UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 1, 2017
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
Maryland | 001-32891 | 20-3552316 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
1000 East Hanes Mill Road Winston-Salem, NC | 27105 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (336) 519-8080
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has electd not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. Results of Operations and Financial Condition
On November 1, 2017, Hanesbrands Inc. ("HanesBrands") issued a press release announcing its financial results for the third quarter ended September 30, 2017. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K. Exhibit 99.1 is being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall Exhibit 99.1 be deemed incorporated by reference in any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 7.01. Regulation FD Disclosure
HanesBrands has made available on the investors section of its corporate website, www.Hanes.com/investors, certain supplemental materials regarding Hanesbrands' financial results and business operations (the “Supplemental Information”). The Supplemental Information is furnished herewith as Exhibit 99.2 and is incorporated by reference. All information in the Supplemental Information is presented as of the particular date or dates referenced therein, and Hanesbrands does not undertake any obligation to, and disclaims any duty to, update any of the information provided.
Exhibits 99.1 and 99.2 to this Current Report on Form 8-K include forward-looking financial information that is expected to be discussed on Hanesbrands' previously announced conference call with investors and analysts to be held at 4:30 p.m., Eastern Daylight time on November 1, 2017. The call may be accessed at www.Hanes.com/investors. Replays of the call will be available at www.Hanes.com/investors and via telephone. The telephone playback will be available from approximately 7:30 p.m., Eastern Daylight time, on November 1, 2017, until midnight, Eastern Daylight time, on November 8, 2017. The replay will be available by calling toll-free (855) 859-2056, or by toll call at (404) 537-3406. The replay pass code is 2460422. Exhibits 99.1 and 99.2 are being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit 99.1 | ||
Exhibit 99.2 | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
November 1, 2017 | HANESBRANDS INC. | |||
By: | /s/ Joia M. Johnson | |||
Joia M. Johnson | ||||
Chief Administrative Officer, General Counsel and Corporate Secretary | ||||
HanesBrands
1000 East Hanes Mill Road
Winston-Salem, NC 27105
(336) 519-8080
 |
news release |
FOR IMMEDIATE RELEASE
News Media, contact: | Matt Hall, (336) 519-3386 |
Analysts and Investors, contact: | T.C. Robillard, (336) 519-2115 |
HANESBRANDS REPORTS THIRD-QUARTER 2017 GROWTH
• | 3Q Net Sales of $1.80 Billion Increased 2%; GAAP EPS of $0.55 Increased 22%; Adjusted EPS of $0.60 Increased 7% |
• | Year-to-Date Net Cash From Operations Increased 59% to $331 Million |
• | Company to Increase Marketing and Brand Growth Investment in 4Q and Updates Full-Year 2017 Guidance for Net Sales, Operating Profit, EPS and Cash from Operations |
WINSTON-SALEM, N.C. (Nov. 1, 2017) - HanesBrands (NYSE: HBI), a leading global marketer of everyday basic apparel under world-class brands, today announced third-quarter 2017 net sales and earnings growth in line with company guidance and strong year-to-date net cash from operations.
For the third quarter ended Sept. 30, 2017, net sales of $1.80 billion increased 2 percent, driven by double-digit International segment growth. Domestic sales were affected by apparel’s weaker-than-expected back-to-school retail environment, although the company held share for Innerwear basics.
On a GAAP basis, third-quarter operating profit of $253 million increased 11 percent and diluted EPS of $0.55 increased 22 percent. When excluding pretax acquisition-related and integration charges, adjusted operating profit of $270 million was comparable to a year ago, and adjusted EPS of $0.60 increased 7 percent. (See Note on Adjusted Measures and Reconciliation to GAAP Measures later in this news release for additional discussion and details.)
Year-to-date net cash from operations of $331 million increased $123 million, or 59 percent.
“We returned to organic growth in the quarter as International results were stronger than expected, and we are tracking to the midpoint or higher of our cash flow guidance for the year,” said Hanes Chief Executive Officer Gerald W. Evans Jr. “The value of diversifying our portfolio with international and activewear acquisitions is evident, and we are making progress on several initiatives to adapt to the evolving and challenging retail environment in the United States.”
With one quarter remaining in the fiscal year, Hanes has updated its full-year guidance to reflect year-to-date results and factors related to the fourth-quarter, including additional incremental marketing investment to drive growth, the expected adverse effect of the Sears Canada bankruptcy, and the recently announced acquisition of Alternative Apparel. (See full guidance details in the 2017 Financial Guidance section later in this news release.)
HanesBrands Reports Third-Quarter 2017 Growth - Page 2
“In the fourth quarter, we expect to once again achieve organic sales growth,” Evans said. “We are continuing to drive strong double-digit online sales growth across businesses and geographies. We are making progress on our goal to use our brands, innovations, acquisitions and online investment to create shareholder value and drive sustainable growth.”
Key Callouts for Third-Quarter 2017 Results
Company Returns to Organic Sales Growth. Hanes generated organic sales growth - as reported and in constant currency - for the first time in eight quarters. The company benefited from increasing geographic diversification as International sales growth more than offset sluggish domestic sales. International sales, bolstered by Hanes Europe Innerwear, Champion Europe, and Hanes Australasia, accounted for 31 percent of sales in the third quarter. Global Champion sales increased 16 percent in the quarter.
Year-to-Date Cash Flow Growth Accelerates. Hanes generated $297 million in cash from operations in the third quarter and has generated $331 million year to date, up 59 percent from a year ago. Cash flow is benefiting from working capital improvements and increased profitability.
Double-Digit Online Sales Growth Continues. The growth percentage of third-quarter sales in the online channel globally was in the high 20s, and online sales represented approximately 9 percent of total sales. Online sales increased in every geography across product categories.
Business Segment Highlights
Innerwear Sales Affected by Difficult Back-to-School Environment. Innerwear net sales and operating profit each decreased 5 percent in the third quarter and were lower than expected as a result of a particularly challenging back-to-school retail season for the apparel sector. The company maintained market share in basics, while online sales, including those through traditional retailer websites, increased by more than 20 percent.
Activewear Results Benefit from Acquisition Contributions. Activewear net sales increased 1 percent and operating profit increased 8 percent. The acquisition of GTM Sportswear contributed approximately $15 million of sales in the quarter. The segment was affected by the muted back-to-school season at retail, but online sales increased by more than 30 percent and Champion sales in the midtier, sporting goods and college bookstore channels achieved double-digit growth.
International Segment Growth. Net sales increased 16 percent and operating profit increased 25 percent for the International segment in the third quarter. In constant currency, International net sales increased 14 percent and operating profit increased 23 percent. Champion growth in Europe and Asia, underwear and intimate apparel growth in Australia and Latin America, and widespread online growth drove results.
