Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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” and “Risk Factors” in this Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 expressed in or implied by the forward-looking statements as a result of various factors, including but not limited to those listed under Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K and included elsewhere in this Annual Report on Form 10-K. In particular, among others, statements with respect to trends associated with our business, our key business strategies, our expectations regarding liquidity and our ability to maintain compliance with the covenants in our Senior Secured Credit Facility and our future financial performance included in this MD&A are forward-looking statements.
This MD&A is a supplement to our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K and is provided to enhance your understanding of our results of operations and financial condition. It generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Since we have restated all periods presented as a result of the discontinued operations discussed in Note “Basis of Presentation” to our consolidated financial statements, we are providing comparisons between 2023 and 2022 in the following sections entitled “Consolidated Results of Operations” and “Operating Results by Business Segment”. Our MD&A is organized as follows:
• Overview. This section provides a general description of our Company and operating segments, business and industry trends, our key business strategies and background information on other matters discussed in this MD&A.
• 2024 Key Financial Results. This section discusses some of the key financial results of our performance and activities during 2024.
• Consolidated Results of Operations and Operating Results by Business Segment. These sections provide our analysis and outlook for the significant line items in our Consolidated Statements of Operations, as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis.
• Liquidity and Capital Resources. This section provides an analysis of trends and uncertainties affecting liquidity, cash requirements for our business, sources and uses of our cash and our financing arrangements.
• Critical Accounting Policies and Estimates. This section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations, and whose application requires significant judgments or a complex estimation process.
• Recently Issued Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting pronouncements that were adopted during 2024 and that we will be required to adopt in a future period.
Overview
Our Company
Hanesbrands Inc. (collectively with its subsidiaries, “we,” “us,” “our,” or the “Company”) is a socially responsible global leader in everyday iconic apparel, operating across the Americas, Australia and Asia. We own a portfolio of some of the world’s most recognized apparel brands in the core and essentials category including Hanes, Bonds , Bali, Maidenform, Playtex, Bras N Things , Berlei, Wonderbra, Zorba, JMS/Just My Size and Comfortwash . It’s through these iconic brands that we deliver high-quality, affordable comfort that is responsibly produced with ethically sourced materials. Our portfolio of leading brands is designed to address the needs and wants of various consumer segments across a broad range of basic apparel products and our brands have strong consumer positioning that helps distinguish them from competitors.
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Our Segments
In 2024, we realigned our segment reporting as a result of the sale of the global Champion business, as discussed in Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K. While the global Champion business was reflected within all reportable segments prior to its reclassification to discontinued operations, the U.S. Champion business made up the majority of our former Activewear segment. Accordingly, the former Activewear segment has been eliminated and the segment information herein excludes the results of the global Champion business for all periods presented. As a result of the strategic shift and resulting reorganization, the chief executive officer, who is our chief operating decision maker, began reviewing all U.S. innerwear and U.S. activewear operations together as one U.S. operating segment. As a result of these changes, our operations are now managed and reported in two operating segments, each of which is a reportable segment for financial reporting purposes: U.S. and International. In December 2024, the Champion Japan business, which was previously reported within the International segment, was classified as held for sale and reflected as discontinued operations for all periods presented. Accordingly, the Champion Japan business has been excluded from the International segment information herein. These changes have been applied to all periods presented. These segments are organized and managed principally by 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. Sheer Hosiery business prior to its sale on September 29, 2023, certain sales from our supply chain to the European Innerwear business which was sold on March 5, 2022 and short term support and transition service agreements for disposed businesses. Our U.S.-based outlet store business was also reflected in Other prior to its reclassification to discontinued operations in the second quarter of 2024 as discussed in Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K. As a result of this reclassification, the results of the U.S.-based outlet store business are excluded from the segment information herein for all periods presented.
The types of products and services from which each reportable segment derives its revenues are as follows:
• U.S. primarily includes innerwear sales in the United States of basic branded apparel products that are replenishment in nature under the product categories of men’s underwear, women’s panties, children’s underwear and socks, and intimate apparel, which includes bras and shapewear. This segment also includes other apparel sales in the United States of branded products that are primarily seasonal in nature to both retailers and wholesalers.
• International primarily includes sales of the Company’s innerwear and other apparel products outside the United States, primarily in Australia, the Americas and Asia.
Impact of the Macroeconomic Pressures on Our Business
The global macroeconomic pressures continue to impact our business operations and financial results, as described in more detail under “Consolidated Results of Operations - Year Ended December 28, 2024 (“2024”) Compared with Year Ended December 30, 2023 (“2023”)” and Consolidated Results of Operations — Year Ended December 30, 2023 (“2023”) Compared with Year Ended December 31, 2022 (“2022”)” below, primarily through consumer-demand headwinds and increased interest rates which has pressured sales and resulted in higher operating and financing costs causing pressure on net operating results. Despite the challenging global operating environment, we have been able to balance near term management of the business with implementing changes to execute our strategy to transform the Company. We have simplified the business by improving inventory management capabilities through continued SKU discipline and lifecycle management. Gross and operating margin pressures began to ease in the second half of 2023 and continued in 2024 as lower cost inventory was sold and we benefited from various cost savings initiatives. The future impact of the global macroeconomic pressures, including consumer demand headwinds and higher interest rates, remain highly uncertain, and our business and results of operations, including our net revenues, earnings and cash flows, could continue to be adversely impacted. The Federal Reserve cut the federal-funds rate in September 2024, November 2024 and December 2024. While these cuts could potentially have a favorable impact to consumer spending, we remain highly uncertain as the near term impact on interest rates is not yet known. See the related risk factors under Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K.
Business and Industry Trends
Inflation and Changing Prices
Cotton is the primary raw material used in manufacturing many of our products. While we do not own yarn operations, we are still exposed to fluctuations in the cost of cotton. Increases in the cost of cotton can result in higher costs in the price we pay for yarn from our large-scale yarn suppliers and may result in the need to implement future price increases in order to maintain our margins. Cotton price volatility has an impact on current inventory margins as a time lag exists between current market prices and our actual costs incurred. When cotton prices fluctuate, we may receive downward price pressure as a result of consumer demand, competition or other factors.
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Our costs for cotton yarn, cotton-based textiles and cotton-based products sourced from third-party suppliers vary based upon the fluctuating cost of cotton, which is affected by, among other factors, weather, the impacts of climate change, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries and other factors that are generally unpredictable and beyond our control. We are able to lock in the cost of cotton reflected in the price we pay for yarn from our primary yarn suppliers in an attempt to protect our business from the volatility of the market price of cotton. Under our agreements with these suppliers, we have the ability to periodically fix the cotton cost component of our yarn purchases. When we elect to fix the cotton cost component under these agreements, interim fluctuations in the price of cotton do not impact the price we pay for the specified volume of yarn. The yarn suppliers bear the risk of cotton fluctuations for the yarn volume specified and it is their responsibility to procure the cotton at the agreed upon pricing through arrangements they make with their cotton suppliers. However, our business can be affected by dramatic movements in cotton prices. The cost of cotton used in our products, which includes the cost of cotton used in goods manufactured by us, as well as the cotton content in yarn, textiles and turnkey products we purchase from third-party suppliers, as a percentage of our cost of sales was in the low double digits in 2024. Costs incurred today for materials and labor, including cotton, typically do not impact our results until the finished goods inventory is sold approximately five to nine months later.
Inflation can have a long-term impact on us because increasing costs of materials and labor may impact our ability to maintain satisfactory margins. For example, the cost of the materials that are used in our manufacturing process, such as oil-related commodity prices and other raw materials, including cotton, dyes and chemicals, and other costs, such as fuel, energy and utility costs, can fluctuate as a result of inflation and other factors. Disruptions to the global supply chain due to factory closures, port congestion, transportation delays as well as labor and container shortages may negatively impact product availability, revenue growth and gross margins. We would work to mitigate the impact of the global supply chain disruptions through a combination of cost savings and operating efficiencies, as well as pricing actions, which could have an adverse impact on demand. Costs incurred for materials and labor are capitalized into inventory and impact our results as the finished goods inventory is sold. In addition, a significant portion of our products are manufactured in countries other than the United States and declines in the value of the U.S. dollar may result in higher manufacturing costs. Increases in inflation may not be matched by growth in consumer income, which also could have a negative impact on spending.
