漢佰 (HBI) 2013 Q4 法說會逐字稿

Good day ladies and gentlemen, and thank you for standing by. Welcome to the Hanesbrands fourth-quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder this conference is being recorded. I would now like to hand the conference over to T.C. Robillard, Vice President of investor relations. Sir, please go ahead.

Good afternoon, 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 fourth quarter of 2013. Hopefully everyone has had a chance to review the news release we issued earlier today. The news release and the audio replay of the webcast of this call can be found in the investor section of our Hanes.com website.

I want to remind everyone that we may make forward-looking statements on the call today, 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 are detailed in our various filings with the SEC, which is our most recent Forms 10-K and 10-Q and may be found on our website as well as in our news releases and other communications. 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 as well as to our 2014 guidance exclude all one-time charges and expenses. Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's press release, which is available in the investor section of our Hanes.com website.

With me on the call today are Rich Noll, our Chief Executive Officer; Gerald Evans, our Chief Operating Officer; and Rick Moss, our Chief Financial Officer. For today's call, Rich will highlight a few big-picture themes, Gerald will provide a sense of what is happening in our businesses, and Rick will emphasize some of the financial aspects of our results. I will now turn the call over to Rich.

Thank you, T.C.. 2013 was a record year for HanesBrands in terms of sales, profitability, and cash flow. Our operating profit increased $156 million. Operating margins expanded 320 basis points. Earnings-per-share grew 49%. And we generated cash flow from operations of nearly $600 million. We also instituted a regular quarterly dividend, purchased Maidenform, and completed our multi-year promise to reduce our long-term bond debt to $1 billion. What's even more remarkable is we accomplished all of this in a very challenging retail environment.

We built great momentum all year by remaining focused on our long-term goals and executing on the things we could control. This was most evident in the reacceleration of Innerwear's revenue growth and the consistent double-digit margin performance in our Activewear segment. Our Maidenform integration is also on track, and we remain confident in our ability to deliver $0.60 of incremental earnings per share within three years. We are fully integrated on the front end, where our focus is on leveraging our full Intimates portfolio to maximize productivity for our retail partners.

All personnel decisions have been made, and the impact should begin to flow through our P&L later this year and beyond. 2013 was clearly a great year, but I'd like to put our results in a broader context. When you look back over the last five years, which included a recession and a period of hyper-inflation in cotton, since 2008 we grew sales at a compound annual growth rate of 3%. We were able to magnify that growth rate by driving our Innovate-to-Elevate strategy to deliver an operating profit CAGR of 9%. And by wisely deploying our free cash flow, we were able to magnify that growth rate into an EPS CAGR of 16%. So 3% magnified to 9% and, again, to 16%.

And we are not done. As we continue to execute, we see significant opportunity to drive additional leverage in our P&L for many years to come.

Looking to 2014, we are confident that the momentum we have in Innovate-to-Elevate will continue, and we are reflecting that confidence by raising our EPS guidance $0.30 to a range of $4.60 to $4.80.

As we look to deploy our cash flow going forward, we remain committed to our goal of delivering superior long-term shareholder returns through a combination of dividends, bolt-on acquisitions, and potentially share repurchases. We delivered on this commitment last year, and we are already off to a strong start this year with yesterday's announcement that our Board approved a 50% increase in our quarterly dividend to $0.30 per share. Our strong cash flow generation should allow us to increase the amount of cash we can return to shareholders, while retaining ample flexibility to pursue other growth opportunities.

So in closing, we feel great about the momentum in our core business. And when you layer on Maidenform, we believe that we are well positioned to deliver solid double-digit earnings growth for the next several years.

With that, I'll turn the call over to Gerald.

Thanks, Rich. We accomplished a lot in 2013, but I'd like to start off with a few of the highlights. First, despite an uneven consumer environment, we ended the year with positive sales growth and operating margin of roughly 13%, right in the middle of our long-term goal. Second, Activewear delivered a record operating margin of 13.1%, up 750 basis points from last year, a remarkable achievement and one that underscores the benefits of our Innovate-to-Elevate strategy. Third, we took advantage of our strong profit position to further strengthen our brands by investing an incremental $35 million in media. And fourth, we added Maidenform to our brand portfolio.