2017 Financial Guidance
Hanes has updated its full-year guidance, including narrowing the range for net sales and EPS, and revised operating profit guidance. The company now expects net cash from operations to meet or exceed the midpoint of its original guidance range.
HanesBrands Reports Third-Quarter 2017 Growth - Page 3
For 2017, the company expects net sales of approximately $6.450 billion to $6.475 billion, GAAP operating profit of $830 million to $840 million, adjusted operating profit excluding actions of $925 million to $935 million, GAAP EPS for continuing operations of $1.68 to $1.70, adjusted EPS for continuing operations excluding actions of $1.93 to $1.95, and net cash from operations of $625 million to $725 million.
Implied Fourth-Quarter Guidance. Based on year-to-date results and full-year guidance, the company expects total net sales of approximately $1.625 billion to $1.650 billion in the fourth quarter, which represents organic growth of approximately 3 percent at the midpoint.
The sales guidance reflects several factors, including: a cautious outlook for the U.S. sales environment; an estimated $15 million in sales expected from the acquisition of Alternative Apparel; and the expected adverse effect of the Sears Canada bankruptcy.
GAAP EPS for the fourth quarter is expected to be $0.47 to $0.49, and adjusted EPS is expected to be $0.51 to $0.53. The guidance for both measures reflects an estimated $0.05 effect of increased marketing investment to drive organic growth, a higher mix of International segment sales than earlier expectations, and the estimated impact from the Sears Canada bankruptcy, partially offset by higher-than-expected acquisition synergies.
Other fourth-quarter implied guidance includes expectations for GAAP operating profit of $227 million to $237 million, and adjusted operating profit of $241 million to $251 million. The company expects a tax rate of roughly 5 percent and approximately 369 million weighted average diluted shares outstanding.
Additional Full-Year Guidance. The company expects more than $20 million in synergy cost benefits in 2017.
Including the acquisition of Alternative Apparel, the company expects to incur an estimated $95 million of pretax charges for acquisition and integration-related actions.
The company expects capital expenditures of approximately $90 million in 2017. The company is not required to make a pension contribution in 2017 and does not anticipate making a voluntary contribution.
Hanes expects interest expense and other expenses to be approximately $180 million combined.
Hanes has updated its quarterly frequently-asked-questions document, which is available at www.Hanes.com/faq.
Note on Adjusted Measures and Reconciliation to GAAP Measures
To supplement our financial guidance prepared in accordance with generally accepted accounting principles, we provide quarterly and full-year results and guidance concerning certain non-GAAP financial measures, including adjusted EPS, adjusted net income, adjusted operating profit (and margin), adjusted SG&A, adjusted gross profit (and margin) and EBITDA. The company also discusses organic sales, defined as net sales excluding contributions from acquisitions until the closest period end to the acquisition’s anniversary date.
HanesBrands Reports Third-Quarter 2017 Growth - Page 4
Adjusted EPS is defined as diluted EPS from continuing operations excluding actions and the tax effect on actions. Adjusted net income is defined as net income from continuing operations excluding actions and the tax effect on actions. Adjusted operating profit is defined as operating profit excluding actions. Adjusted gross profit is defined as gross profit excluding actions. Adjusted SG&A is defined as selling, general and administrative expenses excluding actions.
Actions during the periods presented include adjustments for acquisition-related and integration costs. These costs include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, inventory write-offs, information technology integration costs, and similar charges. While these costs are not operational in nature and are not expected to continue for any singular transaction on an ongoing basis, similar types of costs, expenses and charges have occurred in prior periods and may recur in the future as the company continues to integrate prior acquisitions and pursues any future acquisitions.
Hanes has chosen to present these non-GAAP measures, as well as organic sales, to investors to enable additional analyses of past, present and future operating performance and as a supplemental means of evaluating operations absent the effect of acquisitions and other actions. Hanes believes these non-GAAP measures provide management and investors with valuable supplemental information for analyzing the operating performance of the company’s ongoing business during each period presented without giving effect to costs associated with the execution and integration of any of the aforementioned actions taken.
In addition, the company has chosen to present EBITDA to investors because it considers that measure to be an important supplemental means of evaluating operating performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
Hanes believes that EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management uses EBITDA for planning purposes in connection with setting its capital allocation strategy. EBITDA should not, however, be considered as a measure of discretionary cash available to invest in the growth of the business.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as an alternative to, or substitute for, financial results prepared in accordance with GAAP. Further, the non-GAAP measures presented may be different from non-GAAP measures with similar or identical names presented by other companies.
Hanes expects to incur approximately $95 million in pretax charges in 2017 related to acquisition integrations of Hanes Europe Innerwear, Hanes Australasia, Champion Europe, Knights Apparel, and Alternative Apparel, along with an effective tax rate of approximately 5 percent. In the fourth quarter of 2017, Hanes expects approximately $14 million in pretax charges related to acquisition integrations, along with an effective tax rate of roughly 5 percent.
The company expects approximately 369 million and approximately 370 million weighted average diluted shares outstanding for the fourth quarter and full-year 2017, respectively.
To calculate organic sales for the third quarter, net sales were reduced by the approximately $15 million contributed by the acquisition of GTM Sportswear. For the fourth quarter, organic sales will exclude the contributions of Alternative Apparel, which is expected to be approximately $15 million. With the third-quarter anniversary of the GTM acquisition, GTM sales in the fourth quarter will be considered organic.
HanesBrands Reports Third-Quarter 2017 Growth - Page 5
Webcast Conference Call
Hanes will host an internet webcast of its quarterly investor conference call at 4:30 p.m. EDT today. The broadcast, which will consist of prepared remarks followed by a question-and-answer session, may be accessed at www.Hanes.com/investors. The call is expected to conclude by 5:30 p.m.
An archived replay of the conference call webcast will be available at www.Hanes.com/investors. A telephone playback will be available from approximately 7:30 p.m. EDT today through midnight EST Nov. 8, 2017. The replay will be available by calling toll-free (855) 859-2056, or by toll call at (404) 537-3406. The replay pass code is 2460422.
Cautionary Statement Concerning Forward-Looking Statements
This press release contains certain forward-looking statements, as defined under U.S. federal securities laws, with respect to our long-term goals and trends associated with our business, as well as guidance as to future performance. In particular, among others, statements following the heading 2017 Financial Guidance, as well as statements about the benefits anticipated from the acquisitions of GTM Sportswear and Alternative Apparel and assumptions regarding organic growth and fourth-quarter financial performance. These forward-looking statements are based on our current intent, beliefs, plans and expectations. Readers are cautioned not to place any undue reliance on any forward-looking statements. Forward-looking statements necessarily involve risks and uncertainties, many of which are outside of our control, that could cause actual results to differ materially from such statements and from our historical results and experience. These risks and uncertainties include such things as: the highly competitive and evolving nature of the industry in which we compete; any inadequacy, interruption, integration failure or security failure with respect to our information technology; significant fluctuations in foreign exchange rates; the rapidly changing retail environment; our complex multinational tax structure; our ability to properly manage strategic projects; our ability to attract and retain a senior management team with the core competencies needed to support our growth in global markets; risks related to our international operations, including the impact to our business as a result of the United Kingdom’s recent referendum to leave the European Union; the impact of significant fluctuations and volatility in various input costs, such as cotton and oil-related materials, utilities, freight and wages; our ability to access sufficient capital at reasonable rates or commercially reasonable terms or to maintain sufficient liquidity in the amounts and at the times needed; and other risks identified from time to time in our most recent Securities and Exchange Commission reports, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Since it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, the above list should not be considered a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and HanesBrands undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, other than as required by law.
