Categories Earnings Call Transcripts, Retail

Hanesbrands Inc. (HBI) Q1 2021 Earnings Call Transcript

HBI Earnings Call - Final Transcript

Hanesbrands Inc. (NYSE: HBI) Q1 2021 earnings call dated May. 11, 2021.

Corporate Participants:

T.C. RobillardChief Investor Relations Officer

Stephen B. BratspiesChief Executive Officer

Jonathan RamGroup President, Global Activewear

Joseph MonahanSenior Vice President, Finance

Joe CavaliereGroup President, Global Innerwear

Jane NewmanChief Design Officer, Global Innerwear

Greg L. HallChief Consumer Officer

Michael E. FairclothGroup President, Global Operations

Kristin L. OliverChief Human Resources Officer

M. Scott LewisChief Accounting Officer and Controller

Analysts:

Omar SaadEvercore ISI — Analyst

Susan AndersonB. Riley FBR — Analyst

Paul TrussellDeutsche Bank — Analyst

Michael BinettiCredit Suisse — Analyst

Jay SoleUBS — Analyst

John KernanCowen — Analyst

Ike BoruchowWells Fargo — Analyst

Jim DuffyStifel — Analyst

Paul LejuezCiti — Analyst

Adrienne YihBarclays — Analyst

David SwartzMorningstar — Analyst

Presentation:

Operator

Welcome to HanesBrands ‘ Investor Day 2021. Please welcome TC Robillard.

T.C. RobillardChief Investor Relations Officer

[Video Presentation]

Good morning, everyone, and welcome to HanesBrands’ 2021 Virtual Investor Day. I hope you’re all doing well and staying safe. The first order of business is our Safe Harbor statement. This is familiar to all of you and can be found in this morning’s press releases. During today’s presentations, we may make forward-looking statements, either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks include those detailed in our various filings with the SEC, which can be found on our Investor Relations website, www.hanes.com/investors.

Next, let me address a few housekeeping items. In addition to this morning’s press releases, which discussed our first quarter earnings, 2021 guidance and our Full Potential plan, we created an Investor Day handout. This handout, which includes reconciliations of any non-GAAP numbers given during today’s presentations, can be found in the supplemental section of our Investor Relations website, as well as in this morning’s 8-K filing. I would like to highlight two particular items from this handout. First, we provided historical P&L and segment data to reflect the move of our European Innerwear business to discontinued operations. Unless otherwise stated, all historical comparisons in today’s presentations will be based on this information.

Second item I’d like to highlight from the handout is Table 4. This is designed to help reconcile our reported results, which reflect European Innerwear as discontinued operations with our previous guidance, which included European Innerwear as part of the total business. For example, on Table 4, in the column titled HBI Adjusted including European Innerwear, you’ll see first quarter revenue of $1.63 billion, adjusted operating profit of $202 million and adjusted earnings per share of $0.37. These are the figures that would compare to our guidance issued on February 9.

One last housekeeping item, our three-year financial targets use the midpoint of our 2021 guidance as the base year and run through year-end 2024.

Now, let’s turn to the exciting part. We have a great morning lined up for you to meet and hear from our global management team. A lot has changed since our last Investor Day three years ago. We have a new leadership team, a new strategy and a new mindset. We’re excited to tell you about how we’re repositioning HanesBrands for growth. Our CEO, Steve Bratspies, will be here in just a moment, but first, let’s take a look at The New HanesBrands.

[Video Presentation]

Operator

Please welcome Steve Bratspies.

Stephen B. BratspiesChief Executive Officer

Hello and welcome to HanesBrands’ Investor Day. Thank you for joining us to talk about one of my favorite topics, the future of HanesBrands. We have a lot of great information packed into the agenda. But before we jump into the business of the day, I’d like to pause and say how grateful I am and how grateful our entire team is for your time and attention. Thank you for joining us in this virtual format. Our hope is that we will all remain healthy until we can safely meet together again in-person. Believe me, I’m looking forward to that day.

But until then, we’ve certainly learned to adapt. I’m thankful and amazed by the commitment and ingenuity the HBI team has shown during the pandemic. I’ve been so inspired by their work, and I hope you will be too. It’s an exciting time to be part of HanesBrands. Today, I’ll introduce what we call our Full Potential plan. It’s our road map to drive improved revenue and profits over the next three years and beyond. We’ll explore the pillars our plan is built on, the strategic initiatives we’re implementing and the significant growth opportunities ahead. But before we talk about where we’re going, let’s do a little level setting about where we are now, the momentum we’ve already built and how people know us.

To consumers, our brands deliver great quality apparel at outstanding value. To our customers, we’re a profitable partner with unmatched manufacturing and distribution capabilities. To our associates, we’re an employer of choice with a deep commitment to sustainability and ethical practices. To our communities, we’re a compassionate partner, helping out in times of need and working to build a better future. And to investors, we’re a generator of consistent cash flow with a solid balance sheet and attractive margins and the potential to do better. More on that point in just a bit.

We’ve earned that incredible reputation today, and we’re able to focus on the possibilities of tomorrow because of our iconic brands, brands that have a bright future anchored in growth. Hanes is the top selling apparel brand in the United States. Champion is the king of sweats. Bonds, our powerful Australian brand, sets the bar for innovative design and sustainability. Bali, Maidenform, Playtex are household names, and that’s just to name a few. These iconic brands were a big part of why I accepted this position with HBI. Like millions of people, I grew up with Hanes because my parents had a keen sense of quality and value. For the same reason, my wife and I dressed our two sons at Hanes as they grew up. And when I was offered this role, my now 20-something sons realized Champion was part of the deal. They said “Are you kidding? Take the job.” That’s when I realized that the love of our brands really does span generations.

HBI is truly an amazing company because we benefit from a number of significant and sustainable competitive advantages. In addition to our credible portfolio of iconic brands, we have leading share positions in innerwear; a rapidly growing Activewear brand with significant global growth potential; distribution across large diverse channels; a world-class owned supply chain; a balance sheet that puts our destiny in our own hands; a deep commitment to sustainability and always doing what is right; and an experienced and revitalized leadership team supported by 61,000 diverse, passionate and committed associates in more than 47 countries.

So, I knew I would be joining a strong company with a long history of success. But more than anything, I was excited about the future opportunities, the opportunity to drive consumer centricity, the opportunity for product innovation and to unleash the potential of our global brands, the opportunity to lead a great company and build a great team, and the opportunity to accelerate growth. I’ve led significant change before. I know what it takes to succeed. It requires focus, simplification, boldness and urgency. And because I knew this was a journey HBI needed to start right away, we launched Full Potential in August, my first day on the job.

Now, don’t worry, we didn’t start changing things on day one, not at all, but we did start questioning things on day one. As a team, we kicked off Full Potential with a deep, honest examination of our company and the external environment. With complete support of our Board of Directors, we objectively challenged every aspect of the business, and we discovered enormous opportunities to focus our company and build on our strengths to deliver long-term profitable growth. And those opportunities are where our Full Potential plan comes in.

Full Potential will drive change across our business. It involves targeted investments in our brands, e-commerce and our people, as well as new capabilities, the goal to deliver approximately $1.2 billion in incremental revenue from 2022 through 2024. That’s right. We believe this plan will grow our revenue by approximately $1.2 billion over the next three years. Full Potential also creates a path to higher profitability by running the business better, becoming consumer-centric and making investments that we now believe will be fully self-funded. We plan to reach an operating margin of 14 plus percent by 2024.

So let me walk you through our plan. It’s all about growth. And we’ve organized the plan into four key pillars. Pillar number one is to grow the Champion brand globally. We’ll build Champion into a $3 billion brand by 2024, which is a 14% compound annual growth rate. Champion has 100-year history of innovation, including pioneering the sports bra and licensed college apparel. And of course, our Reverse Weave technology sets the standard for sweats. Champion not only addressed the original Dream Team, but has become a cultural icon, partnering with everyone from Coach to Super Mario Bros to Muhammad Ali. But this brand isn’t just about cool collaborations. Today, Champion is growing revenue faster than the overall activewear market, growing by more than $600 million over the past three years, and that rapid growth will continue.

We’re seen as a leader in men’s sweats. We’ll build on this strength, and we’ll aggressively grow in North America, China, Japan, South Korea and the big five markets in Europe. We also see opportunities to expand and accelerate in women’s and kids apparel and casual footwear. Champion will deliver a well-defined targeted consumer proposition. The brand will have a unique and clear global brand positioning to support an expanding high-quality product range. So growing Champion across the globe into $3 billion brand by 2024 is our first pillar. And today, we’ll share how we intend to accelerate, expand and maintain the brand success.

Let’s move on to pillar number two. We will reignite growth in our innerwear brands. When our team did that self-evaluation I mentioned earlier, one issue became very clear. We had some work to do on growing the innerwear side of our business, particularly in the United States. So we’ve developed a plan to tackle that issue and capture the opportunity. As we’ll show you today, we’ll drive global Innerwear growth at a rate of 2% over the next three years. That’s an improvement of about 500 basis points over years 2017 to 2019. A big part of this new formula is appealing to younger consumers. We’ll do this by using new capabilities in global design, innovation and a more contemporary voice. And I know we can seize this opportunity. I know we can consistently reach new younger consumers with Hanes and our other Innerwear brands.

Why am I so confident? Because we’ve done it before with great success. We can win with younger consumers by innovating and connecting in new ways. We have a road map to guide us. Our Bonds brand in Australia has successfully taken the same journey, capturing a broader, younger audience with innovative new products. In North America, consumers already equate the Hanes brand with comfort and quality and an incredible value, and we’re known for product innovation. Our newest launch of Hanes Total Support Pouch continues this combination of innovation, quality and unbeatable value. This product and our new marketing campaign are the first step in appealing to younger US consumers, and it’s working. Total Support Pouch launched with rave reviews and may end up being our largest product launch ever. So we’re leveraging innovations and learnings from Hanes, Bonds and our entire global portfolio to reach new consumers around the world and to drive consistent and accelerated growth. You’ll hear much more about this today.

Now, let’s talk about pillar number three, driving consumer centricity. A huge key to growth is to focus on the consumer. In the past, the consumer was just a step in our process. Now, the consumer is at the center of everything we do and everything we will do. We’ll drive growth by delivering the innovative products consumers want and by investing in our brands, all while making our products available where, how and when consumers like to shop.

To that point, we faced the same shifting retail dynamics as others. More and more consumers are choosing to shop online or via mobile. This shift was already happening, but obviously, COVID accelerated the trend. At the same time, the pandemic strengthened mass-market retailers, where our innerwear brands are particularly strong. So here’s our plan. We’ll continue working with our retail partners as they build their online businesses. For example, we know Hanes products are frequently found in curbside pickup orders at mass retailers. Consumers might be shopping for groceries, but they often throw a few pairs of our socks or T-shirts into their online carts as well. We are particularly well positioned to grow in mass retailers, curbside and delivery services.

We also have big plans to improve our own online platforms, starting with champion.com. You’ll see our presence grow across all online channels with a stronger focus on the consumer, innovation and brand development. So, we’ve talked about growing Champion, reigniting Innerwear and driving consumer centricity.

Now, our final pillar, focusing our portfolio. We’ve made rapid progress in simplifying our business. We announced plans to explore strategic alternatives for our European innerwear business and now have moved it to discontinued operations. Also, we exited PPE, we reduced our SKUs by 20%, and we will continue to explore opportunities to further focus our business. I’m excited and confident that simplification has begun and enables the investment in key global growth markets, North America, China, Australia and the Champion Europe markets.

To deliver these four pillars and succeed with our Full Potential plan, we’ve identified initiatives to enable and unlock growth. For each initiative, we’ve dedicated a leader and a cross-functional team. We’ve defined robust KPIs and timelines, and we’ve challenged those teams to employ an agile approach to change. We’ve grouped our initiatives into five broad categories. The first, win with brands and products. We’ll drive our efforts through better design and more innovation to meet the needs of both current and new consumers. Number two, supply chain segmentation. Our self-analysis revealed that our global supply chain remains a significant and sustainable competitive advantage. We are building on this strength by adding capabilities to address the unique needs for each of our brands, while increasing our speed to market. And we’re making our supply chain more efficient in serving direct-to-consumer channels. Third is simplicity. To reach our Full Potential and unlock growth opportunities, we have to make decisions faster and simplify our processes and approaches. Fourth, technology modernization. We’ll invest in data analytics and technologies to help us identify trends and connect brands with consumers. We’ll gain insights into our business to help us make decisions and improve forecasting and planning. And we’ll streamline our systems to make them more efficient, reduce costs and build capabilities to deliver a seamless online consumer experience. And number five, building a winning organization and culture. At HBI, we’re building on one of our foundational strengths, culture. Our 61,000 passionate and committed associates and committed associates are a great competitive advantage. Now, we’re unlocking the power of our team with a more focused and a flatter organization. Our new leadership team is a blend of tenured HBI leaders and new talent that together are setting a new pace.

I’d like to elaborate on that last initiative. One of my first tasks as CEO was to build a structure and leadership team capable of executing Full Potential. I am confident that we now have the right team. We created Global Innerwear and Activewear organizations, so we can quickly and effectively share learnings, insights and innovation around the globe. We also designed a new organization responsible for giving the consumer a strong voice in all of our efforts, and we created focused supply chain organization. Our leadership team is made up of talented HBI veterans and new leaders who have experience building brands, leading change and driving growth at some of the world’s most successful companies. I’m extremely proud of the entire team and the rapid progress they’ve driven to date. You’ll hear from a few of these leaders today.

First, Jon Ram will kick us off with a deep dive into our plans to grow the Champion brand globally. Jon is our President of Global Activewear and brings to the table more than 25 years of experience with global apparel and footwear brands. Jon’s vision and passion have driven Champion to new heights. Next is Joe Monahan. He heads up Champion in the EMEA region. Joe has lived and worked for extended periods across Europe and brings more than 20 years of experience in the athletic wear business. Joe will talk about Champion’s current position, success and growth strategies in his region that we’re going to leverage on a global scale. Joe Cavaliere will talk about our exciting plans to reignite growth in our Global Innerwear business and appeal to younger consumers. Joe brings 30 years of experience in driving growth in consumer brands and retail, and his leadership here has already made an immediate impact on our business.

Jane Newman will tell us more about the roles consumer-led design and innovation play in appealing to younger consumers and driving growth. Jane has been with our company for 17 years. And before her promotion to Chief Design Officer of Global Innerwear, she served as Creative Director and Head of Design for our Bonds brand, which by the way, has become the number one innerwear brand in Australia. Our Chief Consumer Officer, Greg Hall, has made a career out of building iconic brands through digital marketing, merchandising and driving change at scale. So he was the perfect pick to lead our efforts in building a consumer-centric approach. Greg will walk you through our plans to create a seamless consumer experience through digital excellence and strong brand marketing.

As I mentioned earlier, our supply chain remains a competitive and sustainable advantage, and we’re building on our strengths. Mike Faircloth, a 24-year HBI veteran and our President of Global Supply Chain, will show how we’re building on our traditional strengths with new capabilities. Over the years, Mike has been a force in making HBI a leader in sustainability, and he’ll cover the work we’re doing to accomplish even more in this very important area. Of course, leadership, talent and culture are absolutely crucial to our success. Kristin Oliver, our Chief Human Resources Officer, will talk about how we’re enhancing our culture and creating new opportunities for associates around the world. With Kristin’s diverse and extensive background in global organizations, she’s an incredible asset on the leadership team. And because Full Potential is ultimately about driving sustainable, profitable growth, Scott Lewis, our Chief Accounting Officer, will walk you through our three-year financial framework. He’ll illustrate how we are making HBI a stronger, more profitable company. Then I’ll be back for a quick summary and some closing thoughts before we host a live Q&A segment.

So here’s what I want you to remember as you listen to these leaders today. Full Potential is our plan to deliver approximately $1.2 billion in growth. We’re building new digital capabilities and unleashing the power of our brands by becoming consumer-centric. And Full Potential isn’t just what we intend to do, it’s what we’re already doing. And on the topic of what we’re already doing, our first quarter results announced earlier today reflect some of that initial progress. We are very pleased with our Q1 results. We showed strong momentum across each business segment, driven by a combination of strong consumer demand and lapping last year’s global COVID shutdown at the end of the quarter. Versus Q1 last year, our Innerwear segment grew 35%. U.S. Activewear accelerated to 26% growth, driven by strong Champion performance of 34% growth over last year. Our isales growth was strong at 18% over prior year, or 8% in constant currency. And our global consumer direct business was up over 50%, led by global online growth of 82%. Scott will provide additional comments on our Q1 results during his presentation.

I am incredibly proud of the entire organization’s hard work, willingness to change and commitment to winning. But we are just getting started, speaking of which, it’s time to start the rest of the meeting. Next up, Jon Ram, our President of Global Activewear, will talk about our opportunities to grow the Champion brand.

But first, take a look at this.

[Video Presentation]

Operator

Please welcome Jon Ram.

Jonathan RamGroup President, Global Activewear

I hope that gets you as excited about Champion as we are. Over the last century, the Champion brand has carved out an iconic place on courts, fields, pitches, streets and playgrounds worldwide. Consumers around the globe know Champion as a progressive brand and as the king of sweats. As Steve just mentioned, our first Full Potential pillar is to grow Champion brand globally. He shared with you our ambitious and achievable goal of growing global Champion sales to $3 billion by the end of 2024, representing a 14% compound annual growth rate and an incremental $1 billion in sales. So I’m here to tell you how we’re going to do that.

We’ve organized our Champion growth strategies into four key actions: number one, forge deeper connections with consumers; two, create compelling products; three, focus on growth in key geographies; and four, expand our channels. But first, I want to talk about what Champion represents as a brand, how we position it and what we’re delivering to consumers.

Champion competes in the land of giants, but we’re not trying to copy the competition. We’re forging a separate path. We’re confident in the market we want to serve, and we’ve embraced a challenger brand mindset. At Champion, we take a bold and unique approach when it comes to how we define sport. For us, sport is first and foremost about having fun, being playful and including others. But hey, when the competition heats up, we’ll also rise to the occasion. We know the benefits of sport extend beyond the physical competition. We believe that champions are defined by how they carry themselves in sports, play and in life pursuits.

To capture the essence of who Champion is as a brand, we’ve created a new brand platform. And as you just saw on the video, we call it, Be Your Own Champion. This is a powerful message that extends beyond apparel, footwear and accessories. And this approach rings true with our consumers too. Our research confirms that consumers view Champion as meeting both their sport and lifestyle apparel needs. So we’re focusing on this intersection point, the point where sport and lifestyle meet, a point where we see tremendous opportunity for growth.

Let’s circle back to the first key action we’ll take to grow the Champion brand, forge deeper connections with consumers. Like Steve said, everything we do starts with the consumer. Over the last year, we conducted market segmentation research in our must-win markets. We identified three activewear consumer segments that formed the foundation of the Champion strategy, the stylish athletes, the trend lovers and the culture curators. While they make up just over 50% of the activewear market, these three segments are the most engaged in the category and account for almost 70% of sales. Deeply understanding each segment informs our product, marketing and distribution strategy.

Let’s begin with the stylish athletes. Stylish athletes are the highest proportion of Champion wearers. The segment purchases nearly 30% of activewear, and their annual per capita spend is $400. This group is very important to us. What are the stylish athletes’ most important purchasing criteria? Comfort, style and performance. Our products line up nicely with this wish list. They view Champion as athletic, approachable, bold and socially conscious. With this group, our goal is to get them to extend their purchases. At Champion, we like to say sweats are the gateway. In other words, a consumer first purchases with us might be a hoodie, sweat pants, and then they come back for our other amazing products. We can also increase loyalty from the stylish athlete group by emphasizing and communicating our deep commitment to sustainability.

Next up is our trend-lover consumer group. They represent the highest number of new Champion wearers. This segment is about 20% of the activewear spend. Their per capita spend is about $360. Trend lovers value price, brand and style. They tend to see Champion as both casual and athletic, as well as approachable and cool. What’s our opportunity with trend lovers? To continually capture their enduring love for the brand as we innovate in sweats and beyond.

And last but not least, I’d like to introduce you to our third consumer group, the culture curators. Culture curators have the highest affinity for the Champion brand. They have the highest per capita spend of $450 and make up 20% of activewear sales. This group’s most important criteria are limited editions, style, comfort and brand. They appreciate collaborations with other culture icons. They rate Champion as the highest on cool, fashionable, trendy and inspiring. It’s a brand they’re proud to wear. Culture curators are early adopters, which means they’re the first to try our new styles and products. So our goal is to ensure a robust flow of new innovative products for them. We see a big opportunity to grow this segment and scale what we learn from them to motivate our larger segments.

So we’ve got the stylish athletes, trend lovers and culture curators. As I said earlier, together, these three consumer groups represent just over half of activewear category purchasers in our key markets, but over two-thirds of sales dollars. So using the insights we’ve gained will deepen Champion’s connection with these important consumers. We’ll do that through world-class merchandising and marketing, and most importantly, through exceptional products. Speaking of which creating compelling products is our second action for growing the Champion brand globally. Since sweats are the gateway of our product strategy, it starts with owning the sweats category.

Sweats represents 19% of all Activewear purchases in our key markets, and that percentage is only going up. So we’re going to fortify Champion’s global position as the king of sweats with our iconic Reverse Weave franchise that we engineered, patented and continue to innovate. Our recent introduction of the Gamer Hoodie and Defender Series collections demonstrate how innovation can generate consumer and media buzz. Products like these are particularly important for consumer segments as they deliver on key decision criteria, including functional benefits and thoughtful design. And sweats are just the beginning.

We have deep knowledge of our consumer, based on direct interactions with them. Champion.com data reveals that approximately half of all consumers’ first transactions were for sweats only. The likelihood of purchasing additional categories increased on subsequent visits. So first, we engage with them with our awesome sweats. Then they come back for our other cool products. In fact, on their second visit to champion.com, consumers purchase non-sweats more than 40% of the time. This demonstrates the power of the Champion brand to attract new consumers, the power of our sweats to create loyal Champion customers and the power of our product lines to generate additional revenue.

One of the great strengths of Champion is that our products are available and highly visible on hundreds of college campuses. As Steve mentioned, we invented college apparel. Champion’s collegiate presence gives us incredible access to introduce influential consumers to the brand and its newest products. It also gives our teams a platform to spot trends on how apparel is being worn and customized. For example, we developed our hugely successful women’s crop top hoodie, after noticing how co-eds were altering their Champion hoodies. In addition to these opportunities to own the sweats market, we’re excited about growth opportunities in women’s apparel, innerwear, collaborations with other brands and footwear. When it comes to our women’s business, Champion’s history of innovation is a huge asset. We know from our consumer research that women love Champion’s style, comfort and fit. We can win with products like stylish tops, bottoms and outerwear.

Another great opportunity is Champion Innerwear. Innerwear has been a rapidly growing business for Champion, more than doubling between 2018 and 2020. We see significant potential in socks, underwear and loungewear and will benefit from leveraging HBI’s deep enterprise expertise in this category.

Collaborations are another growth opportunity for Champion brand. Some of the strongest brands and designers in the world are eager to work with us. Steve already mentioned our collaborations with Coach, Super Mario Bros and Muhammad Ali. Other recent examples include global fashion designer, Rick Owens, NBA 2K and Fan Controlled Football. We have clear objectives for each partnership, which includes storytelling, category expansion, reaching consumers where they’re consuming content and amplifying our brand voice.

We’re also excited about the growth opportunities provided by footwear. True to our brand promise, we’re taking a unique approach to footwear by focusing on the athletic-inspired lifestyle footwear category. We’ve seen strong performance from Champion footwear in both the US and Europe, and we’re confident this approach will transfer to other geographies. To help us bring the entire toe-to-head brand expression to life and to integrate it fully, we have chosen to take a strategic partner approach. We launched footwear in the Americas with BBC, and we will launch footwear in China in June through our partnership with Belle.

And one last note about products. Our design and development centers in Europe, the US, Japan and Australia are working to deliver global, regional and locally relevant products to our targeted consumer groups. We’ll leverage fabric platforms and designs, plus we’ll build category centers of excellence. For example, our team in China and the US are leveraging our outerwear styles designed and developed in the EMEA region because consumers love these designs. We’ll use our manufacturing scale and regional team design capabilities to drive margins and capture growth.

Now, let’s talk about how we’ll focus on growth in key geographies. As we said, our key markets are North America, China, Japan, South Korea and the big five markets in Europe. Of our $1 billion incremental revenue target, we expect North America to represent approximately half, Asia to represent approximately one-third and the remainder to come from Europe. To win, we will go to market according to the needs of each region through a combination of digital, wholesale distribution partners.

We’re also further developing our segmented supply chain to become faster and more flexible, to enable growth through speed to market, leveraging our design and development centers and quickly responding to consumer trends. Mike Faircloth will tell you more about our supply chain plans later today. By using these strategies, we’ve been incredibly successful in the past. You’ll hear more from my colleague, Joe Monahan, about how we’ve been able to see tremendous growth across the territory as diverse as EMEA. We’ll use our expertise and track record to grow sales in our existing markets and to expand into new ones.

We see significant opportunity in Asia. China is a huge market for us. Earlier, we talked about the stylish athletes and the trend lovers and the culture curators. They represent half of our market globally. Interestingly, in China, these segments represent 87% of the activewear market. Up until about 2.5 years ago, Champion had a minimal presence in China. We are taking a deliberate and purposeful approach to this market, working with local experts. We have forged strong strategic partnerships in China with D-Mop and Belle, relying on our partners’ expertise and operations, online sales and retail. Over the past few years, Champion’s brand awareness in China has jumped from 39% in 2019 to 57% in 2021. So a big key to winning in China is leveraging these strategic partnerships to expand our digital footprint, penetrate the market with more brick-and-mortar stores and grow brand awareness.

In South Korea, we forged a similar distribution partnership with LF Corporation. Despite the pandemic, both Belle in China and LF Corporation in South Korea successfully executed their Champion launch plans. Collectively, we are looking forward to accelerating our market penetration and working with our partners.

Now, to touch on the final strategic action, expanding our channels, our direct-to-consumer channels are growing rapidly and we see continued opportunities here. In fact, by 2024, we expect champion.com to be 25% of our US business. Thanks to our efforts in improving engagement and attracting new consumers, champion.com sales in the US have grown 85% over the last year. In Europe, over the same time period, champion.com sales grew by 65%. We see opportunity for continued growth in our direct-to-consumer channels. Greg Hall, our Chief Consumer Officer, will speak about our plans to accelerate digital capabilities to build our brands and drive growth.

As I mentioned earlier, our channel strategy is focused on meeting consumers where they want to interact with us. We’ll work to grow in-store and online, constantly improving our product merchandising and branding. To recap, as a company, we’re leaning into the many growth opportunities available to the Champion brand by first, forging deeper connections with consumers; second, creating compelling products; third, focusing on growth in key geographies; and fourth, expanding our channels.

I am really excited about the potential we have with the Champion brand. To tell you even more about this opportunity, next up is a leader who has driven exponential growth in Champion. Based on his success in EMEA, we built a game plan for growth around the world. Here to tell us more is our President of Champion EMEA, Joe Monahan.

Operator

Please welcome Joe Monahan.

Joseph MonahanSenior Vice President, Finance

Thank you, Jon. Let me start out by saying how passionate I am about Champion and how pleased I am to be here today because as Jon said and seeing how quickly we have grown the Champion brand here in Europe, the Middle East and Africa, I absolutely share the confidence expressed by Steve and the executive team in the incredible growth opportunities for the Champion brand globally. So today, I want to talk to you about the success we have had in growing the Champion brand across EMEA. And I would like to show you why we believe the strategies we have implemented can serve as a springboard to expanding Champion, especially in high-growth regions like APAC and ultimately around the globe. Plus, we can use the same playbook to expand share in existing markets such as North America through diversifying our product offerings across different channels at very sizable clusters of target consumers, the exact same consumer groups that Jon just referred to.

Let’s begin with the numbers that highlight the impressive growth we’ve experienced here in the EMEA region. And I should point out that we’ve experienced all this growth in the business despite COVID headwinds that we’ve been facing for more than 16 months. By the end of 2021, we expect to nearly double our 2017 sales revenue. In those same four years, we have almost tripled operating margins. Plus, we’ve expanded the number of countries in which the Champion brand is sold from 37 to 51. In 2017, almost 80% of Champion EMEA sales were generated in the European Big Five, with Italy representing nearly 90% of those sales. By the end of 2021, the same five countries of Germany, France, Italy, Spain and the UK will represent more than 85% of total sales. So we’ve grown sales in all five countries, including Italy, but we have shifted from a largely Italian business to a pan-European brand.

There have been three primary drivers of Champion’s growth in the EMEA region: number one, new market development; number two, increase penetration; and number three, product category expansion. Our geographic growth in Western Europe has leveraged our men’s core fleece sweats and jersey categories. With a shift from geographic expansion to increase market penetration, we forged a strategic launch of additional product categories like outerwear, performance wear and casual footwear. We also added our women’s and kids collections. The impact was a continued march upwards in sales and margin expansion, which fueled growth of more than 20% year-over-year consistently for multiple years. This growth pushed Champion brand deeper into countries, across channels and within consumers’ closets.

While market expansion and penetration in Western Europe clearly have a tremendous amount of runway, we also see incredible opportunity in Eastern Europe, the Middle East and Africa. Between 2021 and 2024, our EMEA sales are targeted to grow substantially, supporting the objective for Champion globally.

Jon introduced earlier our three primary consumer segments, the stylist athlete, the trend lover and the culture curator. We’ve actively pursued these segments in the EMEA region, and we’ve been very thoughtful in our approach to product collections for each consumer segment. The systematic execution of this strategy has allowed us to achieve both price and margin expansion, while ensuring unique brand and product propositions in the channels where our consumers shop, whether that be directly online, in our own retail stores or at our wholesale and pure-play partners.

