Good day. Thank you for standing by. Welcome to the HanesBrands' fourth quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, T.C. Robillard, Vice President of Investor Relations. Please go ahead. 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 fourth quarter of 2022. 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 investor 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 current macroeconomic conditions, consumer demand dynamics, the inflationary environment, cybersecurity, and our previously disclosed ransomware incident, and any ongoing impact of the COVID-19 pandemic. 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. Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's news release. Any references to 2019 reflect rebased 2019 results consistent with prior disclosures and can be found on our investor relations website. With me on the call today are Steve Bratspies, our Chief Executive Officer; Michael Dastugue, our Chief Financial Officer; and Scott Lewis, our Chief Accounting Officer. For today's call, Steve and Michael will provide some brief remarks, and then we'll open it up to your questions. I'll now turn the call over to Steve. Thank you, T.C. Good morning, everyone. Welcome. For the quarter, HanesBrands delivered sales that were above the high end of our forecast and adjusted operating profit and earnings per share that were essentially at the midpoint of our range. I'd like to start by thanking all of our associates around the world. The global operating environment has been anything but easy over the last 3 years. However, despite the significant volatility and uncertainty, through their dedication and hard work, we've been able to deliver for our consumers, serve our retail partners, and continue to progress on our Full Potential plan. I'm both grateful and proud of their tremendous efforts. While I'm pleased we delivered on our guidance under difficult operating conditions, we expect the macroeconomic challenges impacting consumer demand and the lingering pressure from inflation to continue in 2023, particularly in the first half. Consistent with the mindset we've adopted since my first day, we're not standing still. We'll continue our proactive approach, remain agile, and continue to adapt. Focusing on the things we can control and taking action allows us to manage through short-term challenges while at the same time continue to implement our long-term transformation strategy. To that end, there are 3 important topics I'd like to discuss today. First, the near-term actions we're taking toward reducing our leverage and strengthening our balance sheet. Second, the path to higher margins and operating cash flows as the year unfolds, including actions to mitigate near-term macro-related challenges. Third, an update on the implementation and progress of our Full Potential plan. Let me walk you through each of these, beginning with our strategic actions to strengthen the long-term financial foundation of the company. Today, we announced we're shifting our capital allocation strategy, eliminating the dividend, and committing to reducing debt. To be clear, investing in the business and our Full Potential growth plan remains the priority for capital allocation, and we believe we are well positioned to fund these investments through operating cash flow. What's changing is the allocation of our free cash flow, which we'll now fully direct toward accelerating debt reduction. This decision was not made lightly, and we believe that a meaningful reduction in our debt will drive significantly higher shareholder returns long term. We also updated our credit facility amendment to provide greater near-term flexibility given the uncertain macroeconomic environment. Michael will discuss this further in his section. In addition to these actions, we expect to refinance our 2024 maturities in the first quarter of this year, subject to market conditions. Turning to margins and cash flow. We see the path to higher margins and operating cash flow as the year unfolds. The lower cost inventory we're currently producing should begin to hit our P&L in the second half, particularly in the fourth quarter. We'll anniversary last year's timeout costs. We're well positioned to benefit from the actions we're taking to help mitigate the near-term macro-related challenges. Looking at our mitigation actions, last year, we set an aggressive target to reduce our inventory units by the end of 2022, which we accomplished. This created a short-term drag on second-half gross margins as we took time out in our manufacturing facilities. By taking this action, we believe we're well positioned to release working capital and drive operating cash flow this year. We also began and expanded upon a number of cost savings initiatives, including exiting unproductive facilities, consolidating sourcing vendors, and aggressively managing SG&A. Looking to 2023, we're building on these initiatives with additional cost reductions as well as prudent investment management. We reduced corporate headcount in January. We're expanding our savings actions across our procurement operations, including contract renegotiations. We're strategically managing our investments to align with the current macro environment, just to name a few. We believe the combination of these actions positions us to generate approximately $500 million in operating cash flow in 2023, to exit the year with a meaningfully higher run rate for both gross and operating margins, and to operate even more efficiently, which unlocks long-term growth. Lastly, I'd like to touch on our Full Potential plan. Our long-term strategy is fundamentally unchanged. The plan we're executing is right. Our long-term financial targets remain. Given the realities of the near-term macroeconomic and consumer demand environment, our timetable has shifted to the end of 2026. The timeline has shifted, we're confident in our ability to deliver $8 billion of sales and a mid 14% operating margin. Our