T. C. Robillard - Chief Investor Relations Officer Rich Noll - Chief Executive Officer Gerald Evans - Chief Operating Officer Rick Moss - Chief Financial Officer.

Eric Tracy - Brean Capital Omar Saad - Evercore ISI Susan Anderson - FBR & Company Michael Binetti - UBS David Glick - Buckingham Research Taposh Bari - Goldman Sachs John Kernan - Cowen & Company Ike Boruchow - Wells Fargo Anna Andreeva - Oppenheimer Simeon Siegel - Nomura Securities.

Good day, ladies and gentlemen and welcome to the Hanesbrands First Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the meeting over to T. C. Robillard, Chief Investor Relations Officer. Please go ahead..

Good day, everyone and welcome to the Hanesbrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the first quarter of 2016. Hopefully, everyone has had a chance to review the news release we issued earlier today.

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

These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks are detailed in our various filings with the SEC and maybe found in 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, Gerald and Rick will provide some brief remarks and then we will open it up to your questions. I will now turn the call over to Rich..

Thank you, T.C. Hanesbrands delivered strong first quarter results as revenue increased 1%, operating profit increased 10% and earnings per share increased 18%. Our ability to consistently magnify our growth rates as you walk down the P&L demonstrates that our strategy to create long-term shareholder value, are working.

We are driving innovation in our categories. We are generating efficiencies within our supply chain. We are enhancing our margins and we are effectively allocating our capital. Within the first 100 days of 2016, we increased our dividend 10%, repurchased $380 million of stock and announced the acquisition of Champion Europe.

Overall, the year is unfolding as we expected. Point-of-sale trends have rebounded from their severely negative levels in Q4. Our acquisition synergies are ramping on schedule and our initiatives to reenergize sales growth are on track. All of this gives us confidence in our ability to achieve our 2016 guidance.

Add to this our continued focus on executing our long-term strategies and we believe we are well-positioned to deliver double-digit EPS growth for many years to come. And with that, I will turn the call over to Gerald..

Thanks, Rich. We delivered solid results for the first quarter, but more importantly, we made significant progress on our sales initiatives, our inventory actions and our integrations. So, let me speak to these in order.

Starting with our sales initiatives, if you recall last quarter, I walk you through several initiatives that I had the organization focused on delivering. One of the initiatives is to expand the space of our successful Innovate-to-Elevate platforms. For 2016, we secured new space for various X-Temp products in the mass and mid-tier channels.

A second initiative is to ensure we are focusing on our core products with the right balance of promotion, media and innovation. During the first quarter, we began rebalancing our marketing features to drive our core and the initial sell-through results were positive.

As we look to the second half, we are on track to launch our next big innovation directly into our core. And the third initiative is to drive online growth. As the migration to online accelerates, we are reallocating our personnel and marketing resources to capture this consumer shift. In the first quarter, our U.S.

online sales across all channels increased 15% over last year and now represent 8% of our domestic sales. I feel really good about the progress we have made.

While these initiatives are not expected to fully impact sales growth until the second half of the year, our progress to-date gives us confidence in our ability to deliver on our 1% to 3% revenue growth guidance for the year.

Turning to our inventory reduction actions, recall that the bulk of these actions are expected to come in the first half, while the reduction in our inventory level is expected to begin in the third quarter and continue through the end of the year.

During the first quarter, we took time out within our manufacturing network, we lowered the use of external sourcing and we reduced raw material purchases. We expect to complete essentially all of these actions in the second quarter.

We are on track to reduce our inventory as planned and this gives us confidence in our ability to deliver our cash flow guidance for the year. Next, I would like to provide an update on our acquisition integrations, beginning with Hanes Europe.

We are making great progress on our synergies and remain on track to deliver €100 million of annual operating profit by the end of 2018. The insourcing of production continues to ramp up and we have begun reducing SG&A as 120 people exited our operations in France at the end of the quarter.

We have completed nearly 8,000 action items and are about two-thirds of the way through the integration. Touching briefly on their business, Hanes Europe had a solid quarter, delivering operating profit that was slightly ahead of plan.

The European price increases are now in place and we are on track to generate substantial profit growth this year as synergies ramp. Turning to Knights Apparel, we have completed essentially all of the integration actions and are on track to double their operating profit by 2018.

With respect to our Champion Japan acquisition, this integration is complete and we now generate roughly $140 million in sales in Japan between our Champion and Hanes product lines. Lastly, we have begun our initial integration planning for Champion Europe.

We are excited about the significant revenue growth opportunity for the Champion brand and we are on track for midyear close.

