Good day, ladies and gentlemen, and welcome to the Hanesbrands Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. T.C. Robillard, Chief Investor Relations Officer. Sir, 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 fourth quarter of 2018. Hopefully, everyone has had a chance to review the news release we issued earlier today.

The news release, updated FAQ document and a 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 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 2019 guidance, represent continuing operations and exclude all acquisition, integration, and other action-related 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 Gerald Evans, our Chief Executive Officer; and Barry Hytinen, our Chief Financial Officer. For today' call, Gerald and Barry will provide some brief remarks.

And then, we'll open it up to your questions. I will now turn the call over to Gerald..

Champion revenue growth continued to accelerate in the quarter. Excluding the mass channel, Global Champion revenue was up more than 50% in constant currency. This growth comes on top of last year's 29%, and once again highlights that our coordinated global strategy to elevate the Champion brand is driving increased demand for the product.

Consumer-direct revenue, which we define as our own stores and all online channels, increased more than 20% globally compared to the prior year and represented approximately 25% of global sales in the quarter.

And on a constant currency basis, our International segment delivered another quarter of high single-digit organic revenue growth, driven by Champion and our Innerwear businesses in Australia, Asia, and the Americas.

With respect to our U.S Innerwear business, we are pleased that fourth quarter sales and operating margin were in line with our outlook. For the quarter, basics revenue increased 2% over last year and our Intimates business while down improved sequentially. That said, the U.S retail landscape remains challenging.

We’re encouraged by a number of positive signs underlying both our basics in Intimates business, but the prolonged bankruptcies and door closings are impeding our return to consistent growth in the segment.

Despite our improving fourth quarter trends, we decided to take a more conservative view of our U.S Innerwear segment for 2019 than we held in November, given the ongoing uncertainty in the U.S midtier and department store channel. Our outlook now reflects a more cautious stance with respect to door closings in these channels.

However, as a strong diversified global company we’re more than offsetting this with our growth businesses. For 2019, we're forecasting approximately 2.5% organic constant currency growth at the midpoint as the momentum in our U.S Activewear and International segments continues to fuel our overall revenue growth.

We expect operating margin expansion of approximately 10 basis points at the midpoint, as we leverage our global scale and implement price increases to offset input cost inflation. We're forecasting operating cash flow with $750 million at the midpoint of our range, an increase of approximately 17% or $100 million from last year.

And we're committed to bring our leverage below 3x by the end of the year. We fully understand investors focus on our U.S Innerwear business and we remain committed to returning this business to long-term growth. In 2019, we're increasing our marketing investment behind our key brands and innovations.

We're also taking additional steps to further streamline our U.S Intimate supply-chain, which should lower costs and increase our speed to market. However, we don't want to lose sight of the fact that we have transformed to become a diverse, global apparel company, operating a portfolio of profitable businesses with many avenues for growth.

And these efforts are delivering their intended results. We're producing consistent organic revenue growth six quarters in a row and counting. And this is being driven by the areas we have diversified into, such as Champion, consumer-direct and International. We are leveraging our global scale and brand strength to improve our operating margins.

Our leverage is coming down and we're poised to accelerate cash flow generation as our acquisition integrations come to a close. With all those momentum, we feel well positioned to deliver accelerated value creation to our shareholders over the next several years. With that, I'll turn the call over to Barry..

Thanks, Gerald. Overall, we delivered solid fourth quarter results as we achieved or exceeded our expectations across all of our key metrics, including sales, operating profit, earnings per share and cash flow. For the quarter, sales were $1.77 billion, an increase of $123 million over last year.

Adjusted operating profit increased 10% to $260 million, while adjusted operating margin increased 40 basis points to 14.7%.Adjusted and GAAP earnings per share were $0.48 and $0.44, respectively. We generated over $500 million in cash flow from operations and we pay down $400 million of debt, lowering our leverage to 3.3x.