Let’s take a deeper look at our channels and our consumer segments. In targeting the stylish athlete, we leverage our core categories such as fleece and jersey, with a range of training and practice wear lines catering to the more athletic fan. This collection offers a strong price-to-quality proposition in men’s, women’s and kids.

Moving up the pyramid to the trend lover, we offer products with an increased focus on style and quality. Champion branding is still key. So we’ve introduced embroidery, tackle twill logos and detailed finishes, all designed to increase brand equity. Elevated construction and attention to detail support driving price expansion via higher ticket items. This ensures our trend lovers get the Champion complete look from head to toe, with silhouettes and colors that are both on brand and on trend.

At the top of the range is the culture curator, the early adopter who is always ahead of the trend curve. But don’t worry, we’re not trying to make Champion something it’s not. We’re just making sure there’s a Champion collection for everyone because we understand who they are and where they play. The DNA of the Champion brand is carried throughout the collection, but we’ve experimented with new fabrics like corduroy without straying from Champion’s athletic routes. This consumer-centric tiered approach to design and product collections has been very successful in EMEA and is a big part of our growth story. As the Champion brand continues to grow around the globe, we’re going to use a similar playbook.

Looking ahead, we will also continue to execute against our strategy of geographic expansion and market penetration through exciting product offerings in men’s, women’s, boys and girls, and apparel, footwear and accessories. Recognizing the need to maintain excitement across our consumer targets in our core categories, we will focus on innovation in fabric, fit and silhouette to drive our share higher.

As Steve mentioned, Full Potential is not only about what we will do, it’s about what we are already doing. We have made incredible progress in growing the Champion business in the EMEA region. We have captured tremendous learnings that we can now apply to other markets. We have the ambition, team and plans to go even faster. We will fast track the development of our business to consistently up our game with fantastic designs and incredible product quality with great price positions. We will continue to push into new markets and channels around the world as we work to grow our global Champion sales to $3 billion by the end of 2024. The Champion brand is poised for very strong global growth. We’re ready to reach our Full Potential.

And Champion is just one of our growth opportunities. So let me turn it over to Joe Cavaliere, our President of Global Innerwear, to talk about our second pillar, reigniting Innerwear growth. Joe will show you more about HBI’s plans for reigniting the Innerwear business and appealing to younger consumers.

[Video Presentation]

Operator

Please welcome Joe Cavaliere.

Joe CavaliereGroup President, Global Innerwear

Hello, everyone. I’m Joe Cavaliere, and I lead the Global Innerwear business. I joined HanesBrands a little over three months ago after spending time in sales and marketing with a few of the leading consumer branded companies in the world. Throughout my career, I’ve grown to love collaborating with customers, building brands that delight consumers and developing great teams. This is an exciting time for HanesBrands because we are launching a new strategy that will unlock sustainable growth for a collection of brands that are trusted household names.

Global Innerwear is a very stable and profitable $3.7 billion annual business that accounts for a large portion of the overall Company profit. However, prior to the pandemic, it was struggling to grow. In fact, for the four years from 2016 to 2019, our innerwear business declined on average 4% in our largest market, the United States. And we’ve been losing share across some key categories as well, including men’s underwear, bras and kids’ underwear.

Innerwear was part of the deep assessment that Steve mentioned earlier, and we discovered some big opportunities to revitalize our US business. In particular, even though we are already a market leader with people under 39, we found we could do even better with younger consumers. In fact, it’s over a $1 billion opportunity. Younger consumers spend nearly 30% more on innerwear than those over 39, and our goal is to double our share with this valuable cohort.

This deep dive also identified an opportunity to develop our e-commerce business. E-commerce is the fastest-growing channel for innerwear. We have the opportunity to improve the quality and visibility of our offering across all e-comm sites. The good news for us is, that is also where we’ll find a lot of those under-39 consumers. To address these opportunities, our growth objectives are straightforward. First, we will revitalize our core. This is a huge deal for us. As I mentioned, we have a $3.7 billion base business, and it will generate significant upside when it starts growing again.

As I looked at this business more carefully, I believe we just haven’t been aggressive enough with the wonderful assets at our disposal. To make this revitalization happen, we will leverage the considerable scale within our supply chain, our leading market share positions and our strong customer relationships. By combining these competitively advantaged capabilities with a more consumer-centric approach, we will create significant growth for our Innerwear brands. To revitalize the core, specifically, we will look to improve everyday great execution with a strong focus on product availability, in-store presence and pricing optimization.

We have also created a repeatable process to identify the right portfolio for the right channel. We call it the winning portfolio model. Full deployment of this model has already begun. Reducing SKU complexity and leveraging our route to market scale is worth hundreds of millions of dollars in new distribution.

We’ll also use our strong relationships to partner with our most strategic customers to increase on-shelf availability and improve the shopping experience. A great example of this is that we are partnering with one of our largest customers using RFID technology to ensure shelves are full of Hanes products. This will dramatically improve the shopping experience by ensuring better on-shelf availability and will drive a significant increase in sales.

One last example of how we will revitalize the core is to build a disciplined approach to pricing and trade investment that will improve ROI. We are in the process of establishing this model, and it is already advising how we are investing for growth. For example, investing more in US e-commerce has a better ROI than other channel investments. This revitalized the core objective, which we call our win within plan, will not only deliver incremental sales and profit growth, but also provide the foundation to expand our demographic reach, which leads to the second objective, investing to grow our share with younger consumers. We’re extending beyond our previous efforts to make our portfolio more relevant with this cohort. This will enable sustainable growth because these young consumers spend more and will have a very profitable lifetime value as our customers. Our goal in getting younger is not just to grow our share, but to double it with younger consumers. As I said before, this journey is worth over $1 billion.

Connecting with younger consumers is something we’ve done throughout our history, and we can do it again. To take action on this right away, we’ve launched 15 test-and-learn initiatives in our US market. This approach enables us to move quickly and to refine our strategy so we can get the best bang for our buck when we expand into the broader market. We are very encouraged by these initiatives, and our modeling indicates that they will contribute significant growth towards our Full Potential plan.

We’re also successfully targeting younger consumers with innovation via our Total Support Pouch. Total Support Pouch is an underwear that was created to directly appeal to young men. After extensive research, we introduced this innovative product in March. To ensure a successful launch, we did a few things differently than past Hanes introductions. To begin with, we had the attitude: if we build it, they will come. And consequently, we raised our ambition and built a launch plan to make this one of the largest new products in our company history. To accompany this, we leveraged the best of what Hanes has to offer and added some new things to ensure we reached our targeted consumers.

First, we created a new men’s underwear product with superior quality and unbeatable value versus the competition. Second, we used our route-to-market scale and collaborated with our customers to build fully integrated launch plans to ensure strong retail and online placement, particularly in channels where young men shop. Right now, we have terrific retail presence and are available in 83% of the places where underwear is sold. And third, we built a launch campaign to reach young men with a heavier investment on digital marketing than we’ve ever done before. I’m happy to say that Total Support Pouch is very successful. And we have nearly doubled our penetration with men under 34 years old.

Furthermore, our data also indicates a high degree of incrementality, with 74% of the purchasers being new to our hanes.com site. Lastly, it is now projected to be our largest launch in the last 10 years. And we are so encouraged by the results, we plan on doubling our advertising in the second half of the year to make it even bigger. We know this get younger approach can work because we’ve already done it in Australia with one of our strongest brands, Bonds. Jane Newman, our new Chief Design Officer, will share more details about that experience with you shortly. It completely transformed their business and helped to make Bonds a $390 million business in a country whose population is 14 times smaller than that of the United States.

To support these two objectives, revitalizing the core and getting younger, our company will invest against three critical enablers. First, we will win with e-commerce. This is the fastest-growing channel across the globe, and we are building new capabilities to ensure we win in this critically important area. Greg Hall, our Chief Consumer Officer, will provide more detail on our ambitious plans and the new tools we’re building for this later in the presentation. But let me emphasize, this is a very exciting opportunity and a logical place for significant investment, given it’s the fastest-growing channel, it’s where young people like to shop, it’s incremental and it’s more profitable. What’s not to like?

Greg will also talk more about how we plan on building our brands and making them even more relevant to today’s consumer. In short, we are planning to double our brand-building investment this year and then double it again within the next three years. This will build our brand equities and turbocharge our growth. As Steve mentioned earlier, our plan is to self-fund these investments and unlock this fuel for growth. This is an enterprise-wide effort that we are already building momentum against.

Lastly, we’ll drive category-disruptive innovation by leveraging deep consumer insights, and then translate them into breakthrough designs and compelling marketing. The headline here is fewer, bigger, better. We plan on investing and focusing on the largest opportunities. To support this, we have just created one global design team. Jane will share how she plans on reducing our innovation cycle times by leveraging an agile design process she pioneered in Australia. This will enable flexible product flow in three different streams, increasing speed to market in what she refers to as an ownable, repeatable model. Doing these things will allow us to take a Global Innerwear business that was declining on average 3% a year and deliver share-gaining growth over the next three years, which is a 500 basis points improvement. This pivot to sustainable growth is very exciting. And once we get the flywheel moving, we’ll uncover additional opportunities far beyond these targets.

So there you go. We covered a lot of ground, but to put it simply, our intention is to revitalize our core and double our business with consumers under 39. In doing so, we’ll move from autonomous geographic businesses to one global team, from decentralized investment strategy to a focused investment approach, from limited investment and brand building to increased investment for growth, from a complicated org design to a simplified and streamlined organization structure, and lastly, from diffused capabilities to more dedicated consumer-centric capabilities.

Our two objectives will enable Hanes to drive continued progress for many years to come. When you combine these with a more focused and global innovation approach, we will have many big opportunities to pursue over the next few years. We can self-fund this growth, and we already have powerful route-to-market capabilities in place to build upon. So we already have considerable momentum. You can see why I’m really excited about this opportunity, to fully transform Hanes into a consumer brand powerhouse over the next few years.

And now, we’ll continue this conversation around growing our innerwear business with our Chief Design Officer, Jane Newman.

Operator

Please welcome Jane Newman.

Jane NewmanChief Design Officer, Global Innerwear

When Steve offered me the role of Chief Design Officer for Global Innerwear, I was thrilled at the opportunity to shape the design and innovation vision for Hanes’ iconic global brands. This is an incredible opportunity to further leverage our design capabilities as we elevate our efforts to deliver global consumer-led product innovation.

Today, I’d like to touch on three main topics: how we evolve the Bonds brand, providing a road map to drive growth by attracting younger consumers. I’ll show how attracting younger consumers is the first step in growing each of our brands, providing opportunities to expand into new products and categories. And I’ll demonstrate how we’re now positioned to deliver consumer-led design and innovation by unlocking our global talents, capabilities and insights.

First, let me share a bit about myself. Before my current role, I led the design and innovation team at Hanes Australia and more recently across Europe. During that time, we’ve taken the Bonds brand on a journey from a basic men’s focused underwear brand to a multi-category, multichannel consumer-led brand. Not only did we attract younger consumers, we transformed a whole category. Our focus on innovation and bold design enabled us to expand Bonds into new categories. Now Bonds is famous for its relaxed style and youthful energetic aesthetic, spanning underwear clothing, socks and hosiery for babies, right through to those who remain young at heart.

Underpinning this evolution has been the design of some of our most iconic products. Our big ideas have become the backbone of the Bonds in Australian business. Here is a snapshot of our journey.

[Video Presentation]

One of the most exciting parts of my new role is the opportunity to bring this approach to Hanes brand globally. For HBI, getting younger is just the first step. I want to deliver great products consumers want by bringing a useful energy and a confident design aesthetic to all of our brands.

We will make the ordinary extraordinary, delighting consumers by constantly reinventing. We will meet consumer needs by leveraging our design and innovation, by driving global collaboration and by improving our speed to market. You heard Joe and Jon speak to this earlier. I’m going to share how this comes together.

There are three overarching themes that will speak to how we’ll deliver products that consumers want. First, we’ll deliver truly global design and innovation. We have over 200 extremely experienced and talented designers and innovators across four design centers around the world. Our ability to unleash a diverse global team to create new, exciting products our consumers all around the world will love is an untapped competitive advantage. We have the opportunity to expand and understand and evolve with the younger consumers better than anyone else. And we will bring this youthful energy across the HBI portfolio with a focus on Hanes, Maidenform and Bali. You’ll start to see the results of this new approach as early as next year.

Similarly, taking a global approach to sustainability is of particular importance to younger consumers around the world. We have a big opportunity to bring this to life through our product and connect with consumers on a deeper level. Our public commitments and history support this effort and we’re excited to blow this approach out on a global scale across our brands. You’ll hear President of Global Operations, Mike Faircloth, speak to our sustainability initiative a little bit later on.

By increasing the connectedness of our global teams, bold trend and insight-driven big ideas can really come to life. Secondly, there’s the opportunity for global collaboration. We are creating new opportunities for global collaboration to build on our competitive advantages. Our lift-and-land process of lifting both product and fabric innovation into other brands and geographies is well established. But we have enormous opportunity to do even more.

First, on product: we recently improved the lift-and-land model by identifying global big ideas earlier in the design and development process. This enables us to respond quickly to global market demand with a collective brand proposition. We identified period underwear as an emerging consumer need and trend that was quickly building and connecting with women in a big way. It was the chance to really disrupt the category globally, which led us to launching Bonds Bloody Comfy Period Undies in Australia, as well as exporting the idea to the US under Hanes Fresh & Dry.

It was also an authentic opportunity to connect with the youthful consumer by offering a more comfortable and sustainable alternative to traditional products. A true cross-functional collaboration ensured this big idea went from concept to consumer in only nine months. That’s record time for such a complex high-performance technical product. You can see how we leverage the innovation with an execution that is very different, but appropriate to the brands and consumers.

The response has been extraordinary. In Australia, consumers responded to both the product and the disruptive messaging, which took the embarrassment out of periods. And the range exceeded all expectations, regularly selling out and earning accolades from consumers and retailers alike. We won the prestigious New Product of the Year Award by Australia’s largest retail partner. More importantly, we achieved thousands of five-star reviews from happy consumers online.

We test and trialed the Bonds product on hanes.com in the US under Hanes Fresh & Dry. This received extremely strong sales, and we quickly proceeded with launching the Hanes Fresh & Dry product to the wider market with great success. We are expanding the absorbency and period underwear category across more products in the year ahead. This is a stretch into a new and truly incremental category, with significant runway for further category extensions.

Connecting to new shopper occasions is just one way we plan to build our brands. And the second important source of global collaboration is our fabric platforming. Fabric platforms are our fabric big ideas, focused on comfort attributes. These platforms can be died or printed and used across multiple brands and products. We will continue to invest in fabric innovation. Our highly skilled fabric teams are constantly innovating by creating new solutions and trend-relevant fabric platforms that can be leveraged over multiple products. And finally, we will bring much faster speed to market.

Consumer needs and the market are changing rapidly, and we are working to get our innovation to market faster. Our consumer-led design and development model enables experimentation through a test-and-learn model. This model uses our own platforms and digital environment to quickly collect consumer feedback, then takes these learnings to accelerate the big ideas to market.

A great example of our test-and-learn model in practice is Bonds Retro Rib, which is all about bold useful basics for everybody. We launched Bonds Retro Rib into the US as a test-and-learn trial within our Hanes retail network. Despite COVID, the range performed extremely well, with styles featuring in the top 10 products in store. We are expanding on this success by introducing similar products in the Hanes and Maidenform brands.

We’re also seeing success in the other direction as we tested Maidenform bralettes under the Bras N Things brand in Australia, both online and in-store. This has filled a product gap in the portfolio for Bras N Things, delivering a supportive intimate solution to this growing consumer need. Accompanying this is our agile product development process. This process enables flexibility for product flow across seasonal development, fast track and innovation, unlocking speed with an ownable repeatable model. We’ll also introduce a new segmented supply chain that will enable all kinds of innovations and benefits, which Mark will tell us about later.

So, together all of this up, I’d like to leave you with three key takeaways. First and foremost, at HBI, we have an incredible opportunity to truly leverage our design capabilities to deliver global consumer-led product innovation. We’ll do this by global talents, capabilities and insights, while significantly increasing our speed to market, particularly for the Hanes brand. Secondly, we have a proven road map to attract younger consumers and drive our growth. The changes we have already achieved in the Bonds brand in Australia serve as a pathway that we can leverage not only for innerwear but across HBI. And finally, attracting younger consumers is just the first step in growing our brands, as this creates opportunities for new innerwear products and categories to expand our reach.

Next up, following a short break, Chief Consumer Officer, Greg Hall, will continue our conversation about connecting with consumers in innovative and meaningful ways.

Operator

Please welcome Greg Hall.

Greg L. HallChief Consumer Officer

Thank you, Jane. It’s incredibly exciting to be leading our consumer team here at HanesBrands. I’m here to talk about this team’s role and the part we play in the Full Potential plan. Steve spoke earlier about building a consumer-centric organization to drive profitable growth for our brands. This consumer team’s job is, quite simply, to bring that vision to life by constantly learning from the consumer, being empathetic to their needs and helping them.

I’ll talk about how we’re improving the consumer’s journey from beginning to end to motivate and empower our consumers to shop how, when and where they want to shop. I’ll share with you the investments we’re making to drive awareness and loyalty for our great brands, with the consumers who know us well, and importantly, those who don’t. I’ll also discuss our focused investments in digital capabilities, including digital marketing, e-commerce and advanced analytics, to make it easier for our consumers to buy our products, how, when and where they want to shop. But first, let me share why I’m so excited by this opportunity with HanesBrands.

Over my career, I’ve had the privilege of building world-class brands, developing fantastic products and driving growth and capability in e-commerce. I’ve seen the value of clear consumer-led brand positioning that serves as the heartbeat for an entire organization and the great things that can happen when our whole organization is informed and inspired by the consumer. This experience is now serving me well in helping HanesBrands realize our plan. I’m here because I see and believe in the potential, the full potential of this business and these brands.

I’m convinced that the core of a winning strategy is building strong brands that meet real consumer needs. This consumer focus lives throughout our entire organization. But the heart of this relationship rest with the consumer team. This team includes both our marketing and our direct-to-consumer organizations. The people responsible for the way that we connect, communicate and transact with our consumers. By uniting these functions, we are now organized to deliver a truly consistent brand experience, all around the consumer. We are building this experience from a position of strength, particularly the strength of our brands, the strength of our retail presence and the strength of our supply chain. It’s a dream opportunity to work on brands that are big, loved and yet still have a ton of potential for growth, and that’s what we’ve got.

As Joe Cavaliere mentioned, Hanes is a powerhouse brand, selling over 1 billion units annually. And it’s found in nine out of ten US homes, yet it has tremendous growth potential with younger consumers. But honestly, we’ve starved this brand for investment over the last five years. We’re changing that.

Jon talked to you about Champion. We all know that Champion has a lot of momentum right now and it has tremendous potential as we convert consumers’ passion for the brand into growth, growth in our core, growth in new categories and growth in new regions. How do you measure passion? Among our brands, Champion has the most direct consumer relationships, and it is the fastest growing in social media. Consumers are proud of Champion and they’d love to show it off. But again, this brand has been starved for investment. We’re changing that. We’re changing it with increased support of the Be Your Own Champion platform.

Our portfolio of intimate apparel brands allows us to deliver the perfect products for women across multiple consumer segments. We’re recalibrating the position of these brands, Hanes, Bali and Maidenform, to address distinct consumer segments, ages, sizes and wearing occasions. So we have an awesome stable of brands with so much untapped potential.

Now, let’s talk about our retail presence, which is another strength. Our extremely broad distribution shows that our retail partners value our brands. And we, in turn, we value their support. As Steve mentioned, our products will be available where, how and when consumers like to shop. The diversity of our brands and our retail channels enable us to connect with a broad range of consumers in ways that honestly many of our competitors simply can’t. We saw the value of our channel strength over the last 18 months as we captured growth with our mass-market omni-retailers, our pure-play online partners and our owned e-commerce sites. While we’re proud of that growth, I need to acknowledge that we’ve under-invested in our digital capabilities and we’ve fallen behind. We’re changing that now.

We will make the very necessary investments in technology, data science and core digital capabilities to drive our digital operation. These investments will deliver growth in our traditional and online retail partners, in owned and partner retail stores in key markets like Australia, Europe and China, and in our owned e-commerce sites.

So how are we going to make it easier for our consumers? Let’s talk about that right now, as I walk you through the consumer journey. We envision this journey as five interlocking steps. So let’s get started. Step one, they’ve got to want our product. You heard Joe and Jane and Jon talk about their process for creating innovative, must-have products. The job of the consumer team is to help guide that process and to build awareness and desire for these great products. To do this, we will invest more in building our brands. As I said earlier, these investments, they’ll look different for Hanes and Champion, but they will have this in common: they will be consumer-focused, data-driven and optimized to drive brand health and sales growth.

Our Bonds brand, which Jane told you about, is a great example. Bonds is one of the strongest apparel brands in the world, with awareness, consideration and brand preference scores on par with some of the giants in the apparel industry. And Bonds has equally strong appeal with younger and older consumers alike. So how did they do it? Innovation powered by deep consumer understanding, compelling, creative and significant data-driven media investments. In short, that’s the value of clear consumer-led brand positioning. Imagine the power of applying that formula to our biggest brands, Hanes and Champion.

As Steve said, Full Potential is about what we will do and what we’re already doing. For example, our Total Support Pouch is truly breakthrough innovation. It’s powered by compelling creative. You know what? Let me introduce you to Hans, he’s our new spokesman for Hanes Total Support Pouch.

[Video Presentation]

I think that’s great, and I hope you agree. I think it feels different coming from Hanes. I can tell you that it connected with my two sons. They’re both in their 20s and they really loved it. And they’re not alone. This creative has strong appeal with our younger consumers. The current Total Support Pouch campaign is breaking through. But it’s not just about the creative, our media strategy is different too. Of course, we’re leveraging TV since Hanes is truly a mass brand. But what is really different than prior years is our significant investments in digital and social media. Those are optimized daily and they’re truly data-driven. Our Full Potential plan provides increased investments like these in our key brands. In fact, we will be doubling our brand investments from the 2% of sales that they are today to 4% by 2024.

Now, on to step two. Once consumers decide they want it, we need to make it easy for them to find it. As we discussed, our brands and products enjoy broad distribution and the support of our retail partners. We’re increasing our capabilities in digital marketing to build on that strength. We’ve recently consolidated all of our digital media planning with a world-class performance marketing agency. We’re increasing our digital investments, and at the same time, we’re leveraging our retail partners’ investments in brand building and data-driven media platforms. For example, when consumers are shopping for groceries on our retail partner sites, they may see a highly-relevant ad to remind them it’s time to buy the family new socks and the kids some new underwear. This investment is new, impactful and it will drive growth.

Next, step three, it’s time to buy it. With this step, we’re working to remove friction from the consumers’ path wherever they choose to buy. To make this happen, we are doubling our investments in technology. We’ve applied some of this capital to re-platforming all of our sites with a focus on champion.com. We’ve also built a new agile product team focused on increasing conversion on our brand sites, with faster page download speeds for mobile and desktop, improved visual look and ease of use across the sites, designed to deliver a better guided selling experience, and improved personalization to help consumers find what they’re looking for even faster. Each site will play a role in our Full Potential plan.

We will make significant investments in champion.com as the premier brand and shopping experience globally. It will be focused on the mobile and social experience to enable us to communicate and transact with the consumer segments that Jon talked about earlier. In Australia, bonds.com and brasnthings.com will be the leader in omni-shopping. They’re going to be connecting our own stores with our great brand experiences online. This highlights, by the way, our capability as a global omni-retailer. Finally, Hanes, Maidenform and balibras.com will increasingly become the marketing destination for these brands. These investments are already impacting our e-comm business, but we’re just getting started, and we have so much opportunity ahead of us.

On to step four, it’s time to get it, a crucial opportunity for us to delight the consumer and earn their brand loyalty. In a moment, Mike Faircloth will tell you how our supply chain investment is supporting this step by improving service levels, fulfillment and shipping time to create a great brand experience.

The last step, step five, know me. Now that the product is in the consumers’ hands, we continue the work of building our brands by developing our data-driven understanding of each consumer. In 2020, we saw more consumers opting into a direct relationship with our brands. And as I mentioned earlier, Champion is leading that growth, which is helping us to learn more about our consumers. Jon referenced sweats as the gateway to the Champion brand. And he’s right. We know that over half of our new shoppers enter the brand by buying a hoodie or some other sweats. And when they return, they try out other categories, spending more and more on each visit. It’s about 15% more on average. We’re just scratching the surface at leveraging this data to improve the consumer experience.

In short, know me is the connection back to the first step in the journey. And when done right, it makes it easier for consumers to find, buy and get our great products. Are we there yet? No. But that is the business we’re building, driven by our consumer-centric strategy and backed by data analytics that guide us to the right investments. These include increased investments in our brands to drive awareness and loyalty with key consumers and significant investments in our digital capabilities to improve our presence and performance online.

As you can see, I am very excited about the future. And I’m very excited about the work we’re doing to put the consumer at the center of everything to help HanesBrands achieve our full potential. I’m fortunate to be leading a passionate team at a time of enormous opportunity.

Now, I’d like to welcome our next presenter. He and his great team play an essential role in elevating the consumer experience. Please welcome President of Global Supply Chain, Mike Faircloth.

[Video Presentation]

Operator

Please welcome Mike Faircloth.

Michael E. FairclothGroup President, Global Operations

Thanks Greg. We’re very excited about the work we’re doing in the supply chain as part of our full potential plan. We’ll leverage the vast capabilities and scale we’ve built to unlock growth opportunities while continuing to support our leading brands. Our supply chain remains a significant and sustainable competitive advantage. And now we’re creating a more consumer-focused supply chain, building on our traditional strengths while enhancing our direct-to-consumer capabilities, particularly our own e-commerce. This will allow us to move with speed and focus, meeting the needs of our brands, customers and consumers, unlocking significant revenue growth opportunities. One of the many things that sets us apart from our competition is that we have full visibility of our supply chain. This gives us a deep understanding of everything that is required to design, produce and distribute our products around the world. This visibility allows us to prepare for or navigate to avoid business impacts and costs related to issues such as inflation, trade, regulatory and the ever-evolving geopolitical risk. This enables us to make sound decisions that protect our brands, our customers and our operating plan.

Our production is strategically balanced across both the Eastern and Western hemispheres, and we operate at tremendous scale, producing over 2 billion units annually. The global network we’ve built is strategically positioned to mitigate risk while supporting our global company in an efficient, low-cost manner. It allows us to leverage our global purchasing power, share large material and fabric platforms as well as deliver market-leading product innovations to all of our global consumer end markets. Owning and controlling our supply chain means we can benefit from a mature, lean continuous improvement process that’s deeply ingrained in our culture. These improvement trends have been consistent for over a decade. Increasing productivity and factory output without requiring significant capital investment to add capacity. Our capable, diverse and dedicated global workforce is fully engaged, focused on continuous improvement and they strive to always do the right thing.

Our team is passionate about our commitment to sustainability, and we’ll continue leading in this area, embedding it in every area of our company and brand. Our associates are proud to work for Hanes, and we are very proud of them. We’re especially pleased of how our team managed through the challenges in 2020. Our global supply chain model proved to be resilient once again. Despite the challenging year, the team continued to deliver year-on-year improvements across many of our key metrics. Since 2018, when our last Investor Day was held, manufacturing output per factory improved by 15%. Efficiency improved 6%. Defects were also reduced by 6% and production lead times reduced by two weeks. Our focus on associate engagement has resulted in lower turnover and increased experience, contributing to these outstanding results.

We are pleased with how our supply chain has served us in the past. However, our supply chain was designed for high-volume wholesale replenishment products sold to large retailers. While this remains a very important component of our business going forward, market channels and consumers continue to evolve. Therefore, to support growth opportunities, our supply chain must also evolve. Building on the strong foundation of our well positioned global network, we are enhancing our supply chain capabilities to further strengthen our competitive advantages. This also allows us to better align with the various growth opportunities of our full potential plan. This effort is not about rebuilding or moving our existing facilities. It is about establishing focus flows within our current footprint and building upon our strong foundation. Most importantly, we’ll do this with the consumer in mind.

We’re creating a segmented supply chain that will enable discrete product development, manufacturing and distribution flows that meet the speed and flexibility needs of each brand and commercial channel. This approach will ultimately provide the innovative products consumers want at the unbeatable value and quality that HanesBrands is known for. By segmenting our supply chain, we will be quicker to market with product innovation, allowing us to capitalize on in-season growth opportunities, lower delivery costs and more efficiently meet the evolving needs of all our customers.

Let me give you a sense of what segmenting our supply chain means in terms of our manufacturing and distribution networks. With respect to manufacturing, to enable our full potential plan, we’ll operate the supply chain in distinct segments. We will continue to have focus flows for our core replenishment products, retail events, and new product introductions, just as we have efficiently done for the past several decades. This process will be unchanged. We’ll continue to focus on reducing lead times, lowering cost, increasing productivity and improving inventory turns. The new capability we’re adding will be a fast and flexible segment. We will establish a disciplined, efficient and repeatable process that is designed and resourced to respond to market demands as they occur. This capability will enable our supply chain to capture in-season, short lead time revenue opportunities that we were previously unable to fully realize. This fast and flexible capability will sit within our existing manufacturing footprint, allowing us to leverage our global scale and purchasing power. We’re establishing new processes, capabilities and dedicating resources that are focused on speed and flexibility. As Jon mentioned, to support the growth of our Champion brand, prior to each season, we will positioned common materials and unattributed garments in close proximity to our commercial markets. Allowing the supply chain to respond quickly to demand, converting these common, prepositioned items into unique products that our consumers want, when they want them. We believe by adding this new capability, we can achieve both low-cost and flexibility. This will unlock growth opportunities without the risk of creating excess or obsolete inventory.

