UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 8, 2023
(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 1.01 Entry into a Material Definitive Agreement
As previously disclosed on November 23, 2021, Hanesbrands Inc. (the “Company”), along with each of MFB International Holdings S.à r.l. (the “Lux Borrower”) and HBI Australia Acquisition Co. Pty Ltd (the “Australian Borrower” and, together with the Company and the Lux Borrower, the “Borrowers”), entered into the Fifth Amended and Restated Credit Agreement, dated as of November 19, 2021 (as amended from time to time, the “Credit Agreement”), with the various financial institutions and other persons from time to time party to the Credit Agreement as lenders, and JPMorgan Chase Bank, N.A., as the administrative agent and the collateral agent. As previously disclosed on November 9, 2022 and February 2, 2023, the Company twice amended the Credit Agreement to effect certain changes to certain provisions and covenants therein to provide increased operating flexibility (such amendments, the “Second Amendment” and the “Third Amendment”, respectively).
On November 8, 2023, given the continuing uncertain economic environment and the associated impact on future earnings, the Company further amended the Credit Agreement prior to any potential future covenant violation in order to modify the financial covenants therein and to provide greater strategic financial flexibility (the “Fourth Amendment”). The Fourth Amendment effects additional changes to certain provisions and covenants under the Credit Agreement during the period beginning with the fiscal quarter ending December 30, 2023 and continuing through the fiscal quarter ending September 27, 2025, or such earlier date as the Company may elect (such period of time, subject in either case to the Company’s delivery of a compliance certificate demonstrating compliance with the generally applicable financial covenants as of such end date, the “Extended Covenant Relief Period”).
In particular, the Fourth Amendment:
(a)extends the end date of the existing covenant relief period from March 30, 2024 to September 27, 2025;
(b)increases the maximum consolidated net total leverage ratio to 6.75 to 1.00 for the quarters ending December 30, 2023 and March 30, 2024, 6.63 to 1.00 for the quarters ending June 29, 2024 and September 28, 2024, 6.38 to 1.00 for the quarter ending December 28, 2024, 5.63 to 1.00 for the quarter ending March 29, 2025, 5.25 to 1.00 for the quarter ending June 28, 2025 and 5.00 to 1.00 for the quarter ending September 27, 2025, which maximum consolidated net total leverage ratio will revert back to 4.50 to 1.00 for each quarter after the Extended Covenant Relief Period has ended;
(c)reduces the minimum interest coverage ratio to 1.63 to 1.00 for the quarters ending December 30, 2023, March 30, 2024, June 29, 2024 and September 28, 2024, 1.75 to 1.00 for the quarter ending December 28, 2024, 2.00 to 1.00 for the quarter ending March 29, 2025, 2.25 to 1.00 for the quarter ending June 28, 2025 and 2.50 to 1.00 for the quarter ending September 27, 2025, which minimum interest coverage ratio will remain at 2.50 to 1.00 for each quarter after the Extended Covenant Relief Period has ended (which will be a permanent reduction in the generally applicable minimum interest coverage ratio from 2.75 to 1.00 to 2.50 to 1.00);
(d)provides for an additional basket for permitted asset sales of $60,000,000;
(e)increases (i) the applicable interest rate margins based on the consolidated leverage ratio by (A) 0.50% for the top two tiers of the pricing grid and (B) 0.25% for each other tier of the pricing grid and (ii) the applicable commitment fee rate based on the consolidated leverage ratio by (A) 0.075% for the top two tiers of the pricing grid and (B) 0.025% for each other tier of the pricing grid in each case, during the Extended Covenant Relief Period;
(f)suspends the Company’s reinvestment rights with respect to net proceeds in respect of certain asset sales (including the additional asset sale basket described in clause (d) above) and casualty and condemnation events during the Extended Covenant Relief Period (requiring the Company to prepay the credit
agreement term loan obligations with such net proceeds, subject to step-downs for such prepayment requirement based on the consolidated senior secured leverage ratio);
(g)reduces the cap on the Company’s general lien basket from $165,000,000 to $85,000,000 during the Extended Covenant Relief Period;
(h)reduces the maximum amount for incremental facilities secured by a lien to $100,000,000 during the Extended Covenant Relief Period; and
(i)suspends the payment of annual dividends during the Extended Covenant Relief Period.
The foregoing restrictions in clauses (e) through (i) above are in addition to the restrictions imposed pursuant to the Second Amendment and the Third Amendment.
From time to time, the financial institutions party to the Credit Agreement or their affiliates have performed, and may in the future perform, various commercial banking, investment banking and other financial advisory services for the Company and its affiliates for which they have received, and will receive, customary fees and expenses. For example, certain lenders under the Credit Agreement and/or their affiliates are parties to the Company’s accounts receivable securitization facility.
The description of the Fourth Amendment described in this report is only a summary and is qualified in its entirety by reference to the full text of the Fourth Amendment, a copy of which will be filed with the Company’s next Annual Report on Form 10-K.
Item 2.02. Results of Operations and Financial Condition
On November 9, 2023, the Company issued a press release announcing its financial results for the third quarter ended September 30, 2023. 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
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 November 9, 2023. The call may be accessed at www.Hanes.com/investors. Replays of the call will be available at www.Hanes.com/investors and at https://edge.media-server.com/mmc/p/x4ubk4xq. The webcast replay will be available from approximately 12:00 p.m., Eastern time, on November 9, 2023, until 12:00 p.m., Eastern time, on November 9, 2024.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
| Exhibit Number | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 101 | Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are 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.
| November 9, 2023 | HANESBRANDS INC. | |||||||||||||
| By: | /s/ M. Scott Lewis | |||||||||||||
| M. Scott Lewis | ||||||||||||||
| Chief Financial Officer and Chief Accounting Officer | ||||||||||||||
Exhibit 99.1
News Media contact: Nicole Ducouer (336) 986-7090
Analysts and Investors contact: T.C. Robillard (336) 519-2115
HanesBrands Announces Third-Quarter 2023 Results
• Continued improvement in key performance metrics, despite a challenging sales environment.
• GAAP gross margin of 31.1% decreased 260 basis points compared to prior year. Adjusted gross margin of 35.5% increased 100 basis points over prior year, ahead of expectations.
• Reduced inventory by 17%, or $319 million sequentially, and 29%, or $620 million year-over-year.
• Generated cash flow from operations of $155 million in the quarter and $287 million year-to-date.
• Reduced total debt by $144 million in the quarter and approximately $270 million year-to-date. Ended quarter with approximately $1.2 billion of liquidity.
• Company continues to expect to exit the year with meaningfully higher gross and operating margins, generate approximately $500 million of full-year operating cash flow, and pay down more than $400 million of debt in 2023. Updates full-year outlook.
WINSTON-SALEM, N.C. (November 9, 2023) – HanesBrands Inc. (NYSE: HBI), a global leader in iconic apparel brands, today announced results for the third-quarter 2023.
“We’ve continued to drive improvement in core fundamentals while simultaneously assessing our business and options to unlock shareholder value,” said Steve Bratspies, CEO. “Despite the difficult global macroeconomic environment, which continues to pressure sales, we delivered meaningful improvement across key performance metrics and initiated an evaluation of strategic alternatives for our global Champion business. Our innerwear innovation is hitting the market and we’re gaining market share. Adjusted margins continue to improve as input cost inflation eases and we see the benefits of cost savings and efficiency initiatives. We’re reducing inventory, generating operating cash flow in line with historical levels, and paying down debt as planned. We expect further improvement in these key performance metrics in the fourth quarter.”
Highlights
•Input cost inflation continued to ease. The headwinds from commodity and ocean freight inflation continued to ease and represented approximately 135 net basis points of year-over-year gross margin headwind in the quarter, which compares to approximately 245 basis points of year-over-year gross margin headwind in second-quarter 2023 and approximately 310 basis points of year-over-year gross margin headwind in first-quarter 2023. Third quarter GAAP gross margin of 31.1% decreased 260 basis points as compared to prior year. Third quarter adjusted gross margin of 35.5% increased 100 basis points over prior year. The Company remains on track to exit the year with GAAP and Adjusted gross margin in the high 30% range.
•Further improved inventory position and generated positive operating cash flow. For the quarter, inventory decreased 17% sequentially and 29% year-over-year driven predominantly by
the benefits of the Company’s inventory management capabilities, including SKU discipline and lifecycle management, and the continued sell-through of higher-cost inventory. The improvement in inventory helped generate $155 million of operating cash flow in the quarter and $287 million year-to-date. The Company remains on track to generate approximately $500 million of operating cash flow for the full year and exit the year with inventory below $1.5 billion.
•Strengthened balance sheet, including an additional $144 million debt paydown and an increased liquidity position. Through continued positive cash generation, the Company paid down $144 million of debt in the third quarter. Year-to-date, the Company has paid down approximately $270 million of debt and remains on track to reduce debt by more than $400 million in 2023. In addition, the Company proactively amended its credit agreement to provide greater strategic financial flexibility. The Company further strengthened its liquidity position to approximately $1.2 billion as of the end of the third quarter.
