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): July 28, 2020
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) | ||
(336 ) 519-8080
Registrant’s telephone number, including area code:
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:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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 ☐
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 July 30, 2020, Hanesbrands Inc. (the “Company” or “Hanesbrands”) issued a press release announcing its financial results for the second quarter ended June 27, 2020. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
In connection with his previously announced retirement as Chief Executive Officer of the Company, on July 28, 2020, Gerald W. Evans, Jr. notified the Board of Directors (the “Board”) of the Company of his decision to resign from the Board effective as of August 3, 2020.
On July 28, 2020, the Board elected Stephen B. Bratspies to serve on the Board to fill the vacancy resulting from Mr. Evans’ resignation. The election of Mr. Bratspies is effective August 3, 2020, and he will serve until the Company’s next annual meeting of stockholders and until his successor is elected and qualified, or until his resignation or removal. Mr. Bratspies will not serve on any Committees of the Board.
Mr. Bratspies, who has been elected Chief Executive Officer of the Company effective August 3, 2020, will receive compensation as disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 9, 2020 in connection with his service as Chief Executive Officer of the Company. Mr. Bratspies will not receive any additional compensation for his service as a director of the Company.
There are no arrangements or understandings between Mr. Bratspies and any other person pursuant to which he was elected as a director. The Company is not aware of any transaction with Mr. Bratspies that would require disclosure under Item 404(a) of Regulation S-K.
Item 7.01. Regulation FD Disclosure
The Company 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 8:30 a.m., Eastern time on July 30, 2020. 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 12:00 p.m., Eastern time, on July 30, 2020, until midnight, Eastern time, on August 6, 2020. 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 5907699.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit 99.1 | ||
Exhibit 99.2 | ||
Exhibit 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
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.
July 30, 2020 | HANESBRANDS INC. | |||
By: | /s/ M. Scott Lewis | |||
M. Scott Lewis | ||||
Interim Chief Financial Officer and Chief Accounting 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 SECOND-QUARTER 2020 FINANCIAL RESULTS
• | Employees rise to meet pandemic challenges globally with safety-first manufacturing, distribution and selling to mitigate COVID-19 market disruptions |
• | 2Q GAAP EPS increases 12% to $0.46; Adjusted EPS increases 58% to $0.60 |
• | 2Q net sales of $1.74 billion driven by better-than-base-case-scenario apparel sales, including increasing point-of-sale trends and market-share gains, and better-than-expected new personal protective garments business |
• | 2Q net cash from operations of $65 million; year-to-date operating cash flow $40 million better than a year ago |
• | Quarter-end liquidity of approximately $1.8 billion provides continued balance sheet strength and operational flexibility |
WINSTON-SALEM, N.C. (July 30, 2020) - HanesBrands (NYSE: HBI), a leading global marketer of branded everyday basic apparel, today announced second-quarter results with double-digit growth in diluted earnings per share despite market disruption from the COVID-19 pandemic.
The earnings growth resulted from the company’s ability to pivot to production and sales of personal protective garments (face masks and medical gowns) combined with relatively strong apparel performance in pandemic conditions, including 68% sales growth in the online channel.
In the midst of the global pandemic, HanesBrands is focused on: serving channels of trade that remain open; reopening production, distribution and selling operations in a safe and prudent manner; generating and preserving cash; and developing a product line of personal protective garments to meet emerging government, commercial and consumer demand.
Net sales for the second quarter ended June 27, 2020, were $1.74 billion compared with $1.76 billion a year ago. The company sold $752 million in protective garments globally. The year-ago quarter included net sales of $119 million from the now exited C9 Champion mass program and the DKNY intimate apparel license. Excluding the exited programs and foreign exchange rates, total constant-currency net sales for second-quarter 2020 increased 7%.
Second-quarter GAAP operating profit increased 5% to $242 million, and the quarter’s adjusted operating profit excluding actions increased 41% to $305 million.
Second-quarter GAAP EPS increased 12% to $0.46, and adjusted EPS excluding actions increased 58% to $0.60. (See the Note on Reconciliation of Select GAAP Measures to Non-GAAP Measures later in this news release for additional discussion and details of actions, which include pandemic-related charges.)
HanesBrands Reports Second-Quarter 2020 Financial Results - Page 2
“The HanesBrands organization did a phenomenal job overcoming significant challenges in order to mitigate the effects of the global pandemic,” said Hanes Chief Executive Officer Gerald W. Evans Jr. “The professionalism, ingenuity and dedication of our worldwide employees was on display in generating double-digit EPS growth, establishing a new protective garments business line from scratch, and starting the reopening of manufacturing, distribution and selling in the most safe and effective manner possible.
“Despite the effects of pandemic-caused disruptions to global economies, our business is in great shape. We performed significantly better than our base-case scenario in both our apparel business and our new protective garment business. Point-of-sale trends are improving for apparel, and in the case of U.S. Innerwear basics and U.S. Champion, point-of-sale trends in May and June were higher than pre-COVID levels.
“Our brands are strong, and we are gaining market share and building momentum. Our liquidity remains strong allowing us to maintain our quarterly cash dividend and have ample operating flexibility. While there is still near-term uncertainty concerning the ongoing economic impact of the COVID-19 pandemic, we believe we are positioned to drive growth and seize opportunities over the next several years.”
As a result of the COVID-19 pandemic and the lack of visibility to business conditions, Hanes withdrew its quarterly and full-year performance guidance on March 25, 2020. The company then modeled several different financial scenarios based on assumptions of when retailer stores and economies would begin to reopen. Under the company’s base-case scenario, stores were assumed to gradually reopen beginning in late May.
Callouts for Results and Ongoing Operations During the Pandemic
Apparel Sales and Protective Garments Contribute to Results. Apparel sales and protective garment sales both exceeded the company’s base-case scenario for the quarter. The company continues to generate significant sales growth through channels of trade that have remained open during the pandemic, including online, mass retail, dollar store, and food and drug.
