HBI
#Good day everyone and welcome to the HanesBrands quarterly investor conference call and webcast.
We are pleased to be here today to provide an update on our progress after the first quarter of 2016.
Hopefully everyone has had a chance to review the news release we issued earlier today.
The news release, updated FAQ document, and the replay of this call can be found in the Investors section of our Hanes.com website.
On the call today, we may make forward-looking statements either in our prepared remarks or in the associated question-and-answer session.
These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially.
These risks are detailed in our various filings with the SEC and may be found on our website as well as in our news releases.
The Company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made.
Unless otherwise noted, today's references to our consolidated financial results as well as our 2016 guidance exclude all one-time charges and expenses.
Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's press release.
With me on the call today are <UNK> <UNK>, our Chief Executive Officer, <UNK> <UNK>, our Chief Operating Officer, and <UNK> <UNK>, our Chief Financial Officer.
For today's call <UNK>, <UNK> and <UNK> will provide some brief remarks and then we will open it up to your questions.
I will now turn the call over to <UNK>.
Thank you <UNK>.
HanesBrands delivered strong first-quarter results as revenue increased 1%, operating profit increased 10% and earnings per share increased 18%.
Our ability to consistently magnify our growth rates as you walk down the P&L demonstrates that our strategies to create long-term shareholder value are working.
We are driving innovation in our categories, we are generating efficiencies within our supply chain, we are enhancing our margins, and we are effectively allocating our capital.
Within the first 100 days of 2016, we increased our dividend 10%, repurchased $380 million of stock, and announced the acquisition of Champion Europe.
Overall, the year is unfolding as we expected.
Point-of-sale trends have rebounded from their severely negative levels in Q4.
Our acquisition synergies are ramping on schedule, and our initiatives to re-energize sales growth are on track.
All of this gives us confidence in our ability to achieve our 2016 guidance.
Add to this our continued focus on executing our long-term strategies and we believe we are well-positioned to deliver double-digit EPS growth for many years to come.
And with that, I'll turn the call over to <UNK>.
Thanks <UNK>.
We delivered another record first quarter.
The combination of our margin enhancement strategies, our acquisition strategies and our capital allocation strategies drove an 18% increase in our earnings per share, once again highlighting the power of our business model to deliver strong returns for our shareholders.
Now let me give you some color on the quarter.
Sales increased 1% over last year, driven by the contribution from Knights Apparel, and the 1% growth in our innerwear segment, which was partially offset by $12 million of currency headwinds.
As expected, our gross profit margin declined from last year.
Efficiency gains from the supply chain were more than offset by the recognition of certain inventory reduction costs which resulted in a 20 basis point decline in our margin.
Our guidance calls for close to $20 million of inventory related costs this year, $8 million of which hit our P&L in the first quarter with the majority of the remaining costs expected to come in the second quarter.
SG&A costs in the quarter declined approximately 130 basis points to 25.8% of sales.
Key drivers of this improvement were synergies from acquisitions, planned catalog circulation reductions, and tight cost controls.
This resulted in a 110 basis point increase in our operating profit margin to 12.1%.
Our earnings per share of $0.26 was an increase of 18% over last year.
The $0.04 improvement includes $0.01 from operational performance, $0.01 from the 2015 share repurchases, and $0.02 of expense timing between the first and second quarters.
And lastly, our cash flow from operations was a use of $285 million, roughly in line with our expectations.
Turning to guidance, we reiterated our full 2016 guidance, which does not yet include the impact from Champion Europe.
Looking at the key components, we expect sales of $5.8 billion to $5.9 billion, which represents a 1% to 3% increase over last year.
We expect operating profit to be $920 million to $950 million, which at the midpoint implies a 100 basis point increase in our operating profit margin.
We expect EPS of $1.85 to $1.91, which represents 11% to 15% growth over last year.
And we expect cash flow from operations to be $750 million to $850 million.
So, in closing, we are off to a great start in 2016 and we are well-positioned to deliver on our guidance.
