Ladies and gentlemen, thank you for standing by, and welcome to the HanesBrands First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions].

I'd now like to hand the conference over to your host today, Mr. 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 are pleased to be here today to provide an update on our progress after the first quarter of 2020. 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 include those related to the impact of the COVID-19 pandemic as well as related measures to combat the pandemic taken by governmental or regulatory authorities on our business and operations as well as the business and operations of the consumer, our customers, suppliers, business partners and labor force as well as those risks detailed in our various filings with the SEC, which 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 exclude all restructuring and other action related charges and expenses.

Also, please note that unless otherwise stated, all prior year comparisons are to 2019 results that have been rebased to reflect the exited C9 Champion program at Target and the DKNY intimates license..

Gerald Evans, our Chief Executive Officer; and Scott Lewis, our Chief Accounting Officer and Interim Chief Financial Officer. .

For today's call, Gerald and Scott will provide some brief remarks and then we'll open it up to your questions. I will now turn the call over to Gerald. .

Thank you, T.C. Good morning, and thank you for joining our first quarter earnings call. Given the uncertainty in the market, we understand that investors are more focused on how our business is positioned to perform in both the current and post-pandemic environments.

While we'll discuss our first quarter results, including our better-than-expected Innerwear performance through mid-March, our focus for today's call will be on our current business trends, our cost reduction initiatives, the creation of a new business line for cloth mask and personal protection garments and our substantial liquidity position, which we believe provides ample capital cushion even under a prolonged shelter in place scenario.

This combination maximizes our operating flexibility in the current environment, strengthens our long-term earnings growth profile and positions us to take advantage of current and future opportunities. .

Before I speak to the quarter's results, I want to recognize the efforts and sacrifices being made by HanesBrands' employees around the world. They have allowed us to continue to serve our customers and consumers from these uncertain times.

They are also the driving force behind HanesBrands' established reputation for corporate citizenship and social responsibility. As an organization, we have committed to help fight this global pandemic, which includes shipping our manufacturing to produce cotton face masks.

Our employees are our greatest asset, which is why I would like to personally thank each one of them for their contributions..

Turning to our results. The first quarter was marked by 2 radically different periods as the global spread of the coronavirus accelerated in March. We experienced an unprecedented sudden drop in sales and profit late in the quarter. Although, we have seen orders resume in April.

Our global shipments and sales essentially stopped in the last 2 weeks of the quarter as our customers reacted aggressively to the shelter in place announcements by delaying or canceling their orders. .

This abrupt reaction by our customers more than offset the strong revenue and profit performance across our businesses through the second week of March, particularly within U.S. Innerwear and U.S. Activewear. Through mid-March, U.S.

Innerwear revenue was down less than 1% over prior year, well ahead of our initial forecast as our turnaround initiatives were gaining momentum. During this period, point-of-sale at our top 7 customers, which is where we focused our new innovations and revitalization efforts, increased 3% in both basics and intimates.

And our market share improved meaningfully in basics, bras and shapewear. And in U.S. Activewear, revenue through mid-March was up mid- to high-single digits, driven by Champion..

For the quarter, our cash flow performance was strong and ahead of our plan despite the sudden COVID-related fall off late in the quarter. Inventory reduction initiatives, timely supply chain actions and strong working capital management delivered a year-over-year improvement in cash flow from operations of more than $100 million.

In the quarter, we estimate that COVID-19 impacted revenue by approximately $181 million, operating profit by approximately $86 million and earnings per share by approximately $0.20. .

Adjusting for the COVID-related impact, first quarter revenue would have increased 1.6% on a constant currency basis. Operating profit and operating margin would have been consistent with prior year and earnings per share would have increased 14%. Make no mistake, the COVID-19 environment is a true challenge.

However, we're encouraged by our pre-COVID performance and underlying business trends. This underscores the health of our brands, the building momentum in our U.S. Innerwear business, the continued consumer demand for Champion and the strength of our cash flow model.