Next, let me speak to our distribution network, which will be segmented between wholesale and direct-to-consumer. While our segmentation is designed to improve service and meet the unique needs of each channel, we’ll manage the entire distribution network with a focus on improving productivity through the combination of automation, data analytics and the use of warehouse space gained by our SKU reduction initiative. As you might expect, we’re very well positioned to build on our strength of serving wholesale customers. While we’re very happy with our current wholesale distribution network, over the next few years, we plan to add additional capacity to support the growth of the Champion business.

Turning to the direct-to-consumer channel, we’ll establish a new supply chain segment that will further expand our DTC capacity and capabilities to better support all of our dot-com selling channels. We will have dedicated resources and process focused solely on the direct-to-consumer channel, which encompasses everything from demand forecasting through delivery. This supply chain segment will be consumer-focused and closely aligned with our own dot-com selling sites as well as with our pure-play and brick and mortar dot-com customers. In Australia, we’re adding capacity while lowering operating costs by expanding our goods-to-person robotic automation system in our existing facility. In the US, we’re complementing our East Coast capacity by expanding our West Coast fulfillment capability in our existing 3PL network.

Over time, we’ll add other direct-to-consumer distribution points to better serve all US geographies. Additionally, we’re adding incremental automation to our existing DTC facilities to increase capacity, reduce lead time and lower operating costs. We will continue to operate our distribution network with the optimal combination of owned and 3PL fulfillment centers. Through 2024, we expect investments in our segmented supply chain to be primarily in our distribution network. Later today, Scott will speak to our $300 million full potential capital investment plan, which includes supply chain. Segmenting our supply chain will allow us to use the vast capabilities and scale we’ve built to unlock growth opportunities while continuing to support our brands. This effort is not about rebuilding or moving our existing facilities. It is about establishing focus flows within our current footprint and building upon our strong foundation. Not only will we continue to enjoy the benefits of our large scale, geographically balanced network, we will be positioned to maximize our growth opportunities. We expect this work will result in better service to our consumers as well as our dot-com and retail partners. We also expect our segment and supply chain to continue to lower operating costs and improve inventory efficiency, enabling us to reach our full potential goals.

Turning to sustainability. As Steve mentioned, one of our core strengths is a deep commitment to sustainability. We’re very proud of the work our team has done and continues to do in this important space. We’ve accomplished a lot, but there’s more work to do. Our customers and our consumers, particularly our younger consumers are increasingly demanding sustainable products. Our heritage in this area gives us an enormous advantage as we embed sustainability in every aspect of our business. Our focus includes providing our associates and everyone that produces our products with a safe and rewarding work environment, increasing efforts that positively impact the planet and supporting our brands with products that are produced with sustainability at their core. Our efforts have resulted in reducing greenhouse gas emissions by 40%, water usage by 30% and energy usage by 26%. Today, almost half of our energy comes from renewable resources. We’re proud of the work our team has done, and we’re even more excited about more excited about what we’ll achieve in the future. We have set bold sustainability goals and developed action plans to achieve them.

Our efforts are in three areas: people, planet and product. In just a moment, you’ll hear more from Kristin Oliver about our focus on people. For Planet, we set new corporate-wide environmental goals based on science-based targets. Our brands will connect directly to consumers through the benefits of our sustainable products. We’re excited about the plans we have in place, and we will continue to lead in this area. Let me leave you with an update on this commitment to sustainability in everything we do.

[Video Presentation]

Operator

Please welcome Kristin Oliver.

Kristin L. OliverChief Human Resources Officer

That video is a revealing window into our culture. The people here are proud to be part of an organization that’s here to do well and to do good. And I can tell you they are energized and united by our growth strategy. Hello, everyone. I’m delighted to be on the HanesBrands’ team, supporting our full potential plan through our associates. My background is in legal and HR, working at leading retail and apparel companies. I love helping businesses build, organize and motivate their teams to achieve growth strategies. I’d like to start by giving you an assessment of the incredibly strong culture we already have and how we’ll continue to make it stronger. I’ll then talk about how we’re building on this foundation, with the new org structure built to accelerate results and deliver profitable growth. Next, I’ll talk about the additions and promotions we’ve made on our team to put the right talent in the right positions to meet our aspirations. And finally, I’ll discuss how we’re motivating them to achieve growth and other important goals such as those around diversity.

Let’s start with my first impressions of the culture of HanesBrands. Since joining in September, I’ve witnessed some amazing things. First is the level of commitment to the company, its brands and its mission. We have a significant number of long-tenured associates who feel deeply connected to HBI. The pride in the company is palpable. Most of all, there’s a willingness to work hard to win that’s truly inspiring. There’s another facet of this company that’s just as impressive, our commitment to good corporate citizenship. You’ve already seen how we’re leading in sustainability. We are also proud of our commitment to ethical labor and human rights practices, not only in our company-owned facilities, but also with each of our suppliers throughout our global supply chain in more than 47 countries. But at HBI, there is also a commitment to making a deeper human impact that I love. On the education front, our company offers career development for our associates at every level, from corporate headquarters to the facility floor. In Latin America, we have a program that enables our facility workers there to complete their high school educations. So far, some 3,000 associates have done so with many continuing on to university, which we are very proud of. We also have our own learning platform. HBI University is a learning portal that offers certification programs as well as leadership and functional training, so people can take control of their own career advancement.

On the health and wellness front, we operate health clinics in our Central America and in many of our US facilities. In addition to primary care, they provide great proactive care, including a very successful program for expected matters. HanesBrands is just as committed to the communities where we operate. Since 2012, we’ve partnered with Wake Forest University to bring medical missions to Latin America and they’ve completed over 1,000 ear, nose and throat surgeries, primarily for children. We also commit volunteer hours to support and upgrade local schools and orphanages. So this is a company with heart. Our people love this aspect of our culture. Our associates are proud of their association with HanesBrands, and they want to be a part of the company’s success.

Now, let’s get to the changes we’re making around people to realize our full potential. Steve mentioned that we built a flatter organization. This structure improves transparency, communication, collaboration, all to accelerate our growth. It also empowers associates closer to the consumer to make more decisions faster. It’s the right structure, the right leadership and the right balance of new and seasoned HBI executives to reach our full potential. Steve, John, Joe Cavaliere and Greg came here with great track records at highly respected companies. Joe Monahan, Jane and Mike are all HBI veterans, who’ve been elevated to new positions where they can apply their deep company knowledge. I’d also like to highlight some people that you haven’t heard from today who’ve taken on key roles.

In our restructuring, we divided the HR and legal functions. We were pleased to recruit Tracy Preston as our new General Counsel focused on legal, ethics and compliance. You’ve heard today how important digital capabilities are to our growth strategy. Recognizing this we’ve elevated our Chief Digital Officer to report directly to the CEO. We’ve internally promoted Cindy Miller to this role. Cindy has 30 years of experience with HanesBrands. With her deep with her deep understanding of our IT architecture, and her impressive skill sets Cindy knows how to deploy technology to achieve our goals. In addition to these structural changes, we are also working to ensure that everyone is clear on our mission and their role within it, and has the tools and incentives to succeed. To this end, we’re aligning our financial rewards with our strategy. This year, our entire management will be measured on their delivery against our financial goals and full potential initiatives. Our long and short-term incentive plans have the same metrics for all participants creating the mindset that we are all in this together. We’ve also separated the metrics between the long and short-term plans. This way our leaders are focused on the objectives that help us win today, as well as the objectives that will prepare us to win tomorrow.

Our evaluation process for 2021 will include a strong focus on diversity, equity and inclusion. It’s not just the right thing to do. It’s important to our growth strategy. Our biggest growth opportunity is with young consumers. The post-millennial generation is our most diverse generation ever as one proof point, look at champion. Champion skews younger than other brands. Thanks to strong favorability with Black and Hispanic consumers. We need to build that favorability across our brand portfolio. The best way to do that is to develop leaders who bring their multicultural perspectives to our team, to achieve this we’re putting our diversity goals into our performance metrics. Over the next five years, we will aim for at least 25% representation of people of color at the senior manager and above levels within our U.S. workforce. We are already at 50% representation of women at this level, which we see as a great strength for our culture and for our company. We are proud of our global diversity today. And we know that this journey will strengthen our business tomorrow.

With all of our objectives, we’re going to be transparent every step of the way so that our associates know where they and the company stands. We have made great progress in my eight months with HanesBrands and empowering our people to succeed by giving them the tools they need to deliver our full potential plan, but we are never done. We will continue to infuse new capabilities into our organization through new hires, internal skill-building and elevating current high-performing talent into roles of greater responsibility. I joined this company to be a part of this change. I am energized by the opportunity to participate in the evolution of this strong and well-respected organization. I have confidence in this leadership team and the vision we’ve created. I’m excited by the opportunities for all HBI associates around the world as we reach our full potential.

Now, it’s my pleasure to introduce our next presenter, the Chief Accounting Officer for HanesBrands, Scott Lewis.

M. Scott LewisChief Accounting Officer and Controller

Thanks Kristin. As Steve mentioned at the start of the day, our full potential plan is a roadmap for repositioning HanesBrands to deliver more consistent revenue grows and higher levels of profitability over the next several years. You’ve heard a lot today about this plan, the pillars that’s built upon and the strategic initiatives we’re taking to pursue our goals. I’m here to tie it all together and to show you how it translates into our financial targets for revenue growth, margin expansion, and earnings growth for 2024. Also address our operating cash flow, going forward and provide an update on our capital allocation strategy. As a reminder, all comparisons are on a continuing operations basis. Prior period adjustments that reflect our European Innerwear at business as discontinued operations can be found on our investor relations website or in our SEC filings.

Here’s the big picture. We believe revenue will grow at a compound annual rate of 6% on a constant currency basis between 2021 and 2024. Operating margins will expand to approximately 14.3% by 2024. This represents a 100 basis point improvement over the midpoint of our 2021 guidance. And we expect earnings per share to grow at 9% CAGR over the three years ending in 2024. This will be achieved even with an incremental $160 million of growth related investments during this three year period. In this same period, we believe we will generate on average, roughly $700 million per year in operating cash flow.

Now, let’s provide a broader framework starting with our results over the past several years. For the past two years, we’ve delivered solid revenue performance, which is a testament to the adaptability of our business model and our associates. Certain areas of the business is our special mention. This includes our International Innerwear business, which delivers exceptional results led by Australia business and global champions phenomenal growth. Over the past three years, the champion brand has delivered more than $600 million of revenue growth. That’s a CAGR of 18%, impressive in the best of times, but even more remarkable in the face of COVID shutdown, which closed stores and college campuses through most of 2020. Also, as we have previously reported, our 2020 revenue base included a short-term benefit from PPE, which helped offset the pandemic driven headwinds.

US Innerwear business is a different story. As Joe discussed, this business has declined approximately 4% per year for the past several years, which is a result of not adapting with our consumer, investing behind our innerwear brands or building digital capability. The good news going forward, our full potential plan provides the remedies to put this business on a growth path, including much needed investment in brand building digital capabilities. The good news. Going forward, our full potential plan provides our remedies to put this business on a growth path, including much needed investment in brand building, digital capabilities, consumer-led product innovation and increased speed to market.

Now, let’s move forward a step and discuss this year’s performance. This morning, we reported our first quarter results and also issued our second quarter and full year 2021 guidance. Touching briefly on our first quarter results, we exceeded the high end of our expectations across all of our key metrics. We saw continued strong revenue amount across each of our segments driven by a combination of underlying point-of-sale strength, benefits from stimulus and retailer inventory restocking, as well as the anniversary of the initial COVID shutdown. As compared to last year and only continue operations basis revenue increased 25%, operating profit increased 190% and earnings per share increased 457%.

Looking at our segments. US Innerwear sales increased 35%, US Activewear sales grew 26% and International segment sales increased 18% over prior year or 8% in constant currency. As the next step, we moved our European Innerwear business to discontinue operations during the quarter. This resulted in a non-cash charge of $390 million to reflect an intangible asset impairment and net asset write-down. With European Innerwear now reflected in discontinued operations, our guidance including year-over-year comparisons is based on continuing operations.

Turning to our outlook for the second quarter and full year. 2021 is proven to be another abnormal year with both some unusual negative, but also positive factors at work. And we have reflected this in our guidance. For example, COVID headwinds are still impacting the Western European and Japanese markets. We’re also experiencing acute short-term cost pressures and distribution due to higher shipping costs globally. On the plus side, as I mentioned, we experienced a short-term incremental benefit in the form of stimulus and continued to retail or inventory restocking in the first quarter, particularly in our US Innerwear business. We expect this benefit to be short-lived, since it’s not indicative of long-term category growth rates. While we do expect a moderate level of benefit in the second quarter, we have not assumed any additional stimulus or inventory restocking benefits in our second half outlook.

For the second quarter, at the midpoint of our guidance range, we expect sales to grow 2% over prior year. This speaks to the underlying momentum of our business as we are positioned to comp the $640 million of PPE sales in the second quarter of 2020. Second quarter margins, however, are expected to decline to approximately 13% due to higher levels of brand investment and lapping last year’s benefit from PPE sales.

Turning to the full year. At the midpoint of our 2021 revenue guidance implies 2% revenue growth. This comes on top of 2% growth in 2020, which you recall included approximately $820 million of PPE sales. As indicated by our second quarter outlook, we remain confident that the improvements in our core apparel business can more than offset last year’s PPE sales. With our focus on improving the health of our brands, which Greg mentioned, and supporting the launch of our latest innovation, Total Support Pouch, which Joe spoke about, we are planning to invest roughly an incremental $50 million in brand marketing in 2021. Despite this increased investment, our full year 2021 guidance at the midpoint implies an operating margin of 13.3%, which represents a 60 basis points increase over prior year. So again, 2021 is far from a normal year. That said, we feel very good about our outlook. We have solid underlying momentum in our business, and we are well positioned to take advantage of market disruptions and drive additional share gains. Looking at 2021 through another lens, despite incremental brand investment and expenses related to the still lingering effects of COVID, we expect to end this year above 2019 revenue levels and at similar levels of profitability.

Turning now to our full potential plan. Our underlying goal is to generate both higher and more consistent levels of revenue growth while also increasing overall profitability. Using the midpoint of our 2021 guidance as the base year, our full potential plan calls for revenue to increase from $6.25 billion to approximately $7.4 billion. This represents a 6% CAGR on a constant currency basis through 2024. This represents a $1.15 billion of incremental revenue over those three years. Now let’s look deeper into the components of this revenue projection. In innerwear globally, we expect to generate approximately $200 million of revenue growth. This represents a CAGR of 2%, which is above the global category growth rate. As Joe highlighted, we are investing to reignite growth in the US as we strive to double our share in the younger consumer market while also defending our core.

In fact, increased brand investments have already begun in our US Innerwear business. We are also continuing to fuel the growth in our Australia business through ongoing investment in our brands and our e-comm infrastructure. In Global Activewear, we expect to deliver approximately $1 billion of revenue growth over the next three years, which represents an 11% CAGR. Essentially all of this growth will be driven by Champion. As you heard from Jon, we have refined our global champion strategy. This, combined with increased brand investment, focused product design, geographic expansion and improvement in our online capabilities is expected to grow Champion to $3 billion in 2024. We’re also projecting to expand our operating margins. Our full potential plans assumes a 14.3% operating margin in 2024, which is 100 basis points above the midpoint of our 2021 guidance.

Our outlook over the three-year period ending 2024 includes approximately $160 million of incremental investments to unlock our revenue growth opportunities. This includes $40 million of depreciation related to growth driving capital investments, $40 million for technology and people and $90 million for brand marketing. And just to be clear, that incremental brand spending is on top of the $50 million of incremental marketing investment we’re making in 2021. To put this into context, by 2024, we will essentially double our marketing investment to approximately 4% of sales from the spending levels in 2020. And as Greg highlighted, not only are we raising the level of investment to increase our brand awareness and drive growth, we’re also investing more efficiently by leveraging digital marketing and strengthening our e-comm capabilities and data analytics.

After a thorough review of our cost structure, we now believe we will fully offset the $160 million of investments through targeted cost savings initiatives. While the savings and investments may not match dollar for dollar in every period, we are confident we will fully offset these investments over the next three years. We’re applying intensified focus on cost-cutting opportunities that help drive efficiencies and accelerate revenue growth. These cost-saving measures fall into three broad categories. First, sustainability initiatives. By reducing packaging weight and lowering energy and water consumption, we can cut cost. For example, by transitioning the packaging of our Playtex bras to recycled polyethylene bag, we were able to reduce package weight by 55%, which generates annual savings of more than $0.5 million. In addition, we’re avoiding over 100 tons of vinyl going into landfills. Second, technology. Over the next several years, we’re substantially reducing our core tech platforms. This will enable us to rationalize our applications, improve integration and reduce maintenance costs through standardization. And third, everyday cost management. A good example of this is driving efficiencies and lowering costs through vendor consolidation in areas such as media and raw materials. We’ll also continue to hunt for and cut unnecessary or redundant costs. With our ability to fully offset our investments with identified cost savings initiatives, the 100 basis point margin improvement over the course of our full potential plan is driven by the combination of business mix and fixed cost leverage from higher sales.

Looking to earnings per share. We expect EPS to grow at a 9% CAGR over the three years ending in 2024. This reflects reaching the midpoint of our targeted leverage range in 2023 and a tax rate of 18%. With respect to our business model going forward, we expect to generate, on average, roughly $700 million of operating cash flow per year. By way of comparison, our average annual operating cash flow for the past three years was $630 million. Moreover, from 2018 through 2020, we realized approximately $300 million of onetime cash flow benefits from things such as extending payment terms and entering vendor financing programs for certain customer receivables. These onetime benefits accounted for approximately $100 million of the $630 million average.

Next, I’d like to shift to our capital allocation strategy. Our driving focus is investing in the business. Over the past five years, we’ve averaged approximately $85 million a year in capital investment. As we look through the lens of our full potential plan, we expect our capex to increase as we invest in segmenting our supply chain and improving our IT capabilities to help unlock our growth. For 2021, our guidance assumes approximately $140 million of capex, which includes approximately $50 million related to full potential. Looking at the three years through 2024, we expect to invest an incremental $300 million in capex related to our full potential plan. The vast majority of which will continue to be spent on supply chain and technology initiatives. Said differently, using a straight average, our annual total capex spend would be approximately $185 million a years from 2022 through 2024.

Realistically, our spend is expected to be more weighted in the first two years as this will enable better growth and cost-saving opportunities in 2024 and beyond. After investment in the business, our second priority for cash is to service our dividend. We remain committed to our dividend as evidenced by our 32 consecutive dividend payments. We are comfortable with our stated long-term payout ratio of 25% to 30%, as this compares well to our peers and allows us to comfortably invest in future growth opportunities. While we are currently above the high end of our payout ratio, we are committed to maintaining absolute level of the dividend. As we grow into our payout range, over time, we would expect the dividend to grow commensurate with earnings growth.

Based on our business model, we continue to believe that our optimal targeted leverage range is two to three times on a net debt-to-EBITDA basis. When we are above this range, we will use excess free cash flow to reduce leverage. In the first quarter, we paid down $300 million of debt, bringing our leverage to 3.1 times, which is slightly above the high end of our targeted range. And as a reminder, our current leverage reflects the prudent step we took last May to add incremental debt, which provided us a significant capital cushion to ensure our ability to manage through the pandemic. Based on our forecast, we expect to be within our target leverage range in 2022. Once we are back within our range, we will use excess free cash flow to either continue to pay down debt or repurchase stock. Lastly, as it relates to our capital allocation strategy, I’d like to touch on M&A and reinforce Steve’s past comments. In the past, we leveraged our supply chain to use M&A as a vehicle to diversify our business geographically. In fact, some of our key contributors to our full potential plan are businesses that we acquired, including Pacific Brands, Bras N Things and Champion Europe.

The fourth pillar of full potential is focusing our portfolio. As you heard today, our top priority is to reinvest in our business to drive higher levels of organic revenue and profit growth. Longer term, we will think more holistically about M&A. We’ll consider opportunities beyond those that simply provide product, geography or channel opportunities. We’ll consider purchasing capabilities that could properly accelerate long-term revenue growth. In the near term, we will focus on optimizing our current portfolio. Going forward, we’ll continue to evaluate additional opportunities that allow us to further focus our business. Putting all this together, we’re positioned to unlock $1.15 billion of incremental revenue growth while increasing our profitability. All of this translates into creating significant shareholder value for the next several years and beyond. As you heard throughout all the presentations today, we believe we have the right plans, the right leaders and proven in-house capabilities that position us to deliver on our short- and long-term targets.

Now to wrap up today’s presentations, let’s hear once more from our CEO. Here’s Steve.

[Video Presentation]

Operator

Please welcome back, Steve Bratspies.

Stephen B. BratspiesChief Executive Officer

Thank you, Scott, and a big thanks to all of you who’ve joined us today as we’ve explored our strategy to accelerate growth. As I said at the beginning, it’s an exciting time to be part of HanesBrands. We have significant and sustainable competitive advantages, including powerful and iconic brands and loyal multi-generational consumer base, leading share positions in innerwear, a rapidly growing Activewear brand with significant global growth potential, distribution across large and diverse channels, a world-class supply chain, solid financial footing, a deep commitment to sustainability and ethical practices and an experience and revitalized leadership team.

Building off these advantages, we see substantial opportunity to accelerate growth. Specifically, we believe our global Innerwear business can grow 2% a year through 2024, and that Champion can grow 14% per year and reach $3 billion by 2024. To get there, we’re simplifying the business, everything from our processes to our portfolio. Putting the consumer at the center of everything we do, delivering the products that consumers want through global design and innovation, investing in our brands, e-commerce and our people, segmenting our supply chain, enhancing our data analytics and ensuring our products are available when, where and how consumers want to shop. This is our full potential plan, our road map to delivering approximately $1.2 billion of incremental revenue and a 14-plus percent operating margin by 2024. I am confident that we have the passion, the team and the capabilities to deliver the full potential of HanesBrands. Now it’s time to hear from you. Let’s get rolling with some of your questions.

Thanks again for joining us today. We’re obviously very excited about our full potential plan. And we hope you share that excitement after hearing and seeing it brought to life by members of the leadership team who are already starting to make it a reality. Before we jump to your questions, I’d like to take just a moment to introduce three additional members of our leadership team, who you didn’t meet during the presentations. Tracy Preston is our new General Counsel, Corporate Secretary and Chief Compliance Officer. Tracy has been with us for just a few weeks and brings more than 20 years of experience in the global apparel and retail industries. Cindy Miller has been with the company for more than 30 years and was recently promoted to Chief Digital Officer. Cindy and her team are building the new data capabilities and digital technology platforms that will enable all of our teams to pursue and realize HanesBrands’ full potential.

And after an extensive global search, I’m very pleased to introduce our new Chief Financial Officer, Michael Dastugue, who joined us just last week. Michael and I worked closely together earlier in our careers, and from that experience, I have great confidence in his leadership and his ability to collaboratively work with operating teams to drive significant change initiatives. Michael is a great addition to our team, and I look forward to partnering with him. I also want to thank Scott Lewis, who stepped up to serve as our interim CFO. We wouldn’t be where we are without Scott’s dedication and leadership. He’s an outstanding leader and deserves a great deal of credit for our recent momentum. We all appreciate him very much. Thank you, Scott.

So the whole team is here and ready to answer your questions. So let’s get started. TC, why don’t you give us the first question?

Questions and Answers:

T.C. RobillardChief Investor Relations Officer

Sure. Thanks Steve. Our first question comes from Omar Saad from Evercore ISI. Omar, go ahead with your question.

Omar SaadEvercore ISI — Analyst

Thanks, T.C. Thanks everyone for such an informative presentation this morning. Much appreciated. Steve, I really want to — would like to get your perspective. There’s obviously a lot of new information in here, but love to get your perspective on some of the key changes that you’ve made now that you’ve had a chance to evaluate the business and roll out this plan. Especially when it comes to org structure, did you make any changes around reporting responsibilities in the org structure? Cultural mindset, it sounds like there’s been some things you guys have been focused on. Maybe a little bit more on how the management incentive plan has evolved. And I’d also love to hear, given your vertical supply chain, one of the biggest apparel supply chains in the world, how you’re thinking about cost inflation and maybe even pricing power in the event that we do see inflation over time given the recovery? Thank you very much.

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Omar, and thanks for spending the time with us today. Let me start on the people side of things, and I’ll ask Kristin Oliver, our Chief Human Resources Officer, to jump in, and then I’ll handle inflation. So I am really excited about the team that we’ve built here at HBI in the last couple of months. It’s a great combination of people who have been here a long time, like Cindy and Mike and Scott, who are bringing incredible knowledge and depth of understanding of this business, and then some new great people who have great experience. And the combination has been really powerful so far. The dynamics of the team is really good, and it’s making a big difference. In terms of some of the reporting things, we flattened the organization a little bit and gotten people more focused. So as we mentioned earlier, have elevated Cindy to report to me to make sure that technology has a seat at the table. Mike’s role is now incredibly focused on supply chain. He does such a good job on that, and we’re prioritizing supply chain. So he’s gotten incredibly focused on that. So in terms of work structure, I would say we flattened the organization a bit and we’ve elevated some key functions to report into the C-suite that are really making a difference for us. We’ve also done a lot of work on culture, as you mentioned, and on some incentive structure. So I’m going to kick it to Kristin to answer a little bit more about that.

Kristin L. OliverChief Human Resources Officer

Thank you, Steve. So first of all, let me say that we have inherited an incredible culture at HBI. So the people that are here feel so strongly about the culture and the company. They support the brands, they love each other, they love to work together, and they really love the company and what we do. We are collaborative. We are innovative. We have a great basis of ethics in the way that we do business around the world is really unparalleled. So we’re very proud of that. But what we found as we’ve come in here is that we’d like to enhance some of these things, first of all, by empowering change. And the people that work here are very supportive of change, and that’s not always the case when you come into a well-established company, but they’re hungry for things that are changing. We have alignment at the top that’s different than we’ve had in the past. That’s really empowering the next level down to act on the things that they already know about the company. We want to keep the things that are great about HBI. And we’d like to add a few things in. We’d like to have more of a results-oriented culture. That’s one thing we’re focusing on. Innovation and simplification are also really important and speed to market. So we think we have a great foundation to build on. We’re already making some changes to things like the incentive plan. So one of the things that we’ve already done is made sure that we have everybody on the same short- and long-term incentive plans, the same metrics so that they’re all focused on the same things. And the metrics on the short-term plan and the long-term plan are now different, which has not been the case in the past. And we think that these things, together with the way we’re going to be evaluating people on their evaluation against the full potential initiative is really going to drive the kind of alignment and results that we need.

Stephen B. BratspiesChief Executive Officer

That’s great. Thanks, Kristin. I would just add two things to that. One is we’ve also created the kind of a global innerwear structure. So Joe Cavaliere now runs that globally. We didn’t have that before, and I think that’s going to help us tremendously from learning about the consumer, product innovation, how we go to market, thinking about innerwear as a category in the globe. And the other thing I’d just add about incentives, I’ve always my career, I always wanted to have the same incentives as my boss, right? That was always my intent. I always felt like I was in a good position if we’re doing that, and that’s how we’ve aligned the organization right now. So thanks. In terms of inflation, the other question you asked, look, we’re certainly facing the same headwinds that everyone else is facing short-term right now, and there’s news every day about inflation and cost. We’re definitely experiencing those in the short-term and working hard to make sure that we offset those. How it will be in the long term? We built into our three-year plan some inflation that we think we can primarily offset through all the cost work that we’re doing. So we definitely have the short-term headwinds in transportation. Cotton is starting to go up, but we have a kind of — we’re bought out on cotton. So we’re okay in the short term. We’re seeing labor around the world. So we definitely have pressures. But we feel pretty good about our ability to offset. And the way Mike runs our supply chain, the visibility that we have is probably earlier than a lot of people as we go forward. The other part you asked is about pricing power. So I truly believe that great brands have pricing power. And I think our brands are well positioned to take price if necessary. It’s not necessarily what we want to do, and we’ll only take price if we need to. But I think the power of the brands that we have and the investments that we’re making behind the brands, the importance of our brands at retail gives us power to take pricing if necessary.

T.C. RobillardChief Investor Relations Officer

Our next question is coming from Susan Anderson from B. Riley FBR. Susan, go ahead with your question.

Susan AndersonB. Riley FBR — Analyst

Great. And thanks for all the details today also on the plan to get to your full potential. It’s all been very helpful. You talked about the Champion business getting to 25% penetration longer-term online through your own digital channel. Is this, I guess — maybe if you can also talk about the other brands and are you focused on growing those brands through your own websites or mainly through your wholesale partners? Then also what investments do you think make in your e-commerce business to continue to grow those sites? And then if you could just touch on the EBIT margin goal of 14.3% a little bit and the puts and takes of getting there, and if anything’s changed structurally from historical levels, where I think you’re in that ballpark or even a little bit higher? Thanks.

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Susan. Let me start on the e-com, and I’ll get Greg Hall to jump in a little bit. And Scott, you can talk about the EBIT margin. Look, e-com is growing. There’s no doubt about it. We see the same opportunity that everybody does. COVID has certainly accelerated it. And we are definitely making a holistic investment and focus into e-com as a business. But we’re going to do it in a very targeted way and a very thoughtful way. In Champion, we firmly believe that we’re going to establish champion.com to be a leading site. The ability to show all of our assortment around the globe in one place, I think, is really critical for us. So that’s going to be a driving force in the business overall. Our other businesses or other brands may play a little bit of a different role. They may play more of a marketing role and not probably the primary revenue destination for the brand, but more of a marketing role. Either way, regardless of how we build these brands out, we need to build the digital capability and a consumer mindset inside of our digital operating business. And Greg, I know you’ve been doing a lot of work on that in your time here. Why don’t you talk a little bit about what we’re trying to do and how we’re going to take that forward.

