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): February 7, 2019
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 elected 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 February 7, 2019, Hanesbrands Inc. (“Hanesbrands” or the “Company”) issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 29, 2018. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
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 our previously announced conference call with investors and analysts to be held at 8:30 a.m., Eastern time, today (February 7, 2019). 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 noon, Eastern time, on February 7, 2019, until midnight, Eastern time, on February 14, 2019. 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 8029765.
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.
February 7, 2019 | HANESBRANDS INC. | |||
By: | /s/ Barry A. Hytinen | |||
Barry A. Hytinen | ||||
Chief Financial Officer | ||||
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 FULL-YEAR AND FOURTH-QUARTER 2018 FINANCIAL RESULTS
• | Strong 4Q growth includes net sales up 7%, constant-currency organic sales up 6%, operating profit up double digits, and in-line EPS performance |
• | 4Q GAAP EPS of $0.44 and adjusted EPS of $0.48 |
• | Strong net cash from operations of $502 million in 4Q and $643 million in full-year 2018; and for 2019, company expects $700 million to $800 million of operating cash flow |
• | Net debt reduced to 3.3 times adjusted EBITDA with $403 million of total 4Q debt reduction |
• | Regular quarterly cash dividend declared and full-year 2019 guidance issued |
WINSTON-SALEM, N.C. (Feb. 7, 2019) - HanesBrands (NYSE: HBI), a leading global marketer of everyday basic apparel under world-class brands, today announced fourth-quarter 2018 results, including net sales growth of 7 percent, double-digit operating profit growth, operating cash flow of $502 million, and total debt reduction of $403 million.
The company also declared a regular quarterly cash dividend of $0.15 per share and issued full-year 2019 financial guidance, including midpoint expectations of approximately 2 percent net sales growth, 7 percent GAAP diluted earnings per share growth, 3 percent adjusted diluted EPS growth, and 17 percent operating cash flow growth.
For the fourth quarter ended Dec. 29, 2018, net sales increased 7 percent to $1.77 billion and constant-currency organic sales increased 6 percent, the sixth consecutive quarterly increase for sales from operations owned for at least one year. Also driving results were growth in the Activewear and International segments as well as Innerwear sales in line with guidance.
“We had a strong fourth quarter with organic sales growth, margin expansion, double-digit operating profit growth, strong cash generation, and significant debt and leverage reduction,” said Hanes Chief Executive Officer Gerald W. Evans Jr.
Evans noted: “Our diversification strategy is working. We had strong double-digit global Champion growth, International innerwear growth in Australia, Asia and the Americas, and increased sales for underwear and shapewear in the United States. Adjusted operating profit increased 10 percent, and adjusted operating margin increased 40 basis points. We generated record operating cash flow in the fourth quarter, and we paid down half a billion dollars of debt in the second half to reduce our leverage. Our outlook remains strong, including organic sales growth and significant cash flow growth expected in 2019, which underscores our progress toward achieving our long-term goals and enhancing value creation.”
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 2
Fourth-quarter GAAP operating profit increased 95 percent to $245 million, and GAAP EPS increased to $0.44. The year-over-year GAAP EPS comparison was affected by charges related to U.S. tax reform and an earn-out settlement related to the purchase of Champion Europe, both a year ago, and a higher tax rate in 2018 as a result of tax reform.
On an adjusted basis excluding actions, fourth-quarter adjusted operating profit of $260 million increased 10 percent, and adjusted EPS was $0.48 compared with $0.52 a year ago. Adjusted EPS declined due to a higher tax rate in 2018 as a result of U.S. tax reform. When applying the 2018 fourth-quarter tax rate of approximately 15 percent to 2017 fourth-quarter results on a pro forma basis, 2018 adjusted EPS increased 12 percent. (See the Note on Adjusted Measures and Reconciliation to GAAP Measures section later in this news release for additional discussion and details.)
Callouts for Fourth-Quarter and Full-Year 2018 Financial Results
Strong Organic Net Sales Growth. The 6 percent growth in constant-currency organic sales in the fourth quarter was the highest quarterly growth rate for that measure in eight years. The full-year’s 2 percent growth in constant-currency organic sales was the first annual year-over-year increase since 2014.
Organic growth contributors include global Champion expansion, International diversification, and consumer-direct channel penetration. The company’s coordinated global strategy to elevate the Champion brand resulted in accelerated growth. In the fourth quarter, global Champion revenue in constant currency increased more than 50 percent, excluding the U.S. mass channel. For the year, global Champion sales excluding mass were $1.36 billion, up from approximately $1 billion for 2017.
Revenue in the consumer-direct channel, defined as company-owned retail stores and all online sales, increased 23 percent in the fourth quarter and represented approximately 25 percent of total sales.
Operating Profit Margin Increases. GAAP and adjusted operating profit margins increased in the fourth quarter. GAAP operating margin was 13.9 percent, up 630 basis points, while adjusted operating margin was 14.7 percent, up 40 basis points. The adjusted operating margin benefited from acquisition contributions and lower selling, general and administrative expenses as a percentage of sales.
Strong Cash Flow, Reduced Debt, and Lower Leverage. Hanes generated a record $502 million in net cash flow from operations in the fourth quarter. For the full year, operating cash flow was $643 million. In the past two years, the company has generated nearly $1.3 billion in operating cash flow.
Using its cash flow, Hanes paid down $403 million in total debt in the fourth quarter in addition to the $115 million paid down in the third quarter. The company ended the year with significantly improved debt leverage and expects to reduce leverage further in 2019. At year end, the company’s ratio of net debt to adjusted EBITDA was 3.3 times, down from a ratio of 3.4 times at year end 2017 and 3.9 times in the first quarter following the acquisition of Bras N Things.
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 3
Fourth-Quarter Business Segment Summaries
Innerwear Segment Results Consistent with Year Ago and in Line with Guidance. As expected, U.S. Innerwear segment sales and operating profit in the fourth quarter were flat to a year ago. The operating margin was 22.6 percent.
Sales of Innerwear basics increased 2 percent with growth in men’s and women’s underwear. Products that feature comfort innovations continue to perform well and account for 20 percent of basics sales.
Sales of Innerwear intimates decreased 7 percent in the fourth quarter, although shapewear sales realized double-digit growth after the successful relaunch of the Maidenform product lineup featuring cooling innovations. The intimates sales trend was sequentially better than the third quarter.