HanesBrands Reports Third-Quarter 2017 Growth - Page 6
HanesBrands
HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Europe, Australia and Asia-Pacific. The company sells its products under some of the world’s strongest apparel brands, including Hanes, Champion, Maidenform, DIM, Bali, Playtex, Bonds, JMS/Just My Size, Nur Die/Nur Der, L’eggs, Lovable, Wonderbra, Berlei, Alternative, and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain. A member of the S&P 500 stock index, Hanes has approximately 68,000 employees in more than 40 countries and is ranked No. 432 on the Fortune 500 list of America’s largest companies by sales. Hanes takes pride in its strong reputation for ethical business practices. The company is the only apparel producer to ever be honored by the Great Place to Work Institute for its workplace practices in Central America and the Caribbean, and is ranked No. 110 on the Forbes magazine list of America’s Best Large Employers. For eight consecutive years, Hanes has won the U.S. Environmental Protection Agency Energy Star sustained excellence/partner of the year award - the only apparel company to earn sustained excellence honors. The company ranks No. 172 on Newsweek magazine’s green list of 500 largest U.S. companies for environmental achievement. More information about the company and its corporate social responsibility initiatives, including environmental, social compliance and community improvement achievements, may be found at www.Hanes.com/corporate. Connect with HanesBrands via social media on Twitter (@hanesbrands) and Facebook (www.facebook.com/hanesbrandsinc).
# # #
TABLE 1
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(Amounts in thousands, except per-share amounts)
(Unaudited)
Quarter Ended | Nine Months Ended | ||||||||||||||||||||
September 30, 2017 | October 1, 2016 | % Change | September 30, 2017 | October 1, 2016 | % Change | ||||||||||||||||
Net sales | $ | 1,799,270 | $ | 1,761,019 | 2.2 | % | $ | 4,826,235 | $ | 4,452,890 | 8.4 | % | |||||||||
Cost of sales | 1,120,813 | 1,111,653 | 2,962,345 | 2,788,977 | |||||||||||||||||
Gross profit | 678,457 | 649,366 | 4.5 | % | 1,863,890 | 1,663,913 | 12.0 | % | |||||||||||||
As a % of net sales | 37.7 | % | 36.9 | % | 38.6 | % | 37.4 | % | |||||||||||||
Selling, general and administrative expenses | 425,153 | 421,014 | 1,260,641 | 1,091,946 | |||||||||||||||||
As a % of net sales | 23.6 | % | 23.9 | % | 26.1 | % | 24.5 | % | |||||||||||||
Operating profit | 253,304 | 228,352 | 10.9 | % | 603,249 | 571,967 | 5.5 | % | |||||||||||||
As a % of net sales | 14.1 | % | 13.0 | % | 12.5 | % | 12.8 | % | |||||||||||||
Other expenses | 1,881 | 1,559 | 4,659 | 50,533 | |||||||||||||||||
Interest expense, net | 43,917 | 43,433 | 130,184 | 111,539 | |||||||||||||||||
Income from continuing operations before income tax expense | 207,506 | 183,360 | 468,406 | 409,895 | |||||||||||||||||
Income tax expense | 4,150 | 10,570 | 19,804 | 28,693 | |||||||||||||||||
Income from continuing operations | 203,356 | 172,790 | 17.7 | % | 448,602 | 381,202 | 17.7 | % | |||||||||||||
Income (loss) from discontinued operations, net of tax | — | 1,068 | (2,097 | ) | 1,068 | ||||||||||||||||
Net income | $ | 203,356 | $ | 173,858 | 17.0 | % | $ | 446,505 | $ | 382,270 | 16.8 | % | |||||||||
Earnings per share - basic: | |||||||||||||||||||||
Continuing operations | $ | 0.56 | $ | 0.46 | $ | 1.22 | $ | 1.00 | |||||||||||||
Discontinued operations | — | — | (0.01 | ) | — | ||||||||||||||||
Net income | $ | 0.56 | $ | 0.46 | 21.7 | % | $ | 1.21 | $ | 1.00 | 21.0 | % | |||||||||
Earnings per share - diluted: | |||||||||||||||||||||
Continuing operations | $ | 0.55 | $ | 0.45 | $ | 1.21 | $ | 0.99 | |||||||||||||
Discontinued operations | — | — | (0.01 | ) | — | ||||||||||||||||
Net income | $ | 0.55 | $ | 0.45 | 22.2 | % | $ | 1.20 | $ | 0.99 | 21.2 | % | |||||||||
Weighted average shares outstanding: | |||||||||||||||||||||
Basic | 366,083 | 379,368 | 368,885 | 382,235 | |||||||||||||||||
Diluted | 368,160 | 382,558 | 370,947 | 385,478 | |||||||||||||||||
TABLE 2
HANESBRANDS INC.