•Innovation helping drive market share gains in U.S. Innerwear. Revenue from new product innovation is up 40% over prior year in both the third quarter and year-to-date. The Company’s Hanes Originals product line, launched earlier this year supported by a national media campaign, is attracting new and younger consumers to the Hanes franchise. M by Maidenform, a collection of extremely soft-on-the-skin intimate apparel products focused on younger consumers, launched across channels in the quarter with strong initial consumer response. The Company is successfully leveraging its global scale, launching its innovation across geographies: Total Support Pouch in seven countries; Hanes Originals in five countries; and M by Maidenform already in four countries. The Company’s robust innovation pipeline provides visibility to new product offerings through 2025.
•Initiated evaluation of strategic alternatives for the global Champion business. On September 19, 2023, the Company announced it initiated an evaluation of strategic alternatives for its global Champion business, including, among others, a potential sale as well as continuing to operate the business as part of HanesBrands.
Third-Quarter 2023 Results
•Net sales from continuing operations of $1.51 billion decreased 9.5% compared to last year as the challenging global macroeconomic environment continued to pressure the topline. Excluding the $4 million unfavorable impact from foreign exchange rates, net sales on a constant currency basis decreased 9.3%. On a constant currency basis, growth in Latin America and Japan as well as consistent performance in U.S. Innerwear was more than offset by a decrease in U.S. Activewear, the continued macroeconomic-driven slowdown in consumer spending impacting Australia, as well as decreases in Europe and parts of Asia.
•Global Champion brand sales decreased 19% on a reported basis and 20% on a constant currency basis as compared to prior year. U.S. sales decreased 16% driven by the continued challenging activewear market dynamics. The U.S. performance also reflects the expected short-term impact from the Company’s continued strategic actions taken to strengthen the brand and position Champion for long-term profitable growth, including disciplined product and channel segmentation, shifting its mix, and assortment changes. Internationally, sales decreased 22% on a reported basis and 24% on a constant currency basis. Constant currency sales increased in Japan, which was more than offset by decreases in Europe, due to the expected cautious ordering from wholesale partners, as well as the macroeconomic headwinds impacting demand in parts of Asia and Australia.
•Gross Profit of $470 million decreased 16% and gross margin decreased 260 basis points to 31.1% as compared to prior year. Adjusted Gross Profit, which excludes certain costs related to the Company’s Full Potential transformation plan and its global Champion performance plan, was $536 million. Adjusted Gross Margin of 35.5% increased 100 basis points as compared to third-quarter 2022, ahead of the Company’s outlook. The improvement was driven by a combination of factors, including the overlap of last year’s manufacturing timeout costs and the benefits from select price increases and cost savings initiatives, which more than offset the impact from product mix as well as continued but diminishing headwinds from input cost inflation. As expected, headwinds from commodity and ocean freight inflation continued to ease and represented approximately 135 net basis points of year-over-year margin headwind in the quarter as the Company continued to sell through its higher-cost inventory.
•Selling, General and Administrative (SG&A) expenses decreased 4% to $404 million as compared to last year. Adjusted SG&A expenses, which exclude certain costs related to the Company’s Full Potential transformation plan and its global Champion performance plan, decreased 4%, or more than $15 million, year-over-year to $393 million. The year-over-year decrease in adjusted SG&A was driven by benefits from cost savings initiatives, particularly in distribution, disciplined expense management, as well as lower variable expenses, including selling and marketing. As a percent of net sales, adjusted SG&A expense of 26.0% increased 160 basis points over prior year as cost controls and expense efficiencies were more than offset by the overlap of last year’s variable compensation benefit and fixed cost deleverage from lower sales.
•Operating Profit and Operating Margin in third-quarter 2023 were $66 million and 4.4%, respectively, which compared to $141 million and 8.5%, respectively, in the prior year. Adjusted Operating Profit of $143 million decreased from $168 million in third-quarter 2022. Adjusted Operating Margin of 9.5% decreased approximately 60 basis points from prior year.
•Interest and Other Expenses for third-quarter 2023 were approximately $82 million as compared to approximately $45 million in the prior year. The increase was driven primarily by higher average interest rates.
•Tax Expense for third-quarter 2023 was $23 million. Adjusted Tax Expense, which excluded an approximate $4 million discrete tax benefit in the quarter, was approximately $27 million. For third-quarter 2022, the tax expense and adjusted tax expense were $16 million and $21 million, respectively. Effective and Adjusted Tax Rates for third-quarter 2023 were (146.2)% and 44.5%, respectively. For third-quarter 2022, the effective tax rate and the adjusted effective tax rate were 17.0%. The Company's effective tax rate for third-quarter 2023 is not reflective of the U.S. statutory rate due to valuation allowances against certain net deferred tax assets.
•Loss from continuing operations totaled approximately $(39) million, or $(0.11) per diluted share in third-quarter 2023. This compares to income from continuing operations of $80 million, or $0.23 per diluted share, last year. Adjusted income from continuing operations totaled $34 million, or $0.10 per diluted share. This compares to adjusted income from continuing operations of $102 million, or $0.29 per diluted share, in third-quarter 2022.
See the Note on Adjusted Measures and Reconciliation to GAAP Measures later in this news release for additional discussion and details of actions, which include Full Potential transformation plan and global Champion performance plan charges.
Third-Quarter 2023 Business Segment Summary
•Innerwear sales were consistent with prior year, in line with the Company’s expectations, as it gained market share despite a low single-digit decrease in the market. Market share gains across its Men’s, Women’s and Socks categories were driven by a combination of retail space gains, a successful back-to-school campaign, improved on-shelf availability and consumer-focused innovation. For the quarter, the Company delivered strong sales growth in Women’s led by the continued positive consumer response to its Hanes Originals innovation as well as the launch of its M by Maidenform innovation. This year-over-year sales growth was offset by a decrease in its Men’s business, which experienced a larger part of its seasonal back-to-school shipment in the second quarter of this year as opposed to a larger part of those seasonal shipments occurring in the third quarter of last year.
Operating margin of 17.5% increased approximately 150 basis points over prior year driven primarily by the overlap of last year’s manufacturing timeout costs, which more than offset input cost inflation as the Company sold through the remainder of its high-cost innerwear inventory.
•Activewear sales decreased 17% compared to prior year. The segment experienced decreases across most channels and brands driven by ongoing headwinds within the activewear category, including soft consumer demand and excess channel inventory. In addition to the category headwinds, Champion sales performance in the U.S. also reflects the expected short-term impact from the Company’s continued strategic actions taken to strengthen the brand and position Champion for long-term profitable growth, including a more disciplined product and channel segmentation approach, a shift in mix, and assortment changes.
Operating margin for the segment of 6.5% increased 770 basis points sequentially. Compared to the third quarter of last year, segment operating margin decreased approximately 510 basis points. The year-over-year decrease was driven by the impact from unfavorable product mix, input cost inflation as the Company continues to sell through its higher-cost activewear inventory and lower sales volume. These headwinds more than offset the benefits from the overlap of last year’s manufacturing timeout costs and disciplined expense management.
•International sales decreased 12% on a reported basis, including $4 million from unfavorable foreign exchange rates. International sales decreased 11% on a constant currency basis compared to prior year. In constant currency, Innerwear growth in the Americas and Champion growth in Japan were more than offset by a decrease in Australia, which was driven by a very challenging macroeconomic environment, as well as Champion decreases in Europe and parts of Asia.
Operating margin for the segment of 12.7% decreased approximately 120 basis points compared to prior year driven primarily by the impact from lower sales volume and input cost inflation, which was partially offset by the benefits from cost savings and efficiency initiatives.
Cash Flow, Balance Sheet and Liquidity
•Total liquidity position at the end of third-quarter 2023 was approximately $1.2 billion, consisting of $191 million of cash and equivalents and approximately $1 billion of available capacity under the Company’s credit facilities.
•Based on the calculation as defined in the Company’s senior secured credit facility, the Leverage Ratio at the end of third-quarter 2023 was 5.5 times on a net debt-to-adjusted EBITDA basis, which was below its third-quarter 2023 covenant of 6.75 times and compared to 3.9 times at the end of third-quarter 2022 (See Table 6-B).
•Inventory at the end of third-quarter 2023 of $1.52 billion decreased 17% sequentially and decreased 29%, or $620 million, year-over-year. The year-over-year decrease was driven predominantly by the benefits of its inventory management capabilities, including SKU discipline and lifecycle management, and the continued sell-through of higher-cost inventory.
•Cash flow from operations was $155 million in third-quarter 2023 as compared to a use of cash of approximately $(51) million last year. The $206 million year-over-year increase in operating cash flow was driven by improved working capital. Free cash flow was $153 million in third-quarter 2023, a $237 million increase from last year’s $(84) million use of cash.
Fourth-Quarter and Full-Year 2023 Financial Outlook
With respect to its 2023 guidance, the Company’s outlook reflects, but is not limited to, the following assumptions: a muted global consumer demand environment given the continued macroeconomic uncertainty, and year-over-year improvement in fourth-quarter margins, as lower-cost inventory currently being produced is sold and it anniversaries last year’s manufacturing time-out costs related to its inventory reduction initiative in 2022.
