T.C. Robillard - Vice President-Investor Relations Richard A. Noll - Chairman & Chief Executive Officer Gerald W. Evans - Chief Operating Officer Richard D. Moss - Chief Financial Officer.

Eric Tracy - Brean Capital, LLC Omar Saad - Evercore ISI Susan K. Anderson - FBR Capital Markets & Co. Christian Roland Buss - Credit Suisse Securities (USA) LLC (Broker) Jay Sole - Morgan Stanley & Co. LLC Chad H. Sutherland - Goldman Sachs & Co. Michael Binetti - UBS Securities LLC David J. Glick - The Buckingham Research Group, Inc.

John Kernan - Cowen & Co. LLC Ike Boruchow - Wells Fargo Securities LLC Anna Andreeva - Oppenheimer & Co., Inc. (Broker) Joan Payson - Barclays Capital, Inc. Kate McShane - Citigroup Global Markets, Inc. (Broker) Jim V. Duffy - Stifel, Nicolaus & Co., Inc. Michael Kawamoto - D. A. Davidson & Co. Steven L. Marotta - C.L. King & Associates, Inc..

Good day, ladies and gentlemen. And welcome to the HanesBrands Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to hand the conference over to T.C. Robillard, Chief Investor Relations Officer. Please go ahead, sir..

Good day, everyone, and welcome to the HanesBrands' quarterly investor conference call and webcast. We're pleased to be here today to provide an update on our progress after the fourth quarter of 2015. Hopefully, everyone has had a chance to review the news release we issued earlier today.

The news release and the replay of the call can be found in the Investors section of our hanes.com website. On the call today, we may make forward-looking statements, either in our prepared remarks or in the associated question-and-answer session.

These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks are detailed in our various filings with the SEC and may be found on our website as well as in our news releases.

The company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made. Unless otherwise noted, today's references to our consolidated financial results as well as our 2016 guidance exclude all one-time charges and expenses.

Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's press release. With me on the call today are Rich Noll, our Chief Executive Officer; Gerald Evans, our Chief Operating Officer; and Rick Moss, our Chief Financial Officer.

For today's call, Rich will focus on a few big picture themes, Gerald will focus on key highlights within our business operations, and Rick will focus on certain financial aspects of our results. I will now turn the call over to Rich..

Thank you, T.C. 2015 was another record year for Hanesbrands. We grew revenue 8%, operating profit 13%, and earnings per share 17%, once again, magnifying our growth rates as you walk down the P&L and we intend to do it again in 2016.

While these are great results, make no mistake, they're not up to the high standards to which we hold ourselves at Hanesbrands. We did not fully deliver on our Q4 commitments. While Q4 was impacted by the well-publicized retail traffic declines, frankly, we struggled a bit on the sales line all last year.

So, it's time to refine our approach and regain our sales momentum. We have a variety of focused initiatives designed to reenergize sales. These initiatives, which Gerald will highlight, give us confidence in our ability to firmly deliver our 2016 revenue target. We also expect another year of double-digit earnings growth, growing EPS 11% to 15%.

Importantly, we can achieve the low end of this range, just with our expected acquisition synergies, our historical level of SG&A leverage and the projected contribution from share repurchases.

In terms of cash flow, we have several action plans in place that put us on track to generate up to $850 million this year, which would be the highest level in our history. To put this in perspective, this is the amount of cumulative cash flow we generated in the first three years as a public company.

Turning to acquisitions, both DBA, now renamed Hanes Europe, and Knights Apparel continue to perform extremely well. Operating results were above plan, the integrations are progressing on schedule, and we are on target to deliver $40 million in synergies this year. And as I mentioned last quarter, we have turned our attention to 2016 acquisitions.

A number of variables obviously need to fall into place, but with the integration of Knights Apparel and Hanes Europe now in full swing, we have the bandwidth to take on additional acquisitions.

So, in closing, we are refocusing on driving our top-line and we are well positioned for another year of double-digit EPS growth, with upside provided by potential future acquisitions. And with that, I'll turn the call over to Gerald..

Thanks, Rich. We have a lot of things working very well in our business, such as our innovations, our supply chain efficiencies, our margin enhancement strategies, and our acquisitions. And this is evidenced by three consecutive years of double-digit growth in both operating profit and earnings per share.

However, the fourth quarter did not turn out as we had expected. Retail traffic declined at high single-digit rates in November and the first three weeks of December driven by one of the warmest holidays on record. The prolonged traffic decline weighed on point-of-sale trends, even in our Innerwear products as there were fewer people in the stores.

This caused retailers to pull back on their orders, which in turn impacted our shipments for the quarter. The impact was across all channels, and relative to our expectations, it was split between our Innerwear and Activewear segments.

Relative to last year, the lion's share of the decline was in Activewear as Innerwear sales were down only 2% in the quarter. As retail traffic improved in the last two weeks of December and into January, so did our point-of-sale trends.