Other Business and Industry Trends
The basic apparel market is highly competitive and rapidly evolving. Competition generally is based upon brand, comfort, fit, style, innovation and price. Our competition consists of other large domestic and foreign corporations and manufacturers, as well as smaller companies, department stores, specialty stores and other retailers that market and sell basic apparel products under private labels that compete directly with our brands. The majority of our core products are consistent each year and in line with consumer trends, including variations in color, fabric, style, design and innovation or design details.
In 2024, our top 10 customers accounted for approximately 64% of our total net sales. Our largest customers in 2024 were Walmart, Amazon, and Target, which accounted for 24%, 13%, and 11% of our total net sales, respectively. The increasing bargaining power of retailers can create pricing pressures as our customers grow larger and seek greater concessions in their purchase of our products, while also demanding exclusivity with respect to some of our products. To counteract these effects, it has become increasingly important to leverage our national brands through investment in our largest and strongest brands as our customers strive to maximize their performance especially in today’s challenging retail economic environment. Brands are important in our core categories to drive traffic and project the quality and value our customers demand.
Foreign Exchange Rates
Changes in exchange rates between the U.S. dollar and other currencies can impact our financial results in two ways; a translation impact and a transaction impact. The translation impact refers to the impact that changes in exchange rates can have on our published financial results. Similar to many multi-national corporations that publish financial results in U.S. dollars, our revenue and profit earned in local foreign currencies is translated back into U.S. dollars using an average exchange rate over the representative period. A period of strengthening in the U.S. dollar has a negative impact to our published financial results (because it would take more units of a local currency to convert into a dollar). The opposite is true during a period of weakening in the U.S. dollar. Our biggest foreign currency exposures are the Australian dollar, the Mexican peso, the Brazilian real, the Canadian dollar and the Argentinian peso.
The transaction impact on financial results is common for apparel companies that source goods because these goods are purchased in U.S. dollars. The transaction impact from a strengthening U.S. dollar would have a negative impact to our financial results (because the U.S. dollar-based costs would convert into a higher amount of local currency units, which means a higher local-currency cost of goods, and in turn, a lower local-currency gross profit). The transaction impact from exchange rates is typically recovered over time with price increases. However, during periods of rapid change in exchange rates, pricing is unable to change quickly enough; therefore, we use forward foreign exchange contracts to hedge against our sourcing costs to minimize our exposure to fluctuating exchange rates.
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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 primarily in the global innerwear apparel category, along with smaller operations within other apparel categories. Our strategy is based on managing and growing our iconic brands through the three key principles of simplifying for growth, focus for impact, and continuously improving to win. By simplifying the portfolio, we continue to elevate these brands by delivering quality and value to our consumers through innovative brand and product experiences. We remain focused on the core product offerings while also expanding through innovation and new business opportunities for greater marketplace impact.
We are taking decisive actions to streamline operations and deliver measurable results and have pushed to reduce inventory and product SKUs through our disciplined inventory management. We have segmented and consolidated our world-class supply chain for greater efficiency and flexibility and our go-to-market strategy has been reimagined into a winning, repeatable cadence, supported by a robust, consumer-led innovation process that keeps us at the forefront of industry trends. We are highly confident our iconic brand portfolio, world-class supply chain and product innovation will ensure we will consistently grow sales, expand our margins and generate cash flow.
Over the last three years, we have experienced several unanticipated challenges, including significant cost inflation, market disruption and consumer-demand headwinds. Despite the challenging global operating environment, we have been able to balance the near-term management of the business with making the long-term investments necessary to execute our strategy and transform us. During this time, we have made meaningful progress on several of our strategic initiatives. We have pivoted our U.S. innerwear business back to gaining market share, which has been driven by the launch of new product innovation, increased marketing investments in our brands and improved on-shelf product availability. We have simplified our portfolio by selling our European Innerwear and U.S. Sheer Hosiery businesses.
In September 2023, we announced that our Board of Directors and executive leadership team, with the assistance of financial and legal advisors, were undertaking an evaluation of strategic alternatives for the global Champion business which included a broad range of alternatives to maximize shareholder value and also considered an evaluation of the strategic alternatives for our U.S.-based outlet store business impacted by the global Champion business. In June 2024, we reached the decision to exit the U.S.-based outlet store business and the global Champion business, excluding the Champion Japan business, (“global Champion business”). In December 2024, we finalized plans to exit the Champion Japan business and expect to complete the sale of the business within the next 12 months. We determined that the exit of the global Champion business, U.S.-based outlet store business and the Champion Japan business represent multiple components of a single strategic plan that met held-for-sale and discontinued operations accounting criteria in 2024. Accordingly, we began to separately report the results of these businesses as discontinued operations in our Consolidated Statements of Operations and to present the related assets and liabilities as held for sale in our Consolidated Balance sheets. These changes have been applied to all periods presented.
In the second quarter of 2024, we announced that we had reached an agreement to sell the intellectual property and certain operating assets of the global Champion business to Authentic Brands Group LLC (“Authentic”). Pursuant to the agreement, as amended, we completed the sale of the intellectual property and certain operating assets of the global Champion business to Authentic in the fourth quarter of 2024 on September 30, 2024 (the “Initial Closing”) in exchange for gross cash proceeds of $857 million and a receivable of $12 million. In addition, we have the potential to receive additional contingent cash consideration of up to $300 million pursuant to the agreement. We used net sale proceeds from the Initial Closing of $783 million, which excludes customary transaction costs and other deductions permitted under our senior secured credit facility (the “Senior Secured Credit Facility”), to pay down a portion of our outstanding term debt in October 2024. We continued to operate the Champion business in certain sectors and geographies through a transition period ending on January 31, 2025 (the “Deferred Business”), on which date we completed the sale of the Deferred Business (the “Deferred Closing”) in exchange for gross cash proceeds of $31 million. We continued to provide certain manufacturing and supply services as well as transition services to Authentic and the applicable service recipients pursuant to the terms of the agreements entered into among the Company, Authentic and the applicable service recipients. We expect to continue these services over a period of approximately 12 months. See Note, “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K.
In the second quarter of 2024, we began actively marketing our U.S.-based outlet store business to prospective buyers. In July 2024, we entered into a purchase agreement with Restore Capital (HCR Stores), LLC (“Restore”), an affiliate of Hilco Merchant Resources, LLC. Under the purchase agreement, we paid Restore $12 million at closing and an additional $3 million in January 2025 and to provide certain inventory to Restore, in exchange for Restore agreeing to assume the operations and certain liabilities of our U.S.-based outlet store business as discussed in Note, “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K.
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On March 5, 2022, we completed the sale of our European Innerwear business to an affiliate of Regent, L.P. and on September 29, 2023, we completed the sale of our U.S. Sheer Hosiery business to AllStar Hosiery LLC, an affiliate of AllStar Marketing Group, LLC. When we reached the decision to exit our European Innerwear business in 2021, we determined that this business met held-for-sale and discontinued operations accounting criteria and accordingly, we began to separately report the results of our European Innerwear business as discontinued operations in our Consolidated Statements of Operations for the year ended December 31, 2022. The operations of our U.S. Sheer Hosiery business are reported in “Other” for the years ended December 30, 2023 and December 31, 2022 in Note “Business Segment Information” to our consolidated financial statements included in this Annual Report on Form 10-K.
Unless otherwise noted, all discussion within this Annual Report on Form 10-K, including amounts and percentages for all periods, reflect the results of our continuing operations. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
We seek to generate strong cash flow through effectively optimizing our capital structure and managing working capital levels. In January 2023, we shifted our capital allocation strategy to focus the use of all our free cash flow (cash from operations less capital expenditures) on reducing debt and bringing our leverage back to a range that is no greater than two to three times on a net debt-to-adjusted EBITDA basis. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization excluding restructuring and other action-related costs and certain other losses, charges and expenses. Net debt is defined as the total of current debt, long-term debt, and borrowings under the accounts receivable securitization facility (excluding long-term debt issuance costs) less other debt and cash adjustments and cash and cash equivalents.