On a rebased comparison to a year ago, second-quarter global online sales increased more than 70% through company e-commerce websites, retailer websites, large internet pure-plays, and business-to-business customers. Excluding sales of protective garments, approximately 30% of total sales in the quarter were through the online channel.
The company sold $752 million in personal protection garments globally to governments, large organizations, consumers and business-to-business customers. The sales of the face masks and medical gowns significantly exceeded initial expectations for the new business lines. As part of the protective-garment sales in the quarter, the company delivered more than 450 million cloth face coverings and more than 20 million medical gowns to the U.S. government.
The company is selling face masks to consumers under its leading brands globally, including Hanes, Champion, Bonds and Dim, and protective garments represent an ongoing business opportunity. Excluding the potential for additional government contracts, the company estimates that it could sell more than $150 million of protective garments in the second half of 2020.
HanesBrands Reports Second-Quarter 2020 Financial Results - Page 3
First-Half Operating Cash Flow Improves, Despite COVID-19 Impact. Operating cash flow of $65 million in the second quarter resulted in a first-half operating cash improvement of approximately $40 million versus a year ago. Working capital discipline, temporary cost reductions, and inventory control and production timeouts contributed to cash generation. Inventory declined 12% versus a year ago.
Second-Quarter Restructuring Charges Related to Planned Actions and Additional COVID-Related Costs. The company incurred approximately $63 million in both planned restructuring actions and additional COVID-related costs in the second quarter. The previously disclosed planned supply chain restructuring actions accounted for $11 million of second-quarter charges. The remaining $52 million of noncash pandemic-related charges incurred in the second quarter consisted of a $20 million write down of intangible assets, $11 million of bad debt expense, and approximately $21 million related to canceled orders of specialized seasonal inventory. (See the Note on Reconciliation of Select GAAP Measures to Non-GAAP Measures later in this news release for additional discussion and details.)
Second-Quarter 2020 Business Segment Summaries
International Segment. As reported, second-quarter International segment total sales declined 20% while operating profit decreased 2%. On a constant-currency basis, net sales decreased 17% and operating profit decreased 3%.
Apparel performance, excluding protective garments, exceeded the company’s base-case scenario with strong online sales growth and strong point-of-sale trends after closed company and retailer stores began to reopen. Excluding protective garment sales, segment revenue declined 44%.
Innerwear Segment. U.S. Innerwear segment results benefited from better-than-expected apparel performance and significant sales of protective garments. Second-quarter segment revenue increased 61% and operating profit increased 104%. Operating-margin enhancement resulted from fixed-cost leverage and SG&A expense control, including temporary cost reductions.
Apparel performance, excluding protective garments, significantly exceeded the company’s pandemic base-case scenario with revenue decreasing 29%. When year-ago results are rebased to reflect the exit of the C9 Champion mass retail program and DKNY intimates license, segment revenue decreased 27%.
Innerwear point-of-sale trends excluding protective garments accelerated through the quarter, turning significantly positive in May and June. Innerwear basics gained more than 300 basis points of market share in the quarter, and Innerwear intimate apparel point-of-sale trends returned to pre-COVID levels entering July.
Activewear Segment. U.S. Activewear second-quarter performance exceeded the company’s base-case pandemic scenario. Segment sales decreased 62% as a result of the pandemic-related demand impacts and $98 million of C9 Champion sales in mass retail in the year-ago quarter. The segment recorded an operating loss in the quarter.
When the year-ago quarter is rebased for the C9 Champion program exit, sales decreased 52% and operating profit decreased 113%. The company maintained Champion marketing investment consistent with the year-ago quarter.
HanesBrands Reports Second-Quarter 2020 Financial Results - Page 4
The COVID pandemic resulted in retailer door closures and lower demand for the segment’s printwear and sports apparel businesses. Point-of-sale trends for Champion accelerated as the quarter progressed, and strong positive trends continued in July. Sales through the enhanced Champion.com website increased nearly 200% in the quarter.
2020 Financial Guidance
Due to the continued uncertainty and unpredictability of the COVID-19 pandemic, HanesBrands will not provide quarterly and full-year performance guidance until visibility of the pandemic’s effect on global economies improves.
The decline in apparel sales in the second quarter was better than the company’s base-case scenario. Absent a slowdown of store reopenings or recurrence of store closures, the company anticipates sequential improvement of sales declines in the third and fourth quarters. U.S. Innerwear sales on the strength of basics could return to rebased year-ago levels by the end of the year.
The company is selling face masks to consumers under its leading brands globally. Excluding the potential for additional government contracts, the company estimates that it could sell more than $150 million of protective garments in the second half of 2020, primarily in the third quarter.
The company expects to generate positive cash flow in the second half.
The fiscal year ending Jan. 2, 2021, includes a 53rd week in the fourth quarter. The company has exited the C9 Champion mass program and DKNY license for intimate apparel. The company expects foreign currency exchange rates to reduce net sales and operating profit in 2020.
The company’s tax rate for the second quarter was 17.3%. The company expects its second-half tax rate to be approximately 17.5%.
The company repurchased approximately 14.5 million shares in the first quarter and has suspended share repurchases for the remainder of the year. The weighted average of diluted shares outstanding for the second quarter was 351 million.
Hanes has updated its quarterly frequently-asked-questions document, which is available at www.Hanes.com/faq.
Note on Adjusted Measures, Rebased Measures and Reconciliation to GAAP Measures
To supplement financial results prepared in accordance with generally accepted accounting principles, the company provides quarterly and full-year results 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), adjusted net sales, 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 SG&A is defined as selling, general and administrative expenses excluding actions. Adjusted gross profit is defined as gross profit excluding actions. Adjusted net sales are defined as net sales excluding actions.
