Hanesbrands Inc.

Good day and thank you for standing by. Welcome to the Haynes brand second quarter 2025 earnings call. At this time all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd 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 Haynes brand's quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the second quarter of 2025. Hopefully everyone has had a chance to review the news release we issued earlier today. The news release updated FAQ document in 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 restructuring and other action related items, our ability to deleverage on the anticipated timeframe in 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 quarters 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 will now turn the call over to Steve.

Thank you, TC. Good morning, everyone, and welcome to our second quarter earnings call. For the third consecutive quarter, Haynes Brands delivered better than expected sales, gross margin, operating profit, and earnings per share. Our strong performance underscores the continued success of our growth strategy and is why we're raising our full year guidance. I wanna thank the global HBI team for all their hard work and efforts. As we've highlighted over the past several quarters, Haynes Brands is a new company. We're healthier, more focused, and more profitable. Our brands are stronger. We're driving innovation, including the expansion of our Haynes Moves products. We're elevating the Haynes brand, including our exclusive product offering with Urban Outfitters in the US and our Haynes Premium T-shirts offerings at specialty retailers in Japan. We're creating new categories behind our absorbency products in our stores. We're expanding our brands into adjacent categories, including loungewear and scrubs. And we're consistently investing in our brands at levels that are more than double what we spent four years ago. We're generating structurally higher profit margins through increased productivity and lower fixed costs, even while simultaneously investing for growth. We streamlined our supply chain while remaining diversified and balanced across the globe, which makes us more efficient and provides us with capacity for growth. And we're leveraging advanced analytics with the use of AI to drive operational improvement around the globe, including inventory and assortment management, as well as demand planning and forecasting. We've also strengthened our balance sheet, paying down $1.5 billion of debt and reducing leverage by nearly two and a half turns over the past two years. Our transformation work and the execution of our growth strategy are generating tangible results. We're operating on a stronger foundation for leveraging our competitive advantages and we're delivering strong financial performance. For the second quarter, we once again saw growth rates that accelerated down the P&L. As sales increased 2%, operating profit increased 22% and EPS increased 60% of a prior year. On a constant currency basis, sales increased over prior year in the Americas, were flat in Australia and decreased slightly for about $5 million in the US. With our performance in each region in line with our expectations. As we've experienced over the past several quarters, ongoing consumer headwinds continue to pressure the US interwar market, especially with the intimate apparel category. While our intimates business was down compared to last year, we delivered strong growth in our other businesses, including low single digit growth in basics, nearly 30% growth in active, 165% growth in new businesses, which includes our scrubs and loungewear products. We delivered another quarter strong profit growth driven primarily by our cost restructuring actions and productivity improvement initiatives. For the quarter, operating margin expanded 255 basis points over the last year to 15.5%, with the improvement roughly split between gross margin expansion and SG&A leverage. SG&A levered 110 basis points in the quarter, marking a second consecutive quarter of leverage as our cost reduction actions have scaled to the point where they are more than offsetting our investments. And with lower interest expense from our debt reduction actions, profit growth further accelerated, resulting in a 60% increase in EPS for the quarter. So in closing, our strategy is working. It's delivering consistent, strong results and we're confident it positions us for continued success long-term. We have a strong global asset base, meaningful competitive advantages and the speed and flexibility to manage through the current market environment. And we have multiple avenues to drive increased shareholder returns over the next several years to consistent sales growth, additional margin expansion, and continued debt reduction. And with that, I'll turn the call over to Scott.

