Q3 2020 HanesBrands Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Hanesbrands third quarter 2020 earnings Conference call.

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After the speaker's presentation, there will be a question and answer session to.

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Please be advised that today's conference maybe recorded.

I'd now like to hand, the conference over to your host 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 are pleased to be here today to provide an update on our progress after the third quarter of 2020.

Hopefully everyone has had a chance to review the news release, we issued earlier today.

The news release updated uptake you document and the replay of this call can be found in the investors section of our Hanes Dot Com website.

On the call today, we may make forward looking statements either in our prepared remarks or 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.

These risks include those related to the impact of the COVID-19, pandemic and measures taken 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.

Various filings with the SEC, which may be found on our website as well as in our news releases the.

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 and guidance exclude all restructuring and other action related charges. The use of the term PE relates to our personal protection garment business, including face mask.

<unk> face coverings and gowns.

Also please note that unless otherwise stated all prior year comparisons are to 2019 results that have been rebase to reflect the exited cnine champion program at target and the Dk and why intimates license additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP can be found in today's press release.

Yes.

With me on the call today are Steve Brats fees, our Chief Executive Officer, and Scott Lewis, Our Chief Accounting Officer, and interim Chief Financial Officer for today's call, Steve and Scott will provide some brief remarks and then we'll open it up to your questions I will now turn the call over to Steve.

Thank you TC good morning, everyone and welcome I'm excited to be speaking with you on my first earnings call as CEO Hanesbrands I'd like to begin by thanking our board for the opportunity to lead this great company I also want to thank the entire team around the world for their warm welcome and their assistance as I get up to speed on our business.

Honored and excited to be leading such a passionate team as we embark on a growth oriented journey.

The global pandemic has clearly created significant challenges and uncertainty it's impacted everything from our business visibility to our manufacturing to consumer traffic in our stores and on our web sites and it continues with this week's European announcements regarding new Lockdowns and curfews.

In this unpredictable environment I'm encouraged by the progress we're making on a number of fronts I've been impressed with the team the way they have been able to adapt and respond to the challenges as 2020.

We're seeing revenue momentum in our business and I feel good about our strategic assessment and the progress we've already made towards defining the ambition and strategic goals for the organization.

For today's call I'll begin by sharing some insights about myself and why I was attracted to this opportunity I will then speak to the strategic assessment that we began on my first day.

Offer some thoughts on the process, what we are looking at as well as share some initial observations.

And I'll end with a few comments on our current business performance before handing off to Scott for a more detailed review of the results and our fourth quarter guidance.

[noise] Hanesbrands is a great company, we have iconic brands, we have global breadth and supply chain scale, we have a solid balance sheet, there's a long standing commitment to sustainability and we have a dedicated passionate team was a genuine appetite and readiness for change with.

With this strong foundation, I see significant opportunities and potential to drive growth and shareholder value.

With respect to my background at heart I'm, a brand and product person I believe and providing great products born directly from consumer insights I believe in the power of brands to differentiate tell stories and build lasting loyalty.

I am growth oriented I'd like to change and transform things and I'd like to think big to that end I want hanes brands to be one of the most admired global apparel companies, one that is growth oriented and consistently deliver strong shareholder value.

I'm also a big believer in communication.

The unvarnished honest and transparent both internally and with all of you.

With that backdrop I'd like to give you a sense of how I spent my first three months of CEO.

The global pandemic has certainly altered my approach my preference would be to spend the first several weeks traveling meeting with customers visiting our stores touring our manufacturing facilities in Asia Central America, and the Caribbean and sitting with our teams around the globe.

While it's frustrating not to be able to get out and meet face to face I've had plenty of interactions with our global team and our customers via video meetings and virtual plant tours I've done a lot of listening I have been asking a ton of questions and ive immersed myself and learning about our various businesses.

As I mentioned on my first day, we began a detailed objective assessment of the business. This is what I call the unvarnished truth it.