The company is continuing to execute its revitalization initiatives for the intimates business, which is more concentrated in the midtier and department store channel and is affected by door closings and channel disruption. The company’s ongoing bra turnaround strategy includes expansion within the online and mass channels, increased investment, and speed-to-market initiatives.
Activewear Segment Sales and Profits Increase on Organic Growth. U.S. Activewear segment fourth-quarter sales increased 13 percent and operating profit increased 4 percent. Growth was driven by increased Champion sales and sales growth of American Casualwear, which consists of branded printwear sales to the screen-print industry, seasonal wholesale activewear programs, and Alternative Apparel. The anniversary of the Alternative Apparel acquisition occurred early in the quarter.
Champion sales increased more than 50 percent outside the mass channel with broad-based gains across channels, including sporting goods retailers, midtier department stores, specialty retailers, college bookstores, online, and company-owned stores. As expected, sales of Champion at mass retail declined nearly 3 percent.
American Casualwear sales increased on the strength of branded printwear replenishment sales to the screen-print channel.
The segment’s operating profit growth trailed its sales growth as a result of product mix and planned investments to support growth initiatives.
Strong International Segment Growth Continues. Despite adverse currency exchange rates, International segment sales increased 12 percent and operating profit increased 28 percent. On a run-rate basis, the International segment is now the company’s largest business segment.
In constant currency, International sales increased 16 percent and operating profit increased 33 percent. Constant-currency organic sales increased 9 percent.
International growth came from Champion strength in Europe and Asia and constant-currency organic sales growth for innerwear in Australia, Asia and the Americas. In addition, net sales for Australia-based Bras N Things, acquired in February 2018, were $43 million.
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 4
The segment’s operating margin of 16.2 percent increased 200 basis points over the year-ago quarter, benefiting from the acquisition of Bras N Things, organic growth, and integration synergies from past acquisitions. The segment’s operating margin has surpassed the corporate average for two consecutive quarters.
Regular Quarterly Cash Dividend Declared
The Hanes Board of Directors has declared a regular quarterly cash dividend of $0.15 per share to be paid March 12, 2019, to stockholders of record at the close of business Feb. 19, 2019.
The cash dividend will be the 24th consecutive quarterly return of cash to stockholders. To date, the company has returned a cumulative $944 million in quarterly cash dividends to stockholders since initiating its program in April 2013.
2019 Financial Guidance
Hanes has issued initial guidance for 2019 that includes growth expectations for net sales, operating profit, EPS and net cash from operations.
The company expects 2019 net sales of $6.885 billion to $6.985 billion, GAAP operating profit of $900 million to $930 million, adjusted operating profit excluding actions of $955 million to $985 million, GAAP EPS of $1.59 to $1.67, adjusted EPS excluding actions of $1.72 to $1.80, and net cash from operations of $700 million to $800 million.
At the midpoint, the 2019 guidance versus 2018 results represents net sales growth of approximately 2 percent; GAAP and adjusted operating profit growth of 5 percent and 2 percent, respectively; GAAP and adjusted EPS growth of 7 percent and 3 percent, respectively; and operating cash flow growth of 17 percent.
For the first quarter, net sales are expected to be approximately $1.52 billion to $1.55 billion. GAAP operating profit is expected to be $135 million to $145 million, and adjusted operating profit is expected to be $157 million to $167 million. GAAP EPS is expected to be $0.19 to $0.21, and adjusted EPS is expected to be $0.24 to $0.26.
Guidance Assumptions. Key assumptions in the company’s guidance include: a cautious outlook for the U.S. brick-and-mortar market, including continued door closures; continued progress in U.S. Innerwear revitalization initiatives; price increases and a conservative view on elasticity; negative effects of currency exchange rates; and increased marketing investment to support brand plans.
The acquisition of Bras N Things is expected to contribute $17 million to net sales prior to the acquisition’s Feb. 12 anniversary date. Organic sales growth in constant currency for 2019 is expected to be approximately 2.5 percent. Adverse foreign currency exchange rates for the year are expected to reduce net sales as reported by approximately $60 million, primarily in the first quarter.
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 5
Segment Guidance. At the midpoint of full-year guidance, International segment net sales are expected to increase approximately 6 percent and constant-currency organic sales are expected to increase approximately 8 percent. Growth drivers are expected to be Champion sales growth in Asia and Europe and increased innerwear sales in Asia, Australia and the Americas, including the Hanes and Bonds brands. For the first quarter, International segment net sales on a reported basis are expected to increase approximately 8 percent, including acquisition contributions from Bra N Things and a $40 million negative effect of currency exchange rates.
U.S. Innerwear net sales for the year at the midpoint of guidance are expected to decrease by approximately 2 percent, while first-quarter net sales are expected to decline 4 percent, reflecting the impact from retail door closings. The company expects an improving trend as it progresses through the year following mid-first-quarter price increases.
U.S. Activewear net sales, at the midpoint of 2019 guidance, are expected to increase by approximately 2.5 percent. Champion sales outside of the mass channel are expected to increase at double-digit rates each quarter, while the Champion mass business is expected to decrease by a low teens percentage, primarily in the second half of the year. American Casualwear sales are expected to decrease primarily in the second half, as the company shifts to higher-margin products. The company expects significant margin expansion for the Activewear segment for the year with expansion in each quarter. For the first quarter, Activewear segment sales are expected to increase 10 percent.
Additional Guidance. The midpoint of 2019 guidance implies approximately 50 basis points of gross margin enhancement and 10 basis points of adjusted operating profit margin expansion.
GAAP operating profit in 2019 is expected to be affected by approximately $55 million in pretax charges, including approximately $22 million in the first quarter, related to acquisition integration and other supply chain actions. Approximately $20 million of the charges will be noncash. The charges reflect the completion of all outstanding acquisition integrations as well as Western Hemisphere supply chain realignment that includes speed-to-market initiatives that are part of the revitalization strategy for U.S. Innerwear.
Hanes expects interest expense and other expenses to be approximately $224 million combined. The company expects capital expenditure investment of approximately
$90 million to $100 million. An anticipated pension contribution of approximately
$26 million is reflected in operating cash flow guidance.
