration you mentioned that lag currently about 30% how much of that its wholesale versus owned brand direct to consumer and what do you expect that penetration to the post covidien. So maybe end of year. It you can also talk about the recognized sale.
EBIT margin in that digital channel relative to wholesale that would be appreciated I. Appreciate it. Thank you shared from the standpoint of of the 30%. We've spoken for some time that the largest portion that is through our our third party partners, so through our brick and mortar and our pure play partners and and I would expect did that mix will continue to be so going forward the.
Businesses are growing very well there's year you as.
Very well, there as well going forward our own sites or.
Performing well, but there is tremendous business being built in as pure plays in brick and mortars. So from that standpoint, I don't expect that mix to change dramatically in the near term going forward. The economics of the the pure play and the brick and mortar is very similar to our wholesale economics suite is a wholesale sales. We've as we have so often said and it's very similar to our high.
Wholesale business. We've also worked on the economics of our our owned sites as well and they're quite attractive from the standpoint of how we're performing so we feel good about the mix, we haven't that should it mix a little more to our our sites or the other way I think we're equally happy with that mix at this time.
Our next question comes from David Sports with Morningstar. Your line is now open.
Yes. Thanks for taking my question can you talk about the receivable balance and the timing of payments on key PE from the government contracts and also if you haven't any difficulty in collections from.
Wholesale customers in the U.S. and international including Department stores in the us. Thanks.
So again, the good morning, and thanks for your question so.
However in receivables balance just kind of though as a whole again, we are continuing to monitor our.
Our balances there with our customers are working closely with them to manage any exposures. We did have a a bad debt charge of $11 million in the quarter, but that related to several of our smaller customers that were impacted by Cove. It and as you would expect with the cobot market disruption.
For the financial strain on some of the retailers due to store closures and this reduced consumer spending, but again, we're working closely with our customers and managing the balances there and we feel really good about the progress that we've made in the quarter with our customers is forced collection efforts on those balances were really good about that the reforms the PE business and.
Receivable balance again, the the 752 million of revenue that flowed through the quarter. A law that was later in the quarter and so we do have a larger receivable balance at the end of the quarter, you'll notice that in the cash flow statement.
The use for receivables was.
I was up more than it normally is but again were expect that collection and happened pretty quickly in the third quarter. So we can we feel really good about our receivables balance at the end of the quarter.
Our next question comes from Carla Casella with Jpmorgan. Your line is now open.
Hi, Good morning. This is Don Clark on for Carla Casella. Thank you so much for taking your question and congrats on the quarter and journals. Good luck in your next adventure as we just wanted to dig in queue back to school little bit more how are your retail customers planning for back to school orders, especially given that.
Increase likelihood of online learning and I don't know you mentioned this in the call by what percent of near retailer with our partners are open now versus say at the peak of Cove Ed.
Sure.
Let me answer the last part that first right now that the.
Vast majority if not all of our customers are open.
As we get look too late June and into July and so as a small amount of closures in Australia, but aside from that we're we're pretty well open around the world from that standpoint of.
Back to school, we've got good view to that we're right in the middle of it right now and I think when you think about back to school. It's most important to our basics business and innerwear and from champion. It's certainly replenishable item as well what we saw as even in the the worst of the pandemic locked down when that online picked up the business for both basis.
And as you heard my comments, we were up year over year.
In champion and basics in that May June period. So we have good view to it from the standpoint of bookings, we can see our secondary displays with our retailers much of the basics business is a mass business. So we feel like we are well fix to sell the business.
Any event that any on unexpected event that there could be a lock down a certain channels. We think we're well positioned to pickup pick that up online. So we expected to be of.
A good back to school from the standpoint of of performance relative to the market we're operating in.
That concludes today's question and answer session I'd like to turn the call back to you see rubber black for closing remarks.
We'd like to thank everyone for attending our call today, and we look forward to speaking with you soon have a great day.
Ladies and gentlemen, thank you for participating in today's conference.
You may now disconnect everyone have a great. Thanks.
[music].
Hi.
[music].
[music].
[music].
[music].
