漢佰 (HBI) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hanesbrands fourth-quarter 2014 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 will now turn the conference over to T.C. Robillard. 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 2014. 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 Investors 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, such as 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 our 2015 guidance, excludes 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 on the Investors 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 things, 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, TC. 2014 was another great year for Hanesbrands. We delivered $5.66 in earnings per share, about $1.00 per share more than our initial guidance. In fact, it has been a great couple years. For the second year in a row, we delivered record financial results as we grew earnings per share 45%, which comes on top of 49% growth that we delivered in 2013. In just the last two years, we generated $1.1 billion in operating cash flow. We instituted a dividend, raised it by 50% and then raised it another 33%. We acquired and successfully integrated Maidenform, and we closed the acquisition of DB Apparel. An incredible set of achievements, especially considering we compassed all of this in a very challenging consumer environment.

And looking back over the past two years, two things have become crystal clear. First, we have a very powerful and resilient business model that has been able to generate significant returns for our shareholders in any environment, especially one that is leveraged through acquisitions. And second, this feels like it's only the beginning. As we continue to generate cash and pursue our acquisition strategy, we believe we can continue to deliver solid double-digit earnings growth for many years to come.

Our acquisition strategy is working extremely well. Maidenform has been integrated and is now generating substantial synergies.

Looking at DBA, things are progressing as planned. DBA's results in the quarter were right in line with our expectations, and we've made significant progress on our integration plan. We expect to begin consulting with Works Councils in Europe in the next 30 to 60 days, after which we will be in a position to share the details with you and begin our work on integrating DBA into our operations.

The more we learn about their business and their people, the more confident we are in our ability to achieve our expected synergies and to ultimately deliver EUR100 million in operating profit.

Looking to 2015, we believe it is shaping up to be another record year. Even after doubling EPS in just two years, our guidance represents another year of double-digit growth, driven by the continued efficiency gains of our supply chain, the benefits from our innovate to elevate strategy, synergies from Maidenform and contributions from DBA.

Our 2015 growth rates would have been even greater, had they not been dampened $230 million in sales, $44 million in operating profit and $0.37 in EPS by two events outside our control: the rapid strengthening of the dollar and the unexpected bankruptcy of Target Canada. Our guidance assumes 90% of the Target Canada is unrecoverable in 2015, and the euro is at 1.10.

As we have done in the past when faced with headwinds that are outside our control, we fully incorporate them into our guidance, which allows us to focus on the things we can control, executing our plan and, as always, driving for upside all through the year.

So, in closing, we have had a great couple of years, and we believe this is only the beginning. Our entire organization remains focused on executing our long-term strategy, and that comes from having great people who can rise to the occasion in any environment. This, along with the strength of our business model, gives me confidence in delivering another year of double-digit earnings growth.

With that, I will turn the call over to Gerald.

Thanks, Rich. We accomplished a lot in 2014. We expanded our operating margins 140 basis points, led by efficiency gains within our Company-owned supply chain. We delivered synergies from Maidenform that were more than double our original expectations. We invested an incremental $8 million in media to further strengthen our brands, and we expanded the distribution of our new innovation platforms, which in turn drove another 30 basis points of market share gains in men's underwear, a testament to our ability to drive productivity for our retail partners as we are already twice the size of the number two competitor and 5 times larger than the number three player, who sells primarily in department stores.

Our strong performance reinforces one simple message. We have the right set of strategies, and our entire organization is executing extremely well.

Touching briefly on the quarter, the consumer environment remained choppy, but the overall trend was positive, and sell-through in November and December was stronger than October. Innerwear sales were flat over last year as our basics business was able to offset the softness in bras and hosiery, while operating profit increased 18%, driven by supply chain efficiencies and synergies from Maidenform.

In Activewear, we grew both sales and operating profit 10% with growth coming in all categories. And in our international segment, sales grew over last year due to the addition of DBA, while the 260 basis point increase in operating margins came from higher sales volumes and benefits from our regionalization strategy.

Turning to 2015, we feel great about our outlook for another year of double-digit earnings growth, as we have a significant amount of visibility into the year. Our innovate to elevate platforms continue to work very well, which is driving additional space gains in men's underwear in both the mass and the mid tier channels, as well as in bras in the mass channel.

We continue to gain space in Champion in the sporting goods and mid-tier channels, which is more than offsetting the challenges at mass. And we continue to internalize Maidenform's production, which should drive cost of goods synergies throughout the year.