Greg L. HallChief Consumer Officer

Yes. Thanks, Steven. Susan, thank you for the question. It’s really good one. So let’s go a little deeper on that. If you think about every site having a unique role. And really, as we assign that role, we think about it is, are you adding an accretive brand experience? Are you building the brand? Are you providing incremental access to the product? Are you allowing us to forge a deeper relationship with the consumer? So as we’re evaluating every site, and honestly, every store around the globe, we want to make sure that there’s accretive brand and accretive assortment experiences as we invest. And so our innerwear sites might be more of a brand-building experience as we partner with some of our key online retail partners. But if you think about what we’re doing down in Australia, Bras N Things, Bonds, direct-to-consumer is really the predominant way they go to market. So it’s not about just a great store, it’s about a great omni experience where the site and the store are unified. So that really showcases our capabilities as a global retailer and then sharing those capabilities around. So making — we’re doubling our investment in data and technology to build those capabilities to truly become what I hope someday is world-class in our online e-com digital experience.

Stephen B. BratspiesChief Executive Officer

Yes. No, I think that’s the right objective to be world-class in it, but it might be different by brand…

Greg L. HallChief Consumer Officer

That’s right.

Stephen B. BratspiesChief Executive Officer

Depending upon the individual brand. Depending upon the market the brand is operating in, we might do it differently.

Greg L. HallChief Consumer Officer

That’s exactly right. Yes.

M. Scott LewisChief Accounting Officer and Controller

Sure. Yes. Appreciate your question on our long-term margins. And we’ve done a lot of work around our modeling as far as what we see as far as the margin growth potential. And we see a really strong glide path to get to the 14.3%. A good majority of that margin expansion is going to be in gross profit. As we see cost savings flow through that we talked about in our presentation, the vast majority of our cost savings are going to be in cost of sales, as you would expect, a larger base of our overall cost structures and cost of sales. So a portion of the gross margin improvement is going to be in the cost savings. We’re also looking to have a better mix going forward. So we talked about our sales growth, a larger concentration in Innerwear and in Champion, the higher-margin businesses like that is going to help drive gross margin expansion as well. As you think about the rest of the P&L and going down the SG&A, it’s going to be about fixed cost leverage, right? With that sales growth, we’re going to be able to lever that from a cost standpoint. So that’s going to improve our margins as well. So we’re going to be investing in our business — we talked about doubling our marketing. And so we’re already reinvesting in the business. In 2021, we’re going to continue that by doubling our marketing. And so that’s going to be really a growth driver to unlock growth and accelerate growth. So we’re really excited about that.

Stephen B. BratspiesChief Executive Officer

Thank you, Susan.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Paul Trussell at Deutsche Bank. Paul, go ahead with your question.

Paul TrussellDeutsche Bank — Analyst

Thank you and good morning. Just to dig deeper on Susan’s margin question. How should we think about the timing and cadence of the investments you are making versus the cadence of the cost savings flowing to the bottom line over the next three years? And separately, Steve and Joe, you’ve outlined the challenges the company has historically had with the Innerwear segment, and certainly understand the opportunity with the younger consumer and that you have online. But maybe give us some additional confidence on your ability to maintain, if not increase, shelf space with innerwear at key retail partners. How you’re going to elevate that mind share and wallet share with the consumer and just overall grow units?

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Paul. Let me talk about margin, and you can be behind me if I miss anything. And then Joe, I’ll kick it over to you to talk a little bit about your plans. So Paul, in terms of the margin, you think about everything that Scott said, we believe we have a glide path to get there. This is not a hockey-stick plan. So we’re going to start on the positive side of the margin accretion is going to start happening right away from mix and those things. Cost savings is happening right now. We’re getting some good cost savings, and we think that’s going to build over time. And the investment is going to be basically kind of a smooth glide path over time as well. So I want you to think about this as a step-by-step progression. It might not be every quarter over the next three years. There may be a little bump in a quarter or two. But we have not built this hockey-stick. With a very steady consistent glide path that we’re going to get to a margin over time.

M. Scott LewisChief Accounting Officer and Controller

Totally agree. We have a good line of sight of how we’re going to get there. We have options to better get there. Again, the cost savings is going to offset the investment. So really excited about that. So I think you hit all the key points, Steve.

Stephen B. BratspiesChief Executive Officer

And before I kick it to Joe, I would just tell you — Paul, I think it’s a great question. And I would tell you that I think we have significant upside in this business. I think this business, quite frankly, has underperformed for the value of the brands that we have, the capabilities that we have. And that’s one of the reasons why we created this global structure in innerwear and brought Joe in to run it because we have opportunity to leverage all the experiences we have around the globe, the design capabilities. We have opportunities to do a better job taking care of the supply — working off the supply chain, especially with the changes that Mike is making. So I think it’s a huge opportunity for us. Work to be done, as you’ve called out. So we’re going to try to give you some confidence. So Joe?

Joseph MonahanSenior Vice President, Finance

Good morning and thank you, Paul, for the question. We have great confidence in our Innerwear business, and we believe we can continue to grow it as we progress this year and turn around a business that historically has declined, as we talked earlier in the presentation. What we’re shooting for is a 500-point turnaround — basis point turnaround, and we’re going to do that by doing a few things. First and foremost, we need to revitalize our core. It’s a big, stable business. We’ve got core consumers we can’t abandon and we need to bring them along on the journey. Secondly, we need to grow our shares significantly with younger consumers. Many of our brands aren’t as relevant as they were in years past. And part of the — what we’re going to invest against in terms of marketing and building our brands and investing in e-commerce is to make those brands more relevant with young consumers. In fact, if you look across the opportunities, there’s over a $1 billion of fair share market opportunity for us on innerwear. And we’ve only built in a small percent of that into the full potential plan. So we believe once we get the flywheel moving, we’re going to unlock a lot more opportunities for growth. What gives us confidence? We have — we’ve done this before. We know how to get younger in our portfolio and drive everyday great execution. And now since we’re organized globally, we can draw the best practices from around the globe and move them to market faster than we’ve ever done before. And so we’re really excited about this opportunity. We’ve got a lot of confidence in our Innerwear business.

Stephen B. BratspiesChief Executive Officer

Yes. Let me just add one thing, and Paul maybe this is underlying your question just a little bit, and that’s about private label. And one of my real beliefs about private label is, I think if we do our jobs, we’ll compete just fine against private label. And what do you mean by that? We need to grow our brands. We need to invest in our brands. What a retailer looks at, whether it’s brick-and-mortar or it’s online, what they’re looking to us to do is to drive traffic to their sites, to their stores. So we need to do that by having great brands. We need to do that through great product innovation. We need to manage assortments really well. We need to be priced right at the shelf. Those are all the things that great brand companies do and if we do that, I think we will continue to gain shelf space. And when you match that up with the work that we’re doing in supply chain, I think we have the opportunity to serve retailers a lot better. Our recent success, some of it is tied directly to, we’ve done a better job serving our retail partners than some of the competition has. And that has allowed us to grow space, both temporarily and, Joe, in the long run, we have opportunities to do that, too. So we have some long-term space opportunities. So I think private label is one of the key things we need to make sure that we continue to address. And if we do that and we do our jobs right, I think we’ll perform just fine against everybody.

T.C. RobillardChief Investor Relations Officer

Our next question is from Michael Binetti at Credit Suisse. Michael, go ahead with your question.

Michael BinettiCredit Suisse — Analyst

Hey, guys. Good morning. Thanks for all the details today. I’d like to ask you just a few questions on the guidance here. A few things that jump out of me and to see what your reaction is and a bit of it’s on the near-term here and then I have a follow-up on the longer term. But your two-year sales growth in the first quarter was 11%. As we look back to 2019, a more comparable period. It looks like you’re baking in that decelerating to plus 4% in the rest of year period. I’m curious how much of that is conservatism versus something you’re seeing in the order book or the momentum today? Same on margins in 13.9% in the first quarter. That’s usually your lowest margin quarter. I’m wondering if some of the changes you made may have change in cadence, how do we get this 13% in 2Q. And then in the second half, EBIT margins look like they’re about 200 basis points below 2019 excluding Europe. I think you just answered, Paul that the cadence of investments and savings is about the same. So I’m trying to think where it might be conservative there versus something you’re seeing in the business that you could correct me on. And then as I look at the rough math on $2 of earnings in 2024, using your 9% CAGR. I think you’re also getting to about $1.5 billion of free cash flow. I’m curious what you baked into that $2 for interest expense so we can think about the debt levels and maybe have you included any share repurchases?

M. Scott LewisChief Accounting Officer and Controller

Yes. So from the margin perspective, as we think about this year, so like you mentioned, the first quarter, 13.9% margin is really strong. Very pleased with that. We’re seeing great momentum. And a large part of that, especially the year-over-year as we’re lapping the COVID impact initial shutdown. And so we also had some short-term benefits that we saw in the first quarter with the stimulus and the restocking by retailers. So we’re seeing that play out in the first quarter. As we look to the second quarter and into the rest of the year and then focusing on the second quarter for a moment, we’re going to see that short-term benefit continue into the second quarter but it’s going to be significantly less than we saw in the first quarter. So you’re going to see that play out over the first half. Also, I think a key point, as we’ve talked about this already, is investing, right, reinvesting into the business, right? And part of that is brands, right? And so we’ve already started reinvesting and having a higher level of brand marketing in the first quarter. However, that’s accelerating through 2021. We mentioned in our presentation, we’re spending $50 million more in 2021 for brand marketing than we did in 2020 and accelerating through the course of the year. And so as an example, in the second quarter, as a percentage of sales, our brand marketing to be 30 basis points higher than what we saw in the first quarter, and we can continue to see that. Again, reinvesting in the business, you’re going to hear us say that often. Critical priority for us is reinvesting in the business. And so that’s really critical as we move forward.

Stephen B. BratspiesChief Executive Officer

I think all we talk about is interest rate in the long term for earnings. The other thing I would say in terms of guidance, also — if you think about backing out PPE for the second quarter, the second quarter is going to grow almost 70% when you back out PPE. For the full year, it will be about 18%. So we feel good about our topline and the guidance that we give. Margin is going to be up 60 basis points over last year. A little under 2019, as you said. But we feel really good when you think about the investments that we’re making, when you think about the COVID costs we’re overlapping. We also have not put any kind of COVID benefits on the revenue side into the back half of the business forecast. So we feel pretty good about the momentum in the business and the guidance that we’re giving. I think, versus 2019, our full year ex-PPE will be up 4% its pretty good growth for us overtime. We started the year we are trying to plan, everyone was saying, how do we get back to 2019 levels. So we feel pretty good about we’re going to be 4% over 2019 and almost back to the margin levels with a lot of investment and additional COVID costs. So we’re feeling pretty good about the guidance that we’ve given and the continued momentum of the business as we jump into the full year plan.

M. Scott LewisChief Accounting Officer and Controller

As we think about long-term with debt and interest and I kind hit on a few points there. So let me let me step back and approach it this way, as I think about it. I’ll start with cash flow, right? You mentioned the free cash flow. We talked about [Technical Issues] technology to accelerate and unlock growth. We’re going to have and we’re going to continue to support the dividend, right? And so we’re going to spend around $600 million over the three years on that. And so that leaves about $1 billion of excess free cash flow over that three-year period of time. And so again, we’re going to be very disciplined on how we use that and be very return-centric on how and how we focus on that. Now our model doesn’t factor in any share repurchases because right now, we ended the first quarter at a 3.1 times EBITDA leverage, right? And so by the time we get to 2022, we expect to be within our target range, which is 2 times to 3 times. And over the course of the three years being able to focus that free cash flow, continue to focus on lowering our leverage, we’ll be comfortable within our 2 times to 3 times range. In fact, close to the bottom end of that range. So we’re excited about that. And so that’s, of course, going to drive lower interest costs as we pay down debt. We probably paid down $300 million in the first quarter. So again, you can see our commitment on our leverage and strength in our balance sheet.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Jay Sole from UBS. Jay, go ahead with your question.

Jay SoleUBS — Analyst

Thank you so much. And thank you for all the great information today. Steve, it’s really refreshing to hear the company talking about reinvesting in its brands and also reinvesting in products. Can you just talk about where you see marketing, but also R&D expenses as a percent of sales, and we get up to 2024. And do you see that as sort of like an endpoint? Or would you continue to like to see that percentage rise? Even into the out years? And then secondly, Scott, if we could just talk a little bit more about the cash flow guidance? Can you elaborate a little bit on what you expect from working capital and how that might impact the operating cash flow? And then you mentioned that it’s an average over three years. But when you think about the 2024, do you see the operating cash flow a little bit higher than the average and you see capex a little bit lower? And if you can quantify that, that would be helpful. Thank you.

Stephen B. BratspiesChief Executive Officer

Sure. Thanks. Let me talk about marketing first, and Greg, I’ll let you talk about a little as well. Yes, we’ve under invested in brands, this business; I think there’s no doubt about that. And I think we have a huge opportunity going forward. The good news is, these are iconic brands. They’re, the Hanes brand, the Champion brand, Maidenform, the Bonds brand in Australia, like these are what I call market, three type brands that you want to work on so much opportunity. So, we’ve talked about doubling the spend up to 4% 2024. I’m going let Greg talk a little bit how he’s going to do that and where he’s going to spend on does it end there, Jay? I don’t know is the answer right now wants to see where we are. 4% is a pretty good number, we can certainly people spending more, it’ll depend upon where we are at the time what the market looks like, and how much opportunity we see. But I kind of put 4% as kind of a baseline that we need to get at to be able to compete, to be able to drive the business the way we want to do it. And, R&D the same way we need to continue to spend on both R&D and product development, because a lot of the spending that we have in R&D is on the product, fabric technology and the chemistry behind all that is just product development and creating new products to launch over time. So I would expect to see both of those increase as we go forward and we’ll manage the costs of that. But I wanted to talk a little bit about how we’re going to spend which are going to focus on, where you see the opportunities.

Greg L. HallChief Consumer Officer

Thanks. Thanks, Steven. Thanks, Jay. We do have a stable of strong brands here. And Steve’s right, our focus is going to be on our mega brands. So expect Hanes, Champion and Bonds to receive the lion’s share of that investment. But each of those brands are in different markets and different categories. And so will be very surgical in how we invest in them. So the media message will definitely be tailored to those. But there will be a few common elements to each and everything that we do, you will see a significant investment in digital marketing, we talked about that. But you’ll also see the significant investment in data and technology. And it’s not an accident that I keep talking about those two things because when you’re better at data and technology, you’re actually better at your brand investment. So our investment is going to be larger, that’s true, Steve talked about that. But it’s going to be smarter than it ever has been because of our knowledge of our consumer and our investment back in them. So when the consumer is at the center, we know that things are changing, her life is changing, the way she shops is changing, the technology around her is changing. So I don’t know where this is going to go. And I don’t know what we’ll be doing in the future. But I can guarantee you it will be consumer centric. It’ll be data driven. And we will make smarter investments that will yield greater returns. And so I’m actually excited about the journey we’re on here, investing in these brands, Steve.

Stephen B. BratspiesChief Executive Officer

No, I think you’re right, and then the other opportunity is just continuing to position the segment and perhaps right. Too many of our brands, if you do brand portfolio mapping right now that they’re close together, we have the opportunity to push them apart, give them distinct positioning, particularly in our intimates business. Joe, I think there’s a real opportunity for us to do that over time.

M. Scott LewisChief Accounting Officer and Controller

To answer on your question on the cash flow, I do know we have a good history, strong cash flow generation. And we expect that to continue as we go forward and the $700 million, again, as an average and both, as Steve mentioned, we talked about, we’re expecting the margin to expand over the three years and we had a good glide path and line of sights, so we see a good progression of our margin improvement over those three years. And so as you think about the cash flow, you would expect the same, we are going to even improve your cash flow, and then average is going to be as we look at the next like the third year, we’re going to be on the upper end, as far as what we could see as far as cash flow generation. As you think about capital expenses, moving down to free cash flow, what’s going to be really critical to us is not just investing back into the business, for capital expenses, we’re going to see them all the way to the front end, the first two years on your average $600 million total. You’ll see that more front end loaded as far as capital expenditures, again, to accelerate growth and also drive efficiencies and cost savings as well as you move forward looking more again towards the long-term growth not just for the three years.

T.C. RobillardChief Investor Relations Officer

Our next question comes from John Kernan at Cowen. John, go ahead with your question.

John KernanCowen — Analyst

Yes, excellent. Thanks for taking my question. And thanks for the detailed presentation today. I just wanted to go to back to the operating margin question. As you think about the 14%. How do we think about the segment level profitability between innerwear, US Activewear and international. I know international has been in an area of margin expansion, your pre-COVID, little bit more variance in innerwear and Activewear, just curious how we should think about this segment level margins, as it relates to historical performance, and where and how you’re going to get to 14%.

M. Scott LewisChief Accounting Officer and Controller

Yes, appreciate your question on the margins. And so, again, overall margin, we see a good a good line of thought and good glide path to the overall improvement 100 basis points. Now we’re not providing individual segment and guidance within our model, we don’t get that level of detail. But again, as you think and step back, and we talked about in the presentation we already heard now is innerwear growth, right, you’re going to see innerwear growth top line, you’re going to see Champion growth. So the growth is going to be kind of across the business, not just concentrated in one segment or the other. What I am excited about though, as I mentioned earlier, again, the champion and the innerwear businesses, both high margin businesses, and products, and so you’re going to see that help our overall achieve a 100 basis points improvement as we look forward. But again, at this point, we’re not giving individual segment guidance.

Stephen B. BratspiesChief Executive Officer

I would just add to that, we expect that they’ll all continue to increase. And, one of the really big initiatives that we’re taking on is a major cost reduction initiative as we go forward. So, all of those initiatives that are cutting across the business obviously affect all the different segments. A lot of that comes out of the work and supply chain, a lot of comes out of work at a global SG&A and how we’re going after those. But so all of those will lift all the segments as we go forward.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Ike Boruchow at Wells Fargo. Ike, go ahead with your question.

Ike BoruchowWells Fargo — Analyst

Hey, thanks, everyone. And Thanks, Steve. Steve, two questions for you. Trying to understand the divestiture of Europe, you guys, when you, when a company made the acquisition, it was talked a lot about how that lowers average unit costs for the entire model. As you sell that business? What happens to average unit costs for the remainder of the units you’re producing? And then just a quick follow-up. You mentioned simplification of the portfolio during your presentation, which I think is a great idea. Should we expect potentially more divestitures down the road?

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Ike. I appreciate the question. So in terms of our European innerwear business, we do not expect any de-leverage as we move that as a business, the vast majority of the units that get sold in the European innerwear business are actually manufactured in the plants in Europe. So those would be part of the deal. And there’s about 2% to 3% of our global production that actually goes into that, that innerwear, the European innerwear business. And we expect that to be absorbed by our growth plan as we go forward. So we don’t expect any de-leverage in the short term, right away, there’s probably going to be a supply deal, contract deal to go forward. But as we build out our business over time, we’ll quickly absorb that volume. So we don’t expect any de-leverage in our system, in our supply chain. In terms of simplification overall. So I think it’s critical for any business in particularly this business. And we have a lot of simplification. And it’s a broad definition of simplification. So the few reduction that we announced earlier in the year is a big part of simplification. Quite frankly, making the decision to get a PPE is a simplification in the process. So it’s going to be broader than just traditional, portfolio or business changes or M&A. As we think about that. I would tell you, I wouldn’t expect any significant simplification of our portfolio. And I consider the European innerwear significant in terms of doing that. We’re always looking at pieces to tweak and, I will never say never, but I wouldn’t, I don’t expect to see any large divestitures coming from us. And on the flip side, I will tell you that we are focused on our current portfolio and focus is one of the four key planks of what we’re trying to do. And I do not see us going out and buying anything in the near future, either. Certainly through the 2024 timing of our full potential plan. It’s not in our capital allocation strategy. It’s not how we’re thinking about the business. We’re focused on the portfolio that we have and our ability to grow that and improve that over time.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Jim Duffy at Stifel. Jim, go ahead with your question.

Jim DuffyStifel — Analyst

I want to start with two questions on strategies to connect with younger consumers. Then a quick question on capital structure. Related to the marketing, you talked about investors to engage the younger consumer. You even spoke about opportunity to double the market share of consumers under the age of 39. I’m curious where that share stands right now. I don’t think that consumer appreciates the HanesBrands’ leadership and sustainability. We know this is important to younger consumers. Can you maybe talk about marketing strategies to make sustainability a larger part of the consumer-facing brand platform?

Stephen B. BratspiesChief Executive Officer

Sure. It was hard to hear, I just want to make sure we got the question, right, which is around Hanesbrand marketing for sustainability and where we’re taking that business going forward.

Jim DuffyStifel — Analyst

Yeah.

Stephen B. BratspiesChief Executive Officer

Okay, so let me start. And then Michael can you, because you’re reading all this. And then, Greg, if you have anything to add, for how we’re going to mark, how we’re going to market, please jump up. But sustainability is a fundamental tenet of this company, and has been for quite a while, is one of the things actually that I got really excited about when I was joining the company to see the passion, the commitment, the progress, the willingness to lead on this front is something that we’re really very proud of. And it’s been a lot of work. And there’s a lot more to come. Mike, we always say we’re just getting started, right, and all the work we’re going to do. So why don’t you talk a little bit about where we are, where we’re going, how we’re thinking about it?

Michael E. FairclothGroup President, Global Operations

Yes, great, Jim. Thanks for your question. Sustainability at Hanes is truly a companywide initiative embedded in everything that we’re doing. We’re very proud of the work our team has done and continues to do in this space. And, and we have great momentum. We’ve captured a lot of our detailed, bold, aggressive and achievable goals on our Hanes sustainability side, and we’ve laid out detailed action plans of how to achieve those results. And, it is really powerful with all the historical accomplishments we have and then with all the action plans, I think, go back to what Kristin said earlier. That’s what gives me the most assurance we’re going to be successful is the passion and energy and excitement that we have in this company around sustainability. And we’re looking forward to being able to convey that excitement and communicate to our consumers directly connecting to them on this subject through our brand voices.

Kristin L. OliverChief Human Resources Officer

That’s great. Right, Mike. And thanks, your leadership has really made a huge difference inside the company on doing this. And I think just a little emphasize on the point you just made right at the end. I don’t think we’ve talked to consumers about the great track record that HBI has. We’ve talked to the business community, and they know HanesBrands as a sustainable company, and there’s been lots of recognition for the company over time. But I don’t think we’ve talked to the consumer. And Jim, the point you’re making about us getting younger is a really big opportunity and the ability for us to find the right brand voice that includes some of these messages is something that we’re definitely going to focus on. And it is part of the journey for us to take the brands younger.

T.C. RobillardChief Investor Relations Officer

Our next question is from Paul Lejuez at Citi. Paul, go ahead with your question.

Paul LejuezCiti — Analyst

Hey, thanks guys. Just wanted to ask about the 2% CAGR goal on the Innerwear side. I’m curious how you think about that by channel, whether it’s mass versus department stores versus other channels. And I’m curious where you think you might best be able to connect with that younger consumer? Which channel is going to give you the best shot to really capture the share of wallet with that younger consumer? And then second, you spoke about on the Champion side, there were three different customers that you kind of walked through. I think you said they represent 50% of your customers a little bit more than that of the spend. Who are the other 50% of the customers? And how are you thinking about connecting with that group? Thanks guys.

Joe CavaliereGroup President, Global Innerwear

Yes, Paul; thank you for your question. So as we think about our growth on innerwear, we’re really focused on growing our share with younger consumers. And the good news for us is that you’ll find most of those younger consumers choose to purchase their products via e-commerce. And so part of our full potential plan is to really significantly increase our investment in both our e-commerce partners, both brick-and-mortar dot-com and pureplay dot-com and our own sites. In addition to that, as Greg talked about, we’re going to have a heavy emphasis on digital marketing. And so that’s where we will reach these younger consumers. And the good news is we’ve already got considerable momentum under our belts in terms of some of the investments we’ve made this year. Scott talked about it, Steve talked about it, we’ve gained significant market share because of our great supply chain performance but also because we’ve invested against those channels and in digital media, and we’re starting to see us increase our penetration with the younger consumer. I might also add that we start from a position of leadership with younger consumers as well., our shares aren’t as dominant as they are with consumers over 39. And so that’s the big opportunity for us. To make those brands more relevant to those consumers. And then we’ll continue to grow well beyond the 2% in the years ahead.

Stephen B. BratspiesChief Executive Officer

One thing I would just add, Joe, is — you touched on it right at the end is, as we talk about getting younger, that does not mean we’re walking away from the customer we have today. I think it’s a really, really important point of how well-established we are, particularly like in the mass channel and the ability for us to flex and adapt as they’ve continued to grow their business, whether it’s curbside pickup or whether it’s online or some of the other channels. So I don’t want anyone to think when we say, oh, we’re getting younger that we’re walking away from our core because we have great, great share leadership at that point.

Joe CavaliereGroup President, Global Innerwear

Yes. And just to piggyback on, as Steve said, we’ve underinvested against the consumer, we have underinvested in the e-commerce channel. And so what’s really exciting about this opportunity is that it’s very straightforward, and we know we can execute it well by simply partnering with our big e-commerce customers and investing more heavily to make sure that we are growing with young consumers in the place they choose to shop. The other aspect of it, it’s margin accretive for us. And so what’s not to like about those investments. It’s growing. It’s the fastest growing channel. It’s for young consumer shop, and we generate more profit from it. All good.

Jonathan RamGroup President, Global Activewear

Thank you. And thanks for the question, Paul. We play at the intersection of sport and lifestyle. And when we went out and looked at the various consumer segments, we made a decision, and it was a very purposeful decision to focus on the culture curator, the trend lover and the stylish athlete. As a brand, we need to be laser, laser-focused on those consumers. There’s certainly another group of consumers that are out there. But the more we dilute our voice, the more we dilute our direction. We’re not going to achieve the results that we want to achieve. So we are laser-focused on those three consumer segments.

Kristin L. OliverChief Human Resources Officer

Yes. It’s a classic marketing focus to targeting, right, segmentation of the brand. So you focus on your core customer, you end up capturing a much broader piece, but you focus on that core customer, you market to that core customer, you develop products for that core customer, so that you stay focused on building a brand over time.

Jonathan RamGroup President, Global Activewear

Absolutely.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Adrienne Yih at Barclays. Adrienne, go ahead with your question.

Adrienne YihBarclays — Analyst

Thank you very much, and thank you again for the presentation and details. Good morning. Steve, my first question for you is, so during the period in North America from 2015 to 2019, when innerwear was contracting 4%, I believe, now expected to grow 2%. What was the TAM? What was the Innerwear overall growth because you talked about losing market share? So what was the Innerwear category doing at the time? And then if we fast forward to kind of at full potential, what should we think about as the TAM opportunity, both in North America, but more importantly, globally? That’s my first question.

Stephen B. BratspiesChief Executive Officer

Sure. The 2015 to 2019 as we weren’t growing all the fest, the category was growing 1% to 2%. It’s not a high-growth category, and it hasn’t been for a long time. So the opportunity there, as I look back in the history, and I wasn’t here and a lot of us weren’t here, but we go back and we studied it and really understand, a lot of it is doing the basics really, really well. And Joe and I talk all the time about just executing the basics, and he’s done this so much in his career around how you go to market, how you approach our customers, how you price, how you innovate, what period do you launch them, how do you gain shelf space over time. There’s just a huge opportunity for us to just run the basics of this better. And I think that’s going to make a huge difference in our run rate going forward in that 2%. Some of its new products, some of its continuing new customers, but a lot of it is just blocking and tackling and doing a heck of a lot better than we have in the past. I think it’s going to make a big difference. And in terms of globally, when you think about innerwear, it’s really North America and it’s Australia for us. We are very pleased with our Australia business. The team down there is doing just a fabulous job and continues to grow year-over-year. That’s where our Bonds business is, our Bras N Things business, which Greg mentioned earlier, is really a true omnichannel organization. They’re doing incredibly well. And Scott, we expect the volume to continue to grow, the growth rate from then to continue. So we see really good growth rate around the globe. We think we can do — we’re going to innovate. We’re going to invest with our consumer. We’re going to understand the consumer better. And we think we can turn this around. And it will be 500 basis points to 600 basis points different run rate than we’ve had in the past, but we’re confident we can get there.

T.C. RobillardChief Investor Relations Officer

Our next question is from David Swartz at Morningstar. David, go ahead with your question.

David SwartzMorningstar — Analyst

Yes, can you tell us a little bit more about the situation with Champion in Asia, where it is right now and how it has grown in the past? And how it factors into the $3 billion target for Champion?

Stephen B. BratspiesChief Executive Officer

Jon, do you want…

Jonathan RamGroup President, Global Activewear

Thank you, David. Appreciate the question. We’ve been operating, first of all, in Asia for some time, with Japan being certainly a strong growth driver for us. And approximately about 2.5 years ago, we entered the marketplace with some very purposeful business partnership with an organization called Dmall. And at the beginning of last year, we increased our distribution partnership with a company called Belle. And we’re extremely focused on growing the business, but growing it with purpose, growing it very deliberately. And when we work with our partners in the marketplaces, like China and like South Korea, for example, we’re doing that in a very deliberate way with a very long-term view. And everything that we see is growth ahead in those markets. It represents — the Asia Pacific region will represent about 30% of the growth over the next few years. And we’re very comfortable with that number, and it could be more. We’ll see how that goes.

Stephen B. BratspiesChief Executive Officer

Okay, the brand certainly seems to be resonating very well

Jonathan RamGroup President, Global Activewear

The brand is resonating. And I think one of the other things that we’re seeing is we’ve seen, in China, in particular, the brand awareness level go from 39% to 57% in a very, very short period of time. So that just tells a great story of where we’re headed. And with our partnerships in place, with their understanding of retail as well as e-commerce and social commerce, we’re really excited about the prospects ahead.