HanesBrands Reports Second-Quarter 2020 Financial Results - Page 5
Charges for actions taken in 2019 primarily represented supply chain network changes, program exit costs, and overhead reduction as well as completion of outstanding acquisition integration. Charges taken in 2020 include supply chain restructuring actions, program exit costs and COVID-19 related non-cash charges. 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.
The company has also 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.
In addition, with respect to 2020 financial performance, Hanes has chosen to present certain year-over-year comparisons with respect to the company’s rebased 2019 business, which excludes the exited C9 Champion program at mass retail and DKNY license. Hanes believes this information is useful to management and investors to facilitate a more meaningful comparison of the results of the company’s ongoing business between 2019 and 2020. The company has provided rebased 2019 quarterly income statements in Supplemental Table B dated Feb. 7, 2020, which is available online at www.hanes.com/investors.
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).
Hanes believes constant-currency information is useful to management and investors to facilitate comparison of operating results and better identify trends in the company’s businesses.
HanesBrands Reports Second-Quarter 2020 Financial Results - Page 6
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 these non-GAAP measures to the most directly comparable GAAP financial measures are presented in the supplemental financial information included with this news release.
Webcast Conference Call
Hanes will host an internet webcast of its second-quarter investor conference call at 8:30 a.m. EDT today, July 30, 2020. 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 EDT today through midnight EDT Aug. 6, 2020. The replay will be available by calling toll-free (855) 859-2056 or by toll call at (404) 537-3406. The replay ID is 5907699.
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 the potential impact of the COVID-19 outbreak on our business and financial performance; guidance and predictions regarding expected operating results, including related to our new business line for cotton face masks and other personal protection garments; our belief that we have sufficient liquidity to fund our ongoing business operations; and statements made in 2020 Financial Guidance section of this news release, 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 potential effects of the COVID-19 outbreak, including on consumer spending, global supply chains and the financial markets; 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 attract and retain a senior management team with the core competencies needed to support growth in global markets; our ability to properly manage strategic projects in order to achieve the desired results; 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 effectively manage our complex multinational tax structure; the existence of a material weakness in our internal control over financial reporting; 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 Second-Quarter 2020 Financial Results - Page 7
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, DIM, Maidenform, Bali, Playtex, Lovable, Bras N Things, Nur Die/Nur Der, Alternative, L’eggs, JMS/Just My Size, 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 Fortune 500 company and member of the S&P 500 stock index (NYSE: HBI), Hanes has approximately 63,000 employees in more than 40 countries. 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 and Supplemental Financial Information
(in thousands, except per-share amounts)
(Unaudited)
Quarters Ended | Six Months Ended | ||||||||||||||||||||
June 27, 2020 | June 29, 2019 | % Change | June 27, 2020 | June 29, 2019 | % Change | ||||||||||||||||
Net sales | $ | 1,738,779 | $ | 1,760,927 | (1.3 | )% | $ | 3,055,241 | $ | 3,348,951 | (8.8 | )% | |||||||||
Cost of sales | 1,105,767 | 1,085,404 | 1,948,497 | 2,053,397 | |||||||||||||||||
Gross profit | 633,012 | 675,523 | (6.3 | )% | 1,106,744 | 1,295,554 | (14.6 | )% | |||||||||||||
As a % of net sales | 36.4 | % | 38.4 | % | 36.2 | % | 38.7 | % | |||||||||||||
Selling, general and administrative expenses | 391,476 | 445,923 | 831,078 | 916,310 | |||||||||||||||||
As a % of net sales | 22.5 | % | 25.3 | % | 27.2 | % | 27.4 | % | |||||||||||||
Operating profit | 241,536 | 229,600 | 5.2 | % | 275,666 | 379,244 | (27.3 | )% | |||||||||||||
As a % of net sales | 13.9 | % | 13.0 | % | 9.0 | % | 11.3 | % | |||||||||||||
Other expenses | 5,050 | 8,249 | 11,540 | 15,700 | |||||||||||||||||
Interest expense, net | 41,659 | 46,522 | 78,508 | 94,581 | |||||||||||||||||
Income before income tax expense | 194,827 | 174,829 | 185,618 | 268,963 | |||||||||||||||||
Income tax expense | 33,646 | 25,274 | 32,311 | 38,320 | |||||||||||||||||
Net income | $ | 161,181 | $ | 149,555 | 7.8 | % | $ | 153,307 | $ | 230,643 | (33.5 | )% | |||||||||
Earnings per share: | |||||||||||||||||||||
Basic | $ | 0.46 | $ | 0.41 | $ | 0.43 | $ | 0.63 | |||||||||||||
Diluted | $ | 0.46 | $ | 0.41 | $ | 0.43 | $ | 0.63 | |||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||
Basic | 350,538 | 364,637 | 354,778 | 364,603 | |||||||||||||||||
Diluted | 350,829 | 365,537 | 355,133 | 365,418 | |||||||||||||||||