Looking at January, our basics' POS is up low single-digits month-to-date, while Champion in the sporting goods, mid-tier and department store channels is up low double-digits. While weather affected Q4 and our POS is rebounding from that, our core business in 2015 was essentially flat for the year.

And I'm not at all satisfied with that level of performance. So, we're being proactive by putting in place several focused initiatives to drive improved revenue growth in 2016 and beyond. And this is something I am committed to deliver.

Let me take you through why I'm so confident that we can achieve our sales guidance for 2016, which calls for growth of 1% on the low end of the range and 3% on the high end.

To reach the low end of our range, we only need about $70 million of incremental sales, which we should be able to hit with the $50 million from acquisition contributions and the absence of last year's $50 million to $60 million of Innerwear headwinds from the retail inventory destocking and our Intimates brand transition, partially offset by approximately $40 million in currency headwinds.

From there, the execution of our various sales initiatives, as well as a more normalized Q4 represents another $100 million to $150 million in revenue opportunity that could put us at or above the high end of our range. There is four specific sales initiatives that I have the organization focused on delivering.

One, continue to drive Innovate-to-Elevate by expanding space of our successful innovation platforms such as X-Temp. Two, apply Innovate-to-Elevate to our core products by driving innovation and making the right investments to deliver better volume growth.

Three, continue to accelerate growth online and build upon our leading market share positions across all of our brands. And four, deliver product enhancements and Champion across all channels.

With my focus on reenergizing sales growth, I want to emphasize that these efforts and investments will still come with the same focus on profitability and cash flow generation.

And you can see that in our guidance which calls for roughly 100 basis points of operating margin expansion driven by our acquisition synergies, as well as our continued focus on effectively managing our SG&A. We also intend to deliver record level of cash flow this year.

Rick will walk you through the various drivers of our cash flow, but let me talk to the largest contributor, inventory.

To bring our inventory level down in a cost-efficient manner, we will need to make small adjustments to our manufacturing production schedule, which we will do by taking a little time out internalizing additional production and by drawing down our raw materials and work-in-process. So in closing, our brand is strong. Our innovation is working.

We're expanding our margins and we're generating significant synergies from acquisitions. Add to this the heavy focus I have on executing our sales initiatives and I feel really good about our ability to deliver another year of double-digit earnings growth in 2016. I'll now turn the call over to Rick..

use our cash flow to fund capital investments and our dividend, use debt for acquisitions, and use excess free cash flow to buy back stock. So, in summary, we generated significant shareholder value over the past several years.

And with our focus on driving sales growth along with our continued execution on expanding our margins, we're well positioned to deliver another year of double-digit EPS growth. Add to that about $800 million in expected cash flow as well as upside from potential acquisitions, and we feel really good about 2016.

And with that, I'll turn the call back over to T.C..

Thanks, Rick. That concludes our prepared remarks. We will now begin taking your questions and we'll continue as time allows. Since there may be a number of you who would like to ask a question, I'll ask that you limit yourself to one question and a single follow-up and then re-enter the queue to ask any additional question.

I will now turn the call back over to the operator to begin the question-and-answer session.

Operator?.

Thank you. Our first question comes from the line of Eric Tracy from Brean Capital..

Hey, guys. Good afternoon..

Hey, Eric..

Rich and I guess Gerald for you, if we could just dig a little bit deeper on the 4Q revs both from an environment and consumer perspective, walk us through a little bit more how you discern between weather versus just outright weaker traffic or something more structural going on that gives you comfort that we should expect that acceleration into 2016..

Yeah. So, let me talk a little bit about Q4 and then I'll also let Gerald talk about the initiatives going into 2016. You go back to October, it was cold, things were looking really good. November, December came, it was the third warmest November and December since 1895 and December was actually the warmest.

And you could actually see the correlation as temperature got above normal, retail traffic dropped and then we saw it impact our POS. So, I think a lot of it was clearly impacted by that. How much is overall consumer spending? You can't really tell, but clearly I think it was a very unusual holiday period.

That said, you expect it to be in our cold weather Activewear areas, it was. That was down about 12% in the quarter, but it was so strong it actually impacted Innerwear, which when you take out the 53rd week was actually down 2% in the quarter.

The good thing is, we started to see it rebound in December going into January, and I'll turn it over to Gerald to talk a little bit more about initiatives to drive results in 2016..

So, as we look forward, we really have a focused set of initiatives that we've built on proven tactics to better drive consistent top-line over time. And really the focus is in two areas.

First, we are going to keep doing what's working and that clearly is Innovate-to-Elevate is working, our innovation platforms like X-Temp and our elevated product in Champion are all driving sales increases and we're gaining additional space that we will have going in place for 2016.

There are two areas though where we will refine our strategies a bit. One is in the area of accelerating our growth online. The online channel continues to grow very rapidly in apparel now, 18% of apparel sales are online. We are well positioned there.