It will define our opportunities as well as the challenges we must address to be successful and reach our full potential. This.

The strategic assessment is the foundation on which we will set our ambition for Hanesbrands from there we will build our short and long term operating plant to achieve our goals.

With respect to the scope of the strategic assessment, we are evaluating our entire global portfolio.

We're looking at historical performance category trends channel dynamics, and competitive landscape across geographies and business segments. We're analyzing our cost structure across spend categories were analyzing the current level and mix of our inventory and we're looking at how we're organized.

We're also studying our supply chain, our technology infrastructure and our concept to consumer processes, we're evaluating our online and direct to consumer capabilities. We're analyzing our consumer mix our brand equity measures and our product quality, we're even looking at how we are perceived by retailers.

So let me share some initial observations from our work to date. This is a great company with a strong foundation that we can leverage however, in an environment, where the pace of change is accelerating for us to be successful and reach our full potential we must become more agile consumer centric growth oriented company.

So what does this mean it means that we're going to align hanesbrands to become a company that embraces change act decisively moves quickly and shares a common ambition.

We'll have a consumer centric mindset, the consumer is going to be at the center of everything that we do.

Our people and our shareholders.

You'll begin to see parts of our strategy unfold this quarter and we look forward to updating you on our progress over the coming months.

Turning to our results overall Hanes brand had a solid third quarter with revenue operating profit earnings per share and operating cash flow coming in above our expectations Scott.

Scott will provide a more detailed review of our results. So I'll focus my comments on four key takeaways from the quarter.

First we saw good momentum across the business as apparel revenue trends improved sequentially in each of our business segments.

Okay.

The second takeaway is that we're facing second half profitability headwinds, which were mentioned on last quarter's call. The timing of negative manufacturing variances and higher SG&A expense are expected to pressure, both gross and operating margins in the fourth quarter. We're also facing additional uncertainty from the latest covid trends.

Thanks for the details of the results third quarter sales increased 3% over prior year to $1.81 billion with foreign exchange rates accounting for 80 basis points of the quarter's growth.

Apparel revenue performed better than our expectation for the quarter.

Excluding a $189 million at PTC sales apparel revenue declined 7% compared to prior year. This represents a significant improvement from last quarter's 40% decline as a segment experienced a sequential improvement in year over year revenue trends.

And adjusted and GAAP earnings per share decreased 11% and 43% over prior year to 42 cents and 29% respectively.

Now let me take you through our segment performance.

For the quarter U.S. Innerwear sales increased 41% over prior year, driven by 15% increase in basics, a 7% increase in intimates and the inclusion of $166 million of PT revenue.

Excluding PE us innerwear sales increased 11.5% over prior year.

Due to the continued positive point of sale trends and inventory restocking by retailers.

And our basics business, we experienced growth in each product category, which drove approximately 170 basis points of market share gains in the quarter with an intimates bras sales increased at a double digit rate.

The this more than offset the decline in shape, where sales, which is a category that continues to be negatively impacted by the krona virus pandemics like.

Looking forward, we have seen positive point of sale and order trends continue through October where these trends as well as retail inventory that remains below last year, we expect some level of restocking to continue in the fourth quarter.

When they declined 7% as compared to prior year, which is a significant improvement from a 44% decline in the second quarter for the quarter International champion sales increased 5% over prior year.

Excluding the impact from foreign exchange rates, we experienced growth in our Americas and champion Europe businesses. This was more than offset by declines in our European Innerwear, Asia, and Australia businesses, where covid related challenges have slowed the retail recovery Nash.

National segment's operating margin decline approximately 100 basis points over prior years of 15, 2% driven by Deleveraged from lower sales volumes, which was partially offset by continued tie SG&A cost management.

Turning to cash flow regenerate tearfully $9 million of operating cash flows in the quarter.

Looking at our balance sheet inventory increase 4% of a prior year, which was in line with sales growth and includes approximately $400 million a PPE inventory.

