Hanesbrands Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Thomas C. Robillard, Chief Investor Relations Officer
• Stephen B. Bratspies, Chief Executive Officer
• Michael P. Dastugue, Chief Financial Officer

Analysts

• Omar Saad, Evercore ISI
• Michael Binetti, Credit Suisse Group AG
• Susan Anderson, B. Riley
• Jim Duffy, Stifel Nicolaus
• Will Gaertner, Wells Fargo & Company
• Jay Sole, UBS Group AG
• Brand Cheatham, Smith Barney Citigroup
• Paul Kearney, Barclays PLC
• David Swartz, Morningstar, Inc.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the HanesBrands First Quarter 2022 Earnings Call. [Operator Instructions] [Operator Instructions]

I'd now like to hand the conference over to your host, T.C. Robillard. Please go ahead.

[Thomas C. Robillard, Chief Investor Relations Officer at Hanesbrands]

Good day, everyone, and welcome to the HanesBrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the first quarter of 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 Investors section of our hanes.com website. On the call today, we may make forward-looking statements, either on 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 operations on the consumer, as well as on the business and operations of our customers, suppliers, business partners and labor force.

These risks also include those detailed in our various filings with the SEC, which may be found on our website as well as in our news releases. The company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made. Unless otherwise noted, today's references to our consolidated financial results and guidance exclude all restructuring and other action-related charges and speak to continuing operations.

Additional information, including a 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.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Thank you, T.C. Good morning, everyone, and welcome. Hanesbrands delivered strong first quarter results with sales, operating profit operating margin and earnings per share all exceeding the high end of our expectations. We also made continued progress on our full potential plan to transform HanesBrands into a consumer-centric growth company. I'm extremely proud of the work our global team has done. We continued to demonstrate our ability to both run the business and change the business at the same time.

And despite one of the most challenging operating environments in decades, our team continues to deliver results, underscoring our resiliency and proven ability to execute. Michael will walk through the details of the quarter and our outlook for the remainder of the year in his section. However, it's clear that over the last three months, the global operating environment has become even more challenging. There's a tragic war in Eastern Europe, inflation continues to hit new highs putting additional pressure on costs and consumer budgets.

And COVID continues to create new headwinds to both demand and supply chain logistics. While this creates additional short-term challenges that I'm confident our team can manage through, it does not change our Full Potential strategy. We remain unwavering in our commitment to make the necessary investments to transform the business irrespective of the near-term environment. In fact, these challenges reinforce our strategy is right. For our company to thrive, we must make our planned investments to drive accelerated and consistent growth and returns.

There are no shortcuts, and challenging macro environments are actually the ideal time to lean in and execute long-term strategies. When we laid out our Full Potential strategy a year ago, we said that we'd consistently grow revenue. We'd expand margins over the course of the plan. We'd simplify and invest in the business, and we'd build a winning culture. We're confident we can achieve our 2024 financial targets. These include growing total company revenue at a 6% CAGR to $8 billion, growing Innerwear sales at twice the category rate, growing Champion sales at a 14% CAGR to $3.2 billion and expanding operating margins to 14.4%.

Our Full Potential plan is on track, and I'd like to spend a few minutes updating you on the progress we've made to date. In terms of growing sales, we're seeing good initial results from our strategy. In 2021, full year revenue increased 9% on a constant currency basis or 26% excluding PPE. And we ended the year with sales meaningfully above prepandemic levels. In the first quarter of this year, the strong growth continued with sales increasing 7% in constant currency as we were able to positively comp last year's strong 25% growth.

We're committed to our full potential plan to grow Champion and reignite growth in Innerwear. And to do that, we're taking a two-pronged approach centered on energizing the core and adding more. With respect to our core, we have iconic brands, strong consumer franchises and distribution scale. However, the company historically has not fully leveraged these strengths. We see significant growth opportunities in both Innerwear and Activewear simply by energizing our core. We'll do this through consumer-driven product design by delivering category-leading innovation and improving on-shelf execution at retail.

We've made a lot of progress over the past year. We've coordinated product design globally. We've improved our processes. We've removed internal barriers and we've accelerated our speed to market. A good example of energizing the core is the newest version of our Hanes Total Support Pouch product. The innovation platform has driven increased engagement with younger male consumers. And we've built on this success by launching a new platform that includes our X-Temp technology to provide cooling and wicking benefits.

We also leveraged our global operating capabilities to simultaneously launch this product in the U.S. and Australia, supported by coordinated regional marketing campaigns. We're excited by the early traction of this launch and I'd encourage you to check out the advertising on our Bonds website and Bonds YouTube channel to see the unique and fun way our Australian team is communicating the benefits of this innovative product. I'm pleased with the early benefits we're seeing from energizing our core.

But what I'm really excited about is the robust product innovation and pipeline that we've developed over the past year as part of our Full Potential work. This is the broadest pipeline of Innerwear and Champion products the company has had in decades, positioning us for continued growth in 2023, 2024 and beyond. In addition to energizing the core, we're also driving growth by adding more. This is a focused initiative grounded in disciplined brand management.