The following tables present a reconciliation of reported results on a constant currency basis for the quarter and six months ended June 27, 2020 and a comparison to prior year: |
Quarter Ended June 27, 2020 | |||||||||||||||||||||
As Reported | Impact from Foreign Currency1 | Constant Currency | Quarter Ended June 29, 2019 | % Change, As Reported | % Change, Constant Currency | ||||||||||||||||
As reported under GAAP: | |||||||||||||||||||||
Net sales | $ | 1,738,779 | $ | (13,653 | ) | $ | 1,752,432 | $ | 1,760,927 | (1.3 | )% | (0.5 | )% | ||||||||
Gross profit | 633,012 | (6,298 | ) | 639,310 | 675,523 | (6.3 | ) | (5.4 | ) | ||||||||||||
Operating profit | 241,536 | 111 | 241,425 | 229,600 | 5.2 | 5.2 | |||||||||||||||
Diluted earnings per share | $ | 0.46 | $ | 0.00 | $ | 0.46 | $ | 0.41 | 12.2 | % | 12.2 | % | |||||||||
As adjusted:2 | |||||||||||||||||||||
Net sales | $ | 1,738,779 | $ | (13,653 | ) | $ | 1,752,432 | $ | 1,642,217 | 5.9 | % | 6.7 | % | ||||||||
Gross profit | 659,546 | (6,298 | ) | 665,844 | 652,952 | 1.0 | 2.0 | ||||||||||||||
Operating profit | 304,832 | 111 | 304,721 | 216,752 | 40.6 | 40.6 | |||||||||||||||
Diluted earnings per share | $ | 0.60 | $ | 0.00 | $ | 0.60 | $ | 0.38 | 57.9 | % | 57.9 | % | |||||||||
Six Months Ended June 27, 2020 | |||||||||||||||||||||
As Reported | Impact from Foreign Currency1 | Constant Currency | Six Months Ended June 29, 2019 | % Change, As Reported | % Change, Constant Currency | ||||||||||||||||
As reported under GAAP: | |||||||||||||||||||||
Net sales | $ | 3,055,241 | $ | (33,854 | ) | $ | 3,089,095 | $ | 3,348,951 | (8.8 | )% | (7.8 | )% | ||||||||
Gross profit | 1,106,744 | (16,560 | ) | 1,123,304 | 1,295,554 | (14.6 | ) | (13.3 | ) | ||||||||||||
Operating profit | 275,666 | (774 | ) | 276,440 | 379,244 | (27.3 | ) | (27.1 | ) | ||||||||||||
Diluted earnings per share | $ | 0.43 | $ | 0.00 | $ | 0.43 | $ | 0.63 | (31.7 | )% | (31.7 | )% | |||||||||
As adjusted:2 | |||||||||||||||||||||
Net sales | $ | 3,055,241 | $ | (33,854 | ) | $ | 3,089,095 | $ | 3,136,137 | (2.6 | )% | (1.5 | )% | ||||||||
Gross profit | 1,155,091 | (16,560 | ) | 1,171,651 | 1,260,787 | (8.4 | ) | (7.1 | ) | ||||||||||||
Operating profit | 368,161 | (774 | ) | 368,935 | 366,846 | 0.4 | 0.6 | ||||||||||||||
Diluted earnings per share | $ | 0.65 | $ | 0.00 | $ | 0.65 | $ | 0.60 | 8.3 | % | 8.3 | % | |||||||||
1 | Effect of the change in foreign currency exchange rates year-over-year. Calculated by applying prior period exchange rates to the current year financial results. |
2 | Results for the quarters and six months ended June 27, 2020 and June 29, 2019 reflect adjustments for restructuring and other action-related charges. Results for the quarter and six months ended June 29, 2019 also reflect adjustments for the exited C9 Champion program at Target and DKNY Intimates license. See “Reconciliation of Select GAAP Measures to Non-GAAP Measures” in Table 5. |
TABLE 2
HANESBRANDS INC.
Supplemental Financial Information
(in thousands, except per-share amounts)
(Unaudited)
Quarters Ended | Six Months Ended | ||||||||||||||||||||
June 27, 2020 | June 29, 2019 Rebased1 | % Change | June 27, 2020 | June 29, 2019 Rebased1 | % Change | ||||||||||||||||
Segment net sales: | |||||||||||||||||||||
Innerwear | $ | 1,094,814 | $ | 657,477 | 66.5 | % | $ | 1,517,216 | $ | 1,123,891 | 35.0 | % | |||||||||
Activewear | 168,379 | 350,694 | (52.0 | ) | 456,379 | 671,461 | (32.0 | ) | |||||||||||||
International | 456,875 | 568,863 | (19.7 | ) | 1,012,776 | 1,215,043 | (16.6 | ) | |||||||||||||
Other | 18,711 | 65,183 | (71.3 | ) | 68,870 | 125,742 | (45.2 | ) | |||||||||||||
Total net sales | $ | 1,738,779 | $ | 1,642,217 | 5.9 | % | $ | 3,055,241 | $ | 3,136,137 | (2.6 | )% | |||||||||
Segment operating profit: | |||||||||||||||||||||
Innerwear | $ | 304,524 | $ | 146,997 | 107.2 | % | $ | 386,075 | $ | 250,123 | 54.4 | % | |||||||||
Activewear | (5,751 | ) | 45,855 | (112.5 | ) | 2,357 | 70,025 | (96.6 | ) | ||||||||||||
International | 79,124 | 81,078 | (2.4 | ) | 131,142 | 180,851 | (27.5 | ) | |||||||||||||
Other | (12,270 | ) | 6,032 | (303.4 | ) | (18,395 | ) | 6,786 | (371.1 | ) | |||||||||||
General corporate expenses/other | (60,795 | ) | (63,210 | ) | (3.8 | ) | (133,018 | ) | (140,939 | ) | (5.6 | ) | |||||||||
Total operating profit before restructuring and other action-related charges | 304,832 | 216,752 | 40.6 | 368,161 | 366,846 | 0.4 | |||||||||||||||
Restructuring and other action-related charges | (63,296 | ) | (12,609 | ) | 402.0 | (92,495 | ) | (33,982 | ) | 172.2 | |||||||||||
Total operating profit | $ | 241,536 | $ | 204,143 | 18.3 | % | $ | 275,666 | $ | 332,864 | (17.2 | )% | |||||||||
1 | Results for the quarter and six months ended June 29, 2019 reflect adjustments for the exited C9 Champion program at Target and DKNY Intimates license. See “Reconciliation of Select GAAP Measures to Non-GAAP Measures” in Table 5. |
The following table presents a reconciliation of reported net sales adjusted for personal protective equipment (“PPE”) sales for the quarter and six months ended June 27, 2020 and a comparison to prior year. |
Quarter Ended June 27, 2020 | |||||||||||||||||
As Reported | % Change1 | PPE | Adjusted for PPE | % Change1 | |||||||||||||
Segment net sales: | |||||||||||||||||
