This management's discussion and analysis of financial condition and results of
operations, or MD&A, contains forward-looking statements that involve risks and
uncertainties. Please see "Forward-Looking Statements" in this Quarterly Report
on Form 10-Q for a discussion of the uncertainties, risks and assumptions
associated with these statements. This discussion should be read in conjunction
with our historical financial statements and related notes thereto and the other
disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The
unaudited condensed consolidated interim financial statements and notes included
herein should be read in conjunction with our audited consolidated financial
statements and notes for the year ended
Overview
Our operations are managed and reported in three operating segments, each of
which is a reportable segment for financial reporting purposes: Innerwear,
Activewear and International. These segments are organized principally by
product category and geographic location. Each segment has its own management
team that is responsible for the operations of the segment's businesses, but the
segments share a common supply chain and media and marketing platforms. Other
consists of our
Our Key Business Strategies
Our business strategy integrates our brand superiority, industry-leading innovation and low-cost global supply chain to provide higher value products while lowering production costs. We operate in the global innerwear and global activewear apparel categories. These are stable, heavily branded categories where we have a strong consumer franchise based on a global portfolio of industry-leading brands that we have built over multiple decades, through hundreds of millions of direct interactions with consumers. Our multi-year growth strategy ("Full Potential plan") focuses on four pillars to drive growth and enhance long-term profitability and identifies the initiatives to unlock growth. Our four pillars of growth are to grow the Champion brand globally, drive growth in Innerwear with brands and products that appeal to younger consumers, build e-commerce excellence across channels and streamline our global portfolio. In order to deliver this growth and create a more efficient and productive business model, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential plan's objectives. We remain highly confident that our strong brand portfolio, world-class supply chain and diverse category and geographic footprint will help us unlock our full potential, deliver long-term growth and create stockholder value.
In the first quarter of 2021, we announced that we reached the decision to exit
our European Innerwear business as part of our strategy to streamline our
portfolio under our Full Potential plan and determined that this business met
held-for-sale and discontinued operations accounting criteria. Accordingly, we
began to separately report the results of our European Innerwear business as
discontinued operations in our Condensed Consolidated Statements of Income, and
to present the related assets and liabilities as held for sale in the Condensed
Consolidated Balance Sheets. On
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In addition, in the fourth quarter of 2021, we reached the decision to divest
our
Impact of COVID-19 on Our Business
As the global impact of COVID-19 continues, our priority has been to protect the health and safety of our employees and customers around the world. To help mitigate the spread of the COVID-19 virus and in response to health advisories and governmental actions and regulations, we have modified our business practices and have implemented health and safety measures that are designed to protect employees in our corporate, retail, distribution and manufacturing facilities around the world.
The COVID-19 pandemic has impacted our business operations and financial
results, as described in more detail under "Condensed Consolidated Results of
Operations - First Quarter Ended
Outlook for of 2022
We estimate our 2022 guidance as follows:
•Net sales of approximately
•Operating profit of approximately
•Full Potential plan-related charges of approximately
•Interest expense and other expenses of approximately
•An effective tax rate from continuing operations of approximately 17%;
•Diluted earnings per share from continuing operations of approximately
•Cash flow from operating activities of approximately
•Capital expenditures of approximately
Seasonality and Other Factors
Absent the effects of the COVID-19 pandemic, our operating results are typically subject to some variability due to seasonality and other factors. For instance, we have historically generated higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Our diverse range of product offerings, however, typically mitigates some of the impact of seasonal changes in demand for certain items. Sales levels in any period are also impacted by our customers' decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.
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Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse basis, our sales are impacted by discretionary consumer spending trends. Discretionary spending is affected by many factors that are outside our control, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, energy prices, unemployment trends and other matters that influence consumer confidence and spending. Consumers' purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. As a result, consumers may choose to purchase fewer of our products, to purchase lower-priced products of our competitors in response to higher prices for our products, or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time.
Inflation can have a long-term impact on us because increasing costs of
materials and labor may impact our ability to maintain satisfactory margins. For
example, the cost of the materials that are used in our manufacturing process,
such as oil-related commodity prices and other raw materials, including cotton,
dyes and chemicals, and other costs, such as fuel, energy and utility costs, can
fluctuate as a result of inflation and other factors. Disruptions to the global
supply chain due to factory closures, port congestion, transportation delays as
well as labor and container shortages may negatively impact product
availability, revenue growth and gross margins. We would work to mitigate the
impact of the global supply chain disruptions through a combination of cost
savings and operating efficiencies, as well as pricing actions, which could have
an adverse impact on demand. Costs incurred for materials and labor are
capitalized into inventory and impact our results as the inventory is sold. In
addition, a significant portion of our products are manufactured in countries
other than
Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men's underwear, and lower margin products, such as seasonal and replenishable activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to consumers' preferences and discretionary spending.
Highlights from the First Quarter Ended
Key financial highlights are as follows:
•Total net sales in the first quarter of 2022 were
•Operating profit decreased 10.3% to
•Diluted earnings per share from continuing operations was
•As part of our strategy to streamline our portfolio under our Full Potential
plan, we sold our European Innerwear business on
•We repurchased approximately 1.6 million shares at a weighted average
repurchase price of
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