We see specific opportunities to grow sales by reaching new consumers as well as expanding into new usage occasions, adjacent categories and new geographies. We've made progress across each of these opportunities over the past year. Looking specifically at Champion, we continued our expansion in China, adding new stores in the quarter through our partners. In Europe, we continued to reach new consumers with new styles and silhouettes for kids. And we doubled our spring/summer footwear sales driven by an expanded product offering across channels and geographies.

We also launched our Win with Women campaign as we grow our Champion franchise with young female consumers. This campaign celebrates women and sports with an underlying narrative of fueling confidence for women to feel comfortable in their own skin. We launched the campaign in mid-March, which is centered on our Soft Touch sports bras and leggings. The integrated marketing campaign is off to a great start, and we've seen strong consumer engagement on our Champion site with higher conversion and increased sales.

Next, I'd like to provide an update on how we're increasing investments and simplifying our business to enable revenue growth and ultimately lower costs and expand margins. We've made significant progress to date on both of these enablers. In terms of business simplification, we've coordinated product design globally for both Innerwear and Champion. We're streamlining our portfolio, shedding noncore lower-margin businesses, and we've reduced our SKUs.

To date, we've taken out more than 35% of our SKUs, which has lowered costs while also creating space for the pipeline of new products. With respect to our investments, we have a number of initiatives to unlock growth, improve the consumer brand experience, lower costs and improve efficiencies. We've increased brand investments globally, spending an incremental $90 million over the past five quarters. In the first quarter, brand marketing investment increased 12% over prior year.

In the second quarter, we'll step up investment as we support our Champion Win with Women campaign, and our total support pouch with X-Temp products under both the Hanes and Bonds brands. We're investing in technology to lower costs, improve visibility and simplify our processes. We're investing in data analytics to drive growth to improve consumer insights, lower costs through fact-based negotiations as well as lower working capital needs through improved manufacturing planning.

And we're investing in our supply chain to improve our speed to market, which positions us to capture incremental demand, lower costs and improve service to consumers and retailers. A good example of this is the work we're doing to optimize our U.S. distribution network. At a high level, we're reducing complexity, improving customer service and increasing flexibility for future growth.

One project is the addition of a third-party managed direct-to-consumer distribution center on the West Coast, which will increase capacity and improve the consumer experience by reducing product delivery times. Another project is on the wholesale side of our network, where we are leveraging our global scale to direct ship from our factories to certain customers. By eliminating a distribution node, shipments will skip our DCs, thereby lowering costs for both us and our retailers while simultaneously reducing delivery times.

We're also progressing our cost savings initiatives to fully offset our full potential investments. To date, we've realized approximately $60 million of cost savings through a number of initiatives, including vendor consolidation, leveraging data analytics and a voluntary retirement program. And lastly, I'd like to provide an update on how we're enabling our Full Potential plan by building a winning culture. We're continually adding new skills, talent and experience to our leadership team.

And today, I'm very pleased to welcome Vanessa LeFebvre to our team as the new President of Global Activewear. We're also building a truly inclusive organization as we create a culture of opportunity for all. Recently, we launched our new purpose and global values, which guide our behaviors as we move faster, innovate and win in the marketplace. And we're quickly becoming a more sustainable company, building sustainability into everything we do.

So as I step back, we've made significant progress on implementing our full potential plan. Through brand management discipline, we have defined lanes of opportunity to grow revenue by energizing the core and adding more. We're confident we can grow revenue in 2022 on top of last year's significant growth. And looking at our robust product pipeline for both Innerwear and Champion, we believe we're very well-positioned for continued growth in 2023, 2024 and beyond.

We have detailed plans to productively invest in the business to unlock future growth opportunities. We have line of sight to the cost savings initiatives that will offset our investments. And we're transforming our culture to enable growth. We're confident we have the right strategy. We remain unwavering in our commitment to execute our full potential plan on the time line we laid out. And while the near-term operating environment is masking the progress we've made to date, we're on track to deliver our 2024 financial targets.

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

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

Thanks, Steve. I continue to be impressed by our global team's performance. Not only did we make progress on implementing our full potential strategy, our global team once again managed through a difficult environment to deliver another quarter of very solid results. For the quarter, we exceeded the high end of our guidance range across all of our key metrics, including sales, operating profit, operating margin and earnings per share. For today's call, I'll touch on the key highlights from the quarter.

I'll also provide an update on the operating environment as well as our outlook for the second quarter and the remainder of the year. First quarter sales increased 5% over last year to $1.58 billion. Foreign exchange rates were a 200 basis point drag on sales growth in the quarter. On a constant currency basis, sales increased 7% over prior year. Strong consumer demand for the Champion brand continued in the quarter, although supply challenges continue to limit our ability to fully meet this demand.

Champion sales globally increased 6% in constant currency with a growth on a two year stack basis accelerating to 28%. By geography, Champion sales internationally increased 10% in constant currency or 4% on a reported basis, driven by growth in Europe and Latin America, as well as continued expansion in certain Asian markets, including China. Champion sales in the U.S. increased 2% over prior year, driven primarily by strong growth in the collegiate channel.