We finished the year with strong momentum across the entire business. For the quarter, revenue, excluding Maidenform, increased 3% over last year and 4% on a constant-currency basis. This exceeded the high end of our prior outlook, which in turn drove upside in both our operating profit and earnings for the quarter. Our Innovate-to-Elevate strategy is firing on all cylinders, and we expect this momentum to carry through 2014.

Looking at the individual components, our brand power has enabled us to take low to mid-single-digit price increases this year in several key categories that we expect will offset inflationary pressures and maintain our margins. It is becoming increasingly clear that apparel is in a moderate inflationary environment, where it is critical to have strong brands to be able to offset these pressures. We continue to see success across all of our innovation platforms as they are driving results for our retail partners. And in our supply chain, we expect efficiency to remain at current run rates for 2014 as platform volume increases and we continue to focus on four-wall profitability. And as Maidenform's production is integrated into our supply chain, we would expect these efficiencies to increase in 2015 and beyond.

Before I get into our segments, I'd like to provide an update on overall retail trends. Our results have varied by retailer. Point of sales trends were generally positive in October and November. In December, some retailers performed well prior to Christmas, while others were better after Christmas. Moving into January, there have been good weeks and bad weeks, driven by the weather. We expect this type of uneven environment to continue through 2014. However, we feel very good about the annual consistency of our categories and our strong consumer franchise.

Turning to our segments, I'd like to start with Innerwear, where revenue growth, excluding Maidenform, accelerated to mid-single digits in the quarter. This was led by our Basics group, which was up high single digits in the quarter, with strong performance in men's underwear and socks. Looking into 2014, Comfort Blend and X-Temp continue to perform very well and are helping drive space gains. We are also taking the next step with X-Temp by launching the technology across multiple product categories.

The Intimates group also finished the year strong, with sales up mid-single digits in the quarter. Panties grew low-double digits while bras were up mid-single digits. During the quarter, our Classics bras performed better than our contemporary bras, mirroring the trend in the overall market. Our Smart Sizes innovation platform continued to perform well, and for the year point-of-sale at retail was up double digits.

With respect to Maidenform, the integration is progressing on plan. Shortly after closing, we went to market with our key retailers to begin refining assortment and positioning with our full portfolio of classic and contemporary brands, and the response from our retail partners has been uniformly positive.

For the quarter, Innerwear margins declined from last year due to the substantial increase in media investments, which was used to support campaigns for Hanes underwear and panties. We expect our media investments to increase approximately $10 million to $15 million in 2014 as we continue to support our brands and begin making investments behind Maidenform's Brands.

Turning to Activewear, we are very pleased with the team's improvement in profitability over the course of the year. Operating profit increased nearly $100 million from last year, bringing its full-year operating margin to 13.1%. We achieved this new level of margin growth by driving our platform innovations, focusing on branded categories, and internalizing production of large core programs. On an annual basis, Activewear has reached a new level of sustainable profitability. Champion grew high-single digits in the quarter and mid-single digits for the full year. Incremental space gains should position Champion for continued growth as we go through 2014. And Gear for Sports also had a nice quarter, with sales up low-single digits and operating profit up double digits.

Switching to international, on a constant-currency basis, sales in the quarter, excluding Maidenform, were up 4% and operating profit was up 11%. Currency remained a headwind, taking roughly 10 percentage points of growth off the segment and a full percentage point of growth of total Company sales for the quarter. As we look at 2014, we expect growth in our international business driven by the addition of Maidenform, which will more than offset the expected currency headwinds.

And finally our Direct-to-Consumer business had a very strong year, with operating profit up 34%. With the inclusion of Maidenform, we look forward to driving profitable growth in this segment for many years to come.

So to wrap up, our core business is stronger than it's ever been. Profitability is up significantly, and we continue to gain market share. 2013 was a great year, but it was just the beginning. Our brands are strong, we believe we are set to expand our shelf space at retail, and we are confident the momentum in our Innovate-to-Elevate strategy can continue. And all of this together positions us for an even better year in 2014.

I will now turn the call over to Rick.