The company’s priority for use of excess operating cash flow is to pay down debt. The company’s debt leverage on a net-debt-to-adjusted-EBITDA basis is expected to be 2.9 times at year end. Consistent with the company’s seasonality, net cash from operations is expected to be a use in the first half.
The company expects an annual tax rate of approximately 14 percent and expects approximately 366 million shares outstanding, a slight increase versus 2018.
Hanes has updated its quarterly frequently-asked-questions document, which is available at www.Hanes.com/faq.
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 6
Note on Adjusted Measures and Reconciliation to GAAP Measures
To supplement financial guidance prepared in accordance with generally accepted accounting principles, the company provides 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), EBITDA and adjusted EBITDA.
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.
Charges for actions taken in 2017 primarily represent: adjustments for U.S. tax reform; acquisition-related and integration costs related to Hanes Europe Innerwear, Hanes Australasia, Champion Europe and Knights Apparel; debt refinancing; an earn-out settlement related to the purchase of Champion Europe; and other charges primarily related to disruptions of supply chain operations due to natural disasters. Charges for actions taken in 2018 primarily represent acquisition and integration costs related to Hanes Europe Innerwear, Hanes Australasia, Champion Europe, Alternative Apparel and Bras N Things, and other costs related to supply chain network changes. Charges for actions expected to be taken in 2019 primarily represent supply chain network changes and overhead reduction as well as completion of outstanding acquisition integration. Acquisition and integration 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 future periods depending upon acquisition activity.
Hanes has chosen to present these non‐GAAP measures 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 and adjusted EBITDA to investors because it considers these measures to be an important supplemental means of evaluating operating performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding actions and stock compensation expense. Hanes believes that EBITDA and adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management uses EBITDA and adjusted EBITDA for planning purposes in connection with setting its capital allocation strategy. EBITDA and adjusted EBITDA should not, however, be considered as measures of discretionary cash available to invest in the growth of the business.
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 7
Hanes is a global company that reports financial information in U.S. dollars in accordance with GAAP. As a supplement to the company’s reported operating results, Hanes also presents constant-currency financial information, which is a non-GAAP financial measure that excludes the impact of translating foreign currencies into U.S. dollars. The company uses constant-currency information to provide a framework to assess how the business performed excluding the effects of changes in the rates used to calculate foreign currency translation.
To calculate foreign currency translation on a constant currency basis, operating results for the current-year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period).
Organic sales are net sales excluding those derived from businesses acquired within the previous 12 months of a reporting date.
Hanes believes this information is useful to management and investors to facilitate comparison of operating results and better identify trends in the company’s businesses.
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.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the supplemental financial information included with this release.
In the fourth quarter of 2018 and for full-year 2018, Hanes incurred $14.7 million and $80.2 million, respectively, in pretax charges for acquisition-related integration actions and other costs related to supply chain network changes. In the fourth quarter of 2017 and for the full year 2017, Hanes incurred $457 million and $453 million, respectively, in charges related to U.S. tax reform, and $116 million and $198 million, respectively, for pretax charges for acquisition-related and integration actions, debt refinancing, the Champion Europe earn-out provision, and other actions primarily consisting supply chain disruptions as a result of natural disasters.
Webcast Conference Call
Hanes will host an Internet webcast of its second-quarter investor conference call at 8:30 a.m. EST today, Feb. 7, 2019. The webcast of the call, 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 9:30 a.m.
An archived replay of the conference call webcast will be available in the investors section of the Hanes corporate website. A telephone playback will be available from approximately noon EST today through midnight EST Feb. 14, 2019. The replay will be available by calling toll-free (855) 859-2056 or by toll call at (404) 537-3406. The replay ID is 8029765.
HanesBrands Reports Full-Year and Fourth-Quarter 2018 Financial Results - Page 8
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
regarding channel disruption and future retail door closures, our outlook for cash flow growth and reduced leverage, and statements following the heading 2019 Financial Guidance, 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; the rapidly changing retail environment; any inadequacy, interruption, integration failure or security failure with respect to our information technology; 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 properly manage strategic projects in order to achieve the desired results; our ability to attract and retain a senior management team with the core competencies needed to support growth in global markets; significant fluctuations in foreign exchange rates; our reliance on a relatively small number of customers for a significant portion of our sales; legal, regulatory, political and economic risks related to our international operations; our ability to realize all of the anticipated benefits of acquisitions; 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
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, Bonds, Maidenform, DIM, Bali, Playtex, Bras N Things, Nur Die/Nur Der, Alternative, L’eggs, JMS/Just My Size, Lovable, Wonderbra, Berlei, 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. For more information, visit the company’s corporate website at www.Hanes.com/corporate and newsroom at https://newsroom.hanesbrands.com/. Connect with the company via social media: Twitter (@hanesbrands), Facebook (www.facebook.com/hanesbrandsinc), Instagram (@hanesbrands_careers), and LinkedIn (@Hanesbrandsinc).