While we're encouraged that we positively comped last year's strong 41% growth rate in the U.S. we were disappointed that product supply challenges did not improve as expected in the quarter. Delays in receiving Champion product with some of our suppliers resulted in approximately $40 million of in-hand orders in the U.S. going unfulfilled in the quarter. As the product arrived in time, Champion sales in the U.S. would have increased at a high teens rate and constant currency sales for Global Champion would have grown 14% for the quarter.

Switching to our Innerwear business. In the U.S., sales increased 1.5% over prior year, positively comping last year's strong 35% growth rate coming in ahead of our outlook. Meaningful gains in retail space, a positive mix and the partial quarter benefit of a price increase drove year-over-year growth even as we anniversary last year's onetime sales benefit from retailer restocking and government stimulus. With respect to space, we gained space in our Hanesbrand across all categories and in multiple channels.

We also gained space in intimates with our Maidenform shapewear products, Smart Size bras as the brand continues to attract younger consumers and diversify its distribution. Looking at our Innerwear business internationally, constant currency sales increased at a mid-single-digit rate over prior year driven by growth in our Bras N Things brand in Australia as well as our Hanes brand in Latin America and Southeast Asia. Turning to margins.

Adjusted gross margin declined 305 basis points over prior year to 37.1%, driven by the expected impact from higher inflation and higher than planned strategic investments in expedite freight to service new retail space gains. These more than offset the benefits from manufacturing efficiencies, cost savings initiatives and the partial quarter benefit from the price increase in Innerwear. Gross margin performance in the quarter was approximately 60 basis points below our expectations. This was due to our merchandise mix, which was impacted by the delayed Champion shipments in the U.S. that I mentioned earlier, as well as higher-than-planned expedited freight expense.

With respect to SG&A, on a percent of sales basis, our SG&A expense declined 30 basis points over prior year to 26%. The improvement was driven by efficiencies and cost management, resulting from our full potential initiatives, which more than offset the planned investments in brand marketing and technology. Operating profit of $175 million and operating margin of 11.1% were both above the high end of our range, driven by higher sales and better SG&A performance.

As compared to last year, operating margin declined approximately 280 basis points. Turning to cash flow and the balance sheet. We ended the quarter with approximately $370 million of cash and total liquidity of more than $1.4 billion. Cash was a use of approximately $230 million in the quarter driven primarily by working capital needs and inventory. The higher inventory was a function of higher in-transit levels, the impact of inflation on input and transportation costs and investments, particularly in Innerwear to rebuild our safety stock as we take action to continue to improve service levels on high demand SKUs.

Total debt declined approximately $200 million over the prior year to approximately $3.5 billion. Leverage on a net debt-to-adjusted EBITDA basis was 3.1 times at the end of the quarter, consistent with the prior year. And in the quarter, we returned approximately $77 million to shareholders in the form of dividends and share repurchases. We bought back approximately 1.6 million shares of stock for approximately $25 million during the first quarter. And now turning to guidance. I'll point you to our news release and FAQ document for additional guidance details.

To start, I'd like to share a few thoughts to frame our outlook. Since we provided our full year outlook three months ago, the global operating environment has become significantly more challenging. We've seen additional inflation pressure on freight and sourced goods, as well as product input costs, component parts and conversion costs. We're also experiencing incremental costs to move materials within our network. And the latest COVID-related challenges are creating incremental pressure on demand and supply chain costs.

These increased challenges have put an additional approximately $140 million of cost headwind on our business this year. Our team has done an amazing job of identifying approximately $75 million of additional savings initiatives. However, this leaves us with a net cost headwind of approximately $65 million relative to our prior full year outlook. Because of this, our current expectation is that we would be near the midpoint of our full year guidance range for sales and at the low end of our full year guidance range for operating profit and earnings per share.

With respect to cash flow, we've lowered our full year guidance for cash flow from operations to approximately $400 million. This reflects inventory investments and inflation impacts I mentioned earlier. Next, I'd like to provide some thoughts on our quarterly outlook. For sales, we expect second quarter constant currency sales to be essentially flat as compared to prior year as we lap last year's substantial growth rates. Recall in the second quarter of last year, sales excluding PPE increased 88% with 62% growth in Innerwear, 140% growth in Activewear and 91% growth in International.

Looking at the segments for the second quarter this year, we would expect Innerwear and Activewear segment sales to be down approximately 1% over prior year. International segment sales are expected to be up low single digits on a constant currency basis and down mid-single digits on a reported basis. Turning to margins. we continue to expect the biggest year-over-year margin pressure to come in the first half. As we highlighted last quarter, we have a number of discrete items within our control that help margins in the second half. Champion price increases begin in Q3.

