Hanesbrands Inc.

Good day and thank you for standing by. Welcome to the Haines Brand's first quarter 2024 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 T.C. Robillard, Vice President, Investor Relations. Please go ahead.

Good day, everyone, and welcome to the Haynes Brands 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 2024. 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 Haynes.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. 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 Bratskis, 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 will now turn the call over to Steve.

Thank you, TC. Good morning, everyone, and welcome to our call. Haines Brands delivered solid first quarter results with sales at the midpoint of our outlook, better than expected operating profit, positive cash flow generation, and further reduction of our leverage. The year is unfolding as anticipated, and given our strong visibility to our operating profit and cash flow guidance, we reiterated our full year outlook. In addition, we further strengthened our market leadership position in Interware. We continued our progress on Champion, and with a positive inflection in margins and our lower fixed cost structure, we believe we're well positioned to accelerate earnings growth and further reduce debt, putting in place a flywheel for shareholder value creation over the next several years. For today's call, I'll briefly touch on our Interware and Champion businesses. Then, I'll discuss the value creation opportunity we see ahead of us. Looking at our global interwear business, as expected, apparel sales globally remain under pressure as stretched consumers limit their spending. However, despite the headwind, we focused on strengthening our market-leading interwear businesses, and our strategy of consumer centricity is working as we gain share and outperform the market. We're launching new consumer-led innovation, including Made in Form M, Bonds Chafe Off, and the second phase of our successful Hanes Originals platform called SuperSoft. With our robust product pipeline, we expect 2024 to be another record year of innovation. We're increasing brand marketing investments to support our current and future innovation launches, build greater brand relevance with younger consumers, gain incremental shelf space and seasonal programming, and further solidify the leadership position of our brand portfolio. In parallel, We continue to improve our operating model, including better inventory management capabilities and skewed discipline, improved service and on-shelf availability, as well as a lower fixed cost structure. As a result of our strategic work over the last three years, our brands are healthier. Our product pipeline is full and is resonating with consumers. Our gross margin is back to historical levels. We're investing more in marketing than we have in over a decade, And we're seeing all of this reflected in our market share, particularly with younger consumers, as we gained another 50 basis points of market share during the quarter across both men's and women's in the US. We're widening the gap against our competitors, and we're well positioned for growth as the category returns to its historical trend of steady growth. Turning to Champion. We're aggressively implementing our performance enhancement plan designed to strengthen the brand and position Champion for long-term profitable growth. We also continued our focus on building brand heat, particularly with younger consumers, including strategic collaborations as well as targeted new product offerings in key channels. We moved our kids business to a license model, which is part of our strategic plan to optimize the portfolio. And as we highlighted last quarter, we're increasing marketing investments to build on the momentum of our Champion What Moves You campaign ahead of our new fall winter product offering. It's early, but we've seen some initial green shoots that our marketplace segmentation strategy is working. As we've previously stated, it will take time for our strategic actions to fully translate to the P&L. Global Champion sales in the first quarter decreased 25% on a constant currency basis. During the quarter, we began the planned strategic move of our kids' business to a license model. This move accounted for approximately 500 basis points of the decline. Normalizing for this, we saw a sequential improvement in Champion's year-over-year trends. We expect the sales decline to continue to moderate in the second quarter. And we continue to expect Champion sales to trough in the first half as we move past our channel cleanup actions, our collegiate business returns to its normal seasonal cadence, and we build on our momentum in Asia. With respect to our review of strategic alternatives for the global champion business, the process is progressing as expected. We continue to evaluate the right path forward as we've seen strong interest from our 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. Now I'd like to turn to the significant value creation opportunity we see over the next several years. The underlying financial model of this company has always been strong, with healthy margins and consistent cash generation. While inflation, market disruption, and a challenging consumer demand environment have masked this for some time, this strength is once again visible. And over the past three years, we've taken necessary actions across the business further enhance our operating and financial models we've built new capabilities around brand building data analytics as well as inventory management and SKU discipline we've added talent we streamlined our supply chain and extended our advantages and we've taken out more than 200 million dollars of fixed costs nearly half of which were in SG&A with our leading brand positions lower fixed cost structure, reestablished gross margin, consistent cash generation, and a commitment to reduce debt, we have created a flywheel for shareholder value creation, one that we believe positions us over the next several years to accelerate earnings growth, drive faster deleverage of our balance sheet, as well as free up incremental capital to invest in growth initiatives. As I close, I'd like to take a moment and thank the entire Haynes Brands team. Your dedication, teamwork, and commitment to our transformation journey is beginning to show in our results. We delivered a solid first quarter in a difficult consumer and apparel market. We have strong visibility to achieving our outlook for the year. We've strengthened the long-term operating and financial models of the company, and we believe we're well positioned to unlock shareholder value over the next several years. And with that, I'll turn the call over to Scott.