Supplemental Financial Information
(Dollars in thousands)
(Unaudited)
Quarter Ended | Nine Months Ended | ||||||||||||||||||||
September 30, 2017 | October 1, 2016 | % Change | September 30, 2017 | October 1, 2016 | % Change | ||||||||||||||||
Segment net sales1: | |||||||||||||||||||||
Innerwear | $ | 644,059 | $ | 679,096 | (5.2 | )% | $ | 1,868,255 | $ | 1,953,807 | (4.4 | )% | |||||||||
Activewear | 519,496 | 516,713 | 0.5 | % | 1,226,595 | 1,207,767 | 1.6 | % | |||||||||||||
International | 556,730 | 478,122 | 16.4 | % | 1,509,370 | 1,026,871 | 47.0 | % | |||||||||||||
Other | 78,985 | 87,088 | (9.3 | )% | 222,015 | 264,445 | (16.0 | )% | |||||||||||||
Total net sales | $ | 1,799,270 | $ | 1,761,019 | 2.2 | % | $ | 4,826,235 | $ | 4,452,890 | 8.4 | % | |||||||||
Segment operating profit1: | |||||||||||||||||||||
Innerwear | $ | 141,002 | $ | 147,902 | (4.7 | )% | $ | 407,982 | $ | 435,660 | (6.4 | )% | |||||||||
Activewear | 79,015 | 72,962 | 8.3 | % | 162,053 | 160,076 | 1.2 | % | |||||||||||||
International | 76,414 | 61,312 | 24.6 | % | 185,216 | 109,184 | 69.6 | % | |||||||||||||
Other | 10,162 | 9,199 | 10.5 | % | 16,250 | 27,408 | (40.7 | )% | |||||||||||||
General corporate expenses/other | (36,415 | ) | (20,436 | ) | 78.2 | % | (86,949 | ) | (68,710 | ) | 26.5 | % | |||||||||
Acquisition-related and integration charges | (16,874 | ) | (42,587 | ) | (60.4 | )% | (81,303 | ) | (91,651 | ) | (11.3 | )% | |||||||||
Total operating profit | $ | 253,304 | $ | 228,352 | 10.9 | % | $ | 603,249 | $ | 571,967 | 5.5 | % | |||||||||
EBITDA2: | |||||||||||||||||||||
Net income from continuing operations | $ | 203,356 | $ | 172,790 | 17.7 | % | $ | 448,602 | $ | 381,202 | 17.7 | % | |||||||||
Interest expense, net | 43,917 | 43,433 | 1.1 | % | 130,184 | 111,539 | 16.7 | % | |||||||||||||
Income tax expense | 4,150 | 10,570 | (60.7 | )% | 19,804 | 28,693 | (31.0 | )% | |||||||||||||
Depreciation and amortization | 31,667 | 26,888 | 17.8 | % | 89,762 | 73,715 | 21.8 | % | |||||||||||||
Total EBITDA | $ | 283,090 | $ | 253,681 | 11.6 | % | $ | 688,352 | $ | 595,149 | 15.7 | % | |||||||||
¹ | In the first quarter of 2017, the Company realigned its reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker. The former Direct to Consumer segment, which consisted of the Company’s U.S. value-based (“outlet”) stores, legacy catalog business and U.S. retail Internet operations, was eliminated. The Company’s U.S. retail Internet operations, which sells products directly to consumers, is now reported in the respective Innerwear and Activewear segments. The Other category consists of the Company’s U.S. value-based (“outlet”) stores, U.S. hosiery business (previously reported in the Innerwear segment) and legacy catalog operations. Prior year segment sales and operating profit results have been revised to conform to the current year presentation. |
2 | Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure. |
TABLE 3
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 400,045 | $ | 460,245 | |||
Trade accounts receivable, net | 1,009,188 | 836,924 | |||||
Inventories | 1,953,918 | 1,840,565 | |||||
Other current assets | 196,875 | 137,535 | |||||
Current assets of discontinued operations | — | 45,897 | |||||
Total current assets | 3,560,026 | 3,321,166 | |||||
Property, net | 624,602 | 692,464 | |||||
Trademarks and other identifiable intangibles, net | 1,371,007 | 1,285,458 | |||||
Goodwill | 1,141,942 | 1,098,540 | |||||
Deferred tax assets | 504,059 | 464,872 | |||||
Other noncurrent assets | 79,087 | 67,980 | |||||
Total assets | $ | 7,280,723 | $ | 6,930,480 | |||
Liabilities | |||||||
Accounts payable and accrued liabilities | $ | 1,467,270 | $ | 1,381,442 | |||
Notes payable | 23,969 | 56,396 | |||||
Accounts Receivable Securitization Facility | 250,995 | 44,521 | |||||
Current portion of long-term debt | 154,395 | 133,843 | |||||
Current liabilities of discontinued operations | — | 9,466 | |||||
Total current liabilities | 1,896,629 | 1,625,668 | |||||
Long-term debt | 3,566,547 | 3,507,685 | |||||
Pension and postretirement benefits | 378,573 | 371,612 | |||||
Other noncurrent liabilities | 207,807 | 201,601 | |||||
Total liabilities | 6,049,556 | 5,706,566 | |||||
Equity | 1,231,167 | 1,223,914 | |||||
Total liabilities and equity | $ | 7,280,723 | $ | 6,930,480 | |||
TABLE 4
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended | |||||||
September 30, 2017 | October 1, 2016 | ||||||
Operating Activities: | |||||||
Net income | $ | 446,505 | $ | 382,270 | |||
Depreciation and amortization | 89,762 | 73,715 | |||||
Other noncash items | 3,703 | 51,046 | |||||
Changes in assets and liabilities, net | (208,880 | ) | (298,740 | ) | |||
Net cash from operating activities | 331,090 | 208,291 | |||||
Investing Activities: | |||||||
Purchases/sales of property and equipment, net, and other | (56,020 | ) | 3,262 | ||||
Acquisition of businesses, net of cash acquired | (524 | ) | (963,127 | ) | |||
Disposition of businesses | 40,285 | — | |||||
Net cash from investing activities | (16,259 | ) | (959,865 | ) | |||
Financing Activities: | |||||||
Cash dividends paid | (165,211 | ) | (125,798 | ) | |||
Share repurchases | (299,919 | ) | (379,901 | ) | |||
Net borrowings on notes payable, debt and other | 97,532 | 1,385,624 | |||||
Net cash from financing activities | (367,598 | ) | 879,925 | ||||
Effect of changes in foreign currency exchange rates on cash | (7,433 | ) | 2,693 | ||||
Change in cash and cash equivalents | (60,200 | ) | 131,044 | ||||
Cash and cash equivalents at beginning of year | 460,245 | 319,169 | |||||
Cash and cash equivalents at end of period | $ | 400,045 | $ | 450,213 | |||
TABLE 5
HANESBRANDS INC.