The planned first half investments in expedited freight roll-off and our cost savings and efficiency initiatives ramp up. However, with the incremental $65 million of net cost headwinds, which predominantly hit in the second half, we no longer expect a year-over-year increase in second half margins. With respect to gross margins, on an absolute basis, we expect second quarter gross margin to improve slightly from Q1. Looking at the third and fourth quarter, we currently expect gross margin on an absolute basis to be consistent with second quarter's level.

In terms of our operating margin, our second quarter outlook assumes an operating margin of approximately 10.5%. Looking at the second half, and based on our comments regarding the full year, we expect second half operating margin of approximately 13%. And lastly, consistent with our guidance philosophy, our earnings per share outlook assumes no additional share repurchases for the second quarter or the remainder of the year. For the full year, our EPS guidance reflects only the shares repurchased in the first quarter.

So in closing, cost pressures have continued to build and are weighing on margins in the short term. However, our team continues to do a phenomenal job executing. We delivered better-than-expected first quarter results. We're finding cost savings and efficiencies to help offset the incremental cost pressure. We're investing in inventory to capture strong demand for our brands. And despite the short-term challenges, we're fully committed to investing in the business and executing on our full potential plan. I'm pleased with the progress we're making and our ability to achieve our 2024 financial targets.

And with that, I'll turn the call back to Steve for his closing remarks.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Thanks, Michael. Clearly, the global operating environment is presenting near-term challenges and pressures across the business. However, as I step back and look past the near-term noise, we're making progress on our full potential plan and the underlying fundamentals of our business continue to improve. HanesBrands is a much stronger company today, both operationally and financially than we were prior to the pandemic. We're continuing to grow.

We're positively comping last year's massive growth. We're launching new innovative products. We have a robust product pipeline across Innerwear and Champion that positions us for growth in 2023 and beyond. We're investing in advertising, technology and our supply chain. We're transforming our culture and becoming a more sustainable company. We're operating more globally and taking long-term cost out of the business. And we're aggressively finding new cost savings to help offset near-term cost pressures as we focus on controlling the controllables.

We're confident we have the right strategy. We're hearing it from our consumers and our retail and supplier partners. Our full potential plan is on track. We're taking advantage of the macro disruptions to lean into our long-term strategy. and we remain steadfast in our commitment to execute our full potential plan and deliver on our 2024 financial targets.

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

[Thomas C. Robillard, Chief Investor Relations Officer at Hanesbrands]

Thanks, Steve. 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?

Questions and Answers

[Operator]

[Operator Instructions] Our first question comes from Omar Saad with Evercore.

[Omar Saad, Analyst at Evercore ISI]

Good morning. Thanks for taking my question. I guess -- first, I'd like to ask about the revenue guidance. You mean the core Innerwear business remains very strong, maybe you could talk to that, what's really going on underneath the surface there with that consumer demand? And then I understand the cost inflation impact on margins, but maybe help us understand why some of this really the core Innerwear strength won't persist into 2Q and for the rest of the year? And then maybe also quickly touch on Champion with the new management hire with Vanessa coming in. Remind us of the key opportunities there and what she brings to the table.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Sure. Mark, let me -- I'll take the Innerwear outlook, and I'll talk about Vanessa a little bit, and Michael will just talk about margin and kind of where we're going. First of all, very pleased with the first quarter and the performance of the Innerwear business and really establishing this business as a growth business for us going forward, which is something that we've been working to do for a while. It's a strong quarter, we had strong order demand. Service levels improved during the quarter.

We're still not satisfied. We still have service opportunities that we can continue to improve there. But retail space gains, we have good mix. And we've benefited from a partial quarter of the price increase. So underlying good consumer demand in the Innerwear business and good customer reaction, consumer reaction and feel good that we're on a growth trajectory on that business. If you look towards the rest of the year, a lot of the retail space that we gained is going to continue to now benefit us from replenishment as we go forward.

We're seeing good growth in Hanes across a lot of channels. The Maidenform brand, which we often don't talk about enough is really benefiting from changes in consumer behavior. So as the shapewear business continues to rise as consumers start to go back to normal behavior, attending events, we're definitely benefiting from that. We've got a lot of great innovation in the back half. So we mentioned just a couple of minutes ago, our total support path with X-Temp, which is going to be launching and we're very excited about that and have some good early reads.

Back-to-school looks strong. We're going to have 80% more inventory on the floor than we did a year ago, so we're starting to build that inventory right now. So we feel good about Innerwear for the rest of the year. And we think we'll be at the high end of the prior guide for Innerwear and I think that will continue to grow. There's tough comps, obviously, that we have to get over and toughest comp to get over, 62% growth last year.

So that's just a timing issue of how we're going to do overall in the market. But we feel good about the Innerwear business. I'm really pleased with the work the team has done to get us on a growth trajectory. And there was a quarter-over-quarter issues. But in general, I think that business is set up very strong for the back half of the year.