Ransomware Attack
As previously disclosed, on May 24, 2022, we identified that we had become subject to a ransomware attack that affected certain of our information technology systems. The incident was subsequently investigated and contained and there are no ongoing operational impacts on our ability to provide our products and services. We maintain insurance, including coverage for cyber-attacks, subject to certain deductibles and policy limitations, in an amount that we believe appropriate.
In 2023, we recognized a benefit related to business interruption insurance proceeds of approximately $24 million, of which approximately $23 million is reflected in the “Cost of sales” line and approximately $1 million is reflected in the “Selling, general and administrative expenses” line of the Consolidated Statements of Operations. We received total business interruption insurance proceeds of $26 million in 2023, a portion of which was recognized as an expected insurance recovery in 2022, related to the recovery of lost profit from business interruptions. In 2022, we incurred costs of approximately $15 million, net of expected insurance recoveries, related to the ransomware attack. The costs, net of expected insurance recoveries, incurred during 2022 included approximately $14 million primarily related to supply chain disruptions, which are reflected in the “Cost of sales” line of the Consolidated Statements of Operations, and approximately $1 million primarily related to legal, information technology and consulting fees, which are reflected in the “Selling, general and administrative expenses” line of the Consolidated Statements of Operations.
Financing Arrangements
Due to the uncertain macroeconomic environment and associated potential impact on future earnings, we took the following debt-related actions in 2023. In February and March of 2023, we refinanced our debt structure to provide greater financial flexibility given the uncertainty within the global macroeconomic environment. The refinancing consisted of entering into a new senior secured term loan B facility in an aggregate principal amount of $900 million due in 2030 (the "2023 Term Loan B"), issuing $600 million aggregate principal amount of 9.000% senior unsecured notes due in 2031 (the "9.000% Senior Notes") and redeeming our 4.625% senior notes due in May 2024 (the "4.625% Senior Notes") and our 3.5% senior notes due in June 2024 (the "3.5% Senior Notes"). Additionally, in February and November 2023, we amended the credit agreement governing our senior secured credit facility (the “Senior Secured Credit Facility”) prior to any potential future covenant violation in order to modify the financial covenants and to provide greater strategic and operating flexibility. In May 2024, we amended the accounts receivable securitization facility (the “ARS Facility”). This amendment extended the maturity date to May 2025 with no change to the quarterly fluctuating facility limit. Additionally, the amendment removed the two pricing tiers that were added in the previous amendment, reverting back to a single tier pricing structure. On September 30, 2024, we further amended the ARS Facility at which time the quarterly fluctuating facility limit was reduced to $175 million in the fourth quarter of 2024 and $125 million thereafter until the expiration date in May 2025. See Note "Debt" to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
In 2024, we had a net pay down of $1.0 billion of our total outstanding debt using a combination of cash generated from operations and net sale proceeds from the sale of our global Champion business, which was completed on September 30, 2024. See Note “Assets and Liabilities of Businesses Held for Sale” for additional information.
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We expect to maintain compliance with our covenants, as amended, for at least 12 months from the issuance of these financial statements based on our current expectations and forecasts, however economic conditions or the occurrence of events discussed under Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K or other SEC filings could cause noncompliance. If economic conditions worsen or our earnings do not recover as currently estimated by management, this could impact our ability to maintain compliance with our amended financial covenants and require us to seek additional amendments to the Senior Secured Credit Facility. If we are not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, our lenders could require us to repay our outstanding debt. In that situation, we may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.
Tax Expense
During 2024, our effective tax rate was impacted as a result of valuation allowances against certain net deferred tax assets and unfavorable discrete items. During 2023, our effective tax rate was impacted by one-time discrete tax adjustments. During 2022, our effective tax rate was impacted as a result of a valuation allowance recorded in 2022 against U.S. federal and state deferred tax assets. Additionally, our 2022 effective tax rate was impacted by tax impairments in Switzerland which generated deferred tax liabilities.
We maintain intercompany transfer pricing agreements governing sales within our self-owned supply chain, which can impact the amount of pre-tax income we recognize in foreign jurisdictions. In compliance with applicable tax laws, we regularly review the terms of these agreements utilizing independent third-party transfer pricing studies to ensure that intercompany pricing is consistent with what a seller would charge an independent, arm’s length customer, or what a buyer would pay an independent, arm’s length supplier. Therefore, changes in intercompany pricing are often driven by market conditions, which are also difficult to predict.
Future acquisitions or divestitures may affect the proportion of our pre-tax income from foreign jurisdictions, both due to external sales and also increased volume in our self-owned supply chain. We follow a disciplined acquisition strategy focused on acquisitions that meet strict criteria for strong likely returns with relatively low risk. It is difficult to predict whether or when such acquisitions or divestitures will occur and whether the acquisition targets or divested operations will be foreign or domestic. Therefore, it is also difficult to predict the effect of acquisitions or divestitures on the future distribution of our pre-tax income.
As of December 28, 2024, we have continued to evaluate our glo bal capital allocation strategy a nd assertions made with respect to the accumulated earnings of our foreign subsidiaries. As a result of our overall and continuous evaluation, we have not changed our assertion from prior year and we will continue to permanently reinvest a portion of our unremitted foreign earnings. The portion of our unremitted foreign earnings as of December 28, 2024 that we intend to remit to the United States totals approximately $65 million. We have additional foreign earnings totaling $1,267 million which are not permanently reinvested within our foreign structure but which are permanently reinvested from a U.S. perspective. Earnings which are permanently reinvested from a U.S. perspective will be used to fund working capital requirements and operations abroad. As of December 28, 2024, we have accrued for income taxes of $32 million in connection with the tax cost of future repatriations, including those between foreign entities. These income tax effects include all relevant implications of the planned remittance, including U.S. federal, state, foreign and withholding taxes.
We regularly assess any significant exposure associated with increases in effective tax rates and adjustments are made as events occur that warrant adjustment to our income tax provisions. See “ We have a complex multinational tax structure, and changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could impact our capital deployment strategy and adversely affect our results. ” in Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K.
2024 Key Financial Results
Key financial results are as follows:
• Total net sales in 2024 were $3.5 billion, compared with $3.6 billion in 2023, representing a 4% decrease.
• Operating profit was $186 million in 2024 compared with $266 million in 2023, representing a 30% decrease. As a percentage of sales, operating profit was 5.3% in 2024 compared to 7.3% in 2023. Included within operating profit in 2024 were restructuring and other action-related charges of $229 million. Included within operating profit in 2023 were restructuring and other action-related charges of $23 million.
• Diluted loss per share from continuing operations was $(0.28) in 2024 compared with diluted earnings per share from continuing operations of $0.08 in 2023.
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Consolidated Results of Operations — Year Ended December 28, 2024 (“2024”) Compared with Year Ended December 30, 2023 (“2023”)
Years Ended
December 28,
December 30,
Higher
(Lower)
Percent
Change
(dollars in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Other expenses
Interest expense, net
Income (loss) from continuing operations before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net loss
Net Sales
Net sales decreased 4% during 2024 compared to prior year primarily due to the divestiture of the U.S. Sheer Hosiery business on September 29, 2023, the unfavorable impact from foreign currency exchange rates in our International business of approximately $40 million, a higher than anticipated level of inventory management actions by select retailers in the U.S. segment and the continued macro-driven slowdown impacting consumer spending across segments.
Operating Profit
Operating profit as a percentage of net sales was 5.3% in 2024, representing a decrease from 7.3% in the prior year. The operating margin rate decline primarily resulted from an increase in restructuring and other action-related charges included in operating profit to $229 million in 2024 from $23 million in 2023, which resulted in a decline in operating margin rate of approximately 590 basis points. In addition, the operating margin rate decline resulted from approximately 150 basis points of increased brand investments partially offset by approximately 510 basis points from the reduction in input costs.
