Hanes(HBI) - 2023 Q3 - Quarterly Report

PART I Item 1. Financial Statements This section presents Hanesbrands Inc.'s unaudited condensed consolidated financial statements for Q3 2023 and 2022, covering operations, balance sheets, and cash flows, with detailed accounting notes Condensed Consolidated Statements of Operations The company reported a net loss of $38.8 million for Q3 2023 and $95.7 million for the nine-month period, driven by lower sales and higher interest expenses Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,511,306 | $1,670,741 | -9.5% | | Gross Profit | $470,311 | $562,852 | -16.4% | | Operating Profit | $65,962 | $141,444 | -53.4% | | Net Income (Loss) | $(38,799) | $80,101 | -148.4% | | Diluted EPS | $(0.11) | $0.23 | -147.8% | Nine Months 2023 vs 2022 Performance (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,339,696 | $4,760,364 | -8.8% | | Gross Profit | $1,402,741 | $1,719,131 | -18.4% | | Operating Profit | $192,685 | $459,210 | -58.0% | | Net Income (Loss) | $(95,667) | $290,904 | -132.9% | | Diluted EPS | $(0.27) | $0.83 | -132.5% | Condensed Consolidated Balance Sheets Total assets decreased to $5.91 billion as of September 30, 2023, primarily due to reduced inventories, while total liabilities and stockholders' equity also declined Key Balance Sheet Items (in thousands) | Account | Sep 30, 2023 | Oct 1, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $191,091 | $253,131 | | Inventories | $1,516,779 | $2,136,314 | | Total Assets | $5,913,288 | $7,099,281 | | Long-term debt | $3,310,256 | $3,655,889 | | Total Liabilities | $5,639,252 | $6,424,397 | | Total Stockholders' Equity | $274,036 | $674,884 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $287.3 million for the nine months ended September 30, 2023, primarily driven by inventory reduction efforts - A significant improvement in operating cash flow was driven by a $444.6 million positive change from inventories, compared to a $612.5 million negative impact in the prior year, reflecting successful inventory reduction efforts[27] Cash Flow Summary (Nine Months Ended, in thousands) | Activity | Sep 30, 2023 | Oct 1, 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $287,344 | $(491,682) | | Net cash from investing activities | $(15,377) | $(179,336) | | Net cash from financing activities | $(307,771) | $435,248 | | Change in cash and cash equivalents | $(47,322) | $(307,498) | Notes to Condensed Consolidated Financial Statements Detailed notes explain financial statements, covering accounting policies, business divestitures, debt refinancing, segment performance, and restructuring charges, including the U.S. Sheer Hosiery sale and Champion plan - The company completed the sale of its U.S. Sheer Hosiery business on September 29, 2023, for $3.3 million, recognizing a loss of $3.6 million for the nine-month period[57] - In Q3 2023, the company recognized a benefit of $17.8 million from business interruption insurance proceeds related to the May 2022 ransomware attack[39] - The annual goodwill impairment analysis indicated that the U.S. Activewear, Champion Europe, and Australia reporting units are at a higher risk for future impairment, with fair values exceeding carrying values by less than 10-15%. The combined goodwill for these units is approximately $677.7 million[43] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting a 10% Q3 net sales decrease driven by Activewear and International segments, alongside strategic initiatives like the Champion business review and debt refinancing - The company's Board of Directors is evaluating strategic alternatives for the global Champion business, which could include a potential sale or other strategic transaction[147] - The company's capital allocation strategy has shifted to focus all free cash flow on reducing debt to a target net debt-to-adjusted EBITDA ratio of no greater than two to three times[152] Full Year 2023 Guidance | Metric | Estimated Value | | :--- | :--- | | Net Sales | ~$5.70 billion | | Operating Profit | ~$309 million | | Diluted Loss Per Share | ~$(0.22) | | Cash Flow from Operations | ~$500 million | Results of Operations Q3 2023 net sales fell 10% to $1.51 billion, with operating profit dropping 53% to $66 million, primarily due to declines in Activewear and International segments amid challenging consumer environments - Q3 2023 operating margin fell to 4.4% from 8.5% in Q3 2022, impacted by unfavorable sales mix, cost inflation, and $77 million in restructuring charges related to the global Champion performance plan[177] - Activewear segment sales decreased 17% in Q3 2023 due to a slowdown in the U.S. activewear category and strategic actions to reposition the Champion brand, leading to a significant operating margin decline from 11.6% to 6.5%[184][185] - Innerwear segment sales remained relatively flat, decreasing by 0.4% in Q3 2023. However, its operating margin improved to 17.5% from 16.0% a year ago, benefiting from lapping prior year manufacturing time-out costs[182][183] Liquidity and Capital Resources Total available liquidity was approximately $1.16 billion as of September 30, 2023, with the company prioritizing debt reduction through refinancing and credit facility amendments for greater financial flexibility - The company amended its Senior Secured Credit Facility in November 2023 to modify financial covenants and provide greater strategic flexibility[221] Available Liquidity as of September 30, 2023 (in thousands) | Source | Available Liquidity | | :--- | :--- | | Revolving Loan Facility | $935,913 | | Accounts Receivable Securitization Facility | $391 | | Other international credit facilities | $35,994 | | Cash and cash equivalents | $191,091 | | Total Liquidity | $1,163,389 | - The Hanesbrands Board of Directors eliminated the quarterly cash dividend to prioritize using free cash flow for debt reduction[225] Item 3. Quantitative and Qualitative Disclosures about Market Risk No significant changes in market risk exposures were reported since the Annual Report on Form 10-K for the year ended December 31, 2022 - There were no significant changes in market risk exposures since the last annual report[240] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2023[241] - No material changes to internal control over financial reporting occurred during the quarter[242] PART II Item 1. Legal Proceedings No new material legal proceedings were reported in Q3 2023, and existing legal actions are not expected to have a material adverse effect on the company - No new material legal proceedings were reported in Q3 2023, and existing proceedings are not expected to have a material adverse effect[244][245] Item 1A. Risk Factors A new risk factor was introduced concerning the uncertain outcome of the strategic evaluation for the global Champion business, which may not result in a transaction or achieve intended goals - A new risk factor was introduced related to the strategic review of the global Champion business, announced on September 19, 2023. The outcome is uncertain and may not result in a completed transaction or achieve intended goals[247] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[248] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[249] Item 5. Other Information No director or officer trading plans under Rule 10b5-1 were adopted, modified, or terminated during the third quarter of 2023 - No director or officer trading plans under Rule 10b5-1 were adopted, modified, or terminated during the quarter[251] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications, and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files[253]