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

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

Good day, everyone, and welcome to the Hanesbrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the third 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 release. 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 volatility of the 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 the reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's news 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. I'd like to begin by thanking the entire Hanesbrands team around the world. This past year-and-a-half has been marked by a constant stream of macro challenges. I've been amazed by our associates' dedication and resilience as they rise to any occasion, find solutions and deliver results.

As I've said before, our associates are our greatest strength. They're an integral part of the success of our Full Potential plan and I want to recognize all of their hard work. Hanesbrands delivered strong third quarter results.

Revenue was in line with our forecast despite an unexpected lockdown in Australia that closed 2/3 of our stores for essentially the entire quarter. Operating profit and earnings per share exceeded the high end of our guidance range. We generated strong operating cash flow and our leverage improved.

Today, I'd like to highlight four key takeaways from the quarter. Number one, consumer demand for our brands remains extremely strong around the world. Two, our diversified supply chain is a competitive advantage. We're in a good inventory position and we believe we will continue to capture strong consumer demand.

The manufacturing of our product has not been an issue. Three, our entire global team continues to effectively manage through the various macro challenges. This was evident in our strong third quarter results and our reiteration of our fourth quarter guidance. And finally, our Full Potential plan is on track.

Despite all the global disruptions, we continue to effectively execute our long-term growth strategy. Let me expand on each of these highlights. Consumer demand for our products and brands remains strong. Since our May Investor Day, we've increased our full year revenue outlook by more than $500 million and our profit outlook by $90 million.

We continue to experience broad-based point-of-sale momentum, which is driving market share gains in both our Innerwear and Activewear businesses. For the quarter, Champion brand sales were up 20% compared to 2019, with growth balanced between the U.S. and international. Champion is all about being fun and inclusive.

Consumers around the world love that Champion gives them the confidence to express themselves and to feel good doing it. As a result, Champion U.S. share position increased in the quarter in both men's and women's categories.

In Europe, we continue to execute our Champion growth strategy with expansion in key categories, such as kids and footwear, increased space gains as well as expansion into new geographies. And in China, we continue to expand our consumer touch points. We're adding stores through our partners.

We're broadening our product assortment with key pure plays and we're expanding onto social e-commerce platforms. In U.S. Innerwear, year-to-date, our market share increased 140 basis points from 2019 with share and space gains across categories and brands, including Hanes and Maidenform.

We're seeing strong consumer response and returns from our increased marketing investments, particularly in intimates. Our consumer need-based innovation strategy is delivering great new products.

Investment behind our Maidenform Tame your Tummy shapewear product, our Maidenform One Fab Fit bra and our Bali Easylite bras has driven increased market share as well as retail space gains and incremental distribution. And Total Support Pouch continues to exceed our expectations.

We have plans in place to expand the franchise globally and introduce additional product features to continue to win in men's underwear. Iconic brands, outstanding products and effective marketing, it's a great strategy. It works and we're seeing it play out in our Innerwear and Activewear businesses.

Next, I'd like to touch on our supply chain, which is clearly demonstrating why it's a competitive advantage. Our diversification strategy balances production between Asia and Central America. We operate with a strong owned manufacturing base and with long-term sourcing partners that are spread across 29 countries.

This advantaged approach has given us the resilience, flexibility and visibility to successfully manage through the macro challenges over the past 18 months. Production across all 32 of our owned manufacturing facilities was up and running throughout the quarter.

As strong consumer demand for our brands has continued throughout the year, we have been able to increase production to keep up. By the end of the year, we expect we'll have made nearly 25% more units than our initial 2021 plan. This has allowed us to capture the stronger-than-expected demand all year.

It also puts us in a good inventory position for the fourth quarter and into the first quarter of 2022 to continue to capture the consumer momentum in our brands. Making our product has not been a significant challenge for us, but we are not immune to the other macro challenges.

Like the vast majority of companies around the world, we're facing worldwide transportation bottlenecks as well as higher levels of inflation. This is lengthening the time it takes to get product from our manufacturing facilities to our customers. It's also increasing costs.

Our team has done an amazing job managing through the various macro challenges all year. This was evident in our strong third quarter results, especially when you consider the extended government lockdowns in Australia were not contemplated in our prior guidance. We're delivering cost savings and efficiency opportunities.