# # #
TABLE 1
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(Amounts in thousands, except per-share amounts)
(Unaudited)
Quarter Ended | Year Ended | ||||||||||||||||||||
December 29, 2018 | December 30, 2017 | % Change | December 29, 2018 | December 30, 2017 | % Change | ||||||||||||||||
Net sales | $ | 1,768,301 | $ | 1,645,175 | 7.5 | % | $ | 6,803,955 | $ | 6,471,410 | 5.1 | % | |||||||||
Cost of sales | 1,063,326 | 1,018,514 | 4,147,436 | 3,980,859 | |||||||||||||||||
Gross profit | 704,975 | 626,661 | 12.5 | % | 2,656,519 | 2,490,551 | 6.7 | % | |||||||||||||
As a % of net sales | 39.9 | % | 38.1 | % | 39.0 | % | 38.5 | % | |||||||||||||
Selling, general and administrative expenses | 460,034 | 473,059 | 1,788,568 | 1,718,349 | |||||||||||||||||
As a % of net sales | 26.0 | % | 28.8 | % | 26.3 | % | 26.6 | % | |||||||||||||
Change in fair value of contingent consideration | — | 27,852 | — | 27,852 | |||||||||||||||||
Operating profit | 244,941 | 125,750 | 94.8 | % | 867,951 | 744,350 | 16.6 | % | |||||||||||||
As a % of net sales | 13.9 | % | 7.6 | % | 12.8 | % | 11.5 | % | |||||||||||||
Other expenses | 6,779 | 12,635 | 26,395 | 32,645 | |||||||||||||||||
Interest expense, net | 47,687 | 44,251 | 194,675 | 174,435 | |||||||||||||||||
Income from continuing operations before income tax expense | 190,475 | 68,864 | 646,881 | 537,270 | |||||||||||||||||
Income tax expense | 28,854 | 453,475 | 93,797 | 473,279 | |||||||||||||||||
Income (loss) from continuing operations | 161,621 | (384,611 | ) | 553,084 | 63,991 | ||||||||||||||||
Loss from discontinued operations, net of tax | — | — | — | (2,097 | ) | ||||||||||||||||
Net income (loss) | $ | 161,621 | $ | (384,611 | ) | NM | $ | 553,084 | $ | 61,894 | 793.6 | % | |||||||||
Earnings (loss) per share - basic: | |||||||||||||||||||||
Continuing operations | $ | 0.44 | $ | (1.06 | ) | NM | $ | 1.52 | $ | 0.17 | 794.1 | % | |||||||||
Discontinued operations | — | — | NM | — | (0.01 | ) | NM | ||||||||||||||
Net income (loss) | $ | 0.44 | $ | (1.06 | ) | NM | $ | 1.52 | $ | 0.17 | 794.1 | % | |||||||||
Earnings (loss) per share - diluted: | |||||||||||||||||||||
Continuing operations | $ | 0.44 | $ | (1.06 | ) | NM | $ | 1.52 | $ | 0.17 | 794.1 | % | |||||||||
Discontinued operations | — | — | NM | — | (0.01 | ) | NM | ||||||||||||||
Net income (loss) | $ | 0.44 | $ | (1.06 | ) | NM | $ | 1.52 | $ | 0.17 | 794.1 | % | |||||||||
Weighted average shares outstanding: | |||||||||||||||||||||
Basic | 364,003 | 364,283 | 363,513 | 367,680 | |||||||||||||||||
Diluted | 364,748 | 364,283 | 364,505 | 369,426 | |||||||||||||||||
TABLE 2
HANESBRANDS INC.
Supplemental Financial Information
(Dollars in thousands)
(Unaudited)
Quarter Ended | Year Ended | ||||||||||||||||||||
December 29, 2018 | December 30, 2017 | % Change | December 29, 2018 | December 30, 2017 | % Change | ||||||||||||||||
Segment net sales: | |||||||||||||||||||||
Innerwear | $ | 594,177 | $ | 594,621 | (0.1 | )% | $ | 2,379,675 | $ | 2,462,876 | (3.4 | )% | |||||||||
Activewear | 485,417 | 427,683 | 13.5 | % | 1,792,280 | 1,654,278 | 8.3 | % | |||||||||||||
International | 608,931 | 545,294 | 11.7 | % | 2,344,115 | 2,054,664 | 14.1 | % | |||||||||||||
Other | 79,776 | 77,577 | 2.8 | % | 287,885 | 299,592 | (3.9 | )% | |||||||||||||
Total net sales | $ | 1,768,301 | $ | 1,645,175 | 7.5 | % | $ | 6,803,955 | $ | 6,471,410 | 5.1 | % | |||||||||
Segment operating profit1: | |||||||||||||||||||||
Innerwear | $ | 134,039 | $ | 133,646 | 0.3 | % | $ | 526,831 | $ | 580,879 | (9.3 | )% | |||||||||
Activewear | 78,028 | 75,156 | 3.8 | % | 267,428 | 264,975 | 0.9 | % | |||||||||||||
International | 98,526 | 77,164 | 27.7 | % | 351,769 | 268,367 | 31.1 | % | |||||||||||||
Other | 7,161 | 9,087 | (21.2 | )% | 25,348 | 31,540 | (19.6 | )% | |||||||||||||
General corporate expenses/other | (58,129 | ) | (59,702 | ) | (2.6 | )% | (223,227 | ) | (210,507 | ) | 6.0 | % | |||||||||
Acquisition, integration and other action-related charges | (14,684 | ) | (109,601 | ) | (86.6 | )% | (80,198 | ) | (190,904 | ) | (58.0 | )% | |||||||||
Total operating profit | $ | 244,941 | $ | 125,750 | 94.8 | % | $ | 867,951 | $ | 744,350 | 16.6 | % | |||||||||
1 | In the first quarter of 2018, HanesBrands eliminated the allocation of certain corporate overhead selling, general and administrative expenses related to the legal, human resources, information technology, finance and real estate departments to the segments, in order to reflect the manner in which the business is managed and results are reviewed by the chief executive officer, who is HanesBrands’ chief operating decision maker. Prior year segment operating profit disclosures have been revised to conform to the current year presentation. |
The following tables present a reconciliation of total reported net sales to organic constant currency net sales for the quarter and year ended December 29, 2018 and a comparison to prior year: |
Quarter Ended December 29, 2018 | ||||||||||||||||||
Reported Net Sales | Acquisitions1 | Impact from Foreign Currency2 | Organic Constant Currency | % Change | ||||||||||||||
Segment net sales: | ||||||||||||||||||
Innerwear | $ | 594,177 | $ | — | $ | — | $ | 594,177 | (0.1 | )% | ||||||||
Activewear | 485,417 | 2,148 | — | 483,269 | 13.0 | |||||||||||||
International | 608,931 | 42,812 | (25,788 | ) | 591,907 | 8.5 | ||||||||||||
Other | 79,776 | — | — | 79,776 | 2.8 | |||||||||||||
Total | $ | 1,768,301 | $ | 44,960 | $ | (25,788 | ) | $ | 1,749,129 | 6.3 | % | |||||||
Year Ended December 29, 2018 | ||||||||||||||||||
Reported Net Sales | Acquisitions1 | Impact from Foreign Currency2 | Organic Constant Currency | % Change | ||||||||||||||
Segment net sales: | ||||||||||||||||||
Innerwear | $ | 2,379,675 | $ | — | $ | — | $ | 2,379,675 | (3.4 | )% | ||||||||
Activewear | 1,792,280 | 54,188 | — | 1,738,092 | 5.1 | |||||||||||||
International | 2,344,115 | 122,399 | 12,661 | 2,209,055 | 7.5 | |||||||||||||
Other | 287,885 | — | — | 287,885 | (3.9 | ) | ||||||||||||
Total | $ | 6,803,955 | $ | 176,587 | $ | 12,661 | $ | 6,614,707 | 2.2 | % | ||||||||
¹ | Net sales derived from businesses acquired within the past twelve months. |
2 | Effect of the change in foreign currency exchange rates year-over-year. Calculated by applying prior period exchange rates to the current year net sales. This calculation excludes entities acquired within the past twelve months. |
TABLE 3
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
December 29, 2018 | December 30, 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 433,022 | $ | 421,566 | |||
Trade accounts receivable, net | 870,878 | 903,318 | |||||
Inventories | 2,054,458 | 1,874,990 | |||||
Other current assets | 159,231 | 186,496 | |||||