Floating PPE inventory declines, 15% compared to prior year.

Yeah.

Included in our sales outlook is approximately $50 million of PT sales approximately $10 million of foreign exchange benefit and contributions from the 50 Threerd week.

We expect adjusted operating profit of $160 million to $180 million, which at the midpoint implies an operating margin of 10.4%.

Expected year over year margin pressure is due to the timing of negative manufacturing variances and higher SDMA expense.

We expect interest and other expense of approximately $50 million and a tax rate of approximately 17.5%.

Our guidance for adjusted and GAAP earnings per share range from 25% to 30% and 24% to 29% respectively.

Cause I'm cause obviously, they're different brands. Thanks.

Thanks, So much I appreciate it yes I am.

I'm really excited to have the opportunity to work with two really amazing brand that.

Quite frankly are in different places on their journey, let me start with Haynes, a little bit obviously incredible household penetration well known brand been around very long time and has a really really big installed base.

It leads an awful lot of categories from a share position and it's in categories that quite frankly in many cases aren't relatively lower growth. So it becomes a big share game.

Uh-huh around new product platforms that we're trying.

New one that I saw just just released around called storm Tech, which is taking all of our reversed we have technology and making it water repellent theres some new die technologist coming so there is a lot of opportunity to expand this brand into new usage occasions and gain share across all the different segments that participates in so.

A lot of opportunity a lot of work to do we're we're at the beginning of this journey to take us to where we need to get to but I think both of the brands have just huge future potential they've been successful, but I think we're just scratching the surface on where that can go.

Thats great. Thanks. Good luck, thank you very much.

Our next question comes from Adrian you with Barclays. Your line is now open.

The Coke answered here in the U.S. just some more color on you know are you get that from demand that you're seeing in the channel or some more color there would be great. Thank you. Okay. Thank you thanks for being a in terms of consumer perception brand I'm very positive.

And you know I haven't seen it in my research before before I came here to understand and came from quite frankly, a position that I had a lot of insight into a lot of different brands and what was trending a whole wasn't trending it.

How retail environment view things that have consumers here and so I think all the brands are viewed as very positive where that position today, but as I said earlier up tick on hands I think there's some work to do to reach a new consumers, but you're starting from a positive position, we're not there's not a equity decline or a penetration issues.

And things like that it's more about where do you take them going forward.

And kind of moving into your into your second question.

Hi, digital will be a big piece of it in general.

It is true as most companies today, we need to become more digital not just in our consumer facing business by the way, but in our internal of how we operate and systems.

How we go to market one of the things that we're going to have to spend some time thinking about and I don't have an answer for you today, but in some work that we're going to do is be very purposeful on our digital strategy with our different brands and understand how we want to go to market with Haynes versus champion versus valley, the digital strategy and go to market strategy.

Channel strategy for digital may be different by those brands and we're going to be very purposeful and thoughtful in terms of how we do that.

Underlying that more from a technology perspective I.

I think that we have an opportunity to the word I've been using his modernize our technology a bit.

Help us improve our speed in our efficiency, how we go to market tying these new channels together tying into our supply chain.

We have a big opportunity there to improve how we operate.

And then finally on guidance.

Origins and just how we should think about that line item going forward also maybe just talk with just bigger picture around.

T.

And C V V.

Uhm.

You know I'm gonna hanging now Oh, I'm, sorry, I don't mean to interrupt you use the line just had cut out and we got to the second question of the gross margin Gung Ho can you I apologize can you just start again from where the the the next question was.

Yeah, sorry about that it's just about P. P E and just the impact to the P&L This strategy and thought process going forward.

Got it sorry about that thank you.

Good morning, and thanks for your question, So I'll start off with gross margin and hit on your questions. There and also speak to a lot of the impact that we have on SG&A. So starting with gross margin. We had it was lower a year on year and but we did anticipate this we actually came in a little bit better than we initially expected.

As volume and this are a matter about two thirds of our SDMA is fixed this.