Our brands hold leading shares already, and our sales, while 7% of our sales are done online today, they are also growing at a double-digit rate. And actually one of our largest customers and our eighth largest customer is a large pure-player, that sales online is growing at approximately 70% rate.

So, we are going to invest more resources to drive this business faster, both people – we are dedicating more people resources, as well as marketing investment to maximize our position in this channel. Secondly, we are rebalancing our focus a bit on driving our core volume. And really in two areas.

If we look at our core business, we've stayed behind our core innovations such as Tagless for a number of years, in our underwear business, for example. And it's time to drive new innovation there. So, you will see innovation coming across our core basics business late in 2016 and into 2017.

And secondly, you will see us rebalancing our media to focus more balanced across both the core and our innovation platforms over time. We think these are good strategies that take the best of what we're doing and moderately refines our strategy against basics and gives us confidence that we're well positioned to deliver on our guidance for 2016..

And I guess my follow-up would be, just in terms of the cash flow, you've got working cap expected to go down pretty significantly.

Just walk through the inventory drawdown, the potential for sort of downtime within manufacturing, how should that impact? And then ultimately on the stepped up cash flow for next year, Rich, maybe just again highlight the acquisition environment, and the pipeline of things that you guys are potentially looking at? Thanks..

Let me start with the inventory drawdown portion of it. Let me just say, first of all, that our inventory levels are high, but the quality is good, as Rick noted. And so, we have good quality, but we'd like to see those levels lower, and we'll take actions to draw that down through the year. And we'll do that through a few ways.

First, we always look at where we can is first cutting off outsource production. And second, is we will take a week or so of time out in our internal production.

And finally, we will drawdown our work-in-process and raw materials, and Rick referred to some of that last year, we had built up some of that for the internalization of DBApparel, and we'll continue to draw that down over the years, we pull our inventories back in line..

Yeah. Eric, let me just say this. We've been through the inventory with a fine-tooth comb, so we can stay with a high degree of confidence, there is no markdown risk here, very confident of that. There will be some cost early in the year associated with these actions that Gerald's talked about. We built that into our guidance..

So I think, there was a third question in there Eric that I'll ask is, you went from inventory all the way to acquisitions, but I'll go ahead and discuss that. Acquisitions is working great for us. There is no ifs, ands or buts. We're doing well with Maidenform.

We're still seeing a little bit of the last synergies in 2016, Knights Apparel and Hanes Europe are working extremely well, both beat their plans in 2015, who are in full swing to reap acquisition synergy benefits and so, we feel really good about it.

And we've now got the bandwidth to start looking for our next set of acquisitions, and it's part of our strategy and will be part of our strategy, and feel really good about where we are..

Thanks, guys..

Yeah..

Thank you. And our next question comes from the line of Omar Saad from Evercore ISI..

Thanks. Good afternoon. Tough quarter. Can you talk about – did you guys see anything at the retail level in terms of a sell-through in the Innerwear category? It's one of the lower numbers you posted even when you back out all the non-comparable items and FX and acquisitions.

Between the Intimates category versus the basics, men's versus women's, is there anything you can glean there to help understand what's going? Or is it really just such a broad-based kind of across the board slowdown in the revenue line?.

Well, I think when you back out the 53rd week, the Innerwear category in general was down about 2% year-on-year. And clearly it was tied to the fall off in traffic, and we saw it fall off late in December as traffic caught up with those replenishment trends.

I think from the standpoint of looking forward, we saw the POS begin to rebuild as traffic built late into holiday and into January. We've seen our basics' POS for example rise into low-single digits. I would say that, as you look through the data you can see that in the bra business, for example, we came off a strong third quarter.

Our fourth quarter, when you back out the 53rd week, that business was actually flat in the quarter in spite of the traffic. So, it gives us strong confidence in our brand consolidation strategy and certainly optimistic it will drive that forward..

And Omar, let me talk about channel a little bit, because this was really broad-based. We saw it across all channels of trade.

I will say however, it was probably a little bit more concentrated in mid-tier and department stores, which if you just think of what they're offering is, it's probably going to be a little bit more weather driven than some of the mass. But it was pretty darn strong across the board, the impact of traffic declines..

Good.

Does Gerald's comment around Intimates, is that saying something about the basics and the men's side of it and maybe the Innovate-to-Elevate there's a little bit long in the tooth and ready for some new stuff to come in or are you comfortable where you're at?.

No, I think it's just the opposite. If you remember in the first half of the year, we're struggling a little bit in Intimates because we're going through the brand transition. We said a lot of that was behind us at sort of late summer.

You saw a really good strong third quarter results and then in bras in particular when you back out the 53rd week, we actually had good strong momentum and Gerald actually think it was up slightly in the quarter when you back out the 53rd week.

So, I think just tactically we were just better set up there because of some of the things that have happened earlier in the year. I wouldn't read into it negatively about basics..

Got it, got it. Thanks, guys..

Thanks..