Thanks, Steve. At a high level, we delivered solid first quarter results as we've met or exceeded guidance across all of our key metrics. And as I look at our results, I'm reminded of where we were a year ago and the progress we've made delivering on the core financial objectives we laid out. Gross margins are back to historical levels. We're taking costs out of the business. We're generating consistent cash flow. And we're paying down debt and reducing leverage. We're also continuing to strengthen our operating model We're increasing grant investment. We're rolling out even greater levels of product innovation, all of which is expected to generate strong earnings growth this year, as well as position us for more consistent top and bottom line growth over time. For today's call, I'll touch on the highlights from the quarter, our improved financial position, and then I'll provide some thoughts on our outlook. For additional details on the quarter's results and our guidance, I'll port you to our news release and FAQ document. Looking at the details of the quarter, net sales of $1.16 billion was at the midpoint of our guidance range. This represents a decrease of $233 million, or nearly 17% versus prior year. Of this decrease, approximately $15 million was from FX, $20 million was from the U.S. hosiery divestiture last year, and $65 million was from discrete timing-related items within the activewear segment. that we discussed on last quarter's call. These include the strategic shift of the Champion Kids business to a license model, accelerated orders from customers ahead of our SAP implementation, and shipment timing within our collegiate business, all of which benefited last year's first quarter. Adjusting for these, the comparable sales base of our business decreased approximately 10% year-over-year in the first quarter. Looking at sales by segment, Within U.S. Interwear, as expected, the category remained challenging in the quarter. Sales decreased 8% as compared to prior year. This was roughly 200 basis points below our outlook, driven by a higher than anticipated level of inventory management actions by select retailers. However, we are seeing that our strategy is working, and we are winning in the marketplace. Our point-of-sale trends outperformed the market as we gained another 50 basis points of share in the quarter. In our U.S. activewear business, sales decreased approximately 31%, or $97 million as compared to prior year, which was in line with our outlook. Approximately $65 million, or two-thirds of the decline, was driven by the previously mentioned timing-related items in the prior year quarter. Adjusting for this, activewear sales decreased nearly 14%, which represents a sequential improvement in the underlying year-over-year trends in both the Champion brand and the activewear sector. And in our international business, constant currency sales decreased 9% compared to last year, which was in line with our outlook. For the quarter, growth in Latin America, Japan, and China were more than offset by decreases in Europe and Australia as macroeconomic headwinds continued to impact demand in these regions. Turning to margins, gross margin of 39.9% was strong, coming in 140 basis points above our outlook. As compared to last year, gross margin increased 720 basis points, driven primarily by the benefits from lower input costs, cost savings initiatives, as well as the impact from business mix. With respect to SG&A, we decreased expenses $13 million as compared to last year, in line with our outlook. The lower expense was driven primarily by the benefits from cost savings initiatives and discipline expense management. These savings helped fund a 50% increase in brand marketing investments, which was focused on our U.S. interwear and global champion businesses in the quarter. This resulted in an operating margin of 7.3% for the quarter, an increase of 270 basis points over last year and ahead of our expectation, driven by the strong gross margin performance. Looking at the remainder of the P&L, interest and other expenses were $76 million, Tax expense was $15 million, and earnings per share for the quarter was a loss of two cents, which was ahead of our outlook. Regarding the cash flow and the balance sheet, we continued to strengthen our balance sheet and our financial flexibility in the quarter. We generated cash flow from operations of $26 million. This was driven by better-than-expected profit performance and disciplined working capital management. Leverage at the end of the quarter was five times on a net debt-adjusted EBITDA basis, which was nearly a half a turn lower than last year. The improvement in our leverage was driven by lower debt, reflected the $500 million of debt we paid down last year. All of this has led to a strong liquidity position of more than $1.2 billion at the end of the first quarter. And now, turning to guidance. All of my comments were referred to adjusted results and will be based on the midpoint of our guidance ranges. We reiterated our four-year guidance for sales, operating profits, earnings per share, and operating cash flow. Our view for the year is unchanged since our previous call. As a reminder, we highlighted that we expect the macro consumer environment to remain challenging for our categories in 2024, with progression in the year-over-year sales trends as we move through the year. We continue to remain highly confident in our operating profit guide, which implies 26% growth over the last year. as we believe we have appropriately de-risked in this uncertain consumer environment. Our confidence in delivering $500 to $520 million of operating profit is based on a visibility to input cost on our balance sheet for the rest of the year and our proven cost savings programs that continue to exceed our expectations. With respect to our second quarter outlook, we expect net sales on a reported basis to decrease approximately 6% as compared to last year. Adjusting for the impact from the US Treasury divestiture and FX headwinds, organic constant currency sales are expected to decrease approximately 3%. That said, we expect second quarter operating profit to increase approximately 40% over prior year, and operating margin to expand nearly 300 basis points to 9%, driven by the benefits from lower input costs and our cost savings initiatives. And given the lower debt balances, we expect interest expense to decrease year-over-year, resulting in earnings per share of $0.09 as compared to a loss of $0.01 last year. So in closing, the year has unfolded as anticipated. We have confidence and visibility in our full-year outlook. We're paying down debt and lowering interest expense, and we're increasing investments to drive growth. This has created a multi-year flywheel to generate meaningfully higher earnings and significantly reduce debt, which we believe will drive strong shareholder returns over the next several years. With that, I'll turn the call over to TC.

