Hanesbrands Inc.

Good day and thank you for standing by. Welcome to the Haines Brand's first quarter 2025 earnings 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 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 first quarter of 2025. 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 restructuring and other action-related items, 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. These forward-looking statements should be considered in conjunction with the cautionary statements in our news release and in our filings with the SEC. 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 on the quarter's results and our guidance, 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 Bratspies, 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 first quarter earnings call. Today I'd like to focus on two key points related to the transformation work we've completed and the long-term growth strategy we are executing. The first is that our strategy is working and continues to drive strong results. And second, we believe our strategy enables us to successfully manage through the current tariff environment which presents challenges but also creates real opportunities. From a margin standpoint, we believe we will fully mitigate the tariff headwind as we have many levers to pull, including further cost reductions and pricing actions. Our mitigation initiatives are consistent with and build upon the work we're already doing within our growth strategy. And from an opportunity standpoint, we're already seeing tariff-related disruptions creating incremental revenue opportunities in the markets. With our Western Hemisphere supply chain speed and capability matched with our strong retail relationships, we believe we're in an advantage position to capture new revenue and gain additional market share. Beginning with my first point, and thanks to the hard work of the global HBI team, our growth strategy is working. We're seeing it in our results as we delivered another strong quarter, including better than expected sales, gross margin, operating profit, and earnings per share. Over the past few earnings calls, we've spoken about the successful transformation work we've done to simplify and reposition Haynes Brands. We strengthened our brands. We streamlined our supply chain assets while remaining diversified and balanced across the globe with capacity for growth. We built disciplined operating capabilities, including category-best consumer-led innovation, assortment management, and advanced analytics to drive growth. We removed fixed costs. and we strengthened our balance sheet by paying down over $1 billion of debt last year and refinancing our 2026 maturities in March. Today, we're a new company. We're healthier, leaner, and more profitable. We're operating on a stronger foundation, and we're leveraging our competitive advantages to drive revenue growth, margin expansion, and strong cash flow. The benefits from our transformation plan and the reduction of debt are evident in our first quarter results. We drove accelerating growth rate down the P&L as sales increased 2%, operating profit increased 61%, and EPS increased 240% over prior year. On an organic constant currency basis, international sales increased 4%, which was ahead of our outlook, driven by growth in Australia and Asia. In the U.S., sales decreased 1%, which was in line with our expectations. Ongoing consumer headwinds continue to pressure the U.S. interwear market, in particular, the intimate apparel category, which typically experiences the greatest pressure in tough macroeconomic environments. While our intimates business was down mid-teens, as compared to last year, we generated solid growth in our other businesses, including low single-digit growth in basics, mid-single-digit growth in active, and 60% growth in new businesses, which includes our scrubs and loungewear products, among others. We also delivered strong profit growth. Our assortment management initiatives and cost restructuring actions helped drive 390 basis points of operating margin expansion over prior year. Approximately 60% of the margin improvement came from lower SG&A expenses and 40% from further expansion of our gross margin. Of particular note, SG&A levered 225 basis points over prior year, even with the incremental 50 basis points of brand investment in the quarter. as our cost reduction actions have scaled to the point where they're more than offsetting our investments. And with over $1 billion of debt reduction last year, we had lower interest expense in the quarter, which further accelerated our profit growth and helped drive a 240% increase in EPS. As I pivot to my second point on how our strategy enables us to successfully manage through the current tariff environment, like to take a moment to help ground everyone on the mix of our business and our supply chain network. The U.S. accounts for roughly 75% of our sales and cost of goods. The remaining roughly 25% are in international markets. Therefore 25% of our P&L is not directly impacted by the U.S. tariffs. With respect to sales in the U.S., roughly two-thirds are basic products, namely underwear and socks. Looking closer at our U.S. cost of goods, Approximately 85% is from our own manufacturing facilities, which gives us greater speed and ability to shift units within our supply chain. Of this, we are essentially split evenly between our Western Hemisphere network, which includes the Dominican Republic, El Salvador, and Honduras, and our Eastern Hemisphere network, which includes Vietnam and Thailand. The remaining 15% of our U.S. cost of goods is sourced from a number of different countries across various regions. With respect to China, we no longer source any U.S. products from there. China historically was a low single-digit percent of U.S. cost of goods. Today, it is zero. As I mentioned, the current tariff environment creates both challenges and real opportunities. Over the past several years, you've seen us be proactive and have a number of levers we can pull. We're confident in our ability to successfully manage through this environment. Our confidence comes from two factors. We have a proven track record of managing through market disruptions and coming out the other side a stronger company. And second, the initiatives we're taking to mitigate costs and capture incremental revenue are aligned with and build upon the work we're already doing within our growth strategy. And as we've seen over the past several quarters, our growth strategy is delivering results, including our strong start to the year. Looking at the cost impact of tariffs, we believe we can fully mitigate these headwinds, both in the short and long term. For starters, announced tariffs are not expected to impact us until Q4, and we have U.S. yarn and U.S. cotton content in our products, which are not subject to reciprocal tariffs. In other words, we have natural tariff offsets embedded in our products, as the U.S. content within our imported products is exempt from reciprocal tariffs. We have a number of levers we can pull to mitigate the cost impact and we expect to use a combination of initiatives. Our current cost reduction actions are delivering savings faster than expected and will continue to accelerate these actions. We're further tightening our spending as well as taking actions to preserve cash flow. We're taking strategic and surgical pricing actions supported by the strength of our brand and market leading innovation. We're driving additional cost savings through vendor consolidation and price negotiations And with our diversified supply chain, we also have the ability to shift production and further optimize the network. Turning to the revenue opportunity, we believe we are well-positioned to navigate the current demand environment. We have visibility to incremental revenue opportunities that have been created from tariff-related disruptions in the market. With our Western Hemisphere supply chain speed and capability matched with our strong retail relationships, we believe we're in an advantaged position to capture this revenue and gain additional market share. In fact, we've already received a number of inbound inquiries from retailers across multiple channels that range from interwear to activewear programs to replace product sourced from China. We're also advanced to drive additional revenue growth through our transformation work, which has simplified the business and positioned us in more stable basics products, as well as our growth strategy. It's working, and we're leaning in. Brand investment and innovation have been contributing to growth and will continue to make these investments. We're driving new businesses, which increased 60% over prior year in the first quarter, and we expect growth to continue this year, driven by new product launches, meeting incremental consumer needs, and space expansions. And we're leveraging our assortment management capabilities and advanced analytics, which make us more nimble and able to quickly pivot to capture demand, whether it shifts to channels, products, or pack sizes. closely monitoring all of our retail programming, staying close to the consumer, and making sure our portfolio matches the demand implied. So in closing, we are confident that our transformation work and our growth strategy positions us for success both in the near and long term. We're delivering strong financial results as evidenced by our most recent quarter. We have a strong asset base, meaningful competitive advantages, and the speed and flexibility to manage through the current market environment. And finally, we have multiple avenues to drive increased shareholder returns over the next several years through consistent sales growth, further margin expansion, and continued debt reduction. And with that, I'll turn the call over to Scott.