Thank you. And our next question comes from the line of Susan Anderson from FBR..

Hey, Susan..

Hey, how is it going? Good job in the tough environment. I wanted to follow-up on the DBA acquisition. So, it sounds like the integration is pretty much done now, how should we think about the flow through of synergies this year.

Is it going to be more back-end loaded, pretty equal throughout the year or how should we think about that?.

Yeah. We actually said the integration is really now just in full swing, so it's not done. I think we're well on our way. And so, you'll start to see synergies build this year going into 2017, and even into 2018. So, there's a lot of tailwinds to come from that; specifically about this year.

Rick, do you want to talk about the overall synergies?.

Sure. We expect about $40 million in synergies for the year. The bulk of it will be coming from DBA and Knights Apparel. And it will be a little bit backend loaded, more oriented towards SG&A as is often the case. The initial flow of synergies comes more in SG&A, then the cost for sales synergies come later..

Got it. Okay. And then just one follow-up on the Activewear category, maybe just digging a little bit deeper.

So it sounds like you guys feel like it's pretty much weather issues out there, I guess investors have been trying to kind of figure out, is this category slowing just given a lot of excess that we've seen out there across a number of brands, maybe if you can talk about how you feel about the category in general going forward this year?.

Yeah, we still feel bullish about the category. And certainly, the Champion brand ended up at mid single-digits in the sports specialty and mid-tier and department store channels. For the year, it was running well above that through Q3, and then it fell off as the weather related pressures hit our replenishment in that business.

But as we look forward in our bookings and so forth into spring, we're very optimistic about where that business is going and expect it to be in that 10%-plus growth range. And there's early signs of recovery in the POS and the mass channel as well. So we're very optimistic about the category going forward..

Thank you. And our next question comes from the line of Christian Buss from Credit Suisse..

Yes. Hello. I was wondering if you could talk a little bit about how you're thinking about acquisitions.

What types of acquisitions are you looking at? What regions and what categories would you want to enter?.

Yes. I know you're pretty familiar with our four criteria, but for those who might not be, I'll just quickly restate them. Obviously in our core categories, complementary revenue growth opportunities, justifiable on the synergies, mainly supply chain, but also SG&A and quickly accretive. After that, we don't have necessarily a prioritization.

Anything that falls through that screen would be a viable candidate. So it would either be Innerwear or Activewear, both domestic and international. And I think over time you'll see us have opportunities along all of those dimensions, both Innerwear, Activewear, domestic and international.

In terms of the near-term, we're always talking to people and working on things, and as soon as we get a deal signed, we'll let you all know..

Thank you very much.

As a follow-up, could you talk a little bit about e-commerce and how you're thinking about the e-commerce part of your business as it develops, given the challenges we're seeing at retail from a traffic standpoint, from an underlying sell-through standpoint?.

Yes, let me just give you a couple of big picture things and I'll turn it over to Gerald to talk about some more of the specifics and reiterate some of his comments from earlier.

When you talk about Q4 and you talk about online, I think, a lot of people have also asked, is some of the retail traffic declines driven by channel shift from bricks-and-mortar retailers to online? Holiday was tough for everyone.

And, in fact, some of our large Internet pure-play businesses, the growth rates, while they were still strong, were cut by two-thirds in the fourth quarter. So everybody was feeling the impacts of a soft holiday. So while that shift may be going on, I think, we just need to keep that in perspective.

But online here, it's growing, it's growing with our traditional retailers, it's growing through our own efforts and we're also working with pure-plays, and so it clearly needs to be a big area of focus. And Gerald, do you want to highlight a couple of specific things that you're doing..

Yes, I think, first of all, we're really well positioned. Our brands are well positioned in the channel itself. And we're working very carefully with across bricks-and-mortar as well as pure-plays on our own sites to drive the business across all those channels, leveraging our position, our brands and our marketing investments.

And as I referenced, certainly with the major pure player, we've seen significant growth. And we expect our overall growth, as we work across all these players, to grow at a double-digit rate going forward to really drive our business..

Thank you. And our next question comes from the line of Jay Sole from Morgan Stanley..

Hi, good afternoon..

Hi, Jay..

So a question on the operating margin guidance for 2016, I think, in the FAQ document it says the midpoint of the 2016 guidance implies a 100 basis-point increase in operating profit margin, with more coming from SG&A than gross margin. Can you talk about, within gross margin, obviously, cotton, oil should be benefits.

Maybe FX in some of the Asian currencies should be a help. It sounds like one offset is the inventory reductions. But is there any other offsets there? It sounds like the inventory is relatively clean, so you're not kind of anticipating big markdowns.

Can you just talk about some of the more levers and drivers of gross margin in 2016?.

Sure. I think you're going to see a lot of same sorts of things that you've seen in the past. You've got manufacturing cost savings that will flow through, and that will be offset somewhat by the costs associated with the inventory reduction.