Innerwear | $ | 1,094,814 | 66.5 | % | $ | 613,516 | $ | 481,298 | (26.8 | )% | |||||||
Activewear | 168,379 | (52.0 | ) | — | 168,379 | (52.0 | ) | ||||||||||
International | 456,875 | (19.7 | ) | 138,707 | 318,168 | (44.1 | ) | ||||||||||
Other | 18,711 | (71.3 | ) | — | 18,711 | (71.3 | ) | ||||||||||
Net sales | $ | 1,738,779 | 5.9 | % | $ | 752,223 | $ | 986,556 | (39.9 | )% | |||||||
Six Months Ended June 27, 2020 | |||||||||||||||||
As Reported | % Change1 | PPE | Adjusted for PPE | % Change1 | |||||||||||||
Segment net sales: | |||||||||||||||||
Innerwear | $ | 1,517,216 | 35.0 | % | $ | 613,516 | $ | 903,700 | (19.6 | )% | |||||||
Activewear | 456,379 | (32.0 | ) | — | 456,379 | (32.0 | ) | ||||||||||
International | 1,012,776 | (16.6 | ) | 138,707 | 874,069 | (28.1 | ) | ||||||||||
Other | 68,870 | (45.2 | ) | — | 68,870 | (45.2 | ) | ||||||||||
Net sales | $ | 3,055,241 | (2.6 | )% | $ | 752,223 | $ | 2,303,018 | (26.6 | )% | |||||||
1 | The comparison to the quarter and six months ended June 29, 2019 reflects adjustments for the exited C9 Champion program at Target and DKNY Intimates license. See “Reconciliation of Select GAAP Measures to Non-GAAP Measures” in Table 5. |
Including the unfavorable foreign currency impact of $0.7 million, global Champion sales outside the mass channel decreased approximately 46% in the second quarter of 2020 compared to the second quarter of 2019. On a constant currency basis, the global Champion sales decrease remained the same at approximately 46%. |
TABLE 3
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
June 27, 2020 | December 28, 2019 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 683,114 | $ | 328,876 | |||
Trade accounts receivable, net | 1,196,826 | 815,210 | |||||
Inventories | 1,958,443 | 1,905,845 | |||||
Other current assets | 193,422 | 174,634 | |||||
Total current assets | 4,031,805 | 3,224,565 | |||||
Property, net | 565,849 | 587,896 | |||||
Right-of-use assets | 479,677 | 487,787 | |||||
Trademarks and other identifiable intangibles, net | 1,478,721 | 1,520,800 | |||||
Goodwill | 1,233,184 | 1,235,711 | |||||
Deferred tax assets | 200,047 | 203,331 | |||||
Other noncurrent assets | 123,677 | 93,896 | |||||
Total assets | $ | 8,112,960 | $ | 7,353,986 | |||
Liabilities | |||||||
Accounts payable | $ | 1,152,273 | $ | 959,006 | |||
Accrued liabilities | 568,228 | 531,184 | |||||
Lease liabilities | 160,432 | 166,091 | |||||
Notes payable | 8,803 | 4,244 | |||||
Accounts Receivable Securitization Facility | — | — | |||||
Current portion of long-term debt | 112,512 | 110,914 | |||||
Total current liabilities | 2,002,248 | 1,771,439 | |||||
Long-term debt | 3,985,631 | 3,256,870 | |||||
Lease liabilities - noncurrent | 362,570 | 358,281 | |||||
Pension and postretirement benefits | 374,052 | 403,458 | |||||
Other noncurrent liabilities | 309,139 | 327,343 | |||||
Total liabilities | 7,033,640 | 6,117,391 | |||||
Stockholders’ equity | |||||||
Preferred stock | — | — | |||||
Common stock | 3,481 | 3,624 | |||||
Additional paid-in capital | 302,522 | 304,395 | |||||
Retained earnings | 1,404,326 | 1,546,224 | |||||
Accumulated other comprehensive loss | (631,009 | ) | (617,648 | ) | |||
Total stockholders’ equity | 1,079,320 | 1,236,595 | |||||
Total liabilities and stockholders’ equity | $ | 8,112,960 | $ | 7,353,986 | |||
TABLE 4
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Quarters Ended | Six Months Ended | ||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||
Operating Activities: | |||||||||||||||
Net income | $ | 161,181 | $ | 149,555 | $ | 153,307 | $ | 230,643 | |||||||
Adjustments to reconcile net income to net cash from operating activities: | |||||||||||||||
Depreciation | 22,618 | 24,035 | 45,399 | 46,889 | |||||||||||
Amortization of acquisition intangibles | 6,086 | 6,247 | 12,199 | 12,537 | |||||||||||
Other amortization | 2,630 | 1,973 | 5,107 | 5,063 | |||||||||||
Impairment of intangible assets | 20,319 | — | 20,319 | — | |||||||||||
Amortization of debt issuance costs | 2,996 | 2,318 | 5,119 | 4,758 | |||||||||||
Stock compensation expense | 4,466 | 2,069 | 9,189 | 7,247 | |||||||||||
Deferred taxes | (1,740 | ) | 1,272 | (2,201 | ) | (2,582 | ) | ||||||||
Other | 18,779 | 1,228 | 9,259 | 5,475 | |||||||||||
Changes in assets and liabilities: | |||||||||||||||
Accounts receivable | (465,828 | ) | (75,167 | ) | (392,134 | ) | (137,445 | ) | |||||||
Inventories | 25,376 | 12,893 | (61,409 | ) | (165,512 | ) | |||||||||
Other assets | (58,360 | ) | 3,793 | (31,570 | ) | (28,579 | ) | ||||||||
Accounts payable | 223,943 | 25,912 | 210,338 | 7,699 | |||||||||||
Accrued pension and postretirement benefits | 2,163 | 3,657 | (19,318 | ) | (18,321 | ) | |||||||||
Accrued liabilities and other | 100,794 | (22,857 | ) | 18,603 | (25,235 | ) | |||||||||
Net cash from operating activities | 65,423 | 136,928 | (17,793 | ) | (57,363 | ) | |||||||||
Investing Activities: | |||||||||||||||
Capital expenditures | (20,753 | ) | (33,016 | ) | (46,512 | ) | (58,285 | ) | |||||||
Proceeds from sales of assets | — | 382 | 66 | 518 | |||||||||||
Other | 4,607 | — | 5,823 | — | |||||||||||
Net cash from investing activities | (16,146 | ) | (32,634 | ) | (40,623 | ) | (57,767 | ) | |||||||
Financing Activities: | |||||||||||||||
Borrowings on notes payable | 54,357 | 79,818 | 116,669 | 162,592 | |||||||||||