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

Yes. I guess just to add on the Innerwear business, to Steve's point, has the toughest comparison in Q2. The gross margin rate, not just for Innerwear, but just in total, we think it's actually going to be slightly above where we were here in Q1. But as we've got the pricing for the Activewear businesses we've talked about doesn't start till the beginning of Q3. And so as we get to the back half, we think there's going to be some momentum, both top line and we're working to offset the cost increases that we've talked about.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

And let me just touch on Vanessa LeFebvre, who's joined the team. I appreciate you calling that out, Omar. We're really excited to have Vanessa joining us as our new President, Global Activewear, joining us -- she has got lot of industry experience. She's in the industry today in the Activewear space, a great background in merchandising, e-comm channel strategy, which I think is one of the big opportunities for us to continue to get smarter about channel strategy and continue to build product on a global basis. And she's done all those things before. And I think she brings a lot of experience as we go forward. So excited to have her joining the team to continue to grow that business over time.

[Omar Saad, Analyst at Evercore ISI]

And so to clarify, you guys aren't necessarily seeing the consumer feeling an impact from inflation, and that's the driver of kind of the sales outlook. At least not yet.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

The consumer is -- we're taking kind of a wait and see a little bit. We certainly had good demand in the first quarter and that demand outstripped our supply. So we definitely see opportunities as we go forward. They're seeing interest in what we're doing. So new products are doing well. Brands remain strong. We're seeing channel shift that a lot of people have talked about.

So the consumer is changing their behavior. But as you think about our guide for the rest of the year, we're not -- our guide is based on what the consumer is doing today and what we've experienced in the first quarter. We're not -- we haven't predicted consumer getting stronger and predicted consumer getting weaker. It's kind of the current run rate that we're operating at right now. And we'll have to see what the -- certainly inflation headwinds, and how the consumer reacts to that.

[Omar Saad, Analyst at Evercore ISI]

Thanks.

[Operator]

Our next question comes from Michael Binetti with Credit Suisse.

[Michael Binetti, Analyst at Credit Suisse Group]

Hey guys. Thanks for taking all our questions here. I guess if we look at the growth rates you're guiding to for the rest of the year versus pre-pandemic or 2019, I know you came today to talk about two years, but just to get a baseline that isn't impacted by stimulus or COVID in any way, it looks like there's a meaningful acceleration in the second half relative to the 2Q guidance on that three year rate. I'd love to hear a little bit more about that bridge, especially for Champion. I think we would need Champion given we know Innerwear is a little more stable business.

I think we need a Champion to accelerate each quarter from here, most likely to get to that guidance. And I know you said, hey, we got order books that are positive for back-to-school and we're starting to build that now. Maybe just a few more thoughts like that. I know the Champion business is more of an order book business versus replenishment. So you have a little bit of visibility there. Maybe you can tell us what you know about versus what you're hoping happens in the second half to get to that guidance?

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

Yes. Michael, let me start out and then, Steve, you please fill in anything that I missed. So as you think about the -- right now, the business we had better than expected Q1, but our challenge was we didn't have enough products, especially for the Champion business. And as we think about the back half, -- the first thing we got to do is we got to get better in service and we're optimistic given where we are as far as the in-transit inventories and what's in the pipeline. So I think that you'll see us improve there.

I think you'll see also, as we said, the Activewear price increase doesn't kick in until the beginning of Q3. So that's going to help. We're really optimistic about back-to-school because what we're seeing is, we're doing much better. I think we have about 18% more inventory on the floor, Steve, than what we had last year. We've got some nice innovation. We're going to continue to invest in marketing. So I think we've got the space gain that continue to provide some momentum. So there's a number of things. It's not one or two things, it's a number of things that makes us more optimistic about the back half.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Sorry, let me just talk a little bit about Champions if I could, and talk about some of the things -- good things that are going on that I'm very encouraged about. The business is much stronger than it was prepandemic. We got really good consumer appeal, accretive margin business. But let me just peel it back a little bit for you and say what are some of the things that are happening that maybe we don't talk about all the time, you don't see all the time. First of all, I'm excited what's going on in China.

We're committed to opening new stores, and that continues to go well despite the challenges that are there. And obviously, we have a few stores closed right now, but that's a good strategy for us. It continues to work well. Our European business has seen strong growth in the quarter across channels. And so what's underneath that, the core business there is growing well. We'll continue to reach new consumers. A lot of growth in adjacent categories.

Footwear continues to do extremely well in our European business, and we're starting to reach some new geographies over there as we expand. So Internationally, we're doing well. The Win with Women campaign that we're launching around new product of SoftTouch. It started off really strong. Again, stated strategy, we're going to reach young women in that business and we're executing against that. We have a better pipeline of ideas in Champion going forward than we've had in the past.

So I think we're positioned well for not only the back half of this year, but we start to look at '23, you start to look at '24, we feel good about it. And as you mentioned, it's a bookings business, we're confident in the bookings we have going forward. So growing Champion is a key part of our long-term full potential strategy. We're confident that the brand can reach $3.2 billion by 2024. And we think we have the components underlying it that will build us to that, and we feel good about the growth.

[Michael Binetti, Analyst at Credit Suisse Group]

Great. Can I follow up with one on the other business? Just a quick one. I didn't hear you guys rather mentioned it, but there was quite a bit of revenue in the Other segment this quarter. Maybe just touch on that for one second.