We're leveraging our scale and our global footprint. We're also aggressively managing expenses without sacrificing the full potential investments that will drive growth. This gives us confidence to reiterate our fourth quarter guidance despite the increasingly challenged macro environment.

Adding to our confidence, the consumer demand environment remains strong. We have inventory to meet the demand and consumers in Japan and Australia are gradually returning to stores as the government lockdowns have recently been lifted. Looking into 2022, we expect the broad-based inflation pressures to continue.

This isn't anything that's unique to us. Inflation is impacting everyone globally. We're aware of the pressures and we're working to mitigate the impact. This includes raising prices globally as we know our brands have pricing power.

We're being thoughtful in our approach and keeping the consumer at the center of our decisions, plus, we're continuing to work on additional cost savings and efficiency initiatives. Turning to our Full Potential plan. We continue to execute our long-term growth strategy. Media and marketing investments behind our brands continue to ramp.

We're encouraged by the returns we're seeing on these investments. And in line with our Full Potential plan, we expect brand investment to continue to increase in the fourth quarter and again in 2022. We continue to improve the consumer experience on our e-comm sites.

We've added capabilities, we've increased site speed, we've improved inventory availability and we've enhanced search functionality to name a few. This has helped drive higher conversion rates and higher average order values on our sites globally. In addition, we're progressing on our technology modernization initiative.

We plan to simplify our systems down to nine core platforms running on a single core technology backbone. This will help us globalize the business and reduce costs. It will drive better business insights and consumer connections and it will improve decision-making, forecasting and planning.

We have completed the planning and scoping for this initiative and are beginning our phased implementation. We're also building a winning culture at Hanesbrands. We continue to add talent to the organization.

In the last several months, we've brought on a number of key leaders in our Champion business, our global brand marketing team as well as in our HR organization. We've also initiated a voluntary retirement program to create more career growth opportunities for our associates and to generate savings that will be reinvested in the business.

And lastly, we've taken an integral step in our Full Potential plan to simplify and focus our global portfolio. We signed an agreement for the sale of our European Innerwear business.

We greatly appreciate our Hanes European Innerwear team's hard work, partnership and understanding throughout this process as we drive greater resource and investment focus and improved operating speed. Our Full Potential plan is progressing as expected.

We're encouraged with the results we're seeing and we remain focused and committed to executing our long-term growth strategy. So in closing, consumer demand for our brands remains strong. Our diversified and resilient supply chain puts us in a good inventory position to capture demand.

And despite macro challenges, we're delivering strong results while simultaneously executing our Full Potential growth strategy. And with that, I'll turn the call over to Michael..

Thanks, Steve. We had a great quarter. I'm really pleased we were able to deliver on our increased guidance, especially in light of a number of headwinds, including the extended lockdowns in Australia and Japan as well as higher transportation and inflation costs.

The team did an amazing job managing through these challenges and it is evident in our strong third quarter results. For today's remarks, I'll touch on some of the key highlights from the quarter, including our revenue drivers, profitability and leverage as well as provide additional insights on our outlook.

As compared to 2019, sales increased 11% or $179 million to $1.79 billion. On a constant currency basis, sales grew 10%. Champion brand sales globally increased 20% over third quarter 2019, with 22% growth in the U.S. and 19% growth internationally.

Champion growth in the quarter was driven by strong consumer demand across channels in the U.S., continued growth in our European business as well as the ramp-up of our partners in China. Switching to U.S. Innerwear, sales increased 25% over 2019 with double-digit growth in each of our businesses, including socks, kids, women's and men's.

Consumer demand across our Innerwear brand portfolio is driving strong point-of-sale trends and increased market share, while pent-up consumer demand is fueling category growth rates above historical levels.

We're seeing momentum from our innovations and increased media investments, with particular strength in our Maidenform and Bali shapewear and bra products. With respect to our international Innerwear businesses, sales were consistent with 2019.

We experienced strong growth in the Americas, while sales in Australia declined due to COVID-related lockdowns. Although 2/3 of our Australian stores were closed for almost the entire quarter, online growth in Australia was strong as we were able to capture a portion of the lost store traffic by leveraging our omnichannel capabilities.

