Good day and thank you for standing by. Welcome to the HanesBrands Second Quarter 2021 Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference maybe recorded.

[Operator Instructions] I'd now like to hand the conference over to T.C. Robillard, Chief Investor Relations Officer..

Good day, everyone, and welcome to the HanesBrands Quarterly Investor Conference Call and Webcast. We're pleased to be here today to provide an update on our progress after the second quarter of 2021. 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 and measures taken by governmental or regulatory authorities to combat the pandemic on our business and our operations as well as the business and operations of the consumer, our customers, suppliers, business partners and labor force.

These risks also include those 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 and guidance exclude all restructuring and other action-related charges and speak to continuing operations. Given the short-term volatility of comparisons due to the impact of the COVID-19 pandemic, we have focused our comparisons to 2019.

Please note that unless otherwise stated, all comparisons are to 2019 results that have been rebased to reflect the move of our European innerwear business to discontinued operations as well as the exited C9 program at mass and the DKNY intimate apparel license.

Comparisons to 2020 results, 2019 results as well as 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 Steve Bratspies, our Chief Executive Officer; and Michael Dastugue, our Chief Financial Officer.

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

Thank you, T.C. Good morning, everyone, and welcome. Let me begin by thanking the entire HanesBrands team around the world. I can't express enough how grateful and proud I am of their dedication, their focus on safety and commitment to serving our consumers and customers under extremely challenging circumstances.

Our associates are our greatest strength, and I want to make sure they're recognized for all their hard work. To that end, over the past month, I've finally been able to get out, see parts of the business and interact with some of our amazing associates. I'm inspired by their commitment and talent.

There is a lot of excitement around our Full Potential plan and our associates are fully engaged. I visited some of our retail stores and came away impressed by the knowledge of our associates and their energy around serving consumers. And let me tell you, consumers are out shopping. It was exciting to see high levels of traffic in our stores.

I also had the chance to tour our New York Design Center, spent time with that incredible team and see a wide range of innovative new products in our pipeline for both innerwear and activewear. It's hard to believe it's been a year since my first day at HanesBrands.

Reflecting back, it's clear this is truly an amazing global company with a number of competitive advantages, iconic brands, distribution scale, owned manufacturing, a deep commitment to sustainability, a strong balance sheet and 61,000 passionate associates across more than 47 countries. We've accomplished a lot in a relatively short period of time.

We refreshed the leadership team, which is setting a new pace and driving change. We underwent a deep assessment of the business that not only highlighted competitive advantages I just mentioned, but also underscore the opportunities ahead of us and the changes we need to make.

We developed our Full Potential plan to unlock growth, which we shared with you in May, and we've taken action to simplify the portfolio, streamline decision-making and organize the business to optimize future growth. We're still early in our journey.

However, I am encouraged by the progress we've made and I'm excited about the opportunities ahead as we execute our Full Potential plan to generate higher, more consistent levels of revenue and profit growth. Today, I'll focus my remarks on two key topics.

First, our strong second quarter performance and our increased outlook for the remainder of the year; and second, a brief update on our Full Potential plan. Looking at the second quarter, we delivered strong results despite the increasingly challenged global environment and higher levels of inflation.

Revenue, operating profit, operating margin and earnings per share all exceeded the high end of our guidance range. We delivered strong operating cash flow performance in the quarter, and we further strengthened our balance sheet.

With the volatility from the pandemic impacting short-term comparability, like many of you, we are anchoring our comparisons to 2019. For the quarter, sales and operating profit increased 15% and 14%, respectively, compared to the second quarter of 2019. Revenue momentum continued to build across both our innerwear and activewear businesses globally.

In U.S. innerwear, sales were 19% higher than second quarter 2019. Over this time period, we gained 160 basis points of market share with gains in each product category across basics and intimates.

In addition to the strong underlying performance of our brands, the category experienced above-average growth due to certain transitory items such as retailer inventory restocking, government stimulus and pent-up consumer demand. In U.S. activewear, sales increased 15%, driven by growth in Champion.

We were pleased to see continued growth in Champion brand with global sales up 21% from 2019 levels. And in International, sales were 11% higher than 2019 with double-digit growth in Champion and high single-digit growth in innerwear in spite of COVID headwinds around the world.