Thanks, Scott. That concludes our prepared remarks. We'll 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?

As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touch tone telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our first question comes from the line of Jay Sol with UBS.

Great. Thank you so much. Steve, you touched on this in your prepared remarks a little bit, but can you just elaborate on the visibility you feel like you have into the company's profit recovery? And maybe just touch on the long-term earnings algorithm, you know, with margins coming back. You know, how do you see it? If you could give us a little bit more color there, that'd be great. Thank you.

Thanks, Jay. You know, I think when you think about profit, as we stated in the remarks, we are highly confident in the operating profit guide that we have for the year, and we continue to expect that year-over-year improvement each quarter in both gross and operating margins. The macro consumer environment is going to remain challenging for us, and we think we've factored that in appropriately. But when we look at the input to the visibility costs that we have on the balance sheet through the remainder of the year, the cost savings programs that we have in place, which continue to overdeliver, so I thank the team for the hard work that they're doing there. We're really confident that we've got the $500 to $520 million guide covered. And we think we see risks appropriately. We haven't put all the cost savings in. So despite a challenging sales environment, we feel pretty good about where we are and where we can take it going forward.

Got it. Okay. Thank you so much.

Our next question will come from the line of Paul Lishway with Citi.

Hey, everyone. This is Brad and she's a mom. I just wanted to dig in around the gross margin and reporting for the quarters, you know, above expectations. I guess, you know, what are you expecting for the rest of the year? You know, why wouldn't you be able to achieve a similar rate in the back half? What are some of the puts and takes there?

Thanks, Brent. Why don't I start, and Scott, you can kind of come in behind me. I think we are very confident in our gross margin for the rest of the year. And while there's business mix changes that happen throughout the year, when you think about some of the key components, whether it's cotton, whether it's distribution, we have really good visibility to that. And it's already on the balance sheet. So we know what's going to roll off throughout the year. So obviously, we had a really strong first quarter at 39.9 and are really pleased with where that is. And we feel really good about where we've been. We thought our guide is actually relatively conservative overall, but a lot of confidence that we can get there based on what we know about our business already.