confidence is reinforced by the improvements we've made in the way our business operates. We've added new capabilities across the organization and exited non-strategic businesses. We've enhanced our inventory and demand planning processes, as well as streamlined our innovation process in Innerwear, which began to bear fruit with the launch of our Hanes Originals product. We've improved the go-forward efficiency and effectiveness of our supply chain. We reduced global SKUs by 45% since 2019, as well as exited unproductive facilities. We're consolidating distribution centers, we're generating high single-digit savings rates in our sourcing and procurement operations. We're continuing our technology investments to improve our data analytics, drive global integration efficiency, and ultimately lower costs. We've also changed leadership in our global activewear business. The new team is moving fast. They're streamlining the operating model, including global coordination of product design and merchandising, increased speed to market, and portfolio simplification. This, in turn, is expected to drive a more focused global product and channel segmentation strategy that provides greater clarity to retailers and consumers, as well as improves the long-term health of both the Champion and Hanes Activewear brands. It's also expected to build the right foundation to drive revenue and margin growth well beyond the timeline of our Full Potential plan. We've accomplished a lot. There's no doubt that we're a better, more disciplined operating company today than we were just two years ago. We're not done, and we'll continue to make progress this year. In closing, we'll continue our proactive approach, remain agile, and continue to adapt to serve our customers, innovate, and reduce costs while continuing to execute our long-term transformation strategy. We're making progress, and we see the path to improving cash flow and margins as the year unfolds. Before I turn the call over, I want to take a moment to thank Michael for his contributions to HanesBrands over the past two years. He's been instrumental in the progress we've made to unlock our Full Potential. Michael's been a great partner, and I respect his desire to spend more time with his family. To that end, I'm pleased to have Scott Lewis step back into the interim CFO role. As you all know, Scott held this role before Michael joined the company and performed extremely well. I'm confident in Scott and our entire finance team as we move forward. Thank you both, Michael and Scott. With that, I'll turn the call over to Michael. Thanks, Steve. I really appreciated the opportunity, I'm proud of what we've accomplished over the past two years. I'm confident in the Full Potential plan, I know you and the company are in great hands with Scott and the entire finance team. For today's call, I'll break my comments into three sections. First, I'll highlight a couple of key items from our fourth quarter results. Second, I'll address our debt and our actions to strengthen the balance sheet. Third, I'll provide some thoughts on our 2023 outlook. With respect to the fourth quarter, I was encouraged by the team's ability to deliver results that were in line or above our outlook, despite the challenging environment. I'll point you to the news release for the details, including our segment performance. However, I would like to provide additional context on inventory as well as the non-cash adjustment to our deferred tax asset as they drive some of the assumptions in our 2023 outlook. Starting with inventory, as Steve mentioned, we accomplished our goal as we ended the year with inventory units 6% below prior year. As expected, timeout actions we took in our manufacturing operations to deliver on our goal resulted in a drag of approximately 220 basis points to fourth quarter gross margins. However, by quickly aligning inventory units with demand, we believe we're positioned to generate better efficiencies and, more importantly, to release working capital and drive operating cash flow back to more historical levels in 2023. Looking at deferred taxes, we recorded a reserve in the quarter, which was not contemplated in our GAAP guidance. Based on recent results as well as our 2023 outlook, which reflects meaningfully higher interest expense, we were unlikely to utilize this asset in the short term. Accounting rules require we record a reserve against this asset. Related to the deferred tax asset accounting treatment, this will increase accounting tax expense and the effective tax rate in 2023. I'll note this reserve is non-cash and therefore does not impact our cash taxes. I'd like to take a moment to address our balance sheet and leverage. We've taken a number of proactive steps to further increase our financial flexibility as well as de-risk the balance sheet long term. We've made a commitment to meaningfully reduce our debt. To accelerate this process, we've shifted our capital allocation strategy. We have eliminated the quarterly cash dividend to focus all of our free cash flow, which we define as cash flow from operations less capital expenditures, to pay down debt and bring our leverage back to a range that's no greater than 2-3 times on a net debt to adjusted EBITDA basis. We also work with our bank group to adjust our credit facility amendment to provide additional near-term flexibility given the continued uncertainty in the macroeconomic environment. Specifically, we increased the leverage thresholds by 1-1.5 turns for Q1 through Q3 this year, and we extended the relief period by 1 quarter, which now runs through the end of the first quarter 2024. Summary details of the amendment can be found on our IR website. We are also working to de-risk the balance sheet in the near term. We've already begun the process, and we are working with the necessary parties. Subject to market conditions, we expect to refinance our 2024 maturities in the first quarter of this year. Now turning to 2023 