Overall, our integrations are progressing on or ahead of schedule, which not only gives us confidence in our ability to deliver $40 million of synergy benefits this year, but also provides us with the bandwidth to do additional acquisitions.

So in summary, our strategies are working, our acquisition synergies are ramping on schedule, we are progressing on our initiatives to reenergize sales growth and we are on track to reduce our inventory levels. All of which gives us confidence in our ability to drive low single-digit sales growth and double-digit EPS growth in 2016 and beyond.

I will now turn the call over to Rick..

Thanks, Gerald. We delivered another record first quarter. The combination of our margin enhancement strategies, our acquisition strategies and our capital allocation strategies drove an 18% increase in our earnings per share, once again highlighting the power of our business model to deliver strong returns for our shareholders.

Now, let me give you some color on the quarter. Sales increased 1% over last year driven by the contribution from Knights Apparel and the 1% growth in our Innerwear segment, which was partially offset by $12 million of currency headwinds. As expected, our gross profit margin declined from last year.

Efficiency gains from the supply chain were more than offset by the recognition of certain inventory reduction costs, which resulted in a 20 basis point decline in our margin.

Our guidance costs were close to $20 million of inventory related costs this year, $8 million of which hit our P&L in the first quarter, with the majority of the remaining costs expected to come in the second quarter. SG&A costs in the quarter declined approximately 130 basis points to 25.8% of sales.

Key drivers of this improvement were synergies from acquisitions, planned catalog circulation reductions and tight cost controls. This resulted in a 110 basis point increase in our operating profit margin to 12.1%. Our earnings per share of $0.26 was an increase of 18% over last year.

The $0.04 improvement includes $0.01 from operational performance, $0.01 from the 2015 share repurchases and $0.02 of expense timing between the first and second quarters. And lastly, our cash flow from operations was a use of $285 million roughly in line with our expectations.

Turning to guidance, we reiterated our full 2016 guidance, which does not yet include the impact from Champion Europe. Looking at the key components, we expect sales of $5.8 billion to $5.9 billion, which represents a 1% to 3% increase over last year.

We expect operating profit to be $920 million to $950 million, which at the midpoint implies a 100 basis point increase in our operating profit margin. We expect EPS of $1.85 to $1.91, which represents 11% to 15% growth over last year. And we expect cash flow from operations to be $750 million to $850 million.

So in closing, we are off to a great start in 2016 and we are well positioned to deliver on our guidance. Looking forward, as we execute on our proven long-term strategies, we believe we are well positioned to continue to deliver strong shareholder returns for many years to come. And with that, I will turn the call back over to T.C..

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

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

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Eric Tracy from Brean Capital..

Good afternoon, everyone. Congrats on a nice quarter..

Thanks, Eric..

So Rich, I guess just to hit the stabilization that we are seeing on the revenue line and more importantly kind of looks like with the visibility you have to kind of continuing that.

So maybe separate the point-of-sale trends that were impacted by weather versus some of the visibility that you have to space gains and/or new programs for the back half of the year?.

Yes. I will just say the – start with the consumer environment, we are seeing the overall consumer environment continue to be relatively choppy like it’s been for 4 or 5 years. We are starting to call up the new normal. And I think some of the stuff that we saw in Q4 was sort of isolated to that quarter.

More specifically about the current business, Gerald, you want to talk to Eric’s question?.

Yes. I think it’s really playing out like we expected. We have seen POS pickup, as Rich referred to, coming out of the down period of the fourth quarter. We have seen nice, positive pickup in POS going into the first quarter. And you see that in our Innerwear sales that are up 1%. And it just feels like it’s tracking about like we expected.

We have begun to implement our sales actions. And while the bulk of those are really expected to impact the latter half of the year, the early steps we took on – to refocus on the core have been very positive, seeing good results as well. So, we feel good about our ability to deliver on our guidance..

And I guess my follow-up would be a little bit bigger picture, but how you guys are thinking about managing through this channel evolution? I know you believe that the consumer is channel-agnostic, but as online be it your own and/or third-party omni-channel continues to develop.

In terms of the infrastructure that you have in place, what sort of resources you need to reallocate to ensure that, that business continues to take the requisite share that it should?.

Yes. The apparel sales are clearly shifting online. And online is growing very fast for total apparel sales. And we are really focused on that as well. We grew our sales 15% in the quarter and we are now about 8% of our domestic sales. Our online, we are shifting resources, both people and marketing resources, to go after that opportunity.

We hold leading shares in our categories online already, but we are now seeing those shares grow. And in fact in the large pure player our shares actually is large in our core categories as it is in our brick-and-mortar channel. So, we see it as the place that’s growing. We are focused on that.