With respect to our outlook, we raised our second half and full year expectations for sales, operating profit and earnings per share to reflect stronger-than-expected momentum in our business as well as benefits from the Child Tax Credit Payments in the U.S.

What's most encouraging to me about our second half outlook, despite higher-than-expected inflation, we're well positioned to generate higher operating profit dollars while continuing to execute against our brand investment strategy.

Investing in our brands is critical to the long-term success and health of our business, and we remain committed to it. Now turning to the second topic, our Full Potential plan. They were only in the early stages, we made progress in the quarter, and we're encouraged at how the plan is unfolding.

Without going through every initiative that we spoke to in May, let me provide a couple of updates. With respect to our Champion growth initiative, in May, we told you we were going to do three things to grow the brand, grow our core sweats business, expand our women's and kids product offering and expand into adjacent categories.

In the U.S., we're introducing several new products in our core fleece category. We've added a number of new performance and lifestyle products in our women's line. And in footwear, in the first half, we've more than doubled our points of distribution and the number of pairs sold as compared to 2019.

We believe the initial momentum in our footwear business underscores the consumers' affinity for the Champion brand, and their brand interest across product categories. We feel good about the momentum we're seeing in Champion and there's a lot to be about around the globe.

We remain confident in our Full Potential plan to grow this brand to $3 billion. Looking at our U.S. innerwear initiative, we're encouraged by the underlying momentum and market share gains we've seen in both basics and intimates.

Our latest Boxer brief innovation, total support pouch, continues to perform well, with a dedicated marketing effort that targets consumers differently than we have in the past. Total Support Pouch is attracting a younger consumer to the Hanes franchise. We've significantly outpaced our initial sales projections.

And as we highlighted in May, we increased our second half marketing investment behind Total Support Pouch to build on our momentum. In terms of our direct-to-consumer initiative, agile teams are deployed and driving improved site experience, conversion and speed as we continue the journey to know our consumers better.

We've increased our digital marketing investment at the top and bottom of the funnel with consistently better returns. As a result, we're encouraged to see trends improving in certain digital metrics. As compared to last year and 2019, conversion and average order value are both up.

The number and value of repeat consumers continues to increase across all of our brands. Repeat consumers not only spend more they're an important indicator of consumer engagement. While it's very early in our journey, we remain confident in the significant growth opportunity ahead. Lastly, we're making progress on our cost savings initiatives.

As we mentioned in May, while we don't expect the savings and investments to match dollar for dollar in every period, we're confident that we can fully offset our investments over the course of our Full Potential plan. We've identified a number of opportunities in SG&A and cost of goods.

For example, as we work through our SKU reduction initiative, one of the benefits is greater manufacturing and distribution efficiencies as we produce fewer, more profitable SKUs.

We're also working on a number of multi-year global initiatives or big ideas that can generate large year-over-year savings, things such as global vendor consolidation and raw material platform. We feel good about the opportunities we are finding, and we'll continue to update you along the way.

Now, I'd like to turn the call over to Michael for a review of our results and our second half outlook. Then I'll return with some closing comments.

Michael?.

Thanks, Steve. I'm excited to be finishing up my first three months here at HanesBrands. As I evaluated this opportunity, there were three things that really attracted me to HanesBrands, the people, the brands, and the Full Potential plan to capture future growth opportunities, all are exceeding my initial expectations.

It's great to be able to speak to such strong results on my first earnings call. We exceeded the high end of our expectations across all of our key metrics, driven by continued top line momentum in both global innerwear and activewear businesses. In my remarks today, I'll be comparing our results to the second quarter of 2019.

For a comparison of our results to 2020, I'll point you to our earnings release issued earlier this morning. For the quarter as compared to 2019, sales increased 15% with double-digit growth in each of the segments. Operating profit increased 14%, cash flow from operations increased 43% to $195 million, and our leverage improved to 2.9 times.

With that summary, let's turn to the details of the quarter's results. Sales increased $233 million to $1.75 billion. The impact from foreign exchange rates contributed approximately $26 million or 175 basis points to the quarter's growth.