Repayments on notes payable | (48,021 | ) | (80,944 | ) | (112,373 | ) | (163,703 | ) | |||||||
Borrowings on Accounts Receivable Securitization Facility | — | 16,870 | 227,061 | 123,812 | |||||||||||
Repayments on Accounts Receivable Securitization Facility | (152,152 | ) | (26,560 | ) | (227,061 | ) | (95,110 | ) | |||||||
Borrowings on Revolving Loan Facilities | — | 830,000 | 1,638,000 | 1,602,500 | |||||||||||
Repayments on Revolving Loan Facilities | (950,000 | ) | (742,000 | ) | (1,638,000 | ) | (1,422,500 | ) | |||||||
Borrowings on Senior Notes | 700,000 | — | 700,000 | — | |||||||||||
Repayments on Term Loan Facilities | — | (130,998 | ) | — | (141,623 | ) | |||||||||
Borrowings on International Debt | — | — | 31,222 | 7,141 | |||||||||||
Repayments on International Debt | — | (27,941 | ) | — | (27,941 | ) | |||||||||
Share repurchases | — | — | (200,269 | ) | — | ||||||||||
Cash dividends paid | (52,213 | ) | (54,228 | ) | (105,896 | ) | (108,449 | ) | |||||||
Payments of debt issuance costs | (14,602 | ) | (106 | ) | (14,834 | ) | (768 | ) | |||||||
Taxes paid related to net shares settlement of equity awards | (18 | ) | (251 | ) | (80 | ) | (1,157 | ) | |||||||
Other | 453 | 412 | 879 | 985 | |||||||||||
Net cash from financing activities | (462,196 | ) | (135,928 | ) | 415,318 | (64,221 | ) | ||||||||
Effect of changes in foreign exchange rates on cash | 12,392 | 2,178 | (2,669 | ) | 4,282 | ||||||||||
Change in cash, cash equivalents and restricted cash | (400,527 | ) | (29,456 | ) | 354,233 | (175,069 | ) | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 1,084,683 | 310,119 | 329,923 | 455,732 | |||||||||||
Cash, cash equivalents and restricted cash at end of period | 684,156 | 280,663 | 684,156 | 280,663 | |||||||||||
Less restricted cash at end of period | 1,042 | 22,722 | 1,042 | 22,722 | |||||||||||
Cash and cash equivalents per balance sheet at end of period | $ | 683,114 | $ | 257,941 | $ | 683,114 | $ | 257,941 | |||||||
TABLE 5
HANESBRANDS INC.
Supplemental Financial Information
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(in thousands, except per-share amounts)
(Unaudited)
Quarters Ended | Six Months Ended | ||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||
Net sales, as reported under GAAP | $ | 1,738,779 | $ | 1,760,927 | $ | 3,055,241 | $ | 3,348,951 | |||||||
Net sales from exited programs | — | (118,710 | ) | — | (212,814 | ) | |||||||||
Net sales, rebased | $ | 1,738,779 | $ | 1,642,217 | $ | 3,055,241 | $ | 3,136,137 | |||||||
Gross profit, as reported under GAAP | $ | 633,012 | $ | 675,523 | $ | 1,106,744 | $ | 1,295,554 | |||||||
Restructuring and other action-related charges | 26,534 | 12,598 | 48,347 | 30,290 | |||||||||||
Gross profit on exited programs | — | (35,169 | ) | — | (65,057 | ) | |||||||||
Adjusted gross profit, rebased | $ | 659,546 | $ | 652,952 | $ | 1,155,091 | $ | 1,260,787 | |||||||
As a % of net sales, rebased | 37.9 | % | 39.8 | % | 37.8 | % | 40.2 | % | |||||||
Selling, general and administrative expenses, as reported under GAAP | $ | 391,476 | $ | 445,923 | $ | 831,078 | $ | 916,310 | |||||||
Restructuring and other action-related charges | (36,762 | ) | (11 | ) | (44,148 | ) | (3,692 | ) | |||||||
Selling, general and administrative expenses related to exited programs | — | (9,712 | ) | — | (18,677 | ) | |||||||||
Adjusted selling, general and administrative expenses, rebased | $ | 354,714 | $ | 436,200 | $ | 786,930 | $ | 893,941 | |||||||
As a % of net sales, rebased | 20.4 | % | 26.6 | % | 25.8 | % | 28.5 | % | |||||||
Operating profit, as reported under GAAP | $ | 241,536 | $ | 229,600 | $ | 275,666 | $ | 379,244 | |||||||
Restructuring and other action-related charges included in gross profit | 26,534 | 12,598 | 48,347 | 30,290 | |||||||||||
Restructuring and other action-related charges included in SG&A | 36,762 | 11 | 44,148 | 3,692 | |||||||||||
Gross profit on exited programs | — | (35,169 | ) | — | (65,057 | ) | |||||||||
Selling, general and administrative expenses related to exited programs | — | 9,712 | — | 18,677 | |||||||||||
Adjusted operating profit, rebased | $ | 304,832 | $ | 216,752 | $ | 368,161 | $ | 366,846 | |||||||
As a % of net sales, rebased | 17.5 | % | 13.2 | % | 12.1 | % | 11.7 | % | |||||||
Net income, as reported under GAAP | $ | 161,181 | $ | 149,555 | $ | 153,307 | $ | 230,643 | |||||||
Restructuring and other action-related charges included in gross profit | 26,534 | 12,598 | 48,347 | 30,290 | |||||||||||
Restructuring and other action-related charges included in SG&A | 36,762 | 11 | 44,148 | 3,692 | |||||||||||
Gross profit on exited programs | — | (35,169 | ) | — | (65,057 | ) | |||||||||
Selling, general and administrative expenses related to exited programs | — | 9,712 | — | 18,677 | |||||||||||
Tax effect on actions | (12,415 | ) | 1,812 | (16,649 | ) | 1,749 | |||||||||
Adjusted net income, rebased | $ | 212,062 | $ | 138,519 | $ | 229,153 | $ | 219,994 | |||||||
Diluted earnings per share, as reported under GAAP | $ | 0.46 | $ | 0.41 | $ | 0.43 | $ | 0.63 | |||||||
Restructuring and other action-related charges | 0.15 | 0.03 | 0.21 | 0.08 | |||||||||||
Exited programs | — | (0.06 | ) | — | (0.11 | ) | |||||||||
Adjusted diluted earnings per share, rebased | $ | 0.60 | $ | 0.38 | $ | 0.65 | $ | 0.60 | |||||||
Quarter Ended June 29, 2019 | |||||||||||||||||||
