Q1 2022 HanesBrands Inc Earnings Call

May 5, 2022

Good day, and thank you for standing by welcome to the Hanesbrands first quarter 2022 earnings call.

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

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I would now like to hand, the conference over to your host T. C. Robillard. Please go ahead.

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 first quarter of 2022.

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

The news release updated Faq 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 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 on the consumer as well as on the business and operations of our customers suppliers business partners and Labor Force. These.

These risks also include those detailed in our various filings with the SEC, 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 and guidance exclude all restructuring and other action related charges and speak to continuing operations additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP can be found in today's news release.

With me on the call today are Steve <unk>, our Chief Executive Officer, and Michael <unk>, Our Chief Financial Officer for.

For today's call, Steve and Michael 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 T C.

Everyone and welcome.

Hanesbrands delivered strong first quarter results with sales operating profit operating margin and earnings per share all exceeding the high end of our expectations.

We also made continued progress on our full potential plan to transform hanesbrands inter consumer centric growth company.

I'm extremely proud of the work our global team has done we continue to demonstrate our ability to both run the business and change the business at the same time.

One of the most challenging operating environments in decades, our team continues to deliver results underscoring, our resiliency and proven ability to execute.

Michael will walk through the details of the quarter and our outlook for the remainder of the year in his section. However, it's clear that over the last three months the global operating environment has become even more challenging.

Theres a tragic war in eastern Europe inflation continues to hit new highs, putting additional pressure on costs and consumer budgets.

And Colby continues to create new headwinds to both demand and supply chain logistics.

While this creates additional short term challenges that I'm confident our team can manage through it does not change our full potential strategy, we remain unwavering in our commitment to make the necessary investments to transform the business irrespective of the near term environment.

In fact, these challenges reinforce our strategy is right.

For our company to thrive, we must make our planned investments to drive accelerated and consistent growth and returns.

There are no shortcuts and challenging macro environments or actually the ideal time to lean in and execute long term strategies.

When we laid out our full potential strategy a year ago, we said that we consistently grow revenue wed expand margins over the course of the plan with simplify and invest in the business and we build a winning culture.

We're confident we can achieve our 2024 financial targets. These include growing total company revenue at a 6% CAGR to $8 billion.

Growing innerwear sales at twice the category rate growing champion sales at 14% CAGR to $3 2 billion.

And expanding operating margins to 14, 4%.

Our full potential plan is on track and I'd like to spend a few minutes updating you on the progress we've made to date.

In terms of growing sales, we're seeing good initial results from our strategy.

In 2021 full year revenue increased 9% on a constant currency basis or 26% excluding PPE.

And we ended the year with sales meaningfully above pre pandemic levels in the first quarter of this year. The strong growth continued with sales increasing 7% in constant currency as we were able to positively comp last year's strong 25% growth.

We're committed to our full potential plan to grow champion and reignite growth in anywhere.

To do that we're taking a two pronged approach centered on energizing the core and adding more.

With respect to our core we have iconic brands strong consumer franchises and distribution scale.

However, the company historically has not fully leverage these strengths.

We see significant growth opportunities in both innerwear and activewear simply by energizing. Our core we will do this through consumer driven product design by delivering category, leading innovation and improving on shelf execution at retail.

We've made a lot of progress over the past year, we've coordinated product design globally, we've improved our processes, we've removed internal barriers and we've accelerated our speed to market.

A good example of energizing the core is the newest version of our Hanes total support patch product the.

The innovation platform has driven increased engagement with younger male consumers.

And we built on the success by launching a new platform that includes our X temp technology to provide cooling and wicking benefits. We also leveraged our global operating capabilities to simultaneously launch this product in the U S and Australia supported by coordinated regional marketing campaigns.

We're excited by the early traction of this launch and I'd encourage you to check out the advertising on our bonds website and bonds Youtube channel to see the unique and fun way our Australian team is communicating the benefits of this innovative product.

I am pleased with the early benefits, we're seeing from energizing, our core, but what I'm really.

Excited about is the robust product innovation and pipeline that we've developed over the past year as part of our full potential work.

This is the broadest pipeline of Innerwear and champion products. The company has had in decades positioning us for Canadian growth in 2023, 2024 and beyond.

In addition to energizing our core we're also driving growth by adding more.

This is a focused initiative grounded and disciplined brand management, we see specific opportunities to grow sales by reaching new consumers as well as expanding into new usage occasions.

<unk> categories and new geographies.

We've made progress across each of these opportunities over the past year.

Specifically a champion we continued our expansion in China, adding new stores in the quarter through our partners.

In Europe , we continue to reach new consumers with new styles and silhouettes for kids and we doubled our spring summer footwear sales driven by an expanded product offering across channels and geographies.

We also launched our win with women campaign as we grow our champion franchise with young female consumers.

This campaign celebrates women and sports with an underlying narrative of fueling confidence for women to feel comfortable in their own skin.

We launched the campaign in mid March which is centered on our soft touch sports bras and leggings. The integrated marketing campaign is off to a great start and we've seen strong consumer engagement, our champion site with higher conversion and increased sales.