With that summary, let's turn to the details of the quarter's results. Sales increased 7.5% over last year, which included $45 million from acquisition contributions and a $26 million headwind from foreign exchange. On an organic constant currency basis, sales increased 6.3% in the quarter.

Gross margin of 40.1% was consistent with prior year as the impacted input cost inflation, product mix and foreign exchange offset the benefits from acquisition contributions, synergies and price increases for certain Activewear products.

Operating margin expanded 40 basis points compared to last year driven by acquisition contributions and expense management, partially offset by investments to support growth. For the quarter, acquisition and other related charges of $15 million were in line with our guidance as was our tax rate of 14.9%.

Normalizing the prior year for the impact of tax reform, adjusted and GAAP earnings per share increased 12% and 175%, respectively. Now let me take you through our segment performance. U.S Innerwear sales were flat to last year in line with our guidance.

Basics revenue increased 2%, driven by growth in men's and women's underwear, while Intimate sales declined 7% which was an improvement from last quarter. Within Intimate, strong consumer reception to our new product designs and innovation drove double-digit revenue growth in Shapewear for the quarter.

This was offset by lower bra sales, which continue to be impacted by door closings and the challenge in the retail landscape within the midtier and department store channel. For the quarter, U.S Innerwear's operating margin was consistent year-over-year. U.S Activewear segment sales increased 13.5% in the quarter and 13% organically.

This growth was driven by strong performance in our Champion and American Casualwear businesses. Domestic Champion sales, excluding the mass channel increased over 50% in the quarter. And as expected, Champion at mass, which is our C9 business declined less than 3%.

Activewear's operating margin declined 150 basis points in the quarter to 16.1%, due to product mix as well as our planned investments to support future growth initiatives, inclusive of brand support and distribution network expansion.

In our International segment, sales increased 12% or $64 million, which included a $43 million contribution from Bras N Things and a $26 million headwind from the effects of foreign exchange rates. On an organic constant currency basis, sales increased 8.5% or $47 million compared to last year.

International's operating margin increased 200 basis points over last year to 16.2%. An important take away from me, International's operating margin was above the corporate average for the second straight quarter reflecting the improved profitability from scale and synergies that we had forecasted earlier in the year.

Before I move on, let me touch on our Global Champion business. For the quarter, on a constant currency basis, revenue increased 33% over last year, while revenue excluding C9 increased over 50%.

For the full-year, constant currency revenue, excluding C9 was $1.36 billion, up from approximately $1 billion in 2017 and we split equally between Domestic and International. Now moving on to the balance sheet and cash flow items. In the quarter, we generated $502 million of cash flow from operations.

Inventory was up year-on-year, primarily due to increased investments to support the global demand for our Champion products. Our focus on both receivables and payables resulted in an eight day improvement in our cash cycle versus prior year.

With respect to leverage, we pay down over $400 million of debt in the quarter, lowering our leverage to 3.3x on a net debt to adjusted EBITDA basis. This is down from last year and down significantly from our peak of 3.9x in early 2018 after the acquisition of Bras N Things. And now turning to guidance.

To assist you with your models, we have provided a number of details on first quarter and full-year 2019 guidance in our FAQ document. Therefore, I will focus my guidance comments on certain assumptions that should help describe the cadence of the year.

For the full-year at the midpoint, we expect total sales growth of approximately 2% and organic constant currency growth of approximately 2.5%. Our outlook reflects approximately $60 million of currency headwind with the vast majority of that impacting the first quarter.

For the first quarter, at the midpoint, we expect total sales growth of more than 4% and organic constant currency growth of approximately 6%. With respect to our segments, the midpoint of our revenue guidance assumes a 2% decline in our U.S Innerwear segment for the full-year and a 4% decline in the first quarter.

This outlook reflects the impact from door closings, as Gerald mentioned, and an improving trend in the remaining quarters due to the mid first-quarter timing of our price increases and our conservative view on elasticity. In U.S Activewear, the midpoint of our full-year outlook reflects approximately 2.5% revenue growth.