Looking forward, as we execute on our proven long-term strategies, we believe we are well-positioned to continue to deliver strong shareholder returns for many years to come.
And with that, I'll turn the call back over to <UNK>.
Thanks <UNK>.
That concludes our prepared remarks.
We will now begin taking your questions and will continue as time allows.
Since there may be a number of you who would like to ask a question, I will ask that you limit yourself to one question and a single follow-up and then re-enter the queue to ask any additional questions.
I will now turn the call back over to the operator to begin the question-and-answer session.
Operator.
I'll just say ---+ start with the consumer environment, we are seeing the overall consumer environment continue to be relatively choppy like it's been for four or five years.
We are starting to call it the new normal.
And I think some of the stuff that we saw in Q4 was sort of isolated to that quarter.
More specifically, about the current business, <UNK>, do you want to talk to <UNK>'s question.
Yes, I would say, as you think about the inventory levels, actually the rate of increase ---+ remember we ---+ during the first half of the year, we were building inventory towards back to school.
And so ---+ but we built it at a slower pace this year than we did last year, about $30 million slower pace in inventory.
So that's I think an encouraging early sign.
But as <UNK> has said, the bulk of the inventory benefits will come to us in the second half of the year after back to school.
So the ---+ And in terms of the P&L impact, we said about $8 million of P&L impact for the costs associated with those actions.
We are still thinking $20 million for the full year, most of it, the bulk of it in the first half, and so more shifting to the second quarter then as we now are implementing plans.
So actually we are right on where we thought we were going to be both in terms of cash flow overall, in terms of our inventory position, and we are very pleased with where we are right now and feel good about delivering those numbers.
So in our guidance we actually narrowed the XA, charges guidance to really 1 point to $85 million for the full year.
We did $25 million in the first quarter.
That would suggest a slowing trend through the year.
For the full year, $85 million, it's about 80% of that is for Hanes Europe for the DBA acquisition, about 15% of it will go to Knights Apparel, and the balance is associated with the reacquisition of our Champion license in Japan.
And so the XA is very limited to acquisitions only in 2016, and so you are seeing the pace of those charge slow down.
I'm not sure I would say the vast majority, but the bulk of them will be SG&A.
Well, we said the constant currency growth was the 2% number, and Knights Apparel was $21 million of sales in the quarter.
I'll just conceptually say nothing has really changed from how we laid that out on our Q4 call.
And I let <UNK> talk a little bit more about the details.
I would say the answer is yes.
I think that's a pretty good proxy for going forward.
I think what you're going to see, generally speaking, is modest pension contributions.
Working capital, generally as we stabilize inventory this year going forward, working capital should not really be much of a source for use in any given year, generally speaking.
But then obviously cash flow will be driven up by as we continue to drive higher income.
So, I think we are on the right track on it, and I think that is certainly a sustainable number.
Sure.
Let me take the gross margin question first.
Yes, you should see it be a little weaker, and then the back half of the year, you should see the gross profit trend normalize.
In terms of the inventory, we wouldn't expect to see ---+ we would expect to see the inventory decline year-over-year in the second half.
So ---+ but I think the same trend you saw in the first quarter where we were seeing a slowing of the growth versus last year you will see probably through the second quarter.
In terms of the share repurchases, going forward, what we have done is ---+ the $380 million is in line with our activity has been factored into our guidance that we reiterated.
As we get towards the latter part of the year and we assess our cash position, we will then decide whether we want to do any more at that point.
So in terms of the cash flow, I think we are roughly right where we expected to be at this point, so we are right on plan.
Yes, it will be driven largely by the significant drop in inventory in the second half of the year but also by our ---+ our continued growth in profitability will also contribute to that and our reduced XA charges through the year.
So that's ---+ we feel very good about that.
In terms of the share count for the second quarter, we'll probably be in about I think probably about a 385 million type number, 385 million type number.
We'd like to thank everyone for attending our call today and we look forward to speaking with you soon.
Have a great night.