Yeah, and just to add a little bit of color to the first point, right? Like Steve said, a great start to the year. The next point and something I think you probably recall this, like in the first quarter, we had a heavier mix of sales in our international business, which is a higher concentration of retail. And so that has a higher gross margin rate, but also a higher SG&A rate. So we saw that in the first quarter. That's a normal seasonal trend that you see in the first quarter and over the course of the year. And like Steve said, rest of the year, we have great visibility to the input cost. And as you think about, you know, From a modeling perspective, for the second quarter, I would guide you to a 38.5% to 39% gross margin rate. And then as you think about the rest of the year and the full year, I would continue to use that 38.5% to 39% rate for gross margin. Again, great visibility. We have the cost identified. We know it's going to roll off. We have cost savings that are in place. Again, we de-risk that profit guide. So it gives us a lot of confidence that we know we can deliver that profit number.

Got it. And just to clarify, you're not seeing any pricing pressure to pass through some of those cost savings?

We've lost the last part of your question. Could you say it again?

Sure. Yeah. And just to clarify, you're not seeing any pricing pressure to pass through some of the savings that you're receiving on cotton?

On cotton? No. We actually think we're in a really good position. And, you know, we have really good visibility cotton all the way through this year. We know where we're going to be. So if there's any movement, it's not going to be anything this year that we incur at all.

Okay. And one more, sorry if my line is breaking up, but can you quantify the POS trends that you're seeing right now and the retailer's decision to take down inventory and Is there potentially a restocking opportunity there eventually? Can they continue to destock? Because I feel like we've heard about them continuing to destock that channel for a while now. So I would suspect that their inventories are pretty ruined.

Yes. So let me talk about POS overall, then I'll talk about inventory. When you came through the quarter, the beginning of the quarter was softer on POS than the month of March was. Some of that is just a strengthening in business. Some of that is there's an Easter flip in there. But March was definitely stronger than January and February. And as we get through the Easter flip, we're starting to see that more positive trend in POS as we start to come into April. So we feel pretty good about our POS performance. Category's still struggling. There's no doubt about that. And it's soft. But our POS is definitely outperforming. And that's why we got the 50 basis points here as we go forward. When you think about the inventory, as we planned Q1 and guided, we expected some inventory reduction to be there. It turned out to be a little more than we expected, but it's about $10 to $15 million lower than we expected. We don't think this is a business model shift. There's always some changes and adjustments that are made, but we don't anticipate this being an ongoing challenge of a movement in inventories. Will it be a restocking? Look, we're always trying to find opportunities for inventory out there. We work very closely with our partners to find opportunities where there's gaps in assortment or gaps in inventory all the way down to the store level. We've built a lot of data analytics to help us do that and really partner with them. And we have a really good working relationship on that front. But overall, we have not put a restock into our guide going forward.

And just maybe with one more point on the earlier comment about cotton, because you may be also asking about from a pricing standpoint. Like we said over the last year, we did not fully price for the inflationary peak. So is that stabilizing off? Would we not anticipate, again, a pricing pressure on that side of it?

Got it. Appreciate your time. Thanks for your question.

Our next question comes from the line of Ike Boruchow with Wells Fargo.

Hey, everyone. Good morning. Maybe, Steve, can you talk a little bit to maybe a little bit more granular on some of the categories that are key to you guys? There have been some kind of reads from some of your competitors, I think, on the underwear category being under the most pressure. I'm kind of curious if you can kind of parse out the different pieces of underwear and if you're seeing kind of varying categories degrees of demand and just any other color would be kind of helpful when you think about that into 2Q and beyond.

Sure. As you think about the categories, at the most macro level, it's pretty consistent performance when you look at POS. And if you look at our share gains, pretty consistent across the business, which add up to that 50 basis points. You will see that men's underwear is outperforming more than other businesses. And it's always been probably the strongest category for this company. And, you know, we're going to continue obviously to lean into that. We've got all the innovation in that space with super soft, which is doing extremely well. I'm encouraged about what's happening with maiden form and with the launch of M and Valley with breathe coming at the end of the year. But so, We're looking for some impact in the back half on that. But the categories overall, there's not major differences across the board. There's puts and takes in one month over another, but it's relatively consistent.