Kristin L. OliverChief Human Resources Officer

Sure. Thank you.

T.C. RobillardChief Investor Relations Officer

And our final question, we’re circling back to Adrienne Yih at Barclays. Adrienne, please ask your follow-up.

Adrienne YihBarclays — Analyst

Thanks. So my final question is, how much of the growth should we think about as coming from new doors versus more shelf space in existing doors versus new products? And maybe the focus in North America, and then — because obviously, these new geographies is an entirely new avenue of growth, so focusing on North America. Thank you.

Stephen B. BratspiesChief Executive Officer

Sure. Yes, I assume — mostly focused on the Innerwear business, I’m assuming, based on your previous question. So I think there is a new door opportunity. I don’t think it’s going to be the biggest part of our growth because one of the great things about our business is we have pretty good expansion going forward. I do think we have shelf space opportunity, Joe, and I do think we have innovation opportunity. We talked in our presentation earlier today about Total Support Pouch and how well that’s done to reach new consumers. It’s certainly on our website, we’re seeing an awful lot of youngsters. I think it’s 30% new consumers are younger consumers that have joined us in that business. So it’s going to be a combination of both. And I honestly think we need to be aggressive on both. I think there’s more shelf space to be had, and we’re gaining it right now quite frankly because of the service of our supply chains during these challenging times. And I think you should expect a much more robust growing innovation pipeline from us than maybe you’ve seen in the past. So I would say those are the two buckets that I think are going to drive the biggest part of growth for us.

Well, I think we’re just going to wrap up. Let me just close with thank you to everybody for taking all this time today to spend with us. Thank you for your interest in HanesBrands. Thank you to the team for all the hard work that you put into getting us to where we are. We’re off to a really great start. I’m really pleased with our Full Potential plan, where it can take us. The upside that’s in front of us. And hope you continue to follow us. I think you’re going to see great things from this company. So thank you very much, and everyone, have a great day.

Duration: ?? minutes

Call participants:

T.C. RobillardChief Investor Relations Officer

Stephen B. BratspiesChief Executive Officer

Jonathan RamGroup President, Global Activewear

Joseph MonahanSenior Vice President, Finance

Joe CavaliereGroup President, Global Innerwear

Jane NewmanChief Design Officer, Global Innerwear

Greg L. HallChief Consumer Officer

Michael E. FairclothGroup President, Global Operations

Kristin L. OliverChief Human Resources Officer

M. Scott LewisChief Accounting Officer and Controller

Omar SaadEvercore ISI — Analyst

Susan AndersonB. Riley FBR — Analyst

Paul TrussellDeutsche Bank — Analyst

Michael BinettiCredit Suisse — Analyst

Jay SoleUBS — Analyst

John KernanCowen — Analyst

Ike BoruchowWells Fargo — Analyst

Jim DuffyStifel — Analyst

Paul LejuezCiti — Analyst

Adrienne YihBarclays — Analyst

David SwartzMorningstar — Analyst

More HBI analysis

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Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to HanesBrands ‘ Investor Day 2021. Please welcome TC Robillard.

T.C. RobillardChief Investor Relations Officer

[Video Presentation]

Good morning, everyone, and welcome to HanesBrands’ 2021 Virtual Investor Day. I hope you’re all doing well and staying safe. The first order of business is our Safe Harbor statement. This is familiar to all of you and can be found in this morning’s press releases. During today’s presentations, we may make forward-looking statements, either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially. These risks include those detailed in our various filings with the SEC, which can be found on our Investor Relations website, www.hanes.com/investors.

Next, let me address a few housekeeping items. In addition to this morning’s press releases, which discussed our first quarter earnings, 2021 guidance and our Full Potential plan, we created an Investor Day handout. This handout, which includes reconciliations of any non-GAAP numbers given during today’s presentations, can be found in the supplemental section of our Investor Relations website, as well as in this morning’s 8-K filing. I would like to highlight two particular items from this handout. First, we provided historical P&L and segment data to reflect the move of our European Innerwear business to discontinued operations. Unless otherwise stated, all historical comparisons in today’s presentations will be based on this information.

Second item I’d like to highlight from the handout is Table 4. This is designed to help reconcile our reported results, which reflect European Innerwear as discontinued operations with our previous guidance, which included European Innerwear as part of the total business. For example, on Table 4, in the column titled HBI Adjusted including European Innerwear, you’ll see first quarter revenue of $1.63 billion, adjusted operating profit of $202 million and adjusted earnings per share of $0.37. These are the figures that would compare to our guidance issued on February 9.

One last housekeeping item, our three-year financial targets use the midpoint of our 2021 guidance as the base year and run through year-end 2024.

Now, let’s turn to the exciting part. We have a great morning lined up for you to meet and hear from our global management team. A lot has changed since our last Investor Day three years ago. We have a new leadership team, a new strategy and a new mindset. We’re excited to tell you about how we’re repositioning HanesBrands for growth. Our CEO, Steve Bratspies, will be here in just a moment, but first, let’s take a look at The New HanesBrands.

[Video Presentation]

Operator

Please welcome Steve Bratspies.

Stephen B. BratspiesChief Executive Officer

Hello and welcome to HanesBrands’ Investor Day. Thank you for joining us to talk about one of my favorite topics, the future of HanesBrands. We have a lot of great information packed into the agenda. But before we jump into the business of the day, I’d like to pause and say how grateful I am and how grateful our entire team is for your time and attention. Thank you for joining us in this virtual format. Our hope is that we will all remain healthy until we can safely meet together again in-person. Believe me, I’m looking forward to that day.

But until then, we’ve certainly learned to adapt. I’m thankful and amazed by the commitment and ingenuity the HBI team has shown during the pandemic. I’ve been so inspired by their work, and I hope you will be too. It’s an exciting time to be part of HanesBrands. Today, I’ll introduce what we call our Full Potential plan. It’s our road map to drive improved revenue and profits over the next three years and beyond. We’ll explore the pillars our plan is built on, the strategic initiatives we’re implementing and the significant growth opportunities ahead. But before we talk about where we’re going, let’s do a little level setting about where we are now, the momentum we’ve already built and how people know us.

To consumers, our brands deliver great quality apparel at outstanding value. To our customers, we’re a profitable partner with unmatched manufacturing and distribution capabilities. To our associates, we’re an employer of choice with a deep commitment to sustainability and ethical practices. To our communities, we’re a compassionate partner, helping out in times of need and working to build a better future. And to investors, we’re a generator of consistent cash flow with a solid balance sheet and attractive margins and the potential to do better. More on that point in just a bit.

We’ve earned that incredible reputation today, and we’re able to focus on the possibilities of tomorrow because of our iconic brands, brands that have a bright future anchored in growth. Hanes is the top selling apparel brand in the United States. Champion is the king of sweats. Bonds, our powerful Australian brand, sets the bar for innovative design and sustainability. Bali, Maidenform, Playtex are household names, and that’s just to name a few. These iconic brands were a big part of why I accepted this position with HBI. Like millions of people, I grew up with Hanes because my parents had a keen sense of quality and value. For the same reason, my wife and I dressed our two sons at Hanes as they grew up. And when I was offered this role, my now 20-something sons realized Champion was part of the deal. They said “Are you kidding? Take the job.” That’s when I realized that the love of our brands really does span generations.

HBI is truly an amazing company because we benefit from a number of significant and sustainable competitive advantages. In addition to our credible portfolio of iconic brands, we have leading share positions in innerwear; a rapidly growing Activewear brand with significant global growth potential; distribution across large diverse channels; a world-class owned supply chain; a balance sheet that puts our destiny in our own hands; a deep commitment to sustainability and always doing what is right; and an experienced and revitalized leadership team supported by 61,000 diverse, passionate and committed associates in more than 47 countries.

So, I knew I would be joining a strong company with a long history of success. But more than anything, I was excited about the future opportunities, the opportunity to drive consumer centricity, the opportunity for product innovation and to unleash the potential of our global brands, the opportunity to lead a great company and build a great team, and the opportunity to accelerate growth. I’ve led significant change before. I know what it takes to succeed. It requires focus, simplification, boldness and urgency. And because I knew this was a journey HBI needed to start right away, we launched Full Potential in August, my first day on the job.

Now, don’t worry, we didn’t start changing things on day one, not at all, but we did start questioning things on day one. As a team, we kicked off Full Potential with a deep, honest examination of our company and the external environment. With complete support of our Board of Directors, we objectively challenged every aspect of the business, and we discovered enormous opportunities to focus our company and build on our strengths to deliver long-term profitable growth. And those opportunities are where our Full Potential plan comes in.

Full Potential will drive change across our business. It involves targeted investments in our brands, e-commerce and our people, as well as new capabilities, the goal to deliver approximately $1.2 billion in incremental revenue from 2022 through 2024. That’s right. We believe this plan will grow our revenue by approximately $1.2 billion over the next three years. Full Potential also creates a path to higher profitability by running the business better, becoming consumer-centric and making investments that we now believe will be fully self-funded. We plan to reach an operating margin of 14 plus percent by 2024.

So let me walk you through our plan. It’s all about growth. And we’ve organized the plan into four key pillars. Pillar number one is to grow the Champion brand globally. We’ll build Champion into a $3 billion brand by 2024, which is a 14% compound annual growth rate. Champion has 100-year history of innovation, including pioneering the sports bra and licensed college apparel. And of course, our Reverse Weave technology sets the standard for sweats. Champion not only addressed the original Dream Team, but has become a cultural icon, partnering with everyone from Coach to Super Mario Bros to Muhammad Ali. But this brand isn’t just about cool collaborations. Today, Champion is growing revenue faster than the overall activewear market, growing by more than $600 million over the past three years, and that rapid growth will continue.

We’re seen as a leader in men’s sweats. We’ll build on this strength, and we’ll aggressively grow in North America, China, Japan, South Korea and the big five markets in Europe. We also see opportunities to expand and accelerate in women’s and kids apparel and casual footwear. Champion will deliver a well-defined targeted consumer proposition. The brand will have a unique and clear global brand positioning to support an expanding high-quality product range. So growing Champion across the globe into $3 billion brand by 2024 is our first pillar. And today, we’ll share how we intend to accelerate, expand and maintain the brand success.

Let’s move on to pillar number two. We will reignite growth in our innerwear brands. When our team did that self-evaluation I mentioned earlier, one issue became very clear. We had some work to do on growing the innerwear side of our business, particularly in the United States. So we’ve developed a plan to tackle that issue and capture the opportunity. As we’ll show you today, we’ll drive global Innerwear growth at a rate of 2% over the next three years. That’s an improvement of about 500 basis points over years 2017 to 2019. A big part of this new formula is appealing to younger consumers. We’ll do this by using new capabilities in global design, innovation and a more contemporary voice. And I know we can seize this opportunity. I know we can consistently reach new younger consumers with Hanes and our other Innerwear brands.

Why am I so confident? Because we’ve done it before with great success. We can win with younger consumers by innovating and connecting in new ways. We have a road map to guide us. Our Bonds brand in Australia has successfully taken the same journey, capturing a broader, younger audience with innovative new products. In North America, consumers already equate the Hanes brand with comfort and quality and an incredible value, and we’re known for product innovation. Our newest launch of Hanes Total Support Pouch continues this combination of innovation, quality and unbeatable value. This product and our new marketing campaign are the first step in appealing to younger US consumers, and it’s working. Total Support Pouch launched with rave reviews and may end up being our largest product launch ever. So we’re leveraging innovations and learnings from Hanes, Bonds and our entire global portfolio to reach new consumers around the world and to drive consistent and accelerated growth. You’ll hear much more about this today.

Now, let’s talk about pillar number three, driving consumer centricity. A huge key to growth is to focus on the consumer. In the past, the consumer was just a step in our process. Now, the consumer is at the center of everything we do and everything we will do. We’ll drive growth by delivering the innovative products consumers want and by investing in our brands, all while making our products available where, how and when consumers like to shop.

To that point, we faced the same shifting retail dynamics as others. More and more consumers are choosing to shop online or via mobile. This shift was already happening, but obviously, COVID accelerated the trend. At the same time, the pandemic strengthened mass-market retailers, where our innerwear brands are particularly strong. So here’s our plan. We’ll continue working with our retail partners as they build their online businesses. For example, we know Hanes products are frequently found in curbside pickup orders at mass retailers. Consumers might be shopping for groceries, but they often throw a few pairs of our socks or T-shirts into their online carts as well. We are particularly well positioned to grow in mass retailers, curbside and delivery services.

We also have big plans to improve our own online platforms, starting with champion.com. You’ll see our presence grow across all online channels with a stronger focus on the consumer, innovation and brand development. So, we’ve talked about growing Champion, reigniting Innerwear and driving consumer centricity.

Now, our final pillar, focusing our portfolio. We’ve made rapid progress in simplifying our business. We announced plans to explore strategic alternatives for our European innerwear business and now have moved it to discontinued operations. Also, we exited PPE, we reduced our SKUs by 20%, and we will continue to explore opportunities to further focus our business. I’m excited and confident that simplification has begun and enables the investment in key global growth markets, North America, China, Australia and the Champion Europe markets.

To deliver these four pillars and succeed with our Full Potential plan, we’ve identified initiatives to enable and unlock growth. For each initiative, we’ve dedicated a leader and a cross-functional team. We’ve defined robust KPIs and timelines, and we’ve challenged those teams to employ an agile approach to change. We’ve grouped our initiatives into five broad categories. The first, win with brands and products. We’ll drive our efforts through better design and more innovation to meet the needs of both current and new consumers. Number two, supply chain segmentation. Our self-analysis revealed that our global supply chain remains a significant and sustainable competitive advantage. We are building on this strength by adding capabilities to address the unique needs for each of our brands, while increasing our speed to market. And we’re making our supply chain more efficient in serving direct-to-consumer channels. Third is simplicity. To reach our Full Potential and unlock growth opportunities, we have to make decisions faster and simplify our processes and approaches. Fourth, technology modernization. We’ll invest in data analytics and technologies to help us identify trends and connect brands with consumers. We’ll gain insights into our business to help us make decisions and improve forecasting and planning. And we’ll streamline our systems to make them more efficient, reduce costs and build capabilities to deliver a seamless online consumer experience. And number five, building a winning organization and culture. At HBI, we’re building on one of our foundational strengths, culture. Our 61,000 passionate and committed associates and committed associates are a great competitive advantage. Now, we’re unlocking the power of our team with a more focused and a flatter organization. Our new leadership team is a blend of tenured HBI leaders and new talent that together are setting a new pace.

I’d like to elaborate on that last initiative. One of my first tasks as CEO was to build a structure and leadership team capable of executing Full Potential. I am confident that we now have the right team. We created Global Innerwear and Activewear organizations, so we can quickly and effectively share learnings, insights and innovation around the globe. We also designed a new organization responsible for giving the consumer a strong voice in all of our efforts, and we created focused supply chain organization. Our leadership team is made up of talented HBI veterans and new leaders who have experience building brands, leading change and driving growth at some of the world’s most successful companies. I’m extremely proud of the entire team and the rapid progress they’ve driven to date. You’ll hear from a few of these leaders today.

First, Jon Ram will kick us off with a deep dive into our plans to grow the Champion brand globally. Jon is our President of Global Activewear and brings to the table more than 25 years of experience with global apparel and footwear brands. Jon’s vision and passion have driven Champion to new heights. Next is Joe Monahan. He heads up Champion in the EMEA region. Joe has lived and worked for extended periods across Europe and brings more than 20 years of experience in the athletic wear business. Joe will talk about Champion’s current position, success and growth strategies in his region that we’re going to leverage on a global scale. Joe Cavaliere will talk about our exciting plans to reignite growth in our Global Innerwear business and appeal to younger consumers. Joe brings 30 years of experience in driving growth in consumer brands and retail, and his leadership here has already made an immediate impact on our business.

Jane Newman will tell us more about the roles consumer-led design and innovation play in appealing to younger consumers and driving growth. Jane has been with our company for 17 years. And before her promotion to Chief Design Officer of Global Innerwear, she served as Creative Director and Head of Design for our Bonds brand, which by the way, has become the number one innerwear brand in Australia. Our Chief Consumer Officer, Greg Hall, has made a career out of building iconic brands through digital marketing, merchandising and driving change at scale. So he was the perfect pick to lead our efforts in building a consumer-centric approach. Greg will walk you through our plans to create a seamless consumer experience through digital excellence and strong brand marketing.

As I mentioned earlier, our supply chain remains a competitive and sustainable advantage, and we’re building on our strengths. Mike Faircloth, a 24-year HBI veteran and our President of Global Supply Chain, will show how we’re building on our traditional strengths with new capabilities. Over the years, Mike has been a force in making HBI a leader in sustainability, and he’ll cover the work we’re doing to accomplish even more in this very important area. Of course, leadership, talent and culture are absolutely crucial to our success. Kristin Oliver, our Chief Human Resources Officer, will talk about how we’re enhancing our culture and creating new opportunities for associates around the world. With Kristin’s diverse and extensive background in global organizations, she’s an incredible asset on the leadership team. And because Full Potential is ultimately about driving sustainable, profitable growth, Scott Lewis, our Chief Accounting Officer, will walk you through our three-year financial framework. He’ll illustrate how we are making HBI a stronger, more profitable company. Then I’ll be back for a quick summary and some closing thoughts before we host a live Q&A segment.

So here’s what I want you to remember as you listen to these leaders today. Full Potential is our plan to deliver approximately $1.2 billion in growth. We’re building new digital capabilities and unleashing the power of our brands by becoming consumer-centric. And Full Potential isn’t just what we intend to do, it’s what we’re already doing. And on the topic of what we’re already doing, our first quarter results announced earlier today reflect some of that initial progress. We are very pleased with our Q1 results. We showed strong momentum across each business segment, driven by a combination of strong consumer demand and lapping last year’s global COVID shutdown at the end of the quarter. Versus Q1 last year, our Innerwear segment grew 35%. U.S. Activewear accelerated to 26% growth, driven by strong Champion performance of 34% growth over last year. Our isales growth was strong at 18% over prior year, or 8% in constant currency. And our global consumer direct business was up over 50%, led by global online growth of 82%. Scott will provide additional comments on our Q1 results during his presentation.

I am incredibly proud of the entire organization’s hard work, willingness to change and commitment to winning. But we are just getting started, speaking of which, it’s time to start the rest of the meeting. Next up, Jon Ram, our President of Global Activewear, will talk about our opportunities to grow the Champion brand.

But first, take a look at this.

[Video Presentation]

Operator

Please welcome Jon Ram.

Jonathan RamGroup President, Global Activewear

I hope that gets you as excited about Champion as we are. Over the last century, the Champion brand has carved out an iconic place on courts, fields, pitches, streets and playgrounds worldwide. Consumers around the globe know Champion as a progressive brand and as the king of sweats. As Steve just mentioned, our first Full Potential pillar is to grow Champion brand globally. He shared with you our ambitious and achievable goal of growing global Champion sales to $3 billion by the end of 2024, representing a 14% compound annual growth rate and an incremental $1 billion in sales. So I’m here to tell you how we’re going to do that.

We’ve organized our Champion growth strategies into four key actions: number one, forge deeper connections with consumers; two, create compelling products; three, focus on growth in key geographies; and four, expand our channels. But first, I want to talk about what Champion represents as a brand, how we position it and what we’re delivering to consumers.

Champion competes in the land of giants, but we’re not trying to copy the competition. We’re forging a separate path. We’re confident in the market we want to serve, and we’ve embraced a challenger brand mindset. At Champion, we take a bold and unique approach when it comes to how we define sport. For us, sport is first and foremost about having fun, being playful and including others. But hey, when the competition heats up, we’ll also rise to the occasion. We know the benefits of sport extend beyond the physical competition. We believe that champions are defined by how they carry themselves in sports, play and in life pursuits.

To capture the essence of who Champion is as a brand, we’ve created a new brand platform. And as you just saw on the video, we call it, Be Your Own Champion. This is a powerful message that extends beyond apparel, footwear and accessories. And this approach rings true with our consumers too. Our research confirms that consumers view Champion as meeting both their sport and lifestyle apparel needs. So we’re focusing on this intersection point, the point where sport and lifestyle meet, a point where we see tremendous opportunity for growth.

Let’s circle back to the first key action we’ll take to grow the Champion brand, forge deeper connections with consumers. Like Steve said, everything we do starts with the consumer. Over the last year, we conducted market segmentation research in our must-win markets. We identified three activewear consumer segments that formed the foundation of the Champion strategy, the stylish athletes, the trend lovers and the culture curators. While they make up just over 50% of the activewear market, these three segments are the most engaged in the category and account for almost 70% of sales. Deeply understanding each segment informs our product, marketing and distribution strategy.

Let’s begin with the stylish athletes. Stylish athletes are the highest proportion of Champion wearers. The segment purchases nearly 30% of activewear, and their annual per capita spend is $400. This group is very important to us. What are the stylish athletes’ most important purchasing criteria? Comfort, style and performance. Our products line up nicely with this wish list. They view Champion as athletic, approachable, bold and socially conscious. With this group, our goal is to get them to extend their purchases. At Champion, we like to say sweats are the gateway. In other words, a consumer first purchases with us might be a hoodie, sweat pants, and then they come back for our other amazing products. We can also increase loyalty from the stylish athlete group by emphasizing and communicating our deep commitment to sustainability.

Next up is our trend-lover consumer group. They represent the highest number of new Champion wearers. This segment is about 20% of the activewear spend. Their per capita spend is about $360. Trend lovers value price, brand and style. They tend to see Champion as both casual and athletic, as well as approachable and cool. What’s our opportunity with trend lovers? To continually capture their enduring love for the brand as we innovate in sweats and beyond.

And last but not least, I’d like to introduce you to our third consumer group, the culture curators. Culture curators have the highest affinity for the Champion brand. They have the highest per capita spend of $450 and make up 20% of activewear sales. This group’s most important criteria are limited editions, style, comfort and brand. They appreciate collaborations with other culture icons. They rate Champion as the highest on cool, fashionable, trendy and inspiring. It’s a brand they’re proud to wear. Culture curators are early adopters, which means they’re the first to try our new styles and products. So our goal is to ensure a robust flow of new innovative products for them. We see a big opportunity to grow this segment and scale what we learn from them to motivate our larger segments.

So we’ve got the stylish athletes, trend lovers and culture curators. As I said earlier, together, these three consumer groups represent just over half of activewear category purchasers in our key markets, but over two-thirds of sales dollars. So using the insights we’ve gained will deepen Champion’s connection with these important consumers. We’ll do that through world-class merchandising and marketing, and most importantly, through exceptional products. Speaking of which creating compelling products is our second action for growing the Champion brand globally. Since sweats are the gateway of our product strategy, it starts with owning the sweats category.

Sweats represents 19% of all Activewear purchases in our key markets, and that percentage is only going up. So we’re going to fortify Champion’s global position as the king of sweats with our iconic Reverse Weave franchise that we engineered, patented and continue to innovate. Our recent introduction of the Gamer Hoodie and Defender Series collections demonstrate how innovation can generate consumer and media buzz. Products like these are particularly important for consumer segments as they deliver on key decision criteria, including functional benefits and thoughtful design. And sweats are just the beginning.

We have deep knowledge of our consumer, based on direct interactions with them. Champion.com data reveals that approximately half of all consumers’ first transactions were for sweats only. The likelihood of purchasing additional categories increased on subsequent visits. So first, we engage with them with our awesome sweats. Then they come back for our other cool products. In fact, on their second visit to champion.com, consumers purchase non-sweats more than 40% of the time. This demonstrates the power of the Champion brand to attract new consumers, the power of our sweats to create loyal Champion customers and the power of our product lines to generate additional revenue.

One of the great strengths of Champion is that our products are available and highly visible on hundreds of college campuses. As Steve mentioned, we invented college apparel. Champion’s collegiate presence gives us incredible access to introduce influential consumers to the brand and its newest products. It also gives our teams a platform to spot trends on how apparel is being worn and customized. For example, we developed our hugely successful women’s crop top hoodie, after noticing how co-eds were altering their Champion hoodies. In addition to these opportunities to own the sweats market, we’re excited about growth opportunities in women’s apparel, innerwear, collaborations with other brands and footwear. When it comes to our women’s business, Champion’s history of innovation is a huge asset. We know from our consumer research that women love Champion’s style, comfort and fit. We can win with products like stylish tops, bottoms and outerwear.

Another great opportunity is Champion Innerwear. Innerwear has been a rapidly growing business for Champion, more than doubling between 2018 and 2020. We see significant potential in socks, underwear and loungewear and will benefit from leveraging HBI’s deep enterprise expertise in this category.

Collaborations are another growth opportunity for Champion brand. Some of the strongest brands and designers in the world are eager to work with us. Steve already mentioned our collaborations with Coach, Super Mario Bros and Muhammad Ali. Other recent examples include global fashion designer, Rick Owens, NBA 2K and Fan Controlled Football. We have clear objectives for each partnership, which includes storytelling, category expansion, reaching consumers where they’re consuming content and amplifying our brand voice.

We’re also excited about the growth opportunities provided by footwear. True to our brand promise, we’re taking a unique approach to footwear by focusing on the athletic-inspired lifestyle footwear category. We’ve seen strong performance from Champion footwear in both the US and Europe, and we’re confident this approach will transfer to other geographies. To help us bring the entire toe-to-head brand expression to life and to integrate it fully, we have chosen to take a strategic partner approach. We launched footwear in the Americas with BBC, and we will launch footwear in China in June through our partnership with Belle.

And one last note about products. Our design and development centers in Europe, the US, Japan and Australia are working to deliver global, regional and locally relevant products to our targeted consumer groups. We’ll leverage fabric platforms and designs, plus we’ll build category centers of excellence. For example, our team in China and the US are leveraging our outerwear styles designed and developed in the EMEA region because consumers love these designs. We’ll use our manufacturing scale and regional team design capabilities to drive margins and capture growth.

Now, let’s talk about how we’ll focus on growth in key geographies. As we said, our key markets are North America, China, Japan, South Korea and the big five markets in Europe. Of our $1 billion incremental revenue target, we expect North America to represent approximately half, Asia to represent approximately one-third and the remainder to come from Europe. To win, we will go to market according to the needs of each region through a combination of digital, wholesale distribution partners.

We’re also further developing our segmented supply chain to become faster and more flexible, to enable growth through speed to market, leveraging our design and development centers and quickly responding to consumer trends. Mike Faircloth will tell you more about our supply chain plans later today. By using these strategies, we’ve been incredibly successful in the past. You’ll hear more from my colleague, Joe Monahan, about how we’ve been able to see tremendous growth across the territory as diverse as EMEA. We’ll use our expertise and track record to grow sales in our existing markets and to expand into new ones.

We see significant opportunity in Asia. China is a huge market for us. Earlier, we talked about the stylish athletes and the trend lovers and the culture curators. They represent half of our market globally. Interestingly, in China, these segments represent 87% of the activewear market. Up until about 2.5 years ago, Champion had a minimal presence in China. We are taking a deliberate and purposeful approach to this market, working with local experts. We have forged strong strategic partnerships in China with D-Mop and Belle, relying on our partners’ expertise and operations, online sales and retail. Over the past few years, Champion’s brand awareness in China has jumped from 39% in 2019 to 57% in 2021. So a big key to winning in China is leveraging these strategic partnerships to expand our digital footprint, penetrate the market with more brick-and-mortar stores and grow brand awareness.

In South Korea, we forged a similar distribution partnership with LF Corporation. Despite the pandemic, both Belle in China and LF Corporation in South Korea successfully executed their Champion launch plans. Collectively, we are looking forward to accelerating our market penetration and working with our partners.

Now, to touch on the final strategic action, expanding our channels, our direct-to-consumer channels are growing rapidly and we see continued opportunities here. In fact, by 2024, we expect champion.com to be 25% of our US business. Thanks to our efforts in improving engagement and attracting new consumers, champion.com sales in the US have grown 85% over the last year. In Europe, over the same time period, champion.com sales grew by 65%. We see opportunity for continued growth in our direct-to-consumer channels. Greg Hall, our Chief Consumer Officer, will speak about our plans to accelerate digital capabilities to build our brands and drive growth.

As I mentioned earlier, our channel strategy is focused on meeting consumers where they want to interact with us. We’ll work to grow in-store and online, constantly improving our product merchandising and branding. To recap, as a company, we’re leaning into the many growth opportunities available to the Champion brand by first, forging deeper connections with consumers; second, creating compelling products; third, focusing on growth in key geographies; and fourth, expanding our channels.

I am really excited about the potential we have with the Champion brand. To tell you even more about this opportunity, next up is a leader who has driven exponential growth in Champion. Based on his success in EMEA, we built a game plan for growth around the world. Here to tell us more is our President of Champion EMEA, Joe Monahan.

Operator

Please welcome Joe Monahan.

Joseph MonahanSenior Vice President, Finance

Thank you, Jon. Let me start out by saying how passionate I am about Champion and how pleased I am to be here today because as Jon said and seeing how quickly we have grown the Champion brand here in Europe, the Middle East and Africa, I absolutely share the confidence expressed by Steve and the executive team in the incredible growth opportunities for the Champion brand globally. So today, I want to talk to you about the success we have had in growing the Champion brand across EMEA. And I would like to show you why we believe the strategies we have implemented can serve as a springboard to expanding Champion, especially in high-growth regions like APAC and ultimately around the globe. Plus, we can use the same playbook to expand share in existing markets such as North America through diversifying our product offerings across different channels at very sizable clusters of target consumers, the exact same consumer groups that Jon just referred to.

Let’s begin with the numbers that highlight the impressive growth we’ve experienced here in the EMEA region. And I should point out that we’ve experienced all this growth in the business despite COVID headwinds that we’ve been facing for more than 16 months. By the end of 2021, we expect to nearly double our 2017 sales revenue. In those same four years, we have almost tripled operating margins. Plus, we’ve expanded the number of countries in which the Champion brand is sold from 37 to 51. In 2017, almost 80% of Champion EMEA sales were generated in the European Big Five, with Italy representing nearly 90% of those sales. By the end of 2021, the same five countries of Germany, France, Italy, Spain and the UK will represent more than 85% of total sales. So we’ve grown sales in all five countries, including Italy, but we have shifted from a largely Italian business to a pan-European brand.

