Hanes(HBI) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 2022 were $1.51 billion, a decrease of 14% compared to the previous year, with constant currency sales down 11% [36][39] - Adjusted gross margin declined 120 basis points to 37.8%, impacted by lower sales volume and input cost inflation [39] - Adjusted operating margin was 10.2%, in line with forecasts despite challenges [41] - Cash flow from operations was a use of approximately $210 million, primarily due to working capital used for inventory [42] Business Line Data and Key Metrics Changes - Innerwear and Activewear businesses faced pressure from point-of-sale trends and product availability challenges, exacerbated by a cyber event [37][10] - International business performed relatively better, with constant currency sales declining approximately 3% [38] - The Champion brand is a significant part of the growth strategy, with plans for expansion in women's and kids' segments and new markets [22][66] Market Data and Key Metrics Changes - Consumer demand slowed due to inflation, impacting sales across the US, Australia, and Europe, with ongoing COVID pressures in Asia [72][10] - Retail inventory levels are being rebalanced, with some retailers experiencing excess inventory [105] Company Strategy and Development Direction - The company is focused on transforming into a consumer-centric growth company, with ongoing investments in brands and technology [31][32] - Plans to reduce inventory levels and SKU counts to improve working capital management and service levels [44][90] - The company is committed to innovation, with a robust pipeline of new products expected to drive growth [21][52] Management's Comments on Operating Environment and Future Outlook - The global operating environment remains challenging, with inflation and consumer demand pressures expected to continue [52][29] - The company has reduced its sales and profit outlook for the second half of the year, reflecting macroeconomic conditions [45][16] - Management remains confident in the long-term strategy and believes it positions the company for revenue and profit growth [53][29] Other Important Information - The cyber event in late May negatively impacted Q2 performance, estimated to have caused a $100 million sales loss [35] - Inventory levels increased by 19% in units and 37% in dollar terms, primarily due to inflation and lower sales [42][43] Q&A Session Summary Question: Impact of the cyber event on Champion sales - Management indicated that the cyber incident impacted all business lines similarly, and they are confident in Champion's future growth potential despite recent challenges [60][66] Question: Trends in point-of-sale and back-to-school performance - Management noted that consumer demand has shown slight improvement week-over-week, particularly in the back-to-school segment [74] Question: Impact of Walmart and Target announcements - Management refrained from commenting directly on specific retailers but acknowledged a macro environment change affecting consumer behavior [81] Question: SKU reduction strategy - The company plans to reduce SKUs by an additional 30%, which is expected to improve working capital and service levels [88][90] Question: Performance of Innerwear vs. Activewear - Both segments performed consistently, with no significant difference in performance between men's and women's apparel [100] Question: Retail inventory levels and planned price increases - Management indicated that retail inventory levels are being rebalanced, and price increases have been implemented as planned, with consumer response within expected ranges [105][110]