As Reported | Less: Exited Programs | Adjusted for Exited Programs | Less: Restructuring and other action-related charges | Rebased | |||||||||||||||
Segment net sales: | |||||||||||||||||||
Innerwear | $ | 678,604 | $ | 21,127 | $ | 657,477 | $ | — | $ | 657,477 | |||||||||
Activewear | 448,277 | 97,583 | 350,694 | — | 350,694 | ||||||||||||||
International | 568,863 | — | 568,863 | — | 568,863 | ||||||||||||||
Other | 65,183 | — | 65,183 | — | 65,183 | ||||||||||||||
Total net sales | $ | 1,760,927 | $ | 118,710 | $ | 1,642,217 | $ | — | $ | 1,642,217 | |||||||||
Segment operating profit: | |||||||||||||||||||
Innerwear | $ | 149,530 | $ | 2,533 | $ | 146,997 | $ | — | $ | 146,997 | |||||||||
Activewear | 68,779 | 22,924 | 45,855 | — | 45,855 | ||||||||||||||
International | 81,078 | — | 81,078 | — | 81,078 | ||||||||||||||
Other | 6,032 | — | 6,032 | — | 6,032 | ||||||||||||||
General corporate expenses/other | (63,210 | ) | — | (63,210 | ) | — | (63,210 | ) | |||||||||||
Restructuring and other action-related charges | (12,609 | ) | — | (12,609 | ) | (12,609 | ) | — | |||||||||||
Total operating profit | $ | 229,600 | $ | 25,457 | $ | 204,143 | $ | (12,609 | ) | $ | 216,752 | ||||||||
Six Months Ended June 29, 2019 | |||||||||||||||||||
As Reported | Less: Exited Programs | Adjusted for Exited Programs | Less: Restructuring and other action-related charges | Rebased | |||||||||||||||
Segment net sales: | |||||||||||||||||||
Innerwear | $ | 1,154,549 | $ | 30,658 | $ | 1,123,891 | $ | — | $ | 1,123,891 | |||||||||
Activewear | 853,617 | 182,156 | 671,461 | — | 671,461 | ||||||||||||||
International | 1,215,043 | — | 1,215,043 | — | 1,215,043 | ||||||||||||||
Other | 125,742 | — | 125,742 | — | 125,742 | ||||||||||||||
Total net sales | $ | 3,348,951 | $ | 212,814 | $ | 3,136,137 | $ | — | $ | 3,136,137 | |||||||||
Segment operating profit: | |||||||||||||||||||
Innerwear | $ | 254,156 | $ | 4,033 | $ | 250,123 | $ | — | $ | 250,123 | |||||||||
Activewear | 112,372 | 42,347 | 70,025 | — | 70,025 | ||||||||||||||
International | 180,851 | — | 180,851 | — | 180,851 | ||||||||||||||
Other | 6,786 | — | 6,786 | — | 6,786 | ||||||||||||||
General corporate expenses/other | (140,939 | ) | — | (140,939 | ) | — | (140,939 | ) | |||||||||||
Restructuring and other action-related charges | (33,982 | ) | — | (33,982 | ) | (33,982 | ) | — | |||||||||||
Total operating profit | $ | 379,244 | $ | 46,380 | $ | 332,864 | $ | (33,982 | ) | $ | 366,846 | ||||||||
Quarters Ended | Six Months Ended | ||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||
Restructuring and other action-related charges by category: | |||||||||||||||
Supply chain actions - 2019 | $ | 1,896 | $ | 12,598 | $ | 5,698 | $ | 30,290 | |||||||
Supply chain actions - 2020 | 3,241 | — | 13,504 | — | |||||||||||
Program exit costs | 1,285 | — | 9,500 | — | |||||||||||
Other restructuring costs | 4,695 | 11 | 11,614 | 3,692 | |||||||||||
COVID-19 related charges: | |||||||||||||||
Bad debt | 11,375 | — | 11,375 | — | |||||||||||
Inventory | 20,485 | — | 20,485 | — | |||||||||||
Intangible assets | 20,319 | — | 20,319 | — | |||||||||||
Tax effect on actions | (12,415 | ) | (1,778 | ) | (16,649 | ) | (4,791 | ) | |||||||
Total restructuring and other action-related charges | $ | 50,881 | $ | 10,831 | $ | 75,846 | $ | 29,191 | |||||||
Last Twelve Months | |||||||
June 27, 2020 | June 29, 2019 | ||||||
EBITDA1: | |||||||
Net income | $ | 523,384 | $ | 551,480 | |||
Interest expense, net | 162,506 | 195,063 | |||||
Income tax expense | 72,998 | 103,117 | |||||
Depreciation and amortization | 129,183 | 130,792 | |||||
Total EBITDA | 888,071 | 980,452 | |||||
Total restructuring and other action-related charges (excluding tax effect on actions) | 121,999 | 69,398 | |||||
Stock compensation expense | 11,219 | 25,630 | |||||
Total EBITDA, as adjusted | $ | 1,021,289 | $ | 1,075,480 | |||
Net debt: | |||||||
Debt (current and long-term debt and Accounts Receivable Securitization Facility) | $ | 4,098,143 | $ | 4,017,566 | |||
Notes payable | 8,803 | 4,695 | |||||
(Less) Cash and cash equivalents | (683,114 | ) | (257,941 | ) | |||
Net debt | $ | 3,423,832 | $ | 3,764,320 | |||
Net debt/EBITDA, as adjusted | 3.4 | 3.5 | |||||
1 | Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure. |
Quarters Ended | Six Months Ended | ||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||
Free cash flow: | |||||||||||||||
Net cash from operating activities | $ | 65,423 | $ | 136,928 | $ | (17,793 | ) | $ | (57,363 | ) | |||||
Capital expenditures | (20,753 | ) | (33,016 | ) | (46,512 | ) | (58,285 | ) | |||||||
Free cash flow | $ | 44,670 | $ | 103,912 | $ | (64,305 | ) | $ | (115,648 | ) | |||||