It really is just a reflection of our focus on omnipresence. We want to be where the consumer wants to shop and increasingly that’s online and that’s where we will go..

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

Hi, Omar..

Thanks. Good afternoon. Nice quarter guys..

Thanks..

Wanted to focus on the Activewear category, little bit of bounce back, but still a lower run-rate than kind of where you have been at, what’s going on in there? I think there has been some changes to the 69 target, some of the strategies and products and maybe bring a little bit more fashion and style in there.

I mean, any sort of updates on what’s going on in that category, because I know it’s important you guys, especially now that you are going to be kind of, owning the Champion brand globally?.

Sure. Let me just start with saying that overall the business was up 3%. In the quarter, the sports license apparel business performed particularly well, both the gear business and we did have the wrap of the Knights Apparel acquisition in the quarter.

Underneath that, to dig a little deeper, the Champion business did experience in sports, specialty, and department stores experienced a headwind of the Sports Authority bankruptcy in the quarter. Now, while it’s not particularly big to the total company, it’s only about 0.5% of sales. It’s a big customer within that mix.

And so that business overall was flat for the quarter. When you peel that back, the rest of the business was actually up nicely, double-digit rate. So, the core business is sound, just a little bit of headwind there from the TSA perspective. The POS in that business is up double-digits as well in the core business. So we see nice fundamentals there.

The Champion at mass business is – we are in the final changes of redoing that product. It’s beginning to flow in now, continues through the second half and really project that returning to mid single-digit growth in the second half of the year. So, when we look at all that together, we are optimistic about as we turned the corner on that business.

So, we will see nice positive growth through the year..

That’s really helpful. And then one quick follow-up, within the intimate apparel on the bra side, anything going on there? I haven’t heard you guys talk about it a while. We are hearing more and more about the Bra Lip trend. That might be a younger consumer than you guys skew towards.

But any update on the bra business, which was little bit controversial a few quarters ago?.

Well, you know what innerwear business in total was up a point. I think as you peel back the consumer or the retail environment, what you see is a mixed trend within channels, summer up, summer down in the case of the mass channel, it was a little stronger as we look at mid-tier and department store, we see a little weaker performance.

Our intimates business was down in the quarter and it’s really affected by a higher concentration of sales. Roughly 40% of that business is in that mass and our net mid-tier and department store channel. So, it was down modestly in the quarter.

What – on the Innerwear or the basics business on the other side was up and it benefited from both the stronger trends in mass where the predominance of that business is sold as well as the early efforts we had to refocus on the core..

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

Hi, good evening. Good job on a great quarter. So, I was going to maybe drill down on SG&A that leveraged pretty strongly.

Was this mainly due to the DBA cuts or how much of that contributed to it? And did those come maybe sooner than you guys expected? And then I guess just the timing of the other third?.

Sure. You are right. There are really two key drivers – three key drivers in the quarter on SG&A, one with synergies. We are seeing good synergies coming out of our Hanes Europe DBA acquisition. They are doing a great job on that. We are also continuing to be very prudent in our spending as good cost controls are in place.

Another driver was the reduction in the number of catalogs that we distributed in the quarter..

Got it. Okay, that’s helpful. And then just a follow-up on the international, it looks like the growth improved from fourth quarter.

I guess, what was the big driver there? Was the pricing in place in first quarter to help drive that or was it better, less FX impact or maybe just units going up?.

I mean, as I peel it back, Susan, looking at overall, total international was up 3% on a constant currency basis and that comes from a number of buckets. I would start first with our Asia business had an outstanding quarter driven by our Japanese business and we got our outstanding team there that’s doing a great job. And their sales were up strongly.

They are about $140 million in business now in both the Hanes and Champion businesses. They are performing very well. We saw growth in Mexico and Canada both on a constant currency basis. And then from the standpoint of Hanes Europe as we have mentioned in our remarks, the operating profit was slightly ahead of plan for the quarter.

We have got our price increases now in place and we are on track as we execute our integration to generate substantial profit growth there as well as the synergies ramp. So, we feel good about the international business. We are really hitting on all cylinders there..

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

Hey, good evening. Congrats on a nice quarter. You have mentioned the – you obviously are handing at some pretty meaningful innovation that you have coming in the core and the second half. It sounds like it’s a little bit bigger than maybe some of the one-offs in the Innovate-to-Elevate program we have heard about from you so far.

And obviously, I don’t expect anything competitive, but maybe you can tell us a little bit about some of the components you see how it will impact revenues. Is this a shelf space gain? Is it a – for a new innovation or is it mostly pricing? Any help there would be helpful..