Adjusted gross profit increased $102 million or 18% compared to 2019, while adjusted gross margin increased approximately 75 basis points to 39%. The margin expansion was driven by leverage from higher sales, the benefit from product mix and the impact from foreign exchange rates.

These items more than offset the higher expedite cost and sourcing premiums we experienced to meet the stronger-than-expected demand in the quarter. Adjusted operating profit increased $29 million or 14% to $236 million. Adjusted operating margin of 13.5% was approximately 15 basis points lower than the second quarter of 2019.

Higher investments in brand marketing essentially offset the fixed cost leverage from the higher sales. Adjusted earnings per share from continuing operations increased 24% to $0.47, while GAAP EPS from continuing operations increased 2% to $0.42. Now let me take you through our segment performance. U.S.

innerwear sales increased 19% or $123 million over 2019 with comparable double-digit growth in both basics and intimates. The growth was driven by two factors; first, the strong underlying performance of our brands, which resulted in market share gains across our basics and intimates product portfolios.

And second, the benefit of certain transitory items such as stimulus, restocking and pent-up consumer demand that drove category growth rates above historical levels. For the quarter, innerwear operating margin of 23.8% was 150 basis points above 2019.

The margin improvement was driven by volume leverage and sales mix, which more than offset higher expedite cost and increased investments in brand marketing. Turning to U.S. activewear. Revenue increased 15% or $53 million driven by growth across the online, wholesale and distributor channels.

Our sports and college licensing business increased significantly from last year. However, it remains below 2019 levels as on-campus attendance in the spring was still below pre-pandemic levels. Looking at Champion brand within the activewear segment, Champion increased 20% as compared to 2019.

Activewear's operating margin of 10.2% declined 290 basis points compared to 2019 as the leverage from higher sales was more than offset by higher expedite and distribution costs to meet the higher-than-expected demand as well as increased investments in brand marketing. Switching to our International segment. Revenue increased 11% compared to 2019.

On a constant currency basis, sales increased 5% or $22 million. We experienced growth in Australia behind our Bonds brand. We also saw growth in Europe and the Americas, while sales in Asia Pacific declined driven by ongoing COVID headwinds in Japan.

For the quarter, the International segment's operating margin of 12.9% was 250 basis points below 2019 levels, driven by increased investments in brand marketing as well as deleveraging Asia Pacific from lower sales. Touching briefly on Champion in the quarter.

Global Champion sales increased 21% over 2019 on a reported basis and 18% on a constant currency basis. Champion sales in the U.S. which include all Champion brand sales in our activewear, innerwear and other segments increased 25%.

Champion sales in our International segment increased 15% on a reported basis and 9% in constant currency as compared to the second quarter 2019. Turning to cash flow. We generated $195 million of operating cash flow in the quarter driven by strong operating results and focused working capital management.

Looking at the balance sheet, inventory is coming down, our turns are improving, and we're on track with our SKU reduction initiative. And our leverage at the end of the quarter improved to 2.9 times on a net debt-to-adjusted EBITDA basis as compared to 3.7 times a year ago.

It was a really good quarter, and I'd like to thank all of our associates for their work in delivering such strong results, especially in a challenging operating environment. And now turning to guidance. I'll point you to our press release and FAQ document for additional guidance details. However, I'd like to share a few thoughts to frame our outlook.

Similar to our prior remarks, my guidance comparisons will be to 2019. At a high level, we increased our second half guidance for sales, operating profit and EPS by $375 million, $35 million and $0.08, respectively, compared to our prior outlook. And we have factored the following puts and takes of the current environment into our guidance.

First, we're staying committed to our strategy that we rolled out in May. Long-term, we believe it's the right thing to do for our business and our brands. We're going to continue to increase the investment behind our brands, and we're excited about the consumer reaction that we're getting.

Second, we see stronger-than-expected demand in both our innerwear and activewear businesses, which is being further fueled by the benefits from the recent Child Tax Credit Payments in the U.S. And third, rising COVID cases continue to weigh on the macro environment.