Thanks, Gerald. I'm very pleased with our record financial performance in 2013, as we consistently delivered strong results all year. We generated nearly $600 million in cash flow from operations, which we used to drive both current and future returns for our shareholders. We returned nearly $60 million in cash through regular quarterly dividends and invested for future growth with the acquisition of Maidenform. With higher levels of sustainable cash flow and a continued focus on effectively deploying our cash, we believe we are well positioned to deliver outsized returns for many years to come.

The first quarter marked another milestone for HanesBrands, as we made the final prepayment on our 8% senior notes, thereby achieving the commitment we made two years ago to reduce our bond debt to $1 billion by the end of 2013, another example of how focused we are on driving long-term shareholder returns and doing what we say we will do.

Before I review our financial results, I want to highlight that any reference to our consolidated actual results or guidance will be on an XA basis and will exclude all one-time charges and expenses.

Now let me give you some color on our strong fourth-quarter results. Sales in the quarter were $1.3 billion, up approximately 12% versus prior year. Maidenform accounted for nine percentage points of this growth, while the rest of the business grew 3%. Gross margin of 34.5% was flat with last year; but excluding Maidenform, gross margins improved by about 40 basis points. SG&A spending increased $46 million over last year due to an incremental $18 million in media spending and the addition of Maidenform's business.

Excluding both of these items, SG&A dollars were flat with last year. Operating profit of $152 million is essentially flat with last year. Our operating profit margin was 11.9%, as Maidenform weighed on margins by approximately 90 basis points. Interest and other expenses for the quarter totaled approximately $42 million, including the $15 million prepayment penalty related to the retirement of the final $250 million of our 8% senior notes and approximately $3 million in interest on the additional borrowings associated the Maidenform acquisition.

EPS for the quarter was $0.98, above the high end of our guidance range, due to a better-than-expected sales increase during the quarter.

Switching briefly to the full year, we delivered four very solid quarters of operating results. Sales, including Maidenform, were slightly over $4.6 billion, a 2% increase over last year. Revenue grew approximately 1.5% for the year when excluding Maidenform, currency headwinds of $40 million, and planned reductions in Branded Printwear sales of $25 million. Operating profit of $596 million was $156 million above last year's level, resulting in an operating margin of roughly 13%, right in the middle of our long-term goal of 12% to 14%.

EPS was $3.91, an increase of 49% over last year. For the year, we generated $591 million in cash flow from operations, driven by profit growth and further improvements in working capital, primarily in inventory. Inventory, excluding Maidenform, ended the year down roughly $100 million, due almost entirely to a 13% decline in units as we continued to focus on improving inventory turns. Net capital expenditures for the year were approximately $38 million, resulting in free cash flow of $554 million.

I'd now like to spend some time on our guidance for 2014. But before we get into the details, I'd like to highlight two assumptions. First, our guidance assumes that the overall retail environment remains challenging. Second, and more importantly, our guidance reflects our confidence in the ability of our Innovate-to-Elevate strategy, to continue its momentum into 2014. We expect our 2014 full-year sales to be slightly less than $5.1 billion, with approximately $500 million coming from Maidenform. Operating profit is expected to be $640 million to $660 million, including approximately $25 million for Maidenform. This implies just under 100 basis points of operating margin dilution from Maidenform. Interest and other related expense is expected to be approximately $85 million, including approximately $10 million from the higher debt balances associated with the Maidenform acquisition.

We estimate that our full-year tax rate will be in the low teens with slightly higher rates in the first half of the year. Given the strong momentum in our business, we've raised our EPS range to $4.60 to $4.80. And our guidance is assuming a fully diluted share count of slightly more than 103 million.

This year, we are shifting our guidance from free cash flow to cash flow from operations. We expect cash flow from operations to be $450 million to $550 million for the full year. Net capital expenditures are expected to be between $60 million and $70 million, while annual dividend payments are estimated to be roughly $120 million.

In closing, we had a very strong year. Investors are finally seeing the level of earnings and cash flow that our business model can deliver. And this is just the beginning. As we continue to execute our Innovate-to-Elevate strategy and invest our free cash flow, we see significant opportunities to drive additional profitability for many years to come.