This assumes Champion, excluding C9 grows at a double-digit rate in each quarter and that our C9 business declined at a low teens rate for the full-year. It also assumes a decline in our American Casualwear business as we continue to shift this business to higher-margin products.

The vast majority of the full-year decline in both C9 and American Casualwear is expected in the second half of the year. The mix impact of these assumptions should yield significant margin improvement in our Activewear segment for the year with margin expansion in each quarter.

For the first quarter, we expect Activewear segment sales to increase approximately 10%. In our International segment, the midpoint of our full-year guidance assumes reported sales growth of approximately 6%.

On an organic constant currency basis, our guidance reflects approximately 8% growth, driven by our International, Champion businesses as well as our Innerwear business in Asia, Australia and the Americas. Partially offsetting this are the macro headwinds impacting our European Innerwear business.

For the first quarter, we expect reported revenue growth of approximately 8%, which includes the nonorganic contributions from Bras N Things and approximately $40 million of currency headwind.

At the midpoint, our full-year guidance implies approximately 50 basis points of gross margin expansion and 10 basis points of adjusted operating margin expansion. We expect interest and other expenses of approximately $224 million and a tax rate of approximately 14%.

Therefore, our full-year adjusted net income guidance at the midpoint of our range is approximately $643 million. Our guidance assumes diluted shares outstanding of approximately 366 million. Our 2019 outlook assumes approximately $55 million of charges, of which $35 million are cash.

These charges reflect the completion of all remaining acquisition integrations as well as our supply chain actions, including the reduction of associated overhead costs, principally within our Western Hemisphere network.

This is $20 million higher than previously estimated, as we've expanded our plan to improve our cost position and drive improved profitability. In isolation, we would expect these actions to deliver approximately $50 million of incremental profit with approximately $40 million of that coming in 2020.

Lastly, with respect to cash flow, we expect to generate between $700 million and $800 million of cash flow from operations in 2019. And consistent with our normal seasonality, we expect cash flow from operations to be used in the first half. For 2019, our capital allocation priority remains focused on using all excess free cash flow to pay down debt.

Therefore, we currently project our leverage on a net debt to adjusted EBITDA basis to be approximately 2.9x at the end of the year. So in closing, we delivered a strong fourth quarter. Our diversification efforts are delivering consistent organic growth.

We are taking additional actions to improve profitability and we're well-positioned to further accelerate our cash flow growth in 2019 and beyond. And with that, I will turn the call back over to T.C..

Thanks, Barry. That concludes our prepared remarks. We will now begin taking your questions and we will continue as time allows. I will turn the call back over to the operator to begin the question-and-answer session.

Operator?.

[Operator Instructions] Our first question comes from the line of Susan Anderson with B. Riley FBR. Your line is now open..

Hi. Good morning. Nice job in the quarter. I guess, I wanted to maybe drilldown a little bit more on the Champion growth. It's nice to see that continued a growth strongly.

Maybe if you could talk about the growth across regions, and then also just the growth profile as we look out through 2019 where you think the opportunities are within shelf space, new doors and new products.

And then, also if there's any thoughts for the C9 brand after it exits the mass business?.

Hi, Susan. This is Gerald. Yes, thank you. We are very proud of the fourth quarter. We thought it really showed strongly the efforts we put in place to diversify our business and create many paths to profitable growth. And one of those is certainly the Champion brand as we look at the story, it's a great story.

The reuniting and elevating of that that brand globally has had tremendous success for us. As we noted in our comments, it grew at above 30% rate in 2018, and we are expecting that again in 2019 leaving us well ahead of our goal -- with the pace to reach our goal of $2 billion by 2022.

The acceleration is really -- and the strength is really around the world. We saw a strong double-digit growth around the world we noted in the fourth quarter. For example, that we -- excluding C9, it was up 50% on a global basis, the Champion brand. And we see it coming through expansion within our wholesale partners.