It's creating headwinds from additional lockdowns, most recently in Japan and Australia. It's also creating incremental disruptions to supply chains around the world. This, in turn, is driving cost pressure as well as higher levels of inflation relative to our prior outlook.

One of the advantages to owning our supply chain is that we have very good visibility, which allows us to be proactive. Our supply chain team is doing a great job managing these challenges as well as identifying additional savings and efficiencies to partially offset the increased inflation pressures.

The estimated increase in cost and inflation pressure is approximately 40 basis points of operating margin pressure in the second half relative to our previous outlook. Looking at our key guidance metrics. From a revenue perspective, we raised our second half and full year outlook.

For the full year, we increased our revenue guidance by $550 million, bringing the range to $6.75 billion to $6.85 billion. We also issued third quarter revenue guidance of $1.78 billion to $1.81 billion.

And at the midpoint, our guidance now implies revenue growth of 11% for the third quarter, 15% for the fourth quarter and 13% for the full year as compared to 2019. The higher revenue outlook is driving our increased operating profit and earnings per share guidance for the second half and full year.

Our full year guidance for both GAAP and adjusted operating profit increased $65 million. We now expect full year adjusted operating profit to be in the range of $880 million to $910 million. For the third quarter, we issued adjusted operating profit guidance of $235 million to $245 million.

Our full year guidance for adjusted earnings per share from continuing operations increased $0.17, bringing our range to $1.68 to $1.76. With respect to our guidance for cash flow from operations, we now expect to generate approximately $550 million for the full year. And with that, I'll turn the call back over to Steve to wrap up..

Thank you, Michael. And once again, welcome to HanesBrands. I'm incredibly pleased to have you on the team. So we certainly have a lot of good things going on in the business. As I step back, the key highlights I see coming in the second quarter are we delivered strong results, which exceeded the high end of our expectations.

We're upbeat given the momentum in our underlying business, which is reflected in our increased outlook for the second half. We plan to continue to increase investments in our brands in the second half despite the challenges in the global environment.

We remain committed to our growth strategy and investing in our brands is critical to the long-term success of HanesBrands. Our Full Potential plan is in place, and we're rapidly executing against it to generate higher, more consistent revenue and profit growth. With that, I'll turn the call back to T.C..

Thanks, Steve. That concludes our prepared remarks. We'll now begin taking your questions and we'll 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 Omar Saad with Evercore..

Good morning. Thanks for taking my question. Very nice quarter. I guess I'd use my one question to ask you about the sales. I mean, the sales results are really strong. The guidance raise on the revenue line, also very confident.

Maybe you could talk a little bit more detail the key pillars that give you that confidence behind the sales and maybe what you view as more transitory versus permanent? And does this affect – this kind of sales upside you're generating now, does it change your calculus on the long-term algorithm you provided on the Investor Day? Thanks..

Thanks, Omar. Appreciate the question. So let me – a couple of pieces there. In terms of sales, we remain confident that we'll continue to build momentum, and I was really pleased to see the Q2 numbers come in. It shows really strong momentum across the brands, across channels, the innovation that we're putting out there is working.

Consumers are responding to marketing that we're investing in. So across the board, we feel really good about where we are. And it's domestically and it's internationally, the markets responding really strong quarter out of our Australia Group, which is really encouraging.

In terms of momentum going forward, what I would say is we're encouraged by it, certainly. Revenue being up in the innerwear business by 19% is obviously a really strong number and feel good about it. But that said, I don't think our innerwear business ongoing once we get back to a degree of normalcy is a 19% business.

If you think about our long-term plan, we're estimating the category returning to about 1% growth, and we're going to double that at 2%. So we will return to a degree of normalcy at some point. But – within that, we feel very good that we will continue to take share.

The 160 basis points that we took was both in dollars and strong unit share underneath that as well. So the momentum is really good across the board. The three planks that we've laid out for growth in Champion, both our core sweats, expanding to the women's and kids area and into adjacent categories is working, and we continue to expand upon that.

So I feel very confident in our sales, but there will be some degree of normalcy. We're going to have to comp these numbers at some point, and we won't continue to run at the percentages that we run because we're in a unique time right now. That said, I think we can outpace the category as we go forward.