guidance. I'll point you to our news release and FAQ document for additional details. I'd like to share a few thoughts to frame our outlook. At a high level, given the continued macroeconomic uncertainty, we have taken a muted view of consumer demand in 2023. This is expected most pronounced in the first quarter as we overlap last year's strong results. For Q1 at the midpoint, we expect net sales to decline 11% compared to prior year in constant currency or 13% on a reported basis. Looking at the full year, we expect net sales to decline 1% in constant currency or approximately 2% on a reported basis as comparisons ease beginning in the second quarter. With respect to gross and operating margins, as we communicated last quarter, we expect margin pressure to continue through the first half as we sell through the remainder of our high-cost inventory. As we move through the second half, particularly the fourth quarter, we expect year-over-year margin improvement as we begin selling lower-cost inventory and we anniversary last year's manufacturing timeout cost. Looking at adjusted gross margin, for the first quarter, we expect a decline of approximately 300 basis points as compared to prior year. This reflects a headwind of more than 300 basis points from commodity and freight inflation as we continue to sell through our higher cost inventory. For the full year, we expect adjusted gross margin to be flat to slightly down as compared to prior year. In terms of adjusted SG&A, at the midpoint, we expect first quarter SG&A to be relatively consistent with prior year on a dollar basis. However, given the sales outlook, we expect SG&A, which carries a higher fixed cost component, to delever approximately 370 basis points as compared to last year. For the full year, we expect a slight increase in SG&A dollars. On a percent of sales basis, we expect SG&A leverage to improve over the course of the year as sales comparisons ease. For adjusted operating profit, our outlook is for a range of $500 million-$550 million for the full year and a range of $50 million-$70 million for the first quarter. We expect adjusted interest and other expense to be nearly $300 million for the full year, an increase of approximately $130 million over prior year. Our outlook assumes that we refinance approximately $1.4 billion of our 2024 maturities at current market rates in the first quarter, as well as higher average rate on our variable rate debt. For the first quarter, we expect adjusted interest and other expense to be approximately $65 million. With respect to taxes, our outlook reflects an adjusted tax expense of approximately $90 million-$100 million for the full year and approximately $17 million-$20 million for the first quarter. With respect to earnings per share, for the full year, we expect adjusted earnings per share from continuing operations to range from $0.31-$0.42. For the first quarter, we expect adjusted EPS from continuing operations to range from a loss of $0.09 to a loss of $0.04. Lastly, we are well positioned to release working capital and drive operating cash flow back to more historical levels in 2023. For the full year, we expect to generate approximately $500 million in cash from operations. In closing, although the macro-related challenges are masking the progress we've made, I'm encouraged by the improvements we've made and the actions we're taking to transform the business. We're taking steps to meaningfully reduce our debt. We see the path to improving margins by the end of the year as inflation eases and we benefit from our savings initiatives. We're driving higher operating cash flow, and we're continuing the progress on implementing our Full Potential plan. We believe this will drive higher sales, profits, and shareholder returns over time. With that, I'll turn the call over to T.C. Thanks, Michael. 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? As a reminder, to ask a question, you'll need to press star one one on your telephone. Our first question comes from the line of Omar Saad with Evercore ISI. Omar, your line is now open. Thanks. Good morning. Thanks for all the information in the update today. I guess I, you know, wanna ask you about, you know, given all the news, new information today, maybe looking at both the business and the capital structure and the leverage position that you're in, you know, what gives you confidence that things are gonna improve from here? Are you finding... You know, on the leverage side, are you finding that the debt markets are open to refi? Maybe a little bit of, like, you know, going back in time and evaluating some of the decisions that were made along the lines. You know, what, what could be done differently in the future as you guys think about leverage and the underlying nature of the business? Thanks. Sure. Good morning, Omar, and thanks for the question. Let me start with confidence in the business, then we'll get into capital allocation. I have a lot of confidence in this business, and we continue to improve upon the foundational capabilities of the business. You know, I go back and I look at a little short-term history. We came out of 2021 really strong. First quarter of 2022 was really strong, and we felt good about the business. Obviously, things pivoted in the macro environment in Q2, and we've had a lot of headwinds since that point. The foundational capabilities of the company that we've been putting into place through Full Potential plan continue to improve. You know, I really believe we're a stronger company today than we were. Process improvements are better. We have a lot new and expanded supply chain capabilities. New leadership team, particularly across Activewear. Our innovation pipeline is stronger. We continue to make the investments that need to be made in the long term, in the company, particularly in things like technology. As you go into 2023, I think we have foundational capabilities that are gonna continue to get stronger, but we're facing