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

In terms of the All The Other segment. Basically, there's the -- that includes the hosiery business. It includes our retail outlets. And it also includes, as we go forward, the transition services that we're doing with the European InterWork business that we sold this quarter. So we're providing services to that business over the next several years.

[Michael Binetti, Analyst at Credit Suisse Group]

Okay. Thanks a lot for the detail, guys. Appreciate it.

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

Thank you.

[Operator]

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

[Susan Anderson, Analyst at B. Riley]

Hi, good morning. Nice job on the quarter. I was wondering if maybe you could talk about the space gains. It sounds like you gained in the Hanesbrand, was there also space gains in the intimate areas? And then also, do you expect any more as we go throughout the year, maybe you don't know about the back half yet, but would you expect any, I guess, also for the new X-Temp product that will be rolling out. And then also maybe if you could just talk about now what percent of COGS is cotton given the higher prices there and how you're managing that if you hedge cotton or if you're locked in for the rest of the year. And is that more of a 2023 impact?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Yes. So kind of only taking in reverse order. From a cotton perspective, cotton is roughly high single digits percent of our COGS. We're locked in for this year, so any changes that we'll see would show up in 2023. So that's kind of a locked for this year. Space gains, something I'm really proud of and really excited about as we go forward. We continue to see gaining incremental space. Some of those are in some really big chunks of some key retailers for the Hanes business, which has been really encouraging for that business. The retailers are really responding to not only the innovation, but the advertising.

We've heard it from a lot of people, including ourselves, so we don't spend enough behind our brand. Now that we're leaning in behind our big brands like Hanes, we are gaining space, which has been really encouraging. And it's base business space and it's a new product space. So when we launch the CFP with X-Temp, that comes with incremental space. So encouraged about that, and that's how we can sustain that growth over time.

In the intimates, we're also gaining space in both Maidenform and Valley at different retailers. Some of that is base, some of that is new products rolling out. So it's encouraging to see the space gains and we're working hard to be able to support those space gains to make sure we have the product to be able to fill the shelves. But that's the permanent growth that you're going to see over time as we gain space. It's not promotional space, it's everyday space on the shelf.

[Susan Anderson, Analyst at B. Riley]

Great. If I could just follow up, too, on that other segment. I guess that doesn't include the online, your own digital business, correct. That flows through the prospective categories.

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

Yes. So the champion.com would be within the active work part of the business.

[Susan Anderson, Analyst at B. Riley]

Got it. Okay. And then maybe if you could just talk about the performance of the digital -- your own digital businesses in the quarter, too.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Yes. You've heard me say before, I think it's a huge opportunity for us to grow as we go forward. Like a lot of others, we're comping really huge numbers over the last couple of years as we start to see some of -- some of the channel shifting, moderate to little bit. But our online growth business, if you look at total online sales, we're up since 2019, as you go through the whole pandemic, we're up 80%, much bigger business. Champion, 60%. So some really big numbers. But that said, I think we can do a lot better, Susan, and we built plans around doing that.

This is a concept of just getting better is what we talked about all the time. Some of it is product and making sure we have the right robust pipeline that I talked about earlier. Some of it is better in stock to make sure we -- and that's why we're investing in the inventory we're investing in. Some of it is how we talk to consumers. We're really taking a full funnel approach because we know we convert very well. We just need to drive more traffic as we continue to move forward.

Some of that is building a better experience on our sites and making products easier to find. We've made a lot of investment in personalization and search. The experience is becoming increasingly important. We're accepting more payment types, delivery speed, delivery tracking, a whole bunch of things to get us better in this space. So I'd say we're making progress, but not something that we're satisfied with, and we still see it as a great growth opportunity, improvement opportunity for us as we go forward.

[Operator]

Our next question comes from Jim Duffy with Stifel.

[Jim Duffy, Analyst at Stifel Nicolaus]

Thank you. I joined the call a little bit late, so I apologize if this was addressed. But the Champion sales, which you missed during the first quarter. Do you expect that to be a push into the second quarter?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Thanks, Jim. So some of it is the answer and it's not a simple answer. Some orders got canceled because we couldn't get the product in time. Some of it will roll into Q2 and then some of it will probably even roll into Q3. So there's a lot of components to that as we work through it. But all of that is factored into our guide for Q2 and going forward. But there'll be different pieces of it, will hit different times as we go forward.

[Jim Duffy, Analyst at Stifel Nicolaus]

Great. And then I wanted to ask on the Innerwear segment. I know it's early, but do you have any indications of consumer response to pricing in that segment? And are you seeing any difference in men's versus intimates?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

It is early, you're right, in terms of you go forward. I think we've been really thoughtful, and I would say, strategic about our approach on how we've done it. All the pricing that we put out there was accepted. So we didn't have any problems passing it through to the retailers as we go forward. I have not seen any real difference between the segments that you called out, the Innerwear basics and the intimates business over time. We're watching it very closely. And one of the things that we've been really working on is a much more disciplined approach to our brands.