Other Highlights
Other Expenses – Other expenses increased by $10 million in 2024 compared to prior year primarily due higher funding fees for sales of accounts receivables to financial institutions and higher pension expense in 2024. In addition, we recorded a charge of $9 million in 2024 for the write-off of unamortized debt issuance costs related to the requirement to pay down a portion of the Company’s outstanding term debt under the Senior Secured Credit Facility with the net proceeds from the sale of the global Champion business. In 2023, we recorded charges of nearly $9 million incurred as a result of the redemption of the 4.625% Senior Notes and the 3.5% Senior Notes. The redemption charges related to the 4.625% Senior Notes and the 3.5% Senior Notes included a payment of nearly $5 million for a required make-whole premium related to the redemption of the 3.5% Senior Notes and non-cash charges of nearly $4 million for the write-off of unamortized debt issuance costs. See Note “Debt” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Interest Expense – Interest expense from continuing operations was $196 million and $214 million in 2024 and 2023, respectively, representing a decrease of $18 million. The interest expense from continuing operations excludes $54 million and $66 million in 2024 and 2023, respectively, which was allocated to discontinued operations due to the requirement to pay down a portion of outstanding term debt under the Senior Secured Credit Facility with the net proceeds from the sale of the global Champion business. Additionally, in conjunction with the redemption of the 3.5% Senior Notes described in “Other Expenses” above, we unwound the related cross-currency swap contracts previously designated as cash flow hedges and the remaining gain in accumulated other comprehensive loss of $1 million was released into earnings at the time of settlement which partially offset interest expense in 2023. See Note “Financial Instruments” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information. Combined interest expense from continuing and discontinued operations decreased $31 million in 2024 compared to 2023 primarily due to lower weighted average outstanding debt balances partially offset by a higher weighted average interest rate on our borrowings during 2024. Our combined weighted average interest rate, including the portion of interest expense that was allocated to discontinued operations, on our outstanding debt was 7.44% for 2024 compared to 7.00% for 2023.
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Income Tax Expense (Benefit) – In 2024, income tax expense was $41 million, resulting in an effective income tax rate of (70.7)% and in 2023, income tax benefit was $15 million, resulting in an effective income tax rate of (103.4)%. Our effective tax rate for 2024 and 2023 primarily differs from the U.S. statutory rate primarily due to valuation allowances against certain net tax assets and one-time discrete tax adjustments in 2023.
Discontinued Operations – The results of our discontinued operations include the operations of our global Champion business, U.S.-based outlet store business and the Champion Japan business, which we reached the decision to exit in 2024. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Operating Results by Business Segment — Year Ended December 28, 2024 (“2024”) Compared with Year Ended December 30, 2023 (“2023”)
Net Sales
Years Ended
December 28,
December 30,
Higher
(Lower)
Percent
Change
(dollars in thousands)
International
Other
Total
Operating Profit and Margin
Years Ended
December 28,
December 30,
Higher
(Lower)
Percent
Change
(dollars in thousands)
International
Other
Corporate (1)
Total
(1) Corporate includes general corporate expenses, amortization of intangibles and restructuring and other action-related charges.
U.S. net sales decreased 2% compared to prior year primarily due to higher than anticipated level of inventory management actions by select retailers in the first half of 2024 and softer point-of-sale trends stemming from the continued macroeconomic pressures.
U.S. operating margin rate was 21.3%, an increase from 15.3% in the prior year. The operating margin rate improvement primarily resulted from approximately 595 basis points from a reduction in input costs and approximately 410 basis points from the savings realized from continued improvement in our supply chain partially offset by approximately 220 basis points due to unfavorable sales mix and 195 basis points of increased brand investments.
International
Net sales in the International segment decreased 3% compared to prior year due to unfavorable foreign currency exchange rates and macroeconomic pressures impacting consumer sentiment in Australia, partially offset by growth in the Americas and Asia. The unfavorable impact of foreign currency exchange rates decreased net sales approximately $40 million in 2024. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, increased 2%. The impact of foreign currency exchange rates is calculated by applying prior period exchange rates to the current year financial results. We believe constant-currency information is useful to management and investors to facilitate comparison of operating results and better identify trends in our businesses.
International operating margin rate was 11.7% in both 2024 and 2023. The operating margin rate was impacted by approximately 215 basis points from the reduction in input costs and approximately 80 basis points due to benefits from cost savings initiatives offset by approximately 130 basis points of unfavorable sales mix and 160 basis points of increased brand investments and administrative expenses.
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Other
Other net sales decreased primarily as a result of decreased hosiery sales as we completed the sale of our U.S. Sheer Hosiery business on September 29, 2023. Operating margin rate increased as a result of the short term transition service agreements and support of disposed businesses.
Other consists of our U.S. Sheer Hosiery business prior to its sale on September 29, 2023, certain sales from our supply chain to the European Innerwear business which was sold on March 5, 2022, short term transition service agreements for the global Champion business and support of disposed businesses. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Corporate
Corporate expenses were higher in 2024 compared to the prior year primarily due to higher restructuring and other action-related charges in 2024 and the benefit from business interruption insurance proceeds received, which reduced corporate expenses in 2023.
In 2023, we recognized a benefit related to business interruption insurance proceeds of approximately $24 million, of which approximately $23 million is reflected in the “Cost of sales” line and approximately $1 million is reflected in the “Selling, general and administrative expenses” line of the Consolidated Statements of Operations. We received total business interruption insurance proceeds of $26 million in 2023, a portion of which was recognized as an expected insurance recovery in 2022, primarily related to the recovery of lost profit from business interruptions.
Significant restructuring and other action-related charges within operating profit are discussed below.
• Supply chain restructuring and consolidation charges in 2024 include:
◦ $81 million reflected in the “Cost of Sales” line in the Consolidated Statements of Operations, primarily related to charges of $54 million to write down inventory as a result of further SKU rationalization efforts and $20 million for severance and related employee actions for impacted supply chain facilities; and
◦ $91 million reflected in the “Selling, general and administrative expenses” line in the Consolidated Statements of Operations, primarily related to charges of $72 million for impairment of an owned facility that was classified as held for sale and a right of use asset for which the leased facility was not in operation, $11 million for accelerated amortization of right of use assets for leased facilities that we expect to exit before the end of the contractual lease term, and $4 million for headcount actions and related severance related to restructuring and consolidation efforts within our supply chain network.
• Supply chain restructuring and consolidation charges in 2023 are reflected in the “Cost of Sales” line in the Consolidated Statements of Operations and primarily represent supply chain segmentation charges to restructure and position our distribution and manufacturing network to align with demand trends.
• Corporate asset impairment charges in 2024 include charges of $10 million, reflected in the “Cost of sales” line in the Consolidated Statements of Operations, primarily related to a contract termination, and $10 million, reflected in the “Selling, general and administrative expenses” line in the Consolidated Statements of Operations, primarily related to charges for impairment of our headquarters location sold in 2024.
• In addition to the charges discussed above, the following restructuring and other action-related charges are primarily reflected in the “Selling, general and administrative expenses” line in the Consolidated Statements of Operations in 2024 and 2023:
◦ Headcount actions and related severance charges related to operating model initiatives.
◦ Fees for professional services that primarily include consulting and advisory services related to restructuring activities.
◦ Technology charges related to the implementation of our technology modernization initiative including the implementation of a global enterprise resource planning platform.
◦ The loss on sale of business and classification of assets held for sale related to the sale of our U.S. Sheer Hosiery business, which was sold to AllStar in 2023. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding the U.S. Sheer Hosiery business.
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• Restructuring and other action-related charges recorded in the “Other expenses” and “Interest expense, net” lines in the Consolidated Statements of Operations included the following:
◦ In 2024, we recorded a charge of $9 million in the “Other expenses” line for the write-off of unamortized debt issuance costs related to the requirement to pay down a portion of our outstanding term debt under the Senior Secured Credit Facility with the net proceeds from the sale of the global Champion business.
◦ In 2023, we recorded a charge of nearly $9 million in restructuring and other action-related charges related to the redemption of our 4.625% Senior Notes and 3.5% Senior Notes. The charge, which is recorded in the “Other expenses” line, included a payment of nearly $5 million for a required make-whole premium related to the redemption of the 3.5% Senior Notes and a non-cash charge of nearly $4 million for the write-off of unamortized debt issuance costs related to the redemption of the 4.625% Senior Notes and the 3.5% Senior Notes.