Thanks, Dave. We delivered another strong quarter, including better than expected sales, gross margin, operating profit and earnings per share. This strong performance over the first half of the year is a direct result of our growth strategy and transformation work and gives us the confidence to raise our full year guidance. For today's call, I'll touch on the highlights from the quarter, then I'll provide some thoughts on our outlook. For additional details, I'll point you to our news release and FAQ document. Turning to the details of the quarter, sales on a reported basis increased 2% over prior year to $991 million. Adjusting for the impact from foreign exchange rate, transition service revenue, sales on organic constant currency basis were relatively consistent with prior year. We saw continued -over-year expansion in both our gross and operating margins as our cost savings and productivity initiatives such as assortment management were driving structurally higher and sustainable margins while funding growth-related investments. For the quarter, gross margin increased 145 basis points over prior year to 41.2%. ST&A expenses decreased 2% compared to prior year for 110 basis points as a percent of sales. The combination of these drove a 255 basis points expansion of our operating margin to .5% for the quarter. And with respect to earnings per share, EPS increased 60% over last year to 24 cents driven by higher margins as well as lower interest expense as we benefited from meaningful debt reduction efforts over the past year. With respect to cash flow and the balance sheet, we reported $36 million of operating cash flow in the quarter driven by strong profit performance and disciplined working capital management. Leverage at the end of the second quarter was 3.3 times on a net debt to adjusted EBITDA basis which is 1.3 terms lower than prior year and is approaching our target range of two to three times. And now turning to guidance. Our outlook for the third quarter includes continued margin expansion and operating profit growth and even faster EPS growth. For the third quarter, we expect sales of approximately $900 million, operating profit of approximately $122 million, and EPS of approximately 16 cents. We also raised our full year sales and profit outlook to reflect our strong performance year to day. We now expect full year sales to increase over prior year to approximately $3.53 billion. We expect operating profit increase 17% to approximately $485 million. And we expect EPS to increase 65% to approximately 66 cents. Putting some context on the assumptions within our full year outlook. As we have all year, we continue to take a conservative view in the new to consumer environment. With our advantage supply chain, we continue to have good visibility to input cost and cost savings through the remainder of the year. And our outlook reflects what we know about tariffs today. We continue to believe we are well positioned to manage through the current tariff environment and remain confident that we can fully mitigate the cost headwinds both in the short and long term. So in closing, our transformation work and the execution of our growth strategy are delivering consistent results. We're operating on a stronger foundation with meaningful competitive advantages. We're leaner, healthier, more profitable, and well positioned to succeed in any operating environment. And we believe we can deliver strong shareholder returns over the next several years through consistent revenue growth, margin expansion, and strong cash generation. And 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 one one on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jay Sol with UBS.

Great, thank you so much. Steve, I'd like to just ask if you could elaborate a little bit about what drove the outperformance in the quarter and also what gave you the confidence to increase the outlook and sort of what's driving that increased outlook. That's where I'd like to start first. Thank you.

Sure, Jay, good morning. Well, Scott, I'll let you talk about kind of the quarter and I'll talk a little bit about the outlook and the guide.

Thank you more, and Jay, thanks for your question. So we were very pleased with our Q2 performance and we're continuing to build on the momentum that we started last year. For Q2 specifically, we really exceeded expectations across all of our key metrics. On the sales side, we saw upside there as we just continue to focus on driving the benefits from our growth strategy. On the profit side, our margin, I had a really good performance there. We're now consistently generating structurally higher margins. We're seeing that every quarter now. Q2 out margin came in at 15.5%, which was 280 basis points above last year and 150 basis points above our guide. And to give you some color around that, within gross margin, the benefits from our cost savings and productivity initiatives continue to build. And we're seeing strong performance in our facilities. The productivity there has been really good. Naturally above and beyond our expectations, our savings initiatives are coming through and just general plant performance has been really, really strong. On SG&A, similar story there. We're seeing really good benefits from our cost reduction actions. We're now scaling our SG&A leverage now from quarter to quarter result. In the first quarter, we leveraged SG&A around 220 basis points. In the second quarter, it was down 110 basis points. So we're consistently driving again those benefits. We're seeing it from an incremental standpoint and at a faster clip. We're seeing those savings in our facilities, within our distribution centers. Also in our back office, like corporate and business support activities, we're seeing that we're operating much leaner than we actually initially anticipated. So we're going really well there. And then the last thing I'd point out, it's on interest and we've talked a lot about debt and reduction there. We're seeing that benefit flowing through on the P&L side of lower interest and leverage coming down. So that's even magnifying the growth rate as from a P&L perspective. Stephen, I'll talk about the guide.