So there are certainly some transitory issues right now that are tailwinds for us, but the underlying momentum of the business across our brands, across channels and across geographies is quite strong..

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

Hi. Good morning. Really nice job on the quarter. I was wondering if maybe you could talk about the supply chain and the higher costs you had in the second quarter.

I'm curious, is this also shipping from Central America? Or is this product coming from Asia? And then also, how should we think about the increased freight cost in the half versus the first half, it maybe looks like from just the puts and takes on the gross margin being lower versus the first half, the freight could be a little bit higher?.

Hi Susan, this is Michael. Yes, I think if you think about the first half of the year, I think the team has done a nice job within supply chain to try to manage cost given all of these external factors. And I think, once again, owning our supply chain provides a competitive advantage. Some of these costs do come through immediately through the P&L.

So some of the expedite costs, et cetera. Some of the inflationary costs, as you can probably appreciate, as we make product, we buy product, and we're seeing the cost increase as we sell the products, say, over the next six months, you'll start to see the pressure.

So that's probably what I think you're kind of pointing to, which is the profit margins do have some pressure in the back half, and that was really that 40 basis points that we called out in the back half of pressure.

And I would point out that is a net number, right? Because I think our supply chain team is doing a nice job with – if you think about SKU rationalization that's helping them to get even that much more efficient but there are some of these transportation costs and commodity costs and wage pressures.

And it's not restricted to any particular part of the world. It's a global challenge, I think, in terms of these inflationary pressures and transportation challenges..

Our next question comes from Michael Binetti with Credit Suisse..

Hi guys. Good morning. So just a couple of quick ones for you. You've added a lot of SG&A to the business here, Steve, you talked to us about it. Can you just walk us through what you're investing in with a little more detail so we understand where the dollars are going that we see now and what you baked in, in the second half, you sound happy with it.

And then on the cash flows, you raised the guidance this year to $550 million in operating cash. You've got the debt toward the target range. And at the Analyst Day, I think the plan points to about $900 million of free cash after dividends and CapEx, but I don't think you included much in terms of assumptions about where you'd be deploying that.

Can you talk a little bit about your thinking there? And where you think best to start deploying the cash here as it's moving in the right direction to help us with our models?.

Yes. Michael, this is Michael. Let me start maybe with the last question. Just let's make sure I understand your question. It's really just around capital allocation and cash flow.

So I think suffice to say, first off, joining a company that's growing its top line and its bottom line at the same time and improving its financial strength and financial flexibility is really terrific. And as I think about kind of where we stand right now, for this year, we took it up to $550 million, for example, on cash flow from operations.

And as you said, in May, we did provide guidance that that's going to improve over time. I think what we're probably going to do is restrict our comments and remarks to current year. But we do think we have a fair amount of financial flexibility. Clearly, there's a lot of uncertainty out in the world right now, and so that makes us feel better.

And as we think about all of the different options and alternatives, first off, number one, we need to invest in the business, and that's what we're doing. In terms of the debt metrics, as you probably saw that we're down to 2.9 times on net debt to EBITDA.

And if you look at the schedule, you'll see that we improved well over 20% on that metric, but it was done by both growing EBITDA and by taking debt down, taking gross debt down and actually improving cash. And so as we think about going forward and alternatives to what do we do with the cash, we think it's an and proposition, not an or proposition.

So it's about – I think we can invest in our business. I think we can reduce our debt levels and return more money to shareholders. So I think that's kind of where we think we are now. And if we continue to grow like we are, we're going to have that many more options going forward..

And Michael, it's Steve. In terms of the SG&A, underlying at the media investment, which we've mentioned a number of times, I'm very passionate about that. I think this company has wonderful iconic brands that quite frankly, have been under invested in historically. And we had needed to step that up and we're starting to step that up.

And the lion's share of that spend will be behind our big brands, our mega brands, Hanes, Champion, the Bonds. And it's starting to work.

With Hanes, we said we need to get younger and the Total Support Pouch product that we launched in the spring is performing extremely well, and we're going to continue to lean in on spending behind that it's reaching the younger consumer.

We see on our hanes.com business, a lot of the younger consumers are joining us there, and we're seeing the trend that it's working, which we need to do over time. And we're just starting with Champion.