We also see it through our own stores around the world and partner stores and we're seeing it come online. In fact, some of the new geographies we're bringing on is we're seeing growth in China now as we’ve entered that market.

We’re seeing nice expansion of our presence in China as well as the Korean market has begin to -- beginning to develop for us. So we see a lot of runway to continue to build the business as we look forward just to -- I just had a personal opportunity to review the fall line.

It looks great and we see lots of opportunity to continue to incorporate more and more style into the brand. This is an important year for us. This is the hundredth anniversary of Champion.

And we’ve just launched our first global campaign behind the brand with a particular focus on that young consumer that’s really adopting the brand at 18 to 24-year-old group is going to carry this brand on to the next generation for us. From a standpoint of C9, we -- that brand continues to perform very well at retail from a point-of-sale.

We certainly continue to look at options for that. As you can tell from my comments, our first priority is to continue to optimize the performance of the growing Champion business, but we continue to look at options for that as well. And if one were to emerge that would just be upside to the strong momentum we have in the brand..

Our next question comes from Omar Saad with Evercore. Your line is now open..

Thanks for taking my question. Good morning. Really nice quarter. Great to see the cash flow production and debt reduction as well, guys. But I do want to ask a follow-up on Champion.

Really feels like the brands at a point where it could really benefit from a significantly more aggressive marketing spend, talent acquisition, it feels like -- especially when you’re talking about this basics, Champion basics business you are doing, you’re thinking more about segmenting the Champion brand across channels? Maybe you could talk about that.

The website too is another area where there is probably a lot of room for investment and opportunity, given what you got going on the brand. Maybe you could talk about how you’re prioritizing investments.

How much the investment that was increasing around Champion and how you’re thinking about segmenting the brand to keep it -- the demand forward as strong as possible? Thanks..

Sure, Omar. Yes, we -- you are definitely on the right track. We are stepping up the investment as I noted in my prior comment. One of the first things we’ve done is, is launch our first global campaign.

As you know, we've used digital very effectively to connect with the younger consumer, we're stepping up our efforts that way as well as driving this global campaign. Our online presence does have opportunity for further development and its one of our key focuses is to develop our own website as well as working with others on their sites as well.

And a key part of developing the business is the segmentation of the line and that was a lot of what I saw in the fault [ph] line that I referenced in the prior note. And one of the great things about having our global brands, our global connection of the brand is we’re able to lift and land products from around the world.

So we are carefully segmenting the business by channel and even within customers, within channels to keep that that strong presence for the brand and keep the differentiation for our core customers.

The basics reference was really around the basics socks and underwear business, its developing very nicely behind the brand and the strength of the brand and we are selectively placing that within our customers as well. And that’s differentiated as well by individual customer and channel..

Our next question comes from Laurent Vasilescu with Macquarie. Your line is now open..

Good morning and thanks for taking my question. I wanted to hone in on the U.S Activewear guide for 2019. If we take the guidance of 2.5% growth for 2019 and excel the C9 business by about $15 million this year. That would imply that the non-C9 Activewear business will be up about 7%.

Is that the right way to think about? And then, can you tell us how big the American Casual business was in 2018 and where does it go for 2019? Thank you..

Hi, Laurent. This is Barry. Good question. Let me dive a little deep into Activewear, US Activewear to help everyone. Within U.S Activewear, for the first quarter and really for the first half of planning U.S Activewear to be up slightly over 10%. Now for the year as you noted, we're planning the segment to be up 2.5%.

We're basically currently projecting the third quarter to be flat and the fourth quarter to be down mid to high singles, let's say 7%. Now if we dive deeper, let me start maybe by framing U.S Activewear based on some of the questions you just had. In 2018, that was about $1.79 billion for the segment.