The Company is providing guidance on tax expense due to the expected fluctuation of its quarterly tax rate, stemming from the deferred tax reserve matter previously disclosed in the fourth quarter of 2022. Importantly, the reserve does not impact cash taxes. Some portion of the reserve may reverse in future periods.
For fiscal year 2023, which ends on December 30, 2023, the Company currently expects, exclusive of any deferred tax reserve reversal:
• Net sales from continuing operations of approximately $5.70 billion, which includes a projected headwind of approximately $65 million from changes in foreign currency exchange rates. This represents an approximate 9% decrease as compared to prior year on a reported basis and an approximate 8% decrease on a constant currency basis.
• GAAP operating profit from continuing operations of approximately $309 million.
• Adjusted operating profit from continuing operations of approximately $425 million, which includes a projected headwind of approximately $10 million from changes in foreign currency exchange rates.
• Pretax charges for actions totaling approximately $123 million. These charges include: Full Potential transformation plan-related charges of approximately $31 million and global Champion performance plan-related charges of approximately $85 million, both included in operating profit; as well as refinancing-related charges of approximately $7 million included in interest and other expenses in first-quarter 2023.
• GAAP and Adjusted Interest and Other expenses of approximately $317 million and $310 million, respectively.
• GAAP Tax expense of approximately $71 million. Adjusted Tax expense of approximately $75 million, which excludes a $4 million discrete tax benefit in third-quarter 2023.
• GAAP loss per share from continuing operations of approximately $(0.22).
• Adjusted earnings per share from continuing operations of approximately $0.12.
• Cash flow from operations of approximately $500 million.
•Capital investments of approximately $100 million, consisting of approximately $50 million of capital expenditures and approximately $50 million of cloud computing arrangements. Per GAAP, capital expenditures are reflected in cash from investing activities and certain cloud computing arrangements are reflected in Other Assets within cash flow from operating activities. The approximate $50 million of cloud computing arrangements is factored into the full-year cash flow from operations guidance of approximately $500 million.
• Free cash flow of approximately $450 million.
• Fully diluted shares outstanding of approximately 351 million.
For fourth-quarter 2023, which ends on December 30, 2023, the Company currently expects, exclusive of any deferred tax reserve reversal:
• Net sales from continuing operations of approximately $1.36 billion, which includes a projected headwind of approximately $12 million from changes in foreign currency exchange rates. This represents a decrease of approximately 8% as compared to prior year on a reported basis and approximately 7% on a constant currency basis.
• GAAP operating profit from continuing operations of approximately $116 million.
• Adjusted operating profit from continuing operations of approximately $131 million, which includes a projected headwind of approximately $2 million from changes in foreign currency exchange rates.
• Pretax charges for actions related to the Full Potential transformation plan and the global Champion performance plan of approximately $15 million.
• GAAP and Adjusted Interest and Other expenses of approximately $80 million.
•GAAP and Adjusted Tax expense of approximately $18 million.
•GAAP earnings per share from continuing operations of approximately $0.05.
•Adjusted earnings per share from continuing operations of approximately $0.09.
•Fully diluted shares outstanding of approximately 352 million.
HanesBrands has updated its quarterly frequently-asked-questions document, which is available at www.Hanes.com/FAQ.
Note on Adjusted Measures and Reconciliation to GAAP Measures
To supplement 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 from continuing operations, adjusted income (loss) from continuing operations, adjusted income tax expense, adjusted income (loss) from continuing operations before income tax expense, adjusted operating profit (and margin), adjusted SG&A, adjusted gross profit (and margin), EBITDA, adjusted EBITDA, adjusted effective tax rate, adjusted interest and other expense, net debt, leverage ratio and free cash flow.
Adjusted EPS from continuing operations is defined as diluted EPS from continuing operations excluding actions and the tax effect on actions. Adjusted income (loss) from continuing operations is defined as income (loss) from continuing operations excluding actions and the tax effect on actions. Adjusted income tax expense is defined as income tax expense excluding actions. Adjusted income (loss) from continuing operations before income tax is defined as income (loss) from continuing operations before income tax excluding 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 interest and other expenses is defined as interest and other expenses excluding actions and adjusted effective tax rate is defined as adjusted income tax expense divided by adjusted income (loss) from continuing operations before income tax.
Charges for actions taken in 2023 and 2022, as applicable, include the global Champion performance plan, supply chain segmentation, headcount actions and related severance charges, technology charges, gain/loss on classification of assets held for sale, professional services, loss on extinguishment of debt, gain on final settlement of cross currency swap contracts and the tax effects thereof. The global Champion performance plan includes actions and related charges regarding the Company’s accelerated and enhanced strategic initiatives to further streamline the operations and position the brand for long term profitable growth and the evaluation of strategic alternatives for the global Champion business.
While these costs 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 future business plans and circumstances.
HanesBrands 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 the Full Potential transformation plan, the global Champion performance plan and other actions that are deemed to be material stand-alone initiatives apart from the Company’s core operations. HanesBrands 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 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 net income (loss) before the impacts of discontinued operations, interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding (x) restructuring charges related to the Full Potential transformation plan, the global Champion performance plan, and other action-related charges described in more detail in Table 6-A and (y) certain other losses, charges and expenses as defined in the Consolidated Net Total Leverage Ratio under its Fifth Amended and Restated Credit Agreement, dated November 19, 2021, as amended (the “Credit Agreement”) described in more detail in Table 6-B. HanesBrands 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.
Net debt is defined as the total of current debt, long-term debt, and borrowings under the accounts receivable securitization facility (excluding long-term debt issuance costs and debt discount and borrowings of unrestricted subsidiaries under the accounts receivable securitization facility) less (x) other debt and cash adjustments and (y) cash and cash equivalents. Leverage ratio is the ratio of net debt to adjusted EBITDA as it is defined in our Credit Agreement.
The Company defines free cash flow as net cash from operating activities less capital expenditures. Management believes that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance.
HanesBrands 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, HanesBrands 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).
HanesBrands 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.
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.
Cautionary Statement Concerning Forward-Looking Statements
This news release contains certain forward-looking statements, as defined under U.S. federal securities laws, with respect to our plans, expectations, long-term goals and trends associated with our business, as well as guidance as to future performance. In particular, among others, guidance and predictions regarding expected operating results, including related to our ability to successfully execute our Full Potential transformation plan, global Champion performance plan, and other strategic actions to achieve the desired results; statements made in the Fourth-Quarter and Full-Year 2023 Financial Outlook section of this release; and statements regarding our future capital allocation strategy, are forward-looking statements. These forward-looking statements are based on our current intentions, beliefs, plans and expectations. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements inherently 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: our ability to identify, execute, and realize the benefits from, any potential strategic transaction involving Champion; our ability to successfully execute our Full Potential transformation plan, global Champion performance plan, or any modifications thereto to achieve the desired results; the rapidly changing retail environment and the level of consumer demand; our reliance on a relatively small number of customers for a significant portion of our sales; our ability to deleverage on the anticipated time frame or at all, which could negatively impact our ability to satisfy the financial covenants in our Credit Agreement or other contractual arrangements; any inadequacy, interruption, integration failure or security failure with respect to our information technology (including the ransomware attack announced May 31, 2022); the impact of significant fluctuations and volatility in various input costs, such as cotton and oil-related materials, utilities, freight and wages; the availability of global supply chain resources; future intangible assets or goodwill impairment due to changes in our business, market conditions, or other factors, including any sale of the
Champion business; our ability to attract and retain a senior management team with the core competencies needed to support growth in global markets and ongoing labor shortages generally; significant fluctuations in foreign exchange rates; legal, regulatory, political and economic risks related to our international operations, including regional and global military conflicts; our ability to effectively manage our complex multinational tax structure; 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 (NYSE: HBI) makes everyday apparel that is known and loved by consumers around the world for comfort, quality and value. Among the Company’s iconic brands are Hanes, the leading basic apparel brand in the United States; Champion, an innovator at the intersection of lifestyle and athletic apparel; and Bonds, which is setting new standards for design and sustainability. HBI employs 51,000 associates in 32 countries and has built a strong reputation for workplace quality and ethical business practices. The Company, a longtime leader in sustainability, launched aggressive 2030 goals to improve the lives of people, protect the planet and produce sustainable products. HBI is building on its unmatched strengths to unlock its #FullPotential and deliver long-term growth that benefits all of its stakeholders.