continued headwinds, certainly on the top line. We think the consumer challenge is gonna stick around for a while, so we have a bit of a muted look forward in 2023 at the top line. I'm encouraged to see that our margins are gonna improve as we come into the back half of the year as that more expensive cost of goods start to roll through the P&L, and we get to better stuff that we're making right now. We're gonna return to cashflow positive. The foundational fundamental operating of the company, I think is better today than it was, and I think there's a lot of upside as we go forward, as we continue to invest, continue to make good decisions, both for the short term and for the long term. Now, capital allocation, as I said, you know, we're gonna return to positive cash flow this year, and I believe, and we're confident in the long-term cash flow generation of the company. As we look at kinda where we are, when we look at the capital structure of the company and we look at being able to build as much flexibility into the balance sheet going forward, we thought it was prudent to make a shift in how we're thinking about allocating that capital. Number one priority remains investing in the business. We believe in the plan that we have, and we continue to invest to build the capabilities that we need. We are making a shift for our free cash flow to focus on debt reduction, which means the elimination of the dividend, as we announced. We think between investing in the business and paying down debt is what's gonna position us in the long run for the best shareholder returns. We're gonna be thoughtful about, you know, allocation as we go forward. As things change, we'll obviously always continue to look at it, both in the short term and the long term, but we think that's the right position for us to be in today. Got it. Thanks. Good luck. Thanks, Omar. Our next question comes from the line of Tom Nikic with Wedbush. Your line is now open. Hey, good morning. Thanks for taking my question. I wanted to ask about, I guess, the top-line progression for the year. You know, I think obviously, you know, retailers are still planning inventories pretty conservatively to start 2023. You know, I think you've guided to a big decline in Q1, and, you know, the guide supplies things get better later on in the year. Like, do you think that the retailer inventory actions are, you know, pretty much done in Q1, and at that point inventories will be rebased or where they need to be, and then, you know, that kinda positions you for a more favorable top-line environment? I guess I'm just trying to think, like, how the shape of the year looks like. Would you expect the Q2 to be down as well? Just trying to figure out, like, how we should think about the recovery on the top line. Yeah. I think the way you should think about it, first stop to start kind of at the top is we're seeing a muted view of the consumer, this year in terms of their draw from the category, which is gonna be a challenge as we go forward. Underneath that, when you look at retail inventory, it really kind of varies by the business that we're in. When you look at the Innerwear business, you know, certainly, you know, we're in a replenishment business, when retailers take significant inventory action to reduce inventory across the board in apparel, the replenishment businesses can get impacted first. We saw that happen, and, you know, we continue to work through that, even though, you know, we look at our inventory levels and, you know, we're below where we were in Innerwear versus Q1 of last year. We see opportunity to continue to build that inventory back. I would expect you would see that the Innerwear business start to rebuild and inventory start to rebuild faster than you would necessarily in Activewear. In Activewear, there's still pockets that have a lot of inventory out there. It does vary by channel. It does vary by customer. And, you know, some have been more promotional and driven inventory faster than others. Some have managed inventory a little better than others. It's, it's a bit of a hit and miss. I think fleece will take a little bit of time to continue to work itself through the system. We're going into the year with a conservative view of the consumer and the top line. understood. Thanks very much. Our next question comes from the line of Michael Binetti with Credit Suisse. Your line is now open. Hey, guys. Hope you can hear me okay. I guess with that in mind, to kind of jump off of that question, can you give us an indication of, I mean, you gave us thoughts on the replenishment and working through inventory, but maybe thoughts on how Champion fall order books look. I wanna see what maybe the response to some of the new product is. Obviously, there's a lot of factors at play here, but I guess what factors are you looking for to help you anticipate when restocking can begin in the mass channel in the U.S.? My final one is, I think you said inventory units down 6% with dollars up 25%. I just wanna make sure I heard that correctly because that seems to imply something like price per unit up in the 30% range. Maybe just walk me through that if I'm missing anything obvious. In terms of restocking in the mass channel, you know, we talk to our customers and our partners closely all the time and kinda understand where they are. We're also working very closely to find specific opportunities. There's always different pockets by different customer, by different product, to be able to use the data and analytics that we're building to find those opportunities. I would expect those channels to probably come back faster than others. Again, it ties back to the consumer. Obviously, we all wanna match shipments. They wanna match shipments to POS. We wanna match shipments to POS, so we don't end up with big pockets of inventory to the positive or to the negative. As we see, you know, relatively conservative view of consumer demand, we're trying to match inventory to that