And you've heard me talk about that in the past. It was something that I thought was missing inside the company, and having real clear approach to how Hanes should operate, how Bali should operate, how Maidenform should operate, and we're deploying that in everything that we do, whether it's pricing, whether it's new products, whether it's advertising and thinking about how do we make sure that we manage pricing for the long term, how do we continue to maintain and grow the space that I was just talking about a few minutes ago, how do we continue to make sure that our gaps are appropriate on the shelf. So a lot of execution and planning goes into it. We feel good about the way it has rolled through. But the short answer to your question is no differences noticed between the Innerwear and the intimates business.

[Jim Duffy, Analyst at Stifel Nicolaus]

Thank you.

[Operator]

Our next question comes from Ike Boruchow with Wells Fargo.

[Will Gaertner, Analyst at Wells Fargo & Company]

This is Will Gaertner, on for Ike. I wanted to drill down, like many, into the Innerwear business. It's up 35% on a two year basis, 35% plus on a two year basis. I guess, first, can you break out how much of that growth is units versus price? And then secondly, how much of that growth is organic versus new shelf space?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Yes. It's hard to break out organic versus shelf space as we go forward. But we're definitely getting -- or there's definitely organic growth because we haven't gained space in every single retailer, and we can certainly see this growth that is going on. But as we look at the volume that we had to drive the last year -- so go back to last year for a second. When we came out with year-to-date today when we launched our full potential plan last year, and we gave a forecast for the rest of the year, we ended up doing more than $500 million more in the back half of the year.

Now it's unit volume driven that we had to match up. It's one of the challenges we have right now in inventories, we're trying to catch up on all that inventory that we depleted because there was such great demand going forward. So we are definitely seeing volume movement in the Innerwear business in a way that we haven't seen historically. So we're going to continue to try to support that demand. So we're seeing consumer demand, which is driving volume.

You're going to see us continue to innovate and drive a lot of product into the market. to make sure that we continue that over time. And from a pricing perspective, the prices really just began in the middle of Q1. So all the growth we've seen to date really hasn't been pricing driven, it's been volume-driven, which really is obviously the health of the business over time. We need to continue to drive units. And you do that with inventory, you do that space, you do that with innovation, you do that with just better execution at the shelf. And those are all things that we're focused on going forward. And that's why the business is growing.

[Will Gaertner, Analyst at Wells Fargo & Company]

Thanks.

[Operator]

Our next question comes from Jay Sole with UBS.

[Jay Sole, Analyst at UBS Group]

Great. Thank you so much. Steve, would it be possible to elaborate a little bit on what you're seeing in the mass channel, specifically Walmart and Target?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

I don't want to talk about -- it would be too narrow in how we talk about different retailers. But let me talk maybe a little broadly about what we're seeing at brick-and-mortar and how we're managing it and what's going on. We're not the only ones to say this, but if you look in the last quarter, it's been a bit of a shift back from digital back to brick-and-mortar. So brick-and-mortar is reviving a little bit, coming out of COVID, changing consumers' behavior a little bit.

There are space changes that are going on at brick-and-mortar as we go forward, and we're capturing those as retailers are readjusting their layout and their brand mix as we go forward. So gaining space across those categories is true in all the channels for us. Again, not particular retailers, but all the channels are performing well, we're gaining space across all those channels. We're seeing good traffic to our sections of the store across all those channels. But when you look at mass specifically, we're well-positioned there. It's a very important part of our business. They're very good partners for us. As I said, we've gained there -- space there in all channels. But clearly, mass we're doing well.

[Jay Sole, Analyst at UBS Group]

Got it. Okay. Thank you so much.

[Operator]

Our next question comes from Paul Lejuez with Citi.

[Brand Cheatham, Analyst at Smith Barney Citigroup]

Hey, everyone. It's Brand Cheatham, on for Paul. I was wondering if you could talk a little bit about the pricing environment, what you're seeing from competitors? And specifically, your price gaps relative to private label?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Yes. So obviously, a lot of pressure on everyone from a cost perspective right now. And a lot of people looking to pass through price. I talked a little bit a couple of minutes ago about our philosophy on price. And obviously, we manage price gaps. We manage our costs, but we also manage for the long term and how we think about it. We're not going to take short-term actions that could challenge the business in the long term from a share space perspective. So we see most people taking price.

It's rolling out right now. It's not necessarily consistent on shelf, I think, as it goes forward. We watch the private label price gap very closely. We've seen pricing in private label. We've seen pricing in other brands. Obviously, we've been very open that we've taken pricing. But it is something that we watch closely over time, and we'll manage as we go forward because we're going to continue to gain share. We're going to continue to gain space at the shelf. And that's how the kind of the philosophy that we put in place.

[Brand Cheatham, Analyst at Smith Barney Citigroup]

Understood. And I was wondering if you could share just how much of your freight is on contract. Are you doing more on spot than you were previously? What's your outlook for that in the back half as well?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

So for the back half, about 80% of our freight costs are locked in at prices that are lower than the last 12 months. So we feel good that we've kind of balanced that out there right now. We've just redone a lot of contracts at this time of the year. So most of it for the year is locked in at this point.