TABLE 1
HANESBRANDS INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | % Change | September 30, 2023 | October 1, 2022 | % Change | ||||||||||||||||||||||||||||||
| Net sales | $ | 1,511,306 | $ | 1,670,741 | (9.5) | % | $ | 4,339,696 | $ | 4,760,364 | (8.8) | % | |||||||||||||||||||||||
| Cost of sales | 1,040,995 | 1,107,889 | 2,936,955 | 3,041,233 | |||||||||||||||||||||||||||||||
| Gross profit | 470,311 | 562,852 | (16.4) | % | 1,402,741 | 1,719,131 | (18.4) | % | |||||||||||||||||||||||||||
| As a % of net sales | 31.1 | % | 33.7 | % | 32.3 | % | 36.1 | % | |||||||||||||||||||||||||||
| Selling, general and administrative expenses | 404,349 | 421,408 | (4.0) | % | 1,210,056 | 1,259,921 | (4.0) | % | |||||||||||||||||||||||||||
| As a % of net sales | 26.8 | % | 25.2 | % | 27.9 | % | 26.5 | % | |||||||||||||||||||||||||||
| Operating profit | 65,962 | 141,444 | (53.4) | % | 192,685 | 459,210 | (58.0) | % | |||||||||||||||||||||||||||
| As a % of net sales | 4.4 | % | 8.5 | % | 4.4 | % | 9.6 | % | |||||||||||||||||||||||||||
| Other expenses | 9,111 | 3,212 | 31,145 | 6,088 | |||||||||||||||||||||||||||||||
| Interest expense, net | 72,609 | 41,721 | 205,666 | 107,408 | |||||||||||||||||||||||||||||||
| Income (loss) from continuing operations before income tax expense | (15,758) | 96,511 | (44,126) | 345,714 | |||||||||||||||||||||||||||||||
| Income tax expense | 23,041 | 16,410 | 51,541 | 58,775 | |||||||||||||||||||||||||||||||
| Income (loss) from continuing operations | (38,799) | 80,101 | (148.4) | % | (95,667) | 286,939 | (133.3) | % | |||||||||||||||||||||||||||
| Income from discontinued operations, net of tax | — | — | — | 3,965 | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | (38,799) | $ | 80,101 | $ | (95,667) | $ | 290,904 | |||||||||||||||||||||||||||
| Earnings (loss) per share - basic: | |||||||||||||||||||||||||||||||||||
| Continuing operations | $ | (0.11) | $ | 0.23 | $ | (0.27) | $ | 0.82 | |||||||||||||||||||||||||||
| Discontinued operations | — | — | — | 0.01 | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | (0.11) | $ | 0.23 | $ | (0.27) | $ | 0.83 | |||||||||||||||||||||||||||
| Earnings (loss) per share - diluted: | |||||||||||||||||||||||||||||||||||
| Continuing operations | $ | (0.11) | $ | 0.23 | $ | (0.27) | $ | 0.82 | |||||||||||||||||||||||||||
| Discontinued operations | — | — | — | 0.01 | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | (0.11) | $ | 0.23 | $ | (0.27) | $ | 0.83 | |||||||||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||||||||||||||
| Basic | 350,667 | 349,884 | 350,534 | 349,969 | |||||||||||||||||||||||||||||||
| Diluted | 350,667 | 350,316 | 350,534 | 350,691 | |||||||||||||||||||||||||||||||
TABLE 2
HANESBRANDS INC.
Supplemental Financial Information
Impact of Foreign Currency
(in thousands, except per share data)
(Unaudited)
The following tables present a reconciliation of reported results on a constant currency basis for the quarter and nine months ended September 30, 2023 and a comparison to prior year: | ||
Quarter Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| As Reported | Impact from Foreign Currency1 | Constant Currency | Quarter Ended October 1, 2022 | % Change, As Reported | % Change, Constant Currency | ||||||||||||||||||||||||||||||
| As reported under GAAP: | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,511,306 | $ | (3,941) | $ | 1,515,247 | $ | 1,670,741 | (9.5) | % | (9.3) | % | |||||||||||||||||||||||
| Gross profit | 470,311 | (4,077) | 474,388 | 562,852 | (16.4) | (15.7) | |||||||||||||||||||||||||||||
| Operating profit | 65,962 | (1,476) | 67,438 | 141,444 | (53.4) | (52.3) | |||||||||||||||||||||||||||||
| Diluted earnings (loss) per share from continuing operations | $ | (0.11) | $ | 0.00 | $ | (0.11) | $ | 0.23 | (147.8) | % | (147.8) | % | |||||||||||||||||||||||
As adjusted:2 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,511,306 | $ | (3,941) | $ | 1,515,247 | $ | 1,670,741 | (9.5) | % | (9.3) | % | |||||||||||||||||||||||
| Gross profit | 535,945 | (4,077) | 540,022 | 575,954 | (6.9) | (6.2) | |||||||||||||||||||||||||||||
| Operating profit | 143,033 | (1,476) | 144,509 | 167,895 | (14.8) | (13.9) | |||||||||||||||||||||||||||||
| Diluted earnings per share from continuing operations | $ | 0.10 | $ | 0.00 | $ | 0.10 | $ | 0.29 | (65.5) | % | (65.5) | % | |||||||||||||||||||||||
| 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 ended September 30, 2023 and October 1, 2022 reflect adjustments for restructuring and other action-related charges. See "Reconciliation of Select GAAP Measures to Non-GAAP Measures" in Table 6-A. | ||||
Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| As Reported | Impact from Foreign Currency1 | Constant Currency | Nine Months Ended October 1, 2022 | % Change, As Reported | % Change, Constant Currency | ||||||||||||||||||||||||||||||
| As reported under GAAP: | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 4,339,696 | $ | (53,023) | $ | 4,392,719 | $ | 4,760,364 | (8.8) | % | (7.7) | % | |||||||||||||||||||||||
| Gross profit | 1,402,741 | (28,201) | 1,430,942 | 1,719,131 | (18.4) | (16.8) | |||||||||||||||||||||||||||||
| Operating profit | 192,685 | (7,617) | 200,302 | 459,210 | (58.0) | (56.4) | |||||||||||||||||||||||||||||
| Diluted earnings (loss) per share from continuing operations | $ | (0.27) | $ | (0.01) | $ | (0.26) | $ | 0.82 | (132.9) | % | (131.7) | % | |||||||||||||||||||||||
As adjusted:2 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 4,339,696 | $ | (53,023) | $ | 4,392,719 | $ | 4,760,364 | (8.8) | % | (7.7) | % | |||||||||||||||||||||||
| Gross profit | 1,473,150 | (28,201) | 1,501,351 | 1,733,264 | (15.0) | (13.4) | |||||||||||||||||||||||||||||
| Operating profit | 293,938 | (7,617) | 301,555 | 496,843 | (40.8) | (39.3) | |||||||||||||||||||||||||||||
Diluted earnings per share from continuing operations 3 | $ | 0.02 | $ | (0.01) | $ | 0.04 | $ | 0.91 | (97.8) | % | (95.6) | % | |||||||||||||||||||||||
| 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 nine months ended September 30, 2023 and October 1, 2022 reflect adjustments for restructuring and other action-related charges. See "Reconciliation of Select GAAP Measures to Non-GAAP Measures" in Table 6-A. | ||||
| 3 | Amounts may not be additive due to rounding. | ||||
TABLE 3
HANESBRANDS INC.