Now that’s made up of C9 in Activewear of $382 million in 2018. As the Champion, recall Global Champion was $1.36 billion, of which about half of that was in the U.S. So that $680 million in total U.S Champion, but $30 million of that is in Innerwear for the basics that Omar was asking about. So there's about $650 million of Champion in U.S Activewear.

The balance of that, of the U.S Activewear segment, $760 million in '18 includes our American Casualwear business, our bookstore, our sports apparel, alternative apparel, there's a lot of businesses in there. So turning to 2019, you were correct. For C9, we're planning it down and really much of that is in the back half.

We are planning the first half to be down in line with the decline we saw in the fourth quarter, so it's down about 4%, 5%. As Gerald noted, we got good visibility on first half bookings already.

As the program winds down, we're planning for the third quarter to be down, say, 15% in the fourth quarter, down about 30%, that’s about $15 million and $30 million, respectively, or $45 million for the back half. Now that brings C9 to be a decline of just over $50 million or 14% for the full-year.

We've got U.S Champion up on a percentage basis in the high 20s, which is about $180 million of growth for the U.S Activewear segment. Now we’ve that plan in the first quarter, up more than the full-year, following the trends we saw in the fourth quarter of '18 and additionally the bookings we already have from customers.

We assume the year-on-year growth kind of naturally tapers as we start to lap higher comps through the year, though with double-digit growth across all the quarters.

And frankly that that trajectory is just us being prudent and frankly I think this is probably an area where we could prove to be conservative because Champion is doing incredibly well, and we continue to fuel its growth, but will update you all as we move through the year.

And that brings you to that balance of U.S Activewear, which year-on-year is impacted by the transition of the higher margin products that we mentioned out of the American Casualwear business as we transition there and we anticipate the balance of the business to be down, say, 11% or 12%, which is about $80 million with the more of that in the back half.

So that was a lot, but I appreciate the question. I wanted to help you on packet..

Our next question comes from Jim Duffy with Stifel. Your line is now open..

Thank you. Good morning. Nice work on the cash flow, guys.

Barry, can you help us by speaking to the building blocks of the '19 cash flow from operation guidance, including the working capital components that bridge the gap between the GAAP net income guide of 596 at the midpoint and cash flow from ops guide at 750 at the midpoint?.

Sure. Thanks, Jim, and appreciate the kind words about '18. It is a big team effort and we're very pleased with the performance. And I think it speaks to what we've got going forward in the cash flow in this business inherently. So moving to '19, yes, I will start exactly where you did with GAAP net income of $596 million at the midpoint.

If you add back our non-cash items for such things as D&A and stock comp, that’s probably in the order of the same area it was this year for those items, which is about $180 million -- $170 million, $180 million.

Note that in the supply chain actions and charges we mentioned of the total $55 million, I called up that about $20 million of that is non-cash, so you would add that back. Just those two alone with our GAAP net income puts you very close to the high-end of our cash flow guidance for the full-year.

And so if you think about our midpoint, frankly I’m just kind be in a little bit conservative on working capital. When I say conservative because frankly the team has got a lot of actions around continuing to reduce inventory as we move through the year.

And as you noted or as we've noted before, I should say, we grew inventory to support Champion and I think as we move through the year we will be able to sell that down. So I feel very good about the cash flow guidance and frankly moving forward into 2020 and beyond..

Our next question comes from Jay Sole with UBS. Your line is now open..

Hi. This is Eddie Ryan on for Jay.

So, can you help us unpack that 50 basis point gross margin expansion guide for the full-year? And how much of that is mix versus pricing versus product cost?.

So I would tell you that there's a nice piece from pricing in our Innerwear business. When you think about the pricing opportunity we noted last year that we had about, call it, $40 million of input costs inflation, we will price for that here in the mid quarter of first quarter, we’ve taken a conservative view on elasticity.

And so I would say that pricing is driving about, call it, $40 million or so of benefit. In the year, you'll lap and get more of that in the first quarter of 2020. There's a very nice mix coming out of both Champion on a global basis together with the remixing, that transition we mentioned out of some of the lower margin products in Activewear.