Yeah, and maybe add a little bit, too, from a God standpoint. I know we don't God-bought segments, but let me give you some directions on the U.S. interwar business. We had the 8% decline in Q1, but as you look at Q2, again, we expect that moderating trend to continue. And also, we're going to continue to outperform the category for all the things that Steve was talking about. We've got brand investments supporting the innovations that are coming. So as you think about the U.S. interweaver, we're guiding, again, directionally to a 3% or 4% year-over-year decline, factoring all that in. And then just to touch on while we're talking about segments, just real quick, on the international side, as you think about modeling for Q2, I would say that would be down mid-single digits on a reported basis and essentially flat on a constant currency basis. And then on active wear in the U.S., I would guide you down to mid to high single digits. And that compares to down 14% in the first quarter on that adjusted basis when you factor and take out the timing items that we talked about in our earlier remarks.

Got it, thanks so much.

Our next question comes from the line of David Swartz with Morningstar.

Good morning, thanks for taking my question. Firstly, can you let us know if you're seeing any differences in trends in Australia and if it seems like that business is getting better or is it remaining under pressure? Secondly, are you confirming that you have Decided to maintain control of champion and will not be selling the business.

Thanks So in terms of Australia We're starting to see some Improvement and it really depends on the business over there like bonds business over there as we continue to do particularly strong It's been particularly strong particular in the wholesale business in the grocery channel The DTC business with bras and things has remained a little bit softer but we're starting to see a little bit of improvement and We are expecting some tax relief in the back half of this year and anticipating a little bit of interest rate improvement, although there is some uncertainty right there. But the comps and compares get easier as we go into the second half. So we anticipate that business starting to rebound. I would tell you, I'm really pleased with the work the team is doing over there. I'm excited about the innovation in Baby and the Bonds Chafoff product. So we're leaning in. We have some aggressive advertising campaigns that are going on right now that are resonating. So feel good about that business as we go forward. In terms of champions, we're not making any announcement today in terms of us keeping the business as you ask the question or selling it. The process is continuing. We're going to continue to evaluate the right path forward. The process is progressing as we expected. and you know in parallel with that we're going to continue to implement the long-term growth strategy like we said we always have and you know we will follow the same protocol as we have in the past and we will update you as appropriate when there's news for us to share okay thanks a lot our next question comes to the line of paul kearney with barclays good morning thanks for taking my question

On the brand marketing opportunities and investments you're making, can you go over what you're doing differently today and where the marketing investments are concentrated and kind of the timing of those through the year? Thanks.

Sure. As we said, we increased our investment pretty significantly in the first quarter. And this has been a build over the last couple of years. One of the things that we've been focused on for a while now is strengthening our brands. And I think these brands have been under-invested in for a long period of time. And if you want to be a consumer-centric company, you want to be a brand-driven company, you want to be an innovation-driven company, you have to invest and you have to continue to lean into your brands. The bulk of our advertising in the near term has been around and is going to continue to be around innovation. Leverage the brand, but talk about the news. And the news, you know, last year was really around originals. This year it's around M by Maidenform. It's the next stage of originals, which is Super Soft. On the Champion side, it's going to continue to talk about the brand and our positioning and how, you know, what that brand represents and really leaning in when we have our new fall-winter line that's coming as we go forward. And along with that in the back half, we'll have Valley Breeze. So when you think about our advertising, you think about our media, Think about it as leaning in behind branded innovation. And I think that's the best way for us to talk about it. The mix over time is going to continue to change, you know, and depending upon the brand. So Hanes will go to market differently than Champion will go to market. It'll show up in different channels, whether that's linear TV or that's more direct-to-consumer channels. And what gives me confidence is we're starting to see the results of that. So take M, Made in Form, for example. When we started to really lean into that in the first part of this year, we saw POS jump 18% in that business. So we've got confidence that our messaging is right, our approach is right, and we're going to continue to make those investments over time. Tying back to some of the things we talked about earlier, our cost position and the way we continue to take costs out, the gross margin improvement, the SG&A focus, enables us to fund those investments and we're going to continue to find that right balance as we go forward.

Thank you.

Our next question comes from the line of Hale Holden with Barclays.

Good morning. The last couple of quarters we've talked about declines in the U.S. interwear kind of industry, not necessarily your segment, but the whole sort of sales opportunity set. I was wondering, it sounds like you've seen that stabilize this quarter and in the next quarter, and maybe if you could give us some dynamics about what you're seeing in the segments.