There have been three primary drivers of Champion’s growth in the EMEA region: number one, new market development; number two, increase penetration; and number three, product category expansion. Our geographic growth in Western Europe has leveraged our men’s core fleece sweats and jersey categories. With a shift from geographic expansion to increase market penetration, we forged a strategic launch of additional product categories like outerwear, performance wear and casual footwear. We also added our women’s and kids collections. The impact was a continued march upwards in sales and margin expansion, which fueled growth of more than 20% year-over-year consistently for multiple years. This growth pushed Champion brand deeper into countries, across channels and within consumers’ closets.

While market expansion and penetration in Western Europe clearly have a tremendous amount of runway, we also see incredible opportunity in Eastern Europe, the Middle East and Africa. Between 2021 and 2024, our EMEA sales are targeted to grow substantially, supporting the objective for Champion globally.

Jon introduced earlier our three primary consumer segments, the stylist athlete, the trend lover and the culture curator. We’ve actively pursued these segments in the EMEA region, and we’ve been very thoughtful in our approach to product collections for each consumer segment. The systematic execution of this strategy has allowed us to achieve both price and margin expansion, while ensuring unique brand and product propositions in the channels where our consumers shop, whether that be directly online, in our own retail stores or at our wholesale and pure-play partners.

Let’s take a deeper look at our channels and our consumer segments. In targeting the stylish athlete, we leverage our core categories such as fleece and jersey, with a range of training and practice wear lines catering to the more athletic fan. This collection offers a strong price-to-quality proposition in men’s, women’s and kids.

Moving up the pyramid to the trend lover, we offer products with an increased focus on style and quality. Champion branding is still key. So we’ve introduced embroidery, tackle twill logos and detailed finishes, all designed to increase brand equity. Elevated construction and attention to detail support driving price expansion via higher ticket items. This ensures our trend lovers get the Champion complete look from head to toe, with silhouettes and colors that are both on brand and on trend.

At the top of the range is the culture curator, the early adopter who is always ahead of the trend curve. But don’t worry, we’re not trying to make Champion something it’s not. We’re just making sure there’s a Champion collection for everyone because we understand who they are and where they play. The DNA of the Champion brand is carried throughout the collection, but we’ve experimented with new fabrics like corduroy without straying from Champion’s athletic routes. This consumer-centric tiered approach to design and product collections has been very successful in EMEA and is a big part of our growth story. As the Champion brand continues to grow around the globe, we’re going to use a similar playbook.

Looking ahead, we will also continue to execute against our strategy of geographic expansion and market penetration through exciting product offerings in men’s, women’s, boys and girls, and apparel, footwear and accessories. Recognizing the need to maintain excitement across our consumer targets in our core categories, we will focus on innovation in fabric, fit and silhouette to drive our share higher.

As Steve mentioned, Full Potential is not only about what we will do, it’s about what we are already doing. We have made incredible progress in growing the Champion business in the EMEA region. We have captured tremendous learnings that we can now apply to other markets. We have the ambition, team and plans to go even faster. We will fast track the development of our business to consistently up our game with fantastic designs and incredible product quality with great price positions. We will continue to push into new markets and channels around the world as we work to grow our global Champion sales to $3 billion by the end of 2024. The Champion brand is poised for very strong global growth. We’re ready to reach our Full Potential.

And Champion is just one of our growth opportunities. So let me turn it over to Joe Cavaliere, our President of Global Innerwear, to talk about our second pillar, reigniting Innerwear growth. Joe will show you more about HBI’s plans for reigniting the Innerwear business and appealing to younger consumers.

[Video Presentation]

Operator

Please welcome Joe Cavaliere.

Joe CavaliereGroup President, Global Innerwear

Hello, everyone. I’m Joe Cavaliere, and I lead the Global Innerwear business. I joined HanesBrands a little over three months ago after spending time in sales and marketing with a few of the leading consumer branded companies in the world. Throughout my career, I’ve grown to love collaborating with customers, building brands that delight consumers and developing great teams. This is an exciting time for HanesBrands because we are launching a new strategy that will unlock sustainable growth for a collection of brands that are trusted household names.

Global Innerwear is a very stable and profitable $3.7 billion annual business that accounts for a large portion of the overall Company profit. However, prior to the pandemic, it was struggling to grow. In fact, for the four years from 2016 to 2019, our innerwear business declined on average 4% in our largest market, the United States. And we’ve been losing share across some key categories as well, including men’s underwear, bras and kids’ underwear.

Innerwear was part of the deep assessment that Steve mentioned earlier, and we discovered some big opportunities to revitalize our US business. In particular, even though we are already a market leader with people under 39, we found we could do even better with younger consumers. In fact, it’s over a $1 billion opportunity. Younger consumers spend nearly 30% more on innerwear than those over 39, and our goal is to double our share with this valuable cohort.

This deep dive also identified an opportunity to develop our e-commerce business. E-commerce is the fastest-growing channel for innerwear. We have the opportunity to improve the quality and visibility of our offering across all e-comm sites. The good news for us is, that is also where we’ll find a lot of those under-39 consumers. To address these opportunities, our growth objectives are straightforward. First, we will revitalize our core. This is a huge deal for us. As I mentioned, we have a $3.7 billion base business, and it will generate significant upside when it starts growing again.

As I looked at this business more carefully, I believe we just haven’t been aggressive enough with the wonderful assets at our disposal. To make this revitalization happen, we will leverage the considerable scale within our supply chain, our leading market share positions and our strong customer relationships. By combining these competitively advantaged capabilities with a more consumer-centric approach, we will create significant growth for our Innerwear brands. To revitalize the core, specifically, we will look to improve everyday great execution with a strong focus on product availability, in-store presence and pricing optimization.

We have also created a repeatable process to identify the right portfolio for the right channel. We call it the winning portfolio model. Full deployment of this model has already begun. Reducing SKU complexity and leveraging our route to market scale is worth hundreds of millions of dollars in new distribution.

We’ll also use our strong relationships to partner with our most strategic customers to increase on-shelf availability and improve the shopping experience. A great example of this is that we are partnering with one of our largest customers using RFID technology to ensure shelves are full of Hanes products. This will dramatically improve the shopping experience by ensuring better on-shelf availability and will drive a significant increase in sales.

One last example of how we will revitalize the core is to build a disciplined approach to pricing and trade investment that will improve ROI. We are in the process of establishing this model, and it is already advising how we are investing for growth. For example, investing more in US e-commerce has a better ROI than other channel investments. This revitalized the core objective, which we call our win within plan, will not only deliver incremental sales and profit growth, but also provide the foundation to expand our demographic reach, which leads to the second objective, investing to grow our share with younger consumers. We’re extending beyond our previous efforts to make our portfolio more relevant with this cohort. This will enable sustainable growth because these young consumers spend more and will have a very profitable lifetime value as our customers. Our goal in getting younger is not just to grow our share, but to double it with younger consumers. As I said before, this journey is worth over $1 billion.

Connecting with younger consumers is something we’ve done throughout our history, and we can do it again. To take action on this right away, we’ve launched 15 test-and-learn initiatives in our US market. This approach enables us to move quickly and to refine our strategy so we can get the best bang for our buck when we expand into the broader market. We are very encouraged by these initiatives, and our modeling indicates that they will contribute significant growth towards our Full Potential plan.

We’re also successfully targeting younger consumers with innovation via our Total Support Pouch. Total Support Pouch is an underwear that was created to directly appeal to young men. After extensive research, we introduced this innovative product in March. To ensure a successful launch, we did a few things differently than past Hanes introductions. To begin with, we had the attitude: if we build it, they will come. And consequently, we raised our ambition and built a launch plan to make this one of the largest new products in our company history. To accompany this, we leveraged the best of what Hanes has to offer and added some new things to ensure we reached our targeted consumers.

First, we created a new men’s underwear product with superior quality and unbeatable value versus the competition. Second, we used our route-to-market scale and collaborated with our customers to build fully integrated launch plans to ensure strong retail and online placement, particularly in channels where young men shop. Right now, we have terrific retail presence and are available in 83% of the places where underwear is sold. And third, we built a launch campaign to reach young men with a heavier investment on digital marketing than we’ve ever done before. I’m happy to say that Total Support Pouch is very successful. And we have nearly doubled our penetration with men under 34 years old.

Furthermore, our data also indicates a high degree of incrementality, with 74% of the purchasers being new to our hanes.com site. Lastly, it is now projected to be our largest launch in the last 10 years. And we are so encouraged by the results, we plan on doubling our advertising in the second half of the year to make it even bigger. We know this get younger approach can work because we’ve already done it in Australia with one of our strongest brands, Bonds. Jane Newman, our new Chief Design Officer, will share more details about that experience with you shortly. It completely transformed their business and helped to make Bonds a $390 million business in a country whose population is 14 times smaller than that of the United States.

To support these two objectives, revitalizing the core and getting younger, our company will invest against three critical enablers. First, we will win with e-commerce. This is the fastest-growing channel across the globe, and we are building new capabilities to ensure we win in this critically important area. Greg Hall, our Chief Consumer Officer, will provide more detail on our ambitious plans and the new tools we’re building for this later in the presentation. But let me emphasize, this is a very exciting opportunity and a logical place for significant investment, given it’s the fastest-growing channel, it’s where young people like to shop, it’s incremental and it’s more profitable. What’s not to like?

Greg will also talk more about how we plan on building our brands and making them even more relevant to today’s consumer. In short, we are planning to double our brand-building investment this year and then double it again within the next three years. This will build our brand equities and turbocharge our growth. As Steve mentioned earlier, our plan is to self-fund these investments and unlock this fuel for growth. This is an enterprise-wide effort that we are already building momentum against.

Lastly, we’ll drive category-disruptive innovation by leveraging deep consumer insights, and then translate them into breakthrough designs and compelling marketing. The headline here is fewer, bigger, better. We plan on investing and focusing on the largest opportunities. To support this, we have just created one global design team. Jane will share how she plans on reducing our innovation cycle times by leveraging an agile design process she pioneered in Australia. This will enable flexible product flow in three different streams, increasing speed to market in what she refers to as an ownable, repeatable model. Doing these things will allow us to take a Global Innerwear business that was declining on average 3% a year and deliver share-gaining growth over the next three years, which is a 500 basis points improvement. This pivot to sustainable growth is very exciting. And once we get the flywheel moving, we’ll uncover additional opportunities far beyond these targets.

So there you go. We covered a lot of ground, but to put it simply, our intention is to revitalize our core and double our business with consumers under 39. In doing so, we’ll move from autonomous geographic businesses to one global team, from decentralized investment strategy to a focused investment approach, from limited investment and brand building to increased investment for growth, from a complicated org design to a simplified and streamlined organization structure, and lastly, from diffused capabilities to more dedicated consumer-centric capabilities.

Our two objectives will enable Hanes to drive continued progress for many years to come. When you combine these with a more focused and global innovation approach, we will have many big opportunities to pursue over the next few years. We can self-fund this growth, and we already have powerful route-to-market capabilities in place to build upon. So we already have considerable momentum. You can see why I’m really excited about this opportunity, to fully transform Hanes into a consumer brand powerhouse over the next few years.

And now, we’ll continue this conversation around growing our innerwear business with our Chief Design Officer, Jane Newman.

Operator

Please welcome Jane Newman.

Jane NewmanChief Design Officer, Global Innerwear

When Steve offered me the role of Chief Design Officer for Global Innerwear, I was thrilled at the opportunity to shape the design and innovation vision for Hanes’ iconic global brands. This is an incredible opportunity to further leverage our design capabilities as we elevate our efforts to deliver global consumer-led product innovation.

Today, I’d like to touch on three main topics: how we evolve the Bonds brand, providing a road map to drive growth by attracting younger consumers. I’ll show how attracting younger consumers is the first step in growing each of our brands, providing opportunities to expand into new products and categories. And I’ll demonstrate how we’re now positioned to deliver consumer-led design and innovation by unlocking our global talents, capabilities and insights.

First, let me share a bit about myself. Before my current role, I led the design and innovation team at Hanes Australia and more recently across Europe. During that time, we’ve taken the Bonds brand on a journey from a basic men’s focused underwear brand to a multi-category, multichannel consumer-led brand. Not only did we attract younger consumers, we transformed a whole category. Our focus on innovation and bold design enabled us to expand Bonds into new categories. Now Bonds is famous for its relaxed style and youthful energetic aesthetic, spanning underwear clothing, socks and hosiery for babies, right through to those who remain young at heart.

Underpinning this evolution has been the design of some of our most iconic products. Our big ideas have become the backbone of the Bonds in Australian business. Here is a snapshot of our journey.

[Video Presentation]

One of the most exciting parts of my new role is the opportunity to bring this approach to Hanes brand globally. For HBI, getting younger is just the first step. I want to deliver great products consumers want by bringing a useful energy and a confident design aesthetic to all of our brands.

We will make the ordinary extraordinary, delighting consumers by constantly reinventing. We will meet consumer needs by leveraging our design and innovation, by driving global collaboration and by improving our speed to market. You heard Joe and Jon speak to this earlier. I’m going to share how this comes together.

There are three overarching themes that will speak to how we’ll deliver products that consumers want. First, we’ll deliver truly global design and innovation. We have over 200 extremely experienced and talented designers and innovators across four design centers around the world. Our ability to unleash a diverse global team to create new, exciting products our consumers all around the world will love is an untapped competitive advantage. We have the opportunity to expand and understand and evolve with the younger consumers better than anyone else. And we will bring this youthful energy across the HBI portfolio with a focus on Hanes, Maidenform and Bali. You’ll start to see the results of this new approach as early as next year.

Similarly, taking a global approach to sustainability is of particular importance to younger consumers around the world. We have a big opportunity to bring this to life through our product and connect with consumers on a deeper level. Our public commitments and history support this effort and we’re excited to blow this approach out on a global scale across our brands. You’ll hear President of Global Operations, Mike Faircloth, speak to our sustainability initiative a little bit later on.

By increasing the connectedness of our global teams, bold trend and insight-driven big ideas can really come to life. Secondly, there’s the opportunity for global collaboration. We are creating new opportunities for global collaboration to build on our competitive advantages. Our lift-and-land process of lifting both product and fabric innovation into other brands and geographies is well established. But we have enormous opportunity to do even more.

First, on product: we recently improved the lift-and-land model by identifying global big ideas earlier in the design and development process. This enables us to respond quickly to global market demand with a collective brand proposition. We identified period underwear as an emerging consumer need and trend that was quickly building and connecting with women in a big way. It was the chance to really disrupt the category globally, which led us to launching Bonds Bloody Comfy Period Undies in Australia, as well as exporting the idea to the US under Hanes Fresh & Dry.

It was also an authentic opportunity to connect with the youthful consumer by offering a more comfortable and sustainable alternative to traditional products. A true cross-functional collaboration ensured this big idea went from concept to consumer in only nine months. That’s record time for such a complex high-performance technical product. You can see how we leverage the innovation with an execution that is very different, but appropriate to the brands and consumers.

The response has been extraordinary. In Australia, consumers responded to both the product and the disruptive messaging, which took the embarrassment out of periods. And the range exceeded all expectations, regularly selling out and earning accolades from consumers and retailers alike. We won the prestigious New Product of the Year Award by Australia’s largest retail partner. More importantly, we achieved thousands of five-star reviews from happy consumers online.

We test and trialed the Bonds product on hanes.com in the US under Hanes Fresh & Dry. This received extremely strong sales, and we quickly proceeded with launching the Hanes Fresh & Dry product to the wider market with great success. We are expanding the absorbency and period underwear category across more products in the year ahead. This is a stretch into a new and truly incremental category, with significant runway for further category extensions.

Connecting to new shopper occasions is just one way we plan to build our brands. And the second important source of global collaboration is our fabric platforming. Fabric platforms are our fabric big ideas, focused on comfort attributes. These platforms can be died or printed and used across multiple brands and products. We will continue to invest in fabric innovation. Our highly skilled fabric teams are constantly innovating by creating new solutions and trend-relevant fabric platforms that can be leveraged over multiple products. And finally, we will bring much faster speed to market.

Consumer needs and the market are changing rapidly, and we are working to get our innovation to market faster. Our consumer-led design and development model enables experimentation through a test-and-learn model. This model uses our own platforms and digital environment to quickly collect consumer feedback, then takes these learnings to accelerate the big ideas to market.

A great example of our test-and-learn model in practice is Bonds Retro Rib, which is all about bold useful basics for everybody. We launched Bonds Retro Rib into the US as a test-and-learn trial within our Hanes retail network. Despite COVID, the range performed extremely well, with styles featuring in the top 10 products in store. We are expanding on this success by introducing similar products in the Hanes and Maidenform brands.

We’re also seeing success in the other direction as we tested Maidenform bralettes under the Bras N Things brand in Australia, both online and in-store. This has filled a product gap in the portfolio for Bras N Things, delivering a supportive intimate solution to this growing consumer need. Accompanying this is our agile product development process. This process enables flexibility for product flow across seasonal development, fast track and innovation, unlocking speed with an ownable repeatable model. We’ll also introduce a new segmented supply chain that will enable all kinds of innovations and benefits, which Mark will tell us about later.

So, together all of this up, I’d like to leave you with three key takeaways. First and foremost, at HBI, we have an incredible opportunity to truly leverage our design capabilities to deliver global consumer-led product innovation. We’ll do this by global talents, capabilities and insights, while significantly increasing our speed to market, particularly for the Hanes brand. Secondly, we have a proven road map to attract younger consumers and drive our growth. The changes we have already achieved in the Bonds brand in Australia serve as a pathway that we can leverage not only for innerwear but across HBI. And finally, attracting younger consumers is just the first step in growing our brands, as this creates opportunities for new innerwear products and categories to expand our reach.

Next up, following a short break, Chief Consumer Officer, Greg Hall, will continue our conversation about connecting with consumers in innovative and meaningful ways.

Operator

Please welcome Greg Hall.

Greg L. HallChief Consumer Officer

Thank you, Jane. It’s incredibly exciting to be leading our consumer team here at HanesBrands. I’m here to talk about this team’s role and the part we play in the Full Potential plan. Steve spoke earlier about building a consumer-centric organization to drive profitable growth for our brands. This consumer team’s job is, quite simply, to bring that vision to life by constantly learning from the consumer, being empathetic to their needs and helping them.

I’ll talk about how we’re improving the consumer’s journey from beginning to end to motivate and empower our consumers to shop how, when and where they want to shop. I’ll share with you the investments we’re making to drive awareness and loyalty for our great brands, with the consumers who know us well, and importantly, those who don’t. I’ll also discuss our focused investments in digital capabilities, including digital marketing, e-commerce and advanced analytics, to make it easier for our consumers to buy our products, how, when and where they want to shop. But first, let me share why I’m so excited by this opportunity with HanesBrands.

Over my career, I’ve had the privilege of building world-class brands, developing fantastic products and driving growth and capability in e-commerce. I’ve seen the value of clear consumer-led brand positioning that serves as the heartbeat for an entire organization and the great things that can happen when our whole organization is informed and inspired by the consumer. This experience is now serving me well in helping HanesBrands realize our plan. I’m here because I see and believe in the potential, the full potential of this business and these brands.

I’m convinced that the core of a winning strategy is building strong brands that meet real consumer needs. This consumer focus lives throughout our entire organization. But the heart of this relationship rest with the consumer team. This team includes both our marketing and our direct-to-consumer organizations. The people responsible for the way that we connect, communicate and transact with our consumers. By uniting these functions, we are now organized to deliver a truly consistent brand experience, all around the consumer. We are building this experience from a position of strength, particularly the strength of our brands, the strength of our retail presence and the strength of our supply chain. It’s a dream opportunity to work on brands that are big, loved and yet still have a ton of potential for growth, and that’s what we’ve got.

As Joe Cavaliere mentioned, Hanes is a powerhouse brand, selling over 1 billion units annually. And it’s found in nine out of ten US homes, yet it has tremendous growth potential with younger consumers. But honestly, we’ve starved this brand for investment over the last five years. We’re changing that.

Jon talked to you about Champion. We all know that Champion has a lot of momentum right now and it has tremendous potential as we convert consumers’ passion for the brand into growth, growth in our core, growth in new categories and growth in new regions. How do you measure passion? Among our brands, Champion has the most direct consumer relationships, and it is the fastest growing in social media. Consumers are proud of Champion and they’d love to show it off. But again, this brand has been starved for investment. We’re changing that. We’re changing it with increased support of the Be Your Own Champion platform.

Our portfolio of intimate apparel brands allows us to deliver the perfect products for women across multiple consumer segments. We’re recalibrating the position of these brands, Hanes, Bali and Maidenform, to address distinct consumer segments, ages, sizes and wearing occasions. So we have an awesome stable of brands with so much untapped potential.

Now, let’s talk about our retail presence, which is another strength. Our extremely broad distribution shows that our retail partners value our brands. And we, in turn, we value their support. As Steve mentioned, our products will be available where, how and when consumers like to shop. The diversity of our brands and our retail channels enable us to connect with a broad range of consumers in ways that honestly many of our competitors simply can’t. We saw the value of our channel strength over the last 18 months as we captured growth with our mass-market omni-retailers, our pure-play online partners and our owned e-commerce sites. While we’re proud of that growth, I need to acknowledge that we’ve under-invested in our digital capabilities and we’ve fallen behind. We’re changing that now.

We will make the very necessary investments in technology, data science and core digital capabilities to drive our digital operation. These investments will deliver growth in our traditional and online retail partners, in owned and partner retail stores in key markets like Australia, Europe and China, and in our owned e-commerce sites.

So how are we going to make it easier for our consumers? Let’s talk about that right now, as I walk you through the consumer journey. We envision this journey as five interlocking steps. So let’s get started. Step one, they’ve got to want our product. You heard Joe and Jane and Jon talk about their process for creating innovative, must-have products. The job of the consumer team is to help guide that process and to build awareness and desire for these great products. To do this, we will invest more in building our brands. As I said earlier, these investments, they’ll look different for Hanes and Champion, but they will have this in common: they will be consumer-focused, data-driven and optimized to drive brand health and sales growth.

Our Bonds brand, which Jane told you about, is a great example. Bonds is one of the strongest apparel brands in the world, with awareness, consideration and brand preference scores on par with some of the giants in the apparel industry. And Bonds has equally strong appeal with younger and older consumers alike. So how did they do it? Innovation powered by deep consumer understanding, compelling, creative and significant data-driven media investments. In short, that’s the value of clear consumer-led brand positioning. Imagine the power of applying that formula to our biggest brands, Hanes and Champion.

As Steve said, Full Potential is about what we will do and what we’re already doing. For example, our Total Support Pouch is truly breakthrough innovation. It’s powered by compelling creative. You know what? Let me introduce you to Hans, he’s our new spokesman for Hanes Total Support Pouch.

[Video Presentation]

I think that’s great, and I hope you agree. I think it feels different coming from Hanes. I can tell you that it connected with my two sons. They’re both in their 20s and they really loved it. And they’re not alone. This creative has strong appeal with our younger consumers. The current Total Support Pouch campaign is breaking through. But it’s not just about the creative, our media strategy is different too. Of course, we’re leveraging TV since Hanes is truly a mass brand. But what is really different than prior years is our significant investments in digital and social media. Those are optimized daily and they’re truly data-driven. Our Full Potential plan provides increased investments like these in our key brands. In fact, we will be doubling our brand investments from the 2% of sales that they are today to 4% by 2024.

Now, on to step two. Once consumers decide they want it, we need to make it easy for them to find it. As we discussed, our brands and products enjoy broad distribution and the support of our retail partners. We’re increasing our capabilities in digital marketing to build on that strength. We’ve recently consolidated all of our digital media planning with a world-class performance marketing agency. We’re increasing our digital investments, and at the same time, we’re leveraging our retail partners’ investments in brand building and data-driven media platforms. For example, when consumers are shopping for groceries on our retail partner sites, they may see a highly-relevant ad to remind them it’s time to buy the family new socks and the kids some new underwear. This investment is new, impactful and it will drive growth.

Next, step three, it’s time to buy it. With this step, we’re working to remove friction from the consumers’ path wherever they choose to buy. To make this happen, we are doubling our investments in technology. We’ve applied some of this capital to re-platforming all of our sites with a focus on champion.com. We’ve also built a new agile product team focused on increasing conversion on our brand sites, with faster page download speeds for mobile and desktop, improved visual look and ease of use across the sites, designed to deliver a better guided selling experience, and improved personalization to help consumers find what they’re looking for even faster. Each site will play a role in our Full Potential plan.

We will make significant investments in champion.com as the premier brand and shopping experience globally. It will be focused on the mobile and social experience to enable us to communicate and transact with the consumer segments that Jon talked about earlier. In Australia, bonds.com and brasnthings.com will be the leader in omni-shopping. They’re going to be connecting our own stores with our great brand experiences online. This highlights, by the way, our capability as a global omni-retailer. Finally, Hanes, Maidenform and balibras.com will increasingly become the marketing destination for these brands. These investments are already impacting our e-comm business, but we’re just getting started, and we have so much opportunity ahead of us.

On to step four, it’s time to get it, a crucial opportunity for us to delight the consumer and earn their brand loyalty. In a moment, Mike Faircloth will tell you how our supply chain investment is supporting this step by improving service levels, fulfillment and shipping time to create a great brand experience.

The last step, step five, know me. Now that the product is in the consumers’ hands, we continue the work of building our brands by developing our data-driven understanding of each consumer. In 2020, we saw more consumers opting into a direct relationship with our brands. And as I mentioned earlier, Champion is leading that growth, which is helping us to learn more about our consumers. Jon referenced sweats as the gateway to the Champion brand. And he’s right. We know that over half of our new shoppers enter the brand by buying a hoodie or some other sweats. And when they return, they try out other categories, spending more and more on each visit. It’s about 15% more on average. We’re just scratching the surface at leveraging this data to improve the consumer experience.

In short, know me is the connection back to the first step in the journey. And when done right, it makes it easier for consumers to find, buy and get our great products. Are we there yet? No. But that is the business we’re building, driven by our consumer-centric strategy and backed by data analytics that guide us to the right investments. These include increased investments in our brands to drive awareness and loyalty with key consumers and significant investments in our digital capabilities to improve our presence and performance online.

As you can see, I am very excited about the future. And I’m very excited about the work we’re doing to put the consumer at the center of everything to help HanesBrands achieve our full potential. I’m fortunate to be leading a passionate team at a time of enormous opportunity.

Now, I’d like to welcome our next presenter. He and his great team play an essential role in elevating the consumer experience. Please welcome President of Global Supply Chain, Mike Faircloth.

[Video Presentation]

Operator

Please welcome Mike Faircloth.

Michael E. FairclothGroup President, Global Operations

Thanks Greg. We’re very excited about the work we’re doing in the supply chain as part of our full potential plan. We’ll leverage the vast capabilities and scale we’ve built to unlock growth opportunities while continuing to support our leading brands. Our supply chain remains a significant and sustainable competitive advantage. And now we’re creating a more consumer-focused supply chain, building on our traditional strengths while enhancing our direct-to-consumer capabilities, particularly our own e-commerce. This will allow us to move with speed and focus, meeting the needs of our brands, customers and consumers, unlocking significant revenue growth opportunities. One of the many things that sets us apart from our competition is that we have full visibility of our supply chain. This gives us a deep understanding of everything that is required to design, produce and distribute our products around the world. This visibility allows us to prepare for or navigate to avoid business impacts and costs related to issues such as inflation, trade, regulatory and the ever-evolving geopolitical risk. This enables us to make sound decisions that protect our brands, our customers and our operating plan.

Our production is strategically balanced across both the Eastern and Western hemispheres, and we operate at tremendous scale, producing over 2 billion units annually. The global network we’ve built is strategically positioned to mitigate risk while supporting our global company in an efficient, low-cost manner. It allows us to leverage our global purchasing power, share large material and fabric platforms as well as deliver market-leading product innovations to all of our global consumer end markets. Owning and controlling our supply chain means we can benefit from a mature, lean continuous improvement process that’s deeply ingrained in our culture. These improvement trends have been consistent for over a decade. Increasing productivity and factory output without requiring significant capital investment to add capacity. Our capable, diverse and dedicated global workforce is fully engaged, focused on continuous improvement and they strive to always do the right thing.

Our team is passionate about our commitment to sustainability, and we’ll continue leading in this area, embedding it in every area of our company and brand. Our associates are proud to work for Hanes, and we are very proud of them. We’re especially pleased of how our team managed through the challenges in 2020. Our global supply chain model proved to be resilient once again. Despite the challenging year, the team continued to deliver year-on-year improvements across many of our key metrics. Since 2018, when our last Investor Day was held, manufacturing output per factory improved by 15%. Efficiency improved 6%. Defects were also reduced by 6% and production lead times reduced by two weeks. Our focus on associate engagement has resulted in lower turnover and increased experience, contributing to these outstanding results.

We are pleased with how our supply chain has served us in the past. However, our supply chain was designed for high-volume wholesale replenishment products sold to large retailers. While this remains a very important component of our business going forward, market channels and consumers continue to evolve. Therefore, to support growth opportunities, our supply chain must also evolve. Building on the strong foundation of our well positioned global network, we are enhancing our supply chain capabilities to further strengthen our competitive advantages. This also allows us to better align with the various growth opportunities of our full potential plan. This effort is not about rebuilding or moving our existing facilities. It is about establishing focus flows within our current footprint and building upon our strong foundation. Most importantly, we’ll do this with the consumer in mind.