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

Thanks, Rick. That concludes the recap of our performance for the fourth quarter. We will now begin taking your questions and will continue as time allows. Since there may be a number of you who would like to ask a question, I'll ask that you limit yourself to one question and a single follow-up and then re-enter the queue to ask any additional questions.

I will now turn the call back over to the operator to begin the question-and-answer session. Operator?

(Operator Instructions). Eric Tracy, Janney Capital Markets.

Hey, guys. Good afternoon. Great execution in a really tough environment. So let me just get right to that, Rich. Maybe just speak to again what you're seeing in retail. Obviously a lot of noise out there in terms of the challenging traffic, particularly in the mass channel. Yet, you deliver a 3% Innerwear business in the quarter. Obviously Innovate-to-Elevate has a lot to do with that. But just really speak to how you guys are differentiating, how you're driving despite that tough environment.

I think you actually hit the nail on the head. This is all about Innovate-to-Elevate, and we were seeing the benefits all through 2013, and you saw those benefits accrue also in the fourth quarter. We feel really good about the momentum we are carrying into 2014.

The other thing is, with our categories, we've got some volatility in the short-term; it can be up, it can be down. But, over time, what's really going to drive your business is how well your brands and your product innovation resonate with the consumer. And because of the replenishment nature of our business, we're able to sort of smooth out some of those ups and downs over the long-term. So we feel really good about things.

I guess my follow-up, then, as it sets up into 2014, raising the bar here on the guidance despite the tough environment, clearly you guys have that comfortability. Again, just maybe walk through - is it just - is it the Innovate-to-Elevate on the top line? Is it space gains you see? Are there kind of structural sort of margin things at play that give you greater confidence? What is the incremental coming out of last quarter that gives you that confidence to raise?

So there's really two fundamental reasons why we are taking our guidance up for 2014. And, first and foremost, we just have a lot of visibility about 2014 right now. As Gerald said, we've instituted some price increases, and so they are locked in and set. We've got most of our promotion plans laid out all the way through back to school, so we feel good from that perspective. We have good understanding what our space gains look like for the first three quarters of the year. And, in fact, our commodity costs are already locked in through almost all the way through the third quarter. We've also got our integration plan set with Maidenform, and we are executing well. So you wrap all that up, and you have got good visibility. And the other thing is, as you just pointed out, we've also got good momentum in our Innovate-to-Elevate strategy. And on top of the 320-basis-points margin improvement we just saw in operating margins, implied in our guidance is another 50 basis points of operating margin improvement in 2014 in our core business when you tease out Maidenform. You put those two factors together, and we felt it was the right thing to do to take our guidance up for 2014.

Matt McClintock, Barclays.

Good afternoon, and may I also say congratulations, great quarter. Rich, I was wondering if you could focus in a little bit on Activewear, specifically Champion. You talked about visibility into 2014; what type of visibility do you have in the Champion business? Are you getting space gains there? What's driving that business?

And then, Gerald, you made the comment that the Activewear operating margin has reached a new sustainable level. Could you maybe walk us through what makes you feel comfortable with making a statement like that and where that business is operating at from? Which clearly is operating at one of the best levels it's been in years. Thanks.

Matt, I'll just talk to the Champion is doing extremely well, and Innovate-to-Elevate is what's driving the margins. Let me just turn it over to Gerald to let him give you more specifics.

Matt, when you ask about sustainability of the level and so forth, it's a great example of Innovate-to-Elevate. We spent a couple years really remixing that business away from commodity-oriented segments to where brand -- to the branded segments where brand really mattered, and we could then apply our innovation behind our powerful brands, integrate some of those products into our supply chain, and drive that margin. That business has accomplished that reaching that level of 13.1% margin, which we do believe is a sustainable as we've got it now to this branded sort of a level of a business model. And now we're going to drive it, and Champion is a brand we're going to drive it behind with innovations. We've got a number of innovations coming through such as our Vapor products. We've got a Marathon bra product coming through that - we are gaining space, we are adding space in new retailers as well as where we are. So we've got a lot of momentum in that business right now.

Well, if I may, if I could try to quantify that or get some color around that, Innovate-to-Elevate clearly has been driving your businesses in Innerwear for several years. What inning would you say that you are in in terms of driving the Innovate-to-Elevate strategy within the Activewear business?