Yeah, I think when you think about the indoor segment, I think you have to think more broadly about the consumer environment and where it is. Overall, consumer demand remains challenging for apparel across the board in the US, Europe, Australia. We've been seeing those headwinds for several quarters, whether it's interest rate impact, inflation. Consumers are definitely seeking value. We can see their activity of shopping events, and you definitely see that in the POS. When we look at the category from a long-term perspective, I've got a ton of confidence that it's going to rebound to historical levels, which is, you know, 1% plus growth. You've seen that. You go back to 08, 09, when all the challenges in the market right there, the category was impacted, and then it rebounded. We expect that's going to happen over time. Even if you look at the last three years, on average, the category performed at historical rates. It's just been incredibly disruptive. You know, 2001, I hate to go back that far, was such a massive growth, 24%, 25%. And then, you know, it's been challenged ever since. But we expect that to moderate over time. We're starting to see some stability over time. And we have a lot of confidence that this category will perform to its long-term run rate as we go forward.

Great. Thank you very much.

Our next question comes from the line of William Reuter with Bank of America.

Good morning. For the sales decreases of Champion, I was wondering if you could talk a little bit about what channels those decreases in, whether those were kind of specialty channels, whether they were off-price channels, mass versus department stores. Where did you see the biggest declines in your sales into?

Yeah, thanks for the question. When you think about it, it really varies by geography in terms of overperforming. In the U.S., it's really kind of generally across most channels or all channels. And that has a lot to do with cleaning up of inventory that's been out there. And I think we've finally repositioned ourselves to a place where the channels are cleaner and we can prepare to move forward. And as I mentioned earlier, we're excited about the fall-winter line that's coming and think that – that's going to help start to rebuild the business as we go forward. In Europe, wholesale has been challenging, and the customers are just being conservative. They've been in inventory challenges in the past, and I think they're challenged going forward. When we look at Asia, Asia's performing pretty well. Japan's up. China's up. We're seeing opportunities there to continue to grow, and those markets have rebounded from where they've been. the last couple years. So I think it's a mix by geography, but I think going forward, we're well positioned across all the different channels. If you look at, you know, in the U.S., our e-commerce business was up 12% in the first quarter, so we're starting to build some momentum there. And more importantly, the programming that we have now is channel-specific, and I think that's what has been missing in the past. We weren't We weren't differentiated enough by channel. We weren't segmented enough by channel and by product. And the product that we have going forward accomplishes all that. We've instituted a more global approach to how we go to market. And that's really what's going to make a difference for us in terms of global platforms on product, on fit, on color. All those different things are going to help us win across channels. And it's something that we haven't done very well in the past.

I guess just one, a little more specifically on that, were there intentional reductions to off price that impacted the sales of Champion?

No, nothing intentional. We're managing through or have been managing through high inventory positions in the channels and consistently looking for opportunities as we go there. We think the brand can play very effectively across a lot of different channels and we'll continue to activate that way.

Great. That's all for me. Thank you.

Our last question today will come from Michael Coppola with JPMorgan.

Good morning, and thanks for taking our question. The first one we had was on the champion kids licensing deal. Did you guys receive any cash payment for that? And, you know, I know you kind of called out there was a 500 basis point impact to revenue. Just how we think about revenue and margins pro forma for that going forward.

Yeah, that wasn't a transaction where we sold something. We actually converted it to more of a top-line wholesale model to a licensed model, so we get a real income stream going forward.

Gotcha. Thank you. Yeah.

And you'll see that was the biggest headwind from that will be in Q1, and it'll moderate as we go forward.

Okay. Great. Thank you. And then the second one, I'm going to reaffirm that you plan on paying down about $300 million in debt this year. You know, if there's any comment of whether you prefer to go after term loan or bonds for that as well, or if there's any way you're thinking about that. Yeah, great. Thanks for your question.

Again, you know, we paid down $500 million last year of debt. We got another $300 plus coming in. But really good about the cash flow generation. We talked about the profit driving that, working capitals coming through. As you think about how to apply that $300 million plus of debt pay down, we have a lot of flexibility with our debt structure. With our senior secured credit facility, we have the Term A and Term B loans that are prepayable without any penalty. And so that's higher rate debt. It's prepayable. And that's what we'll focus on, the debt pay down.

Great. Thank you very much. And I'll pass it off.

That concludes today's question and answer session. I'd like to turn the call back to TC Robillard for closing remarks.

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.