And so we think that the gross profit margin improvement should be a little more modest than what we've seen in recent years. But, remember, the recent years have been distorted a little bit by things like DBA's P&L structure, which has much higher gross profit margins and much higher SG&A.

We've now seen that flow through our P&L and it's now a part of who we are. So we think basically the same drivers, just a little more modest growth than what we've seen..

Yes. And I just want to say that – and thank you for focusing on the operating margin improvement, first, because I just think that is just a fabulous result.

And while it may come a little differently spread in 2016 than it has historically, our business model continues to perform extremely well and we're thrilled with that kind of margin improvement..

500 basis points of operating profit margin improvement since 2012 is not bad..

You can tell we're proud..

Definitely. A 100 basis-point improvement in this environment is terrific.

Maybe just to follow-up on that, can you talk about the company's ability to react quickly to changes, say, in the RMB and different aspects of the cost structure that could allow you to maybe go back and find some savings there?.

Well, in terms of our exposure to RMB, one of the benefits of making the vast majority of what we sell is we're not nearly as dependent on the RMB as a lot of apparel companies who source heavily from that part of the world. And so, to be honest with you, it's really not that big of a driver. Plus what we do source from China, we do in U.S. dollars.

So it has less of an impact on us than on a lot of other apparel companies..

Thank you. And our next question comes from the line of Taposh Bari from Goldman Sachs..

Hi. This is Chad Sutherland on for Taposh. First question, just hoping to dig a little deeper on the quarter-to-date commentary.

When you talk about Basics and Champion both being up, is that relatively broad-based and just any detail you'd care to provide on that?.

I think your question is about the POS trends. As the traffic lifted coming through the holiday week into January, we did see a positive lift in POS, and that's what we've seen today. It's early days, but it's certainly favorable and follows the traffic..

Okay. That makes sense. And then any additional detail? I saw in the FAQ document, the acquisition in Japan related to the Champion brand.

I guess, can you talk maybe a little bit about that? And then is it possible to get a breakdown of what other markets maybe there are opportunities around Champion, I guess what markets you're present in in Asia?.

Yes. So, in Japan, we had a licensee for a long period of time. We actually did some of the Champion sales ourselves, but it was with a licensee and we started working with them to actually reacquire the rights, and actually the deal was done last year and it actually starts to flow into 2016. It's relatively small. It's good size for that market.

We feel really good about it. I think in total that business, Gerald, will it be close to $100 million I think in 2016? So we feel good about them continuing to drive Hanes and Champion in that market.

We have rights for Champion throughout the Americas and Asia where we can start to use that plugging into the design and the products that we do for the U.S. and continue to expand it in Japan. We've got a business down in Australia that's also leveraging that same product line.

And so that's our plan is to continue to drive growth in Champion not only domestically, but internationally as well..

Thank you. And our next question comes from the line of Michael Binetti from UBS..

Hi, guys. Good evening.

Given the amount of volatility we're dealing with with our earnings models across the sector right now, can I just ask you to get a little better sense of the cadence of the year on the top line and the operating margin within the guidance you gave and maybe just a little bit of help on what we should be thinking about in the first quarter to get us off on the right foot to start the year here?.

Sure. A couple of things. If you recall from our comments that you probably picked up, Knights Apparel will be incremental to us in the first quarter. That's about $20 million of sales. Then, we acquired them in April, so they'll be anniversaried at that point.

We mentioned the $30 million in Japan; that will come a little later in the year in terms of top line. The synergies, as we mentioned, are about $40 million, will be mostly in the back half of the year. And then the $40 million of FX headwinds I would expect to be heavily weighted in the first half and a lot in the first quarter actually.

And then we talked about some costs associated with inventory management and that is going to be, again, heavily weighted in the first half of the year and a lot in the first quarter..

Okay. And then if I could just ask a follow-up. As I look at different revenue scenarios for all the companies in the group here, it's pretty easy to figure out for you guys in particular the incremental margins as revenues come in above plans, since you guys are really good at controlling the costs in even a strong macro.

But if the revenues do come in closer to flat, how should we think about the point of fixed versus floating costs and your ability to deliver on the EPS line if the macro works against us? Any kind of quantitative support you could offer there?.

You know, let me just talk about that conceptually..

Sure..

In the very short term, it's obviously a little harder to react. Actually given where sales ended up, I was thrilled with the fact that actually our operating margin didn't delever in Q4. So I think our ability to manage it quickly was pretty darn good in that quarter.

If it's over a longer period of time and I'm inferring the way you're asking it, if you started to see a much broader base, soft consumer environment that's going to last, our ability to last is substantially greater.

I'd also remind you that in any given quarter, we have a lot of volatility as you've now seen, but in places like Innerwear over the period of a year or so, those types of things will start to work themselves out. In fact in both 2008 and 2009 men's underwear had a lot of volatile quarters, ended up slightly up in both of those years.

But over a period of a year or more, our ability to react is pretty high. Great thing about our business is we've got a lot of things that drive profitability.