And those are the primary items, I call out and then as it relates to one -- couple of drags, when you think about our Innerwear guidance and it's kind of our prudent nature for where we're guiding U.S Innerwear, that’s a higher-margin segment.

So as it has organic, if you will, non-price based decline, that will drag on margin, that will impact the first quarter since we don’t have the pricing benefit until the second. So those would be some key callouts..

Our next question comes from Simeon Siegel with Nomura/Instinet. Your line is now open..

Yes. This is Dan Stroller on for Simeon. Thanks for taking our question.

With regard to Champion growth this year, is there any way to parse it out the expectation for North America growth between units and price and expanded distribution and comps? And then on the Champion source, is there any productivity and metrics you’re willing to share, that would be great. Thanks..

Yes. I would say, when you look at our Champion business beyond just the U.S., it's globally we're seeing good benefit from both distribution expansion, more space within the customers we already have, as well as price. So it's really a blend of everything you mentioned.

Additionally, we will have some more retail store outlets as we continue to build those out around the world. So it's a good balance..

Our next question comes from John Kernan with Cowen. Your line is now open..

Good morning, guys. Congrats on the progress..

Thanks, John..

Thank you..

Can you talk to the Innerwear category, in general. You had clearly made some progress in the fourth quarter. The trend of the business did show improvement. You have had some revitalization initiatives in that category.

Can you just talk to the overall health of that channel in terms of inventory and how you're viewing that, the Innerwear, particularly in the mass category going forward?.

Yes. John, we are very pleased with Q4 in our U.S Innerwear business. It came in right on our guidance and was flat to last year. And you're right, we're seeing a lot of positive signs in that business were basic revenues up 2%, our space is expanding for 2019 in basics. We got price increases in place.

In our intimates, we're seeing traction behind our initiatives there. So we feel we’ve got our business on path to return to growth long-term.

We’re viewing the market with caution and we noted that in our comments certainly the Shopko bankruptcy coming early in the year on top of the late 2018 Sears bankruptcy and some general thoughts that there could be other door closures in the market or -- and or tightening of inventory caused us to really step back and view the market with little more caution as we entered the year.

We adjusted our numbers accordingly. And we do acknowledge that some of these assumptions could prove to be conservative as we work through the year, but given the ongoing upheaval at retail, we felt it was best to approach the year with some caution. From the standpoint of the market, it's generally performing as we expect.

And our inventories we finished in line with where we expected to be for the year and we -- you may recall, that last quarter we commented that there's been a little bit of a lag in reordering behind our POS. We saw that catch up early in the year and we felt like it -- and as we entered into the year, we were in line from an inventory standpoint..

Our next question comes from Tiffany Kanaga with Deutsche Bank. Your line is now open..

Hi. Thanks for taking our questions.

Would you break down and quantify your International performance for us in more detail by geography to give us a better picture of the sources and offsets of growth, especially if you call that headwinds in Europe Innerwear? Additionally, how much margin expansion can we expect for the segment in 2019 as we move further past the Champion Europe and Pacific brands acquisitions? Thanks..

Yes, let me take the first part of that question. I will let Barry take the last part of the question. From the standpoint of our International business, its -- it did -- it perform tremendously well in the quarter and really speaks to the strength of what we've been building there, and the diversity of what we're building.

We saw strong growth with Champion across the businesses, but we also saw strong growth across our Innerwear businesses in Asia, Australia and the Americas. And we saw 200 basis points of operating margin improvement in that business in the quarter, so you're seeing the synergies come through.

As we noted in our comments, there was some softness in our European -- in Europe that we experienced in our Innerwear business, and that were really macro pressures. We're were well-established in the German and the French economies and our French markets, and those economies did feel some slowing as we went through the back quarters of the year.

We saw the apparel businesses in total slower, the category is low in total in those markets in back half of the year. Our shares held as we came through and we have leading shares in those markets. So that’s important for us to know and it tells us our businesses are solid in those markets.