Total current assets | 3,517,589 | 3,386,370 | |||||
Property, net | 607,688 | 623,991 | |||||
Trademarks and other identifiable intangibles, net | 1,555,381 | 1,402,857 | |||||
Goodwill | 1,241,727 | 1,167,007 | |||||
Deferred tax assets | 249,693 | 234,932 | |||||
Other noncurrent assets | 83,880 | 79,618 | |||||
Total assets | $ | 7,255,958 | $ | 6,894,775 | |||
Liabilities | |||||||
Accounts payable and accrued liabilities | $ | 1,583,834 | $ | 1,517,283 | |||
Notes payable | 5,824 | 11,873 | |||||
Accounts Receivable Securitization Facility | 161,608 | 125,209 | |||||
Current portion of long-term debt | 278,976 | 124,380 | |||||
Total current liabilities | 2,030,242 | 1,778,745 | |||||
Long-term debt | 3,534,183 | 3,702,054 | |||||
Pension and postretirement benefits | 378,972 | 405,238 | |||||
Accrued income taxes - noncurrent | 100,626 | 137,226 | |||||
Other noncurrent liabilities | 241,652 | 185,310 | |||||
Total liabilities | 6,285,675 | 6,208,573 | |||||
Stockholders’ Equity | 970,283 | 686,202 | |||||
Total liabilities and stockholders’ equity | $ | 7,255,958 | $ | 6,894,775 | |||
TABLE 4
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Year Ended | |||||||
December 29, 2018 | December 30, 2017 | ||||||
Operating Activities: | |||||||
Net income | $ | 553,084 | $ | 61,894 | |||
Depreciation and amortization | 131,796 | 122,487 | |||||
Stock compensation expense | 21,416 | 23,582 | |||||
Other noncash items | 30,290 | 282,810 | |||||
Changes in assets and liabilities, net | (93,184 | ) | 164,945 | ||||
Net cash from operating activities | 643,402 | 655,718 | |||||
Investing Activities: | |||||||
Purchases/sales of property and equipment, net, and other | (83,736 | ) | (82,549 | ) | |||
Acquisition of businesses, net of cash acquired | (334,915 | ) | (62,249 | ) | |||
Disposition of businesses | — | 40,285 | |||||
Net cash from investing activities | (418,651 | ) | (104,513 | ) | |||
Financing Activities: | |||||||
Cash dividends paid | (216,316 | ) | (219,903 | ) | |||
Share repurchases | — | (400,017 | ) | ||||
Net borrowings on notes payable, debt and other | 15,819 | 34,152 | |||||
Net cash from financing activities | (200,497 | ) | (585,768 | ) | |||
Effect of changes in foreign currency exchange rates on cash | 9,912 | (4,116 | ) | ||||
Change in cash, cash equivalents and restricted cash | 34,166 | (38,679 | ) | ||||
Cash and cash equivalents at beginning of year | 421,566 | 460,245 | |||||
Cash, cash equivalents and restricted cash at end of year | 455,732 | 421,566 | |||||
Less restricted cash at end of year | 22,710 | $ | — | ||||
Cash and cash equivalents at end of year | $ | 433,022 | $ | 421,566 | |||
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 | Year Ended | ||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | ||||||||||||
Gross profit, as reported under GAAP | $ | 704,975 | $ | 626,661 | $ | 2,656,519 | $ | 2,490,551 | |||||||
Acquisition, integration and other action-related charges | 4,759 | 32,981 | 38,355 | 54,970 | |||||||||||
Gross profit, as adjusted | $ | 709,734 | $ | 659,642 | $ | 2,694,874 | $ | 2,545,521 | |||||||
As a % of net sales | 40.1 | % | 40.1 | % | 39.6 | % | 39.3 | % | |||||||
Selling, general and administrative expenses, as reported under GAAP | $ | 460,034 | $ | 473,059 | $ | 1,788,568 | $ | 1,718,349 | |||||||
Acquisition, integration and other action-related charges | (9,925 | ) | (48,768 | ) | (41,843 | ) | (108,082 | ) | |||||||
Selling, general and administrative expenses, as adjusted | $ | 450,109 | $ | 424,291 | $ | 1,746,725 | $ | 1,610,267 | |||||||
As a % of net sales | 25.5 | % | 25.8 | % | 25.7 | % | 24.9 | % | |||||||
Operating profit, as reported under GAAP | $ | 244,941 | $ | 125,750 | $ | 867,951 | $ | 744,350 | |||||||
Acquisition, integration and other action-related charges included in gross profit | 4,759 | 32,981 | 38,355 | 54,970 | |||||||||||
Acquisition, integration and other action-related charges included in SG&A | 9,925 | 48,768 | 41,843 | 108,082 | |||||||||||
Contingent consideration related to Champion Europe | — | 27,852 | — | 27,852 | |||||||||||
Operating profit, as adjusted | $ | 259,625 | $ | 235,351 | $ | 948,149 | $ | 935,254 | |||||||
As a % of net sales | 14.7 | % | 14.3 | % | 13.9 | % | 14.5 | % | |||||||
Net income (loss) from continuing operations, as reported under GAAP | $ | 161,621 | $ | (384,611 | ) | $ | 553,084 | $ | 63,991 | ||||||
Action and other related charges: | |||||||||||||||
Acquisition, integration and other action-related charges included in gross profit | 4,759 | 32,981 | 38,355 | 54,970 | |||||||||||
Acquisition, integration and other action-related charges included in SG&A | 9,925 | 48,768 | 41,843 | 108,082 | |||||||||||
Contingent consideration related to Champion Europe | — | 27,852 | — | 27,852 | |||||||||||
Other non-operating charges in other expenses | — | 7,000 | (36 | ) | 7,000 | ||||||||||
Tax reform and related charges (including tax effect on actions) included in income tax expense | (1,678 | ) | 456,982 | (11,624 | ) | 452,778 | |||||||||
Net income from continuing operations, as adjusted | $ | 174,627 | $ | 188,972 | $ | 621,622 | $ | 714,673 | |||||||
Diluted earnings (loss) per share from continuing operations, as reported under GAAP | $ | 0.44 | $ | (1.06 | ) | $ | 1.52 | $ | 0.17 | ||||||
Action and other related charges | 0.04 | 1.57 | 0.19 | 1.76 | |||||||||||
Diluted earnings per share from continuing operations, as adjusted | $ | 0.48 | $ | 0.52 | $ | 1.71 | $ | 1.93 | |||||||
Quarter Ended | Year Ended | ||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | ||||||||||||
Action and other related charges by category: | |||||||||||||||
Hanes Europe Innerwear | $ | 2,296 | $ | 27,467 | $ | 26,403 | $ | 65,995 | |||||||
Hanes Australasia | 83 | 13,320 | 14,266 | 40,681 | |||||||||||
Bras N Things | 1,607 | — | 6,948 | — | |||||||||||
Champion Europe | 1,591 | 2,549 | 4,899 | 10,645 | |||||||||||
Smaller acquisitions, business disruption and other action-related costs | 9,107 | 38,413 | 27,682 | 45,731 | |||||||||||
Contingent consideration related to Champion Europe | — | 27,852 | — | 27,852 | |||||||||||
Other non-operating charges | — | 7,000 | (36 | ) | 7,000 | ||||||||||
Tax reform and related charges (including tax effect on actions) | (1,678 | ) | 456,982 | (11,624 | ) | 452,778 | |||||||||
Total action and other related charges | $ | 13,006 | $ | 573,583 | $ | 68,538 | $ | 650,682 | |||||||
Last Twelve Months | ||||||||
December 29, 2018 | December 30, 2017 | |||||||
EBITDA1: | ||||||||
Net income (loss) from continuing operations | $ | 553,084 | $ | 63,991 | ||||
Interest expense, net | 194,675 | 174,435 | ||||||
Income tax expense | 93,797 | 473,279 | ||||||