◦ Additionally, in 2023, in connection with the redemption of the 3.5% Senior Notes, we unwound the related cross-currency swap contracts previously designated as cash flow hedges and the remaining gain in AOCI of $1 million was released into earnings at the time of settlement which is recorded in the “Interest expense, net” line. See Note “Financial Instruments and Risk Management” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
The components of restructuring and other action-related charges were as follows:
Years Ended
December 28,
December 30,
(dollars in thousands)
Restructuring and other action-related charges:
Supply chain restructuring and consolidation
Corporate asset impairment charges
Headcount actions and related severance
Professional services
Technology
Loss on sale of business and classification of assets held for sale
Other
Total included in operating profit
Loss on extinguishment and refinancing of debt included in other expenses
Gain on final settlement of cross currency swap contracts included in other expenses
Gain on final settlement of cross currency swap contracts included in interest expense, net
Total included in income (loss) from continuing operations before income taxes
Discrete tax benefit
Tax effect on actions
Total included in income tax (expense) benefit
Total restructuring and other action-related charges
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Consolidated Results of Operations — Year Ended December 30, 2023 (“2023”) Compared with Year Ended December 31, 2022 (“2022”)
Years Ended
December 30,
December 31,
Higher
(Lower)
Percent
Change
(dollars in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Other expenses
Interest expense, net
Income from continuing operations before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net loss
Net Sales
Net sales decreased 6% during 2023 compared to prior year primarily due to the continued macro-driven slowdown impacting consumer spending and the unfavorable impact from foreign currency exchange rates in our International business of approximately $49 million partially offset by growth within our U.S. innerwear categories from product innovation and the impact of prior year business disruption caused by the ransomware attack on the business in the second quarter of 2022.
Operating Profit
Operating profit as a percentage of net sales was 7.3% in 2023, representing an increase from 6.9% in the prior year. The operating margin rate improvement primarily resulted from approximately 105 basis points related to manufacturing time-out costs associated with our inventory reduction actions taken in 2022, approximately 100 basis points from the recovery of the business interruption insurance claim received in 2023 related to the ransomware attack which occurred in the second quarter of 2022 partially offset by approximately 175 net basis points of increased input costs and approximately 35 basis points of unfavorable sales mix. Included in operating profit were restructuring and other action-related charges of $23 million in 2023 and $55 million in 2022, which resulted in an improvement in operating margin rate of approximately 80 basis points.
Other Highlights
Other Expenses – Other expenses increased by $29 million in 2023 compared to prior year primarily due to higher funding fees for sales of accounts receivable to financial institutions with additional customers entering the programs and higher pension expense in 2023 along with charges of nearly $9 million incurred as a result of the redemption of the 4.625% Senior Notes and the 3.5% Senior Notes in 2023. The redemption charges related to the 4.625% Senior Notes and the 3.5% Senior Notes included a payment of nearly $5 million for a required make-whole premium related to the redemption of the 3.5% Senior Notes and non-cash charges of nearly $4 million for the write-off of unamortized debt issuance costs. See Note “Debt” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Interest Expense – Interest expense from continuing operations was higher by $82 million in 2023 compared to prior year, primarily due to a higher weighted average interest rate on our borrowings during 2023. The interest expense from continuing operations excludes $66 million and $26 million in 2023 and 2022, respectively, which was allocated to discontinued operations due to the requirement to pay down a portion of outstanding term debt under the Senior Secured Credit Facility with the net proceeds from the sale of the global Champion business. Additionally, in conjunction with the redemption of the 3.5% Senior Notes described in “Other Expenses” above, we unwound the related cross-currency swap contracts previously designated as cash flow hedges and the remaining gain in accumulated other comprehensive loss of $1 million was released into earnings at the time of settlement which partially offset interest expense in 2023. See Note “Financial Instruments” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information. Combined interest expense from continuing and discontinued operations increased $118 million in 2023 compared to 2022, primarily due to a higher weighted average interest rate on our borrowings during 2023. Our weighted average interest rate on our outstanding debt was 7.00% for 2023 compared to 3.79% for 2022.
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Income Tax Expense (Benefit) – In 2023, income tax benefit was $15 million, resulting in an effective income tax rate of (103.4)% and in 2022, income tax expense was $448 million, resulting in an effective income tax rate of 351.7%. Our effective tax rate for 2023 primarily differs from the U.S. statutory rate primarily due to one-time discrete tax adjustments. The higher effective tax rate for 2022 was primarily due to non-cash discrete tax charges for valuation allowances established against U.S. deferred tax assets and tax impairments in Switzerland which generated deferred tax liabilities during 2022.
Discontinued Operations – The results of our discontinued operations include the operations of our global Champion business, U.S.-based outlet store business and the Champion Japan business, which we reached the decision to exit in 2024, and the operations of our European Innerwear business which was sold on March 5, 2022. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Operating Results by Business Segment — Year Ended December 30, 2023 (“2023”) Compared with Year Ended December 31, 2022 (“2022”)
Net Sales
Years Ended
December 30,
December 31,
Higher
(Lower)
Percent
Change
(dollars in thousands)
International
Other
Total
Operating Profit and Margin
Years Ended
December 30,
December 31,
Higher
(Lower)
Percent
Change
(dollars in thousands)
International
Other
Corporate (1)
Total
(1) Corporate includes general corporate expenses, amortization of intangibles and restructuring and other action-related charges.
U.S. net sales decreased 2% compared to prior year primarily due to softer point-of-sale trends stemming from the macroeconomic pressures partially offset by growth from product innovation, increased space gains, pricing actions and lower sales in prior year due to business disruption caused by the ransomware attack in the second quarter of 2022.
U.S. operating margin rate was 15.3%, an increase from 15.0% in the prior year. The operating margin rate increase primarily resulted from approximately 145 basis points related to manufacturing time-out costs associated with our inventory reduction actions taken in 2022 and approximately 95 basis points of selective price increases partially offset by approximately 185 net basis points of increased input costs.
International
Net sales in the International segment decreased 8% compared to prior year primarily due to unfavorable foreign currency exchange rates and macroeconomic pressures impacting consumer spending in Australia. The unfavorable impact of foreign currency exchange rates decreased net sales approximately $49 million in 2023. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, decreased 3%. The impact of foreign currency exchange rates is calculated by applying prior period exchange rates to the current year financial results. We believe constant-currency information is useful to management and investors to facilitate comparison of operating results and better identify trends in our businesses.
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International operating margin rate was 11.7%, a decrease from 14.3% in the prior year. The operating margin rate decline primarily resulted from approximately 255 basis points of unfavorable business mix as consumers shifted to lower margin categories driven by the macroeconomic environment and approximately 115 net basis points of increased input costs partially offset by approximately 105 basis points of net cost reduction actions and efficiencies within our supply chain.
Other
Other net sales and operating margin rate decreased in 2023 as compared to the prior year, primarily as a result of decreased sales from our supply chain to the divested European Innerwear business and the resulting deleverage of selling, general and administrative expenses, respectively.
We continued certain sales from our supply chain to the European Innerwear business on a transitional basis after the sale of the business on March 5, 2022. These sales and the related profit are included in Other in all periods presented, as applicable and have not been eliminated as intercompany transactions in consolidation for the period when the European Innerwear business was owned by us. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Corporate
Corporate expenses were lower in 2023 compared to the prior year primarily due to lower restructuring and other action-related charges, business interruption insurance proceeds received and lower costs incurred during 2023 related to the ransomware attack which occurred during the second quarter of 2022, partially offset by an increase in information technology costs.
In 2023, we recognized a benefit related to business interruption insurance proceeds of approximately $24 million, of which approximately $23 million is reflected in the “Cost of sales” line and approximately $1 million is reflected in the “Selling, general and administrative expenses” line of the Consolidated Statements of Operations. We received total business interruption insurance proceeds of $26 million in 2023, a portion of which was recognized as an expected insurance recovery in 2022, primarily related to the recovery of lost profit from business interruptions. In 2022, we incurred costs of approximately $15 million, net of expected insurance recoveries, related to the ransomware attack. The costs, net of expected insurance recoveries, incurred during 2022 included approximately $14 million primarily related to supply chain disruptions, which are reflected in the “Cost of sales” line of the Consolidated Statements of Operations, and approximately $1 million primarily related to legal, information technology and consulting fees, which are reflected in the “Selling, general and administrative expenses” line of the Consolidated Statements of Operations.