It's hard to quantify that. The good thing is we took a quantum leap forward in 2013 with Activewear, as you saw us go from those single-digit operating margins down to double digits. They had a phenomenal year. You can expect that to continue.

And I don't want to try and quantify what inning, but we are clearly closer to the beginning of it than we are to the end. And I just think it's a testament to how well Innovate-to-Elevate is - Innovate-to-Elevate is working. And as we graft it on other pieces of our business and now to the acquisition of Maidenform that are going to continue to pay dividends.

Susan Anderson, FBR Capital Markets.

Good evening guys, and congrats on a really good quarter. I was wondering if you can talk about - you just mentioned a few in the Activewear category, but any other new product innovations you have coming down the pipeline for 2014? And then are you planning - it sounds like X-Temp's performing well - the no-size bras, Comfort Blends. Are those going to be rolled out to other areas for this year, too?

We are definitely, Susan - this is Gerald. We're definitely going to continue to build on our big innovation platforms. And the beauty of them is ComfortBlend is a perfect example, it was successful in underwear. We've extended it to socks, and it's been even more successful. Our Smart Sizes continues to grow double digits in POS, as you saw, and it represents roughly a third of our core bra sales today. So we see the opportunity as we take Maidenform and put our Innovate-to-Elevate into that down the road that we can then bring Smart Sizes for example into the Maidenform brand as well. And then certainly X-Temp, we view as a technology; a temperature-regulating technology. It has been successful in a limited area as it is, and we intend to expand it across multiple categories and multiple accounts as we go forward.

Okay. And then I can't - don't remember if you - did you quantify the benefit to margin from Innovate-to-Elevate this quarter? And back to the Activewear, too, really quick. Just the good margins that we are seeing there. How much should I think about it being kind of just a move away from that commodity stuff, and then how much of it the Innovate-to-Elevate?

Sure. Susan, this is Rick. The Innovate-to-Elevate accounted - we talked about 40 basis points of margin improvement excluding Maidenform. That was all Innovate-to-Elevate. What we saw with respect to cotton and other commodities, cotton was a modest benefit to us in the quarter, but it was offset by expected inflation and other inputs. And so that didn't have much of an impact. So it was really all Innovate-to-Elevate.

Yes, and this is Rich. If I may just expand on that Innovate-to-Elevate and the margin. We've been seeing 100 to 150 basis points of margin improvement from Innovate-to-Elevate starting in Q4 of 2012. So we've now just overlapped that and had then the 40-basis-points improvement in this Q4 of 2013 as well. So we feel really, really good.

In terms of the split on Activewear, how much of that is getting out of the low-margin business and how much of it is Innovate-to-Elevate drive margins, I think the lion's share of it is Innovate-to-Elevate.

Evren Kopelman, Wells Fargo.

Thank you. Congratulations. I wanted to ask about maybe the pricing unit dynamics. That's the key question I get a lot of the time. You mentioned you've taken some pricing, and a lot of it is set I believe at this point for 2014. What's happening with units? If you could comment on that, that would be great.

We went through 2011, and we were raising - we raised price three times in some of those basic categories, double digits. And I think cumulatively there were some categories where we were up over 30%. And in all cases, even with those kind of price increases, units fell off at a smaller rate than prices went up. The elasticity was always less than one. Now what we're talking about is radically different. We're talking about low-single-digit, maybe mid-single-digit increases in those categories. So if it was less than one and double-digit price increases, you're clearly going to see probably even a more muted impact overall. But at the end of the day, we feel really good about our overall business moving into 2014.

That's great. The other question is you mentioned some of the margin improvement in Active, internalizing production of the large core programs. Is there more opportunity of that in 2014?

Absolutely. We are consistently looking for opportunities to bring more programs inside, and we will continue to do that in Activewear as well as the other portions of our business including our new Maidenform acquisition.

Jim Duffy, Stifel Nicolaus.

Thanks. Hello everyone. Great year. Couple questions around the outlook. As we look into 2014 and perhaps even beyond, looking into 2014 what are the expectations for price and volumes assumed in the guidance? Are you expecting a net fall-off in unit volumes overcome by price?