Given the long-term stability of our categories, we're confident our business can return to these performance levels in time..

We have seen orders resume in April as consumers and retailers have begun to adapt. Online growth has rapidly accelerated each week, reaching triple-digit growth rates across a number of our customers, online platforms as well as our own champion.com and maidenform.com sites.

Consumers are also buying our categories at stores within the mass, hypermarket, dollar store and drug store channels. The basics reset at a large mass retailer is progressing and we have back-to-school orders from some of our large customers. Over our 120-year history, we have faced a number of significant challenges.

Each time, we've adapted our model, improved our position and emerged a stronger company and we expect to do the same in light of this recent challenge..

one, support our current customers; two, reduce cash-based expenditures; three, ramp new revenue opportunities; and four, ensure we have ample liquidity, even under our conservative stress test scenario..

Touching on each of these initiatives. First, we're supporting our existing customers that remain open in a safety-first manner. We're starting to see a new baseline of orders within this customer set and we're focused on aligning our inventory and production to be able to meet their back-to-school and holiday plans.

The second initiative is to reduce cash-based expenditures. We've reduced our CapEx to critical needs as well as suspended share repurchases. We're aggressively managing our working capital. We've taken a number of timely actions to reduce inventory.

We're working with our suppliers to extend our payable terms and many of our largest customers continue to pay on schedule. .

We have also implemented approximately $200 million of cost reduction initiatives. The majority of these savings are from the temporary salary reductions and furloughs that began in mid-April. The remainder are a mix of discretionary spending areas, including media and marketing.

However, we're continuing to invest media and marketing dollars within the digital channels as the pandemic is driving further penetration of online shopping. The third initiative in our pandemic strategy is to ramp our mask and protective garment business.

We believe this has the potential to be a substantial contributor of incremental profit and cash flow over the next several years. Our ability to quickly shift our manufacturing operations to produce new products underscores the competitive advantages of owning our manufacturing network that is balanced across hemispheres.

We are currently manufacturing reusable face masks for the U.S. government as well as launching a HanesBranded consumer program for several customers. Combined, we believe these programs can generate well over $300 million of sales in 2020..

Looking forward, there is an expectation that the COVID-19 pandemic will result in more widespread mask usage by consumers and businesses globally. Over the past several weeks, we have seen a strong influx of inquiries across a number of geographies from governments, retailers, large corporations and individual consumers.

Based on the current interest from potential customers as well as the anticipated change in consumer behavior around the world, we believe our mask and protective garment business could be a sizable revenue opportunity with growth potential over the next several years..

And the fourth initiative in our pandemic strategy is to further strengthen our substantial liquidity position. While this may prove to be overly conservative, we want to be prudent and proactive, given the unpredictability of the virus.

Subject to market conditions, we intend to secure approximately $500 million in debt financing with the proceeds used to repay our revolver, thereby increasing our liquidity to nearly $1.6 billion. We believe this level of liquidity provides us with an ample capital cushion even under stress test modeling scenarios..

So in closing, our brand positions are strong. Our supply chain continues to create substantial value. The combination of our pre-COVID performance and the addition of a new protective garment business points to a strong growth profile once the environment stabilizes. And we are a strong cash flow generator with ample liquidity.

We believe all of this positions us to once again emerge from a challenging environment as an even stronger company, one that is well positioned to take advantage of opportunities..

And with that, I'll turn the call over to Scott. .

Thanks, Gerald. Despite the unprecedented rapid falloff in consumer demand in March due to the global pandemic, we're still able to reduce inventory at 12% over prior year, improved cash flow from operations of more than $100 million and demonstrate that we have the right turnaround plan in place for U.S. Innerwear.

In addition, we identified a ramped, a new business line in less than 30 days in the midst of the crisis. These are all indications of the strength and the flexibility of our business model..