Restructuring and other action-related charges within operating profit in 2023 and 2022 include:
• Supply chain restructuring and consolidation charges representing supply chain segmentation to restructure and position our distribution and manufacturing network to align with our demand trends.
• Headcount actions and related severance charges related to operating model initiatives.
• Professional services primarily including consulting and advisory services related to restructuring activities.
• Technology charges related to the implementation of our technology modernization initiative including the implementation of a global enterprise resource planning platform.
• The (gain) loss on sale of business and classification of assets held for sale related to the sale of our U.S. Sheer Hosiery business, which was sold to AllStar in 2023. See Note “Assets and Liabilities of Businesses Held for Sale” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding the U.S. Sheer Hosiery business.
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The components of restructuring and other action-related charges were as follows:
Years Ended
December 30,
December 31,
(dollars in thousands)
Restructuring and other action-related charges:
Supply chain restructuring and consolidation
Headcount actions and related severance
Professional services
Technology
Loss (gain) on sale of business and classification of assets held for sale
Other
Total included in operating profit
Loss on extinguishment and refinancing of debt included in other expenses
Gain on final settlement of cross currency swap contracts included in other expenses
Gain on final settlement of cross currency swap contracts included in interest expense, net
Total included in income (loss) from continuing operations before income taxes
Discrete tax (expense) benefit
Tax effect on actions
Total included in income tax (expense) benefit
Total restructuring and other action-related charges
Liquidity and Capital Resources
Cash Requirements and Trends and Uncertainties Affecting Liquidity
We rely on our cash flows generated from operations and the borrowing capacity under our credit facilities to meet the cash requirements of our business. In January 2023, we shifted our capital allocation strategy to utilize our cash from operations for payments to our employees and vendors in the normal course of business and to reinvest in our business through capital expenditures. We then utilize our free cash flow (cash from operations less capital expenditures) to pay down debt to bring our leverage back to a range that is no greater than two to three times on a net debt-to-adjusted EBITDA basis.
Based on our current expectations and forecasts of future earnings and cash flows, we believe we have sufficient cash and available borrowings to support our operations and key business strategies for at least the next 12 months and we currently believe our cash flows and available borrowings, together with our access to the capital markets, are sufficient to support our longer term liquidity needs as well.
Our primary financing arrangements are our Senior Secured Credit Facility, our 9.000% senior notes due in 2031 (the “9.000% Senior Notes”), our 4.875% senior notes due in 2026 (the “4.875% Senior Notes”) and our accounts receivable securitization facility due in 2025 (the “ARS Facility”). The Senior Secured Credit Facility consists of a $1 billion revolving loan facility due in 2026 (the “Revolving Loan Facility”), a senior secured term loan A facility due in 2026 (the “Term Loan A”), and a senior secured term loan B facility due in 2030 (the “Term Loan B”).
Our primary sources of liquidity are cash generated from global operations and cash available under our Revolving Loan Facility, our ARS Facility and our other international credit facilities.
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We had the following borrowing capacity and available liquidity under our credit facilities as of December 28, 2024:
As of December 28, 2024
Borrowing
Capacity
Available
Liquidity
(dollars in thousands)
Senior Secured Credit Facility:
Revolving Loan Facility (1)
ARS Facility (2)
Other international credit facilities (3)
Total liquidity from credit facilities
Cash and cash equivalents
Total liquidity
(1) A portion of the Revolving Loan Facility is available to be borrowed in Euros or Australian dollars. Available liquidity is reduced by standby and trade letters of credit issued and outstanding under this facility.
(2) Borrowing availability under the ARS Facility is subject to a quarterly facility limit of $175 million in the fourth quarter of 2024 and $125 million thereafter until the expiration date in May 2025 and permitted only to the extent that the face of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans.
(3) Available liquidity for other international credit facilities is reduced for any outstanding international letters of credit. The international letters of credit are not outstanding under any specific credit facility and do not reduce actual borrowing capacity under the specific credit facilities.
The following have impacted or may impact our liquidity:
• We have principal and interest obligations under our debt and ongoing financial covenants under those debt facilities.
• We used a combination of cash generated from operations and net proceeds from the sale of the intellectual property and certain operating assets of our global Champion business toward a net pay down of $1.0 billion of our total outstanding debt in 2024.
• The difficult global macroeconomic environment has had, and may continue to have, a negative impact on our business.
• Our Board of Directors eliminated our quarterly cash dividend as we shifted our capital allocation strategy in January 2023 to pay down debt to bring our leverage back to a range that is no greater than two to three times on a net debt-to-adjusted EBITDA basis. The declaration of any future dividends and, if declared, the amount of any such dividends, will be subject to our actual future earnings, capital requirements, regulatory restrictions, debt covenants, other contractual restrictions and to the discretion of our Board of Directors.
• We have invested in global growth initiatives, as well as marketing and brand building.
• We previously launched a series of multi-year cost savings programs and recently began implementing significant restructuring and consolidation efforts within our supply chain network, both manufacturing and distribution, as well as corporate cost and headcount reductions within continuing operations to drive stronger operating performance and margin expansion.
• We expect capital expenditures of approximately $65 million in 2025, including capital expenditures of $50 million within investing cash flow activities and cloud computing arrangements of $15 million within operating cash flow activities.
• In the future, when it aligns with our capital allocation strategy and absent any covenant restrictions, we may pursue strategic business acquisitions.
• We have completed and may pursue strategic divestitures, such as the recently completed Initial Closing of our global Champion business in the fourth quarter of 2024 on September 30, 2024 and the exit of our U.S.-based outlet store business in July 2024. In December 2024, the we finalized plans to exit the Champion Japan business and expect to complete the sale of the business within the next 12 months. Subsequent to the 2024 year ended, we completed the Deferred Closing of our global Champion business on January 31, 2025.
• We made total cash contributions of $15 million to our U.S Pension Plans in 2024, of which $10 million were required. We expect to make required cash contributions of $12 million to our U.S. pension plans in 2025 based on the preliminary calculation by our actuary. We may also elect to make additional voluntary contributions. Our U.S. qualified pension plans were both approximately 93% funded as of December 1, 2024 and 2023 under the Pension Protection Act funding rules.
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• We may increase or decrease the portion of the current-year income of our foreign subsidiaries that we remit to the United States, which could impact our effective income tax rate. We have not changed our reinvestment strategy from the prior year with regards to our unremitted foreign earnings and intend to remit foreign earnings totaling $65 million to the United States.
Future Contractual Obligations and Commitments
The following table contains information on our material contractual obligations and commitments at December 28, 2024, and their expected timing on future cash flows and liquidity.
Payments Due by Period
At December 28, 2024
Fiscal 2025
Fiscal
Fiscal
Fiscal
2030 and
Thereafter
(dollars in thousands)
Operating activities:
Interest on debt obligations (1)
Inventory purchase obligations
Operating lease obligations (2)
Defined benefit plan minimum contributions (3)
Tax obligations (4)
Other obligations (5)
Investing activities:
Capital expenditures
Financing activities:
Debt
Total
(1) Interest obligations on floating rate debt instruments are calculated for future periods using interest rates in effect at December 28, 2024.
(2) Material operating lease commitments that have been signed, but not yet commenced are included in operating lease obligations.
(3) Represents only the required minimum pension contributions to our U.S. qualified pension plans in the current year. We expect to make required cash contributions of $12 million to our U.S. pension plans in 2025 based on a preliminary calculation by our actuary. We may also elect to make additional voluntary contributions to maintain certain funded levels. For a discussion of our pension plan obligations, see Note “Defined Benefit Pension Plans” to our consolidated financial statements included in this Annual Report on Form 10-K.
(4) Represents current tax liabilities, uncertain tax positions and transition tax liabilities resulting from the Tax Cuts and Jobs Act.