On the cost side, we have great line of sight into our key input costs, including cotton, which is locked through the third quarter. With respect to the currency transaction impact on our cost of goods, once we saw the euro begin to decline, we fully hedged our dollar-to-euro exposure for the entire year. So now we are able to focus on executing our plan and driving for upside all through the year.

To sum up, our business continues to perform extremely well, and we expect this momentum to continue in 2015. We have great visibility into the year, and despite sudden headwinds, we believe we are very well-positioned to deliver another year of double-digit earnings growth.

I will now turn the call over to Rick.

Thanks, Gerald. Not only was 2014 a great year, in fact, it was the continuation of five great years in a row. Since 2009, which includes a recession, a period of hyperinflation in cotton and choppy consumer environment, our compound annual growth rate is 7% on sales, 18% on operating profit and 29% on EPS.

Our ability to absorb a variety of headwinds and still generate strong returns underscores one simple fact; our business model is well tested, and it has been able to deliver returns for our shareholders in any environment. And we are just beginning; with higher levels of sustainable cash flow and a continued focus on deploying our cash, we believe we are well positioned to deliver outsized returns for our shareholders for many years to come.

Now, let me give you some color on our strong fourth-quarter results. Sales in the quarter increased 19% in constant currency with DBA contributing approximately 16 points of growth. Gross profit margin improved 340 basis points to 37.9% with DBA contributing approximately 180 basis points of the increase, while the remainder was driven by efficiency gains in our supply chain and benefits from our Innovate- to Elevate strategy.

SG&A costs in the quarter increased 210 basis points to 24.8%. DBA added 260 basis points to our SG&A rate, which was partially offset by Maidenform synergies and our ongoing cost control programs.

Operating profit in the quarter increased 31% or $48 million, driven by efficiency gains in our supply chain, the addition of DBA and synergies from Maidenform. Operating margins increased 130 basis points to 13.2% with the 210 basis point improvement in our base business more than offsetting the expected 80 basis point dilution from DBA.

Interest and other expense of $31 million and a tax rate of just over 12% resulted in EPS for the quarter of $1.46, a 49% increase over last year.

Switching briefly to the full year, sales on a constant currency basis increased roughly 16% with the majority of the growth coming from the acquisitions of Maidenform and DBA. Operating profit increased 28% or $167 million with roughly 60% of the increase coming from improvements in our base business.

For the year, our operating margin increased 140 basis points to 14.3% with the 170 basis point improvement in our base business more than offsetting the expected 30 basis point dilution from DBA. And full-year EPS increased 45% over last year to $5.66. For the year, we generated $508 million in cash flow from operations, we used approximately $64 million for capital expenditures, $62 million for pension contributions and returned $120 million to shareholders in the form of dividends.

Turning to guidance for 2015. We expect full-year sales to be $5.775 billion to $5.825 billion; operating profit to be $835 million to $855 million; Interest and other related expense of $90 million to $95 million and the full-year tax rate to be approximately 13%.

Similar to last year, we expect the tax rate to be higher in the first half of the year and we believe the split between the first and second half of 2014 is a good proxy for 2015. This results in an EPS range of $6.30 to $6.50 or $1.58 to $1.63 on a split-adjusted basis, which represents another year of double-digit growth. We expect cash flow from operations to be $550 million to $600 million. Capital expenditures are expected to be approximately $75 million, while annual dividend payments are expected to be approximately $160 million.

Inherent in our guidance are the following assumptions on DBA, which are based on a euro-to-dollar exchange rate of 1.10. For the full year, we expect DBA to contribute approximately EUR630 million in sales, or about $700 million, and approximately EUR30 million in operating profit or roughly $33 million, which is being weighed down by EUR14 million from the currency transaction impact to cost of goods.

This implies about 140 basis points of margin dilution from DBA for the year. We expect DBA to continue to have a significant impact on our reported gross margin and SG&A rate until we anniversary the acquisition.

Another important fact about the DBA acquisition is the fluctuations in the euro have absolutely no impact on our expected IRR for the acquisition because we bought the business with euros, we financed it with euros, and we are paying down the debt using DBA's euro-based cash flow.

So in closing, we have great momentum in our business, which we expect to continue into 2015. And we have good visibility into the year. Space gains are set. Pricing is set. We have line of sight into our key input costs. Our euro-based costs are locked in, and we have limited earnings downside from the euro.