Turning to our results. First quarter sales declined 12% over prior year to $1.32 billion with foreign exchange rates accounting for 135 basis points of the decline. Excluding the COVID-related impact, we estimate first quarter sales would have increased 1.6% over prior year on a constant currency basis.

Adjusted gross margin of 37.6% decreased approximately 300 basis points over the last year and more than half of the decline due to the impact from COVID-19 and foreign exchange rates. The remainder of the decline was driven by the expected transactional FX and mix related headwinds.

Adjusted operating margin of 4.8% declined approximately 520 basis points. All the decline was due to the estimated $86 million impact from COVID-19, which includes an accrual for anticipated bankruptcies of approximately $11 million or $0.03 per share..

Interest and other expense declined $12 million to approximately $43 million due to lower average debt balances throughout the quarter. Restructuring and other related charges were approximately $29 million. Recall that the majority of our full year supply chain restructuring actions and program exit costs were planned for the first quarter.

Our full year restructuring and other related action plans remain unchanged. In the quarter, we repurchased approximately 14.5 million shares with a vast majority purchased in February. For the remaining 3 quarters of the year, we expect average diluted shares of approximately $353 million.

Adjusted earnings per share was $0.05, while GAAP earnings per share was a loss of $0.02. Excluding the estimated $0.20 per share impact from COVID-19, adjusted EPS would have increased 14% over prior year..

Now let me take you through our segment performance. In each of our segments, revenue and profit trends were at or above our expectations through early to mid-March.

This performance, however, was more than offset by the sudden COVID-related falloff, particularly in the last 2 weeks of the quarter as our customers postponed or canceled orders, a reaction to shelter in place orders around the world..

Looking at the pre-COVID trends in our segments, our U.S. Innerwear segment performed well above our expectations through the second week of March as revenue was down less than 1% over prior year.

During this period, we were experiencing solid trends across all channels, including strong basics outperformance within the test stores at a large mass retailer. We believe our pre-COVID performance, including point-of-sale and market share trends, demonstrate our innovations and intimates revitalization efforts are working..

Turning to U.S. Activewear. In the second week of March, revenue was tracking up mid- to high-single digits compared to prior year and was ahead of our expectations.

The strong performance during this period was driven by continued demand for Champion as well as growth in our other Activewear brands, led by sports licensing in the mass and mid-tier channels and seasonal Activewear in the online channel..

Switching to our International segment. The timing of the coronavirus impact varied by country and region. On a constant currency basis, revenue through February increased at a low single-digit rate in nearly all of our main geographies.

Growth in Latin America and Australia was Innerwear-driven, while Europe's growth over this time was led by Champion..

Touching briefly on our global Champion business, excluding C9, constant currency revenue for the quarter declined over prior year, both domestically and internationally. Adjusted for the estimated COVID-related impact, global Champion sales would have increased approximately 7% over prior year..

Turning to cash flow and the balance sheet, we delivered a strong cash flow performance in the quarter. Cash flow from operations improved about $111 million over the prior year and was ahead of our forecast.

The strong performance was driven by previously planned inventory reduction efforts, continued working capital discipline and timely actions taken within our manufacturing network, including planned capacity reductions as well as our [indiscernible] to manufacturing facemask..

First, we closed on a 15-month covenant amendment on our senior secured credit facility, which includes the suspension of our leverage covenant until the end of the second quarter of 2021; and second, subject to market conditions, we intend to secure approximately $500 million of debt financing with the proceeds used to repay our revolver, therefore increasing our liquidity to nearly $1.6 billion.

.

While these precautions may prove to be overly conservative, we want to ensure that even under our stress test scenario, we had a significant capital cushion and that we're able to maximize our operating flexibility and be well positioned to take advantage of opportunities.

Due to the uncertainty and unpredictability of the COVID-19 pandemic as well as the current lack of visibility in our business environment, we are not providing second quarter or full year 2020 guidance at this time. However, I would like to share a few thoughts to help frame some of our key levers within our business model..

