Workflow
Hanes(HBI) - 2022 Q4 - Earnings Call Transcript
HBIHanes(HBI)2023-02-02 17:56
Filings

Financial Data and Key Metrics - The company expects to generate approximately 500millioninoperatingcashflowin2023,withafocusondebtreduction[23]−AdjustedgrossmarginforQ12023isexpectedtodeclinebyapproximately300basispointsduetocommodityandfreightinflation[50]−Full−yearadjustedoperatingprofitisprojectedtorangebetween500 million in operating cash flow in 2023, with a focus on debt reduction [23] - Adjusted gross margin for Q1 2023 is expected to decline by approximately 300 basis points due to commodity and freight inflation [50] - Full-year adjusted operating profit is projected to range between 500 million and 550million,withQ1adjustedoperatingprofitexpectedtobebetween550 million, with Q1 adjusted operating profit expected to be between 50 million and 70million[51]−AdjustedEPSforthefullyearisexpectedtorangefrom70 million [51] - Adjusted EPS for the full year is expected to range from 0.31 to 0.42,whileQ1adjustedEPSisprojectedtobealossof0.42, while Q1 adjusted EPS is projected to be a loss of 0.09 to 0.04[52]BusinessLineDataandKeyMetrics−ThecompanyhasreducedglobalSKUsby450.04 [52] Business Line Data and Key Metrics - The company has reduced global SKUs by 45% since 2019 and exited unproductive facilities, leading to high single-digit savings rates in sourcing and procurement operations [24] - The activewear business is undergoing operational streamlining, including global coordination of product design and merchandising, increased speed to market, and portfolio simplification [24] Market Data and Key Metrics - The company expects net sales to decline by 1% in constant currency or approximately 2% on a reported basis for the full year 2023, with easing comparisons beginning in Q2 [49] - The U.S. market is expected to remain challenging due to inflation, while Asia shows mixed results with improving traffic in Japan and China reopening post-COVID [124] Company Strategy and Industry Competition - The company is shifting its capital allocation strategy to focus on debt reduction, eliminating the dividend, and committing to reducing leverage to a range of 2-3x net debt to adjusted EBITDA [75] - The company is implementing cost-saving initiatives, including exiting unproductive facilities, consolidating sourcing vendors, and aggressively managing SG&A [22] - The company is confident in achieving its long-term financial targets, including 8 billion in sales and a 14% operating margin, despite a shifted timeline to 2026 [70] Management Commentary on Operating Environment and Future Outlook - Management expects macroeconomic challenges, including inflation and consumer demand pressures, to persist in 2023, particularly in the first half [38] - The company anticipates margin improvement in the second half of 2023 as lower-cost inventory begins to impact the P&L and inflationary pressures ease [21] - Management is optimistic about the company's ability to improve cash flow and margins as the year progresses, driven by cost-saving initiatives and operational efficiencies [44] Other Important Information - The company has recorded a non-cash reserve against its deferred tax asset, which will increase accounting tax expense and the effective tax rate in 2023 but will not impact cash taxes [28] - The company expects to refinance approximately 1.4 billion of its 2024 maturities in Q1 2023, subject to market conditions [29] Q&A Session Summary Question: Confidence in Business Improvement and Debt Refinancing [55] - Management expressed confidence in the business's foundational capabilities and expects margin improvement in the second half of 2023 as lower-cost inventory rolls through the P&L [56][57] - The company is prioritizing debt reduction and has eliminated the dividend to focus on improving shareholder returns in the long term [58] Question: Top-Line Progression and Retailer Inventory Actions [61] - Management expects a muted consumer demand environment in 2023, with retailer inventory actions likely to continue into Q1, leading to a conservative top-line outlook [62] Question: Inventory and Cost Dynamics [65] - Inventory dollars are up 25%, with unit costs increasing in the low to mid-teens due to inflation and mix [65] Question: Tax Rate and Inventory Cash Flow [67] - The effective tax rate for 2023 is expected to be 40%-45%, with deferred tax accounting expected to normalize over several years [68] - The company expects to release working capital and drive operating cash flow back to historical levels in 2023 [80] Question: SG&A Savings and Full Potential Plan [101] - The company has realized significant SG&A savings in 2022 and expects further savings in 2023 and 2024, while continuing to invest in technology and brand growth [102] Question: Champion Brand Recovery and Dividend Reinstatement [131][145] - Management is confident in the Champion brand's recovery, citing new leadership, product innovation, and channel segmentation as key drivers [132][133] - The company has no immediate plans to reinstate the dividend, focusing instead on debt reduction and long-term shareholder returns [149] Question: Interest Expense and Inventory Management [92][94] - The company expects adjusted interest and other expenses to be nearly 300 million for the full year, driven by higher variable rate debt and refinancing costs [51] - Inventory management is expected to drive working capital benefits in 2023, with units down 6% compared to the prior year [91]