Hanesbrands Inc.

Good day, ladies and gentlemen, and welcome to the Haynes Brand's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the 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 touchtone 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 today's conference is being recorded. I'd now like to hand the conference over to your speaker today, TC 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 third quarter of 2023. 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 current macroeconomic conditions, consumer demand dynamics, our ability to successfully execute our strategic initiatives, including our full potential transformation plan, the champion performance plan, and our evaluation of strategic alternatives for our global champion business, our ability to deleverage on the anticipated timeframe, and the inflationary environment. 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 Bratsbys, our Chief Executive Officer, and Scott Lewis, our 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'll now turn the call over to Steve.

Thank you, TC. Good morning, everyone, and welcome. Last quarter, we walked through an assessment of our strategy and how we are continually pressure testing it, looking at what's working, where we need to improve, adapting our plan to match the near-term realities of the operating environment, as well as looking at additional options to enhance shareholder value. As we assess our progress to date and look at the path forward, we've outlined four drivers to unlock shareholder value creation. One, return gross margin and operating cash flow to historical levels. Two, pay down debt. Three, reignite our interware business. And four, regain momentum and refocus our champion business, which now includes an evaluation of strategic alternatives. As it relates to the first three drivers, when we came into the year, we spoke about our expectations for a muted consumer demand environment, which we've seen pressure the top line. However, despite this expectation, we laid out several key performance metrics with specific goals to track our progress throughout the year. In the third quarter and year to date, as a result of the team's ongoing focus and efforts, we have made meaningful progress across each of these metrics, and we remain on track to achieve our year-end goals despite the increasingly challenged sales environment. Specifically, adjusted gross margin increased 190 basis points sequentially and 100 basis points over prior year ahead of our expectations. And with visibility to input costs on our balance sheet, we're on track to exit the year with adjusted gross margins in the high 30% range. We reduced inventory 17% sequentially and 29% compared to prior year as we continue to implement and build our capabilities around inventory management, demand planning, as well as skew discipline and lifecycle management. We've generated nearly $290 million of operating cash flow year to date and remain on track to deliver approximately $500 million for the full year. We paid down another $144 million of debt in the quarter and nearly $270 million year to date, keeping us on track to pay down more than $400 million of debt for the full year. And in terms of our interware business, we've regained momentum as we continue to execute our strategy. We're delivering consumer-led innovation, investing behind our iconic brands, and leveraging our competitive advantages to gain market share. While the total interwear market was down 3% in a quarter, our interwear sales were consistent with the prior year period as we gained market share, driven by younger consumer-focused innovation, permanent retail space gains, a successful back-to-school campaign, and better on-shelf availability as we leveraged our data analytics capabilities to help our retail partners improve sales and working capital efficiency. Touching on our innovation, we're seeing strong consumer response to our new products, and our pipeline is now full, providing us visibility to new product launches through 2025. In a quarter, we saw continued success of our Hanes Originals line, which is not only driving market share gains, it's also increasing our penetration with younger consumers. In Australia, we launched an anti-chafe innovation within our Bonds brand, which is off to a strong start, particularly in women's. And last month, we launched M by Maiden form across channels to, again, capture younger consumers with new, modern designs and colors. We're encouraged with the momentum in our interwear business, and we believe we're well-positioned to continue to gain market share and improve margins. Turning to our global champion business, While we continue to experience near-term top line challenges, including the difficult consumer environment, we are progressing on a number of strategic initiatives designed to build brand health, recover top line momentum, and drive long-term profitable growth. Since our last call, we announced that we're evaluating strategic alternatives for that business. We've made significant structural improvements to Champion, such as segmenting and streamlining our supply chain, establishing globalized product design, as well as implementing a new discipline channel segmentation strategy. These improvements have highlighted an even greater distinction between our interwear and activewear businesses. This has created the opportunity for us, in conjunction with the Board, to evaluate options for the global champion business that could accelerate shareholder value creation. While still very early in the process, we continue to evaluate the right path forward as we receive strong initial interest from a broad group of global partners. We do not intend to provide continual updates on this process. However, as always, we'll be transparent and update you as appropriate when there is news to share. Irrespective of the outcome of this evaluation, we are leaning into and executing our detailed champion plan for product, marketing, distribution, and operations. We remain highly confident and committed to reaching the significant global potential of the brand. During the quarter, we completed several strategic actions and champion business related to inventory cleanup, store exits, and operational streamlining that Scott will speak to in more detail. In addition, we continued our efforts to position Champion for growth by improving our product offering and channel mix, driving our channel segmentation strategy, and working to strengthen Champion's brand position with new marketing ahead of the launch of our fall-winter 2024 product line, which is our first global line from the new team. In fact, as we conduct our account meetings for our fall-winter 2024 line, we've received consistent positive reviews, particularly around the elevation of the product and our focus and connectivity to the brand's heritage. And we believe we have opportunities to further increase our distribution in key channels. We're also successfully reigniting brand heat, driven by our good progress with pinnacle product offerings and accounts. While small in volume, these programs can generate a big and meaningful brand halo effect. Success in this channel is a leading indicator. Product being purchased by the most influential and engaged consumers over time leads to wider consumer desire and ultimately drives distribution opportunities in larger volume accounts. To that end, we launched successful collabs with key accounts, driving brand awareness and increased brand interactions with consumers, and we're encouraged by our robust calendar for additional future collabs. Small back-to-school product offerings at two key specialty accounts in the U.S. drove strong double-digit sell-through rates, an indication that our new product direction is resonating with consumers. We're seeing space gains and increased order backlogs within Pinnacle accounts around the world, driven by our new brand and product vision. And we're seeing a meaningful uptick in brand consideration among the key 18- to 24-year-old demographic, driven by our new brand campaign. We're confident we're taking the right steps to drive the long-term success of Champion, and the initial green shoots we're seeing within our Pinnacle accounts are encouraging. However, as previously discussed, it's going to take some time for these strategic actions to translate to the P&L. So in closing, we continue to make progress despite the challenging sales environment. We're seeing improvement across our total company key performance metrics. Gross margin and operating cash flow are returning to more historic levels. We're reducing inventory and costs, and we're paying down debt. In Interware, we are gaining share. Our innovation is resonating, especially with younger consumers. And we're taking the right steps to drive champions' long-term success while we continue to evaluate alternative value creation opportunities. And with that, I'll turn the call over to Scott.