Depreciation and amortization | 131,796 | 122,487 | ||||||
Total EBITDA | 973,352 | 834,192 | ||||||
Total action and other related charges (excluding tax reform and related charges) | 80,162 | 197,904 | ||||||
Stock compensation expense | 21,416 | 23,582 | ||||||
Total EBITDA, as adjusted | $ | 1,074,930 | $ | 1,055,678 | ||||
Net debt: | ||||||||
Debt (current and long term debt and Accounts Receivable Securitization Facility) | $ | 3,974,767 | $ | 3,951,643 | ||||
Notes payable | 5,824 | 11,873 | ||||||
(Less) Cash and cash equivalents | (433,022 | ) | (421,566 | ) | ||||
Net debt | $ | 3,547,569 | $ | 3,541,950 | ||||
Net debt/EBITDA, as adjusted | 3.3 | 3.4 | ||||||
1 | Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure. |
TABLE 6
HANESBRANDS INC.
Supplemental Financial Information
Reconciliation of GAAP Outlook to Adjusted Outlook1
(Amounts in thousands, except per-share amounts)
(Unaudited)
Quarter Ended | Year Ended | ||
March 30, 2019 | December 28, 2019 | ||
Operating profit outlook, as calculated under GAAP | $135,000 to $145,000 | $900,000 to $930,000 | |
Acquisition, integration and other action related charges | $22,000 | $55,000 | |
Operating profit outlook, as adjusted | $157,000 to $167,000 | $955,000 to $985,000 | |
Diluted earnings per share from continuing operations, as calculated under GAAP | $0.19 to $0.21 | $1.59 to $1.67 | |
Acquisition, integration and other action related charges | $0.05 | $0.13 | |
Diluted earnings per share from continuing operations, as adjusted | $0.24 to $0.26 | $1.72 to $1.80 | |
1 | Hanesbrands is unable to reconcile projections for net debt to EBITDA, as adjusted, as of the end of the 2019 fiscal year without unreasonable efforts, because the Company cannot predict, with a reasonable degree of certainty, the exact amount of certain items that would be expected to impact this ratio, such as debt balances, revenue, tax rates, interest expense and stock compensation expense. |
Hanesbrands FAQs Updated February 7, 2019 – New or updated information is in red General and Current Period FAQs (Guidance comments as of February 7, 2019) (1) Q: What is factored into your full‐year 2019 guidance? A: Revenue: Our full‐year revenue guidance of $6.885 billion to $6.985 billion represents low‐single‐digit growth year over year. It includes the following assumptions: (a) approximately $17 million of acquisition contributions from Bras N Things (from the beginning of the year through the mid‐February closing anniversary – reflected in the International segment); (b) F/X headwind of approximately $60 million, with the vast majority impacting the first quarter (reflected in the International segment); and, (c) organic constant‐currency growth of approximately 2.5% at the midpoint. Using the midpoint, by segment, we expect U.S. Innerwear revenue to be down approximately 2% for the full‐year as our conservative outlook with respect to the impact from bankruptcies and door closings, particularly within the mid‐ tier and department store channel, and our conservative view on elasticity more than offsets Basics space gains, price increases and the initial traction of our U.S. Intimates revitalization efforts. U.S. Activewear revenue is expected to be up approximately 2.5% for the year reflecting: (a) double‐digit growth in each quarter for Champion, excluding the mass channel (i.e. C9); (b) C9 activewear revenue of approximately $330 million, which represents a low‐teens decline compared to 2018; and, (c) a decline in our American Casualwear business as we continue to shift this business into higher‐margin products. The vast majority of the full‐year decline in both C9 and American Casualwear is expected in the second half of the year. The mix impact of these assumptions should yield significant margin improvement in our U.S. Activewear segment for the year, with segment margin expansion in each quarter. For the full year, our International segment is expected to be up approximately 6% on a reported basis. On an organic, constant‐currency basis, our guidance reflects approximately 8% growth driven by our International Champion businesses as well as our innerwear businesses in Asia, Australia and the Americas, which is expected to be partially offset by the impact from macro headwinds on our European innerwear business. Operating Profit (GAAP and Adjusted): Our full‐year Adjusted Operating Profit guidance of $955 million to $985 million excludes all pretax acquisition, integration, and other charges. It includes approximately $3 million of expected non‐organic acquisition contributions from Bras N Things as well as an F/X headwind of approximately $7 million. Our guidance implies approximately 50 basis points of Adjusted Gross Margin expansion and approximately 10 basis points of Adjusted Operating Margin expansion year over year as we increase investment to support our growth initiatives (for example, brand support). Our full‐year GAAP Operating Profit guidance of $900 million to $930 million incorporates our Adjusted Operating Profit guidance as well as our assumption of approximately $55 million of pretax acquisition, integration, and other charges. Interest/Other Expenses and Tax Rate: Our guidance assumes approximately $224 million of Interest and Other expenses as well as a tax rate of approximately 14%. EPS (GAAP and Adjusted): At the mid‐point, our guidance implies full‐year GAAP and Adjusted Net Income of approximately $596 million and $643 million, respectively. Our full‐year GAAP EPS guidance is $1.59 to $1.67 and our Adjusted EPS guidance, which excludes all pretax acquisition, integration, and other charges, is $1.72 to $1.80. Both ranges are based on diluted shares outstanding of approximately 366 million. Cash flow from operations: Our full‐year cash flow from operations guidance is $700 million to $800 million. Consistent with our normal seasonality, we expect cash flow from operations to be a use in the first half. Our capital expenditure guidance is $90 million to $100 million. 1