Next I would like to provide an update on how we're increasing investments in simplifying our business to enable revenue growth and ultimately lower costs and expand margins.

We've made significant progress to date on both of these enablers.

In terms of business simplification with coordinated product design globally for both innerwear and champion with.

We're streamlining our portfolio shedding noncore lower margin businesses.

And we've reduced our skus to date, we've taken out more than 35% of our Skus, which has lowered costs, while also creating space for the pipeline of new products.

With respect to our investments we have a number of initiatives to unlock growth improve the consumer brand experience lower costs and improve efficiencies.

With increased brand investments globally spending an incremental $90 million over the past five quarters.

In the first quarter brand marketing investment increased 12% over prior year in the second quarter will step up investment as we support our champion when with women campaign, and our total support pouch with X temp products under both the hanes and bonds brands.

We're investing in technology to lower costs improve visibility and simplify our processes, we're investing in data analytics to drive growth through improved consumer insights.

Costs do fact based negotiations as well as lower working capital needs to improved manufacturing planning.

And we're investing in our supply chain to improve our speed to market, which positions us to capture incremental demand lower costs and improve service to consumers and retailers.

A good example of this is the work we're doing to optimize our U S distribution network.

The high level, we're reducing complexity, improving customer service and increasing flexibility for future growth.

One project is the addition of a third party managed direct to consumer distribution center on the West Coast, which will increase capacity and improve the consumer experience by reducing product delivery times.

And other project is on the wholesale side of our network, where we are leveraging our global scale to direct shipped from our factories to certain customers.

By eliminating a distribution node shipments will skip our dcs, thereby lowering cost for both us and our retailers, while simultaneously reducing delivery times.

We're also progressing our cost savings initiatives to fully offset our full potential investments today.

To date, we've realized approximately $60 million of cost savings through a number of initiatives, including vendor consolidation leveraging data analytics and a voluntary retirement program.

And lastly, I'd like to provide an update on how we're enabling our full potential plan by building a winning culture.

We're continually adding new skills talent and experience to our leadership team.

And today I'm very pleased to welcome Vanessa Ofa to our team as the new President of global Activewear.

We're also building a truly inclusive organization as we create a culture of opportunity for all.

Recently, we launched our new purpose and global values, which guide our behaviors as we moved faster innovate and win in the marketplace.

And we are quickly becoming a more sustainable company building sustainability into everything we do.

So as I step back we've made significant progress on implementing our full potential plan.

The brand management discipline, we've defined lanes of opportunity to grow revenue by energizing, the core and adding more.

We're confident we can grow revenue in 2022 on top of last year's significant growth.

And looking at our robust product pipeline for both Innerwear and champion. We believe we're very well positioned for continued growth in 2023 2024 and beyond.

We have detailed plans to productively invest in the business to unlock future growth opportunities.

We have line of sight to the cost savings initiatives that will offset our investments and we're transforming our culture to enable growth.

We're confident we have the right strategy, we remain unwavering in our commitment to execute our full potential plan on the timeline we laid out.

And while the near term operating environment is masking the progress we've made to date, we're on track to deliver our 2024 financial targets.

And with that I'll turn the call over to Michael.

Thanks, Steve I continue to be impressed by our global teams performance not only did we make progress on implementing our full potential strategy. Our global team once again managed through a difficult environment to deliver another quarter of very solid results.

For the quarter, we exceeded the high end of our guidance range across all of our key metrics, including sales operating profit operating margin and earnings per share.

For today's call I'll touch on the key highlights from the quarter I will also provide an update on the operating environment as well as our outlook for the second quarter and the remainder of the year.

First quarter sales increased 5% over last year to $1 $5 8 billion.

Foreign exchange rates were 200 basis point drag on sales growth in the quarter.

On a constant currency basis sales increased 7% over prior year.

Strong consumer demand for the champion brand continued in the quarter, although supply challenges continued to limit our ability to fully meet this demand.

Champion sales globally increased 6% in constant currency with a growth on a two year stacked basis accelerated to 28%.

By geography champion sales internationally increased 10% in constant currency or 4% on a reported basis driven by growth in Europe , and Latin America as well as continued expansion in certain Asian markets, including China.

Champion sales in the U S increased 2% over prior year, driven primarily by strong growth in the collegiate channel.

While we are encouraged that we positively comp last year's strong 41% growth rate in the U S. We were disappointed that product supply challenges did not improve as expected in the quarter.

Delays in receiving champion product with some of our suppliers.

<unk> and approximately $40 million of in hand orders in the U S going unfulfilled in the quarter had the product arrived in time champion sales in the U S would have increased at a high teens rate.

In constant currency sales for global champion would have grown 14% for the quarter.

Switching to our innerwear business in the U S sales increased one 5% over prior year positively Comping last year's strong 35% growth rate coming in ahead of our outlook meaningful gains in retail space of positive mix and the partial quarter benefit of a price increase grow year over year growth.

Even as we Anniversaried last year's onetime sales benefit from retailers restocking and government stimulus.

With respect to space, we gain space in our Hanes brand across all categories and in multiple channels. We also gain space in intimates with our maidenform shapewear products and smart size bras as the brand continues to attract younger consumers and diversified distribution.