Our campaign around Be Your Own Champion that is with the essence of what a Champion is and not allowing others to define who you are is what Champion is going to stand for. It's steeped in consumer insight.

The launch we just did yesterday with Muhammad Ali, that collaboration is really – I would call him the quintessential Champion is different opportunities we have to lean into this campaign over time. We'll be spending more on digital. And we'll be very thoughtful on the total funnel and how we spend behind that.

Even if you look at the TV we have spent on Total Support Pouch is fully integrated with social and paid search and we're taking a return-based model. And it's playing out well so far. In my earlier remarks, I mentioned average order value and conversion are up in our digital space. Repeat customers are improving and they're so valuable to us.

So we like the returns that we're seeing. We think it's incredibly important for us to build these brands. We think they're winners, both short-term and long-term and we need to lean into them. So we're going to continue to do that as we go forward..

Our next question comes from Jim Duffy with Stifel..

Thanks. Good morning. Great quarter. I wanted to ask how you're thinking about pricing strategies. Given the inflation backdrop and amid inflation elsewhere in the store, and unrelated categories, how do you think about pricing as a tool in our arsenal? Thank you..

Sure. Good morning, Jim. Yes, pricing, it's certainly a tool in our arsenal. We're going to be very thoughtful about how we do that. And clearly, we have inflationary headwinds that everyone else has. And I thought Michael answered it well earlier, we're working incredibly hard to offset those.

And credit to the team that they've been able to offset a nice chunk of it, but certainly, it's a headwind as we go forward. So when we think about inflation and cost challenges, it's really a combination of savings initiatives, manufacturing efficiencies. And if we have to pricing.

The good news for us is I do believe our brands have pricing power in the market. Their strengths allow us to do that. So that's an important place to start. We'll be selective and strategic in our approach. Always keeping an eye on price gaps because we know the competitive nature, particularly in the innerwear business that we have to compete with.

But we'll take pricing and look at pricing on kind of that normal cycle with our retail partners, and it's certainly something that I think is a lever for us, and we have the capability of using when and if we need to..

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

Hey, Steve and Michael, congrats on great quarter. I guess my question is just again on the revenue guide. I mean, in the quarter, I think you beat by $160 million at the high end, raised the year by $550 million. So $400 million raise for the back half.

I guess, could you just maybe parse out where that confidence comes from? Is that orders in hand on the innerwear side? Is that the acceleration in Champion demand you're seeing? Is that Australia.

Just any more color there would be helpful for the back half visibility? And then maybe just second quick one, just update on Hanes Europe timing, would be great..

Sure. So in terms of the revenue guide, a big step up, and we're happy to do that, and we're excited about it. I think Ike, it's pretty much everything you said. Some of it is orders in hand. Some of it is the replenishment model that we run and the volume that we see and preplanning for holiday.

And also, you have to remember that back-to-school splits Q2 and Q3 for us. So it's a little bit of everything. It's acceleration across channels. And it also ties to the marketing spend that we're going to do expect to lift from that as well.

So I think the revenue guide cuts across everything, all of our businesses, all of our brands, all of our channels, they're all performing well. One thing I would tell you that I'm very encouraged to see is the performance of some of our new products in the marketplace.

And we've just talked on this call mostly Hanes, Champion, but we're seeing good momentum in the Bali brand, the Maidenform brand with some new products that are launching there and space that we're gaining.

The space that we're gaining permanently in the back half that will be incremental to us in some of our larger customers across intimates and basics so you add all that up, and it's all pieces that adds up that give us confidence in the raise of revenue for the back half. So we continue to see the momentum, and we're encouraged by that.

In terms of HEI, that process is moving along. No news to share at this point. But obviously, we will let you know when there's news, but we're pleased with the schedule that we're on and it's progressing as we expected..

Our next question comes from Jay Sole with UBS..

Great. I just was wondering, Steve, if you could elaborate a little bit on the Champion sales growth in the quarter. I think you said that U.S. was up 25%. And international, ex-currency was up 9%.