So as we looked into 2019, we are guiding toward a high single-digit organic constant currency growth again for our International businesses, including a strong first-quarter. And it's going to be driven again by our Champion growth, but also Innerwear growth across Asia, Australia and the Americas and we have cautiously planned Europe.

Should that market begin to turn from a macro standpoint and certainly we'd see some improved performance there as well..

Hi, Tiffany. This is Barry. I will give you a little bit more help on sales and maybe operating profit, some thoughts to think about. In our International segment, we have reported sales growth expected around 8% in the first quarter and its about 6% for the year.

Now as we've already mentioned, in the first quarter reported growth is benefited by both the organic, but also the inorganic growth from Bras N Things offset by unfavorable FX. And the remaining quarters we’ve got them planned very similar in terms of growth with one call-out being that we expect FX to still be a headwind in the second quarter.

From a profit standpoint, if we just start with sales, I think International operating profit is probably up $35 million, $40 million on $136 million increase in sales. Bras N Things inorganic contribution as we call that is about $3 million held, but that's more than offset by the FX headwind to say $7 million.

Now that -- those note -- I would note that we will be investing to support our brands on a global basis and in total for the company I would estimate that our increase in investment to support growth is probably in the $25 million range year-on-year with the vast majority of that supporting brands and a slight expansion to our distribution network to support all the growth we're experiencing..

Our next question comes from Steve Marotta with CL King & Associates. Your line is now open..

Good morning, Gerald, Barry, and T.C. Considering the guidance for the current fiscal year includes the basis point gross margin improvement and 10 basis point increase in operating margin. There is an inherent SG&A deleverage there.

I believe you mentioned in the prepared remarks that you will be increasing marketing as well as investments for the year. Can you talk a little bit about those -- I think quantify to the best you can. Also if there's lumpiness from quarter-to-quarter standpoint, that would be extremely helpful as well..

Okay. Sure. I mean, I guess I would start with where I just finished off, the big investment that we’re make -- one of the big investments we’re making is the -- that to support growth, and that’s $25 million globally.

I would generally plan that kind of rev pro rata across the quarters, and that's one of the reasons why the first quarter is showing profit that we have there. So a figure of, say, $6 million of headwind to the first quarter profit from those investments to support growth.

And we are naturally adding back the one-time bankruptcy charge we had in '18 and that’s partially offset by a variable compensation going back to target levels and things of that nature.

But for the most part, Steve, we feel very good about where we are and other than the first quarter call out, which we have in both the FAQ and I spoke to some extent, I would say the year is consistent in seeing margin expansion second-quarter through fourth quarter..

Our next question comes from the line of Heather Balsky with Bank of America. Your line is now open..

Hi. Thank you for taking my question. I guess, I had a question and then a follow-up. The first is, you talked about putting more marketing behind Innerwear and your basics.

I was hoping you could talk about sort of what level of marketing are you putting in and your willingness to kind of spend to reinvigorate that business? And then I will get to my follow-up..

Let me just start with how -- what we’re going to do and I will let Barry comment a little bit on the other pieces of it. But from a standpoint of what we’re doing, we are certainly going to put support as we always do behind our basics business.

We’ve got some important innovations out there and we will support those with our ComfortFlex Fit underwear being, in particular, one of them. On the Intimates side, we’ve been supporting our Bali [ph] business and we intend to do that, but we also intend to invest behind our Maidenform business.

It's -- it has a lot of appeal among the millennial consumer and we intend to take the -- take some success from our playbook with Champion and apply to Maidenform and really begin to connect digitally with the young consumer. And we opened up maidenform.com at the end of the year.

We're already seeing some nice connection and the younger consumer coming to the brand and we will reinforce that with our investment..

[Operator Instructions] Our next question comes from the line of Chethan Mallela with Barclays. Your line is now open..