point. That should come back, you know, late first quarter, early second quarter, we get back to a more normalized matching of POS to shipments as we go forward. In terms of inventory, yeah, dollars are up about 25%. When you think about that difference versus units, it's about half inflation, and the other half would be roughly mix. When you think about unit cost, you're probably up in the low-to-mid teens, when you average all that out. Yeah. Good morning, Michael. This is Scott. Just to add a couple things to the inventory. I mean, I feel like we are in a really good shape from the health of the inventory. I think we're in good shape there. The, you know, the vast majority of the inventory is replenishment in nature, so the quality inventory is really good. If you think about inventory itself, I mean, we've been very proactive in managing our inventory levels. Like we talked about early in the prepared remarks, we took time out at our manufacturing facilities. We also had to exit a couple of manufacturing facilities as we are optimizing our manufacturing network. That really positions us really well going into 2023, and it should drive working capital benefits as we move over the course of 2023. We feel good about it. We, again, units were down. We met our goal of our units being down 6% compared to last year, and, we're not stopping there. We're looking to reduce units, again, really drive working capital benefit as we move forward. Thanks, guys. Our next question comes from the line of Ike Boruchow with Wells Fargo. Hey, good morning, guys. couple quick housekeeping questions, excuse me, on the model. on the elevated interest, the $130, is there any way you could break out how much of that is from the variable debt versus how much is the expectation on the refi? on the tax rate, that's I think if my math is right, that's like an implied 40% rate. I understand the dynamic this year. I'm just kinda curious, like when we go past this year and the deferred tax dynamic, does that tax rate revert back to, I believe, your high teens run rate once we get through there? The last one, just on the inventory, is there a way? I think you're saying that the inventory is gonna be a cash benefit this year. Is there like an inventory dollar amount you can kinda, let us know or something you can let us know, by year end on your expectation on the balance sheet? Thank you. Hey, Ike, this is Michael. With regard to the interest, because it factors in financing, there's a number of different scenarios that could play out between the mix between fixed and floating. I think we'll just stick with the $300 million at this point. As we work through the financing, would probably be a lot more granularity or certainty we could provide you about what's the ultimate fixed floating mix there. Let's see. With regard to your question on the tax rate, yes, the effective tax rate as you look at 2023 is in the area of 40%-45%. What will happen, I'm, I'm not sure I caught the tail end of the comments you were making, but as you think about this deferred tax accounting. What will happen over time is that, it will return to normalized levels, but it could take several number of years. Once again, it does not have an impact on the cash tax payments. For perspective, the cash tax payments in 2023 are expected to be in the neighborhood of $90 million-$100 million, which is essentially where they were in 2022 and 2021. The last question is on inventory. I'll take that one, Michael. On inventory, we don't guide to a specific target of the inventory by the end of the year. I, again, I'd say kind of talking about expectations and working capital is gonna drive a lot of the benefit from a cash flow perspective. I know you've been with us a while, so you know the cadence of our inventory. As we look in the first half, we typically use cash in the first half as we are supporting the back to school season and looking to drive that inventory down over the course of the rest of the year. As you think about our cash flow, again, we're guiding to $500 million. That's a good mix. Again, a heavy, working capital benefit and, the net income, that drives from a profitability standpoint. Again, feel really good about the cadence and, being able to drive that working capital benefit to really revert back into a good position from a cash standpoint. Got it. Super helpful. Thank you. Our next question comes from the line of Paul Kearney with Barclays. Hey, good morning. Thanks for taking my question. Can you talk a little bit more about what's embedded behind, maybe your segments in the full year guidance for sales for Innerwear versus Activewear? Then where are you seeing pricing and promotion shaking out through the year to offset any of the costs in maybe the first half? Lastly, when do you expect to achieve the target leverage range? Thanks. Sure. In terms of kind of the mix of the guide, if you will, by segment, the way I think you should think about it is we'll be roughly consistent across the segments for the total company guide, so no meaningful outliers across the three segments. In terms of pricing and promotion in the market, I think, you know, two different businesses. When we're looking at the start of Q1, for Innerwear particular, kind of less promo than we've seen, a lower promotional environment. You know, retailers, I think, are working to recover some of their gross margin. In the Innerwear space, if there was any distressed inventory, I think most of that's been worked through. I think you'll start to see a normal cadence of promo where, you know, Q1 is always less than Q4, kind of on a natural basis. On the activewear side, it really varies by channel and by customer. I'm seeing there's low in some areas, high in others. It just depends on where that individual customer is. There is still lots of fleece out there in the market, and some of that is aged. I think you're gonna continue to see some promotion around that space. We would expect that the