(5) Primarily represents the projected payments for liabilities recorded on the Consolidated Balance Sheets for royalty-bearing license agreements, certain employee benefit obligations, information technology services, obligations under non-inventory-related purchase orders, deferred compensation and marketing and advertising obligations.
Sources and Uses of Our Cash
The information presented below regarding the sources and uses of our cash flows for the years ended December 28, 2024 and December 30, 2023 was derived from our consolidated financial statements.
Years Ended
December 28,
December 30,
(dollars in thousands)
Operating activities
Investing activities
Financing activities
Effect of changes in foreign exchange rates on cash
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Balances included in the Consolidated Balance Sheets:
Cash and cash equivalents
Cash and cash equivalents included in current assets held for sale
Cash and cash equivalents at end of period
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Operating Activities
Our overall liquidity has historically been driven by our cash flow provided by operating activities, which is dependent on net operating results and changes in our working capital. Cash from operating activities decreased from prior year as we experienced significant reductions in working capital in 2023, primarily driven by inventory reduction initiatives. In 2024, cash from operations was driven by margin expansion and continued discipline in managing working capital.
Investing Activities
Net cash provided by investing activities increased in 2024 primarily driven by $857 million proceeds received from the sale of our global Champion business on September 30, 2024, $12 million proceeds received from the sale of assets and lower capital expenditures in 2024. This was partially offset by the $19 million cash receipt for the final settlement of the cross currency swap contracts previously designated as net investment hedges in connection with the redemption of the 3.5% Senior Notes in 2023 and the exit of our U.S.-based outlet store business in July 2024 which resulted in a cash payment of $12 million.
Financing Activities
Net cash used by financing activities of over $1.0 billion in 2024 primarily resulted from net repayments of our total outstanding debt using a combination of cash generated from operations and net sale proceeds from the Initial Closing of the sale of the global Champion business. Net cash used by financing activities of $580 million in 2023 primarily resulted from a combination of refinancing our debt structure and net repayments on borrowings of $546 million on our debt facilities and payments $28 million to refinance our debt structure to provide greater financial flexibility given the uncertainty within the macroeconomic environment, which included a required make-whole premium of $5 million related to the redemption of the 3.5% Senior Notes and total capitalized debt issuance costs of $23 million related to the issuance of the 2023 Term Loan B and the 9.000% Senior Notes. See Note “Debt” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
Financing Arrangements
In September 2024, we amended the ARS Facility at which time the quarterly fluctuating facility line was reduced to $175,000 in the fourth quarter of 2024 and $125,000 thereafter until the expiration date in May 2025. ARS Facility borrowings are permitted only to the extent that the face value of the receivables in the collateral pool, net of applicable concentrations, reserves and other deductions, exceeds the outstanding loans. See Note “Debt” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
In May 2024, we amended the ARS Facility. This amendment extended the maturity date to May 2025 with no change to the quarterly fluctuating facility limit, which was $225 million as of December 28, 2024. Additionally, the amendment removed the two pricing tiers that were added in the previous amendment, reverting back to a single tier pricing structure. See Note “Debt” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
In November 2023, given the continuing uncertain economic environment and the associated potential impact on future earnings, we amended the credit agreement governing the Senior Secured Credit Facility prior to any potential future covenant violation in order to modify the financial covenants and to provide greater strategic financial flexibility. See Note “Debt” to our consolidated financial statements and “Liquidity and Capital Resources” included in this Annual Report on Form 10-K for additional information.
In June 2023, we amended the ARS Facility. This amendment extended the maturity date to May 2024 with no change to the quarterly fluctuating facility limit, which was $225 million as of December 28, 2024. Additionally, the amendment created two pricing tiers based on a consolidated net total leverage ratio of 4.50 to 1.00. See Note “Debt” to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.
In February and March of 2023, we refinanced our debt structure to provide greater financial flexibility given the uncertainty within the global macroeconomic environment. The refinancing consisted of entering into the 2023 Term Loan B, issuing the 9.000% Senior Notes and redeeming the 4.625% Senior Notes and the 3.5% Senior Notes. See Note “Debt” to our consolidated financial statements and “Liquidity and Capital Resources” included in this Annual Report on Form 10-K for additional information.
We believe our financing structure provides a secure base to support our operations and key business strategies. As of December 28, 2024, we were in compliance with all financial covenants under our credit facilities and other outstanding indebtedness. Under the terms of the Senior Secured Credit Facility, among other financial and non-financial covenants, we are required to maintain a minimum interest coverage ratio and a maximum total debt to EBITDA (earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility), or leverage ratio, each of which is defined in the Senior Secured Credit Facility. The method of calculating all of the components used in the covenants is included in the Senior Secured Credit Facility.
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We expect to maintain compliance with our covenants, as amended, for at least 12 months from the issuance of these financial statements based on our current expectations and forecasts, however economic conditions or the occurrence of events discussed under Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K or other SEC filings could cause noncompliance. If economic conditions worsen or our earnings do not recover as currently estimated by management, this could impact our ability to maintain compliance with our amended financial covenants and require us to seek additional amendments to the Senior Secured Credit Facility. If we are not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, our lenders could require us to repay our outstanding debt. In that situation, we may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.
For further details regarding our liquidity from our available cash balances and credit facilities see “Cash Requirements and Trends and Uncertainties Affecting Liquidity” above.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to report our operating results and financial condition in conformity with accounting principles generally accepted in the United States. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K.
The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our consolidated financial statements, or are the most sensitive to change from outside factors, are described below:
Sales Recognition and Incentives
We recognize revenue when obligations under the terms of a contract with a customer are satisfied, which occurs at a point in time, upon either shipment or delivery to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods, which includes estimates for variable consideration. We record provisions for any uncollectible amounts based upon our historical collection statistics and current customer information. Our management reviews these estimates each quarter and makes adjustments based upon actual experience.
Note “Summary of Significant Accounting Policies — (d) Sales Recognition and Incentives” to our consolidated financial statements included in this Annual Report on Form 10-K describes a variety of sales incentives that we offer to resellers and consumers of our products. Measuring the cost of these incentives requires, in many cases, estimating future customer utilization and redemption rates. We use historical data for similar transactions to estimate the cost of current incentive programs. Our management reviews these estimates each quarter and makes adjustments based upon actual experience and other available information. We classify the costs associated with cooperative advertising as a reduction in the “Net sales” line in our Consolidated Statements of Operations.
Accounts Receivable Valuation
Accounts receivable consist primarily of amounts due from customers. We carry our accounts receivable at net realizable value. In determining the appropriate allowance for doubtful accounts, we evaluate our receivables on a collection (pool) basis which are aggregated based on similar risk characteristics and consider a combination of factors, such as historical losses, the aging of trade receivables, industry trends, and our customers’ financial strength, credit standing and payment and default history. Changes in the characteristics of our accounts receivable and the aforementioned factors, among others, are reviewed quarterly and may lead to adjustments in our allowance for doubtful accounts. The calculation of the required allowance involves judgment by our management as to the impact of these and other factors on the ultimate realization of our trade receivables. Charges to the allowance for doubtful accounts are reflected in the “Selling, general and administrative expenses” line and charges to the allowance for customer chargebacks and other customer deductions are primarily reflected as a reduction in the “Net sales” line in our Consolidated Statements of Operations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required in the future. The amount of actual historical losses has not varied materially from our estimates for bad debts.
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Inventory Valuation
We carry inventory on our balance sheet at the estimated lower of cost or market. Cost is determined by the first-in, first-out, or “FIFO,” method for our inventories. We carry obsolete, damaged and excess inventory at net realizable value, which we determine by assessing historical recovery rates, current market conditions and our future marketing and sales plans. Because our assessment of net realizable value is made at a point in time, there are inherent uncertainties related to our value determination. Market factors and other conditions underlying net realizable value may change, resulting in further reserve requirements. A reduction in the carrying amount of an inventory item from cost to market value creates a new cost basis for the item that cannot be reversed at a later period. While we believe that adequate write-downs for inventory obsolescence have been provided in the consolidated financial statements, consumer tastes and preferences will continue to change and we could experience additional inventory write-downs in the future.