Hanesbrands FAQs Updated July 30, 2020 – New or updated information is in red General and Current Period FAQs (1) Q: What is factored into your 2020 guidance? A: Due to the uncertainty and unpredictability of the COVID‐19 pandemic and the current lack of visibility in the global business environment, we are not providing third quarter or full‐year 2020 guidance at this time. (2) Q: Can you comment on your liquidity position? A: We believe our current liquidity position is strong. We ended the second quarter with approximately $1.8 billion of liquidity, consisting of cash on our balance sheet and the unused portions of our revolving credit facilities. We believe we have a significant capital cushion that maximizes our operating flexibility in the current uncertain environment, positions us to take advantage of current and future opportunities, and positions us to grow the business going forward. (3) Q: Can you provide any additional information regarding the exited programs in 2019? A: Supplemental Table B – Rebased Information dated February 7, 2020 can be found on our investor relations website (www.hanes.com/investors). Supplemental Table B provides a quarterly rebased P&L and rebased revenue and operating profit for our Innerwear and Activewear segments for 2019. This table reflects the exited C9 Champion program at Target and the DKNY Intimates license. (4) Q: Are you impacted by the increased tariffs on products coming into the U.S. from China? A: Unlike the vast majority of the apparel industry, our exposure to China is minimal. We do not own any manufacturing operations in China. Of our third‐party sourced units for the U.S. market, China represents less than 3% of our U.S. costs. We have action plans in place that are expected to further reduce imports from China to the U.S. over the next 12 – 18 months. (5) Q: What is your long‐term capital allocation strategy and what are your priorities for 2020? 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. Due to the COVID‐related uncertainty, our priority for 2020 is to preserve cash and ensure we have ample liquidity in order to maximize our operating flexibility in the current environment. We believe this positions us to take advantage of current and future opportunities. With respect to capital allocation for the remainder of 2020, we have reduced our capital expenditures to critical needs and we have suspended share repurchases. 1
(6) 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 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. (7) 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, adjusted EBITDA and net debt. 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. Charges for actions taken in 2019 primarily represent supply chain network changes, program exist costs and overhead reduction as well as completion of outstanding acquisition integration. Charges for actions taken in 2020 include supply chain restructuring actions, program exit costs and COVID‐19 related non‐cash charges. Acquisition and integration costs include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, 2
inventory write‐offs, information technology integration costs and similar charges related to the integration of recently acquired businesses. 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. We have also chosen to present EBITDA, adjusted EBITDA and the ratio of net debt to adjusted EBITDA to investors because we consider 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. Net debt is defined as total debt less cash and cash equivalents. We believe that these metrics are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, and management uses the ratio of net debt to adjusted EBITDA for planning purposes in connection with setting our capital allocation strategy. These metrics should not, however, be considered as measures of discretionary cash available to invest in the growth of the business. In addition, with respect to 2020 financial performance, we have chosen to present certain year over year comparisons with respect to our rebased 2019 business, which excludes the exited C9 Champion program and DKNY license. We believe this information is useful to management and investors to facilitate a more meaningful comparison of the results of the company’s ongoing business between 2019 and 2020. 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). Organic sales are net sales excluding those derived from businesses acquired within the previous 12 months of a reporting date. We believe constant currency and organic sales 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. See our press release dated April 30, 2020 to reconcile quarterly and full‐year non‐GAAP performance measures to the most directly comparable GAAP measure, as well as to reconcile year over year comparisons based on our rebased 2019 business. A copy of the press release is available at www.Hanes.com/investors. 3
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 the potential impact of the COVID‐19 outbreak on our business and financial performance, guidance and predictions regarding expected operating results, including related to our new business line for cotton face masks and other personal protection garments, and our belief that we have sufficient liquidity to fund our ongoing business operations 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 potential effects of the COVID‐19 outbreak, including on consumer spending, global supply chains and financial markets; 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 attract and retain a senior management team with the core competencies needed to support growth in global markets; our ability to properly manage strategic projects in order to achieve the desired results; 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 effectively manage our complex multinational tax structure; the existence of a material weakness in our internal control over financial reporting; ; 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. 4
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