Currently, stores that represent approximately half of our sales are closed. We have modeled several different financial scenarios driven by the timing of these doors reopening. In our base case, we assumed these doors gradually reopen beginning in late May. In our downside scenario, we assumed doors began gradually reopening in early July.

We even ran a stress test scenario that assumed these doors did not reopen until early October. Each one of our financial modeling scenarios indicates that the second quarter is expected to be the low point for revenue, profit and cash flow and that we're able to generate positive cash flow for the second half..

Our mass revenue comes primarily in the second quarter; we have a high 30% decremental operating margin; a tax rate of 14.5%; extended payment terms for roughly half of our receivables balance; and a net neutral effect from working capital..

So in closing, we're in a strong position to navigate the COVID-19 environment.

We have taken a number of proactive steps in terms of cost and cash flow management, identifying and ramping new source of revenue and further strengthening our substantial liquidity position, all of which we believe maximizes our operating flexibility, strengthens our long-term business model and positions us to take advantage of current and future opportunities..

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

Thanks, Scott. That concludes our prepared remarks. We'll now begin taking your questions and will continue as time allows. I'll 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 Omar Saad with Evercore ISI. .

Congrats on a decent quarter given the backdrop. I appreciate all the information. I'm going to ask my question a little bit more on the offense versus the defense side of the equation. I was pretty interested in some of your commentary around the e-com trends you're seeing, especially champion.com as well as the masks program.

Maybe on the e-com side, you could give your thoughts in terms of the traffic. How sticky you think it is there? Where we are on the Champion website, apps loyalty program, hanes.com, too? Maybe give us a little update there, what's happening on the Hanes side..

And then just a little bit more color on the mask program. It sounds like you think it's both a near end, maybe a more medium or long-term opportunity.

Some color there in terms of what you're able to do? What types of customers you'd be working with? And is the number you put out there for this year, is that all government programs? I think it's a $300 million number, is that all government programs? Or does that include some consumer as well?.

Sure, Omar. Good morning. This is Gerald. Let me take you through that. We are -- as we came out of April -- out of March and April, we did see orders resume with our -- in the doors that we're opening. We did see consumer behavior beginning normalize where we were selling products.

And we've seen nice improvement in trends in our doors that are open across the mass channels and dollar stores and so forth. And importantly, online, to your -- specifically to your question, we've seen strong increase in sales across our categories and I'm talking to you really globally here.

We've seen generally a doubling of sales over the last few weeks to a normal level on our online sites. .

And in the case of champion.com, for example, we've seen a tripling of rate and we're getting the rates that are at the Black Friday or Cyber Monday range. So we see a real strength coming. And to your -- and hanes.com as well has been delivering extraordinary results and maidenform.com as well that we just ramped last year.

So we're very pleased with how they're performing. We do think that the effort we've put into building a direct business is paying back for us right now, and we're on course. And I think that we're all convinced that it's going to be an increasingly important part of our business as we go forward. So we're very pleased with that.

It tells us the consumer is out there, and they're looking for our products. And I think specifically, in Champion, that's a great example. As some of the brick-and-mortar outlets went down, they found our site and they've been buying very aggressively and that channel, looking for the brand they love..

From the standpoint of the mask program, we are very pleased with the mask program as well. We got, initially, as a way to supplement a shortage of supply, working with government consortium. And much of the number that we discussed in the call was that program, which we've ramped very rapidly now and we're distributing to the government.

We have though identified an opportunity for a consumer program as well. We've been getting questions from some of our retailers and so forth. So we're launching a Hanes mask program right now. So there is a modest amount of volume in the number we quoted, which is that program as well. .

But looking forward, we think there is potential for this business to not only to a permanent business, but be a bigger business over time. We see the changing in consumer behavior. We see the fragmentation in the supply base and we're getting lots of inquiries from governments around the world.

This is just not an American thing, this is a global need. We're getting it from governments, we're getting it from businesses as they begin to think about opening up and we're getting it from retailers wanting to reach consumers and there is an online possibility here as well.