Hi. Good morning. So two quick questions for me.

First, as we think about the 50% constant currency growth rate for Champion, excluding the C9 business in the quarter, can you just help us think about the relative growth rate between the performance in the lifestyle product? And then second, on the Innerwear pricing, I believe that it's going in effect at the beginning of February.

So can you just talk about what you’re seeing in the competitive marketplace, whether you’ve seen your peers start to move or not. And it's probably too early to see real reads, but I think you referenced more cautious elasticity assumptions than before. Just a little more detail on how that’s changing and why? Thank you so much..

Sure. From the standpoint of Champion, we're seeing growth across the entire business. They’re certainly developing performance business within that broader range and certainly the business had a performance heritage.

So we see that we’ve got breadth and development of the line across and I think many would say that after six -- well two years now, strong growth that’s circling far beyond a fad. This is a real growth brand and we’ve got a lot of room to continue to grow that business. From the standpoint of our price increases, they are going in place as we speak.

And so they’re -- are going into the market. We've seen that many consumer goods or companies are also implementing price increases and so we all know that we're dealing with input costs and many others are taking price increases. It's hard to say what the competitive market will do.

We have seen some of our competitors in some of our other businesses, like Printwear, take price increases and they too are incurring input costs increases, and I’m sure that they will have to deal with those as we go forward, but that's yet to be seen.

Barry, anything on that?.

From elasticity standpoint, I think it was the final part of your question. We plan the price increases going mid-quarter and we planned cautiously. We'll see how that plays out..

We have a follow-up question from the line of Heather Balsky with Bank of America. Your line is now open..

Hi. I was supposed to have a follow-up. So here I’m. The other question is with regards to your synergies and your savings from Project Booster.

Can you just update us on where you’re and how much you’ve remaining for the, I guess, actually your …?.

Yes, Project Booster has been a great program for us. We’re generating a lot of savings as we've gone through the program. The environment has changed a lot since we started that program, and we’ve experienced some broader and higher input costs inflation over that period of time and had some additional door closers.

But as we looked at it, there's really two areas. Booster had two main elements, a cost savings element and an investment element. And those benefits are visible in the expanding gross margin certainly from a savings standpoint. And we’ve had a multiyear increase in brand support that that is showing up when we are discussing numerous questions today.

So at this stage everything that -- from Booster is flowing through, but as is always in our DNA we're moving on to the next cost savings project and that’s the Western Hemisphere project we spoke about in our comments and Barry referenced, where we look to further tighten our supply chain and improve the -- and eliminate some overhead costs as well.

As we noted, that will be a two year savings project, that will generate about $50 million in total, about $40 million of that would be in 2020, and the balance of $10 million would be in 2021..

Our next question comes from Carla Casella with JP Morgan. Your line is now open..

Hi. I’m wondering if you can talk to the department stores and how much you built into your guidance further closures from Sears and J. C.

Penney? And then what percentage of your sales are department stores today?.

Hey, Carla. It's Barry. We are taking, I would say, prudent approach as it relates to Sears. We have not included it in our guidance for 2019.

And as Gerald mentioned in his prepared remarks, if you kind of look at our U.S Innerwear business, factor out the pricing, kind of think about the Sears point, what we really planned is kind of conservative view as it relates to midtier department store.

And while we don't have any specific windows, one additional small bankruptcy earlier and that's about $10 million of sales.

But beyond that, the remainder of the decline network kind of forecasting is all in the area you're describing, and I would describe it just being kind of prudent because we are seeing some nice trends in our Innerwear business as it relates to basic space and just the trajectory of we saw in the back half in that kind of movement in the fourth quarter off the third quarter trend.

So we feel good about where we are. I think we're planned in that area and we will continue to update you through the year..

And that concludes today’s question-and-answer session. I would like to turn the call back to T.C. Robillard for closing remarks..

We like to thank everyone for attending our call today. We look forward to speaking with you soon. Have a great day..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day..