Hanesbrands Inc.

Good day and thank you for standing by. Welcome to the Haines Brand's fourth quarter 2023 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 host today, TC 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 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 Brathbys, 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 to our call. 2023 was a year marked by various challenges and hurdles, but also progress in a number of areas. We experienced a sales environment that was even more challenging than our cautious view, particularly within the US active wear market and in Australia. And this drove sales, operating profit, and EPS results that did not meet our expectations for the quarter and the year. While we are not at all satisfied with our results, we've seen several positive indicators that demonstrate progress in our strategy and give us confidence that our margins and our leverage have reached an inflection point. Despite the top line headwinds, we continue to strengthen the foundation of our business in 2023. The actions we've taken to simplify our business, reduce inventory, cut costs, and reignite interware are working. And we're beginning to see the initial benefits of these actions in our results. We returned gross margin to preinflation levels as expected. We exited the year with gross margin of 38%, a 400 basis point improvement over prior year. We reduced inventory by more than $600 million, unlocking working capital as planned. We returned operating cash flow to its historical $400 to $600 million range. For the year, we generated $562 million of operating cash flow, exceeding our plan. We paid down more than half a billion dollars of debt, which was $100 million ahead of our debt reduction target for the year. We eliminated more than $45 million of fixed cost spread across cost of goods and SG&A. And we gained market share across our U.S. interware business, leveraging data analytics to drive better on-shelf product availability and successfully delivering our largest innovation launch in decades. Looking into 2024, we expect the challenging sales environment to continue, particularly in Q1, which Scott will discuss in a moment. That said, we're confident we can build on our progress this year. With visibility to input costs on our balance sheet and cost savings actions in our supply chain, we expect continued year-over-year improvement in gross margin. We expect another year of strong cash flow, driven by expected recovery in profit margins and the additional opportunities we see for working capital improvement. We plan to pay down another $300 million of debt this year as we remain committed to using all of our free cash flow to reduce debt. And the expected combination of debt pay down and EBITDA growth, we expect to further reduce our leverage in 2024. And we expect continued market share gains in Interware as we roll out another record year of innovation including plans to increase our brand strength and marketing investments. Now, let me provide an update on Champion before finishing with some thoughts on our Reignite Interwear Strategy. We continue to aggressively implement our Champion Performance Enhancement Plan to strengthen the brand and position Champion for long-term profitable growth. We went into the execution of our champion strategy with a full understanding that these long-term strategic actions would create real top-line headwinds in the short term, which we're seeing play out. And not surprisingly, these headwinds have been compounded by challenges within the activewear apparel category over the past year. The combination of these two factors drove a 23% year-over-year decrease in global champion sales in the quarter. Despite the top line pressure, we're progressing on a number of our actions to strengthen the brand. We're cleaning up our inventory in the channel. We're implementing a disciplined product and channel segmentation strategy with a focus on our fall-winter 2024 offering. We're building brand heat within our pinnacle product and account offerings. And we're gaining traction with our global Champion What Moves You marketing campaign with plans for increased marketing investment this year. We're confident we're taking the right steps to drive the long-term success of Champion. However, as we've previously stated, it'll take time for our strategic actions to translate to the P&L. With respect to our review of strategic alternatives for the Global Champion business, which I know is top of mind, the process is progressing as expected. We continue to evaluate the right path forward as we've seen strong interest from a broad and diverse group of global parties. And while there's nothing specific to add at this time, we remain committed to updating you as appropriate when there's news to share. Next, I'd like to pivot the discussion to our Reignite Interware Strategy, which continues to gain traction and build momentum. Recall when we laid out our strategy a few years ago, our interware business in the US had been consistently declining and losing market share. With our Reignite Interware Strategy, we said we'd shift this business to growth and market share gains over time. And we do this by delivering innovation that consumers wanted, by increasing brand marketing investments, by bringing younger consumers into our brands, and by making our products available where, when, and how consumers wanted to shop. We've made significant progress on executing this strategy. We've globalized our design process. As a result, we're now launching cross-category, cross-geography products. and we have a robust innovation pipeline that provides visibility to new product offerings through 2025. We've improved our speed to market across a large portion of our products, with the lead time from design to on-shelf availability shortened by 30%. We've become more efficient with our inventory. We've significantly reduced SKUs to focus on higher velocity, higher margin SKUs, as well as make room for innovation products. We've leveraged our advantage global supply chain to further improve our cost structure. And we've built our global talent. And we're seeing this translate to our interwear results. Our U.S. interwear sales have grown at an approximate 2% compound annual growth rate over the past four years. Certainly, the market has seen significant swings over this time, which we continue to experience. But over time, we believe this is a stable category with stable consumption patterns. We are gaining market share, which is the best indicator of future growth during challenging market environments. In the fourth quarter, we gained additional market share with both men and women in the U.S., with the strongest share gains coming from younger consumers. In fact, in the back half of the year, each one of our interwear categories gained share with younger consumers. We returned to historical segment margins while supporting higher levels of marketing investments. We're successfully delivering innovation, 2023 was our most successful innovation year in decades. Hanes Originals was the largest innovation launch in our history, spanning multiple product categories and five countries. We also built on our absorbency platforms in both Australia and the US. And we launched M by Maiden form in the fourth quarter, which we'll support with a media campaign this year. And looking at 2024, we have a robust pipeline of new product launches, including Hanes SuperSoft, Bonds Anti-Chafe, and BallyBreathe. We believe these innovation launches, along with our planned increased investment in brand marketing, position us well to continue to grow share, especially with younger consumers. As I close, I'd like to take a moment and thank the entire Hanes Brands team. Your agility, teamwork, and passion are the reason we continue to make progress on our transformation journey, despite the headwinds we face. 2023 had its challenges, especially with respect to the sales environment. However, it also had many successes. We're making progress on our champion performance enhancement plan. The actions we've taken to simplify our business, reduce inventory, cut costs, and reignite interwear are working. We reached the key milestone with a positive inflection of our margins and our leverage. And though we expect another challenging sales environment in 2024, We have solid visibility to be able to deliver continued margin improvement, strong cash generation, further debt reduction, and continued market share gains in InnoWare. And with that, I'll turn the call over to Scott.