We've got acquisition synergies, we're independent of the consumer environment, we have strong cash flow that we can use, so we've talked about to pay dividends and buy back stock, we've got other acquisitions to do, and I am very comfortable.

As Gerald took you through the sales, what we need to just get through to the low end of our sales range, a lot of it's just the acquisition wrap that we've got plus the absence of one-time things from 2015. So we feel really good about our 2016 numbers to be able to deliver on..

Thank you. And our next question comes from the line of David Glick from Buckingham Research..

Hi, David..

Good afternoon, almost good evening. Just a follow-up question on these POS trends and then I have a follow-up on e-commerce. I'm assuming that retailers are in a position to re-order from you from a replenishment perspective based on their POS trends that they are seeing as opposed to kind of tightening their receipt plans.

Also, you're up against some big destocking in the first quarter, if I recall.

So I just want to make sure we can make that logical conclusion that shipment trends are correlating with the POS trends you're seeing at retail?.

Certainly, from the standpoint of our replenishment of Innerwear goods, they will pick up with replenishment as replenishment – as POS goes, our replenishment will follow.

In the case of cold weather goods, if they haven't been taken at this point, those sales are not going to occur now until next year when we go to the cold weather period of next year. But on the replenishable piece of the business, and Innerwear in particularly, you do see that POS pick out the replenishment..

So you are obviously not counting on those cold weather goods in your plan to be shipped?.

No, no, no..

Okay. All right..

No, in fact let me actually restate, and Gerald talked about it. When you look at the low-end of our guidance, he explicitly said that we are not assuming in that end any lift from fourth quarter next year. It's basically the same kind of results that you would have seen in 2015.

It's not until you start to go to the high-end of our range that we started to actually expect that we begin to see Q4 next year start to normalize; that's an important point..

Okay. Great..

Thanks for highlighting it..

Okay, thanks. And then just a follow up on e-commerce. How do you think about investing in your own e-commerce site as a transactional site versus more an informational site as opposed to really partnering up with your omni-channel wholesale customer as well obviously there is the big e-tailer, which you've had a lot of success with Amazon.

How do you look at investing your resources across the various alternatives you have, particularly when it pertains to your Amazon and it pertains to your own site?.

First of all, on our own site, what we really believe that there's a true convergence now of where the consumer learns and where the consumer shops, and they make come to your site and learn, they may then go to retail and buy, they may come to your site and learn and go to another site and buy.

So we view our site as a very important informational source as well as a selling source, just as we view our presentation at retail as another way to provide information or representing our brands on Amazon is also another way that consumers go and learn, and then they may also go to a store.

So it truly is a convergence of the consumer across channels from a communication and purchasing..

Yes, David, I'll share with you an anecdotal piece of data that Gerald and his group put together. And they were tracking where people were doing searches for different products. And actually, when they took the snapshot, 15% of the searches that were being done for some of our products, people were actually doing while they were in a store.

And it shows that everything was now totally interconnected. You could be in a Kohl's or a Walmart or whatever and searching the Internet to find out more information to make a purchase decision. So I think it's going to all blend and merge, and we need to be good at all of those things..

Thank you. And our next question comes from the line of John Kernan from Cowen & Company..

Good afternoon everyone. Thanks for taking my question..

Sure..

So just wanted to go back to the inventory. Obviously pretty significantly here you talked about minimum markdown risk, but there's also a lot of inventory in the channel from other brands across apparel.

Can you just walk us through why you are so confident there's minimum markdown risk, and what the timing looks like in terms of this inventory drawing down?.

Yeah, let me break the inventory down in two buckets for you and I think it'll clearly answer your question. In the case of Innerwear, the same inventory is used all year long, so as POS comes back up, then the orders come behind it, and it just continues to ship. In the case of cold weather goods, ours is a fairly basic cold weather goods.

So those that didn't sell yesterday are actually goods that we didn't sell in the current season, we can actually carry over and sell again next year. So we don't have any risk in those as well, it's basic fleece and things like that, that we will carry over and sell next year..

Okay.

And if I can just shift back to the revenue question, the guidance I think assumes $50 million in revenue from acquisition, can you talk to what you're looking at in terms of acquisitions for 2016 geographically, category wise and the confidence you have in consummating a deal this year?.

Yeah. So, the $50 million that you referred to are acquisitions that are already completed, so it's the simply $20 million of wrap of Knights Apparel plus the $30 million additional from reacquiring the rights to Champion Europe. Nothing in our guidance has anything about our future acquisition, and I think that's important.

We're now turning our attention to begin looking at acquisitions in 2016 and beyond, but we don't have anything like that built into our guidance..

Actually just to correct, that was Champion Japan, that $30 million..

Oh, thank you. I'm sorry. I was thinking of Hanes Europe and not Champion Japan. Thank you, Gerald..

And then just on valuations, it seems like there's been a lot of valuation contraction out there, certainly in the public market.

