Hanesbrands Inc.

Good day and thank you for standing by. Welcome to the Haines Brand's fourth quarter 2022 earnings conference call. At this time, all participants are in a 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. 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, Vice President of Investor Relations. Please go ahead.

Good day, everyone, and welcome to the Hanes Brands Quarterly Investor Conference Call and Webcast. We're pleased to be here today to provide an update on our progress after the fourth 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 haines.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 current macroeconomic conditions, consumer demand dynamics, the inflationary environment, cybersecurity, and our previously disclosed ransomware incident, and any ongoing impact of the COVID-19 pandemic. These risks also include those detailed in our various filings with the SEC, which may be found in 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. Any references to 2019 reflect rebase 2019 results consistent with prior disclosures and can be found on our Investor Relations website. With me on the call today are Steve Raspies, our Chief Executive Officer, Michael Dastu, our Chief Financial Officer, and Scott Lewis, our Chief Accounting 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. For the quarter, Hanes Brands delivered sales that were above the high end of our forecast, and adjusted operating profit and earnings per share that were essentially at the midpoint of our range. I'd like to start by thanking all of our associates around the world. The global operating environment has been anything but easy over the last three years. However, despite the significant volatility and uncertainty, through their dedication and hard work, we've been able to deliver for our consumers, serve our retail partners, and continue to progress on our full potential plan. I'm both grateful and proud of their tremendous efforts. While I'm pleased we delivered on our guidance under difficult operating conditions, we expect the macroeconomic challenges impacting consumer demand and the lingering pressure from inflation to continue in 2023, particularly in the first half. Consistent with the mindset we've adopted since my first day, we're not standing still. We'll continue our proactive approach, remain agile, and continue to adapt. Focusing on the things we can control and taking action allows us to manage through short-term challenges while at the same time continue to implement our long-term transformation strategy. To that end, there are three important topics I'd like to discuss today. First, the near-term actions we're taking toward reducing our leverage and strengthening our balance sheet. Second, the path to higher margins and operating cash flows as the year unfolds, including actions to mitigate near-term macro-related challenges. And third, an update on the implementation and progress of our full potential plans. Let me walk you through each of these, beginning with our strategic actions to strengthen the long-term financial foundation of the company. Today, we announced we're shifting our capital allocation strategy, eliminating the dividend, and committing to reducing debt. To be clear, investing in the business and our full potential growth plan remains the priority for capital allocation, and we believe we are well positioned to fund these investments through operating cash flow. What's changing is the allocation of our free cash flow, which will now fully direct toward accelerating debt reduction. This decision was not made lightly, and we believe that a meaningful reduction in our debt will drive significantly higher shareholder returns long term. We also updated our credit facility amendment to provide greater near-term flexibility given the uncertain macroeconomic environment. Michael will discuss this further in his section. In addition to these actions, we expect to refinance our 2024 maturities in the first quarter of this year, subject to market conditions. Turning to margins and cash flow. We see the path to higher margins and operating cash flow as the year unfolds. The lower cost inventory we're currently producing should begin to hit our P&L in the second half, particularly in the fourth quarter. Will anniversary last year's timeout costs and we're well positioned to benefit from the actions we're taking to help mitigate the near-term macro-related challenges. Looking at our mitigation actions, last year we set an aggressive target to reduce our inventory units by the end of 2022, which we accomplished. This created a short-term drag on second half gross margins as we took time out in our manufacturing facilities. However, by taking this action, we believe we're well positioned to release working capital and drive operating cash flow this year. We also began and expanded upon a number of cost savings initiatives, including exiting unproductive facilities, consolidating sourcing vendors, and aggressively managing SG&A. Looking to 2023, we're building on these initiatives with additional cost reductions as well as prudent investment management. We reduced corporate headcount in January. We're expanding our savings actions across our procurement operations, including contract and renegotiation. and we're strategically managing our investments to align with the current macro environment, just to name a few. We believe the combination of these actions positions us to generate approximately $500 million in operating cash flow in 2023, to exit the year with a meaningfully higher run rate for both gross and operating margins, and to operate even more efficiently, which unlocks long-term growth. Lastly, I'd like to touch on our full potential plan. Our long-term strategy is fundamentally unchanged. The plan we're executing is right, and our long-term financial targets remain. However, given the realities of the near-term macroeconomic and consumer demand environment, our timetable has shifted to the end of 2026. Though the timeline has shifted, we're confident in our ability to deliver $8 billion of sales and a mid-14% operating margin. Our confidence is reinforced by the improvements we've made in the way our business operates. We've added new capabilities across the organization and exited non-strategic businesses. We've enhanced our inventory and demand planning processes, as well as streamlined our innovation process in Interware, which began to bear fruit with the launch of our Hanes Originals product. We've improved the go-forward efficiency and effectiveness of our supply chain. We reduced global SKUs by 45% since 2019, as well as exited unproductive facilities. We're consolidating distribution centers and we're generating high single-digit savings rates in our sourcing and procurement operations. Plus, we're continuing our technology investments to improve our data analytics, drive global integration efficiency, and ultimately lower costs. We've also changed leadership in our global activeware business. The new team is moving fast. They're streamlining the operating model, including global coordination of product design and merchandising, increased speed to market, and portfolio simplification. This, in turn, is expected to drive a more focused global product and channel segmentation strategy that provides greater clarity to retailers and consumers, as well as improves the long-term health of both the Champion and Hanes activewear brands. It's also expected to build the right foundation to drive revenue and margin growth well beyond the timeline of our full potential plan. We've accomplished a lot. There's no doubt that we're a better, more disciplined operating company today than we were just two years ago. But we're not done, and we'll continue to make progress this year. So in closing, we'll continue our proactive approach, remain agile, and continue to adapt to serve our customers, innovate, and reduce costs while continuing to execute our long-term transformation strategy. We're making progress, and we see the path to improving cash flow and margins as the year unfolds. Before I turn the call over, I want to take a moment to thank Michael for his contributions to Hanes Brands over the past two years. He's been instrumental in the progress we've made to unlock our full potential. Michael's been a great partner, and I respect his desire to spend more time with his family. To that end, I'm pleased to have Scott Lewis step back into the interim CFO role. As you all know, Scott held this role before Michael joined the company and performed extremely well. I'm confident in Scott and our entire finance team as we move forward. So thank you both, Michael and Scott. And with that, I'll turn the call over to Michael.