We’re creating a segmented supply chain that will enable discrete product development, manufacturing and distribution flows that meet the speed and flexibility needs of each brand and commercial channel. This approach will ultimately provide the innovative products consumers want at the unbeatable value and quality that HanesBrands is known for. By segmenting our supply chain, we will be quicker to market with product innovation, allowing us to capitalize on in-season growth opportunities, lower delivery costs and more efficiently meet the evolving needs of all our customers.

Let me give you a sense of what segmenting our supply chain means in terms of our manufacturing and distribution networks. With respect to manufacturing, to enable our full potential plan, we’ll operate the supply chain in distinct segments. We will continue to have focus flows for our core replenishment products, retail events, and new product introductions, just as we have efficiently done for the past several decades. This process will be unchanged. We’ll continue to focus on reducing lead times, lowering cost, increasing productivity and improving inventory turns. The new capability we’re adding will be a fast and flexible segment. We will establish a disciplined, efficient and repeatable process that is designed and resourced to respond to market demands as they occur. This capability will enable our supply chain to capture in-season, short lead time revenue opportunities that we were previously unable to fully realize. This fast and flexible capability will sit within our existing manufacturing footprint, allowing us to leverage our global scale and purchasing power. We’re establishing new processes, capabilities and dedicating resources that are focused on speed and flexibility. As Jon mentioned, to support the growth of our Champion brand, prior to each season, we will positioned common materials and unattributed garments in close proximity to our commercial markets. Allowing the supply chain to respond quickly to demand, converting these common, prepositioned items into unique products that our consumers want, when they want them. We believe by adding this new capability, we can achieve both low-cost and flexibility. This will unlock growth opportunities without the risk of creating excess or obsolete inventory.

Next, let me speak to our distribution network, which will be segmented between wholesale and direct-to-consumer. While our segmentation is designed to improve service and meet the unique needs of each channel, we’ll manage the entire distribution network with a focus on improving productivity through the combination of automation, data analytics and the use of warehouse space gained by our SKU reduction initiative. As you might expect, we’re very well positioned to build on our strength of serving wholesale customers. While we’re very happy with our current wholesale distribution network, over the next few years, we plan to add additional capacity to support the growth of the Champion business.

Turning to the direct-to-consumer channel, we’ll establish a new supply chain segment that will further expand our DTC capacity and capabilities to better support all of our dot-com selling channels. We will have dedicated resources and process focused solely on the direct-to-consumer channel, which encompasses everything from demand forecasting through delivery. This supply chain segment will be consumer-focused and closely aligned with our own dot-com selling sites as well as with our pure-play and brick and mortar dot-com customers. In Australia, we’re adding capacity while lowering operating costs by expanding our goods-to-person robotic automation system in our existing facility. In the US, we’re complementing our East Coast capacity by expanding our West Coast fulfillment capability in our existing 3PL network.

Over time, we’ll add other direct-to-consumer distribution points to better serve all US geographies. Additionally, we’re adding incremental automation to our existing DTC facilities to increase capacity, reduce lead time and lower operating costs. We will continue to operate our distribution network with the optimal combination of owned and 3PL fulfillment centers. Through 2024, we expect investments in our segmented supply chain to be primarily in our distribution network. Later today, Scott will speak to our $300 million full potential capital investment plan, which includes supply chain. Segmenting our supply chain will allow us to use the vast capabilities and scale we’ve built to unlock growth opportunities while continuing to support our brands. This effort is not about rebuilding or moving our existing facilities. It is about establishing focus flows within our current footprint and building upon our strong foundation. Not only will we continue to enjoy the benefits of our large scale, geographically balanced network, we will be positioned to maximize our growth opportunities. We expect this work will result in better service to our consumers as well as our dot-com and retail partners. We also expect our segment and supply chain to continue to lower operating costs and improve inventory efficiency, enabling us to reach our full potential goals.

Turning to sustainability. As Steve mentioned, one of our core strengths is a deep commitment to sustainability. We’re very proud of the work our team has done and continues to do in this important space. We’ve accomplished a lot, but there’s more work to do. Our customers and our consumers, particularly our younger consumers are increasingly demanding sustainable products. Our heritage in this area gives us an enormous advantage as we embed sustainability in every aspect of our business. Our focus includes providing our associates and everyone that produces our products with a safe and rewarding work environment, increasing efforts that positively impact the planet and supporting our brands with products that are produced with sustainability at their core. Our efforts have resulted in reducing greenhouse gas emissions by 40%, water usage by 30% and energy usage by 26%. Today, almost half of our energy comes from renewable resources. We’re proud of the work our team has done, and we’re even more excited about more excited about what we’ll achieve in the future. We have set bold sustainability goals and developed action plans to achieve them.

Our efforts are in three areas: people, planet and product. In just a moment, you’ll hear more from Kristin Oliver about our focus on people. For Planet, we set new corporate-wide environmental goals based on science-based targets. Our brands will connect directly to consumers through the benefits of our sustainable products. We’re excited about the plans we have in place, and we will continue to lead in this area. Let me leave you with an update on this commitment to sustainability in everything we do.

[Video Presentation]

Operator

Please welcome Kristin Oliver.

Kristin L. OliverChief Human Resources Officer

That video is a revealing window into our culture. The people here are proud to be part of an organization that’s here to do well and to do good. And I can tell you they are energized and united by our growth strategy. Hello, everyone. I’m delighted to be on the HanesBrands’ team, supporting our full potential plan through our associates. My background is in legal and HR, working at leading retail and apparel companies. I love helping businesses build, organize and motivate their teams to achieve growth strategies. I’d like to start by giving you an assessment of the incredibly strong culture we already have and how we’ll continue to make it stronger. I’ll then talk about how we’re building on this foundation, with the new org structure built to accelerate results and deliver profitable growth. Next, I’ll talk about the additions and promotions we’ve made on our team to put the right talent in the right positions to meet our aspirations. And finally, I’ll discuss how we’re motivating them to achieve growth and other important goals such as those around diversity.

Let’s start with my first impressions of the culture of HanesBrands. Since joining in September, I’ve witnessed some amazing things. First is the level of commitment to the company, its brands and its mission. We have a significant number of long-tenured associates who feel deeply connected to HBI. The pride in the company is palpable. Most of all, there’s a willingness to work hard to win that’s truly inspiring. There’s another facet of this company that’s just as impressive, our commitment to good corporate citizenship. You’ve already seen how we’re leading in sustainability. We are also proud of our commitment to ethical labor and human rights practices, not only in our company-owned facilities, but also with each of our suppliers throughout our global supply chain in more than 47 countries. But at HBI, there is also a commitment to making a deeper human impact that I love. On the education front, our company offers career development for our associates at every level, from corporate headquarters to the facility floor. In Latin America, we have a program that enables our facility workers there to complete their high school educations. So far, some 3,000 associates have done so with many continuing on to university, which we are very proud of. We also have our own learning platform. HBI University is a learning portal that offers certification programs as well as leadership and functional training, so people can take control of their own career advancement.

On the health and wellness front, we operate health clinics in our Central America and in many of our US facilities. In addition to primary care, they provide great proactive care, including a very successful program for expected matters. HanesBrands is just as committed to the communities where we operate. Since 2012, we’ve partnered with Wake Forest University to bring medical missions to Latin America and they’ve completed over 1,000 ear, nose and throat surgeries, primarily for children. We also commit volunteer hours to support and upgrade local schools and orphanages. So this is a company with heart. Our people love this aspect of our culture. Our associates are proud of their association with HanesBrands, and they want to be a part of the company’s success.

Now, let’s get to the changes we’re making around people to realize our full potential. Steve mentioned that we built a flatter organization. This structure improves transparency, communication, collaboration, all to accelerate our growth. It also empowers associates closer to the consumer to make more decisions faster. It’s the right structure, the right leadership and the right balance of new and seasoned HBI executives to reach our full potential. Steve, John, Joe Cavaliere and Greg came here with great track records at highly respected companies. Joe Monahan, Jane and Mike are all HBI veterans, who’ve been elevated to new positions where they can apply their deep company knowledge. I’d also like to highlight some people that you haven’t heard from today who’ve taken on key roles.

In our restructuring, we divided the HR and legal functions. We were pleased to recruit Tracy Preston as our new General Counsel focused on legal, ethics and compliance. You’ve heard today how important digital capabilities are to our growth strategy. Recognizing this we’ve elevated our Chief Digital Officer to report directly to the CEO. We’ve internally promoted Cindy Miller to this role. Cindy has 30 years of experience with HanesBrands. With her deep with her deep understanding of our IT architecture, and her impressive skill sets Cindy knows how to deploy technology to achieve our goals. In addition to these structural changes, we are also working to ensure that everyone is clear on our mission and their role within it, and has the tools and incentives to succeed. To this end, we’re aligning our financial rewards with our strategy. This year, our entire management will be measured on their delivery against our financial goals and full potential initiatives. Our long and short-term incentive plans have the same metrics for all participants creating the mindset that we are all in this together. We’ve also separated the metrics between the long and short-term plans. This way our leaders are focused on the objectives that help us win today, as well as the objectives that will prepare us to win tomorrow.

Our evaluation process for 2021 will include a strong focus on diversity, equity and inclusion. It’s not just the right thing to do. It’s important to our growth strategy. Our biggest growth opportunity is with young consumers. The post-millennial generation is our most diverse generation ever as one proof point, look at champion. Champion skews younger than other brands. Thanks to strong favorability with Black and Hispanic consumers. We need to build that favorability across our brand portfolio. The best way to do that is to develop leaders who bring their multicultural perspectives to our team, to achieve this we’re putting our diversity goals into our performance metrics. Over the next five years, we will aim for at least 25% representation of people of color at the senior manager and above levels within our U.S. workforce. We are already at 50% representation of women at this level, which we see as a great strength for our culture and for our company. We are proud of our global diversity today. And we know that this journey will strengthen our business tomorrow.

With all of our objectives, we’re going to be transparent every step of the way so that our associates know where they and the company stands. We have made great progress in my eight months with HanesBrands and empowering our people to succeed by giving them the tools they need to deliver our full potential plan, but we are never done. We will continue to infuse new capabilities into our organization through new hires, internal skill-building and elevating current high-performing talent into roles of greater responsibility. I joined this company to be a part of this change. I am energized by the opportunity to participate in the evolution of this strong and well-respected organization. I have confidence in this leadership team and the vision we’ve created. I’m excited by the opportunities for all HBI associates around the world as we reach our full potential.

Now, it’s my pleasure to introduce our next presenter, the Chief Accounting Officer for HanesBrands, Scott Lewis.

M. Scott LewisChief Accounting Officer and Controller

Thanks Kristin. As Steve mentioned at the start of the day, our full potential plan is a roadmap for repositioning HanesBrands to deliver more consistent revenue grows and higher levels of profitability over the next several years. You’ve heard a lot today about this plan, the pillars that’s built upon and the strategic initiatives we’re taking to pursue our goals. I’m here to tie it all together and to show you how it translates into our financial targets for revenue growth, margin expansion, and earnings growth for 2024. Also address our operating cash flow, going forward and provide an update on our capital allocation strategy. As a reminder, all comparisons are on a continuing operations basis. Prior period adjustments that reflect our European Innerwear at business as discontinued operations can be found on our investor relations website or in our SEC filings.

Here’s the big picture. We believe revenue will grow at a compound annual rate of 6% on a constant currency basis between 2021 and 2024. Operating margins will expand to approximately 14.3% by 2024. This represents a 100 basis point improvement over the midpoint of our 2021 guidance. And we expect earnings per share to grow at 9% CAGR over the three years ending in 2024. This will be achieved even with an incremental $160 million of growth related investments during this three year period. In this same period, we believe we will generate on average, roughly $700 million per year in operating cash flow.

Now, let’s provide a broader framework starting with our results over the past several years. For the past two years, we’ve delivered solid revenue performance, which is a testament to the adaptability of our business model and our associates. Certain areas of the business is our special mention. This includes our International Innerwear business, which delivers exceptional results led by Australia business and global champions phenomenal growth. Over the past three years, the champion brand has delivered more than $600 million of revenue growth. That’s a CAGR of 18%, impressive in the best of times, but even more remarkable in the face of COVID shutdown, which closed stores and college campuses through most of 2020. Also, as we have previously reported, our 2020 revenue base included a short-term benefit from PPE, which helped offset the pandemic driven headwinds.

US Innerwear business is a different story. As Joe discussed, this business has declined approximately 4% per year for the past several years, which is a result of not adapting with our consumer, investing behind our innerwear brands or building digital capability. The good news going forward, our full potential plan provides the remedies to put this business on a growth path, including much needed investment in brand building digital capabilities. The good news. Going forward, our full potential plan provides our remedies to put this business on a growth path, including much needed investment in brand building, digital capabilities, consumer-led product innovation and increased speed to market.

Now, let’s move forward a step and discuss this year’s performance. This morning, we reported our first quarter results and also issued our second quarter and full year 2021 guidance. Touching briefly on our first quarter results, we exceeded the high end of our expectations across all of our key metrics. We saw continued strong revenue amount across each of our segments driven by a combination of underlying point-of-sale strength, benefits from stimulus and retailer inventory restocking, as well as the anniversary of the initial COVID shutdown. As compared to last year and only continue operations basis revenue increased 25%, operating profit increased 190% and earnings per share increased 457%.

Looking at our segments. US Innerwear sales increased 35%, US Activewear sales grew 26% and International segment sales increased 18% over prior year or 8% in constant currency. As the next step, we moved our European Innerwear business to discontinue operations during the quarter. This resulted in a non-cash charge of $390 million to reflect an intangible asset impairment and net asset write-down. With European Innerwear now reflected in discontinued operations, our guidance including year-over-year comparisons is based on continuing operations.

Turning to our outlook for the second quarter and full year. 2021 is proven to be another abnormal year with both some unusual negative, but also positive factors at work. And we have reflected this in our guidance. For example, COVID headwinds are still impacting the Western European and Japanese markets. We’re also experiencing acute short-term cost pressures and distribution due to higher shipping costs globally. On the plus side, as I mentioned, we experienced a short-term incremental benefit in the form of stimulus and continued to retail or inventory restocking in the first quarter, particularly in our US Innerwear business. We expect this benefit to be short-lived, since it’s not indicative of long-term category growth rates. While we do expect a moderate level of benefit in the second quarter, we have not assumed any additional stimulus or inventory restocking benefits in our second half outlook.

For the second quarter, at the midpoint of our guidance range, we expect sales to grow 2% over prior year. This speaks to the underlying momentum of our business as we are positioned to comp the $640 million of PPE sales in the second quarter of 2020. Second quarter margins, however, are expected to decline to approximately 13% due to higher levels of brand investment and lapping last year’s benefit from PPE sales.

Turning to the full year. At the midpoint of our 2021 revenue guidance implies 2% revenue growth. This comes on top of 2% growth in 2020, which you recall included approximately $820 million of PPE sales. As indicated by our second quarter outlook, we remain confident that the improvements in our core apparel business can more than offset last year’s PPE sales. With our focus on improving the health of our brands, which Greg mentioned, and supporting the launch of our latest innovation, Total Support Pouch, which Joe spoke about, we are planning to invest roughly an incremental $50 million in brand marketing in 2021. Despite this increased investment, our full year 2021 guidance at the midpoint implies an operating margin of 13.3%, which represents a 60 basis points increase over prior year. So again, 2021 is far from a normal year. That said, we feel very good about our outlook. We have solid underlying momentum in our business, and we are well positioned to take advantage of market disruptions and drive additional share gains. Looking at 2021 through another lens, despite incremental brand investment and expenses related to the still lingering effects of COVID, we expect to end this year above 2019 revenue levels and at similar levels of profitability.

Turning now to our full potential plan. Our underlying goal is to generate both higher and more consistent levels of revenue growth while also increasing overall profitability. Using the midpoint of our 2021 guidance as the base year, our full potential plan calls for revenue to increase from $6.25 billion to approximately $7.4 billion. This represents a 6% CAGR on a constant currency basis through 2024. This represents a $1.15 billion of incremental revenue over those three years. Now let’s look deeper into the components of this revenue projection. In innerwear globally, we expect to generate approximately $200 million of revenue growth. This represents a CAGR of 2%, which is above the global category growth rate. As Joe highlighted, we are investing to reignite growth in the US as we strive to double our share in the younger consumer market while also defending our core.

In fact, increased brand investments have already begun in our US Innerwear business. We are also continuing to fuel the growth in our Australia business through ongoing investment in our brands and our e-comm infrastructure. In Global Activewear, we expect to deliver approximately $1 billion of revenue growth over the next three years, which represents an 11% CAGR. Essentially all of this growth will be driven by Champion. As you heard from Jon, we have refined our global champion strategy. This, combined with increased brand investment, focused product design, geographic expansion and improvement in our online capabilities is expected to grow Champion to $3 billion in 2024. We’re also projecting to expand our operating margins. Our full potential plans assumes a 14.3% operating margin in 2024, which is 100 basis points above the midpoint of our 2021 guidance.

Our outlook over the three-year period ending 2024 includes approximately $160 million of incremental investments to unlock our revenue growth opportunities. This includes $40 million of depreciation related to growth driving capital investments, $40 million for technology and people and $90 million for brand marketing. And just to be clear, that incremental brand spending is on top of the $50 million of incremental marketing investment we’re making in 2021. To put this into context, by 2024, we will essentially double our marketing investment to approximately 4% of sales from the spending levels in 2020. And as Greg highlighted, not only are we raising the level of investment to increase our brand awareness and drive growth, we’re also investing more efficiently by leveraging digital marketing and strengthening our e-comm capabilities and data analytics.

After a thorough review of our cost structure, we now believe we will fully offset the $160 million of investments through targeted cost savings initiatives. While the savings and investments may not match dollar for dollar in every period, we are confident we will fully offset these investments over the next three years. We’re applying intensified focus on cost-cutting opportunities that help drive efficiencies and accelerate revenue growth. These cost-saving measures fall into three broad categories. First, sustainability initiatives. By reducing packaging weight and lowering energy and water consumption, we can cut cost. For example, by transitioning the packaging of our Playtex bras to recycled polyethylene bag, we were able to reduce package weight by 55%, which generates annual savings of more than $0.5 million. In addition, we’re avoiding over 100 tons of vinyl going into landfills. Second, technology. Over the next several years, we’re substantially reducing our core tech platforms. This will enable us to rationalize our applications, improve integration and reduce maintenance costs through standardization. And third, everyday cost management. A good example of this is driving efficiencies and lowering costs through vendor consolidation in areas such as media and raw materials. We’ll also continue to hunt for and cut unnecessary or redundant costs. With our ability to fully offset our investments with identified cost savings initiatives, the 100 basis point margin improvement over the course of our full potential plan is driven by the combination of business mix and fixed cost leverage from higher sales.

Looking to earnings per share. We expect EPS to grow at a 9% CAGR over the three years ending in 2024. This reflects reaching the midpoint of our targeted leverage range in 2023 and a tax rate of 18%. With respect to our business model going forward, we expect to generate, on average, roughly $700 million of operating cash flow per year. By way of comparison, our average annual operating cash flow for the past three years was $630 million. Moreover, from 2018 through 2020, we realized approximately $300 million of onetime cash flow benefits from things such as extending payment terms and entering vendor financing programs for certain customer receivables. These onetime benefits accounted for approximately $100 million of the $630 million average.

Next, I’d like to shift to our capital allocation strategy. Our driving focus is investing in the business. Over the past five years, we’ve averaged approximately $85 million a year in capital investment. As we look through the lens of our full potential plan, we expect our capex to increase as we invest in segmenting our supply chain and improving our IT capabilities to help unlock our growth. For 2021, our guidance assumes approximately $140 million of capex, which includes approximately $50 million related to full potential. Looking at the three years through 2024, we expect to invest an incremental $300 million in capex related to our full potential plan. The vast majority of which will continue to be spent on supply chain and technology initiatives. Said differently, using a straight average, our annual total capex spend would be approximately $185 million a years from 2022 through 2024.

Realistically, our spend is expected to be more weighted in the first two years as this will enable better growth and cost-saving opportunities in 2024 and beyond. After investment in the business, our second priority for cash is to service our dividend. We remain committed to our dividend as evidenced by our 32 consecutive dividend payments. We are comfortable with our stated long-term payout ratio of 25% to 30%, as this compares well to our peers and allows us to comfortably invest in future growth opportunities. While we are currently above the high end of our payout ratio, we are committed to maintaining absolute level of the dividend. As we grow into our payout range, over time, we would expect the dividend to grow commensurate with earnings growth.

Based on our business model, we continue to believe that our optimal targeted leverage range is two to three times on a net debt-to-EBITDA basis. When we are above this range, we will use excess free cash flow to reduce leverage. In the first quarter, we paid down $300 million of debt, bringing our leverage to 3.1 times, which is slightly above the high end of our targeted range. And as a reminder, our current leverage reflects the prudent step we took last May to add incremental debt, which provided us a significant capital cushion to ensure our ability to manage through the pandemic. Based on our forecast, we expect to be within our target leverage range in 2022. Once we are back within our range, we will use excess free cash flow to either continue to pay down debt or repurchase stock. Lastly, as it relates to our capital allocation strategy, I’d like to touch on M&A and reinforce Steve’s past comments. In the past, we leveraged our supply chain to use M&A as a vehicle to diversify our business geographically. In fact, some of our key contributors to our full potential plan are businesses that we acquired, including Pacific Brands, Bras N Things and Champion Europe.

The fourth pillar of full potential is focusing our portfolio. As you heard today, our top priority is to reinvest in our business to drive higher levels of organic revenue and profit growth. Longer term, we will think more holistically about M&A. We’ll consider opportunities beyond those that simply provide product, geography or channel opportunities. We’ll consider purchasing capabilities that could properly accelerate long-term revenue growth. In the near term, we will focus on optimizing our current portfolio. Going forward, we’ll continue to evaluate additional opportunities that allow us to further focus our business. Putting all this together, we’re positioned to unlock $1.15 billion of incremental revenue growth while increasing our profitability. All of this translates into creating significant shareholder value for the next several years and beyond. As you heard throughout all the presentations today, we believe we have the right plans, the right leaders and proven in-house capabilities that position us to deliver on our short- and long-term targets.

Now to wrap up today’s presentations, let’s hear once more from our CEO. Here’s Steve.

[Video Presentation]

Operator

Please welcome back, Steve Bratspies.

Stephen B. BratspiesChief Executive Officer

Thank you, Scott, and a big thanks to all of you who’ve joined us today as we’ve explored our strategy to accelerate growth. As I said at the beginning, it’s an exciting time to be part of HanesBrands. We have significant and sustainable competitive advantages, including powerful and iconic brands and loyal multi-generational consumer base, leading share positions in innerwear, a rapidly growing Activewear brand with significant global growth potential, distribution across large and diverse channels, a world-class supply chain, solid financial footing, a deep commitment to sustainability and ethical practices and an experience and revitalized leadership team.

Building off these advantages, we see substantial opportunity to accelerate growth. Specifically, we believe our global Innerwear business can grow 2% a year through 2024, and that Champion can grow 14% per year and reach $3 billion by 2024. To get there, we’re simplifying the business, everything from our processes to our portfolio. Putting the consumer at the center of everything we do, delivering the products that consumers want through global design and innovation, investing in our brands, e-commerce and our people, segmenting our supply chain, enhancing our data analytics and ensuring our products are available when, where and how consumers want to shop. This is our full potential plan, our road map to delivering approximately $1.2 billion of incremental revenue and a 14-plus percent operating margin by 2024. I am confident that we have the passion, the team and the capabilities to deliver the full potential of HanesBrands. Now it’s time to hear from you. Let’s get rolling with some of your questions.

Thanks again for joining us today. We’re obviously very excited about our full potential plan. And we hope you share that excitement after hearing and seeing it brought to life by members of the leadership team who are already starting to make it a reality. Before we jump to your questions, I’d like to take just a moment to introduce three additional members of our leadership team, who you didn’t meet during the presentations. Tracy Preston is our new General Counsel, Corporate Secretary and Chief Compliance Officer. Tracy has been with us for just a few weeks and brings more than 20 years of experience in the global apparel and retail industries. Cindy Miller has been with the company for more than 30 years and was recently promoted to Chief Digital Officer. Cindy and her team are building the new data capabilities and digital technology platforms that will enable all of our teams to pursue and realize HanesBrands’ full potential.

And after an extensive global search, I’m very pleased to introduce our new Chief Financial Officer, Michael Dastugue, who joined us just last week. Michael and I worked closely together earlier in our careers, and from that experience, I have great confidence in his leadership and his ability to collaboratively work with operating teams to drive significant change initiatives. Michael is a great addition to our team, and I look forward to partnering with him. I also want to thank Scott Lewis, who stepped up to serve as our interim CFO. We wouldn’t be where we are without Scott’s dedication and leadership. He’s an outstanding leader and deserves a great deal of credit for our recent momentum. We all appreciate him very much. Thank you, Scott.

So the whole team is here and ready to answer your questions. So let’s get started. TC, why don’t you give us the first question?

Questions and Answers:

T.C. RobillardChief Investor Relations Officer

Sure. Thanks Steve. Our first question comes from Omar Saad from Evercore ISI. Omar, go ahead with your question.

Omar SaadEvercore ISI — Analyst

Thanks, T.C. Thanks everyone for such an informative presentation this morning. Much appreciated. Steve, I really want to — would like to get your perspective. There’s obviously a lot of new information in here, but love to get your perspective on some of the key changes that you’ve made now that you’ve had a chance to evaluate the business and roll out this plan. Especially when it comes to org structure, did you make any changes around reporting responsibilities in the org structure? Cultural mindset, it sounds like there’s been some things you guys have been focused on. Maybe a little bit more on how the management incentive plan has evolved. And I’d also love to hear, given your vertical supply chain, one of the biggest apparel supply chains in the world, how you’re thinking about cost inflation and maybe even pricing power in the event that we do see inflation over time given the recovery? Thank you very much.

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Omar, and thanks for spending the time with us today. Let me start on the people side of things, and I’ll ask Kristin Oliver, our Chief Human Resources Officer, to jump in, and then I’ll handle inflation. So I am really excited about the team that we’ve built here at HBI in the last couple of months. It’s a great combination of people who have been here a long time, like Cindy and Mike and Scott, who are bringing incredible knowledge and depth of understanding of this business, and then some new great people who have great experience. And the combination has been really powerful so far. The dynamics of the team is really good, and it’s making a big difference. In terms of some of the reporting things, we flattened the organization a little bit and gotten people more focused. So as we mentioned earlier, have elevated Cindy to report to me to make sure that technology has a seat at the table. Mike’s role is now incredibly focused on supply chain. He does such a good job on that, and we’re prioritizing supply chain. So he’s gotten incredibly focused on that. So in terms of work structure, I would say we flattened the organization a bit and we’ve elevated some key functions to report into the C-suite that are really making a difference for us. We’ve also done a lot of work on culture, as you mentioned, and on some incentive structure. So I’m going to kick it to Kristin to answer a little bit more about that.

Kristin L. OliverChief Human Resources Officer

Thank you, Steve. So first of all, let me say that we have inherited an incredible culture at HBI. So the people that are here feel so strongly about the culture and the company. They support the brands, they love each other, they love to work together, and they really love the company and what we do. We are collaborative. We are innovative. We have a great basis of ethics in the way that we do business around the world is really unparalleled. So we’re very proud of that. But what we found as we’ve come in here is that we’d like to enhance some of these things, first of all, by empowering change. And the people that work here are very supportive of change, and that’s not always the case when you come into a well-established company, but they’re hungry for things that are changing. We have alignment at the top that’s different than we’ve had in the past. That’s really empowering the next level down to act on the things that they already know about the company. We want to keep the things that are great about HBI. And we’d like to add a few things in. We’d like to have more of a results-oriented culture. That’s one thing we’re focusing on. Innovation and simplification are also really important and speed to market. So we think we have a great foundation to build on. We’re already making some changes to things like the incentive plan. So one of the things that we’ve already done is made sure that we have everybody on the same short- and long-term incentive plans, the same metrics so that they’re all focused on the same things. And the metrics on the short-term plan and the long-term plan are now different, which has not been the case in the past. And we think that these things, together with the way we’re going to be evaluating people on their evaluation against the full potential initiative is really going to drive the kind of alignment and results that we need.

Stephen B. BratspiesChief Executive Officer

That’s great. Thanks, Kristin. I would just add two things to that. One is we’ve also created the kind of a global innerwear structure. So Joe Cavaliere now runs that globally. We didn’t have that before, and I think that’s going to help us tremendously from learning about the consumer, product innovation, how we go to market, thinking about innerwear as a category in the globe. And the other thing I’d just add about incentives, I’ve always my career, I always wanted to have the same incentives as my boss, right? That was always my intent. I always felt like I was in a good position if we’re doing that, and that’s how we’ve aligned the organization right now. So thanks. In terms of inflation, the other question you asked, look, we’re certainly facing the same headwinds that everyone else is facing short-term right now, and there’s news every day about inflation and cost. We’re definitely experiencing those in the short-term and working hard to make sure that we offset those. How it will be in the long term? We built into our three-year plan some inflation that we think we can primarily offset through all the cost work that we’re doing. So we definitely have the short-term headwinds in transportation. Cotton is starting to go up, but we have a kind of — we’re bought out on cotton. So we’re okay in the short term. We’re seeing labor around the world. So we definitely have pressures. But we feel pretty good about our ability to offset. And the way Mike runs our supply chain, the visibility that we have is probably earlier than a lot of people as we go forward. The other part you asked is about pricing power. So I truly believe that great brands have pricing power. And I think our brands are well positioned to take price if necessary. It’s not necessarily what we want to do, and we’ll only take price if we need to. But I think the power of the brands that we have and the investments that we’re making behind the brands, the importance of our brands at retail gives us power to take pricing if necessary.

T.C. RobillardChief Investor Relations Officer

Our next question is coming from Susan Anderson from B. Riley FBR. Susan, go ahead with your question.