Supplemental Financial Information
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(Amounts in thousands, except per-share amounts)
(Unaudited)
Quarter Ended | Nine Months Ended | ||||||||||||||
September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | ||||||||||||
Gross profit, as reported under GAAP | $ | 678,457 | $ | 649,366 | $ | 1,863,890 | $ | 1,663,913 | |||||||
Acquisition-related and integration charges | 2,230 | 13,563 | 21,989 | 27,732 | |||||||||||
Gross profit, as adjusted | $ | 680,687 | $ | 662,929 | $ | 1,885,879 | $ | 1,691,645 | |||||||
As a % of net sales | 37.8 | % | 37.6 | % | 39.1 | % | 38.0 | % | |||||||
Selling, general and administrative expenses, as reported under GAAP | $ | 425,153 | $ | 421,014 | $ | 1,260,641 | $ | 1,091,946 | |||||||
Acquisition-related and integration charges | (14,644 | ) | (29,024 | ) | (59,314 | ) | (63,919 | ) | |||||||
Selling, general and administrative expenses, as adjusted | $ | 410,509 | $ | 391,990 | $ | 1,201,327 | $ | 1,028,027 | |||||||
As a % of net sales | 22.8 | % | 22.3 | % | 24.9 | % | 23.1 | % | |||||||
Operating profit, as reported under GAAP | $ | 253,304 | $ | 228,352 | $ | 603,249 | $ | 571,967 | |||||||
Acquisition-related and integration charges included in gross profit | 2,230 | 13,563 | 21,989 | 27,732 | |||||||||||
Acquisition-related and integration charges included in SG&A | 14,644 | 29,024 | 59,314 | 63,919 | |||||||||||
Operating profit, as adjusted | $ | 270,178 | $ | 270,939 | $ | 684,552 | $ | 663,618 | |||||||
As a % of net sales | 15.0 | % | 15.4 | % | 14.2 | % | 14.9 | % | |||||||
Net income from continuing operations, as reported under GAAP | $ | 203,356 | $ | 172,790 | $ | 448,602 | $ | 381,202 | |||||||
Acquisition-related and integration charges included in gross profit | 2,230 | 13,563 | 21,989 | 27,732 | |||||||||||
Acquisition-related and integration charges included in SG&A | 14,644 | 29,024 | 59,314 | 63,919 | |||||||||||
Debt refinance charges included in other expenses | — | — | — | 47,291 | |||||||||||
Tax effect on actions | (338 | ) | (2,017 | ) | (4,204 | ) | (9,726 | ) | |||||||
Net income from continuing operations, as adjusted | $ | 219,892 | $ | 213,360 | $ | 525,701 | $ | 510,418 | |||||||
Diluted earnings per share from continuing operations, as reported under GAAP | $ | 0.55 | $ | 0.45 | $ | 1.21 | $ | 0.99 | |||||||
Acquisition-related and integration charges | 0.04 | 0.11 | 0.21 | 0.34 | |||||||||||
Diluted earnings per share from continuing operations, as adjusted | $ | 0.60 | $ | 0.56 | $ | 1.42 | $ | 1.32 | |||||||
1
Hanesbrands FAQs
Updated November 1, 2017 – New or updated information is in red
Current Period FAQs (Guidance comments as of November 1, 2017)
Q: Can you provide any insights into your revenue mix?
A: Through various growth initiatives and acquisitions, we have significantly diversified our revenue base over the past
several years. Today, using our current quarter mix, we have roughly 1/3 of our revenue from outside the U.S. (versus
approximately 13% in 2014); roughly 40% from activewear products (versus approximately 1/3 in 2014); and nearly
20% from online and our own retail operations (versus single‐digits in 2014). Our strategic initiative to diversify our
revenue mix is driving our return to organic revenue growth as our key growth initiatives, specifically online,
Champion, and international, are now large enough to offset the challenges within the U.S. wholesale market.
Q: Can you comment on organic revenue growth in the quarter?
A: In our guidance from Q2 (see August 1, 2017 FAQ document) we guided third quarter net sales of approximately $1.80
billion, which implied total revenue growth of roughly 2.5% and included approximately $10 million of acquisition
contributions. In the third quarter, we reported net sales of $1.80 billion, which represents total revenue growth of
2.2% and included roughly $15 million from acquisition contributions. Third quarter organic revenue growth of more
than 1% (roughly 1% in constant currency) was in‐line with our guidance. Organic revenue growth in the quarter was
driven by our key growth strategies, specifically online, Champion, and international, which are now large enough to
offset the challenges within the U.S. wholesale market.
Looking to the fourth quarter, recall our August 1, 2017 FAQ document mentioned that we believed total revenue
growth of roughly 2.5% was a good assumption to use for the fourth quarter (at the time, total revenue growth was
expected to be all organic). Our current fourth quarter guidance implies total revenue growth of 3.2% to 4.7%,
including approximately $15 million from our recent acquisition of Alternative Apparel (closed October 13). Excluding
Alternative Apparel, to be comparable with our prior expectation, our fourth quarter revenue guidance (i.e. organic
revenue) implies growth of 2.2% to 3.8%, which is in‐line to slightly better than our previous assumption of an
increase of roughly 2.5%. We estimate F/X represents roughly 100 basis points of the fourth quarter growth rate,
which essentially in‐line with our prior assumptions.
Q: What is factored into your fourth quarter 2017 guidance?
A: We expect total net sales of $1.625 billion to $1.650 billion, which includes approximately $15 million from our recent
acquisition of Alternative Apparel. Our revenue guidance implies total revenue growth of 3.2% to 4.7% and organic
revenue growth of 2.2% to 3.8%. We estimate F/X represents roughly 100 basis points of the fourth quarter growth
rate. Our guidance includes continued performance from our key growth initiatives, specifically online, Champion,
and international, as well as a prudent outlook toward U.S. holiday (we are not expecting a traditional holiday
inventory build and we are lapping the destocking event in our Basics business last year). Our guidance for GAAP EPS
from continuing operations is $0.47 to $0.49, and our guidance for adjusted EPS from continuing operations, which
excludes pretax acquisition and integration‐related expenses, is $0.51 to $0.53. Our EPS guidance (both GAAP and
Adjusted) reflects an incremental net headwind of roughly $0.05 per share (versus our prior assumptions). This
includes incremental headwinds of: (1) our decision to increase marketing and media investment to drive growth,
primarily in our U.S. Innerwear business (the largest bucket); (2) the unexpected impact from the Sears Canada
bankruptcy; and, (3) a larger mix of international sales (versus our prior outlook), which temporarily carry a lower
operating margin as we have yet to fully recognize synergies from prior acquisitions. These incremental headwinds
are partially offset by higher‐than‐expected acquisition synergies. Our guidance also assumes: (1) approximately $45
million of interest and other expense; and (2) a roughly 5% tax rate.
2
Q: What is factored into your guidance for 2017?
A: The main factors driving our full‐year guidance at this point in the year are our actual year‐to‐date results and our
current expectations for the fourth quarter (see prior question).
Revenue: Our full‐year revenue guidance of $6.450 billion to $6.475 billion implies organic revenue of flat to down
slightly. This is essentially unchanged from our prior outlook as our comments in the August 1, 2017 FAQ document
indicated full‐year revenue was forecasted to be at the low‐end of our previously stated guidance range, implying
roughly flat organic sales. Our revenue guidance assumes approximately $460 million of acquisition contributions,
including $15 million from our recently completed acquisition of Alternative Apparel. This compares to our prior
estimate of roughly $440 million of acquisition contributions (this did not include the approximately $15 million from
Alternative Apparel, which closed on October 13).
Operating Profit and EPS (GAAP and Adjusted): We adjusted our outlook to reflect an incremental net headwind of
roughly $0.06 per share in EPS (roughly $0.01 headwind to Q3 EPS and an estimated roughly $0.05 headwind to Q4
EPS). This includes incremental headwinds of: (1) our decision to increase marketing and media investment to drive
growth, primarily in our U.S. Innerwear business (the largest bucket); (2) the unexpected impact late in the year from
hurricanes in the U.S., an earthquake in Mexico, and the Sears Canada bankruptcy; and, (3) a larger mix of
international sales (versus our prior outlook), which temporarily carry a lower operating margin as we have yet to
fully recognize synergies from prior acquisitions. These incremental headwinds are partially offset by higher‐than‐
expected acquisition synergies.