Where are you seeing the growth in terms of whether it's customer demographics or categories or channels? And sort of what does that tell you about sort of the long-term opportunities to continue to extend the Champion brand?.

Sure. Thanks for the question. Yes, very pleased with the numbers for Champion. Across the board, 21% for the quarter; 18% at constant currency, and 25% domestically. We're seeing growth across all different pieces of the business. Our core sweats business is up and so some new innovation in that space.

Women's continues to grow, and I was really pleased to see the very early results in our footwear business coming through. So I think you should think about it as innovation working. And in the back half, we have some new innovation coming in our core fleece business. Our Defender Series is going to launch, which is an example of us, expanding usage.

It's a product that's in the sweats category, but is used for extreme weather. As I said earlier, we're focusing on women and some different products that are focused on unmet needs. And then we have some products with new benefits that are coming out in sweats.

So we think about innovation is how do we expand usage, how do we meet new needs, how do we bring new benefits to the category. All those things are coming and seem to be working well. Our progress in China has been going well.

And early, but very pleased with the partners that we have there and we continue to open stores and launching footwear with Tmall has gone well and is going to roll out the stores in Q3 and Q4. So a lot of different things working. We have work to do, obviously. And we're keeping that challenger brand mentality and always going after the opportunities.

And I'm excited about the – as I mentioned earlier, the Be Your Own Champion campaign that's just launching right now, I think, has a lot of legs to it. So a lot of good things coming. Champion really just getting started in our Australia business so the opportunities there. So we're pretty excited about Champion and the outlook going forward.

We said $3 billion brand. I remain very confident that we can do that as we go forward..

Our next question comes from Paul Lejuez with Citigroup..

Hi. Thanks, guys. I think you mentioned you were seeing signs of capturing more share from the younger customer in the innerwear business.

Curious if you could share any numbers around that kind of the innerwear growth is from that younger segment? And also, I guess, along those lines, marketing to that younger segment, what does second half marketing powers, how they look like versus the first half? How does that compare to two years ago? Thanks..

Sure. So let me take it in reverse order. In terms of marketing dollars, we said we were going to spend an incremental $50 million for the year. We're on track, probably think about it maybe as a minimum for the year of what we're going to spend, and that will increase in the second half.

So that also gets us back to the earlier questions around momentum on revenue. It's really about our ability to deliver on that because the marketing is picking up and doing well. In terms of share, we mentioned 160 basis points of share over 2019 in the innerwear business, which we're very encouraged about. 130 basis points of that was unit share.

So there's a lot of volume underneath that, which is really encouraging to see. In terms of reaching newer, younger consumers, we're starting to see that.

And the TSP product that we launched is certainly a great example of that, and we're targeting that consumer through a voice and a marketing campaign that's different than we have in the past, and it's working.

When you look at the majority of the consumers that are purchasing that product on our site, on hanes.com, majority of are new to Hanes and the majority of them are under the age 39. So really good initial metrics as we go forward. And in general, our marketing for Hanes will be targeted at that younger consumer.

So as we spend, we're being very targeted and it's working. So again, early starting to see the results, but we're very encouraged that the Hanes brand can perform just as well with younger consumers as it does with older consumers. And by the way, that’s true for our other intimates brands as well.

As we’ve mentioned, their success, Bali, Maidenform, we're all on this journey to go and we like our early results. We're learning as we go and we're adjusting as we go. But out of the gate, we're doing well..

Our next question comes from David Swartz with Morningstar..

I guess, can you tell us a little bit more about the plans for Champion footwear and how they differ from Champion footwear in the past and what your distribution plans are for the category..

Sure. One of the things that – about Champion footwear that we talk about a lot, and let's be clear, we are not trying to be a performance footwear brand. This brand is going to be in a kind of – in that lifestyle, casual wear space and where the brand plays extremely well and focused on developing product in that space.

We're going to have men's, women's, kids already being developed. I just had the opportunity two weeks ago to go out to our New York Design Center and do a walk-through of all the different products that are being developed for a global basis. And it's really exciting to see the breadth and range of our product that we're getting into.

So very focused, very driven by our consumer understanding of the products that we have. You'll hear some news soon about our expansion domestically and how we're going to serve the U.S. consumer and our ability to do that.