Supplemental Financial Information
By Business Segment
(in thousands)
(Unaudited)
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | % Change | September 30, 2023 | October 1, 2022 | % Change | ||||||||||||||||||||||||||||||
| Segment net sales: | |||||||||||||||||||||||||||||||||||
| Innerwear | $ | 622,567 | $ | 625,082 | (0.4) | % | $ | 1,881,452 | $ | 1,889,807 | (0.4) | % | |||||||||||||||||||||||
Activewear | 383,600 | 461,043 | (16.8) | 966,089 | 1,178,380 | (18.0) | |||||||||||||||||||||||||||||
| International | 440,923 | 502,066 | (12.2) | 1,311,509 | 1,436,384 | (8.7) | |||||||||||||||||||||||||||||
Other | 64,216 | 82,550 | (22.2) | 180,646 | 255,793 | (29.4) | |||||||||||||||||||||||||||||
| Total net sales | $ | 1,511,306 | $ | 1,670,741 | (9.5) | % | $ | 4,339,696 | $ | 4,760,364 | (8.8) | % | |||||||||||||||||||||||
| Segment operating profit: | |||||||||||||||||||||||||||||||||||
| Innerwear | $ | 108,970 | $ | 99,797 | 9.2 | % | $ | 305,546 | $ | 343,602 | (11.1) | % | |||||||||||||||||||||||
Activewear | 24,853 | 53,491 | (53.5) | 31,740 | 125,332 | (74.7) | |||||||||||||||||||||||||||||
| International | 56,130 | 69,890 | (19.7) | 140,060 | 215,281 | (34.9) | |||||||||||||||||||||||||||||
Other | 3,351 | 4,839 | (30.8) | (5,479) | 9,501 | (157.7) | |||||||||||||||||||||||||||||
| General corporate expenses/other | (50,271) | (60,122) | (16.4) | (177,929) | (196,873) | (9.6) | |||||||||||||||||||||||||||||
Total operating profit before restructuring and other action-related charges | 143,033 | 167,895 | (14.8) | 293,938 | 496,843 | (40.8) | |||||||||||||||||||||||||||||
| Restructuring and other action-related charges | (77,071) | (26,451) | 191.4 | (101,253) | (37,633) | 169.1 | |||||||||||||||||||||||||||||
| Total operating profit | $ | 65,962 | $ | 141,444 | (53.4) | % | $ | 192,685 | $ | 459,210 | (58.0) | % | |||||||||||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | Basis Points Change | September 30, 2023 | October 1, 2022 | Basis Points Change | ||||||||||||||||||||||||||||||
| Segment operating margin: | |||||||||||||||||||||||||||||||||||
| Innerwear | 17.5 | % | 16.0 | % | 154 | 16.2 | % | 18.2 | % | (194) | |||||||||||||||||||||||||
Activewear | 6.5 | 11.6 | (512) | 3.3 | 10.6 | (735) | |||||||||||||||||||||||||||||
International | 12.7 | 13.9 | (119) | 10.7 | 15.0 | (431) | |||||||||||||||||||||||||||||
Other | 5.2 | 5.9 | (64) | (3.0) | 3.7 | (675) | |||||||||||||||||||||||||||||
| General corporate expenses/other | (3.3) | (3.6) | 27 | (4.1) | (4.1) | 4 | |||||||||||||||||||||||||||||
| Total operating margin before restructuring and other action-related charges | 9.5 | 10.0 | (58) | 6.8 | 10.4 | (366) | |||||||||||||||||||||||||||||
| Restructuring and other action-related charges | (5.1) | (1.6) | (352) | (2.3) | (0.8) | (154) | |||||||||||||||||||||||||||||
| Total operating margin | 4.4 | % | 8.5 | % | (410) | 4.4 | % | 9.6 | % | (521) | |||||||||||||||||||||||||
TABLE 4
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
| September 30, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 191,091 | $ | 238,413 | |||||||
| Trade accounts receivable, net | 712,828 | 721,396 | |||||||||
| Inventories | 1,516,779 | 1,979,672 | |||||||||
| Other current assets | 175,058 | 178,946 | |||||||||
| Current assets held for sale | — | 13,327 | |||||||||
| Total current assets | 2,595,756 | 3,131,754 | |||||||||
| Property, net | 415,527 | 442,404 | |||||||||
| Right-of-use assets | 427,610 | 414,894 | |||||||||
| Trademarks and other identifiable intangibles, net | 1,201,008 | 1,255,693 | |||||||||
| Goodwill | 1,093,099 | 1,108,907 | |||||||||
| Deferred tax assets | 20,133 | 20,162 | |||||||||
| Other noncurrent assets | 160,155 | 130,062 | |||||||||
| Total assets | $ | 5,913,288 | $ | 6,503,876 | |||||||
| Liabilities | |||||||||||
| Accounts payable | $ | 789,923 | $ | 917,481 | |||||||
| Accrued liabilities | 493,134 | 498,028 | |||||||||
| Lease liabilities | 112,721 | 114,794 | |||||||||
| Accounts Receivable Securitization Facility | 200,500 | 209,500 | |||||||||
| Current portion of long-term debt | 59,000 | 37,500 | |||||||||
| Current liabilities held for sale | — | 13,327 | |||||||||
| Total current liabilities | 1,655,278 | 1,790,630 | |||||||||
| Long-term debt | 3,310,256 | 3,612,077 | |||||||||
| Lease liabilities - noncurrent | 348,072 | 326,644 | |||||||||
| Pension and postretirement benefits | 107,539 | 116,167 | |||||||||
| Other noncurrent liabilities | 218,107 | 260,094 | |||||||||
| Total liabilities | 5,639,252 | 6,105,612 | |||||||||
| Stockholders’ equity | |||||||||||
| Preferred stock | — | — | |||||||||
| Common stock | 3,500 | 3,490 | |||||||||
| Additional paid-in capital | 348,837 | 334,676 | |||||||||
| Retained earnings | 476,796 | 572,106 | |||||||||
| Accumulated other comprehensive loss | (555,097) | (512,008) | |||||||||
| Total stockholders’ equity | 274,036 | 398,264 | |||||||||
| Total liabilities and stockholders’ equity | $ | 5,913,288 | $ | 6,503,876 | |||||||
TABLE 5
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows1
(in thousands)
(Unaudited)
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Operating Activities: | |||||||||||||||||||||||
| Net income (loss) | $ | (38,799) | $ | 80,101 | $ | (95,667) | $ | 290,904 | |||||||||||||||
| Adjustments to reconcile net income (loss) to net cash from operating activities: | |||||||||||||||||||||||
| Depreciation | 20,543 | 19,585 | 56,246 | 56,140 | |||||||||||||||||||
| Amortization of acquisition intangibles | 4,133 | 4,558 | 12,478 | 14,045 | |||||||||||||||||||
| Other amortization | 3,458 | 2,925 | 9,856 | 8,121 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 8,466 | — | |||||||||||||||||||
| (Gain) loss on sale of business and classification of assets held for sale | (1,558) | 4,310 | 3,641 | (6,185) | |||||||||||||||||||
| Amortization of debt issuance costs and debt discount | 2,338 | 1,727 | 6,577 | 5,483 | |||||||||||||||||||
| Other | (2,853) | 5,276 | 8,984 | 11,717 | |||||||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||||||||
| Accounts receivable | (34,502) | (23,919) | 12,169 | (63,003) | |||||||||||||||||||
| Inventories | 311,636 | (72,529) | 444,592 | (612,544) | |||||||||||||||||||
| Other assets | 15,784 | (22,080) | (20,833) | (71,613) | |||||||||||||||||||
| Accounts payable | (164,440) | (74,052) | (125,411) | (22,289) | |||||||||||||||||||
| Accrued pension and postretirement benefits | 1,241 | (571) | 4,181 | (1,066) | |||||||||||||||||||
| Accrued liabilities and other | 38,130 | 24,061 | (37,935) | (101,392) | |||||||||||||||||||
| Net cash from operating activities | 155,111 | (50,608) | 287,344 | (491,682) | |||||||||||||||||||
| Investing Activities: | |||||||||||||||||||||||
| Capital expenditures | (2,220) | (33,009) | (35,790) | (70,955) | |||||||||||||||||||
| Purchase of trademarks | — | — | — | (103,000) | |||||||||||||||||||
| Proceeds from sales of assets | 66 | 37 | 172 | 259 | |||||||||||||||||||
| Other | 1,300 | — | 20,241 | (5,640) | |||||||||||||||||||
| Net cash from investing activities | (854) | (32,972) | (15,377) | (179,336) | |||||||||||||||||||
| Financing Activities: | |||||||||||||||||||||||
| Borrowings on Term Loan Facilities | — | — | 891,000 | — | |||||||||||||||||||
| Repayments on Term Loan Facilities | (14,750) | (6,250) | (29,500) | (18,750) | |||||||||||||||||||
| Borrowings on Accounts Receivable Securitization Facility | 677,500 | 565,800 | 1,728,500 | 1,303,589 | |||||||||||||||||||
| Repayments on Accounts Receivable Securitization Facility | (626,000) | (459,000) | (1,737,500) | (1,092,089) | |||||||||||||||||||
| Borrowings on Revolving Loan Facilities | 639,000 | 610,000 | 1,616,500 | 1,337,500 | |||||||||||||||||||
| Repayments on Revolving Loan Facilities | (820,000) | (539,000) | (1,908,500) | (908,500) | |||||||||||||||||||
| Borrowings on Senior Notes | — | — | 600,000 | — | |||||||||||||||||||
| Repayments on Senior Notes | — | — | (1,436,884) | — | |||||||||||||||||||
| Borrowings on notes payable | — | — | — | 21,454 | |||||||||||||||||||
| Repayments on notes payable | — | — | — | (21,713) | |||||||||||||||||||
| Share repurchases | — | — | — | (25,018) | |||||||||||||||||||
| Cash dividends paid | — | (52,341) | — | (156,962) | |||||||||||||||||||
| Payments to amend and refinance credit facilities | (268) | (182) | (28,503) | (633) | |||||||||||||||||||
| Other | (92) | (85) | (2,884) | (3,630) | |||||||||||||||||||
| Net cash from financing activities | (144,610) | 118,942 | (307,771) | 435,248 | |||||||||||||||||||
| Effect of changes in foreign exchange rates on cash | (10,388) | (30,153) | (11,518) | (71,728) | |||||||||||||||||||
| Change in cash and cash equivalents | (741) | 5,209 | (47,322) | (307,498) | |||||||||||||||||||
| Cash and cash equivalents at beginning of period | 191,832 | 247,922 | 238,413 | 560,629 | |||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 191,091 | $ | 253,131 | $ | 191,091 | $ | 253,131 | |||||||||||||||
| 1 | The cash flows related to discontinued operations have not been segregated and remain included in the major classes of assets and liabilities in the periods prior to the sale of the European Innerwear business on March 5, 2022. Accordingly, the Condensed Consolidated Statements of Cash Flows include the results of continuing and discontinued operations. | ||||
TABLE 6-A
HANESBRANDS INC.