Pretax expenses: Our guidance reflects approximately $55 million of pretax acquisition, integration, and other expenses, of which $35 million are cash. These charges reflect the completion of the integrations of all remaining acquisitions as well as our supply chain actions, including the reduction of associated overhead costs, principally within our Western Hemisphere network. The estimated charges for 2019 are approximately $20 million higher than previously estimated, as we have expanded our plan to improve our cost position and drive improved profitability. In isolation (for example, excluding other changes such as business mix, inflation, deflation, pricing, etc.), we would expect these actions to deliver approximately $50 million of incremental operating profit, beginning with approximately $40 million in 2020 and the remaining approximately $10 million in 2021. (2) Q: What is factored into your Q1 2019 guidance? A: We expect total net sales of $1.52 billion to $1.55 billion, which includes approximately $17 million of acquisition contributions from Bras N Things (from the beginning of the year through the mid‐February closing anniversary) as well as an approximate $40 million headwind from the effects of foreign exchange rates as compared to last year. Both the acquisition contributions and the foreign exchange impact are reflected within the International segment. Our revenue guidance implies total revenue growth of 3.3% to 5.3%. Constant‐currency organic growth is estimated to be approximately 6% at the mid‐point, reflecting: (a) an approximate 4% decline in U.S. Innerwear revenue driven by the expected impact from bankruptcies and door closings and our conservative view on elasticity – we expect an improving trend for this segment in the remaining quarters of the year driven by the mid‐first quarter timing of our price increase; (b) approximately 10% growth in U.S. Activewear; and, (c) approximately 8% reported growth and approximately 12% organic, constant‐currency revenue growth in our International segment. Our guidance for GAAP Operating Profit is $135 million to $145 million. Our guidance for Adjusted Operating Profit, which excludes approximately $22 million of pretax acquisition, integration, and other expenses, is $157 million to $167 million. It includes approximately $3 million of expected non‐organic acquisition contributions from Bras N Things as well as an F/X headwind of approximately $4 million. At the midpoint, our guidance implies Adjusted Gross Margin is consistent year over year and Adjusted Operating Margin declines approximately 70 basis points. Our guidance assumes Interest and Other expenses of approximately $56 million and a tax rate of approximately 14%. Our guidance for GAAP EPS is $0.19 to $0.21. Our guidance for Adjusted EPS, which excludes pretax acquisition, integration, and other expenses, is $0.24 to $0.26. Both ranges are based on diluted shares outstanding of approximately 365 million for the quarter. (3) Q: Can you provide an update on the progress toward your 2022 goal of $2 billion in global Champion revenue? A: At our Investor Day in May 2018, we set a goal to double our Champion revenue, outside the mass channel (i.e. C9), from approximately $1 billion in 2017 to $2 billion in 2022, representing a 15% CAGR over five years. For 2018, Champion sales, excluding C9, were approximately $1.36 billion. We expect 2019 full‐year Champion sales, excluding C9, to be approximately $1.75 billion, which represents a near 30% increase over 2018. Based on these trends, we remain ahead of schedule in achieving our $2 billion revenue goal. For the quarter, Global Champion sales, excluding C9, grew over 50% in constant currency and operating margins continued to expand. Sales growth in the quarter was broad‐based, up double‐digits in all regions. We also saw growth across global channels of trade, including wholesale, owned‐retail and online. Even though we were cycling tougher comparisons, Champion’s growth rate continued to accelerate. This is a clear indication that our coordinated global strategy to elevate the Champion brand is driving increased demand for the product. We’ve reunited the brand globally, allowing us to coordinate product design around the world. We have significantly increased our investments, including engaging directly with the consumer through digital platforms. We’re expanding our global points of distribution, including company‐owned branded stores. These elevation efforts are driving strong demand for the brand across geographies, across product categories, and across channels. 2
(4) Q: Can you provide any insights into your Champion‐at‐mass (i.e. C9) business? A: Our C9 business has been in place since 2004. On August 1, 2018, we announced that our retail partner made the decision not to renew the contract after the current agreement expires on January 31, 2020. The C9 business consists of activewear and basics products. The activewear program is a seasonal commitment business with 2018 revenue of approximately $382 million. The basics program is a replenishment business with 2018 revenue of approximately $66 million. We have a number of actions already underway to replace the C9 basics business by transitioning these sales to our Hanes brand and by expanding shelf space gains in Champion‐branded basics outside the mass channel (a portion of our secured 2019 Basics space gains are for our Champion‐branded basics). Our 2019 guidance for the U.S. Activewear segment assumes C9 activewear revenue of approximately $330 million, which represents a low‐teens decline as compared to the $382 million in 2018, with the the vast majority of the full‐year 2019 decline coming in the second half of the year. As we have visibility into future bookings, we will provide additional updates. (5) Q: Could you provide any insights with respect to the progression from your 2019 guidance to the long‐term cash flow scenarios you provided at your May 2018 Investor Day? A: At our 2018 Investor Day, we highlighted two ‘de‐risked’ scenarios – (a)‘base plan’ and (b) ‘base plan with acquisitions’ – to highlight what we believed our business model could generate in terms of operating profit and cash flow over the next several years. Under the ‘base plan’ scenario, beginning with $596 million (midpoint of our 2019 GAAP Net Income guidance), add the after‐tax impact from the following: (1) approximately $55 million of acquisition, integration and other charges; (2) approximately $40 million of profit from the expected savings from our supply chain actions; and, (3) approximately $25 million of profit from organic growth, margin expansion, and the early 2020 wrap from Innerwear’s 2019 price increases. Then add approximately $170 million of non‐cash items. This would generate annual cash flow from operations approaching $900 million in 2020. Adding the contributions from acquisitions (under the ‘base plan with acquisitions’ scenario) would result in $1 billion in annual cash flow from operations in 2020. (6) Q: What is your long‐term capital allocation strategy and what are your priorities for 2019? A: Our long‐term 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 leverage ratio of net debt‐to‐adjusted EBITDA to be in a range of 2 to 3 times. Our strategy is to use our cash flow from operations to first fund capital investments and our dividend. When we are within our targeted leverage range, we intend to 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. When we are outside of our targeted leverage range, we plan to use excess free cash flow to pay down debt. Our leverage ratio at the end of 2018 was 3.3 times net debt‐to‐adjusted EBITDA (compared to 3.9 times at the end of the first quarter 2018 after our acquisition of Bras N Things and 3.4 times at the end of 2017). For 2019, given our leverage is currently outside of our long‐term range, our plan is to use all excess free cash flow to pay down debt, which we began to do in the third quarter of 2018. Based on our 2019 guidance, we expect our leverage ratio to be approximately 2.9 times on a net debt‐to‐adjusted EBITDA basis by the end of 2019. (7) Q: How much did acquisitions contribute to fourth‐quarter revenue and adjusted operating profit results? A: For the fourth quarter, acquisitions contributed approximately $45 million in revenue and less than $13 million in adjusted operating profit, which excludes pretax acquisition, integration, and other charges. 3