promotional environment would begin to drop as the quarter progresses.... Yeah. I think with regard to below, we would be below 3 by 2025. Essentially 2 years from now. Okay. Thank you. Our next question comes from the line of Jay Sole with UBS. Great. Thank you so much. My question is on SG&A and the Full Potential plan. Maybe Steve, can you just walk us through how much of the expected SG&A savings have already been realized in 2022? Maybe how much more are you expecting 2023 and 2024? If you could just give us an update there, that'd be super helpful. Thank you. Yeah. There's a lot, a lot of activity going on in the SG&A space. It's a balance of savings and investment. I would be clear that, you know, part of the Full Potential plan is we're leaning into the areas of the business that we need to continue to grow. Technology spend is gonna continue to build. Some of that's expense, some of that's capital. We're gonna continue to invest in that space. We are taking near term action. We did do a headcount reduction in January. We are looking at other opportunities for us to continue to take costs out of our networks and be as efficient as we possibly can. We're looking carefully at spending this year. You know, we've been investing in our brands, but we're gonna be thoughtful and kinda spend at the rate of consumer demand out there as we go forward. When you look at our model and you look at the P&L of this company, the big savings that we need to continue to generate or revert back to where we were is in cost of goods. We need to regain the margins that we had before COVID, before all the inflation hit, and that's our focus. We're doing that through optimizing our network. We are looking at sourcing and our contracts and how we source. We're consolidating vendors. We're looking at all the different parts of our network to continue to improve. We think we can do that. As I said, we kind of reconfirmed the commitment of a, mid 14% op margin, in the Full Potential plan, and we're gonna continue to work costs across the board. Got it. Okay. If I can follow up with one more. You know Champion's been touched on in the call, but if you could just elaborate a little bit more about where the headwinds are in 23, maybe in terms of channel or geography, and then maybe talk about where some of the opportunities are for growth perhaps beyond, that'd be helpful as well. Yeah. I mean, as I said, you know, we expect it to be relatively consistent across all the segments. As I look at the market right now and look at, you know, how the consumer is responding on a global basis, you know, obviously, you know the U.S. market inflation, while it's softening, we still see as well above historical levels, and it's going to continue to impact the U.S. consumer and their spending decisions, particularly in the lower income consumers. As you look back, you know, we would expect, you know, the mass channel trend to start to improve. We are seeing, you know, decent POS early in January, which we're seeing is encouraging, running positive in most accounts. As we talked earlier, shipments are still lagging, so there's some optimism there. When I look at our European market, it's similar to the U.S., still challenging. Their consumer sentiment is still low, kind of cautious in the retail environment there. Asia is mixed. Obviously there's a degree of opening up, we're seeing signs of improving traffic in our stores in Japan, which are heavy travel dependent. China opening up with its, you know, COVID policies, that'll help us get traffic back into our stores there. Although, because those stores have been closed for so long, they're sitting on inventory for the past, we have to work through that. Australia, I would say it's lagging the U.S. a little bit in terms of its evolution going through the inflation. You know, we've got a really strong D2C network there and a really strong brand portfolios, and they're working hard on innovation. Similar consumer headwinds, but the D2C network there is relatively well positioned. Got it. Thank you so much. Our next question comes from the line of Paul Lejuez with Citi. Hey, thanks, guys. Just a couple. You had some big changes in your working capital this year. Curious which of those line items came in better or worse than you'd initially expected? Or I shouldn't say initially, just even as of the last quarter. Maybe you could talk a little bit more about what your assumptions are for this year on some of those major items, inventory, accounts payable, just the ones that you think can move the dial most in terms of generating that $500 million of cash from operations. Then, also separate, just what% of your items this year were manufactured internally? How does that look for 2023? Any change in your thinking about the right structure in terms of how much you do internally versus externally? Thanks. Sure. why don't we take it in reverse order? Let me start with manufacturing. We manufacture internally 60%-70% of our units, which has been relatively consistent over the years. It fluctuates a little bit. As Scott mentioned earlier, we did take 2 facilities offline over the last couple months. That was primarily driven by efficiency, not volume. We're working hard to make all of our facilities more efficient over time. As we build those efficiencies and increase capacity allows us to streamline the network as we go forward. We're always looking to balance our internal versus external, with the supply chain innovation that we've been doing as part of the Full Potential plan, we have new capabilities inside our supply chain to separate replenishment product versus made to order product versus, you know, fast chase product. The capabilities that we have there allow us to make certain things better and faster. As we continue to innovate and as we continue to move into new materials and as we continue to be a faster moving company in certain parts of our business, we will look to continue to use strategic partners, to