Well, I think what we have said in the past, it’s been a number of years since we have innovated in that core product. We have done a lot of innovation platforms. The last big innovation in that area was the Tagless tee over a decade ago and then we have introduced Tagless in the bottoms.

So, this will be the next sort of upgrade in that product from the standpoint of another innovation. I don’t want to give a lot more than that other than to say that it’s very well-received by the consumer and you will be seeing it in the second half of the year..

Okay. And then I was very positively surprised to see the gross margin delivery in the quarter. At the same time, I was a little surprised to see the inventory a little stickier than we thought.

And given the commentary we had last quarter about some of the downtime in the factories to help normalize the working capital inventory it sounded like it might just – you have been a little bit more focused in the first quarter than we thought.

Was there another component to inventory that was an offset there that we should think about?.

Yes. I would say as you think about inventory levels, the – actually, the rate of increase – remember, we – during the first half of the year, we are building inventory towards back-to-school. And so – but we built it at a slower pace this year than we did last year about $30 million slower pace in inventory.

So, that’s I think an encouraging early sign. But as Gerald has said, the bulk of the inventory benefits will come to us in the second half of the year after back-to-school.

So to the – and in terms of the P&L impact, with sort of about $8 million of P&L impact for the cost associated with those actions, we are still thinking $20 million for the full year, most of it in the – the bulk of it in the first half. And so more shifting to the second quarter then as we now are implementing the plans.

So actually, we are right on where we thought we were going to be both in terms of cash flow overall in terms of our inventory position. And we are very pleased with where we are right now and feel good about delivering those numbers..

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

Hey, David..

Thank you. Good afternoon. Just wanted to talk about the acquisition-related charges, I think investors have become little more focused just given the degree of charges that you have incurred the last 2 years. It was good to see the difference between GAAP and non-GAAP earnings be less in Q1. I just wondered if you could give us an update.

I know Champion Europe is to come that hasn’t closed.

So excluding that, what should we see this year in acquisition-related and other charges as you described them and what are the sources? And should we see that number really coming down relative to the last 2 years?.

So, the – in our guidance, we actually – David, we actually narrowed the XA charges guidance to really 1 point to $85 million for the full year. We did $25 million in the first quarter. That would suggest a slowing trend through the year. For the full year, $85 million, it’s about 80% of that is for Hanes Europe for the DBA acquisition.

About 15% of it will go to Knights Apparel and the balance is associated with the reacquisition of our Champion license in Japan. And so the XA is very limited to acquisitions only in 2016. And so you are seeing the pace of those charges slow down..

And the vast majority will be SG&A versus gross margin?.

I am not sure I would say the vast majority, but the bulk of them will be SG&A..

Okay, great. Thanks very much..

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

Good afternoon. Nice quarter.

How are you, Rich?.

Great..

Rick, can you give us the organic constant currency growth number for the entire company for the quarter?.

Well, we said that constant currency growth was the 2% number and the Knights Apparel was $21 million of sales in the quarter..

Okay. We will figure that out. Thank you. And then Rich maybe for you on the revenue line, nice to see return to positive growth in the first quarter, up 1%, you are guiding the year to up 1% to 3%. Remind us how you are thinking about the past throughout the rest of the year. I know a lot of the year is still ahead of you.

In other words, just try to maybe get a better sense of what happened – what needs to happen for you to get to the high end and what are some of the discrete tailwinds at your back for the next 9 months? Thanks..

Yes. And I will just add to which I will just conceptually say nothing has really changed from how we laid that out on our Q4 call. And I will let Gerald talk a little bit more about the details..

Yes. You may remember at the low end of the range, it was really built on two things, the wrap of about $50 million in – at one time at wrap on acquisitions, the combination of the Knights wrap and our take-back of our license for Champion.

The balance of that was around not having one-time events happen again, the one-time reduction of inventory in one of our large retailers and our bra consolidation. As you move out toward the 3%, it’s really two things. One, we would assume a more normalized fourth quarter, one it’s not the warmest on record.

And the second was the key growth initiatives that we have spoken about. One is continuing to lever our Innovate-to-Elevate with things like expanding X-Temp, which we are seeing that expansion take place. The second was refocusing on the core, combination of rebalancing back toward the core.

We began to execute a few of those events in the first quarter, but most of those are actually coming later in the year. And then with that is also to provide innovation to the core as we have discussed earlier.

And then finally to focus on online and as you think about how that moving from 1% to 3% might take place, a lot of that would come in the second half of the year between executing our focus on the events, the space expansion as well as the normalization of the fourth quarter..