So, are valuations looking more appealing at this point than they were maybe 12 months ago?.

You know, I think it's fair to say that over time if you go back and look at our Gear for Sports acquisition and Knights Apparel, fairly similar businesses and we probably paid about a turn and a half higher for Knights Apparel than we would have back when we bought Gear for Sports in 2010. How that may change over time, remains to be seen.

What we really focus on is what we're going to do with the acquisition and how much value we can create and we've been thrilled.

All of these acquisitions that we've had, the after-tax cash returns are easily in the teens and we're convinced, there's deals out there that we can do over time to continue to drive great value creation for our shareholders..

Thank you. And our next question comes from the line of Ike Boruchow from Wells Fargo..

Hi, good afternoon. Thanks for taking my question everyone..

Happy to do it..

Just a quick one, I guess, Rich, just real quick. In talking about the acquisition of Japan, is there anything that inhibits you from reacquiring the rights of Champion Europe? And is that something that does intrigue you, I think it's a small business? And then, Gerald, just to go back to that eighth largest customer that you referenced.

I'm just curious, how that business works relative to your other brick-and-mortar partners? Meaning, how big do you ultimately think that could grow to, is the profitability different, better or worse? And how does the pricing work there, I'm assuming there's no real difference that would create any disparities, but just curious, some color on that whole dynamic?.

Yeah, I'm not going to talk about any one specific acquisition, and nobody should infer that we're focused on any one thing in particular.

Obviously, people do know that Champion Europe was a business that was spun out of Sara Lee or sold out of Sara Lee many, many years ago and it's obviously a candidate that could one day make sense, yet you need a lot of things to fall into place for two people to be able to come together and decide to have a marriage.

And so, while it's something that's out there, as you said, it's a relatively small business, and it'll continue to be on our list. What we're focused on is, there's lots of ways for us to create value with acquisition. There's a lot of different types of companies that fit our four criteria.

And as we're continuing to work with people when we get a deal done, we'll make sure we announce it..

And to the second part of the question on the online business. As I have said a minute ago, we go to business online really three ways. For our brick-and-mortar retailers, we have online strategy through our own sites, as well as through pure plays. And generally, we work with all of them.

We bring ideas and business and sell similar brands and similar structures to all of them in a wholesale model whether they're bricks-and-mortar online or pure plays and we drive those businesses accordingly and our goal is to be well represented in all of them and grow across those businesses..

All right. Thank you..

Thank you. And our next question comes from the line of Anna Andreeva from Oppenheimer..

Great. Thanks so much. Good afternoon, and thanks for taking our question. I guess a follow-up on the gross margin guidance for 2016 being a little bit more moderate than historically.

Should we expect the opportunity more back half driven given the sales initiative and the near-term, I guess, inventory overhang? And then secondly, looking at profitability in direct channel, it came down pretty significantly in the quarter and for the year and we know outlet traffic has been difficult.

Are you guys reevaluating your commitment to this channel at all. Is there an opportunity to perhaps close some stores as leases come due? Thanks..

Yeah. Anna, with respect to your first question, yes, I think you can infer from what we've said that gross margins will be stronger in the second half of the year than in the first half as a result of the various pieces that we've talked about.

In terms of DTC, you got to remember, the 53rd week actually impacts that business disproportionately to some of the other segments, right?.

Right, it was $8 million in the fourth quarter....

On sales, on sales alone. So, when you look at that, you got to factor that in.

In terms of more though to your strategic question, which is the piece of that's the outlet store business, how do we think of it because the other piece within there is our direct-to-consumer online business, which is obviously one we will continue to build and grow that piece.

The outlet business for us has always been there, we're in most of the malls around the country, it's a business that on the margin is a good business for us to be in. It's never going to be a growth driver.

In some cases as rents in some places have gone up, it doesn't make sense for us to be there, and if the lease comes up, we'll go ahead and exit from that particular mall. We look at everything on a four-wall profitability basis and as long as the thing's making money, we'll continue to keep the store, and if it's not, we'll let it wind down.

But on the flipside, I want to reinforce, the online piece of that's clearly a growth vehicle..

Thank you. And our next question comes from the line of Joan Payson from Barclays..

Hi, good afternoon, everyone..

Hey, how are you?.

I'm doing well, thanks.

You've talked a good amount about the online growth going forward, but as we think about 2016 and even beyond that, and some of the other channels, whether it's mass or department stores or sporting goods stores, where do you see the most opportunity, or what are the growth profiles for each of those channels?.

Well, we'd see opportunity actually in all the channels. We don't view online as the only opportunity. Certainly as we look at sporting goods and so forth, there's still quite a bit of distribution to get with our Champion brand.

We've expanded quite a bit, but we still see a number of doors and a number of segments within those doors that we don't have distribution. So, we see substantial opportunity there, as well as in the mid-tier channel for the Champion brand.