Cash flow from operations: Our full‐year guidance range is unchanged. However, based on our year‐to‐date
performance and our stated focus on driving structural improvements in working capital, we believe we could be at or
above the midpoint of our guidance range.
Pretax expenses and Acquisition Synergies: Our guidance includes approximately $95 million of pretax acquisition
and integration‐related expenses, which includes expenses related to our recent acquisition of Alternative Apparel
(versus our prior estimate of $80 million to $90 million, which did not reflect any costs related to Alternative Apparel
as this transaction closed on October 13). Our guidance also includes acquisition synergies of more than $20 million
(versus our prior estimate of approximately $15 million). The increased outlook for pretax acquisition and
integration‐related spending is directly correlated to our increased outlook for acquisition‐related synergies.
Q: Can you provide any thoughts on 2018 and beyond?
A: We will provide specific 2018 guidance when we report fourth quarter 2017 results. However, we see various growth
drivers over the next several years. We believe we are solidly positioned to deliver organic growth due to our
diversified revenue base as our key growth drivers, specifically online, Champion and international are large enough
to offset challenges in the U.S. wholesale market. We believe we have visible profit and cash flow drivers, including
our remaining acquisition synergies and the net cost savings from Project Booster. We also expect future acquisitions
to continue to add to our growth profile.
3
Q: Can you provide any thoughts on your margin performance in the third quarter?
A: As expected, third quarter gross margin increased roughly 20 basis points over prior year as the result of supply chain
efficiency gains. Operating margin declined roughly 40 basis points from prior year due to a higher amount of
international sales in the quarter (recall our international segment has a temporarily lower operating margin as we
have yet to recognize full synergies from our prior acquisitions) and higher corporate expenses (examples include,
increased amortization as a result of acquisitions and accounting expenses related to F/X). Each of our segment
operating margins increased over prior year. With respect to the fourth quarter, we expect gross margin to be flat to
up slightly versus prior year, while our guidance (at the midpoint) implies roughly 90 basis points of operating margin
dilution versus prior year (driven by the same factors that impacted third quarter – discussed above).
Q: It appears your third quarter EPS benefitted from a lower‐than‐expected tax rate, can you comment?
A: While we do not comment on our results versus consensus expectations, we did see a lower tax rate in the third
quarter relative to our previously guided full‐year rate (see question below). However, we also were impacted by
roughly $0.02 per share of unexpected headwinds in the quarter. Roughly $0.01 per share was related to the
hurricanes in the U.S. and the earthquake in Mexico, which we highlighted in our earnings call. We also saw a
roughly $0.01 per share impact from mix as we generated higher international sales and lower Innerwear sales in the
quarter, relative to our initial expectations (recall our international segment has a temporarily lower operating
margin as we have yet to recognize full synergies from our prior acquisitions).
Q: Can you provide any thoughts on your tax rate in the third quarter?
A: Our tax rate for the third quarter was 2% and was the result of a higher level of profit from low‐tax jurisdictions as
well as our normal third quarter discrete items related to the finalization of the prior year federal tax return. A
corporate tax rate is typically based on a detailed estimate driven by a variety of factors. In a given year, companies,
including Hanesbrands, reconcile their prior year estimated tax rate to their actual tax rate once their tax returns are
filed. For us, the reconciliation of our U.S. federal tax rate generally happens in the third quarter, which is when we
typically file our federal tax return. With respect to the fourth quarter, our guidance assumes a roughly 5% tax rate.
Q: What drove the strong year‐over‐year improvement in cash flow from operations in the nine months of 2017?
A: Entering 2017, our goal, with respect to cash flow from operations, was twofold. First, level out the performance of
cash flow from operations, which has historically seen a large use of cash in the first half. Second, drive improvement
in working capital. For the nine months, cash flow from operations, which was roughly $331 million, improved
approximately $123 million over last year as the result of structural improvements to working capital in 2017. Our
performance year‐to‐date gives us confidence in our ability to deliver cash flow from operations at or above the
midpoint of our full‐year 2017 guidance range.
Q: How much did acquisitions contribute to the revenue and adjusted operating profit results?
A: For the third quarter, acquisitions contributed approximately $15 million in revenue and approximately $1 million in
adjusted operating profit, which excludes pretax acquisition and integration‐related charges. Beyond the multi‐year
cost synergies, many of our acquisitions are fast growing businesses, which are now contributing to organic revenue
growth. Alternative Apparel (acquired October 13) is another example of an acquisition that has significant revenue
growth opportunities but is justifiable based solely on high probability cost synergies. We believe Alternative Apparel
can deliver an after‐tax, unlevered IRR (Internal Rate of Return) of at least 20% based solely on SG&A and supply
chain cost synergies. However, we also see significant revenue growth opportunities (which are not factored into the
above mention IRR) by broadening distribution across several of our brands, including the Alternative brand.
4
Q: Can you explain how you get from your current 2017 cash flow from operations guidance to a run rate of over $1
billion in annual cash flow from operations by the end of 2019?
A: We believe we are very well positioned to achieve a run rate of more than $1 billion a year of cash flow from
operations by the end of 2019. Beginning with the mid‐point of our 2017 guidance, which implies GAAP Net Income
of approximately $625 million and includes a roughly 5% tax rate: (1) add approximately $80 million of pre‐tax
synergies (the remaining expected synergies in 2018 and 2019 from acquisitions already completed); (2) add‐back
approximately $95 million of pre‐tax acquisition and integration expense (we currently expect acquisition and
integration expenses related to completed acquisitions to be finished by the end of 2019); (3) add approximately $150
million of non‐cash items (D&A, stock comp, amortization of debt issuance costs); and, (4) add approximately $100
million of pre‐tax net cost savings from Project Booster. For simplicity, we made the following base‐level assumptions
in this exercise: no contributions/benefits from any future acquisitions, no organic revenue growth, no supply chain
efficiency gains (these have historically been $30‐$40 million annually), and no improvement in core operating
margins beyond the recognition of expected synergies from prior acquisitions. Any contribution from these items
would be additive to the above calculation. This exercise excludes the expected working capital improvements from
Project Booster.
Q: How big is the online channel for Hanesbrands?
A: Our U.S. online sales represent roughly 10% of our third quarter 2017 total U.S. sales across the online sites of
traditional retailers, online pure‐plays and our own websites. With respect to total company sales, online
represented roughly 9% sales.
Q: Do you believe a high‐single digit to low double‐digit tax rate is sustainable?