Looking at our Innerwear business internationally constant currency sales increased at a mid single digit rate over prior year driven by growth in our bras N things brand in Australia, as well as our Hanes brand in Latin America and Southeast Asia.

Turning to margins adjusted gross margin declined 305 basis points over prior year to 37, 1% driven by the expected impact from higher inflation and higher than planned strategic investments and expedite freight to service new retail space gains these more than offset the benefits from manufacturing.

Efficiencies cost savings initiatives and the partial quarter benefit from the price increase in innerwear.

Gross margin performance in the quarter was approximately 60 basis points below our expectations. This was due to our merchandise mix, which was impacted by the delayed champions shipments in the U S that I mentioned earlier as well as higher than planned expedited freight expense.

With respect to SG&A on a percentage of sales basis, our SG&A expense declined 30 basis points over prior year to 26%.

The improvement was driven by efficiencies and cost management, resulting from our full potential initiatives, which more than offset the planned investments in brand marketing and technology.

Operating profit of $175 million and operating margin of 11, 1% were both above the high end of our range driven by higher sales and better SG&A performance as compared to last year operating margin declined approximately 280 basis points.

Turning to cash flow and the balance sheet, we ended the quarter with approximately $370 million of cash and total liquidity of more than one 4 billion.

Cash was a use of approximately $230 million in the quarter, driven primarily by working capital needs and inventory.

The higher inventory was a function of higher in transit levels, the impact of inflation on input and transportation costs and investments, particularly in innerwear to rebuild our safety stock as we take action to continue to improve service levels on high demand Skus.

Total debt declined approximately $200 million over the prior year to approximately $3 5 billion.

Leverage on a net debt to adjusted EBITDA basis was three one times at the end of the quarter consistent with the prior year.

And in the quarter, we returned approximately $77 million to shareholders in the form of dividends and share repurchases. We bought back approximately one 6 million shares of stock for approximately $25 million during the first quarter.

And now turning to guidance.

Thank you to our news release and <unk> document for four additional guidance details to start I'd like to share a few thoughts to frame our outlook.

Since we provided our full year outlook three months ago, the global operating environment has become significantly more challenging.

We've seen additional inflation pressure on freight and source goods as well as product input cost component parts and conversion costs were.

We're also experiencing incremental cost to move materials within our network.

And the latest Covid related challenges are creating incremental pressure on demand and supply chain costs.

These increased challenges that put an additional approximately $140 million of cost headwind on our business. This year.

Our team has done an amazing job of identifying approximately $75 million of additional savings initiatives. However, this leaves us with a net cost headwind of approximately $65 million relative to our prior full year outlook.

Because of this our current expectation is that we would be near the midpoint of our full year guidance range for sales and at the low end of our full year guidance range for operating profit and earnings per share.

With respect to cash flow, we have lowered our full year guidance for cash flow from operations to approximately $400 million.

This reflects inventory investments and inflation impacts I mentioned earlier.

Next I'd like to provide some thoughts on our quarterly outlook for sales, we expect second quarter constant currency sales to be essentially flat as compared to prior year as we lap last year's substantial growth rates.

Recall in the second quarter of last year sales, excluding PPE increased 88% with 62% growth in innerwear, 140% growth in activewear and 91% growth in international.

Looking at the segments for the second quarter of this year, we would expect innerwear and activewear segment sales to be down approximately 1% over prior year inter.

International segment sales are expected to be up low single digits on a constant currency basis and down mid single digits on a reported basis.

Turning to margins, we continue to expect the biggest year over year margin pressure to come in the first half as we highlighted last quarter, we have a number of discrete items within our control that help margins in the second half champion price increases beginning Q3.

The planned first half investments in expedited freight roll off and our cost savings and efficiency initiatives ramp up.

However, with the incremental $65 million of net cost headwinds, which predominantly hit in the second half we no longer expect a year over year increase in second half margins.

With respect to gross margins on an absolute basis, we expect second quarter gross margin to improve slightly from Q1.

Looking at the third and fourth quarter. We currently expect gross margin on an absolute basis to be consistent with second quarter's level.

In terms of our operating margin our second quarter outlook assumes an operating margin of approximately 10, 5%.

Looking at the second half and based on our comments regarding the full year, we expect second half operating margin of approximately 13%.

And lastly, consistent with our guidance philosophy, our earnings per share outlook assumes no additional share repurchases for the second quarter or the remainder of the year.

For the full year, our EPS guidance reflects only the shares repurchased in the first quarter.

So in closing cost pressures have continued to build and are weighing on margins in the short term. However, our team continues to do a phenomenal job executing.

We delivered better than expected first quarter results were finding cost savings and efficiencies to help offset the incremental cost pressure we're.

We're investing in inventory to capture strong demand for our brands and despite the short term challenges, we're fully committed to investing in the business and executing on our full potential plan I am pleased with the progress, we're making and our ability to achieve our 2024 financial targets and with that I'll turn the call back to Steve for his closing remarks.

<unk>.

Thanks, Michael.

Clearly the global operating environment is presenting near term challenges and pressures across the business.

