This management's discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see "Forward-Looking Statements" in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed interim consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year endedJanuary 2, 2021 , which were included in our Annual Report on Form 10-K filed with theSEC . The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included elsewhere in this Quarterly Report on Form 10-Q and those included in the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year endedJanuary 2, 2021 . In particular, statements with respect to trends associated with our business, our Full Potential plan, our future financial performance and the potential effects of the ongoing global coronavirus ("COVID-19") pandemic included in this MD&A include forward-looking statements. OverviewHanesbrands Inc. (collectively with its subsidiaries, "we," "us," "our," or the "Company") is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in theAmericas ,Australia ,Europe andAsia/Pacific under some of the world's strongest apparel brands, including Hanes, Champion, Bonds,Bali , Maidenform, Playtex,Bras N Things , JMS/Just My Size, Wonderbra, Alternative, Berlei, L'eggs and Gear for Sports. We sell T-shirts, bras, panties, shapewear, underwear, socks, hosiery and activewear produced in our low-cost global supply chain. Our products are marketed to consumers shopping in mass merchants, mid-tier and department stores, specialty stores and the consumer-directed channel, which includes our owned retail locations, as well as e-commerce sites. Our brands hold either the number one or number two market position by units sold in many of the product categories and geographies in which we compete. Our operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment's businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of ourU.S. -based outlet stores, ourU.S. hosiery business and certain sales from our supply chain to the European Innerwear business. Our Key Business Strategies Our business strategy integrates our brand superiority, industry-leading innovation and low-cost global supply chain to provide higher value products while lowering production costs. We operate in the global innerwear and global activewear apparel categories. These are stable, heavily branded categories where we have a strong consumer franchise based on a global portfolio of industry-leading brands that we have built over multiple decades, through hundreds of millions of direct interactions with consumers. In 2020, we undertook a comprehensive global business review focused on building consumer-centric growth. The review resulted in our Full Potential plan, which is our multi-year growth strategy that focuses on four pillars to drive growth and enhance long-term profitability and identifies initiatives to unlock growth. Our four pillars of growth are to grow the Champion brand globally, drive growth in Innerwear with brands and products that appeal to younger consumers, drive consumer-centricity by delivering innovative products and improving awareness through investments in brand marketing and digital capabilities, and streamline our global portfolio. In order to deliver this growth and create a more efficient and productive business model, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential plan's objectives. We remain highly confident that our strong brand portfolio, world-class supply chain and diverse category and geographic footprint will help us unlock our full potential, deliver long-term growth and create stockholder value. In the fourth quarter of 2020, we began the implementation of our Full Potential plan and as part of our strategy to streamline our portfolio, we determined that our personal protective equipment ("PPE") business was no longer a growth opportunity for us and recorded a charge to write down our entire PPE inventory balance to its estimated net realizable value. Additionally, we commenced an initiative to reduce 20% of our SKUs in inventory in order to streamline product offerings while also implementing a formal lifecycle management process. In the first quarter of 2021, we announced that as part of our strategic plan, we were exploring alternatives for our European Innerwear business and subsequently reached the decision to exit this business. We determined that our European Innerwear business met held-for-sale and discontinued operations accounting criteria during the first quarter of 2021. Accordingly, we began to separately report the results of our European Innerwear business as discontinued operations in our Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed 25
--------------------------------------------------------------------------------
Table of Contents Consolidated Balance Sheets. See note "Discontinued Operations" to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information. OnNovember 4, 2021 , we announced that we have reached an agreement to sell our European Innerwear business to an affiliate ofRegent, L.P. , pending the completion of consultation with the European and French works councils representing employees of the European Innerwear business and customary closing conditions. Under the agreement, the purchaser will receive all the assets and operating liabilities of the European Innerwear business for a purchase price ofone Euro , subject to a post-closing adjustment to reflect any deviation at closing from a normalized level of working capital. Under the agreement, there is also a potential earnout due to us based on future performance. The transaction is expected to close in the first quarter of 2022. Impact of COVID-19 on Our Business The COVID-19 pandemic impacted our business operations and financial results for the third quarter and nine months ended 2021 and 2020 as described in more detail under "Condensed Consolidated Results of Operations - Third Quarter EndedOctober 2, 2021 Compared with Third Quarter EndedSeptember 26, 2020 " and "Condensed Consolidated Results of Operations - Nine Months EndedOctober 2, 2021 Compared with Nine Months EndedSeptember 26, 2020 " below, primarily through reduced traffic and closures of company-operated and third-party retail locations for portions of each of the periods in certain markets and global supply chain disruptions. Global supply chain disruptions primarily due to port congestion, transportation delays as well as labor and container shortages have resulted in higher operating costs and higher levels of inflation. The future impact of the COVID-19 pandemic remains highly uncertain, and our business and results of operations, including our net revenues, earnings and cash flows, could continue to be adversely impacted. Outlook for the fourth quarter of 2021 We estimate our fourth quarter 2021 guidance as follows: •Net sales of approximately$1.71 billion to$1.78 billion ; •Operating profit of approximately$182 million to$202 million ; •Full Potential plan-related charges of approximately$18 million included in operating profit; •Interest expense and other expenses of approximately$85 million combined, including a one-time charge of$45 million for a make-whole premium and transaction fees related to our anticipated debt refinancing; •An effective tax rate from continuing operations of approximately 12%; •Diluted earnings per share from continuing operations of approximately$0.24 to$0.29 ; •Cash flow from operating activities of approximately$23 million to$73 million ; and •Capital expenditures of approximately$20 million to$30 million . Seasonality and Other Factors Absent the effects of the COVID-19 pandemic, our operating results are typically subject to some variability due to seasonality and other factors. For instance, we have historically generated higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Sales levels in any period are also impacted by our customers' decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions. 26
--------------------------------------------------------------------------------
Table of Contents Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse basis, our sales are impacted by discretionary consumer spending trends. Discretionary spending is affected by many factors that are outside our control, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, energy prices, unemployment trends and other matters that influence consumer confidence and spending. Consumers' purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. As a result, consumers may choose to purchase fewer of our products, to purchase lower-priced products of our competitors in response to higher prices for our products, or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time. Disruptions to the global supply chain due to factory closures, port congestion, container shortages, trucking capacity shortages, transportation delays and labor shortages may negatively impact product availability, revenue growth and gross margins. Global supply chain disruptions could also cause our business to be affected by inflation which we would work to mitigate through a combination of cost savings and operating efficiencies, as well as pricing actions, which could have an adverse impact on demand. Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men's underwear, and lower margin products, such as seasonal and replenishable activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to consumers' preferences and discretionary spending. Condensed Consolidated Results of Operations - Third Quarter EndedOctober 2, 2021 Compared with Third Quarter EndedSeptember 26, 2020
© Edgar Online, source