Jim, we generally just don't get to that level of detail when it comes to guidance. When you're talking about overall units, you're adding units of socks, units of bras, and so on. So when we are actually a looking at units, we actually have to look at it a much lower level of detail than an aggregate for the total Company.

Got you. Okay. And you continue to find opportunity in your tax works. What is the source of the year-to-year tax improvement implied in the guidance, Rick, and how sustainable should we think of that rate being?

Well, you know, it's interesting, Jim. If you look at our tax rate over the last four or five years, it's been - it's averaged around 13%. And we think there's no reason why acquisitions shouldn't enable us to - going forward as we integrate them into our supply chain both from a manufacturing and sourcing perspective shouldn't enable us to sustain a tax rate in the low to mid teens really for the foreseeable future.

Kate McShane, Citi Research.

Thank you. Good afternoon. It sounds like you made a lot of progress with your inventory this year and the reduction of units. Can you tell us how much more room you have to go with that and what the goal is for your inventory turn?

Sure Kate. We did see a 13% reduction in units, down $100 million. Our expectation that's been built into our cash flow guidance for this year is that working capital in general probably will be fairly flat. Though obviously on a higher level of sales, that's an improvement. So that puts us - really this year puts us at about 2.5 turns. We continue to believe we can move towards 3 turns. So we are not done yet.

Great. And with regards to Maidenform, now that you've been - the deal has closed about three months, can you highlight any positive or negative surprises within the Maidenform business and where you think some of the low-hanging fruit opportunity is in terms of revenue upside?

Sure. In fact, I think that's a great opportunity, sort of let us give you sort of a broad view on sort of some of the good things throughout the synergies; not just revenue, but also costs and so on. We've now, as you said, have owned it for about 120 days. We were intimately involved in the business, and it is crystal clear that the strategic rationale for this acquisition remains very compelling.

Just to recap, originally we talked about 2014, needing to shrink it down to its core profitable base, getting it to around $500 million in sales. And that's inherent in our guidance. We also talked about $0.10 to $0.15 of accretion to EPS in this first year. And when you look at that $25 million of operating profit, that actually translates into the higher end of that guidance of around $0.15. And the good thing is if we've got some upside actually do think we may have some upside to that number in 2014.

We're also talking about growing that $25 million to $80 million of operating profit over time, driven by SG&A synergies, supply chain synergies, and then grafting Innovate-to-Elevate onto their business. And we feel really good about that. But let me turn it over to Rick and then Gerald to talk about some specific anecdotes there.

Sure. As Rick said, the integration of Maidenform into our organization is going very well. It's progressing right on plan. We currently expect about half of the cost savings to come from SG&A synergies, the key driver of which is about a 40% reduction in the overall headcount at Maidenform. We would expect about 60% of this reduction to take place by the middle of this year, with the remaining headcount reductions coming towards the end of September. So you should begin to see the full impact of SG&A savings beginning in the fourth quarter and into 2015. Now, if that integration process goes faster, then you have an opportunity to see profit improvement like Rich referred to, probably as much as $5 million to $7 million range. Gerald?

The other half of our cost savings comes from integrating Maidenform into our supply chain. We are right on track there as well. We've already integrated the direct - oversight of management supply-chain into our supply chain management. We are now taking steps to integrate the first of the production into our supply chain beginning in Q3 of 2014. And the segments will roll out in the P&L in 2015 just as we had planned.

From a top line perspective, those plans are taking shape just as we thought as well. As Rich mentioned, our plans were to reshape the Maidenform revenue in 2014 down to around $500 million, as we expected to exit a number of non-core unprofitable sales as well as we did expect some declines in Shapewear as Spanx extended its distribution. And this is playing out exactly as we thought it would in 2014 and is now giving us a very solid sales base against which we can grow sales and profits over time.

And I'm very excited about the potential of that as we look to graft on our Innovate-to-Elevate strategy and drive sales, and we are already making progress there. We've integrated our two design organizations into one. We've integrated the marketing of Maidenform into our brand marketing teams. And they're already finding opportunities; they're working diligently on platform innovations for the Maidenform brand that will launch in late 2015. So I'd say overall we feel great about the Maidenform acquisition and what it will contribute in sales and margins both in 2014 and beyond.