However, as I step back and look past the near term noise, we're making progress on our full potential plan and the underlying fundamentals of our business continue to improve.

Hanesbrands is a much stronger company today, both operationally and financially and we work prior to the pandemic.

We're continuing to grow we're positively comping last year's massive growth.

Launching new innovative products, we have a robust product pipeline across innerwear in champion that positions us for growth in 2023 and beyond.

We're investing in advertising technology, and our supply chain, we're transforming our culture and becoming a more sustainable company.

We're operating more globally, and taking long term cost out of the business and we're aggressively find a new cost savings to help offset near term cost pressures as we focus on controlling the controllable.

We're confident we have the right strategy, we're hearing it from our consumers and our retail and supplier partners. Our full potential plan is on track.

We're taking advantage of the macro disruptions to lean into our long term strategy.

And we remain steadfast in our commitment to execute our full potential plan and deliver on our 2024 financial targets.

And with that I'll turn the call over to Tc.

Thanks, Steve that concludes our prepared remarks, we will now begin taking your questions and we'll continue as time allows I'll turn the call back over to the operator to begin the question and answer session operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

Again that is star then one to ask a question.

Our first question comes from Omar Saad with Evercore.

Okay.

Good morning, Thanks for taking my question.

I guess my first I would like to ask about.

The revenue guidance you mean, the core innerwear business remains very strong maybe you could talk to that what's really going on underneath the surface there with that consumer demand and then I understand the cost inflation impact on margins, but.

Maybe help us understand why some of this really the core innerwear strengths won't persist into <unk>.

And for the rest of the year and then maybe also quickly touch on champion with the new management higher with Vanessa coming and remind us of the key opportunities there and what she brings to the table.

Sure. Good morning, Omar let me I'll take the innerwear outlook I'll.

I'll talk about Vanessa Michael Let's just talk about margin and kind of where we're going.

First of all very pleased with the first quarter and the performance of the Innerwear business in really establishing this business as a growth business for us going forward.

Which is something that we've been working to do for a while and it is.

Strong quarter, we had strong order demand service levels improved during the quarter. We are still not satisfied we still have service opportunities that we can continue to improve there, but retail space gains with good mix.

And we benefited from a partial quarter of the price increase so underlying good consumer demand in the innerwear business and good customer reaction consumer reaction and feel good that we're on a growth trajectory on that business. If you look towards the rest of the year a lot of the retail space that we gained is going to continue.

Now benefit us from replenishment as we go forward, we're seeing good growth in hanes across a lot of channels.

Maidenform brand, which we often don't talk about enough is really benefiting from changes in consumer behavior. So as the Shapewear business continues to rise.

Consumers start to go back to normal behaviors will attending events, we're definitely benefiting from that we've got a lot of great innovation in the back half. So we mentioned a couple of minutes ago. Our total support past X temp, which is going to be launching and we're very excited about that and had some good early reads.

School look strong and we are going to <unk>.

80% more inventory in the floor than we did a year ago. So we're starting to build.

That inventory right now so we feel good about innerwear for the rest of the year and we think we'll be at the high end of the prior guide for Innerwear, and I think that will continue to grow there's tough comps, obviously that we have to get over Q2 toughest comp ticket over 62% growth last year. So that's just the <unk>.

<unk> issue of how that how that product is going to.

How are we going to do overall in the market, but we feel good about the innerwear business I'm really pleased with the work the team has done.

Get us on a growth trajectory and there is a quarter over quarter over quarter issues, but in general I think that business is set up very strong for the back half of the year I guess, just just to add on the innerwear business to Steve's points.

It's toughest comparison in Q2, the gross margin rate not just for <unk>, but just in total we think is actually going to be slightly above where we were here in Q1.

But as we got the pricing for the activewear business as we've talked about doesn't start until the beginning of Q3.

And so as we get to the back half, we think theres going to be some momentum both topline and.

We will we're working to offset the cost increases that we've talked about so.

And.

Let me just touch on <unk>, joining the team I appreciate you calling that out Omar really excited to have an essay joining us as our new President Global Activewear.

Joining us.

Industry experience she has in the industry today in the activewear space a great background in merchandising E Com channel strategy, which I think is one of the big opportunities for us to continue to get smarter about channel strategy and continue to build products on a global basis and she has done all those things before.

And I think she brings a lot of experience as we go forward. So.

Excited to have her joining the team to continue to grow that business over time.

And so to clarify you guys aren't necessarily seeing the consumer feeling an impact from inflation.

And Thats and Thats.

The driver of kind of the sales outlook.

Yes at least not yet.

Thanks for following up on that the consumer is.

Taking kind of a wait and see a little bit.

We certainly had good demand in the first quarter and that demand outstripped our supply. So we definitely see opportunities as we go forward Theyre seeing interest in what we're doing so new products are doing well brands remained strong.

We're seeing channel shift that a lot of people have talked about so the consumer is.

Changing their behavior.

But as you think about our guide for the rest of the year.

Our guide is based on what the consumer is doing today and what we've experienced in the first quarter. We're not we haven't predicted consumer getting stronger and predicted consumer getting weaker it kind of a current run rate that we're operating at right now and see what that certainly hate inflation headwinds and how the consumer reacts to that.