So these are the kind of categories that when they emerge that we think we're uniquely qualified to take and manage and, frankly, drive sales and margin.

When we look across the opportunity to bring a trusted brand like Hanes in combination with innovation and run it through our large-scale production and sell it through our international network, really tells us this is a business to build upon. .

Our next question comes from Susan Anderson with B. Riley FBR. .

Nice job managing the business and the cash flow in this environment. I was wondering if maybe you could touch on the production side of things. It sounds like you're kind of running your plans based on supply.

So I guess, does that mean you'll open them for a few weeks and then shut? And then how does that kind of flow through the P&L? Are there any costs that weigh on the system, I guess, to start and stop? And then it sounds like digital is off to a strong start.

I don't know how much detail you can provide just on the C9 launch on Amazon, I'm sure it's clouded by the environment, but any thoughts there would be great. .

Sure. Thanks for that question, Susan. On the supply chain side, we saw the March sort of abrupt end of sales or this lockdown of markets come, we took very aggressive action in taking down our supply chain to keep our inventory in line.

And as you can see from the strong cash flow and our inventory positions, inventory was an important part of delivering that cash flow. That did create some additional deleverage in the quarter, about $12 million of variances did come through as we took the time to take that down and protect the cash flow.

We've since now pivoted our supply chain to making mask in many cases as well as we have demand adjusted in some of our facilities to protect the facilities and the production so that as we see demand ramping back up, we're prepared to ramp back up into that back-to-school period. .

And like everything else, we're planning a number of scenarios to ensure that we're ready to service the businesses around the world as they ramp up. The cash flow was an important achievement for us. We came in over $100 million lower in usage this year than last year on cash flow.

And if you look at that on a 12-month basis, now that would put our operating cash flow at over $900 million, which was the objective we set out in our 2018 Investor Day. So a very important milestone, speaks very strongly to this underlying strength of the business as we emerge from this pandemic..

From the standpoint of C9, we did launch C9 mid-March. So just not too long ago now and it's off to a good start. We launched it fairly smally with -- on a small basis with Amazon. We've seen it perform. I think we're both very -- we're both pleased with where it is and we'll see how it ramps.

It did get a little masked by all the other noise in the market, but I think it's performing up to expectations at this point. .

Our next question comes from Jay Sole with UBS. .

I just had a question about the inventory. Obviously, inventory down 12% is a good sign. Within the Innerwear, obviously, there is not a lot of markdown risk because it's very basic items, except for maybe some of the intimates apparel that's kind of seasonal -- has some colors, they're seasonal.

Can you just walk us through the Activewear segment, gear for sports, nights, alternative? Like what kind of maybe -- what percentage of the inventory is more seasonal in that business? And then maybe international, thinking about bonds and some of the other parts there that maybe we don't talk about as much.

What kind of actions might you have to take in Q2 to sort of move through that inventory and get clean, to have a strong rebound in fiscal '21?.

The initial actions we took were to take the supply chain down immediately in mid-March.

But what I would say beyond that, as we look over the horizon, we've been thoughtful as we look in the Activewear business into narrowing our offering, working specifically with the customers that we think will reopen and ensuring that we have the sets for them, but we're not taking any risk on overhang.

If we don't believe the product is going to be sold, while we are not producing it at this point in time. So we don't feel that we're going to have a lot of Activewear overhang or seasonal overhang as we look to the next season. .

In the instance of our bookstore business and so forth, we produced that to order for the accounts. We produced small-run productions to meet the individual needs of the bookstores. So we -- again, we feel that we're well positioned there in inventory.

And as we look at our global businesses and I'll use bonds as a great example, that's a business that is heavily retailed in our own stores as well as online and we flow goods frequently through that model. So as a result, we don't hold a lot of one specific line at any point in time. We made the appropriate adjustments.

So we think we're well positioned from an inventory standpoint to ramp back up without having any real trailing inventory to deal with of any significance. .