A: Yes. Assuming no changes to various global tax laws, we believe a high single‐digit to low double‐digit tax rate is
sustainable for many years to come. Our tax rate is the by‐product of our global business model. We do not use
artificial tax management, such as inversions or earnings stripping. Our accounting and tax strategies are sound. In
fact, we were recently audited by the IRS (see our third quarter 2015 Form 10Q) and the audit was closed with no
adjustments.
Q: Have your thoughts on capital allocation changed?
A: There is no change to our strategy. Our capital allocation strategy is to effectively deploy our significant, consistent
cash flow to generate the best long‐term returns for our shareholders. Over time, our goal is for our net debt‐to‐
EBITDA to be in a range of 2 to 3 times. Our strategy is to use our cash flow to fund capital investments and our
dividend, use debt for acquisitions and use excess free cash flow, which is defined as cash from operations less
capital expenditures and dividends, to repurchase stock.
Q: Will your capital expenditures increase significantly as a result of your acquisition strategy?
A: With acquisitions, as the size of our business, profit and cash flows increases, so should the absolute level of our
capital spending. Although our spending on capital expenditures has and is expected to continue to fluctuate year
to year, we expect our capital expenditures to average around 1.75% of sales going forward, which is in‐line with
our historical average, and over time should roughly equal depreciation. Spending at this level should allow our
global supply chain to remain competitive while also handling the increased capacity needs for growth and our
acquisition strategy.
5
Q: How does a change in currency exchange rates impact your financial results?
A: Changes in exchange rates between the U.S. Dollar and other currencies can impact our financial results in two
ways; a translation impact and a transaction impact. The translation impact refers to the impact that changes in
exchange rates can have on our published financial results. Similar to many multi‐national corporations that
publish financial results in U.S. Dollars, our revenue and profit earned in local foreign currencies is translated back
into U.S. Dollars using an average exchange rate over the representative period. A period of strengthening in the
U.S. Dollar results in a negative impact to our published financial results (because it would take more units of a
local currency to convert into a dollar). The opposite is true during a period of weakening in the U.S. Dollar. Our
biggest foreign currency exposure is the euro. The transaction impact on financial results is common for apparel
companies that source goods because these goods are purchased in U.S. Dollars. The transaction impact from a
strengthening dollar would be negative to our financial results (because the U.S. Dollar‐based costs would convert
into a higher amount of local currency units, which means a higher local‐currency cost of goods, and in turn, a
lower local‐currency gross profit). The transaction impact from exchange rates is typically recovered over time with
price increases. However, during periods of rapid change in exchange rates; pricing is unable to change quickly
enough. In these situations, it could make sense to hedge the exchange rate exposure in sourcing costs.
Project Booster FAQs
Q: What is Project Booster?
A: Project Booster is a multiyear initiative to increase investment for growth, reduce costs, and increase cash flow from
operations. Over the past number of years, through the execution of our Sell More, Spend Less and Generate Cash
strategy, in all of its variations, we have refined, strengthened, and evolved our business model. Over this time we
have delivered strong financial results and created a powerful, global commercial and supply chain footprint. With
Project Booster, we are entering the next phase in the evolution of our business model, where we plan to leverage our
global scale to extract the full revenue and cash flow potential from our business model.
Q: What is the financial impact and cadence related to Project Booster?
A: We launched Project Booster late in the first quarter of 2017 and we expect to deliver a run rate of its full annualized
benefits by the end of 2019. With Booster, we plan to leverage our global scale and rebalance our operations to
remove approximately $150 million of annual cost from our business. We anticipate reaching this annual run rate by
the end of 2019. We expect to annually reinvest roughly $50 million of these savings as well as reallocate resources
to build toward more consistent organic growth of 1 ‐ 2% annually. This is expected to result in approximately $100
million of annual net cost savings. We anticipate reaching the annual run rates for reinvestment and net cost savings
by the end of 2019. We also plan to drive approximately $200 million of improvements in working capital by the end
of 2019.
In terms of cadence, we expect Project Booster to be neutral to operating profit and cash flow from operations in
2017. We incurred approximately $7 million of cost in the first quarter 2017, or about 2 cents per share, and
approximately $8 million of cost in the second quarter 2017, or about 2 cents per share, primarily from headcount‐
related actions. The savings from these actions, which are expected to fully offset the first‐half 2017 costs, should
flow through in the third and fourth quarters of 2017. Looking to 2018 and 2019, we expect to recognize net cost
savings in both years. However we plan to ramp the incremental growth‐related investments at a faster pace,
therefore we would expect larger net cost savings in 2019 relative to 2018 with the full annual benefit expected in
2020 and beyond.
6
Q: Does Project Booster include benefits from prior strategies or prior acquisitions?
A: No. The benefits from Project Booster are on top of our anticipated annual $30 ‐ $40 million of supply chain efficiency
gains as well as on top of the expected remaining synergies from our prior acquisitions. Project Booster‐related costs,
roughly $15 million in the first half of 2017 (see prior question), are reflected in our adjusted operating results, which
means these costs are not part of our acquisition and integration‐related charges.
Q: Does Project Booster signal an end to or a diminished focus on your acquisition strategy?
A: No. Acquisitions remain a key component of our long‐term growth strategy as does our overall capital allocation
strategy. Acquisitions have generated significant incremental returns for shareholders. Since 2013, acquisitions have
brought with them approximately $2.4 billion in sales and approximately $200 million of operating profit, excluding
acquisition and integration‐related expenses. Assuming full synergies, these acquisitions are expected to deliver
roughly $420 million of operating profit, excluding acquisition and integration‐related charges, or more than double
their original operating profit base. Through the end of the first quarter 2017, we have generated approximately
$125 million of acquisition synergies with another roughly $95 million expected over the time period between the
second quarter 2017 and the end of 2019. Project Booster is not about de‐emphasizing our current strategies, rather
it is designed to further enhance them. Project Booster positions us to leverage the large, global footprint we created
through acquisitions to reduce cost, to reinvest a portion of these savings to step‐up growth‐related investments, and
to improve working capital to generate higher levels of sustainable cash flow from operations. We believe applying
our balanced capital allocation strategy to these higher levels of cash flow positons us to continue to drive strong
returns for shareholders.
Q: Where do you plan to invest the roughly $50 million from Project Booster to drive more consistent organic growth?
A: The changing retail environment requires a shift of our resources as well as the need for a step‐up in investment.
Through Project Booster, we plan to build toward more consistent organic growth of 1 ‐ 2% annually by reallocating
resources as well as increasing our annual investment in growth‐related initiatives, reaching a run rate of
approximately $50 million by the end of 2019. These investments are being funded with a portion of the expected
annual savings from Booster. Areas of investment include: (1) increased investment in our global portfolio of leading
brands, including brand building and marketing support; (2) accelerated development of our global omnichannel
capabilities, including online in the U.S. as well as online and retail in our international markets; and, (3) further
expansion of our Champion brand globally, driving to $2 billion in global sales (versus more than $1.2 billion at the
end of 2016).