Thanks.

Our next question comes from Michael Binetti with Credit Suisse.

Hey, guys. Thanks for taking my questions here.

Yes.

Look at the growth rates, you're guiding to for the rest of the year versus pre pandemic or 2019, I know you came today to talk about two year, but just to get a baseline that isn't.

Impacted by stimulus or Covid in any way.

It looks like there was a meaningful acceleration in the second half relative to the <unk> guidance.

That three year rate I'd love to hear a little bit more about that bridge, especially for champion I think I think we would need champion.

Given we know anywhere that a little more stable.

I think when you champion to accelerate each quarter from here, most likely to get to that guidance and I know you said Hey, we got we got order books that are positive for back to school are starting to build that now maybe just a few more thoughts like that I know I know the champion business is more of an order book business versus replenishment. So you have a little bit of visibility. There maybe you can tell us what what you know about versus what.

You are hoping happens in the second half to get to that guidance.

Michael Let me start out and then Steve you. Please fill in anything that.

So as you think about the right now the business, we had better than expected Q1 by our challenge was we didn't have.

Enough product, especially for the champion business.

And.

As we think about the back half the first thing we got to do is we've got to get better in service and we are optimistic given where we are as far as the in transit inventories and what's in the pipeline.

So I think that Youll see us improve there I think you'll see also as we said the activewear price increase doesn't kick in until the beginning of Q3, so thats going to help.

We're really optimistic about back to school because what we're seeing is we're doing much better I think we have about 18% more inventory on the floor, Steve than what we had last year.

We've got some nice innovation.

We continue to invest in marketing.

So I think we've got the space gains that it can continue to provide some momentum. So there is <unk>.

A number of things, it's not one or two things its a number of things that makes us more optimistic about the back half.

Yes.

Alright, let me just talk a little bit about champion if I could and talk about some of the things that are good things that are going on that I'm very encouraged about.

This is much stronger than it was pre pandemic, we've got really good consumer appeal and accretive margin business, but let me just peel it back a little bit for AMC.

What are some of the things that are happening that maybe I'll talk about all the time or you don't see all the time.

First of all on site.

Cited what's going on in China.

To opening new stores and Thats continues to go well. Despite the challenges that are there and obviously we have a few stores closed right now, but that's a good strategy for us continues to work well.

Our European business has seen strong growth.

In the quarter across channels.

So what's underneath that the core business there is growing well.

Continue to reach new consumers.

Growth in adjacent categories footwear continues to do extremely well in our European business and we are starting to reach in new geographies over there as we expand so.

Internationally, we're doing well.

When we campaign that we're launching around new product of soft touch.

It started off really strong again stated strategy, we're going to reach.

And we're executing against that.

We have a better pipeline of ideas and champion going forward than we've had in the past. So I think we're positioned well for not only the back half of this year, but we start to look at 'twenty. Three you start to look at 24, we feel good about it and as you mentioned bookings business.

We are confident in the bookings we have going forward. So.

Growing champion is the key part of our long term full potential strategy.

Confident that the brand can reached $3 $2 billion by 2024, and we think we have the components underlying it that will build.

To that end, we feel good about the growth.

Great.

All of that was one of the other business just a quick one I didn't hear you guys already mentioned, it but theres quite a bit of revenue in the other segment. This quarter, maybe just touch on that for one second.

In terms of the how the other segment.

Yes basically.

That includes the hosiery business includes our retail outlets and it also includes as we go forward the transition services that we're dealing with.

Innerworkings.

Soldiers.

So we're providing services to that business.

Over the next several years.

Okay.

Thanks, a lot for the details guys I appreciate it thank you.

Our next question comes from Susan Anderson with B Riley.

Hi, good morning, nice job on the quarter.

Wondering if maybe you could talk about the space gains it sounds like you gained and the Hanes brand was there also space gains in two main areas.

And then also do you expect any more as we go throughout the year maybe.

Now about the back half yet but.

But would you expect any I guess also for the Nu X temp products that will be rolling out and then also maybe if you could just talk about now what percent of cards as cotton given the higher prices, there and how youre managing that if you hedge cotton alright, youre locked in for the rest of the year and is that more of a 2023 impact yes.

Good morning, Susan so kind of like take in reverse order from cotton perspective cotton is.

High single digits percent Todd we're locked in for this year. So any changes that would show up in 2023, So that's kind of locked for this year.

The space gains something I'm really proud of and really excited about as we go forward.

Continue to see gaining incremental space. Some of those are in some really big chunks at some key retailers.

The hanes business, which has been really encouraging for that business their retailers are really responding to not only the innovation, but the advertising.

We've heard it from.

Lot of people, including ourselves so we don't spend it up behind our brand now that we're leaning in behind our big brands like Hain.

Can you say, which has been really encouraging.

<unk> business space and a few new product space. So when we launched.

PSP with X temp that comes with incremental space. So encouraged about that and that's how we can sustain that growth over time and the intimate. We're also gaining space in both maidenform and Bali at different retailers. Some of that is base. Some of that is new new products rolling out so it's encouraging to see the space gains and work.