The second item relates to some actually some timing of some compensation related expenses that which in the fourth quarter of last year were lower than our than normal level. So this is more really a year over year comparability.

Adam versus 2019, not necessarily ongoing higher cost.

Year over year during the third quarter, which compares the champion Europe, increasing year over year also following the new lock down orders. There what are you seeing in this region quarter to date.

So is your question around the world for Europe kind of top line sales trends, we saw in the third quarter.

Yes, just trying to parse out the difference between European Innerwear and champion Europe Champion Europe.

Increase year over year, if I'm correct in European Innerwear decreased so just trying to figure out how DTC and wholesale is planning for those two brands over in Europe.

Okay. So as we think about the diversity of businesses again actually kind of speaks to what she was talking about earlier with our with our champion brand. So within Europe actually happy in Europe business did perform very well this quarter.

And larger led by our champion brand and the strong growth that we had and driven by wholesale and online.

Assessment I'd tell you, we're kind of we're looking at everything and trying to understand where the opportunities lie for us.

We're going to be evaluating all of our different businesses and.

This this company has a really strong M&A history, and our ability to add new components of the business has worked well over time as we built the supply chain and put volume through it and taking cost out and it's been a really really good model.

As we go forward I think we have to think about.

Jumping to private label.

What I see private label as a threat I absolutely its threat the challenge for US is what do we do about it and when I.

We think about my background I've worked on both sides of that the private label business I built private label and I've worked in branded companies before so pretty good feel for for what it takes to compete on both sides, but when you think about private label on the retailer side, they want and expect brands like Haynes that we have to drive traffic to their.

Store, that's our responsibility as a brand so we need to make sure that brands are they are in demand the relevant and we got the right innovation that consumers are seeking them out and consumers are seeking your brand they rise up and the importance for retail over time. So I think when you look at the the brands. This company has when you look at.

The capabilities that we have from.

From an innovation from a supply chain perspective, we should be able to compete very well.

Build our brand deliver the right quality, new innovation at a pace that's needed to to win it.

I personally I think thats too low.

So we're working on trying to figure out what is right and by the way. It's not just about spending is having the right plan behind the brand spend behind so you're not just going to see us all of a sudden it's just growing market marketing money into the market. We're going to work very closely on building the right brand positioning the right plans right behind the right products.

And then I do think you'll see that number increase overtime to I'm not sure what the right number is right now, but I definitely see it being higher but I don't want it to come across as well.

We're happy with where we are with we have the right programs. We have the right message. We have all the right product, which just spending exercise that will be the end of the process that we get to so we're going to go through all the brand development, where any repositioning work we need to do and then we would increase spending.

After we're ready to do that.

The announcement this week at the restrictions of Europe pullback are are look at champion and you are in the queue for.

Our next question comes from Ike Bortel with Wells Fargo. Your line is now open.

Hi, Thanks for taking my question. This is well on for I can see welcome.

Can you can you guys just a double a little deeper into P. P margin and how you're thinking about revenues early next year and.

And then I guess.

On on champion just to kind of pick your Doc office last question can you just talk about trends in the the you asked me, perhaps you have some thoughts on the last name is strong and aware of numbers next year.

[laughter], so let let's start off with the the P. P. Larger question I'll turn it over to Steve and so as far as more it says in this is similar to what we discussed last quarter. We don't have a practice speaking to profit level information at a product level you know products within a segments are so highly intertwined and it's really difficult to allocate cough.

By individual product really think about my margin perspective for P. P. A it's really a better way to think about it as a sales really in the units that we produced they really helped absorb and spread our fixed costs that from the lower unit felt that we've had this year.

And then for for champion.

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We're pleased with the momentum that we're seeing in the business.

Obviously again, we have that sports apparel headway that we're dealing with right now we're not going to talk about 2021 kind of look forward at this point just tell you that we feel good about the momentum we're seeing in the U S business continues to improve and we will get past the covid headwinds and we expect the brand that to continue.

