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 ended January 2, 2021, which were included in
our Annual Report on Form 10-K filed with the SEC. 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 ended January 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.
Overview
Hanesbrands 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 the Americas, Australia, Europe and
Asia/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 our U.S.-based outlet stores, our U.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. On November 4, 2021, we announced that we
have reached an agreement to sell our European Innerwear business to an
affiliate of Regent, 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 of one 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 Ended
October 2, 2021 Compared with Third Quarter Ended September 26, 2020" and
"Condensed Consolidated Results of Operations - Nine Months Ended October 2,
2021 Compared with Nine Months Ended September 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 Ended October 2,
2021 Compared with Third Quarter Ended September 26, 2020

© Edgar Online, source Glimpses