Scott Krasik, BB&T Capital Markets.

Congratulations. So you spoke about last quarter I think that you saw actually more destocking than usual in September. Do you think that led retailers to destock less than you expected in December? And generally, how do retailers feel about carrying the inventory in your basic category?

I think certainly, Scott - this is Gerald - I think coming out of back to school, we did have a little bit of inventory carry, there was some destocking in September. And we viewed with caution what the landmark - or the retail landscape might be like for the holiday season. We did not see additional destocking, as we were in the holiday period, and our POS trends were pretty good in October and December. So we feel like we came through it pretty well, and certainly that helped with our momentum that we didn't have destocking.

In terms of going forward, what's interesting is that there's a couple phenomenon. While you're hearing some retailers being soft and so on and so forth, we don't see a broad theme at retail where they feel like their overall inventories are high. It doesn't feel like they are trying to - this is not just our basic categories, across the board. And I think some of that's obviously just to the fact of all the cold weather, that they are clearly getting some good sell-through on their cold-weather gear, and that's reducing the overall pressure they may feel in terms of inventories. And our inventories at retail feel like they are pretty well in line.

Awesome, okay. And then can you just lay out a little bit of the timeframe for when you need to start to actually add manufacturing capacity to meet the new volumes and demands in the next couple of years?

We are in the process of ramping capacity now to begin to bring in Maidenform in Q3, and we are constantly reassessing our capacity. So we are in the process of looking at that over a longer-range period now.

Is the CapEx you laid out for 2014, is that reasonable assumption for the year after or the next couple of years?

Yes, we've actually talked about - I think we're talking about $60 million to $70 million of CapEx. Remember, our strategy was we were spending above depreciation and amortization for a number of years as we re-capitalized the supply chain. We said that would allow us to get down to that $40 million to $50 million level for a couple of years, and then you would expect it to start to float up back toward depreciation and amortization beginning in 2014. And so it's the $60 million to $70 million. And that should allow us to easily continue to drive efficiencies and supply chain and support growth due to Innovate-to-Elevate as well as serving the new Maidenform acquisition. Over the long-term, you should expect that capital expenditures could ultimately equal depreciation and amortization, and that would be a source for use of cash.

Steve Marotta, CL King and Associates.

Good evening, everybody. In the past, you've spoken about $30 million to $40 million worth of supply-chain efficiencies on an annual basis. That was a three-year plan about three years ago. Is that still in place over the course of 2014, 2015? Can supply-chain efficiencies still hit those levels, or are you pretty much done there?

When you talk about Innovate-to-Elevate, remember there are three distinct pieces of that strategy. One is leveraging our brand power, the second is driving platform innovation, and the third is using our supply chain as an integral part of all that to help improve operating margins. So on some of this, this is why we stopped talking out just cost savings from the supply-chain alone, because a lot of it is integrated with Innovate-to-Elevate. So as we drive platform innovation, that builds volumes in certain Basic SKUs, which allows you to then internalize it and drive your overall unit costs down. So it's all caught up in that Innovate-to-Elevate. So we don't want to talk about it as a separate distinct thing; it's really part of our overall strategy. That said, it's an integral part of improving margins. It's what's been helping Activewear as we've internalized some of those bigger programs, help improve margins. So it will continue to be an integral part of us expanding margins with Innovate-to-Elevate forever.

I understand. Thank you. And I believe that Gerald - you mentioned earlier in the call regarding incremental media spend next year. You mentioned it during the Innerwear section. Was that specific to Innerwear, or that was consolidated? And as a follow-up, can you talk about what the aggregate media spend is across the Company roughly on an annual basis?

I did mention that we would increase our media by another $10 million to $15 million next year, that's correct, over the $35 million that we added this year. The majority of our media spend is in Innerwear, so it's likely that their portion of that will go into the Innerwear group. But we do intend to support our Activewear brand as well, and we also intend to support the Maidenform brand specifically as we look into this year.

The total - at this point, as others are starting to spend media in these categories, we want to be a little more cautious about talking about our total media spend, although we are talking about the increases.

Chad Sutherland, Goldman Sachs.