Our next question comes from Jim Duffy with Stifel. .

You guys spoke to orders for back-to-school.

Could you generalize the degree to which these are below prior year or prior expectations?.

And then a point of clarification on the $200 million spending reductions.

Did any of this amount get captured in the first quarter?.

Jim, this is Gerald. Let me take the first and I'll let Scott talk about the second part of that question on the savings. From the standpoint of looking at back-to-school, as we noted in our comments, about half of our doors are open at this point in time.

Certainly, the mass channels and so forth are open and the dollar stores and they are very actively planning back-to-school with us. It's a fluid situation from a standpoint of the entire account base that we have because some are still shut down at this point. .

But the ones that are open are very actively planning for back-to-school. We're in dialogue with the ones that are still closed and looking at multiple scenarios with those accounts as well. And as I noted in one of my prior comments, we're aligning our production under various scenarios to be able to ramp up to take advantage of that.

So early days to know exactly how big back-to-school will be in total, but I think with our key customers that are open, we're expecting a good back-to-school and we'll plan with the others as they ramp back up..

Scott, do you want to take the second part of that question?.

Yes, sure. Thanks for your question. Yes, we are very focused on reducing costs in this environment, especially cash-based expenditures. And to your point, we've already identified over $200 million of cost reductions this year.

We did see a little bit in the first quarter, but the vast majority of those cost savings will be in the second quarter and will continue on, depending on the extent of the duration of COVID-19 virus and the store openings when they come back on.

The discretionary spending focus right now is reducing that in every place that we can, especially very focused on media and marketing reducing spending in those areas. .

Really not much -- none in the first quarter. .

Very little in the first, but most heavily in the second quarter. .

Our next question comes from Paul Lejuez with Citi Research. .

This is Kelly on for Paul. I'm just curious about your exposure to some of the maybe weaker customers out there in the department store channel. We've heard some talk that some stores might not reopen at all.

So what is your exposure to some of those weaker department store channels? How are those discussions going with your customers there?.

And then secondly, on the mask gown program, could you give any color around the margin profile there?.

Sure. Let me start with the customers. We constantly monitor our exposure with all our customers as well as we're in conversations with them. As you know, we sell across all channels of trade and some are open, some are not open at this point in time.

And so we feel we've adequately covered our exposure at this point in time and we'll continue to stay in touch with our customers. Certainly, as we assess our liquidity models, we're very thoughtful about pressing on the receivables side as well to make sure that even in the lowest scenarios where we're well covered.

So we feel we've adequately covered it from the channel standpoint. .

From the profile of the mask business and so forth, I'm not sure if you're asking me the size or the opportunity. We see that the -- from the profile of it going forward, there is a very large consumer usage opportunity that's emerging.

There is always been more of the medical side and so forth, but what we see is consumer behavior changing that on a global basis. And in fact, it's a mandate that's emerging for some of these markets to reopen as consumer usage. So we like what we see there.

And the margin profile, we think, as we run it through our mass production capabilities could be in line with the corporate average. .

Our next question comes from Tiffany Kanaga with Deutsche Bank. .

Considering the now suspended leverage covenant of 4.5x net debt to EBITDA, do you anticipate exceeding net threshold in the coming quarters? And maybe you can give a little more color around where do you see the most flexibility remaining to preserve cash beyond the measures you've already successfully implemented?.

Yes, sure. And thanks for your question. Actually, earlier this week, we put in place a temporary amendment to our senior secured credit facility. That suspends our leverage covenant until the third quarter of 2021.

With the current challenging and uncertain environment, we felt like we were in the -- we wanted to do that now and help us with maximizing our operational flexibility as we manage through the crisis.

The covenant does contain some additional financial covenants by maintaining minimum liquidity balance and EBITDA levels, but we're very confident that we'll maintain compliance with these covenant requirements over that period.

Like Gerald mentioned earlier, we ran several different scenarios, including a stress test model, which had a prolonged shelter in place with stores not reopening until October and we meet that covenant threshold even under that stress test financial scenario.