Since the end of the quarter, the lockdowns have been lifted in both Australia and Japan. Stores are beginning to reopen in both countries and reflected in our fourth quarter outlook is an assumption for a modest ramp-up of traffic. Gross profit increased $80 million or 13% compared to 2019 and gross margin expanded nearly 65 basis points to 39.1%.

Cost savings programs in our supply chain and benefits from business mix more than offset higher transportation and inflation cost in the quarter. SG&A deleveraged approximately 100 basis points, driven primarily by two factors. One, consistent with our Full Potential plan, we invested an incremental $25 million in brand marketing as compared to 2019.

I'm pleased with the returns we are seeing on these investments, including improvement in our brand equity measures, better conversion on our e-commerce sites as well as higher point-of-sale trends. And two, we experienced higher wage costs in our distribution centers which is a challenge across many industries.

Operating profit increased $20 million or 8% over 2019 and our operating margin declined by 40 basis points to 14.7%. Turning to cash flow and the balance sheet. For the quarter, we generated $315 million of cash flow from operations, bringing year-to-date operating cash flow to $527 million.

With respect to inventory, we have strategically invested in additional inventory. This has allowed us to capture the stronger-than-expected demand all year and it's put us in a good inventory position going into the first quarter to capture the stronger consumer demand momentum we're seeing in our products and our brands.

Our performance has translated into improved financial strength. Leverage at the end of the quarter was 2.6x on a net debt-to-adjusted EBITDA basis. This is a significant improvement from 3.6x last year and 3.3x in the third quarter of 2019.

Additionally, we intend to refinance our senior secured credit facility in the fourth quarter, subject to market conditions.

We plan to use the proceeds from this transaction and cash on hand to redeem the $700 million of 2025 senior notes which have [indiscernible] coupon and were issued in May of 2020 in response to the global uncertainty caused by the COVID pandemic.

These senior notes carry a make-whole provision which, along with the transaction fees, is estimated to result in a onetime charge of approximately $45 million in the fourth quarter. Through this transaction, we expect annual interest savings of approximately $35 million, of which $4 million is expected to come in the fourth quarter.

The expected interest savings and onetime charge are factored into our fourth quarter guidance. And now turning to guidance. Similar to my prior remarks, my comparisons will be to 2019. I'll point you to our news release and FAQ document for additional guidance details. However, I would like to share a few thoughts to frame our outlook.

We reiterated our fourth quarter guidance for sales and adjusted operating profit. We increased our adjusted earnings per share guidance due to the expected interest savings I just referenced and a lower tax rate. We increased our operating cash flow guidance.

For the fourth quarter, our guidance for net sales is $1.71 billion to $1.78 billion which at the midpoint represents 15% growth over fourth quarter 2019. Adjusted operating profit is expected to be $200 million to $220 million which at the midpoint represents an operating margin of 12%.

As we mentioned in our last call, we expect the headwinds from brand marketing investments and cost inflation to increase sequentially through the second half of this year. This outlook has not changed.

With the ongoing disruptions in the global transportation environment, we're seeing incremental pressure from higher freight costs, particularly ocean freight as well as higher labor costs in our distribution centers.

Despite the incremental pressure in freight and transportation costs, we're comfortable maintaining our adjusted profit and margin outlook. We've identified additional efficiencies and savings opportunities in the quarter to be able to offset these higher costs.

With respect to adjusted earnings per share, we increased our fourth quarter range to $0.40 to $0.45 to reflect the expected $4 million of interest savings and lower-than-expected tax rate.

And despite the strategic inventory investments I spoke about, we raised our full year operating cash flow outlook to $550 million to $600 million to reflect the better full year profit performance.

Touching briefly on 2022, given we are in the middle of our planning process and the global operating environment remains fluid, we are not providing specific guidance for next year at this time. However, we wanted to highlight a couple of items as you think about next year. First, the current environment remains very challenging.

Like the vast majority of companies around the world, we expect broad-based inflation pressures to continue into 2022. Second, we are working on initiatives in an effort to mitigate these pressures. We're looking at cost reduction and productivity initiatives.