Hard to be able to support those space gains can make sure we have the product to be able to to fill that fill the shelves but.

That's the permanent growth that youre going to see over time as we gain space, it's not promotional space its everyday space on the shelf.

Great if I could just follow up too on that.

Matt I guess that doesn't include the online digital business correct that flows through the <unk>.

Dave category, Yes.

The champion Dot com would be within the activewear part of the business.

Got it Okay and then maybe if you could just talk about the performance of the digital digital businesses in the quarter tail.

Yes, you've heard me say it before I think it's a huge opportunity for us to grow as we go forward.

Like a lot of others constant comping really huge numbers over the last couple of years.

We start to see some of that starting to some of the channel shifting.

Right, a little bit, but our online growth business. When you look at total online sales were up since 2019 as you go through the whole pandemic were up 80% much bigger business.

Champion, 60%, so some really big numbers, but that said I think we can do a lot better Susan and we built plans around doing that.

Content, they're just getting better is what we talked about all the time some of it is product and making sure. We have the right robust pipeline that I talked about earlier some of it's better in stocks to make sure we and that's why we're investing in the inventory we are investing in some of it is how we talk to consumers. We're really taking a full funnel approach because we know we convert very well, we just need to drive more traffic.

As we continue to move forward and some of that is building a better experience on our sites and making product easier to find we've made a lot of investment in personalization and search.

The experience is becoming increasingly important we're accepting more payment types delivery speed delivery tracking whole bunch of things to get us better in this space.

So I'd say, we're making progress, but not something that we are satisfied with and we still see it as a great growth opportunity improvement opportunity for us as we go forward.

Our next question comes from Jim Duffy with Stifel.

Hello, Thank you joining the call little bit late so apologize if this was addressed but the champion sales, which.

You missed during the first quarter do you expect that to be a push into the second quarter.

Thanks, Jim Good morning, So some of it is the answer and it's not a simple answer.

Some orders got canceled because we couldnt get the product in time some of it will roll into Q.

Q2, and then some of it probably even roll into Q3, so theres a lot of components to that.

We work through it but all of that is factored into our guide for Q2 and going forward, but there'll be different different pieces of it will hit different times as we go forward.

Great and then I wanted to ask on the Innerwear segment I know, it's early but do you have any indications of consumer response to pricing in that segment and are you seeing any difference in men's versus intimates.

It is early you're right in terms of go forward I think we've been really thoughtful and I would say strategic about our approach.

We've done it.

All the pricing that we put out there was accepted so we didn't have any problems passing it through to the retailers as we go forward.

I have not seen any real difference between the segments that you called out the innerwear basics and intimates business over time.

We're watching it very closely.

One of the things that we've been really working on is a much more.

Form should operate and we're deploying that in everything that we do whether it's pricing whether it be products, whether it's advertising and thinking about how do we make sure that we manage pricing for the long term.

We continue to maintain and grow the space that I was just talking about a few minutes ago, how do we continue to.

To make sure that our gaps are appropriate on the shelf. So a lot of execution and planning goes into it.

We feel good about the way it has rolled through but the short answer to your question is no.

No differences noticed between the <unk>.

Nowhere in the intimate business.

Thank you.

Yes.

Our next question comes from Ike <unk> with Wells Fargo.

Good morning, guys. This is will garner on for Ike.

I wanted to drill down like many into this into the innerwear business, it's up 35% on a two year basis, 35% plus on a two year basis. I guess first can you breakout how much of that growth is units versus price and then secondly, how.

Much of that growth is organic versus new shelf space.

Yes.

It's hard to break out organic versus shelf space as we go forward, but.

Definitely getting or Theres definitely organic growth because we havent gate space in every single retailer and we can certainly see as growth of that.

Is going on.

But as we look at the volume that we had to drive the last year. So go back to last year for segment when we came out with.

Year to date to today, when we launched our full potential plan last year, we gave a forecast for the rest of the year, we ended up doing more than $500 million more in the back half of the year now with unit volume driven that we had to match up its one of the challenges we have right now and inventories were trying to catch up on all of that inventory that we depleted because there was such a <unk>.

<unk> demand.

Going forward. So we are definitely seeing volume movement in the <unk> business in a way that we haven't seen historically, so we're going to continue to.

Peter try support that demand, so we're seeing consumer demand, which is driving volume.

Youre going to see us continue to innovate and drive a lot.

<unk> into the market to make sure that we continue that over time and from a pricing perspective, the prices really just began in the middle of.

Q1, so all.

All the growth we've seen to date really hasnt been pricing driven it's been volume driven.

Obviously, the health of the business over time, we need to continue to drive the units.

Do that with inventory space to do that with innovation.

With just better execution at the shelf and those are all things that we're focused on going forward.

That's why the business is growing.

Thanks.

Our next question comes from Jay sole with UBS.

Great. Thank you so much Steve would it be possible to elaborate a little bit on what youre seeing in the mass channel, specifically Walmart and target. Thank you.

I tend not to only talk about would be too narrow in how we talk about different different retailers, but let me talk maybe a little broadly about what we're seeing in brick and mortar and how we're managing it and what's going on.

We're not the only ones to say this but if you look in the last quarter.