[Brand Cheatham, Analyst at Smith Barney Citigroup]

Got it. Very helpful. Thank you and good luck.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Thank you.

[Operator]

Our next question comes from Paul Kearney with Barclays.

[Paul Kearney, Analyst at Barclays]

Hi, everybody. Thanks for taking my question. I think on the call, you mentioned an additional $75 million of additional savings initiatives. Can you just comment where the incremental savings are coming from? And then second to that, I think within the quarter, SG&A came in a little bit lighter from where we were expecting. Can you just comment on where some of the savings intra-quarter came from on SG&A?

[Michael P. Dastugue, Chief Financial Officer at Hanesbrands]

Yes. Paul, this is Michael. Why don't I start it and then, Steve, you can jump in. As you think about the $75 million, it's essentially the same categories that we are working on across the business as it relates to the full potential plan, right? Because we know that we've got to be -- transform the cost structure here so that we can make all the investments we want, right? Because we know we want to invest in media, we know we want to invest in technology. And so it's everything things that impact cost to goods sold, whether it's supplier consolidations in terms of sourcing, things like that. It's being disciplined on corporate overhead. We had an early retirement program there and that's translated into savings.

If you think about -- as we looked at this year, we knew we had some headwinds as it related to distribution costs because here in the U.S., right, we have wage inflation especially in the second half of last year, we had to increase the wages and I'll give the supply chain team a shout out because they did a really nice job of offsetting not all of it, we are deleveraging on distribution costs. But they did offset more than what we expected in terms of productivity improvement. So it's just -- it's not one particular item. It's just across a whole bunch of different areas.

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Yes. And just let me just build on that a little bit because I think you might be right. If you step back and you think about what we've been doing on costs, right, when we launched the Full Potential plan, we talked about cost savings and we talked about offsetting investments. We've been making good progress. I mean savings today, we've had about $60 million. And then this new headwind came at us, right? I mean, 12 weeks ago, we weren't thinking about these levels of inflation that we're dealing with right now.

So we identified $140 million of cost pressure in the back half. You mentioned the $75 million in incremental savings. And it's just a great job by the team to be able to react that quickly. Michael mentioned some of the key things, it's a couple of others that I'm excited about. We're becoming a much more data-driven company and we're using that to make better decisions in how we negotiate and make choices. You heard in the remarks earlier around us doing things like direct ship to vendors, skip flows, which is taking out a lot of costs.

We're managing our retail portfolio better than we have in the past. We're investing in sustainability projects, which are taking costs out of our systems. So a lot of different things there that are driving that $75 million. But my point is, the stuff we would do anything, we do it more and we do it faster. So the organization's reacted. The second part of your question around SG&A, I think what we've proven over the last 1.5 years is that we manage SG&A pretty well.

And we're taking out cost as it's smart to do it. We talk a lot about we're going to cut the fat, not the muscle and how we run the company. So we're still investing in the business. We're still making the investments that we talked about in technology, behind our brands, behind our people. That's all continuing, and we're just finding the right offset as we go forward.

[Paul Kearney, Analyst at Barclays]

Very helpful. Thank you.

[Operator]

Our next question comes from David Swartz with Morningstar.

[David Swartz, Analyst at Morningstar]

Great. Thanks for taking my question. You talked a little bit about marketing for Innerwear. I was wondering if you have some plans for new marketing for Champion with the new President coming in for the division? And also, if you're planning to do some marketing behind the new Champion footwear?

[Stephen B. Bratspies, Chief Executive Officer at Hanesbrands]

Sure. Marketing is going to be increasingly important for us. When I started here not too long ago, we were spending roughly 2% on a marketing basis. And our goal over time is to be at least 4%. So we're climbing to get there and we're not there yet, but we're judicious and prudent way as we go forward. In terms of Innerwear, you're going to see a lot of support behind the new TSP program with X-Temp.

So there's advertising launch in that right now, both straight line online, in-store, we're going to lean in behind that because we've had good reaction and good performance last year when it was just TSP, now it's TSP X-Temp, you're going see us continue to build on that idea, and we're doing that globally. We always kind of focus on the U.S. here, but the fact that we've been able to launch TSP with X-Temp in Australia under our Bonds brand at the same time and do a global launch is a new capability for us, and they're going to be spending behind that and making good investments.

On the Champion side of the business, I mean, we're investing right now. Our Win with Women campaign that has really just launched and the idea behind focusing on more and talking to younger women and building that relationship with the brand is something that we think is very important to us. It's something that we think we're well-positioned to do. And we're matching it up with the new Soft Touch product that's out there. So there's a good combination out there. As our new President comes in, I expect us to continue to invest, continue to build upon the brand, and if anything, move faster than we have in the past and do bigger things.

[Operator]

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

[Thomas C. Robillard, Chief Investor Relations Officer at Hanesbrands]

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

[Operator]

[Operator Closing Remarks]