For example, if the euro were to go to parity today, it would take roughly $65 million out of sales, but only about $3 million out of operating profit compared to our guidance.. So even after doubling earnings in just two years and entering into 2015 with roughly $0.37 of EPS headwinds from currency from Target Canada, we believe we are very well-positioned to deliver another year of double-digit earnings growth.

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 we 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.

Let me say congrats not only on the year but for the last several years. Just a great job.

So I guess, Rich, if I could start just with DBA, you know, have a little bit more time to do the diligence, maybe a little bit more color on the learnings you've had, and then beyond the currency impact, how you are thinking about that market and anything that stands out from a demand perspective?

Sure. The more we interact with the management team at DBA, the more impressed we become. At the end of the day, in their DNA is they are a branded company with great share positions, they focus on their own version of Innovate to Elevate, although I will say that they tend to have it a little bit more diffused than our very focused drive big platforms Innovate to Elevate. And I really think the cultures are very, very similar. All of the synergies that we have been talking about we firmly believe are intact, being able to leverage our global supply chain, as well as some of our other disciplined processes and approaches should allow us to ultimately get to that EUR100 million a year operating profit with DBA. So we feel really good about it.

In terms of the overall demand in some of the positions, Gerald, do you want to talk a little bit about that?

Yes. We couldn't be more delighted with the Company and the strength of their brands and their categories. They are leaders in their core categories, and even as there's been fluctuations in demand within countries or within categories across the board, they have continued to build their brand positions. And it gives us a wonderful platform to unleash the full powers we execute in our Innovate to Elevate strategy. So it's a great company. It's going to be a great addition to HBI.

Perfect. And if I could just follow up on in terms of the acquisition pipeline or at least thoughts on potential future acquisitions, did the global environment headwinds that are emerging in any way derail you potentially for looking at other deals outside the US, or is it an opportunity to maybe exploit some of the downturns to get a more attractive price on it?

Yes. I think we've got four very strict criteria in terms of companies that are in our core categories. We can leverage our global supply chain and infrastructure and are complementary from a revenue growth perspective. And that includes both international companies, as well as domestic opportunities.

So all of this currency change really hasn't changed our view at all, international versus US. As Rick talked about in his prepared remarks, the fact that we did this deal in Europe -- we did it all in euros, and that provided a natural hedge against currency fluctuations. So it will still be a great return for our shareholders. So no, the currency change doesn't really impact our predisposition for geography. We are open to all opportunities in which we can create value.

Matt McClintock, Barclays.

May I also offer my congratulations to you and the entire Hanesbrands team on an excellent year.

I just wanted to focus on Innerwear for a second -- outstanding margin performance in Innerwear. And it seems like we're back at the peak levels in that division. Can you help us understand the underlying margin opportunities going forward between Maidenform, where you are just now starting to get into Innovate to Elevate, and maybe the core Hanesbrands business? And specific to the core Hanesbrands business, can you speak to maybe the scale gains that you are getting in terms of ramping up unit production of your innovation platforms?

Yes. So, as we have now anniversaried Maidenform and we have fully integrated it, we actually think of it as part of our overall core business. And the scale advantages of bringing that into that Innerwear segment really show up in the operating margins. So we are able to spread our SG&A over more dollars and more units, and clearly we are getting a scale advantage in our supply chain.

Now, a lot of that was obviously contemplated in our synergies estimate with Maidenform, but it's going to continue to pay dividends over time.

So we still -- we are just beginning, and Gerald will talk about the Innovate to Elevate in Maidenform and some of the brand transitions we are doing in a second. But I think we're still in the early stages of driving innovate to elevate through a lot of places in our entire organization. Obviously, it started in the male underwear business.

But Gerald, if you want to talk about some of the platform innovations and how they are doing in Innerwear?

Sure. We are delighted with how our innovation platforms are performing. We've always said that these were long-term platforms that we would build over time, and we are clearly seeing continued success with both ComfortBlend and X-Temp in our Basics categories as we continue to push it across various segments of the category with new accounts and adding space in accounts and really driving share across our Basics business, much the same way we are now doing in intimate apparel.