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

Good afternoon, guys. Thanks for taking my questions..

Sure..

Good to see point-of-sales trends come back. So, just wanted to go back to the cash flow, obviously, your cash flow from operation guidance is really robust this year.

Is there anything that would suggest that, that would have to come down going into 2017? Is that the new sustainable run-rate of your cash flow from operations? Is there any pension contributions or working capital changes that would really prevent that from being the new run-rate of your cash flow?.

I would say the answer is yes. That’s a pretty good proxy for going forward. I think what you are going to see, generally speaking, is modest pension contributions. Working capital generally as we stabilize inventory this year going forward, working capital should not really be much of a source for use in any given year generally speaking.

But then obviously, cash flow will be driven up by – as we continue to drive higher income. So, I think we are on the right track on it. And I think that it certainly is a sustainable number..

Okay, thanks. And then just one follow-up, obviously Walmart and Target have been great partners for you for a long time. I think obviously one of their biggest competitors, Amazon is making a fairly significant push into apparel and some of your mass product would probably translate well on that platform.

Has there been discussions with Amazon, is that a channel that you think can be a growth platform for you going forward?.

We are a branded seller. And obviously, Amazon is one of our customers that we work with, just like we work across all retail channels. And as online grows, clearly, Amazon becomes one of the customers. And I think we have noted that there is a large pure player that’s one of our largest emerging customers.

It was a number 7, I think we have noted in our FAQ. And we work across all channels that trade accordingly..

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

Hi, everyone. Congrats. Thanks for taking my question. On the inventory, just two quick questions.

First, how should we think about the inventory growth as you progress through the year? And then just second given the – I think you mentioned you have more cost in Q2 versus Q1 in the gross margin line, should we expect gross margin to be a little weaker year-over-year in Q2 relative to Q1? Thanks, guys..

Sure. I will take the gross margin question first. Yes, you should see it be a little weaker. And then the back half of the year, you should see the gross profit trend normalize. In terms of the inventory, we wouldn’t expect to see – we would expect to see the inventory decline year-over-year in the second half.

So, we – but I think the same trends you saw in the first quarter where we are seeing a slowing of the growth versus last year, you will see probably through the second quarter..

Yes. And I want to stress about the inventory, since we have gotten a couple of different questions about it. As we have taken a lot of the actions, so a lot of the things are now done to ensure that the inventories will start to drawdown to a much lower level than we had last year, but you do have to wait for the sales rates to go over Q2.

And as Rick said, we don’t actually cross the line below until it actually – I think the projection is about July, which you wouldn’t see until – in Q3. So, we have done all – many of the things or they will be finished within the second quarter. And then inventory will just bleed off through the rest of the year.

It’s almost like its math at that point..

Great. Thanks, guys..

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

Hi, Anna..

Great. Thanks. Good afternoon, guys and congrats. Thanks for taking our questions. I guess, great to hear about the POS inflection in the first quarter.

Just curious has that continued into 2Q? Is mass channel performing better right now than department stores? And what are you guys seeing with the order book into back-to-school? And secondly, how do we think about the cadence in the buybacks during the year, especially given the cash layout for Champion? Thanks so much..

Let me start with the question about our POS trends considering – continuing into the second quarter. It’s really difficult to tell at this point in time. You got an Easter shift that took place from April into late March and it creates a lot of noise between the two periods.

So, it’s early days and difficult to really give you any insight on that at this point..

In terms of the share repurchases going forward, what we have done is – the $380 million is in line with our activity and was – has been factored into our guidance that we have reiterated. As we get to the – towards the latter part of the year and we assess our cash position, we will then decide whether we want to do anymore at that point..

Thank you. And our next question comes from the line of Simeon Siegel from Nomura Securities..

Thanks, guys. Good afternoon.

Just to an earlier point, so given the first quarter’s operating cash decline, can you just talk to the reiteration of that full year cash number from operations? Is the variance just a function of this inventory improvement being back half? And then what would the implied second quarter share count be just from the mass given the late quarter repurchase? Thanks..

Okay. So in terms of the cash flow, I think we are roughly right where we expected to be at this point. So, we are right on plan.

Yes, it will be driven largely by the significant drop in inventory in the second half of the year, but also by our continued growth in the profitability will also contribute to that and our reduced XA charges through the year. So, that’s – so we feel very good about that.

In terms of the share count for the second quarter, we will probably be in about – I think probably about $385 million type number, $385 million type number..

Great. Thanks a lot, guys. Best of luck for the rest of the year..

Thank you..

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

We 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. Everyone, have a good day..