And while this may be -- this precaution may be proved to be overly concerned about getting the amendment, we feel like this step is necessary and gives us flexibility and will allow us to take advantage of opportunities as we move forward. .

Our next question comes from Ike Boruchow with Wells Fargo..

Our next question comes from the line of Michael Binetti with Crédit Suisse. .

This is KC Katten on for Michael. I know you talked about a couple of different scenarios about reopening time lines.

But as you look to the back-to-school orders you have so far and speak with your retail partners, what is your outlook for what the ramp of consumer spending could look like post reopening? Like, are there any big differences you see between the ramp of what the Innerwear side could look like relative to the Activewear side? It sounds like today, maybe you're seeing a bigger snapback on the Champion trends? I guess any color there would be helpful.

.

Well, the opening is really in 2 ways. It's when the markets reopen to your -- and then the second part of it is then when the consumer spending ramps back up accordingly. We've considered both of those in our scenarios.

Certainly, there is an element of the business when you talk about back-to-school, quite a bit of it is actually done in the channels that are opening. And we're seeing nice sort of recovery in POS there week-to-week already.

So we feel good about back-to-school and those will be well positioned and we anticipate that we'll see some opening of some other of these channels, at least, as you heard in our scenarios, by late -- early July at the latest, which would still reach that back-to-school period. .

So that does give us a ramping into that back-to-school period that we would count on. We have generally seen it in our basics categories rebound the quickest and these seasonal items like a Champion or something will place as the next season places, so they would place into the fall in that August-September period as well.

And so we feel good that our categories tend to rebound over time. We've seen consistent usage as we've always said about our categories. And we think that we will recapture that lost ground as the markets open back up. .

Our next question comes from John Kernan with Cowen. .

I just wanted to ask on the gross margin. Obviously, there was some pressure in the first quarter, which is not surprising. Inventory looks fairly clean on the balance sheet. And given your commentary around it, you feel pretty good about the position there.

I'm just wondering, how we should think about the gross margin outlook for Q2 and the rest of the year.

Do you have additional reserves you're going to have to take? You feel like you're well reserved? And how much pressure, maybe in Q2, can you help us frame versus what you saw in Q1?.

Yes. At this point, as far as the rest of 2020, not giving guidance at this point with the uncertain environment. As we think about inventory and where we are, again, we feel like we're in good shape as far as the reserves that we have in place at the end of the quarter. .

Our next question comes from the line of Heather Balsky with Bank of America. .

First, you've touched on POS in an earlier question. I'm just curious in terms of your Innerwear business in particular.

Just if you could shed some light on what the trajectory in POS has looked like over the past few weeks and kind of where you are in terms of getting back to the baseline pre-COVID, especially in the mass -- in particular, mass channel.

And then separately, could you just touch on also the e-commerce launch of Champion on Walmart? The decision that went into that and kind of how you see that evolving?.

Let me -- from the first part of that POS, certainly, we've seen, as I noted in my comments, we've seen consumers in and retailers begin to adapt as we worked out of March into April. And we've seen as the government incentives have come into the market as well that we've seen a ramping of -- back of POS and improvement week on week.

So we like the trends we're seeing there. And of course, in the online channel, we've seen extraordinary POS strength beyond what we have typically seen. .

So generally, where things are open, we like where the trends are going. And we're seeing it, as I noted, particularly across -- as we look at basics, we see some good performance there. But as you heard me also say that consumers find in Champion online and they're going out and finding that as well.

Walmart.com in the listing of Champion, that was a deliberate focus with Walmart to stage our Champion business. On that website, there were a number of third-party sellers that were selling and positioning the brand we felt inappropriately and we were better positioned to position our brand and offering by working directly with Walmart.

So that's how that got on walmart.com. .

I'm showing no further questions in queue at this time. I'd like to turn the call back to T.C. Robillard for closing remarks. .

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..