Hanesbrands Inc.

Good day and thank you for standing by. Welcome to the second quarter 2022 Haines Brands Earnings Conference 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 1 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, T.C. Robillard. VP of Investor Relations. Please go ahead.

Good day, everyone, and welcome to the Hanes Brands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the second 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 investor section of our Hanes.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, as well as current macroeconomic conditions, consumer demand, the inflationary environment, and cybersecurity, including risks regarding the ransomware attack announced May 31st. 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 Bradsbys, our Chief Executive Officer, and Michael Dastu, our Chief Financial Officer. For today's call, Steve and Michael will provide some brief remarks, and then we'll open it up to your questions. I'll now turn the call over to Steve.

Thank you, TC. Good morning, everyone, and welcome. Despite Q2 being a disappointing quarter, I want to thank our committed Haynes Brands associates around the world for everything they're achieving in this difficult operating environment. We continue to work toward and make progress against transforming Haynes Brands into a consumer-centric growth company. For today's call, I'd like to touch briefly on the quarter, including the unexpected cyber event and external factors that negatively impacted our performance. Next, I'll discuss our outlook for the rest of the year before providing an update on our full potential growth strategy. Then I'll turn the call over to Michael to provide greater detail. As you've heard through this earnings season, the global operating environment deteriorated in the second quarter. Inflation continued to impact product costs and increasingly weighed on consumer demand. COVID remains a headwind in parts of Asia, and inventory has built up in pockets at retail. all of which drove softer than expected point of sale trends in the quarter. Adding to these macro headwinds was the unexpected impact from the previously disclosed cyber event, which disrupted our global operations in late May. As a result, our second quarter performance was below our expectations. While profit margins were in line with our forecast, sales and profits were below our guises. And we ended the quarter with more inventory than planned, which is creating a near-term drag on cash flow. That said, our team did a great job recovering from the cyber event, which temporarily shut down parts of our global supply chain network and limited our ability to fulfill customer orders for nearly three weeks. And despite the disruption, we shipped all of our Interware back to school commitments on time and in full. Absent the cyber event, we estimate second quarter sales would have still been below our guidance. However, operating profit and earnings per share would have been at the high end of our guidance range. To be clear, we're not satisfied with our performance in the quarter. That said, as an organization, we're not standing still. We remain nimble, we're continuing to execute our long-term growth strategy, and we're staying focused on controlling the things that we can control. Today, we have plans in place to bring our inventory levels down. We're confident in the quality of our inventory, given the vast majority is replenishment interwear products. And we expect to end the year with inventory units below prior year. We continue to invest in our brands globally, as well as our technology and our talent. We have a solid track record of managing SG&A, and we'll remain disciplined in managing expenses without sacrificing investments in our full potential plan. And we'll continue to search for additional cost savings opportunities. Looking at the back half of the year, we reduced our sales and profit outlook to reflect the changes in FX rates, the short-term costs associated with our inventory reduction actions, as well as an assumption that slow consumer demand continues and the retail environment remains challenging. While our estimated reduction may prove to be conservative, we felt it was prudent, given the softer-than-expected point of sales trends in the second quarter and the overall macro environment. That said, we're convinced we have the right long-term strategy. We're hearing it from our consumers, our suppliers, and our retail partners, and we remain steadfast in executing our full potential plan. We're acting more like a global operating company. We're beginning to move with speed, and we're seeing evidence of this around the globe in our Interware, Champion, and Supply Chain initiatives. Touching on each of these, I like how we've consolidated design globally in Interware. We're starting to see results with new innerwear products and innovation, and we're driving retail space gains. I'm very pleased with how our total support patch with Extemp is performing, both in the US and Australia. This is the first time we've launched innovation globally and supported it with a global marketing campaign. Our retro rib product from Australia was launched in the United States under the Hanes brand and is exceeding our expectations. Our top customers are very pleased with the consumer response and we expect to gain additional retail space. We're also building innovation platforms around absorbency. We believe this is a meaningful opportunity under our Hanes and Bonds brands, with lots of different usage occasions, ranging from adult and child absorbency to post-pregnancy needs for women. And this is just the start. Our product and innovation pipeline is full. We have a lot of big ideas across our basics and intimates brands that we expect to drive continued retail space gains. I look forward to sharing more of our innovation pipeline toward the end of this year and into 2023. Turning to our Champion business, we continue to invest in the brand globally. As we highlighted at our investor day last year, Champion is a big part of our full potential plan. We see significant growth opportunities through the expansion of our women's and kids' businesses, the expansion in new markets such as China, as well as into adjacent product categories, including footwear. Specifically, footwear in North America represents an expanded opportunity. We purchased the Champion trademark for footwear in North America in the quarter. This purchase adds to the control we have over the Champion brand and product globally. It will give us greater speed to market and the ability to have a more integrated and collaborative approach with our apparel offerings. I saw this opportunity firsthand in May as I traveled and spent time with the Champion Europe team. They have amazing head-to-toe product that comes to life in a great retail shopping experience. I came away from the trip excited about our European operations, and I saw significant opportunities to leverage our global capabilities for the Champion brand. We can build on our footwear success in Europe and Asia to address the U.S. market. And more broadly, we have a big opportunity to coordinate design, product development, and merchandising globally. During the quarter, we also continue to invest in our Champion distribution network as we consolidate down to two wholesale Champion DCs. This will simplify our distribution model, create efficiencies, lower costs, and improve retail service, as well as support the future growth of Champion in the U.S. And lastly, we're in the early stages of executing our full potential supply chain strategies to build on our advanced position as well as balance speed, cost, and flexibility to enable faster top line growth and higher margins over time. These efforts involve segmenting our supply chain and the previously mentioned DC consolidation work we're doing in Champion. In addition, we also began direct shipping interwear product from our Central American manufacturing facilities to certain wholesale customers in the U.S. This initiative leverages our scale, saves time, and reduces costs for both us and our retail partners. We're also on track to go live this month with our new West Coast DC to support our direct-to-consumer business. Plus, we began adding additional automation to several DCs. This includes the addition of robots and sortation systems, which will help improve picking and sorting speeds while also lowering costs. So in closing, the macro environment remains extremely challenging and is weighing on near-term results, but our team is focused and we're not standing still. We're executing our full potential growth strategy of consumer centricity, simplification, increased speed, and building digital capabilities. We're controlling the things we can control and we're delivering innovation. We have the biggest and most robust pipeline of new products and innovation in decades. These products are rolling out. They're testing well with consumers and retailers. They're driving retail space gains, and there's a lot more coming as we head into next year. As we look forward, we're convinced our strategy positions us to deliver revenue and profit growth with consistent cash flow over the next several years. And with that, I'll turn the call over to Michael.