It's been a bit of a shift back from digital back to brick and mortar so brick and mortar is reviving a little bit coming out of COVID-19 changing consumers' behavior a little bit.

Aerospace changes that are going on at brick and mortar.

As we go forward and we're capturing those as retailers are readjusting their.

Layouts.

Their brand mix as we go forward, so gaining space across those categories is true.

All the channel for us.

Again, not particular retailers, but all the channels are performing well and we're gaining space across all those channels, we're seeing good traffic to our sections of the store across all those channels.

But when you look at.

Matt Matt specifically.

Well positioned there.

It's a very important part of our business.

Very good partners for us.

As I said, we've gained their space there in all channels.

Really mass, where we're doing well.

Got it okay. Thank you so much.

Our next question comes from Paul Lajoie with Citi.

Hey, everyone. This spring shoot them on for Paul I was wondering if you could talk a little bit about the.

Pricing environment, what you're seeing from competitors and specifically.

Specifically.

Price gaps relative to private label.

Yes so.

<unk>.

Yes.

Obviously, a lot of pressure on everyone from a cost perspective right now.

People looking to.

That's through price.

I talked a little bit of covenants with our philosophy on pricing.

Obviously, we manage price gaps, we manage our costs, but we also manage for the long term and how we think about it.

We're not going to take short term actions that could challenge the business in the long term from share space perspective. So.

We see most people taking price it's rolling out right now, it's not necessarily consistent at the shelf as it goes forward, we what's a private label price gap very closely.

We've seen pricing in private label, we see pricing and other brands.

We've been very open that we have taken pricing, but it is something that we watch closely over time and we will manage as we go forward because we're going to continue to gain share will continue to gain space at the shelf and thats, how the kind of philosophy that we put in place.

Yes.

Got it understood and I was wondering if you could share just how much of your.

Freight is on contract are you doing more on spot than you were previously.

What's your outlook for the back half as well.

So for the back half about 80% of our freight costs are locked in at prices that are lower than the last 12 months. So we feel good that we've kind of balance that out there right now.

Just redone a lot of contracts at this time of year. So most of it for the year is locked in at this point.

Got it very helpful. Thank you and good luck.

Thank you.

Our next question comes from Paul Cooney with Barclays.

Hi, everybody. Thanks for taking my question.

I think.

I think on the call you mentioned, an additional $75 million of the additional savings initiatives can you just comment where the incremental savings are coming from and then second to that I think within the quarter SG&A came in a little bit lighter from where we were expecting can you just comment.

Okay.

Where some of the savings intra quarter came from one last year.

Yes.

Paul This is Michael why don't I start it in.

Steve you can jump in.

As you think about the $75 million, it's essentially the same.

Categories that were working on across the business as it relates to the full potential plan right because.

We know that we've got to be.

Transform the cost structure here, so that we can make all the investments we want right because we know we want to invest in media, we never want to invest in technology.

And so it's everything things that impact cost of goods sold whether its supplier.

Holiday <unk> in terms of sourcing things like that.

It's being disciplined on corporate overhead we had an early retirement program there and Thats translated to savings if you think about.

As we as we looked at this year, we knew we had some headwinds.

Is it related to distribution costs because here in the U S right, we have wage inflation.

In the second half of last year, we had to increase the wages and I'll give the supply chain team shout out because they did a really nice job of offsetting that all of it. We did we are deleveraging on distribution costs, but they did offset more than what we expected in terms of productivity improvement. So it's just it's <unk>.

One particular item its just across a whole bunch of different areas.

Just let me just build on that a little bit because I think it might be right.

Step back and you think about what we've been doing on cost right. When we launched the full potential plan, we talked about cost savings, we talked about offsetting investments we've been making good progress the savings today, we've got about $60 million and then this new headwind came at US right. Just 12 weeks ago, we werent thinking about these levels of inflation that we're dealing with right now so.

We identified $140 million of cost pressure in the back half you mentioned the $75 million.

Incremental savings and that's just a great job by the team to be able to react that quickly.

Michael mentioned some of the key things a couple of others that I am excited about we're becoming a much more data driven company and using that to make better decisions and how we negotiate and make choices.

Heard in the remarks earlier around.

Doing things like direct ship to vendor skip flows, which is taking out a lot of costs.

Managing our retail portfolio better than we have in the past.

Vesting sustainability.

Projects, which you are taking costs out of our systems. So a lot of different things there that are driving $5 million, but my point stuff, we would do anything with doing more than we do it faster so the organization's reacted.

The second part of your question around SG&A I think what we've proven over the last year and a half is that right.

Manage SG&A pretty well.

And we're taking out cost has it's smart to do it we talk a lot about we're going to cut to fatten up the muscle and how we run the company. So we're still investing in the business, we're still making the investments that we talked about in technology behind our brands behind our people.

That's all continuing.

And we're just finding the right offsets as we go forward.

Very helpful. Thank you.

Our next question comes from David Swartz with Morningstar.

Yes. Thanks for taking my question can you talk a little bit about marketing for Innerwear I was wondering as you have some plans for new marketing for champion with a new president coming in.

The division and.