Rebates, discounts and other cash consideration received from a vendor related to inventory purchases are reflected as reductions in the cost of the related inventory item, and are therefore reflected in the “Cost of Sales” line in our Consolidated Statements of Operations when the related inventory item is sold.
Income Taxes
Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the income tax basis of our assets and liabilities, as well as for realizable operating loss and tax credit carryforwards, at tax rates in effect for the years in which the differences are expected to reverse. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions, the amount and timing of which are uncertain, and on possible changes in tax laws and tax planning strategies. If in our judgment it appears that it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against our deferred tax assets, which increase income tax expense in the period when such determination is made.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. These assessments of uncertain tax positions contain judgments related to the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or further interpretations of tax laws and regulations. Income tax expense is adjusted in our Consolidated Statements of Operations in the period in which these events occur.
Trademarks and Other Identifiable Intangibles
Trademarks, license agreements, customer and distributor relationships and computer software are our primary identifiable intangible assets. We amortize identifiable intangibles determined to have finite lives over their estimated useful lives, and we do not amortize identifiable intangibles with indefinite lives. As of December 28, 2024, the net book value of trademarks and other identifiable intangible assets was $886 million, of which we are amortizing a balance of $36 million. We anticipate that our amortization expense for 2025 will be approximately $15 million.
We evaluate identifiable intangible assets subject to amortization for impairment if triggering events occur, such as significant adverse changes in business climate, several periods of operating or cash flow losses, forecasted continued losses or a current expectation that an intangible asset’s value will be eliminated prior to the end of its useful life. We estimate an intangible asset’s useful life based on historical experience, the level of maintenance expenditures required to obtain future cash flows, future business plans and the period over which the asset will be economically useful to us. Our policies require that we periodically review our assets’ remaining depreciable lives based upon actual experience and expected future utilization. A change in the depreciable life is treated as a change in accounting estimate and the accelerated amortization is accounted for in the period of change and future periods.
We assess identifiable intangible assets not subject to amortization for impairment at least annually, as of the first day of the third fiscal quarter, and additionally if triggering events occur. In order to determine the impairment of identifiable intangible assets, we compare the fair value of the intangible asset to its carrying amount. Fair values of intangible assets are primarily based on future cash flows projected to be generated from that asset. We recognize an impairment loss for the amount by which an identifiable intangible asset’s carrying value exceeds its fair value.
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In connection with the annual intangible assets impairment analysis performed in the third quarter of 2024, we performed a quantitative assessment utilizing an income approach to estimate the fair values of certain indefinite-lived intangible assets. The most significant assumptions used to estimate the fair values of the indefinite-lived intangible assets included weighted average cost of capital, revenue growth rate, terminal growth rate and operating profit margin rate. While the analysis indicated that those indefinite-lived intangible assets had fair values that exceeded their carrying value, we noted a meaningful decline in the fair value cushion above the carrying value for one of the indefinite-lived trademarks with the Australian business. The decline in this trademark was driven by continued macroeconomic pressures impacting consumer spending in Australia and resulting in a fair value that exceeded the carrying value by approximately 10% at the time the analysis was performed. As a result, this trademark was considered to be at a higher risk for future impairment if economic conditions worsen or earnings and operating cash flows do not recover as currently estimated by management. As of December 28, 2024, the carrying value of this trademark was $218 million, which is reflected in the “Trademarks and other identifiable intangibles, net” line in the Consolidated Balance Sheets. The results of our annual intangible assets impairment analysis are discussed in Note “Intangible Assets and Goodwill” to our consolidated financial statements included in this Annual Report on Form 10-K.
Goodwill
As of December 28, 2024, we had $638 million of goodwill. We do not amortize goodwill, but we assess for impairment at least annually and additionally if triggering events occur. The timing of our annual goodwill impairment analysis is the first day of the third fiscal quarter. In evaluating the recoverability of goodwill, we estimate the fair value of our reporting units. We rely on a number of factors to determine the fair value of our reporting units and evaluate various factors to discount anticipated future cash flows, including operating results, business plans and present value techniques. As discussed above under “Trademarks and Other Identifiable Intangibles,” there are inherent uncertainties related to these factors, and our judgment in applying them and the assumptions underlying the impairment analysis may change in such a manner that impairment in value may occur in the future. Such impairment will be recognized in the period in which it becomes known.
In connection with the annual goodwill impairment analysis performed in the third quarter of 2024, we performed a quantitative assessment utilizing an income approach to estimate the fair value of each reporting unit. The most significant assumptions used to estimate the fair values of the reporting units include the weighted average cost of capital, revenue growth rate, terminal growth rate and operating profit margin rate. We completed our annual quantitative impairment analysis for each reporting unit and the respective goodwill balances. The analysis indicated that all reporting units had fair values that exceeded their carrying values by more than 20% at the time the analysis was performed. Although we determined that no impairment existed for our goodwill as of the date the analysis was performed in the third quarter of 2024, these assets could be at risk for future impairment due to changes in our business or global economic conditions. The results of our annual goodwill impairment analysis are discussed in Note “Intangible Assets and Goodwill” to our consolidated financial statements included in this Annual Report on Form 10-K.
Defined Benefit Pension Plans
For a discussion of our defined benefit pension plans and the related net periodic benefit cost, plan obligations, plan assets and how we measure the amount of these costs, see Note “Defined Benefit Pension Plans” to our consolidated financial statements included in this Annual Report on Form 10-K. The funded status of our defined benefit pension plans are recognized on our balance sheet. Differences between actual results in a given year and the actuarially determined assumed results for that year are deferred as unrecognized actuarial gains or losses in comprehensive income. We measure the funded status of our plans as of the date of our fiscal year end.
The net periodic benefit cost of the pension plans is determined using projections and actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return. The net periodic pension income or expense is recognized in the year incurred. Gains and losses, which occur when actual experience differs from actuarial assumptions, are amortized over the average future expected life of participants. As benefits under the U.S. defined benefit pension plans, which includes the Hanesbrands Inc. Legacy Pension Plan and the Hanesbrands Inc. Pension Plan (together, the “U.S. Pension Plans”), are frozen, year over year fluctuations in our pension expense are not expected to have a material impact on our Consolidated Statements of Operations.
Our policies regarding the establishment of pension assumptions are as follows:
• Discount rate assumptions are generally based on yield curves applicable to each country and the expected cash flows for each plan. For our U.S. Pension Plans, we use the full series of spot rates along the Aon AA-Only Above Median Yield Curve and expected plan cash flows to determine liabilities and expense. Single equivalent discount rates are shown for disclosure purposes.
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• Salary increase assumptions, where applicable, are generally based on historical experience and management expectations. This assumption is not applicable to the U.S. or Canada SERP as benefits under these plans are either frozen or not tied to pay. The benefits under the U.S. Pension Plans were frozen as of December 31, 2005.
• Long-term rate of return on plan assets assumptions, where applicable, are generally based on each plan’s investment mix and forward-looking capital market assumptions applicable to each country. Expected returns also reflect an incremental premium for actively managed investments and a reduction for trust-paid expenses. This assumption is not applicable to unfunded plans.
• Retirement and turnover assumptions are generally based on actual plan experience while standard actuarial mortality tables applicable to each country are used to estimate life expectancy. For our U.S. Pension Plans, the 2024 mortality tables are from the Society of Actuaries’ Private Plan study published in 2019 (Pri-2012) projected generationally with Scale MP-2021 and reflecting Aon’s Endemic scale adjustment, which increases the standard mortality rates in the near term due to the impact of the pandemic in the U.S., scaling down each year to a permanent slight increase to the standard mortality rates.
The sensitivity of changes in actuarial assumptions on our annual pension expense and on our plans’ benefit obligations, all other factors being equal, is illustrated by the following:
Increase (Decrease) in
Pension
Expense
Benefit
Obligation
(in millions)
1% decrease in discount rate
1% increase in discount rate
1% decrease in expected investment return
1% increase in expected investment return
Recently Issued Accounting Pronouncements
For a summary of recently issued accounting pronouncements, see Note “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Annual Report on Form 10-K.