If we look across the Innerwear, as I mentioned in my prepared comments, we continue to expand our innovation platforms like X-Temp. We feel good that with our Intimates brand transition behind us, we've got growth potential there as well. So we're not giving up on any channel. We see significant opportunity across all the channels..

Thanks.

And then just in 2015, what did X-Temp and ComfortBlend ultimately represent as a percentage of men's basics and Activewear even? I mean, what could that mix reach in 2016 and are you doing anything differently to get there?.

It was roughly 15% in 2015, the combined of all those together and we expect it to grow as we continue to expand space, and that will be balanced some. As we dial up our innovation in the core, you may see that balance out.

But there's still ample growth there and we're taking some of those technologies and then pushing them across other to elements including Champion now as well..

Thank you. And our next question comes from the line of Kate McShane from Citi Research..

Hi. Thanks. Good afternoon. Thanks for taking my question..

Sure..

It's been speculated that there could be a bankruptcy in the sporting goods arena over the next 6 months to 12 months and I know one of your brands has some exposure to that.

How do you incorporate that risk into your guidance and how do you mitigate some of the inventory risk if that were to happen?.

Well, we monitor all of our customers' credit profiles very carefully and gear our relationships with them accordingly. I think the one you're specifically referring to potentially having that issue at some point, we manage our position with them very well.

If something like that were to happen, it would really not have a material impact on our financials..

Okay. And then my second question is unrelated, more to do about the European market. Just wondering now that you've had DBApparel in your ownership for a while, just what you've learned about the European market and what opportunity is there in that market for the rest of your portfolio of brands..

Well, I think we've certainly learned that we made a great acquisition with the one we bought. We have a leadership position in a number of countries and we have potential to build across a number of countries with a very strong management team to do that for us.

The apparel business in general is fragmented in Europe, as the continent itself is fragmented into many countries. And so, there is certainly over time are opportunities to look across for broader acquisitions as well as build our own, and we're very bullish on Europe right now as an area of future growth..

Thank you. And our next question comes from the line of Jim Duffy from Stifel..

Thanks. Hello, guys..

Hey, Jim..

Rick, a couple of questions for you on the cash flow. Just eyeballing the spread between your actual cash flow and the initial guidance is more than the increase in inventory on a year-to-year basis.

Were there other surprise factors that worked against the cash flow during the year? And then looking out to 2016, I'm curious the seasonality of the cash flow for the year.

Can you pull some of that earlier in the year – or help me think through that on a quarterly basis?.

Sure. I think in terms of 2015, really the main driver of the cash flow shortfall in 2015 really was the inventory when you look at the numbers that almost matched up to what our most recent guidance in 2015 was.

That was a sales shortfall, but we continued to have production at levels and we just weren't able to react in time because of the sales shortfall coming so late in the year. As for 2016, you normally see our cash flow very heavily weighted towards the back end of the year.

I think with Gerald and his team on the inventory adjustment programs and the initiatives that they've got, I think you'll see that moderate some. You're still going to see most of the cash flow in the back half of the year, but I don't think you'll see quite as big a peak in 2016 as you saw in 2015..

That's helpful. Thank you..

Thank you. And our next question comes from the line of Michael Kawamoto from D.A. Davidson..

Hey, guys. This is Michael on for Andrew Burns. Thanks for taking my questions.

I was wondering if you've seen any changes in how Walmart is operating its basic apparel business, I know they outlined quite a few things on their Analyst Day in November and I wonder if you've seen any changes there, positive or negative?.

Across our businesses, we haven't really seen with any of our customers any significant changes in how we do business. We still have very strong relationships and very strong brand representation with all of them..

All right. Thank you..

Thank you. And our next question comes from the line of Steve Marotta from C.L. King & Associates..

Hey, Steve..

Good evening, everybody. Gerald, I have a question for you and please forgive me if you were more specific at the redundancy of this question.

You mentioned that the point-of-sale trends in late December and through January improved, did they improve to positive or just less negative?.

Yeah. And in our basics business they improved to low single-digit positive. And then same in Champion, they were double-digit positive..

Thank you very much. You did say that and I wanted to verify. Thank you. That's perfect..

Thank you. And our next question comes from the line of Carla Casella from JPMorgan..

Hi. This is (54:51) on for Carla. We had a quick question about your bonds and we see that your bonds are callable now 103.188 (54:56) and it steps down to 102 (54:57) at the end of this year.

Do you have any thoughts on a new refinancing or coming back to the high yield market?.

Well, we're always looking at what the economic tradeoffs are in refinancing versus leaving them out there. I will say that when you're looking at $50 million of cash to refinance the bonds of 3% plus, we have to evaluate whether there is not a better place for that $50 million of cash.

But we're constantly looking at that, and as it steps down again in December of this year, we'll be keeping a good close eye on it..

Okay. Thank you..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back for any closing comments..

We'd like to thank everyone for attending our call today. And we look forward to speaking with you soon. Have a great night..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may now disconnect..