(8) Q: How big is the consumer‐direct channel for Hanesbrands? A: We define consumer‐direct in terms of consumer method of purchase, which in our definition includes owned retail locations as well as all online sales (owned websites, online pure play websites, and traditional retailer websites). Our global consumer‐direct sales represented approximately 25% of total company sales in the fourth quarter of 2018. Specific to online sales, global online sales were approximately 12% of total company sales in the quarter. (9) Q: Do you believe your business model can continue to deliver long‐term double‐digit total shareholder returns? A: Yes. We continue to diversify our business model to be in a position to provide more consistent organic revenue growth and optimize our strong cash flow. Over the past several years, we have significantly diversified our business model by investing in our core brands, investing in our online operations, and investing in international expansion to provide us with multiple paths for delivering growth and long‐term shareholder returns. We believe we have diversified in a way that the combination of our organic and acquisition strategies provides us the ability to deliver revenue and EPS growth regardless of short‐term challenges. And when you layer on the returns from deploying our significant levels of cash flow, we believe we are well positioned for long‐term double‐digit total shareholder returns. (10) 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. 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. ***For prior FAQs please see our prior Securities and Exchange Commission reports, including our Current Reports on Form 8‐K.*** # # # 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), EBITDA and adjusted EBITDA. 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. 4
Charges for actions taken in 2017 primarily represent: adjustments for U.S. tax reform; acquisition‐related and integration costs related to Hanes Europe Innerwear, Hanes Australasia, Champion Europe and Knights Apparel; debt refinancing; an earn‐out payment related to the purchase of Champion Europe; and other charges primarily related to disruptions of supply chain operations due to natural disasters. Charges for actions taken in 2018 primarily represent acquisition and integration costs related to Hanes Europe Innerwear, Hanes Australasia, Champion Europe, Alternative Apparel and Bras N Things, and other costs related to supply chain network changes. Charges for actions expected to be taken in 2019 primarily represent supply chain network changes and overhead reduction as well as completion of outstanding acquisition integration. Acquisition and integration 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 future periods depending upon acquisition activity. We have chosen to present these non‐GAAP measures 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. 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 and adjusted EBITDA to investors because we consider it to be an important supplemental means of evaluating operating performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding actions and stock compensation expense. We believe that EBITDA and adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management uses EBITDA and adjusted EBITDA for planning purposes in connection with setting our capital allocation strategy. EBITDA and Adjusted EBITDA should not, however, be considered as measures of discretionary cash available to invest in the growth of the business. We are a global company that reports financial information in U.S. dollars in accordance with GAAP. As a supplement to our reported operating results, we also present constant currency financial information, which is a non‐GAAP financial measure that excludes the impact of translating foreign currencies into U.S. dollars. We use constant currency information to provide a framework to assess how the business performed excluding the effects of changes in the rates used to calculate foreign currency translation. We believe this information is useful to management and investors to facilitate comparison of operating results and better identify trends in our businesses. To calculate foreign currency translation on a constant currency basis, operating results for the current year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period). 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 February 7, 2019 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. 5
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 2019 financial guidance, statements regarding outlook for improvement in demand for the global Champion brand, statements regarding our outlook for future cash flow growth and reduced leverage and assumptions regarding consumer behavior, foreign exchange rates and channel disruption and future retail door closures 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; the rapidly changing retail environment; any inadequacy, interruption, integration failure or security failure with respect to our information technology; 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 properly manage strategic projects in order to achieve the desired results; our ability to attract and retain a senior management team with the core competencies needed to support growth in global markets; significant fluctuations in foreign exchange rates; our reliance on a relatively small number of customers for a significant portion of our sales; legal, regulatory, political and economic risks related to our international operations; our ability to realize all of the anticipated benefits of acquisitions; 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. 6
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