We are also raising prices globally while being thoughtful in keeping the consumer at the center of our decisions. And third, our Full Potential plan remains on track. We're pleased with the results we're seeing and we're committed to maintaining our growth-related investments. We'll provide more details on 2022 guidance on our fourth quarter call.

So in closing, I'd like to echo Steve's comments. Demand for our brands remains strong. We believe we are well positioned to capture this demand given our investments in inventory and marketing. And despite macro challenges, we're delivering strong results while simultaneously executing our Full Potential growth strategy.

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

Thanks, Michael. 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 Omar with Evercore..

Thank you. Good morning. I appreciate the update. I guess I'd like to focus around the Activewear commentary you made. Obviously, Innerwear is incredibly strong. But the active -- if you could just elaborate on the comments -- commentary on Activewear, the Activewear category, it's not something we've heard from other companies.

And along those lines, how do you think about Champion coming out of COVID? Are there any signs that Champion is experiencing any slowdown post that kind of COVID comfortable Reverse Weave sweatshirt trend? Thanks, guys..

Thanks, Omar. Good to hear from you. So let me talk about Activewear a little bit and I'll jump into Champion. I feel really good about the business, quite frankly, and overall don't see any trend change. Consumers are definitely seeking the product. We do still have a headwind in our Activewear business around sports and college licensing businesses.

That channel was pretty conservative coming out of COVID to open up this year, but we expect that to continue to grow. And while we're not back to 2019 levels in that channel yet, we are above 2022. So I think that's going to continue to grow and I think there's big opportunities for us in that business. In terms of Champion, I see it accelerating.

I don't see it slowing down at all coming out of the COVID timeframe. We certainly had a good quarter, up 20% versus 2019, a lot of momentum around the globe. We are continuing to pick up new doors, gaining space, adding new categories. The footwear growth in Europe is really encouraging. Our kids business in Europe, really encouraging.

And we're seeing the same thing in the U.S. When we just launched our Reverse Weave Week, which kind of really celebrating the iconic Reverse Weave platform that we have, really strong consumer engagement that is introducing some consumers, quite frankly, to Reverse Weave and then reengaging others at the same time. So the response was really strong.

The innovation that we're putting out in Champion, the latest thing we just put out as an enhancement to our soft touch innovation in bras and leggings is doing extremely well. It's gaining new space. So, I feel really good about the Activewear business.

We got to get the college bookstore business going again, but Champion has a lot of momentum not only domestically but globally. And we expect it to continue to only increase as we go forward..

Thank you, guys. Thank you..

Thank you..

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

Hi, good morning. Nice job in the quarter. I was wondering if maybe you could talk about your own online businesses. I'm wondering if you're seeing kind of an increase in growth there as you've revamped your sites, particularly with the new Champion site..

Sure. Good morning, Susan. So our digital business is one that it's growing well. If you look at Q3, the online -- total online, so our -- including retailers.com versus '19, we're up 62%. Our own sites are up 50%. So there's really good growth there and volume. That said, I know we have work to do to continue to improve there.

I'm pleased with the progress the team is making, but I still think it's a huge upside for us. We're underdeveloped still. We're adding new capabilities. Our inventory availability is improving. Search functionality is getting a lot better.

And we're seeing some -- what I call some really strong green shoots in the performance of the business as average order value and conversion continue to go up globally. But we have work to do. So I think I look at it as all upside for us as we continue to get better and continue to improve the business.

But I'm encouraged with the growth that we're seeing right now..

Great, that's good to hear. And then, just if I could add one follow-up. I'm wondering if you can give an update just on your capital allocation priorities. Your cash balances are strong. It's nice to see the increase in free cash flow expectations.

Just curious how you're thinking about returning cash to shareholders if you'll start to repurchase shares again. Thanks..

Hi, Susan, it's Michael. Yes. No. It's something we're definitely talking a lot about. Clearly, it's a very important part of our Full Potential plan. I think when you look at where we are today, we’re - I think we're investing in the business. We're paying a healthy dividend.

And as you probably also saw in the release, I called out in my comments, we're working on the debt retirement. We're working through refinancing our credit facility. And what we're going to do is call the 5 3/8% notes using both refinancing plus cash. And so when you look at that, I think that's a really strong step forward for the company.