Bell and Lf.

We're seeing early indications of some real growth opportunities. There. So we have a lot more work to be done on building it out.

Targeting women is going to be.

An opportunity for us, but we're going to build out a really strong merchandising point of view around the globe, that's going to enable us to create leverage for fabric platforms, and new product innovation and I think you're going to see there's a lot of potential in front of us, but we have a lot of hard work to go do.

Great and then just on the core where growth nice job. There I think was the strongest growth since 2014, how much of this I guess do you think is restocking. Obviously there was a lot of take down in the first half of the year and do you expect that to continue into fourth quarter and then I guess, how much is just really kind of getting.

Back to normal replenishment, and then I guess, how you're feeling about the category in general I think prior to co bid obviously it was going through some rationalization as a lot of.

Doors had close do you think it's healthier now versus what we had seen over the past couple of years, given the amount of rationalization, we especially had in the first half the year.

Sure.

In terms of fourth quarter.

I would tell you that I expect are still to be retailer inventory restocking it will not be as much as it is in Q3, so that 11.5% year over year that we posted for Q3.

We won't see that high sales growth in in Q4, but we do expect our our our strong Pos momentum to continue so I think that will play out into into Q3, and I don't I don't ER, sorry into Q4, and I don't see that changing so less restocking, but still some and still positive Pos strength.

And as I said, we've already got some October guidance, our understanding of our business that we can.

See from there.

In terms of the category overtime.

Over time.

No you us innerwear overall.

The business overall the categories overall are not high growth category. They are different than you are seeing athleisure trend with things that are driving big growth. These are more stable categories over time, but but I think they're very healthy categories over time, we're seeing that in demand for products. So I think with fewer doors you have to offer.

Very differently.

I like where we're positioned in the market and where were really strong tends to be where the trend. The momentum is in the market. So I think our position is solid and I think you'll continue to see a good solid category in business going forward, but it's going to be a share gain inside the category in total because the per cap.

Capital is relatively flat so.

I like where we're positioned and I think the category will remain healthy overtime.

Our next question comes from Michael Binetti with Credit Suisse. Your line is now open.

Hey, guys, Steve Let me add my welcome and congrats on the on the Newell.

If you.

I just want to I want to understand you know champion a little bit I'm, a little confused by the volatility here.

I think on the last call. The company commented the POS was up 40% than maybe 70% in June July up strongly that we see the 27% decline.

This quarter I know you know the college bookstore sports business.

Comes into play bigger, but you also commented on the order book for spring Summer being positive 2019 wouldn't that wouldn't that sports apparel business need to come back pretty meaningfully by by then to support Paul.

Positive numbers.

Well what we're.

We're not we're not going to give.

Total numbers for 2021, as we think about this but we're just seeing the business rebound pretty quickly.

We like the momentum that we're seeing on yes, I mean, we need the sports apparel business to rebound and we think it will rebound.

Once we get past this whether thats going to rebound.

Spring.

I don't know it depends upon all a broader things with Kobe that everyone's dealing with but what we're encouraged by is the bookings that we have are up and that's around the globe. So we're seeing that demand and pull for the product overtime. If you an individual channel shuts down like sports apparel will have to manage through that but.

The businesses that were running actively in that we're pushing on are responding and we're seeing really really good pull through in demand.

Okay. Let me just follow that was when you.

When you put on your hat from your last job, where you know you were a big customer of this brand. What do you think were the biggest missed opportunities over the last few years for this brand any that you think you can capitalize on quickly and then your initial commentary on your assessment of the business looks like Theres some meaningful changes you can.

Make I mean.

When do you think what do you think the the financial community here. When do you think we could take a look at the plan.

And then as zero is the early assessment, we've seen a lot a theme around the industry smaller business, but higher margins is that an appropriate seem to think about for this business as well.

So let me take them in reverse order I wouldn't I wouldn't commit to the last part yet a smaller business higher margins I think we're still you know we're in the middle of our assessment on where we want to be the first part of it was around.