use those products, and we may internalize them over time. We're gonna find that right balance as we go forward. If it's a product that we think we can make cheaper and more effectively internally, and we've done a lot of benchmarking on that, we will continue to do that. If it's smaller runs, maybe new materials, maybe a more difficult design, we'll look to outsource that over time. The mix is staying relatively the same for now. Good morning. Thanks for your question. As far as the cash flow for 2022 working capital, everything was pretty much in line with what we expected, as far as the contributions in working capital. You know, like we talked about earlier with the inventory, we came in, achieved our goal of lower units at the end of the year. We came in very much in line with what our expectations were gonna be. As you move to 2023, like I mentioned earlier, really looking to drive working capital benefit kind of across the board. I would say in particular, inventory is gonna drive that benefit and just the accounts payable and the relationship as that, as the timing of procurement and production is throughout the year. We're expecting some benefits over the course of the year from the payable standpoint. Got it. There been any change in terms on your, on your payables that has occurred over the last year? No, no changes in terms. Okay. Thank you. Good luck. Yeah. The one thing I would say, you got to remember with payables to inventory is that when the business is accelerating like it was late last year, you get incredible payable leverage in terms of when you're sourcing and manufacturing. If you looked at the balance sheet at the end of 2021, I think we were like 76% payable to inventory. When you think about what we did in the back half of 2022, we significantly decelerated, right? We took production out, we took time out. When you look at the balance sheet, where I think we're about 46% payables to inventory, and it's really because we were pulling back, but you're still paying your vendors. When you get to a more normalized environment in terms of 2023, instead of those two extremes, I think you're gonna be more in that 50%, 60% area, in terms of payables to inventory. When you're trying to do the math, I think that's something to keep in mind is that as you get into a more normalized situation, the payables goes back to a normal relationship with inventory. Our next question comes from the line of David Swartz with Morningstar. David, your line is now open. I apologize for that. Sorry about... Good morning, David. Paul, can you give us some more information on Champion? What gives you some confidence that it's going to recover, and what categories for Champion seem to be stronger and weaker right now? Secondly, on the dividend, can you give us some indication on when you might revisit a decision to suspend the dividend? You know, it seems to be that the dividend was eliminated due to the lower EBITDA. Maybe when EBITDA returns to more normal levels, perhaps you'll revisit the decision to suspend it. Thanks. Sure, David. Let me talk about Champion first. I'm really confident in Champion and see a big opportunity in the brand. Obviously, there's some work to do right now, but we have a new team in place. They're building the foundation for both revenue and margin growth, and I think that's growth beyond the timeline of our Full Potential plan. They're moving fast, really focused on brand purpose, brand desire, operational effectiveness, and to drive sustainable, profitable growth around product design and merchandising, increase speed to market. They've already taken three months out of our global design calendar. Really working on global product and channel segmentation to really provide clarity for consumers and retailers on what the portfolio is and what the brand stands for. B2C is a early opportunity. We've made progress. I think if you look at our site, it's much better than it was, say, a year ago, but it's not where it needs to be. Footwear is still a big opportunity, and then there's opportunities just across the portfolio in general. Near term, there's some challenges in the brand as we continue to work through inventory, but the team is being very aggressive. We're gonna see good growth in Asia, led by Japan. The collegiate channel has rebounded. We've talked about that over a number of calls, in the past 2 years, and we expect it to continue to grow, as we go forward. We're reaching new campuses. We're gonna have much deeper relationships with those campuses. We've got good merchandising capabilities in that space. We're seeing good student response. We're seeing positive price mix in that area. Lots of good things there, and we're gonna continue to focus on channel strategy and being really specific about where we need to go. Early on, we're getting good response from our retailers. They like where we're going. They want this brand to win. They think it plays a really important role for them, and they like the work that we're doing going forward. Work to be done on the brand, but confident in where it can go and what it stands for and the work that the team is doing. We're starting to see some interesting innovation in Reverse Weave and some new product for our pinnacle accounts. Our TSP product from Innerwear is going to cross over, now go into the Champion business this year. We're working on the absorbency category for Champion as well as our Innerwear business. Innovation is coming. We're gonna continue to lean into innovation, continue to build the brand, continue to be a more disciplined operating company around the brand and how we go to market. I'm confident that it's gonna continue to improve, but we have work to do this year for sure. Then on the dividend, I think what's clear to know is our focus right now is around paying down debt. That's what we announced today, and that's where we're gonna put our free cash flow. Look, the board's always evaluating capital allocation, both