Taposh Bari at Goldman Sachs. Congrats on a nice quarter. Just wanted to ask Rich, I know you talked touched about the macro environment - I wanted to ask you some more high level. You've had a lot of negative pre-announcements, a lot of questions about kind of structural changes in the way the consumer is shopping. You sell obviously to a wide range of channels and customers. Just looking to get your view, not on a monthly basis but generally speaking what you are seeing if you are in fact seeing kind of secular shift in the way the consumer is shopping is in fact disrupting your business, if at all.

Well, in terms of it disrupting our business, we had a great 2013. And we feel good about 2014. However, as Rick said, inherent in our guidance is we are expecting this choppy consumer spending environment to continue. And when you tease it out and take out Maidenform, you'll see we are actually talking about our core business being up about 1.5 points, and actually we are reflecting that sort of choppiness, I think, in that guidance.

There's mixed signals about what's going on out there. In one hand, you hear the feds talking about things are good, and there's other areas outside of the core retail that are doing really well with consumer spending. You're hearing isolated instances about certain retailers having traffic issues. You've got stuff going on from bricks and mortar to online and all of that stuff out there. The great thing about our business and our categories is that people buy our product and wear our product every single day of their lives. And they're going to continue to buy them over the long-term, and that's why we feel really good about being able to navigate a relatively choppy environment.

There's no real macro trends that we are seeing; it's more episodical. And a lot of it driven by the weather, but we should be relatively insulated from a long-term perspective.

That's helpful. And the other question I have is that we get frequently from investors is, as you execute along this strategy of innovating to elevating I guess, how confident are you in your ability to kind of maintain that margin and keep that margin to yourself versus having to share that with your retail partners?

I think a testament to how strongly we believe in the sustainability of our overall profit and our ability to generate cash flows is the fact we took our dividend up 50% yesterday to $0.30 a share. And that is really because of the nature of our categories, how well our business is operating, and our believability in what it's going to look like in the future.

Eric Tracy, Janney Capital Markets.

Thanks. Just a quick follow-up if I could. Rich, in terms of the competitive landscape, any changes that you are seeing there? There's obviously some new entrants, brands developing that are trying to take share. Anything from you on a pricing perspective or just general advertising marketing spend that you feel like setting up anything on competitive landscape front?

You know, there's been a lot of talk about some of our large competitors making entry into large mass retailers with their own labels and how that might impact our business. When you look at our Basics business, it's in really good shape. It was up in the fourth quarter, it was up in all of 2013. And then when you look at it on a share perspective, according to NPD scanner share data, on a rolling six-month basis after we have seen those entries on a rolling six-month basis ending December, our shares are actually up 6/10 of a point. So we feel really good about how well our brands and our innovation is resonating with consumers.

That's great. And then if I could, just a quick one too on - so the raised dividend obviously speaks to your confidence in the fundamentals of the business. As we think about capital allocation, I think you were pretty clear in the release in stating this. But maybe just walk us through any changes to that allocation of the potential acquisition, some of these tuck-in plays in the future. And then if you could, any update on where those assets might lie and the timeframe (inaudible) can't give the timing, but just how that might play out.

As we talked about capital allocation, we've got our debt leveraged in that target range that we want it to be. And then we said after that we wanted to have a priority of dividends. Just given our business model, what makes a lot of sense. We instituted it last year, and we've now got it solidly in our target range of 25% to 30% payout ratio. That still leaves us ample cash flow to actually pursue bolt-on acquisitions or potentially share repurchases. And when you look at things like Maidenform, I think it's a great way for us to use our cash flow to create value for our retailers.

We are constantly on the lookout for other things like that. I always tell people that we are always talking to people because it takes a long time to do a deal; and when we finally get one, we'll let you know. But clearly, as we look for opportunities, that's going to be our priority.

But don't minimize share repurchases; they are also on the radar screen. And I think when you look back over a five- to 10-year period of time, you're going to see dividends, acquisitions, and share repurchases all part of that capital allocation to create value for shareholders.

Thank you, and that concludes our question-and-answer session for today. I would like to turn the conference back to T.C. Robillard for any concluding remarks.

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

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, you may now disconnect. Everyone have a good day.