Getting to kind of a common fact base and we all know where we are where I like to say you know we are building a road map, but we need to make sure. We're all starting from the same place and that's that's been our assessment. So far so I wouldn't I wouldn't get to that conclusion, yet that we're going to be small with higher margins and follow that model. We have we haven't decided on that yet.

In terms of when you will start to see that.

You'll start to see some of our strategy interactions were playing out and in the fourth quarter and we will continue to update you as we go forward and certainly when we when we reported Q4 will will give you more direction and on terms of where we are and what what our models looked like it may or may not be 100% at that point, but we'll certainly give you more clarity.

On the go forward at that point in terms of looking at the brands and things I think they could have done I would say these are general and nothing to do with necessarily my my previous my previous role but.

As I said earlier I think we need to continue to invest brands need to continue to invest behind themselves today and there's there's lots of challenger brands out there. There's lots of people pushing you need to compete for share of voice with the consumer So I think continuing to invest in the brand to something that I would do.

I would say portfolio simplification. This complicated categories you try to go to shop them at the shelf Theres a lot of there's a lot of complexity. So I think the ability to continue to simplify reach a broad set of customers, but simplify and lean and behind a core businesses.

And speed being incredibly consumer responsive and reactive and moving at the pace of the consumer is challenge for lots of different brands right now and I think it's an opportunity for us going forward. So those are a couple of things that are on my mind coming in some obviously grounded in past experience, but just looking more broadly across across the market and those are some opportunities for us.

Hey, Michael This is PC I wanted to just add and layer in back to kind of your original question, you're talking on sports apparel, because I think some timing stuff might help you here right. So when you're talking about our order book for spring Summer and we talked about it being up over 29, if you remember that thats going to your wholesale order book right, that's not going to take into account any your DTC that you're doing.

In that business.

And up over 2019, that's I mean, that's pretty good place to be considering the environment and kind of a lot. Other peers in terms of where that is the last thing I would say sorry, I had my my being our pp with our mask. The last part of this that I would say is the.

That sports apparel right you just think about the big part of that a lot of that is coming in through the college bookstore right. That's a fall that's more of when those bookings are going to come through that would not be a big part for them to be in the spring summer. So that might help you with some of that why sports apparel is done and so so I didn't mean to kind of come back around but just wanted to kind of point to that.

Okay.

Our next question comes from Jason Yes. Your line is now open.

Great great. Thank you so much and Steve Thanks for all the great color today, so far.

So many of the questions have touched on this I want to ask you about it in a different way, but as you go through this in depth business review.

How do you think about it.

Balancing investment because it sounds like there is a lot of great things that you want to do in terms of.

Product innovation and product marketing and systems and kind of improving a lot of different areas. I mean think about investing and balancing that against sort of the desire to show near term earnings growth yes.

Yes.

Thanks for the question when we think about investment and we use that word a lot.

We're talking about and we're going to be very thoughtful and targeted in how we do that and make the change that we need to make and you should think of these as setting the company up for for long term success.

And what will from thinking about how do we get to multi year horizon here.

We're working on that plan, but when I take investment I think of them as unlocks right our investment should be driving growth opportunities and we're going to be focused on a lot of different things that we may need to put some some muscle behind I talked earlier about modernizing technology I think we have to look at our supply chain going forward.

And really understanding how do we make it.

How do we align it to make sure. It supports all of our key businesses as we go forward. It was built on one modeling incredibly successful in doing that and its its proven its ability to flex to some extent, but I think were challenging its flexibility right now as we build out our DTC business in different parts around the world. So we're looking we're looking at doing that.

But I don't what I don't want you to do is think about what the investment is going to be ramp it and we're not going to be really thoughtful and targeted and thoughtful how we do it underneath that we're starting a.

Our cost transformation program at the same time.