Q: How do you plan to generate a run rate of roughly $150 million of annual cost savings from Project Booster by the
end of 2019?
A: Our cost reduction efforts, which are expected to build to a run rate of roughly $150 million of annual cost savings by
the end of 2019, are being driven by two initiatives. The first, and most significant, initiative is to further lower cost
within our supply chain by leveraging our increased global scale. Note, the Booster‐related cost savings come on top
of the expected synergies from prior acquisitions as well as on top of our expected annual supply chain efficiency
gains (see question at top of page). Examples include: procurement and product development efficiencies, utilizing
global fabric platforms and silhouettes, the redesign of our distribution network to more efficiently ship online orders,
and further optimizing our global textile and sewing operations to improve product flows. The second cost reduction
initiative is to reduce organizational overhead, including headcount, to better match resources with opportunities as
well as to reflect trends on a market‐by‐market basis.
Q: How do you plan to generate roughly $200 million of incremental cash flow through working capital improvements
related to Project Booster?
A: The expected roughly $200 million of working capital improvements, include improvements in inventory turns,
accounts receivable, and accounts payable.
7
# # #
Charges for Actions and Reconciliation to GAAP Measures
To supplement our financial guidance prepared in accordance with generally accepted accounting principles, we provide
quarterly and full‐year results and guidance concerning certain non‐GAAP financial measures, including adjusted EPS,
adjusted net income, adjusted operating profit (and margin), adjusted SG&A, adjusted gross profit (and margin) and
EBITDA. The company also discusses organic sales, defined as net sales excluding contributions from acquisitions until the
closest period end to the acquisition’s anniversary date.
Adjusted EPS is defined as diluted EPS excluding actions and the tax effect on actions. Adjusted net income is defined as net
income excluding actions and the tax effect on actions. Adjusted operating profit is defined as operating profit excluding
actions. Adjusted gross profit is defined as gross profit excluding actions. Adjusted SG&A is defined as selling, general and
administrative expenses excluding actions. EBITDA is defined as earnings before interest, taxes, depreciation and
amortization.
Actions during the periods presented include adjustments for acquisition and integration costs. Acquisition and integration
costs include adjustments directly related to completed acquisitions and their integration. These costs include legal fees,
consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, inventory write‐offs,
information technology integration costs, and similar charges. While these costs are not operational in nature and are not
expected to continue for any singular transaction on an ongoing basis, similar types of costs, expenses and charges have
occurred in prior periods and may recur in the future as the company continues to integrate prior acquisitions and pursues
any future acquisitions. We have chosen to present these non‐GAAP measures, as well as organic sales, to investors to
enable additional analyses of past, present and future operating performance and as a supplemental means of evaluating
operations absent the effect of acquisition‐related expenses and other actions. We believe these non‐GAAP measures
provide management and investors with valuable supplemental information for analyzing the operating performance of
the company’s ongoing business during each period presented without giving effect to costs associated with the execution
and integration of any of the aforementioned actions taken.
In addition to these non‐GAAP measures, we have chosen to present EBITDA to investors because we consider it to be an
important supplemental means of evaluating operating performance. We believe that EBITDA is frequently used by
securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management
uses EBITDA for planning purposes in connection with setting its capital allocation strategy. EBITDA should not, however,
be considered as a measure of discretionary cash available to invest in the growth of the business.
Non‐GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as an
alternative to, or substitute for, financial results prepared in accordance with GAAP. Further, the non‐GAAP measures
presented may be different from non‐GAAP measures with similar or identical names presented by other companies.
See our press release dated November 1, 2017 to reconcile quarterly and full‐year non‐GAAP performance measures to the
most directly comparable GAAP measure. A copy of the press release is available at www.Hanes.com/investors.
Full‐year GAAP operating profit guidance of $830 million to $840 million, GAAP EPS guidance of $1.68 to $1.70, and fourth
quarter GAAP EPS guidance of $0.47 to $0.49 reflects Hanes’ expectations for net sales, operating profit, interest expense,
and tax rate from continuing operations as detailed in this FAQ document. Full‐year Non‐GAAP adjusted operating profit
guidance of $925 million to $935 million and adjusted EPS guidance of $1.93 to $1.95 reflects the GAAP guidance adjusted
by adding back the approximately $95 million of expected pretax charges for acquisition and integration expenses to
adjusted operating profit and adjusted EPS, as well as a 2017 full‐year tax rate of roughly 5%, assuming no changes to U.S.
tax law and policy. Fourth quarter guidance for adjusted EPS of $0.51 to $0.53 reflects the GAAP guidance adjusted by
adding back approximately $14 million of expected pretax charges for acquisition integration expenses to adjusted EPS.
8
Cautionary Statement Concerning Forward‐Looking Statements
These FAQs certain “forward‐looking statements,” as defined under U.S. federal securities laws, with respect to our
long‐term goals and trends associated with our business, as well as guidance as to future performance. In particular,
among others, statements regarding 2017 financial guidance, as well as statements about the benefits anticipated from
Project Booster, and the Alternative Apparel acquisition, and assumptions regarding consumer behavior, foreign
exchange rates and U.S. tax law and policy are forward‐looking statements. These forward‐looking statements are
based on our current intent, beliefs, plans and expectations. Readers are cautioned not to place any undue reliance on
any forward‐looking statements. Forward‐looking statements necessarily involve risks and uncertainties, many of which
are outside of our control, that could cause actual results to differ materially from such statements and from our
historical results and experience. These risks and uncertainties include such things as: the highly competitive and
evolving nature of the industry in which we compete; any inadequacy, interruption, integration failure or security failure
with respect to our information technology; significant fluctuations in foreign exchange rates; ; the rapidly changing
retail environment; our complex multinational tax structure our ability to properly manage strategic projects; our ability
to attract and retain a senior management team with the core competencies needed to
support our growth in global markets; risks related to our international operations, including the impact to our business
as a result of the United Kingdom’s recent referendum to leave the European Union; the impact of significant
fluctuations and volatility in various input costs, such as cotton and oil‐related materials, utilities, freight and wages; our
ability to access sufficient capital at reasonable rates or commercially reasonable terms or to maintain sufficient
liquidity in the amounts and at the times needed; and other risks identified from time to time in our most recent
Securities and Exchange Commission reports, including our annual report on Form 10‐K and quarterly reports on Form
10‐Q. Since it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future
results, the above list should not be considered a complete list. Any forward‐looking statement speaks only as of the
date on which such statement is made, and we undertake no obligation to update or revise any forward‐looking
statement, whether as a result of new information, future events or otherwise, other than as required by law.
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