I think the other piece is, Steve called out in his comments, right, we're on trend to generate $500 million more in sales and $90 million more in profit than what the organization thought where we would be at the beginning of the year. So there's clearly a number of things that we can do here. So we're working through the financial outlook for 2022.

And as part of that, clearly, we need to lay out our long-term capital allocation strategy. And I would expect that when we were back together here in three months for our fourth quarter call, we'll be able to lay that out with a little more detail and insight..

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

Hey guys, good morning, thanks for all the updates here. I do want to ask you a little bit as you think maybe just -- I know you don't want to guide us on '22 today but maybe thematically, I know that you mentioned there's going to be cost inflation that extends through next year and there's some pricing.

Maybe just some thoughts on the timing of how you see that cost inflation working through the P&L. I know you guys have lead times and have some visibility there versus the pricing you might be able to take. I'm wondering if there's a timing mismatch there at all to think about.

And in particular, the reason I'm thinking about that is because I know you have a really tough compare in the first quarter as you anniversary a lot of the success you had in the Innerwear business, specifically last year. So I'm trying to think, Steve, about how you're approaching that on Innerwear.

Maybe you could speak to, I guess, cost versus pricing would be helpful on timing, but then also just category share gains that you're looking at for early '22 that can help you with that big hurdle..

Sure. Let me start. I'll talk a little bit about the category early in '22 and a little bit we're doing in pricing and, Michael, I'll let you talk a little bit about timing on costs and things like that.

So when we go back a year ago, basically coming out of our unvarnished truth session, we really pegged Innerwear as roughly a 1% growth category and quite frankly, we were losing share at that time. So as part of our plan, we really laid out in May that we are committed to a pivot and we're going to get this Innerwear business growing again.

We're focusing on the consumer. We've got to drive more innovation than we have historically done and increasing investments in our brand. And I feel like we're in a good path to doing that.

So when you look at, Michael, this -- next year, what are we going to grow, if you look at the category this year, the category this year is going to grow about 25%. Now our business in the U.S. is going to be up 35% when you back out PPE. So we feel really good about our performance.

That said, I don't think this is a 25% growth business going forward and I know you don't either. So it's going to naturally moderate over time. And our goal in that space is to continue to grow faster than the category and continue to take share. I feel like we're really well positioned to do that.

Exactly what the category growth is going to be next year, I don't know, but I just know that we're going to grow faster than the category as we go forward. Part of that in terms of managing the headwinds is going to be your point on pricing. And as we mentioned, we are going to be taking price globally in 2022. We actually have a plan in place.

We're executing that plan already. It will be broad-based across brands, channels and product lines. But of course, Michael, you mentioned this in your comments, we're going to do it thoughtfully. We're going to keep the consumer in mind.

One of the key components of our plan is consumer centricity and making sure that we understand where we are from a competitive standpoint, partnering with our retail partners. And throughout it, we're going to continue to gain share. So I know we have the pricing power within our brands.

If you think about our brand portfolio, we've got either category leaders or we're positioned in really fast-growing categories that are high demand. The Champion brand is growing very quickly. We've got good retail partners. And there's different ways of doing pricing, right? There's absolute pricing. There's mix. There's pack size.

So we're going to pull a lot of different levers on pricing to make sure that we're offsetting the cost inflation that we're seeing as much as we can but also keeping our eye on growth. And that's part -- a key part of our plan and we're not going to give up growth as we go forward into Q1.

And Michael, I'll let you talk about the timing of costs and how you think they're going to flow through..

Sure. Yes. No. I mean, I think clearly, you guys are seeing this across the entire industry, right? There's -- the transportation cost is probably the largest impact as we're currently looking at the business. We've got ocean freight rates up in some cases, 400% to 500%.

And we're also doing more airfreight than what we would normally be doing because of in-transit times. There are some commodity prices, clearly cotton and some of oil, et cetera, that have gone up. And we saw some of that in Q3. You'll see some more of it definitely in Q4 and that's reflected in our guidance.