We've talked about our Flexible Fit innovation for some period of time in bras. We've also said, within Maidenform, that our first step would be to get the SG&A savings and integrate it in our supply chain, and then we would get our design team finally with their hands on the line for Maidenform and introduce innovation. And that's exactly what we will begin to do inside the Maidenform line, and the fall of this year will be our first line, and we will introduce Flexible Fit, among other innovations, into that line. And we think that will give real growth to that business as well and really complement what has already been done within the Maidenform brand.

Great. Thanks. And then one more, if I may -- the challenges in the mass channel for the Champion brand, if you could elaborate on that? Is that Target Canada, the exit there, or are there other trends that you are seeing in that specific channel?

Well, I think overall what I'd like to say first about Champion is that the momentum increased in the fourth quarter to sort of an 8% year-over-year growth, and we finished up about 6% for the full year. The momentum in sporting goods and department store was very strong, that 20%-plus range. We expect that to continue into next year. We have had headwinds across the board in mass, and we anticipate there will still be some of that as we go into next year. But it's not a Canada-specific issue.

Yes. Just to put it in perspective, when we talked about the $230 million in sales and the impact of currency, which also then included Target Canada, the lion's share of those numbers is really currency driven. Target Canada is in there, but it's a really fairly minor part of it.

Susan Anderson, FBR Capital Markets.

Good evening and let me say my congrats again on a really good year and a good quarter, too.

I want to dig in a little bit deeper on DBA. So it looks like for this year, the operating margin guidance, not a whole lot of improvement over last year. So I guess maybe just looking out in the three- to four-year time horizon, if you could talk about when you expect the synergies really to start to kick in and improvement in that operating margin to get to the EUR100 million?

So, in terms of operating margin, you can see it actually -- as you said, it's similar to what we were thinking in 2014. It is way down a little bit, as Rick said in his remarks, by about EUR14 million of currency transaction where the cost of goods is increasing a little bit. We have hedged that for the rest of the year, so there's no further downside. So that's weighing on those numbers a little bit, and we don't have any integration savings built into our numbers for 2015.

And the reason is that it is Europe. As I've said, things take a little bit longer. We've now just started to formulate the action plans or the integration plans, and they are now prepared to go to the Works Councils for consultation and their input over the next 30 to 60 days. And as that process unfolds, we will then be able to share with you more details about those plans, as well as the timing. We are still confident in that three- to four-year timeframe, though, we will realize the synergies we are talking about, and that's what gets us to that EUR100 million number.

That's helpful. And then maybe if you could just talk a little bit about your input costs for this year, how we should be thinking about it in terms of up or down for the first and second half of the year?

In terms of our guidance for the first half of the year, the lower cotton costs really won't come into mention play for us until the second half of the year. We continue to see inflationary impact and other inputs like labor and the like. So we built all that into our guidance. That's all incorporated in.

Michael Binetti, UBS.

Real quick on -- a couple questions. If I look at the revenue guidance, if we back out DBA, it looks like you are thinking things will be slightly negative. I know we want to include Maidenform in the core now or in the organic number. Can you help us walk through what you think some of the headwinds are there? And maybe Canada is more of the impact than I think. But I know you moved some SKUs from Maidenform. Maybe that's one of the dynamics. But any other dynamics that we should think about that push and pull on the non-DBA number?

Yes. Actually, on a constant currency basis for next year, we're looking at the core business doing about 2% up with the remainder of the growth coming from DBA. As you said, around $700 million. So that's the dynamic that we are seeing, and that 2% is at the low end of the 2% to 4% long-term growth rates that we would expect to see in the business.

Okay. So I think you previously were thinking that DBA would be about a EUR650 million contributor in revenues, and now you are thinking EUR630 million. And then with the profit guidance you gave, it looks like you are looking at about 5% operating margins next year versus 6%.

And the reason I asked is because that sounds like a different trajectory than what we've seen out of the acquisitions in the past, where you have quickly taken out costs. Maybe you could just walk us through some of the dynamics as we think about what you are going to be doing operationally for that business this year?

Let me start with addressing the topline. There is a modest adjustment in the euros, as you discussed. And that really -- as we have begun to look at elements of the business and where we see some unprofitable elements, we are making some adjustments in that business. For example, in Russia we restructured that business and exited pieces of that small business that are unprofitable and can improve the profitability down the road is the biggest piece of that adjustment in topline sales.