Some of these are short term cost to kind of mobilized some short term efforts to fuel. Some of these growth initiatives are putting it through in some are more longer term cost initiatives that are restructuring inside and thinking about different ways of working that will present, a cost savings opportunities. So we're obviously going to be as aggressive on the cost side as we are.

On the investment side and fund as much of it as we can out of how we operate today and.

We'll we'll give you a greater look into that as we go forward and what the details.

Art, but that we certainly understand the need for performance and quarter over quarter, and we're going to balance the two as we go forward.

Got it and then maybe one more if I could.

You talked about the advantages that.

The brands in that within their portfolio have against private label, but.

But how do you feel about the brands and their positioning versus other national brands that the company comes in contact with and competes against within places like Walmart and target and across the retail landscape. What do you think the company's advantages are.

Relative to those competitors.

Sure I think I mean, the biggest when compared to some of the direct and it compares I think our equity stronger and we have stronger consumer acceptance I.

<unk> position.

I think we have better innovation pipeline and that innovation.

History that we can bring so I think we're well positioned I like it we're managing our costs are up price position at the shelf with with the retailers very closely.

But I think on a side by side basis, I think we do quite well.

Our next question comes from the line of Polish way with Citi. Your line is now open.

Hey, Thanks, guys look Steve I'm curious about your online customer how that customer looks relative to the rest of your customer base and curious what theyre buying what categories work.

Better a few online and then separately.

Can you talk about your manufacturing facilities, just what capacity are they running at right now they're not.

At 100% when do you expect him to do back at 100. Thanks.

Take them kind of in reverse from a capacity, we're running from a covert perspective other than kind of day to day operations, making sure we separate people and things that that were pretty much back and running full up in our in our network. So that's not a that's not a problem for us today.

In terms of the online business. It's it's evolving three young in this space to be honest with you and we're still trying to work our balance of which brands in which channels and once we decide that will lead in very heavily but I would tell you. There's good response to our brands online, particularly champion and its customers are going and looking.

In seeking.

Seeking product, particularly new platforms that come in and if you look at your products play differently. You know are more basic traditional products tend to do extremely well on third party partner retailers, where they go to finance and some of our smaller intimate brands tend to skew the other way so.

The good news for US is I think we can shape that as we go forward and have the ability to really make purposeful choices over time, but customers out there they're looking for our brands online we need to continue to build a great online presence both in our third party partners and in our own.

Our online business as well.

Our next question comes from Jim Duffy with Stifel. Your line is now open.

Hi, This is Peter Mcgoldrick on for Jim Thanks for taking my questions and welcome Steve.

Within the strong strategic review and assessment of category share and inventory penetration are there any early reads on how that should evolve over say the medium term.

Oh, Yeah, I think we're learning a lot about where our brands are positioned both and by channel by demographic and you know a good example would be the one I mentioned earlier around the Hanes brand is that we learned a lot about demographics, and where we skew and who our core customer is and.

Where a lot of the growth is in the industry. So we're not we cover that part, but I wouldn't say, we're perfectly aligned to that right now and we have the opportunity to go and pivot to target that younger consumer and make our brands younger, particularly the Hanesbrands art in doing that is not lose that current base.

And to attract new consumers and bring them in and that that that's a marketing or challenge that we have to go through but it was it's a great insight for us and it opens up a whole host of new growth opportunities for us as we go forward.

Okay, and then within domestic Innerwear, specifically do you think the intimates businesses level set are we seeing sell in and sell through both going in the right direction with the foundation from which to grow sustainably.

Yeah, I think the intimates business continues to improve you know it.

So it was up 7% and he was a double digits and for us in the third quarter. So we're pleased with that you know the challenge is the best right now shape, where as you can imagine a lot of that business special occasion, and those occasions aren't happening right now so that's a bit of a challenge, but you know there the teams even trying.

To pivot inside of shape were to make that more of an everyday business and working on some new product innovations to do that so we've seen some space gains in our business I think to answer your question directly yes, I think that bred businesses has begun to stabilize a little bit of momentum, but I think there's some short terms up and downs wants to manage as we go through that but we're working hard.