I do think our supply chain team has done a nice job trying to offset these. I think you saw that in our Q3 results, I mean, whether it's just traditional productivity improvements, raw material utilization. They've been working on programs to reduce overhead over the last couple of years, did a nice job there. They've been internalizing production.

And then I think one of the things that we've been talking more about and doing a little bit of, I think there's more opportunities consolidating our third-party suppliers and really leveraging those things.

And then, when you combine that with the fact that Steve and the team, almost a year ago now, came up with the program to -- for life cycle SKU management, reducing the number of SKUs by over 20%, clearly, that gives the organization a lot more flexibility when it comes to managing costs. So there are going to be pressures.

That's why we wanted to make sure we're calling that out but we're working on a number of things to try to offset it..

Great. And if I could ask just one follow-up on that.

I guess, Steve, how do you land this if you look at -- next year, we've heard a couple of other apparel companies say, look, there could be a mismatch in some of the -- lapping some of the strong demand from '21 with -- we didn't have time to bring back the investments that we wanted to, so we'll see some cost pressures, too, into '22.

I mean, as you land this, can '22 be a year in line with the algorithm that you laid out at the Analyst Day?.

Well, as I said, we're not going to give specifics on '22 as we go forward. But here's what I would tell you is, I think the actions that we laid out on Investor Day are going to continue. So one of the things that I'm adamant about is continuing to invest behind our brands and we've done that in Q3. We're going to do it in Q4.

We plan to continue to do that as we go forward despite the headwinds. So the -- I would not say financial algorithm, the operating algorithm that we put in place is going to continue next year.

Do I think it -- all the disruption, everything changes our full -- our view of our full potential plan in the long term? No, we're confident we can continue to deliver against that Full Potential plan. The operating algorithm is in place. It's going to be working. We're dialing up the things that Michael talked about.

We have to find more cost saves and get more efficiency. But the fundamental way we're approaching the business, the way we're going to operate under the Full Potential plan won't change as we go forward..

Our next question comes from Jim Duffy with Stifel..

Thank you, good morning, thanks for taking my question. Guys, among my client base, there's a lot of concerns around cotton costs for Hanesbrands. You spoke to inflation broadly. I know cotton exposure is likely a smaller portion of your cost of goods and fiber usage than many expect.

But can you size your cotton exposure directly and setting freight aside, maybe provide a view on what you're seeing for product costs as we look into 2022?.

Yes. Sure, Jim. How are you? Good morning. Good to hear from you. So cotton is certainly important to us. But what I would say is this organization had managed it extremely well. And when we look at prices, we're locked in into the second half of next year, so we have good visibility to what it is.

And as I said, this company knows how to do it extremely well. We dollar-cost average our direct purchases, so we'll always be just below average price for the year. And when you think about cotton and you mentioned this, it represents kind of high single digit on a percent of COGS for us.

So there's a lot of other things that, quite frankly, are bigger cost headwinds to us as we go forward. So we're managing it closely and buying as we go. We think we can manage it well. As I said, we have good visibility beyond the midpoint of next year as to what it's going to be.

And we're focusing on all of our cost base to make sure that we can continue to deliver the margin commitments that we're going to make..

Great. Thanks for that, Stephen. And just one more, if I may.

Can you speak to the current state of channel inventories relative to the sell-through trends? Has the channel caught up with the strong consumer demand?.

So not completely. It's interesting when you look at our situation and where we are. Definitely, consumer demand is outstripping the total capacity of the entire supply chain system right now. That said, we have the inventory that we need. Our challenge is to continue to get it into the right place at the right time.

So our manufacturing plants are doing extremely well around the globe. One of the things that we think is an advantage for us is the diversification of our supply chain around the globe, good balance, Eastern Hemisphere, Western Hemisphere, 32 facilities. They've been running extremely well.

And Michael mentioned this earlier, we've been able to produce -- or we're going to produce 25% more units this year than we planned at the beginning of this year. So we're producing a lot of product. We have to get it into the right place at the right time. We have more in-transit inventory than we would normally have.

Right now, about 30% of our inventory is in transit. So we think we have the right inventory, the right amount of inventory, the right seasonal inventory. We're still working on getting the right place at the right time.