Yeah, so obviously Scott, it was a good recap. So obviously we feel really good about where we are and we think we have really good visibility to the back half. If you look at, on the revenue side of the guide, certainly the strong first half results, kind of booster, bolster where we're gonna go. The transformation work that we're doing, we're a simpler business and that really positions us well to operate in this environment. POS is improving in the business. And if you go back and you look, June was better than May, July's been better than June. So, still headwinds there, but we're starting to see momentum in the business and we feel good about that. So whether it's us continue to invest in our brands, leveraging the new assortment capabilities we have, the new businesses which are really starting to gain traction. We feel good about top line and continue to perform as we've been performing. And then as Scott said, about profit, in the first half we did well and we continue to see that margin expansion coming as we have more cost savings opportunities and maybe most importantly, visibility that we have to the cost that will be flowing into the P&L in the back half of the year. So you roll all that up and that's our confidence to take the guide up for the back half.

Got it, sounds great. Thank you so much.

Our next question comes from Peter McAldrick with Stiefel.

This is Alex Douglas on for Peter. Apologies if I missed this in the prepared remarks, but could you maybe provide any insight into kind of the cadence of tariffs impacts kind of through 25 and 26 and do you still not expect an impact for tariffs for Q? Thank you.

Sure, good morning Alex. Yeah, when you think about tariffs and the impact on our business, first of all, we won't be really experiencing that cost until Q4 because of the inventory that we have and the way cost flows off of our balance sheet. But we're very confident that we will mitigate the tariffs at the rates that we're experiencing today. We have very clear plans to do that and as you think about our business, not only do you have the Q4 impact, but you have to think about those other offsets about meaningful US content, the content that we have in our products that are exempt from reciprocal, the good East West balance that we have in our supply chain and the team's being extremely proactive. A lot of cost actions that we are taking to reduce costs. We're gonna have some surgical pricing actions that we'll be taking and we just have a lot of ability to not have an impact on business fully in Q4. So we feel good and it's all built into our guide and we can offset the situation.

Thank you. Our next question comes from Ike Borujow with Wells Fargo.

Hi, good morning. This is Juliana on for Ike. So there's been some chatter in the Mass Channel on pushback on pricing and we're curious if you could speak towards your conversations today and how you're thinking about that Mass Channel through the second half. Thank you.

Hi, Juliana. I think, correct me if I'm wrong, I think you were asking about pricing in the Mass Channel and our ability and the pushback that we're gonna get you broke up a little bit. Is that correct? Yes,

that's

correct. Okay, so yeah, pricing is gonna be a part of our tariff offset program. As you can imagine, I'm not gonna get into details for our competitive reasons. It is one of the tools and levers that we have but we feel really good and confident about our ability to take price. Supported by our brand strength, continue to invest in that we're making and very important is the innovation that we're putting into the market. So in the past when we've taken price, it has stuck and we certainly expect that to go through as we go forward. We're gonna take a very strategic approach. We know very well how the market reacts, understand the competitive situation. We put the consumer at the center of pricing decisions that we make. While we haven't taken price in a few years, we're very confident in our ability to do that. Obviously we have very in-depth conversations with all of our key customers, including the Mass Channel. We think our share leadership position and as the innovation and other things we'll bring into market puts us in a really good position to take the appropriate price, what we need and where we need to take it.

Great, thank you.

Our next question comes from David Swartz with Morningstar.

Yes, thanks for taking my question. Can you explain maybe what you're doing to try to bring the profitability of the international business up to be closer to the US operations and do you think that over time the difference will close?