And in terms of the bottom line, it goes back right to what I said. With Maidenform, we did start to see synergies in year one. But where with Europe, because we've got to go through the integration process with the Works Councils, we don't have any expectations for synergies. And then unfortunately, the number is being weighed down by that EUR14 million due to foreign currency transaction effects.

Christian Buss, Credit Suisse.

Could you provide some perspective on how the Champion business is performing and what your expectations are for product introductions going forward in 2015?

Sure. From the standpoint of the Champion business, the pace of it did improve as we went through into the fourth quarter. It's overall increase was about 8%, 6% for the full year. The core Champion business and sports specialty and department stores increased at an over 20% rate in the fourth quarter, and we expect that kind of rate to continue as we are gaining both shelf space -- new shelf space and expanding our position in accounts that we are already in. And it's a combination of both innovation and expansion of our current styles.

So very good, solid momentum. The overall numbers are weighed on a bit by the headwinds in the mass channel, but the core Champion business is enjoying an extremely strong performance.

That's helpful. Congratulations and good luck.

David Glick, Buckingham Research.

Congrats on a strong year, guys. Rick, just looking at your projected cash from operating activities and free cash flow, obviously we have some of the key variables like net income, and we know what capital expenditures are. But can you give us a sense for some of the other moving parts like working capital and what the drivers are of your free cash flow projections this year versus 2014?

Sure. We expect for 2015 for working capital to continue to be a source of cash for us. We still feel like we have good opportunities in our balance sheet to drive working capital through that, and that's really probably the biggest driver. Net income increases and continuing to have working capital as a source of cash.

Okay. And in terms of the cash that you generate, are you at a point where you can start to contemplate doing share repurchases, or would you rather just, obviously, increase the dividend and leave cash aside for potential future acquisitions?

I think we've talked about our cash priorities before. Clearly, debt paydown is no longer one of them since we are we should be. We have increased the dividend, as you say, and acquisitions are working for us. We are going to continue to drive acquisitions. I'm not trying to talk about what the timing of any of those acquisitions could be, but that would be the next priority for cash usage as well.

Jay Sole, Morgan Stanley.

So there was great color on some of the innovation that's happening right now in the product lines. Can you talk about any visibility you have looking out into 2016 or 2017? Are your consumer teams available to identify new problems that you think you can solve and become new big platforms to drive growth once you get out into those out years?

We are always focused on the next consumer big idea and looking at it. But we follow a very disciplined process, and so we do think there's a lot of leg still in the ones that we are expanding as we push them across our accounts and across our categories. And in the case of X-Temp, we have even now pushed into some of our hosiery products. So we continue to find ways to continue to extend what we have. And as we spoke about earlier, we are just now applying our Flexible Fit into Maidenform. So there's certainly a lot of extendibility within what we have, but we always have a pipeline of other ideas that are working as well. So we feel good about our forward view.

And I like to remind people -- we have been driving Tagless through our product line for a decade. And so if we are not driving some platform for at least five years, it probably really wasn't a platform innovation. So we are still in the early stages of something like X-Temp or ComfortBlend; they have just gotten into the double-digit percentages of sales, for example, in men's underwear or in basics. So we've got a lot of room to go to continue to drive those products for many years.

Got it. Let me switch gears. Can you just talk about -- we've seen some of the financing for certain deals become a little bit harder to come by. Has that translated into maybe some lower prices, perhaps? When you look at new opportunities, that maybe you are seeing prices come down for some of the deals that are coming across your desk that you might theoretically be interested in?

You know, the multiples and things like that are going to be very situational. We are always going to take a look at -- does an acquisition candidate meet our four strict criteria? How much value can we create? We look at the landscape and make sure we are paying a reasonable or a fair price to be able to get the deal done. I don't necessarily see any major trends in terms of overall pricing in the marketplace other than that.

Bob Drbul, Nomura Securities.

This is [Kevin Heenan] on for Bob. Congratulations on the nice quarter and full year. I was just wondering if you could discuss what the inventory levels at retail by channel look like and how you see retailers' appetite for inventory going forward into 2015?

We generally saw that the sell-through trends in the fourth quarter were a bit choppy, but overall the trend was positive in November and December over October and continue to prove positive into the first few weeks of January.

Our retailers were appropriately careful in bringing in inventory behind those sales, and I think the combination of those two left is very well-positioned with inventories in line where they need to be as we enter the New Year well-positioned.

Great. Thanks very much.

Jim Duffy, Stiefel.