Supplemental Financial Information
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
The following tables present a reconciliation of results as reported under GAAP to the results as adjusted for the quarter and nine months ended September 30, 2023 and a comparison to prior year. The Company has chosen to present the following 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 the global Champion performance plan, the Full Potential transformation plan and other actions that are deemed to be material stand-alone initiatives apart from the Company’s core operations. While these costs 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 future business plans and circumstances. Restructuring and other action-related charges in 2023 and 2022 include the following: | ||
Global Champion performance plan | The global Champion performance plan includes actions and related charges regarding the Company’s accelerated and enhanced strategic initiatives to further streamline the operations and position the brand for long term profitable growth and the evaluation of strategic alternatives for the global Champion business, which includes over $59 million of inventory write-downs related to the execution of its channel, mix and product segmentation strategy including the exit of discontinued programs, which are reflected in gross profit, and over $14 million of charges related to supply chain segmentation, store closures, severance and other costs of which nearly $5 million are reflected in gross profit and over $9 million are reflected in selling, general and administrative expenses. | ||||
| Supply chain segmentation | Represents charges related to the supply chain segmentation to restructure and position the Company’s manufacturing network to align with its Full Potential transformation plan demand trends. | ||||
| Headcount actions and related severance | Represents charges related to operating model initiatives primarily headcount actions and related severance charges and adjustments as a result of the implementation of the Company’s Full Potential transformation plan. | ||||
| Technology | Represents technology charges related to the implementation of the Company’s technology modernization initiative which includes a global enterprise resource planning platform under its Full Potential transformation plan. | ||||
| Professional services | Represents professional fees, primarily including consulting and advisory services, related to the implementation of the Company’s Full Potential transformation plan. | ||||
| Gain/loss on sale of business and classification of assets held for sale | Gain/loss associated with the sale of the Company’s U.S. Sheer Hosiery business and adjustments to the related valuation allowance prior to the sale, primarily from the changes in carrying value due to changes in working capital. | ||||
| Loss on extinguishment of debt | Represents charges related to the redemption of the Company’s 4.625% Senior Notes and 3.5% Senior Notes in the first quarter of 2023. | ||||
| Gain on final settlement of cross currency swap contracts | Primarily represents the remaining gain related to cross-currency swap contracts previously designated as cash flow hedges in AOCI which was released into earnings as the Company unwound the cross-currency swap contracts in connection with the redemption of the 3.5% Senior Notes at the time of settlement in the first quarter of 2023. | ||||
Discrete tax benefits | Represents an adjustment to non-cash reserves established at December 31, 2022 related to deferred taxes established for Swiss statutory impairments, which are not indicative of the Company’s core business operations. | ||||
Tax effect on actions | Represents the applicable effective tax rate on the restructuring and other action-related charges based on the jurisdiction of where the charges were incurred. | ||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Gross profit, as reported under GAAP | $ | 470,311 | $ | 562,852 | $ | 1,402,741 | $ | 1,719,131 | |||||||||||||||
As a % of net sales | 31.1 | % | 33.7 | % | 32.3 | % | 36.1 | % | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
Global Champion performance plan | 64,105 | — | 64,105 | — | |||||||||||||||||||
| Full Potential transformation plan: | |||||||||||||||||||||||
| Supply chain segmentation | 660 | 13,298 | 5,435 | 14,587 | |||||||||||||||||||
| Headcount actions and related severance | 869 | (196) | 869 | (196) | |||||||||||||||||||
| Other | — | — | — | (258) | |||||||||||||||||||
Gross profit, as adjusted | $ | 535,945 | $ | 575,954 | $ | 1,473,150 | $ | 1,733,264 | |||||||||||||||
As a % of net sales | 35.5 | % | 34.5 | % | 33.9 | % | 36.4 | % | |||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Selling, general and administrative expenses, as reported under GAAP | $ | 404,349 | $ | 421,408 | $ | 1,210,056 | $ | 1,259,921 | |||||||||||||||
| As a % of net sales | 26.8 | % | 25.2 | % | 27.9 | % | 26.5 | % | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
Global Champion performance plan | (9,630) | — | (9,630) | — | |||||||||||||||||||
| Full Potential transformation plan: | |||||||||||||||||||||||
| Technology | (1,013) | (2,622) | (8,296) | (9,052) | |||||||||||||||||||
| Headcount actions and related severance | (1,662) | (178) | (4,507) | 916 | |||||||||||||||||||
| Professional services | (165) | (6,020) | (3,813) | (21,014) | |||||||||||||||||||
| Gain (loss) on classification of assets held for sale | 1,558 | (4,310) | (3,641) | 6,558 | |||||||||||||||||||
| Other | (525) | (219) | (957) | (908) | |||||||||||||||||||
| Selling, general and administrative expenses, as adjusted | $ | 392,912 | $ | 408,059 | $ | 1,179,212 | $ | 1,236,421 | |||||||||||||||
As a % of net sales | 26.0 | % | 24.4 | % | 27.2 | % | 26.0 | % | |||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Operating profit, as reported under GAAP | $ | 65,962 | $ | 141,444 | $ | 192,685 | $ | 459,210 | |||||||||||||||
As a % of net sales | 4.4 | % | 8.5 | % | 4.4 | % | 9.6 | % | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
Global Champion performance plan | 73,735 | — | 73,735 | — | |||||||||||||||||||
| Full Potential transformation plan: | |||||||||||||||||||||||
| Technology | 1,013 | 2,622 | 8,296 | 9,052 | |||||||||||||||||||
| Supply chain segmentation | 660 | 13,298 | 5,435 | 14,587 | |||||||||||||||||||
| Headcount actions and related severance | 2,531 | (18) | 5,376 | (1,112) | |||||||||||||||||||
| Professional services | 165 | 6,020 | 3,813 | 21,014 | |||||||||||||||||||
| (Gain) loss on sale of business and classification of assets held for sale | (1,558) | 4,310 | 3,641 | (6,558) | |||||||||||||||||||
| Other | 525 | 219 | 957 | 650 | |||||||||||||||||||
Operating profit, as adjusted | $ | 143,033 | $ | 167,895 | $ | 293,938 | $ | 496,843 | |||||||||||||||
As a % of net sales | 9.5 | % | 10.0 | % | 6.8 | % | 10.4 | % | |||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Interest expense, net and other expenses, as reported under GAAP | $ | 81,720 | $ | 44,933 | $ | 236,811 | $ | 113,496 | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | (8,466) | — | |||||||||||||||||||
| Gain on final settlement of cross currency swaps | — | — | 1,370 | — | |||||||||||||||||||
| Interest expense, net and other expenses, as adjusted | $ | 81,720 | $ | 44,933 | $ | 229,715 | $ | 113,496 | |||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Income (loss) from continuing operations before income tax expense, as reported under GAAP | $ | (15,758) | $ | 96,511 | $ | (44,126) | $ | 345,714 | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
Global Champion performance plan | 73,735 | — | 73,735 | — | |||||||||||||||||||
| Full Potential transformation plan: | |||||||||||||||||||||||
| Technology | 1,013 | 2,622 | 8,296 | 9,052 | |||||||||||||||||||
| Supply chain segmentation | 660 | 13,298 | 5,435 | 14,587 | |||||||||||||||||||
| Headcount actions and related severance | 2,531 | (18) | 5,376 | (1,112) | |||||||||||||||||||
| Professional services | 165 | 6,020 | 3,813 | 21,014 | |||||||||||||||||||
| (Gain) loss on sale of business and classification of assets held for sale | (1,558) | 4,310 | 3,641 | (6,558) | |||||||||||||||||||
| Other | 525 | 219 | 957 | 650 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 8,466 | — | |||||||||||||||||||
| Gain on final settlement of cross currency swaps | — | — | (1,370) | — | |||||||||||||||||||
| Income from continuing operations before income tax expense, as adjusted | $ | 61,313 | $ | 122,962 | $ | 64,223 | $ | 383,347 | |||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Income tax expense, as reported under GAAP | $ | 23,041 | $ | 16,410 | $ | 51,541 | $ | 58,775 | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
| Discrete tax benefits | 4,263 | — | 4,263 | — | |||||||||||||||||||
Tax effect on actions | — | 4,493 | — | 6,394 | |||||||||||||||||||
| Total benefit included in income tax expense | 4,263 | 4,493 | 4,263 | 6,394 | |||||||||||||||||||
| Income tax expense, as adjusted | $ | 27,304 | $ | 20,903 | $ | 55,804 | $ | 65,169 | |||||||||||||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Income (loss) from continuing operations, as reported under GAAP | $ | (38,799) | $ | 80,101 | $ | (95,667) | $ | 286,939 | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
Global Champion performance plan | 73,735 | — | 73,735 | — | |||||||||||||||||||
| Full Potential transformation plan: | |||||||||||||||||||||||
| Technology | 1,013 | 2,622 | 8,296 | 9,052 | |||||||||||||||||||
| Supply chain segmentation | 660 | 13,298 | 5,435 | 14,587 | |||||||||||||||||||
| Headcount actions and related severance | 2,531 | (18) | 5,376 | (1,112) | |||||||||||||||||||
| Professional services | 165 | 6,020 | 3,813 | 21,014 | |||||||||||||||||||
| (Gain) loss on sale of business and classification of assets held for sale | (1,558) | 4,310 | 3,641 | (6,558) | |||||||||||||||||||
| Other | 525 | 219 | 957 | 650 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 8,466 | — | |||||||||||||||||||
| Gain on final settlement of cross currency swaps | — | — | (1,370) | — | |||||||||||||||||||
| Discrete tax benefits | (4,263) | — | (4,263) | — | |||||||||||||||||||
| Tax effect on actions | — | (4,493) | — | (6,394) | |||||||||||||||||||
| Income from continuing operations, as adjusted | $ | 34,009 | $ | 102,059 | $ | 8,419 | $ | 318,178 | |||||||||||||||
Quarters Ended1 | Nine Months Ended1 | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Diluted earnings (loss) per share from continuing operations, as reported under GAAP | $ | (0.11) | $ | 0.23 | $ | (0.27) | $ | 0.82 | |||||||||||||||
| Restructuring and other action-related charges: | |||||||||||||||||||||||
Global Champion performance plan | 0.21 | — | 0.21 | — | |||||||||||||||||||
| Full Potential transformation plan: | |||||||||||||||||||||||
| Technology | 0.00 | 0.01 | 0.02 | 0.03 | |||||||||||||||||||
| Supply chain segmentation | 0.00 | 0.04 | 0.02 | 0.04 | |||||||||||||||||||
| Headcount actions and related severance | 0.01 | 0.00 | 0.02 | 0.00 | |||||||||||||||||||
| Professional services | 0.00 | 0.02 | 0.01 | 0.06 | |||||||||||||||||||
| (Gain) loss on sale of business and classification of assets held for sale | 0.00 | 0.01 | 0.01 | (0.02) | |||||||||||||||||||
| Other | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 0.02 | — | |||||||||||||||||||
| Gain on final settlement of cross currency swaps | — | — | 0.00 | — | |||||||||||||||||||
| Discrete tax benefits | (0.01) | — | (0.01) | — | |||||||||||||||||||
| Tax effect on actions | — | (0.01) | — | (0.02) | |||||||||||||||||||
Diluted earnings per share from continuing operations, as adjusted | $ | 0.10 | $ | 0.29 | $ | 0.02 | $ | 0.91 | |||||||||||||||
| 1 | Amounts may not be additive due to rounding. | ||||
Including the favorable foreign currency impact of $6 million, global Champion sales excluding C9 Champion decreased approximately 19% in the third quarter of 2023 compared to the third quarter of 2022. On a constant currency basis, global Champion sales excluding C9 Champion decreased approximately 20% in the third quarter of 2023 compared to the third quarter of 2022.