We're launching into China, as I said, and had some good success, a very successful soft launch with Tmall and that'll roll out to stores in Q3 and Q4 in China. So a good start that we have going forward. And it's also a strong business in Europe. So it's a business that will be global for us.

It will be broad, men's, women's kids, but very focused in that casual lifestyle space where the brand fits and where we think we can develop winning product over time..

Our next question comes from Carla Casella with JPMorgan..

Hi. I had a question on your – the inventory levels and your comfort level with your own inventory as well as inventory in the channel.

And if – how stocked are you for back-to-school versus holiday? And do you expect any – is there any risk of getting products given the supply chain issues in shipping?.

Hi Carla, this is Michael. I think when you think about inventory levels, right now, our inventory levels were down about 14% to a year ago at the end of the second quarter. Now keep in mind, there are – there's a number of things that are embedded in there last year. We would have had PPE inventory in that number.

So I think when we think about the back half, we feel like we have the current kind of challenges in supply chain factored in as far as getting goods into the U.S. factored in. So that was factored into our sales and profit guidance. It is a more challenging environment than it would have been two-plus years ago, right, pre-pandemic.

But we think our team has been working through all of the challenges and difficulties. And so that was factored in. And let's hope that keep our fingers crossed in the next six months, things will start to get better. But I think we do have all that factored into our back half..

Yes, I would just add, for back-to-school, most of that has shipped or is being shipped. So no risk at all for our back-to-school time frame. And I'll just reiterate what Michael said, we've factored in the current environment and the risk.

But owning our supply, this is a time when visibility and flexibility, which is what I like to attest to our supply chain are a great advantages. We feel good about our guide in the back half and our supply chain's ability to deliver on the product that we need..

Our next question comes from Michael Binetti with Credit Suisse..

Hi guys. I just wanted to jump in back in there, Michael, I think you alluded to some space games when you were answering a question earlier about the sustainability of the growth on the innerwear side.

I would really like to hear about that, particularly knowing this management team, a lot of you guys came from the company's largest customer where we saw a lot of negativity in the sales growth rates before the pandemic. So you guys have a very unique perspective on what caused that.

I do want to hear about the space gains that you're talking to, where you see the brand positioned during private label and if that relationship is changing at all, I think that would be very important..

So Michael, it's Steve. So in terms of – let me start with space gains. We're seeing them across a number of customers and across a number of brands. And I think it comes from two places. One, testing of innovation has worked and they like the innovation that we have. They like the fact that we're leaning in to our brands and investing behind them.

And quite frankly, I think we've proven over the last, call it, year that our supply chain, while challenged, like everybody else is and far from perfect, has done a really nice job of meeting the demand, and many of our customers are confident in our ability to supply them at a rate that has advantages to them.

So a lot of that is driving the space, and it cuts across both innerwear and intimates. In terms of that customer relationship, I don't want to get into too much details. I don't really comment on specific customers.

But what I would tell you is our big customers are incredibly important to us, and we're going to work extremely hard to make sure that we serve them the way they need to be served. And I feel good about the relationships and where we can take those going forward.

For private label specifically, I've always said from the day I got here, that is private label risk business, yes, it is, but it's not a risk if we do our jobs right. And that means we have great brands and what great brands do is they lead on innovation, they invest behind their brands and drive traffic to retailers because they're in demand.

And I'm confident that we're going to have the ability to do that. I think the share gains that we're showing is showing that that's resonating at the shelf and with the consumer and our customer.

And I think private label is something obviously we watch when I mentioned pricing earlier, we're going to do – if we have to do pricing, and we do take price, it will be through the lens of managing price gaps at the shelf and not let they get away from us. I think that's incredibly important.

But between our innovation capabilities, our supply chain capabilities, the brands that we have, the investments that we're making, the innovation and the pipeline, I feel very good about our ability to compete at the shelf going forward, whether that's through other – against other national brands, whether that's through – against private label or any other needs that our large customers have..

That concludes today's question-and-answer session. I'd like to turn it back to T.C. Robillard for closing remarks..

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

This concludes today’s conference call. Thank you for participating. You may now disconnect..