A couple questions for you. First, for Maidenform, the press release mentions 2015 is the first year the product line is influenced by your leadership. Can you comment some on the Maidenform product initiative slated for 2015 and maybe speak to some of the expected benefits?

Yes, and you are dead on. The third tranche in our integration strategy was to get our designers -- their hands on those Maidenform products. And we are really delighted that, as we introduce the fall line, as it comes to market, it's got the full breadth of our design capabilities and our Innovate to Elevate thinking behind it. And we will bring concepts such as the Flexible Fit technology to the brand as well. And the combination of our Innovate to Elevate with the contemporary positioning of the brand is going to do great things. We really believe it's going to be great.

Great. And then also within Innerwear, topline progress has been a challenge. I know Intimates has seen some challenges. Can you speak to some of the trends within product categories? What products or channels are making forward progress, and what products or channels are holding the category back?

I think we've seen a little bit of a trend for the last couple of years that the basics categories in male underwear continue to do fairly well. But to be honest, the intimate apparel category has been flat to mainly down actually since the recession.

And Gerald, wasn't it down a little bit last year, in 2014?

It was. The Intimates category continued to be down over the years modestly. And so that has been a headwind for us in that category. And in addition, the retailers, particularly in the mid-tier channel, have been adjusting inventories for a period of time. And that continued in the fourth quarter as well.

And then finally, some of this headwind we've created ourselves. As we've brought in Maidenform, we set about clarifying brand positions in the market and simplifying the offerings. It's a very crowded offering. The consumers will tell us it's a very difficult category to shop, and we are now focusing our intimates businesses around our four core businesses -- Bali, Playtex, Hanes and Maidenform. And as we do that, we're consolidating some of our smaller bands into the best styles of those smaller brands into our larger brands, and that's creating some reduction of inventories at retail. For example, our Barely There line, we are taking the best of those styles and folding it into Maidenform.

In the long-term, it's going to improve the shoppability of the department, but it creates some headwind in shipments in the short term. And we will feel a little bit of that headwind into the first half of this year before it settles in.

And the way I look at it is we apply Innovate to Elevate now with the critical mass we have with these four brands in intimates. I think we can start to move the category over time just as, actually, we have done in the Basics category.

Taposh Bari, Goldman Sachs.

This is Chad Sutherland on for Taposh. A question for you on DB Apparel -- can you just remind us the seasonality of that business? As we look at our models for 2015, how to think about the first half versus the second half? And what I recall, it's 60% of the profit comes like September through December. So if you could just walk us through how we should think about that?

Yes, you are close. About half of the profit comes from the last four months of the year, so their business model does tend to be weighted somewhat to the last four months of the year.

Okay. Great. And then what about sales? Is the sales cadence similar?

Similar, yes.

Thanks.

Carla Casella, JPMorgan.

I just wanted to see if you could talk about any impact from port slowdown or chassis shortages? Thank you.

You cut out. If you could repeat your question, please?

Have you guys seeing any impact from port slowdowns at all?

Oh, from the port slowdown, impacts? Gerald?

From the standpoint of our business and servicing our business, we haven't felt any significant impact on service. There has been -- certainly, the port is a little slower, but we have a constant flow of goods that has allowed us to continue to service our customers, as we always have.

Steve Marotta, CL King and Associates.

You mentioned that there is some inflationary pressure in the first half of the year regarding labor. Are you planning on matching that directly with price? Also, can you talk a little bit more specifically about the rolloff in cotton in the back half of the year, as well as oil? I'm assuming that's helping some of your synthetic inputs, as well as transportation. And if you intend to maintain pricing and capture all of that margin or if you are going to increase units per pack or can you talk a little bit about the pricing and cost dynamic in the first and second half?

Sure. The way I think about this is there's an upward trend in labor around the world. Lately there has been a little bit of a tailwind with cotton. These are all relatively small impacts. So when you are talking about managing this with price, you are talking about a couple of percent here and there. It's not of the magnitude of when we saw the cotton inflation.

So we price for the long-term. These are huge impacts that are going to substantially way on any one quarter. We price for the long-term. Our pricing is set. We have got a lot of visibility into the year, and we feel good about our overall strategy, which is to make sure that we are pricing to maintain margin in a period of moderate inflation.

Thank you.

Thank you and that concludes our question and answer session for today. I would like to turn the conference back to Hanes management for any closing comments.

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

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