To make that a very viable long term business for us.

Our next question comes from William Reuter with Bank of America. Your line is now open.

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Hi, This is maryann for buildings for taking your question. So first what is your exposure to the off price channel in the U.S. and how it's being done in that channel.

Off price.

Honestly I don't know the exact percentage off top of my head I could tell you you know we have a business there it's small.

You know were think as we think through our channel strategies, we think through our brand strategies, obviously, that's something that we consider it and think about it by our exposure today is not very I don't have exact number but it's not very big.

Got it and then given that you are about your leverage forget would this preclude you from opportunistic M&A until things normalize or is that something that youre, considering prior to reaching that leverage target.

I would say right now M&A acquisitions are not our priority right now and and as Scott said, you know work down our leverage over time try to get under three which has been one of our core target, but we're very focused right now on the core business and thinking through what the right plan to do that and we'll invest there.

Our first and continue to support the dividend those that we are number one number two priorities and Akron acquisitions would be would be third on that list at this point.

Our next question comes from Carla Casella with JP Morgan Your line is now open.

Hi, My question I have two questions one is on working capital.

The big increase in accrued liabilities and I'm, assuming some of that deferral sort of Kobe, but I'm wondering if you could give us a sense for the biggest drivers of that increase in the timing of when you'll have to make the payments.

Yeah. Thanks for your question and actually the the accrued liabilities as a kind of caused by a number of number of items nothing individually that significant I got some things that as we are kind of entered into the emerging from the likes the cobot crisis a lot of things. We were trying to focus on of course is reducing our cost base expenditures, but also deferring right that includes.

Royalty agreements leases for stores, where stores were closed were high at this point can certainly we're still accruing that but we're working with the landlords and negotiating a abatements and things like that some of it is this taxes were across the world has been a stimulus package is one sometimes reducing.

A cost, but sometimes have different cost and sometimes into the fourth quarter and in some cases into 2021. So it's a number of factors nothing individually significant.

Okay and it sounds like so the majority of the paying 21, but there may be some pay some catch up in for Q.

It'll be a combination of the two I can't really give you a number specific but there'll be a combination of the two.

Okay and then my second question on the businesses on have you broken out how much of your champion businesses typically that college business and on the margin front you mentioned the mix shift affecting margin is not the driver I, let her as a shape, where I guess one of the highest margin businesses that that work.

Pressured to cause that mix shift.

So let me take the first part and then I'll, let Scott talk a little bit about margin.

The <unk>, we have a pretty good view of who are champing customer is shaping consultants. It shouldnt be consumer is and really understand who they are from a demographic and and very importantly, a psycho graphic perspective is that actually drives a lot of a lot of the champion behavior and.

Some of that is just too as you think about the counts demographic of people that age are very high consumers of champion to actual bookstore business kind of on campus College is is not a it's not a huge piece of the business.

Demographic around.

That college is is that cost consumer it is quite large.

Yeah, and just speaking to the to the mix question. So as we begin to move into Q4 again, we're seeing a few headwinds in gross margin and mix was was one of them I specifically on the activewear business is actually just within the product categories and within the the mix between the sports apparel and the champion business.

As it just kinda naturally will a little bit of ebb and flow quarter to quarter as mix evolving.

Think about when you think about gross margin in the fourth quarter again, the again the largest piece roughly half of it is those those manufacturing variances and the rest of US just deleverage from lower volume and then the mix being a another piece of it.

And let me just add back in when you think about our sports apparel business you know our total sports apparel business will be you know roughly.

Roughly a little over $300 million. This year, that's not all champion. So that bookstore business is not is not fully champion there's other parts in that business as well.

I'm showing no further questions in queue at this time I'd like to turn the call back to T.C. Robillard for closing remarks, great. Thank you. We appreciate everyone attending the call today and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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