But one of the things that I feel really good about going into Q4 and going into next year is we're going to have the inventory that we need. We just got to continue to pump it through the pipeline at the right rate to make sure we can meet the continually increased consumer demand.

If we had a little bit more in the right place, we would have sold a little bit more in Q3. There's no doubt about that. The demand is there..

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

Hi, good morning, guys. This is Will Gaertner on for Ike. I just wanted to dig a little bit more into the Champion business. Can you just sort of size up what the penetration is in the U.S.

versus Europe versus China? And in China, are you guys seeing any sort of pushback in nationalism against the brand as some other athletic brands are seeing?.

Sure. In terms of the business, Champion has a good global footprint. Obviously, the U.S. is the biggest part of the business right now. Our Champion Europe business continues to grow and it's doing extremely well. And we're kind of just getting started in Australia and I have high expectations for the business over there over time.

And growth has been really good. I was really pleased with the 20% that we put up globally this past quarter versus 2019. So the business continues to run extremely well and picking up all kinds of new space. There's a lot of momentum behind the innovation. We have great, strong retail partnerships.

And champion.com is again a huge upside for us and the point I was making earlier about e-comm and digital, I have high expectations for champion.com and what it can do for us over time. In terms of China, no pushback. Our business is running well. Our partners are doing a really nice job. We continue to ramp up stores. We have over 300 doors right now.

Businesses is growing really well. We're up 140% versus the 2019 number. So we feel good. And what I feel good about it is the growth is balanced between men's, women's, kids, both physical and e-comm business as we enter new platforms there.

So we have not run into the pushback against our brand and continue to think that business presents a lot of opportunity for us..

Great, thank you..

Thank you..

[Operator Instructions] Our next question comes from Carla Casella with JPMorgan..

Hi, good morning. Congrats on the quarter. Just a couple of quick ones from us. This is Mike on for Carla, by the way. I was curious if you guys had an amount of proceeds that you're expecting from the euro Innerwear sale and whether or not that completes the strategic review. And then second, margins came in pretty good.

We're kind of curious on the inflation front. I know you guys have spoken to it a little bit, is if you could give a little bit of color on what amount came from labor, materials or I know I think it was also mentioned oil and airfreight, just to get a better sense of what's really driving any sort of inflation you're seeing. Thanks again..

Thanks for the question. So let me start with our European Innerwear business. Over a year ago, when we started our deep dive assessment of the entire business, what we called our unvarnished truth, we came in at exercise, one of the key tenets and components of our business was to focus our global portfolio and simplify our business overall.

And part of that was about the European Innerwear business. And we thought that, that was a business that we didn't want to drive investment over time. We thought we could spend our capital, our management time and resources in other areas of the business to drive greater return. So we started to sell the business.

We were pleased to announce the agreement with Regent to sell the business. And we think it allows us to move on to think about investment where we can drive higher returns for the business over time.

Michael, you want to talk a little bit about cost and how you see it?.

Yes. No, I think clearly, there's a number of different things driving cost pressure. I touched on the transportation cost because probably on a percentage basis, it's probably the most significant. But clearly, there's pressure on cotton. There's pressure on oil.

There is pressure on wages, whether it's globally in manufacturing or whether it's here in the U.S. as it relates to our distribution. And most of the things I just spoke about clearly impact cost of goods sold, distribution impact SG&A. So it's across a number of different fronts.

And as you can also probably appreciate, we had anticipated this and this was factored in when we were together three months ago. And so we probably had a little bit of timing shifts. There's probably a little bit more that we anticipate hitting Q4 now versus what ended up hitting Q3. So that helped us.

That's why we -- part of the reason why we were better. On the margin in Q3, Q4, we expect there to be more pressure as that inventory starts to roll through the P&L from a cost of goods sold perspective. And there will be -- as we said, there will be pressure into '22.

But I think when you think about the initiatives that we're working through on productivity, better utilization of material, et cetera, all the different things I spoke about a few minutes ago, I think we have a pretty good plan to try to work through offsetting as much as we can.

And then clearly, from a business perspective, Steve spoke about price and some of the things that we're working on there. So more to come when we get together in Q4..

Great, thank you very much. Best of luck..

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

I'd like to thank everyone for attending our call today and 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..