TABLE 6-B
HANESBRANDS INC.
Supplemental Financial Information
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
| Last Twelve Months | |||||||||||
| September 30, 2023 | October 1, 2022 | ||||||||||
| Leverage Ratio: | |||||||||||
EBITDA1: | |||||||||||
| Income (loss) from continuing operations | $ | (513,775) | $ | 354,893 | |||||||
Interest expense, net | 255,331 | 142,715 | |||||||||
| Income tax expense | 476,673 | 63,721 | |||||||||
Depreciation and amortization | 106,541 | 105,015 | |||||||||
Total EBITDA | 324,770 | 666,344 | |||||||||
Total restructuring and other action-related charges (excluding tax effect on actions)2 | 130,574 | 147,889 | |||||||||
Other net losses, charges and expenses3 | 125,134 | 117,923 | |||||||||
Total EBITDA, as adjusted | $ | 580,478 | $ | 932,156 | |||||||
| Net debt: | |||||||||||
| Debt (current and long-term debt and Accounts Receivable Securitization Facility excluding long term debt issuance costs and debt discount of $36,744 and $13,211, respectively) | $ | 3,606,500 | $ | 3,911,850 | |||||||
(Less) debt related to an unrestricted subsidiary4 | (200,500) | — | |||||||||
Other debt and cash adjustments5 | 3,992 | 10,973 | |||||||||
(Less) Cash and cash equivalents | (191,091) | (253,131) | |||||||||
| Net debt | $ | 3,218,901 | $ | 3,669,692 | |||||||
Debt/Income (loss) from continuing operations6 | (7.0) | 11.0 | |||||||||
Net debt/EBITDA, as adjusted7 | 5.5 | 3.9 | |||||||||
| 1 | Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure. | ||||
| 2 | The last twelve months ended September 30, 2023 includes $74 million of global Champion performance plan charges, $15 million of headcount actions and related severance charges, $11 million of technology charges, $9 million of supply chain segmentation charges, $8 million of a loss on extinguishment of debt, $7 million of professional services, $7 million of a loss on the sale of business and classification of assets held for sale, $1 million related to other restructuring and other action-related charges and $1 million of a gain on the final settlement of cross currency swap contracts. The last twelve months ended October 1, 2022 includes $46 million of a loss on extinguishment of debt, $32 million of a loss on classification of assets held for sale, $29 million of professional services, $18 million of supply chain segmentation charges, $11 million of technology charges, $8 million related to other restructuring and other action-related charges and $4 million of headcount actions and related severance charges. The items included in restructuring and other action-related charges are described in more detail in Table 6-A. | ||||
| 3 | Represents other net losses, charges and expenses that can be excluded from the Company’s leverage ratio as defined under its Fifth Amended and Restated Credit Agreement, dated November 19, 2021, as amended. The last twelve months ended September 30, 2023, primarily includes $59 million of excess and obsolete inventory write-offs, $23 million in other compensation related items primarily stock compensation expense, $16 million of pension non-cash expense, $14 million in charges related to sales incentive amortization, $9 million of bad debt expense, $6 million in charges related to the ransomware attack and extraordinary events, $6 million of non-cash cloud computing expense, $6 million of net unrealized gains due to hedging activities and $2 million of interest expense on debt and amortization of debt issuance costs related to an unrestricted subsidiary. The last twelve months ended October 1, 2022, primarily includes $39 million of excess and obsolete inventory write-offs, $29 million in charges related to the ransomware attack and extraordinary events, $25 million in other compensation related items primarily stock compensation expense, $22 million of pension non-cash expense, $2 million of bad debt expense and $1 million of non-cash cloud computing expense. | ||||
| 4 | Represents amounts outstanding under an existing accounts receivable securitization facility entered into by an unrestricted subsidiary of the Company. | ||||
| 5 | Includes drawn letters of credit, financing leases and cash balances in certain geographies. | ||||
| 6 | Represents Debt divided by Income (loss) from continuing operations which is the most comparable GAAP financial measure to Net debt/EBITDA, as adjusted. | ||||
| 7 | Represents the Company’s leverage ratio defined as Consolidated Net Total Leverage Ratio under its Fifth Amended and Restated Credit Agreement, dated November 19, 2021, as amended, which excludes net other losses, charges and expenses in addition to restructuring and other action-related charges. | ||||
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
Free cash flow1: | |||||||||||||||||||||||
| Net cash from operating activities | $ | 155,111 | $ | (50,608) | $ | 287,344 | $ | (491,682) | |||||||||||||||
| Capital expenditures | (2,220) | (33,009) | (35,790) | (70,955) | |||||||||||||||||||
| Free cash flow | $ | 152,891 | $ | (83,617) | $ | 251,554 | $ | (562,637) | |||||||||||||||
| 1 | Free cash flow includes the results from continuing and discontinued operations in the periods prior to the sale of the European Innerwear business on March 5, 2022. | ||||
TABLE 7
HANESBRANDS INC.
Supplemental Financial Information
Reconciliation of GAAP Outlook to Adjusted Outlook
(in thousands, except per share data)
(Unaudited)
| Quarter Ended | Year Ended | ||||||||||
| December 30, 2023 | December 30, 2023 | ||||||||||
| Operating profit outlook, as calculated under GAAP | $ | 116,000 | $ | 309,000 | |||||||
| Restructuring and other action-related charges | 15,000 | 116,000 | |||||||||
| Operating profit outlook, as adjusted | $ | 131,000 | $ | 425,000 | |||||||
| Interest expense, net and other expenses outlook, as calculated under GAAP | $ | 80,000 | $ | 317,000 | |||||||
| Restructuring and other action-related charges | — | 7,000 | |||||||||
| Interest expense, net and other expenses outlook, as adjusted | $ | 80,000 | $ | 310,000 | |||||||
| Income tax expense outlook, as calculated under GAAP | $ | 18,000 | $ | 71,000 | |||||||
| Restructuring and other action-related charges | — | 4,000 | |||||||||
| Income tax expense outlook, as adjusted | $ | 18,000 | $ | 75,000 | |||||||
Diluted earnings (loss) per share from continuing operations, as calculated under GAAP1 | $ | 0.05 | $ | (0.22) | |||||||
| Restructuring and other action-related charges | 0.04 | 0.34 | |||||||||
| Diluted earnings per share from continuing operations, as adjusted | $ | 0.09 | $ | 0.12 | |||||||
| Cash flow from operations outlook, as calculated under GAAP | $ | 500,000 | |||||||||
| Capital expenditures outlook | 50,000 | ||||||||||
| Free cash flow outlook | $ | 450,000 | |||||||||
| 1 | The company expects approximately 352 million diluted weighted average shares outstanding for the quarter ended December 30, 2023 and approximately 351 million diluted weighted average shares outstanding for the year ended December 30, 2023. | ||||
The Company is unable to reconcile projections of financial performance beyond 2023 without unreasonable efforts, because the Company cannot predict, with a reasonable degree of certainty, the type and extent of certain items that would be expected to impact these figures in 2023 and beyond, such as net sales, operating profit, tax rates and action related charges.