Thanks. Yes, good morning David. So the international business, very similar to the US business, we have, when we talk about our cost savings initiative, it's broadly, right? It's not just one business or just one specific function. We're really focusing on taking out fixed costs across the board. And so the international business, we're seeing that improvement year over year very consistently with the US business. The one thing to factor in when you're looking at the international business is a heavier retail component. So you have some more fixed cost, SG&A type costs flowing through there. The top line's been challenged there, but it's coming around. We feel like we are not sitting still there. We see opportunities to grab the top line will help kind of leverage that SG&A even more so going forward.

And one thing I would add to that is, when you look at the international market, you have a little bit of quarter to quarter fluctuation. Because we have a lot more direct to consumer business, as Scott mentioned, called the retail business, there's a lot of fixed costs in there. So when we get into Q4, and there's more volume flowing through there, you'll see a better margin in the fourth quarter. So it does fluctuate quarter to quarter and then with seasonality.

Thanks, that's very helpful. Secondly, on this announcement with SNS and the printware channel, can you explain why you decided to make SNS your exclusive distributor and what that means for your printware business going forward?

Yeah, I'm not gonna get into the specifics of the arrangement of SNS. What I would tell you is, they're a great partner, as are some of the other players that we have. Printware is an expected business that we think can grow over time for us. As we think about the assets that we have, our brand, and some of the key products we have, we thought it was an arrangement that would be very beneficial to both sides as we go forward. And that's a business that we're gonna continue to lean into as we go forward.

As a reminder, if you'd like to ask a question at this time, please press star one one on your touchtone phone. Our next question comes from William Reuter with Bank of America.

Good morning, I have two. The first, I was wondering if you could quantify what the benefit of lower cotton was on margin in the quarter or you talked a lot about cost savings and productivity, if you could unpack some of the specific drivers of that gross margin improvement.

Hey, good morning, and thanks for your question. We don't disclose specific kind of details within cotton as far as the benefits from quarter to quarter. I would say that cotton is a relatively small percentage of our total cost of sales. And we're seeing the productivity, the vast majority of that flowing through broadly across all of our raw materials. We're seeing that within our productivity and facilities. And so we've seen the tailwind for input costs in the first half, we expect that tailwind to continue into the back half. And so that, you know, layered on top of all the savings and other issues that we have. So we've really seen that gross margin really expand from quarter to quarter. And then full year will be up 55 basis points is what we're seeing at this point.

Got it, and then you discussed a little bit of softness and innerwear. You mentioned the category is a little bit soft. I guess, how do you think you performed relative to the category? And given that private label continues to be a disruptive force kind of across every product in the world, are you seeing any increased competition from third party private label manufacturers? That's it.

Yeah, so just to be clear that the softness we referenced was in the intimates part of our portfolio, not in broader innerwear business. Broader innerwear business is actually doing quite well. Our basics business is actually up low single digits, active business up nearly 30%. So it's really contained in the intimates business. And really inside of intimates, that's really driven by the made in form brand and some of the challenges that we have there. So we are taking real action there as the exposure to shapewear is pretty significant inside of intimates. I feel good about Bally and Playtex and where they're headed, particularly in our growth in the mass channel and Amazon. But we have some work to do in the made in form business. The M innovation that we brought to market last year did good in its intention, which was to gain share with younger consumers and improve the brand perception. But it was a little bit too narrow to drive the overall brand. So we're pivoting this year to much broader focus into t-shirt bras and a broader focus in the mass and the online channel. So work to do in intimates, no doubt about that as we go forward. On private label, it's a mixed bag. If you look at our most important category to us, men's underwear, private label is down. And it's not gaining share, it's actually losing share. It is up slightly in women's on the innerwear side. So our strategy always has been to manage private label is to run our business and run it really well as a branded business. So I'm a firm believer if we continue to invest in our brands, we continue to drive innovation, we continue to be market leader partner with our retail partners on insights and have the best service that we will win versus private label as we go forward.

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. Thank you for participating. You may now disconnect.