Also as Youre planning to.

Do some marketing behind the new champion footwear.

Sure marketing is going to be increasingly important for us.

I started here not too long ago, we were spending roughly 2%.

On a marketing basis, our goal over time is to be at least 4%. So we're climbing to get there and we're not there yet but.

Judicious and prudent way as we go forward.

In terms of Innerwear, youre going to see a lot of support behind the new PSP program.

That was <unk>, so theres advertising launching that right now both straight line online in store, we're going to lean in behind that and because we've had good reaction and good performance last year. When it was just DSP.

The extent, we can see it continues to build on that and we're doing that globally, we always kind of focused on the U S here, but the.

The fact that we've been able to launch PSP with X temp in Australia under our bonds brand at the same time and do a global launches of new capability for us and they're going to be spending behind that and making good investments.

On the G&P side of the business I mean, we're investing right now our win with women campaign that is really just launched and the idea behind.

Focusing on more in talking to younger women and building that relationship with the brand is something that we think is very important to us. It's something that we think we're well positioned to do and we're matching it up with the new soft touch product that's out there. So there is a good combination out there.

As our new President comes in I expect us to continue to continue to invest continue to build upon the brand.

If anything moved faster than we have in the past and do bigger things.

That concludes today's question and answer session I would like to turn the call back to T. C Robillard for closing remarks.

Now we'd like to thank everyone for attending our call today, and we look forward to speaking with you soon have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Great.

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Good day, and thank you for standing by welcome to the Hanesbrands first quarter 2022 earnings call.

At this time, all participants are in listen only mode.

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

To ask a question during the session you'll need to press Star then one on your telephone keypad.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to your host T. C. Robillard. Please go ahead.

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 first quarter of 2022.

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

The news release updated Faq 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 risks also include those detailed in our various filings with the SEC, 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.

With me on the call today are Steve Brad fees, our Chief Executive Officer, and Michael <unk>, Our Chief Financial Officer for.

For today's call, Steve and Michael 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 T C.

Everyone and welcome.

Hanesbrands delivered strong first quarter results with sales operating profit operating margin and earnings per share all exceeding the high end of our expectations.

We also made continued progress on our full potential plan to <unk>.

Transform hanesbrands inter consumer centric growth company.

I'm extremely proud of the work our global team has done we continue to demonstrate our ability to both run the business and change the business at the same time.

Despite one of the most challenging operating environments in decades, our team continues to deliver results underscoring, our resiliency and proven ability to execute.

Theres a tragic war in eastern Europe inflation continues to hit new highs, putting additional pressure on cost and consumer budgets.

Colby continues to create new headwinds to both demand and supply chain logistics.

In fact, these challenges reinforce our strategy is right for.

For our company to thrive, we must make our planned investments to drive accelerated and consistent growth and returns.

There are no shortcuts and challenging macro environments or actually the ideal time to lean in and execute long term strategies.

We're confident we can achieve our 2024 financial targets. These include growing total company revenue at a 6% CAGR to $8 billion growing.

Growing innerwear sales at twice the category rate.

Growing champion sales at a 14% CAGR to $3 2 billion.

And expanding operating margins to 14, 4%.

Our full potential plan is on track and I'd like to spend a few minutes updating you on the progress we've made to date.

In terms of growing sales, we're seeing good initial results from our strategy in.

In 2021 full year revenue increased 9% on a constant currency basis or 26%, excluding PPE and we ended the year with sales meaningfully above pre pandemic levels in the first quarter of this year. The strong growth continued with sales increasing 7% in constant currency as we were.

Able to positively comp last year's strong 25% growth.

We're committed to our full potential plan to grow champion and reignite growth in anywhere.

And to do that we're taking a two pronged approach centered on energizing the core and adding more.

With respect to our core we have iconic brands strong consumer franchises and distribution scale.

The company historically has not fully leverage these strengths.

We see significant growth opportunities in both innerwear and activewear simply by energizing our core.

We'll do this through consumer driven product design by delivering category, leading innovation and improving on shelf execution at retail.

We've made a lot of progress over the past year.

We've coordinated product design globally, we've improved our processes, we've removed internal barriers and we've accelerated our speed to market.

A good example of energizing the core is the newest version of our Hanes total support patch product the.

The innovation platform has driven increased engagement with younger male consumers.

And we've built on the success by launching a new platform that includes our X temp technology to provide cooling and wicking benefits. We also leveraged our global operating capabilities to simultaneously launch this product in the U S and Australia supported by coordinated regional marketing campaigns.

I am pleased with the early benefits, we're seeing from energizing, our core but what I'm really excited about is the robust product innovation and pipeline that we've developed over the past year as part of our full potential work.

This is the broadest pipeline of Innerwear and champion products. The company has had in decades positioning us for continued growth in 2023 2024 and beyond.

In addition to energizing our core we're also driving growth by adding more.

This is a focused initiative grounded and disciplined brand management, we see specific opportunities to grow sales by reaching new consumers as well as expanding into new usage occasions adjacent categories and new geographies.

We've made progress across each of these opportunities over the past year.

Looking specifically at champion we continued our expansion in China, adding new stores in the quarter through our partners.