the short term and the long term. Right now our focus is on reducing debt, and we think if we reduce debt and we continue to deliver against the Full Potential plan, that's what will drive the higher shareholder returns in the long run. Did the market require you to eliminate your dividends for the refinancing? No. The amendment, the basket does allow us to pay a dividend, of up to $75 million annually. To Steve's point, we thought it was prudent to utilize all of the cash after we've made the investments in the business to retire debt. Okay. Thanks for all the information today. Thanks. Our next question comes from the line of William Reuter with Bank of America. Good morning. I have two. The first is, there was good commentary when you broke out the difference between inventory units and what amount of that was due to higher average unit costs. When you looked at this year, what you're seeing in terms of lower cotton costs as well as lower freight, how should we think about where your average unit cost might be, I don't know, six months from now or towards the end of the year? Yeah, I don't know that we're gonna give you specific guidance, but I think I would tell you that the costs that we are seeing today in terms of either what we manufacture, the input costs for cotton, for freight, those costs are coming down. You will see the margins in Q3, and especially in Q4, start to improve because our costs are coming down currently relative to where we were six to 12 months ago. Yeah, we're seeing lower commodity costs, lower freight costs, all that. Again, the units that we are producing today, that will, again, as we talked about, in the earlier remarks, from a margin standpoint, as you look over the course of the year, I'm very encouraged with the trends. You're gonna see a sequential improvement in margins throughout the year as we are, again, selling off the higher cost inventory in the first half. As you get into the second half, especially in the fourth quarter, you're gonna see some really positive margin trends as we go into late in the year and as we move into next year. Also we have foreign currency from a transactional standpoint, some headwinds in the first half. That'll subside in the back half. Again, a lot of positive trends that we're gonna see in margins as you move into the latter part of the year. The one thing I would just add to that, Scott, also is, we have a couple hundred basis points of headwind from the timeout that we took in Q3 and Q4 of last year. You don't have that headwind as well. When you take that headwind going away, when you take the cost change that we're seeing right now, we would expect to see, as you said, the sequential margin improvement going forward. The cost savings initiatives, all those things are adding up to really a positive trend as you look late in the year and as you move forward. Okay. I guess related to that, the timing lag between when cash costs are incurred versus when those hit the P&L, what's that lag typically like? Around two to three quarters, depending on the product. Okay. Lastly for me, you mentioned addressing the 2024s in the first quarter. Is there a situation or a set of circumstances where you would consider addressing the 2026s at the same time? I would say right now we're focused on the 2024 maturities. Got it. Okay. Thank you very much. Thank you. Our next question comes from the line of Carla Casella with JPMorgan. Great. One follow-on to Bill's question, around that refinancing. Your thoughts on whether you're looking in the bank market versus the bonds? Do you have capacity to do either bank or bonds or secured bonds? Yeah, Carla, this is Michael. As you can appreciate, we can't really discuss that at this point, but we do think that we have flexibility to access a number of the markets. Okay, great. A couple cost questions. The facility timeout, is that all behind you now, or could that also affect 1Q? It's all behind us. We recorded all the charges costs associated with that in 22. Nothing going forward that'll impact 23. Okay. On SG&A, I think I heard it correctly that you expect the dollar amount of SG&A to be up year-over-year. I'm just, I was a little surprised given all the work you're doing around Full Potential. Could you just give us any more clarity there? Yeah. Go ahead. Yeah. Good morning, Carla. Thanks for the question there on the SG&A. I think you are exactly right. The dollars are up, and there's some puts and takes for SG&A. You know, couple things to consider from a higher cost standpoint. We will have higher incentives, variable compensation costs in 2022. We didn't have a payout in line with the performance. As we move into 2023, we expect to have a payout there, so you have a higher cost associated with that. Also have a higher technology investment. We're gonna continue to invest moving forward with our technology transformation initiatives. We'll have those. Offsetting that is what Steve mentioned earlier, we are, again, laser focused on controlling costs. Took action in January to corporate headcount actions there to reduce costs there. We are, again, laser focused on cost control, discretionary spending. From a leverage standpoint, again, over the course of the year, that should improve as the sales compare to these. Okay, just one on the amendment, just because I can't find the document yet. You said you've increased the flexibility by 1-1.5 or 1-1.5 turn, over the next 3 quarters. Should we assume that it goes up by 1 in the 1st quarter and then by 1.5 in the, in the 2 kind of peak quarters? Is that the way to think about it? Yeah. As an example, Q1 of 2023 goes to $6.75. Q2 goes to $7.25. Q3 goes to $6.75. Q4 goes to $5.25. Q1 of 2024 goes to $5, The amendment period is over. Okay. That concludes today's question and answer session. I'd like to turn the call back to T.C. Robillard for closing remarks. We'd like to thank everyone for attending the 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.