Exhibit 99.2
Hanesbrands FAQs
Updated November 9, 2023 – New or updated information is in red
General and Current Period FAQs (Guidance comments as of November 9, 2023)
Unless otherwise indicated, all guidance and related commentary as well as comparisons to prior periods reflect continuing operations.
(1) Q: What are the main components of your full-year 2023 guidance?
A: Net Sales: We expect total net sales from continuing operations of approximately $5.70 billion. This includes an approximate $65 million headwind from the impact of foreign exchange rates as compared to last year. The foreign exchange rate impact is reflected within the International segment. Our guidance represents a net sales decrease as compared to prior year of approximately 9% on a reported basis and approximately 8% on a constant currency basis.
Operating Profit (GAAP and Adjusted): Our guidance for GAAP Operating Profit from continuing operations is approximately $309 million. Our guidance for Adjusted Operating Profit from continuing operations is approximately $425 million, which excludes pretax Full Potential transformation plan-related charges of approximately $31 million and pretax global Champion performance plan-related charges of approximately $85 million. Our operating profit guidance includes an approximate $10 million headwind from the impact of foreign exchange rates as compared to last year.
Interest/Other Expenses and Tax Expense (GAAP and Adjusted): Our guidance for GAAP Interest and Other expenses is approximately $317 million. Our guidance assumes Adjusted Interest and Other expenses of approximately $310 million, which excludes approximately $7 million of pretax refinancing fees related to the refinancing of approximately $1.4 billion of our 2024 maturities in the first quarter 2023. Our guidance for GAAP Tax expense is approximately $71 million. Our guidance for Adjusted Tax expense is approximately $75 million, which excludes a $4 million discrete tax benefit in third-quarter 2023.
EPS (GAAP and Adjusted): Our guidance for GAAP EPS from continuing operations is a loss per share of approximately $(0.22). Our guidance for Adjusted EPS from continuing operations is approximately $0.12. Adjusted EPS from continuing operations excludes approximately $31 million of pretax Full Potential transformation plan-related charges, pretax global Champion performance plan-related charges of approximately $85 million, and approximately $7 million of pretax refinancing fees. Both calculations are based on diluted shares outstanding of approximately 351 million for the year.
Cash flow from operations: Our full-year guidance for cash flow from operations is approximately $500 million. Our full-year capital investment guidance is approximately $100 million, consisting of approximately $50 million of capital expenditures and approximately $50 million of cloud computing arrangements. Per GAAP, capital expenditures are reflected in cash from investing activities and certain cloud computing arrangements are reflected in Other Assets within cash flow from operating activities. The approximate $50 million of cloud computing arrangements is factored into the full-year cash flow from operations guidance of approximately $500 million.
Free Cash Flow: Our guidance for Free Cash Flow is approximately $450 million. We define Free Cash Flow as cash flow from operations less capital expenditures.
(2) Q: What are the main components of your fourth-quarter 2023 guidance?
A: Net Sales: We expect total net sales from continuing operations of approximately $1.36 billion. This includes an approximate $12 million headwind from the impact of foreign exchange rates as compared to last year. The foreign exchange rate impact is reflected within the International segment. Our guidance represents a net sales decrease as compared to prior year of approximately 8% on a reported basis and approximately 7% on a constant currency basis.
Operating Profit (GAAP and Adjusted): Our guidance for GAAP Operating Profit from continuing operations is approximately $116 million. Our guidance for Adjusted Operating Profit from continuing operations is approximately $131 million, which excludes pretax charges related to the Full Potential transformation plan and the global Champion performance plan of approximately $15 million. Our operating profit guidance includes an approximate $2 million headwind from the impact of foreign exchange rates as compared to last year.
1 | ||
Interest/Other Expenses and Tax Expense (GAAP and Adjusted): Our guidance assumes GAAP and Adjusted Interest and Other expenses of approximately $80 million. Our guidance assumes GAAP and Adjusted Tax expense of approximately $18 million.
EPS (GAAP and Adjusted): Our guidance for GAAP EPS from continuing operations is approximately $0.05. Our guidance for Adjusted EPS from continuing operations is approximately $0.09. Adjusted EPS from continuing operations excludes pretax charges from the Full Potential transformation plan and the global Champion performance plan of approximately $15 million. Both calculations are based on diluted shares outstanding of approximately 352 million for the quarter.
***For prior FAQs that are applicable to their respective quarters, 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 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 from continuing operations, adjusted income (loss) from continuing operations, adjusted income tax expense, adjusted income (loss) from continuing operations before income tax expense, adjusted operating profit (and margin), adjusted SG&A, adjusted gross profit (and margin), EBITDA, adjusted EBITDA, adjusted effective tax rate, adjusted interest and other expense, net debt, leverage ratio and free cash flow.
Adjusted EPS from continuing operations is defined as diluted EPS from continuing operations excluding actions and the tax effect on actions. Adjusted income (loss) from continuing operations is defined as income (loss) from continuing operations excluding actions and the tax effect on actions. Adjusted income tax expense is defined as income tax expense excluding actions. Adjusted income (loss) from continuing operations before income tax is defined as income (loss) from continuing operations before income tax excluding 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 interest and other expenses is defined as interest and other expenses excluding actions and adjusted effective tax rate is defined as adjusted income tax expense divided by adjusted income (loss) from continuing operations before income tax.
Charges for actions taken in 2023 and 2022, as applicable, include the global Champion performance plan, supply chain segmentation, headcount actions and related severance charges, technology charges, gain/loss on classification of assets held for sale, professional services, loss on extinguishment of debt, gain on final settlement of cross currency swap contracts and the tax effects thereof. The global Champion performance plan includes actions and related charges regarding the Company’s accelerated and enhanced strategic initiatives to further streamline the operations and position the brand for long term profitable growth and the evaluation of strategic alternatives for the global Champion business. While these costs 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 future business plans and circumstances.
HanesBrands 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 the Full Potential transformation plan, the global Champion performance plan and other actions that are deemed to be material stand-alone initiatives apart from the Company’s core operations. HanesBrands 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 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 net income (loss) before the impacts of discontinued operations, interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding (x) restructuring charges related to the Full Potential transformation plan, the global Champion performance plan, and other action-related charges described in more detail in Table 6-A and (y) certain other losses, charges and expenses as defined in the Consolidated Net Total Leverage Ratio under its Fifth Amended and Restated Credit Agreement, dated November 19, 2021, as amended (the “Credit Agreement”) described in more detail in Table 6-B. HanesBrands 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
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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.
Net debt is defined as the total of current debt, long-term debt, and borrowings under the accounts receivable securitization facility (excluding long-term debt issuance costs and debt discount and borrowings of unrestricted subsidiaries under the accounts receivable securitization facility) less (x) other debt and cash adjustments and (y) cash and cash equivalents. Leverage ratio is the ratio of net debt to adjusted EBITDA as it is defined in our Credit Agreement. The Company defines free cash flow as net cash from operating activities less capital expenditures. Management believes that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance.
HanesBrands 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, HanesBrands 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). HanesBrands 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.
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 the Company’s press release dated November 9, 2023, to reconcile non-GAAP measures to the most directly comparable GAAP financial measures. A copy of the press release is available at www.Hanes.com/Investors.
Cautionary Statement Concerning Forward-Looking Statements
These FAQ’s contain certain forward-looking statements, as defined under U.S. federal securities laws, with respect to our plans, expectations, long-term goals and trends associated with our business, as well as guidance as to future performance. In particular, among others, guidance and predictions regarding expected operating results, including related to our ability to successfully execute our Full Potential transformation plan, global Champion performance plan, and other strategic actions to achieve the desired results; statements made in the Fourth-Quarter and Full-Year 2023 Financial Outlook section of this release; and statements regarding our future capital allocation strategy, are forward-looking statements. These forward-looking statements are based on our current intentions, beliefs, plans and expectations. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements inherently 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: our ability to identify, execute, and realize the benefits from, any potential strategic transaction involving Champion; our ability to successfully execute our Full Potential transformation plan, global Champion performance plan, or any modifications thereto to achieve the desired results; the rapidly changing retail environment and the level of consumer demand; our reliance on a relatively small number of customers for a significant portion of our sales; our ability to deleverage on the anticipated time frame or at all, which could negatively impact our ability to satisfy the financial covenants in our Credit Agreement or other contractual arrangements; any inadequacy, interruption, integration failure or security failure with respect to our information technology (including the ransomware attack announced May 31, 2022); the impact of significant fluctuations and volatility in various input costs, such as cotton and oil-related materials, utilities, freight and wages; the availability of global supply chain resources; future intangible assets or goodwill impairment due to changes in our business, market conditions, or other factors, including any sale of the Champion business; our ability to attract and retain a senior management team with the core competencies needed to support growth in global markets and ongoing labor shortages generally; significant fluctuations in foreign exchange rates; legal, regulatory, political and economic risks related to our international operations, including regional and global military conflicts; our ability to effectively manage our complex multinational tax structure; 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.
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