Susan AndersonB. Riley FBR — Analyst

Great. And thanks for all the details today also on the plan to get to your full potential. It’s all been very helpful. You talked about the Champion business getting to 25% penetration longer-term online through your own digital channel. Is this, I guess — maybe if you can also talk about the other brands and are you focused on growing those brands through your own websites or mainly through your wholesale partners? Then also what investments do you think make in your e-commerce business to continue to grow those sites? And then if you could just touch on the EBIT margin goal of 14.3% a little bit and the puts and takes of getting there, and if anything’s changed structurally from historical levels, where I think you’re in that ballpark or even a little bit higher? Thanks.

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Susan. Let me start on the e-com, and I’ll get Greg Hall to jump in a little bit. And Scott, you can talk about the EBIT margin. Look, e-com is growing. There’s no doubt about it. We see the same opportunity that everybody does. COVID has certainly accelerated it. And we are definitely making a holistic investment and focus into e-com as a business. But we’re going to do it in a very targeted way and a very thoughtful way. In Champion, we firmly believe that we’re going to establish champion.com to be a leading site. The ability to show all of our assortment around the globe in one place, I think, is really critical for us. So that’s going to be a driving force in the business overall. Our other businesses or other brands may play a little bit of a different role. They may play more of a marketing role and not probably the primary revenue destination for the brand, but more of a marketing role. Either way, regardless of how we build these brands out, we need to build the digital capability and a consumer mindset inside of our digital operating business. And Greg, I know you’ve been doing a lot of work on that in your time here. Why don’t you talk a little bit about what we’re trying to do and how we’re going to take that forward.

Greg L. HallChief Consumer Officer

Yes. Thanks, Steven. Susan, thank you for the question. It’s really good one. So let’s go a little deeper on that. If you think about every site having a unique role. And really, as we assign that role, we think about it is, are you adding an accretive brand experience? Are you building the brand? Are you providing incremental access to the product? Are you allowing us to forge a deeper relationship with the consumer? So as we’re evaluating every site, and honestly, every store around the globe, we want to make sure that there’s accretive brand and accretive assortment experiences as we invest. And so our innerwear sites might be more of a brand-building experience as we partner with some of our key online retail partners. But if you think about what we’re doing down in Australia, Bras N Things, Bonds, direct-to-consumer is really the predominant way they go to market. So it’s not about just a great store, it’s about a great omni experience where the site and the store are unified. So that really showcases our capabilities as a global retailer and then sharing those capabilities around. So making — we’re doubling our investment in data and technology to build those capabilities to truly become what I hope someday is world-class in our online e-com digital experience.

Stephen B. BratspiesChief Executive Officer

Yes. No, I think that’s the right objective to be world-class in it, but it might be different by brand…

Greg L. HallChief Consumer Officer

That’s right.

Stephen B. BratspiesChief Executive Officer

Depending upon the individual brand. Depending upon the market the brand is operating in, we might do it differently.

Greg L. HallChief Consumer Officer

That’s exactly right. Yes.

M. Scott LewisChief Accounting Officer and Controller

Sure. Yes. Appreciate your question on our long-term margins. And we’ve done a lot of work around our modeling as far as what we see as far as the margin growth potential. And we see a really strong glide path to get to the 14.3%. A good majority of that margin expansion is going to be in gross profit. As we see cost savings flow through that we talked about in our presentation, the vast majority of our cost savings are going to be in cost of sales, as you would expect, a larger base of our overall cost structures and cost of sales. So a portion of the gross margin improvement is going to be in the cost savings. We’re also looking to have a better mix going forward. So we talked about our sales growth, a larger concentration in Innerwear and in Champion, the higher-margin businesses like that is going to help drive gross margin expansion as well. As you think about the rest of the P&L and going down the SG&A, it’s going to be about fixed cost leverage, right? With that sales growth, we’re going to be able to lever that from a cost standpoint. So that’s going to improve our margins as well. So we’re going to be investing in our business — we talked about doubling our marketing. And so we’re already reinvesting in the business. In 2021, we’re going to continue that by doubling our marketing. And so that’s going to be really a growth driver to unlock growth and accelerate growth. So we’re really excited about that.

Stephen B. BratspiesChief Executive Officer

Thank you, Susan.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Paul Trussell at Deutsche Bank. Paul, go ahead with your question.

Paul TrussellDeutsche Bank — Analyst

Thank you and good morning. Just to dig deeper on Susan’s margin question. How should we think about the timing and cadence of the investments you are making versus the cadence of the cost savings flowing to the bottom line over the next three years? And separately, Steve and Joe, you’ve outlined the challenges the company has historically had with the Innerwear segment, and certainly understand the opportunity with the younger consumer and that you have online. But maybe give us some additional confidence on your ability to maintain, if not increase, shelf space with innerwear at key retail partners. How you’re going to elevate that mind share and wallet share with the consumer and just overall grow units?

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Paul. Let me talk about margin, and you can be behind me if I miss anything. And then Joe, I’ll kick it over to you to talk a little bit about your plans. So Paul, in terms of the margin, you think about everything that Scott said, we believe we have a glide path to get there. This is not a hockey-stick plan. So we’re going to start on the positive side of the margin accretion is going to start happening right away from mix and those things. Cost savings is happening right now. We’re getting some good cost savings, and we think that’s going to build over time. And the investment is going to be basically kind of a smooth glide path over time as well. So I want you to think about this as a step-by-step progression. It might not be every quarter over the next three years. There may be a little bump in a quarter or two. But we have not built this hockey-stick. With a very steady consistent glide path that we’re going to get to a margin over time.

M. Scott LewisChief Accounting Officer and Controller

Totally agree. We have a good line of sight of how we’re going to get there. We have options to better get there. Again, the cost savings is going to offset the investment. So really excited about that. So I think you hit all the key points, Steve.

Stephen B. BratspiesChief Executive Officer

And before I kick it to Joe, I would just tell you — Paul, I think it’s a great question. And I would tell you that I think we have significant upside in this business. I think this business, quite frankly, has underperformed for the value of the brands that we have, the capabilities that we have. And that’s one of the reasons why we created this global structure in innerwear and brought Joe in to run it because we have opportunity to leverage all the experiences we have around the globe, the design capabilities. We have opportunities to do a better job taking care of the supply — working off the supply chain, especially with the changes that Mike is making. So I think it’s a huge opportunity for us. Work to be done, as you’ve called out. So we’re going to try to give you some confidence. So Joe?

Joseph MonahanSenior Vice President, Finance

Good morning and thank you, Paul, for the question. We have great confidence in our Innerwear business, and we believe we can continue to grow it as we progress this year and turn around a business that historically has declined, as we talked earlier in the presentation. What we’re shooting for is a 500-point turnaround — basis point turnaround, and we’re going to do that by doing a few things. First and foremost, we need to revitalize our core. It’s a big, stable business. We’ve got core consumers we can’t abandon and we need to bring them along on the journey. Secondly, we need to grow our shares significantly with younger consumers. Many of our brands aren’t as relevant as they were in years past. And part of the — what we’re going to invest against in terms of marketing and building our brands and investing in e-commerce is to make those brands more relevant with young consumers. In fact, if you look across the opportunities, there’s over a $1 billion of fair share market opportunity for us on innerwear. And we’ve only built in a small percent of that into the full potential plan. So we believe once we get the flywheel moving, we’re going to unlock a lot more opportunities for growth. What gives us confidence? We have — we’ve done this before. We know how to get younger in our portfolio and drive everyday great execution. And now since we’re organized globally, we can draw the best practices from around the globe and move them to market faster than we’ve ever done before. And so we’re really excited about this opportunity. We’ve got a lot of confidence in our Innerwear business.

Stephen B. BratspiesChief Executive Officer

Yes. Let me just add one thing, and Paul maybe this is underlying your question just a little bit, and that’s about private label. And one of my real beliefs about private label is, I think if we do our jobs, we’ll compete just fine against private label. And what do you mean by that? We need to grow our brands. We need to invest in our brands. What a retailer looks at, whether it’s brick-and-mortar or it’s online, what they’re looking to us to do is to drive traffic to their sites, to their stores. So we need to do that by having great brands. We need to do that through great product innovation. We need to manage assortments really well. We need to be priced right at the shelf. Those are all the things that great brand companies do and if we do that, I think we will continue to gain shelf space. And when you match that up with the work that we’re doing in supply chain, I think we have the opportunity to serve retailers a lot better. Our recent success, some of it is tied directly to, we’ve done a better job serving our retail partners than some of the competition has. And that has allowed us to grow space, both temporarily and, Joe, in the long run, we have opportunities to do that, too. So we have some long-term space opportunities. So I think private label is one of the key things we need to make sure that we continue to address. And if we do that and we do our jobs right, I think we’ll perform just fine against everybody.

T.C. RobillardChief Investor Relations Officer

Our next question is from Michael Binetti at Credit Suisse. Michael, go ahead with your question.

Michael BinettiCredit Suisse — Analyst

Hey, guys. Good morning. Thanks for all the details today. I’d like to ask you just a few questions on the guidance here. A few things that jump out of me and to see what your reaction is and a bit of it’s on the near-term here and then I have a follow-up on the longer term. But your two-year sales growth in the first quarter was 11%. As we look back to 2019, a more comparable period. It looks like you’re baking in that decelerating to plus 4% in the rest of year period. I’m curious how much of that is conservatism versus something you’re seeing in the order book or the momentum today? Same on margins in 13.9% in the first quarter. That’s usually your lowest margin quarter. I’m wondering if some of the changes you made may have change in cadence, how do we get this 13% in 2Q. And then in the second half, EBIT margins look like they’re about 200 basis points below 2019 excluding Europe. I think you just answered, Paul that the cadence of investments and savings is about the same. So I’m trying to think where it might be conservative there versus something you’re seeing in the business that you could correct me on. And then as I look at the rough math on $2 of earnings in 2024, using your 9% CAGR. I think you’re also getting to about $1.5 billion of free cash flow. I’m curious what you baked into that $2 for interest expense so we can think about the debt levels and maybe have you included any share repurchases?

M. Scott LewisChief Accounting Officer and Controller

Yes. So from the margin perspective, as we think about this year, so like you mentioned, the first quarter, 13.9% margin is really strong. Very pleased with that. We’re seeing great momentum. And a large part of that, especially the year-over-year as we’re lapping the COVID impact initial shutdown. And so we also had some short-term benefits that we saw in the first quarter with the stimulus and the restocking by retailers. So we’re seeing that play out in the first quarter. As we look to the second quarter and into the rest of the year and then focusing on the second quarter for a moment, we’re going to see that short-term benefit continue into the second quarter but it’s going to be significantly less than we saw in the first quarter. So you’re going to see that play out over the first half. Also, I think a key point, as we’ve talked about this already, is investing, right, reinvesting into the business, right? And part of that is brands, right? And so we’ve already started reinvesting and having a higher level of brand marketing in the first quarter. However, that’s accelerating through 2021. We mentioned in our presentation, we’re spending $50 million more in 2021 for brand marketing than we did in 2020 and accelerating through the course of the year. And so as an example, in the second quarter, as a percentage of sales, our brand marketing to be 30 basis points higher than what we saw in the first quarter, and we can continue to see that. Again, reinvesting in the business, you’re going to hear us say that often. Critical priority for us is reinvesting in the business. And so that’s really critical as we move forward.

Stephen B. BratspiesChief Executive Officer

I think all we talk about is interest rate in the long term for earnings. The other thing I would say in terms of guidance, also — if you think about backing out PPE for the second quarter, the second quarter is going to grow almost 70% when you back out PPE. For the full year, it will be about 18%. So we feel good about our topline and the guidance that we give. Margin is going to be up 60 basis points over last year. A little under 2019, as you said. But we feel really good when you think about the investments that we’re making, when you think about the COVID costs we’re overlapping. We also have not put any kind of COVID benefits on the revenue side into the back half of the business forecast. So we feel pretty good about the momentum in the business and the guidance that we’re giving. I think, versus 2019, our full year ex-PPE will be up 4% its pretty good growth for us overtime. We started the year we are trying to plan, everyone was saying, how do we get back to 2019 levels. So we feel pretty good about we’re going to be 4% over 2019 and almost back to the margin levels with a lot of investment and additional COVID costs. So we’re feeling pretty good about the guidance that we’ve given and the continued momentum of the business as we jump into the full year plan.

M. Scott LewisChief Accounting Officer and Controller

As we think about long-term with debt and interest and I kind hit on a few points there. So let me let me step back and approach it this way, as I think about it. I’ll start with cash flow, right? You mentioned the free cash flow. We talked about [Technical Issues] technology to accelerate and unlock growth. We’re going to have and we’re going to continue to support the dividend, right? And so we’re going to spend around $600 million over the three years on that. And so that leaves about $1 billion of excess free cash flow over that three-year period of time. And so again, we’re going to be very disciplined on how we use that and be very return-centric on how and how we focus on that. Now our model doesn’t factor in any share repurchases because right now, we ended the first quarter at a 3.1 times EBITDA leverage, right? And so by the time we get to 2022, we expect to be within our target range, which is 2 times to 3 times. And over the course of the three years being able to focus that free cash flow, continue to focus on lowering our leverage, we’ll be comfortable within our 2 times to 3 times range. In fact, close to the bottom end of that range. So we’re excited about that. And so that’s, of course, going to drive lower interest costs as we pay down debt. We probably paid down $300 million in the first quarter. So again, you can see our commitment on our leverage and strength in our balance sheet.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Jay Sole from UBS. Jay, go ahead with your question.

Jay SoleUBS — Analyst

Thank you so much. And thank you for all the great information today. Steve, it’s really refreshing to hear the company talking about reinvesting in its brands and also reinvesting in products. Can you just talk about where you see marketing, but also R&D expenses as a percent of sales, and we get up to 2024. And do you see that as sort of like an endpoint? Or would you continue to like to see that percentage rise? Even into the out years? And then secondly, Scott, if we could just talk a little bit more about the cash flow guidance? Can you elaborate a little bit on what you expect from working capital and how that might impact the operating cash flow? And then you mentioned that it’s an average over three years. But when you think about the 2024, do you see the operating cash flow a little bit higher than the average and you see capex a little bit lower? And if you can quantify that, that would be helpful. Thank you.

Stephen B. BratspiesChief Executive Officer

Sure. Thanks. Let me talk about marketing first, and Greg, I’ll let you talk about a little as well. Yes, we’ve under invested in brands, this business; I think there’s no doubt about that. And I think we have a huge opportunity going forward. The good news is, these are iconic brands. They’re, the Hanes brand, the Champion brand, Maidenform, the Bonds brand in Australia, like these are what I call market, three type brands that you want to work on so much opportunity. So, we’ve talked about doubling the spend up to 4% 2024. I’m going let Greg talk a little bit how he’s going to do that and where he’s going to spend on does it end there, Jay? I don’t know is the answer right now wants to see where we are. 4% is a pretty good number, we can certainly people spending more, it’ll depend upon where we are at the time what the market looks like, and how much opportunity we see. But I kind of put 4% as kind of a baseline that we need to get at to be able to compete, to be able to drive the business the way we want to do it. And, R&D the same way we need to continue to spend on both R&D and product development, because a lot of the spending that we have in R&D is on the product, fabric technology and the chemistry behind all that is just product development and creating new products to launch over time. So I would expect to see both of those increase as we go forward and we’ll manage the costs of that. But I wanted to talk a little bit about how we’re going to spend which are going to focus on, where you see the opportunities.

Greg L. HallChief Consumer Officer

Thanks. Thanks, Steven. Thanks, Jay. We do have a stable of strong brands here. And Steve’s right, our focus is going to be on our mega brands. So expect Hanes, Champion and Bonds to receive the lion’s share of that investment. But each of those brands are in different markets and different categories. And so will be very surgical in how we invest in them. So the media message will definitely be tailored to those. But there will be a few common elements to each and everything that we do, you will see a significant investment in digital marketing, we talked about that. But you’ll also see the significant investment in data and technology. And it’s not an accident that I keep talking about those two things because when you’re better at data and technology, you’re actually better at your brand investment. So our investment is going to be larger, that’s true, Steve talked about that. But it’s going to be smarter than it ever has been because of our knowledge of our consumer and our investment back in them. So when the consumer is at the center, we know that things are changing, her life is changing, the way she shops is changing, the technology around her is changing. So I don’t know where this is going to go. And I don’t know what we’ll be doing in the future. But I can guarantee you it will be consumer centric. It’ll be data driven. And we will make smarter investments that will yield greater returns. And so I’m actually excited about the journey we’re on here, investing in these brands, Steve.

Stephen B. BratspiesChief Executive Officer

No, I think you’re right, and then the other opportunity is just continuing to position the segment and perhaps right. Too many of our brands, if you do brand portfolio mapping right now that they’re close together, we have the opportunity to push them apart, give them distinct positioning, particularly in our intimates business. Joe, I think there’s a real opportunity for us to do that over time.

M. Scott LewisChief Accounting Officer and Controller

To answer on your question on the cash flow, I do know we have a good history, strong cash flow generation. And we expect that to continue as we go forward and the $700 million, again, as an average and both, as Steve mentioned, we talked about, we’re expecting the margin to expand over the three years and we had a good glide path and line of sights, so we see a good progression of our margin improvement over those three years. And so as you think about the cash flow, you would expect the same, we are going to even improve your cash flow, and then average is going to be as we look at the next like the third year, we’re going to be on the upper end, as far as what we could see as far as cash flow generation. As you think about capital expenses, moving down to free cash flow, what’s going to be really critical to us is not just investing back into the business, for capital expenses, we’re going to see them all the way to the front end, the first two years on your average $600 million total. You’ll see that more front end loaded as far as capital expenditures, again, to accelerate growth and also drive efficiencies and cost savings as well as you move forward looking more again towards the long-term growth not just for the three years.

T.C. RobillardChief Investor Relations Officer

Our next question comes from John Kernan at Cowen. John, go ahead with your question.

John KernanCowen — Analyst

Yes, excellent. Thanks for taking my question. And thanks for the detailed presentation today. I just wanted to go to back to the operating margin question. As you think about the 14%. How do we think about the segment level profitability between innerwear, US Activewear and international. I know international has been in an area of margin expansion, your pre-COVID, little bit more variance in innerwear and Activewear, just curious how we should think about this segment level margins, as it relates to historical performance, and where and how you’re going to get to 14%.

M. Scott LewisChief Accounting Officer and Controller

Yes, appreciate your question on the margins. And so, again, overall margin, we see a good a good line of thought and good glide path to the overall improvement 100 basis points. Now we’re not providing individual segment and guidance within our model, we don’t get that level of detail. But again, as you think and step back, and we talked about in the presentation we already heard now is innerwear growth, right, you’re going to see innerwear growth top line, you’re going to see Champion growth. So the growth is going to be kind of across the business, not just concentrated in one segment or the other. What I am excited about though, as I mentioned earlier, again, the champion and the innerwear businesses, both high margin businesses, and products, and so you’re going to see that help our overall achieve a 100 basis points improvement as we look forward. But again, at this point, we’re not giving individual segment guidance.

Stephen B. BratspiesChief Executive Officer

I would just add to that, we expect that they’ll all continue to increase. And, one of the really big initiatives that we’re taking on is a major cost reduction initiative as we go forward. So, all of those initiatives that are cutting across the business obviously affect all the different segments. A lot of that comes out of the work and supply chain, a lot of comes out of work at a global SG&A and how we’re going after those. But so all of those will lift all the segments as we go forward.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Ike Boruchow at Wells Fargo. Ike, go ahead with your question.

Ike BoruchowWells Fargo — Analyst

Hey, thanks, everyone. And Thanks, Steve. Steve, two questions for you. Trying to understand the divestiture of Europe, you guys, when you, when a company made the acquisition, it was talked a lot about how that lowers average unit costs for the entire model. As you sell that business? What happens to average unit costs for the remainder of the units you’re producing? And then just a quick follow-up. You mentioned simplification of the portfolio during your presentation, which I think is a great idea. Should we expect potentially more divestitures down the road?

Stephen B. BratspiesChief Executive Officer

Sure. Thanks, Ike. I appreciate the question. So in terms of our European innerwear business, we do not expect any de-leverage as we move that as a business, the vast majority of the units that get sold in the European innerwear business are actually manufactured in the plants in Europe. So those would be part of the deal. And there’s about 2% to 3% of our global production that actually goes into that, that innerwear, the European innerwear business. And we expect that to be absorbed by our growth plan as we go forward. So we don’t expect any de-leverage in the short term, right away, there’s probably going to be a supply deal, contract deal to go forward. But as we build out our business over time, we’ll quickly absorb that volume. So we don’t expect any de-leverage in our system, in our supply chain. In terms of simplification overall. So I think it’s critical for any business in particularly this business. And we have a lot of simplification. And it’s a broad definition of simplification. So the few reduction that we announced earlier in the year is a big part of simplification. Quite frankly, making the decision to get a PPE is a simplification in the process. So it’s going to be broader than just traditional, portfolio or business changes or M&A. As we think about that. I would tell you, I wouldn’t expect any significant simplification of our portfolio. And I consider the European innerwear significant in terms of doing that. We’re always looking at pieces to tweak and, I will never say never, but I wouldn’t, I don’t expect to see any large divestitures coming from us. And on the flip side, I will tell you that we are focused on our current portfolio and focus is one of the four key planks of what we’re trying to do. And I do not see us going out and buying anything in the near future, either. Certainly through the 2024 timing of our full potential plan. It’s not in our capital allocation strategy. It’s not how we’re thinking about the business. We’re focused on the portfolio that we have and our ability to grow that and improve that over time.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Jim Duffy at Stifel. Jim, go ahead with your question.

Jim DuffyStifel — Analyst

I want to start with two questions on strategies to connect with younger consumers. Then a quick question on capital structure. Related to the marketing, you talked about investors to engage the younger consumer. You even spoke about opportunity to double the market share of consumers under the age of 39. I’m curious where that share stands right now. I don’t think that consumer appreciates the HanesBrands’ leadership and sustainability. We know this is important to younger consumers. Can you maybe talk about marketing strategies to make sustainability a larger part of the consumer-facing brand platform?

Stephen B. BratspiesChief Executive Officer

Sure. It was hard to hear, I just want to make sure we got the question, right, which is around Hanesbrand marketing for sustainability and where we’re taking that business going forward.

Jim DuffyStifel — Analyst

Yeah.

Stephen B. BratspiesChief Executive Officer

Okay, so let me start. And then Michael can you, because you’re reading all this. And then, Greg, if you have anything to add, for how we’re going to mark, how we’re going to market, please jump up. But sustainability is a fundamental tenet of this company, and has been for quite a while, is one of the things actually that I got really excited about when I was joining the company to see the passion, the commitment, the progress, the willingness to lead on this front is something that we’re really very proud of. And it’s been a lot of work. And there’s a lot more to come. Mike, we always say we’re just getting started, right, and all the work we’re going to do. So why don’t you talk a little bit about where we are, where we’re going, how we’re thinking about it?

Michael E. FairclothGroup President, Global Operations

Yes, great, Jim. Thanks for your question. Sustainability at Hanes is truly a companywide initiative embedded in everything that we’re doing. We’re very proud of the work our team has done and continues to do in this space. And, and we have great momentum. We’ve captured a lot of our detailed, bold, aggressive and achievable goals on our Hanes sustainability side, and we’ve laid out detailed action plans of how to achieve those results. And, it is really powerful with all the historical accomplishments we have and then with all the action plans, I think, go back to what Kristin said earlier. That’s what gives me the most assurance we’re going to be successful is the passion and energy and excitement that we have in this company around sustainability. And we’re looking forward to being able to convey that excitement and communicate to our consumers directly connecting to them on this subject through our brand voices.

Kristin L. OliverChief Human Resources Officer

That’s great. Right, Mike. And thanks, your leadership has really made a huge difference inside the company on doing this. And I think just a little emphasize on the point you just made right at the end. I don’t think we’ve talked to consumers about the great track record that HBI has. We’ve talked to the business community, and they know HanesBrands as a sustainable company, and there’s been lots of recognition for the company over time. But I don’t think we’ve talked to the consumer. And Jim, the point you’re making about us getting younger is a really big opportunity and the ability for us to find the right brand voice that includes some of these messages is something that we’re definitely going to focus on. And it is part of the journey for us to take the brands younger.

T.C. RobillardChief Investor Relations Officer

Our next question is from Paul Lejuez at Citi. Paul, go ahead with your question.

Paul LejuezCiti — Analyst

Hey, thanks guys. Just wanted to ask about the 2% CAGR goal on the Innerwear side. I’m curious how you think about that by channel, whether it’s mass versus department stores versus other channels. And I’m curious where you think you might best be able to connect with that younger consumer? Which channel is going to give you the best shot to really capture the share of wallet with that younger consumer? And then second, you spoke about on the Champion side, there were three different customers that you kind of walked through. I think you said they represent 50% of your customers a little bit more than that of the spend. Who are the other 50% of the customers? And how are you thinking about connecting with that group? Thanks guys.

Joe CavaliereGroup President, Global Innerwear

Yes, Paul; thank you for your question. So as we think about our growth on innerwear, we’re really focused on growing our share with younger consumers. And the good news for us is that you’ll find most of those younger consumers choose to purchase their products via e-commerce. And so part of our full potential plan is to really significantly increase our investment in both our e-commerce partners, both brick-and-mortar dot-com and pureplay dot-com and our own sites. In addition to that, as Greg talked about, we’re going to have a heavy emphasis on digital marketing. And so that’s where we will reach these younger consumers. And the good news is we’ve already got considerable momentum under our belts in terms of some of the investments we’ve made this year. Scott talked about it, Steve talked about it, we’ve gained significant market share because of our great supply chain performance but also because we’ve invested against those channels and in digital media, and we’re starting to see us increase our penetration with the younger consumer. I might also add that we start from a position of leadership with younger consumers as well., our shares aren’t as dominant as they are with consumers over 39. And so that’s the big opportunity for us. To make those brands more relevant to those consumers. And then we’ll continue to grow well beyond the 2% in the years ahead.

Stephen B. BratspiesChief Executive Officer

One thing I would just add, Joe, is — you touched on it right at the end is, as we talk about getting younger, that does not mean we’re walking away from the customer we have today. I think it’s a really, really important point of how well-established we are, particularly like in the mass channel and the ability for us to flex and adapt as they’ve continued to grow their business, whether it’s curbside pickup or whether it’s online or some of the other channels. So I don’t want anyone to think when we say, oh, we’re getting younger that we’re walking away from our core because we have great, great share leadership at that point.

Joe CavaliereGroup President, Global Innerwear

Yes. And just to piggyback on, as Steve said, we’ve underinvested against the consumer, we have underinvested in the e-commerce channel. And so what’s really exciting about this opportunity is that it’s very straightforward, and we know we can execute it well by simply partnering with our big e-commerce customers and investing more heavily to make sure that we are growing with young consumers in the place they choose to shop. The other aspect of it, it’s margin accretive for us. And so what’s not to like about those investments. It’s growing. It’s the fastest growing channel. It’s for young consumer shop, and we generate more profit from it. All good.

Jonathan RamGroup President, Global Activewear

Thank you. And thanks for the question, Paul. We play at the intersection of sport and lifestyle. And when we went out and looked at the various consumer segments, we made a decision, and it was a very purposeful decision to focus on the culture curator, the trend lover and the stylish athlete. As a brand, we need to be laser, laser-focused on those consumers. There’s certainly another group of consumers that are out there. But the more we dilute our voice, the more we dilute our direction. We’re not going to achieve the results that we want to achieve. So we are laser-focused on those three consumer segments.

Kristin L. OliverChief Human Resources Officer

Yes. It’s a classic marketing focus to targeting, right, segmentation of the brand. So you focus on your core customer, you end up capturing a much broader piece, but you focus on that core customer, you market to that core customer, you develop products for that core customer, so that you stay focused on building a brand over time.

Jonathan RamGroup President, Global Activewear

Absolutely.

T.C. RobillardChief Investor Relations Officer

Our next question comes from Adrienne Yih at Barclays. Adrienne, go ahead with your question.

Adrienne YihBarclays — Analyst

Thank you very much, and thank you again for the presentation and details. Good morning. Steve, my first question for you is, so during the period in North America from 2015 to 2019, when innerwear was contracting 4%, I believe, now expected to grow 2%. What was the TAM? What was the Innerwear overall growth because you talked about losing market share? So what was the Innerwear category doing at the time? And then if we fast forward to kind of at full potential, what should we think about as the TAM opportunity, both in North America, but more importantly, globally? That’s my first question.

Stephen B. BratspiesChief Executive Officer

Sure. The 2015 to 2019 as we weren’t growing all the fest, the category was growing 1% to 2%. It’s not a high-growth category, and it hasn’t been for a long time. So the opportunity there, as I look back in the history, and I wasn’t here and a lot of us weren’t here, but we go back and we studied it and really understand, a lot of it is doing the basics really, really well. And Joe and I talk all the time about just executing the basics, and he’s done this so much in his career around how you go to market, how you approach our customers, how you price, how you innovate, what period do you launch them, how do you gain shelf space over time. There’s just a huge opportunity for us to just run the basics of this better. And I think that’s going to make a huge difference in our run rate going forward in that 2%. Some of its new products, some of its continuing new customers, but a lot of it is just blocking and tackling and doing a heck of a lot better than we have in the past. I think it’s going to make a big difference. And in terms of globally, when you think about innerwear, it’s really North America and it’s Australia for us. We are very pleased with our Australia business. The team down there is doing just a fabulous job and continues to grow year-over-year. That’s where our Bonds business is, our Bras N Things business, which Greg mentioned earlier, is really a true omnichannel organization. They’re doing incredibly well. And Scott, we expect the volume to continue to grow, the growth rate from then to continue. So we see really good growth rate around the globe. We think we can do — we’re going to innovate. We’re going to invest with our consumer. We’re going to understand the consumer better. And we think we can turn this around. And it will be 500 basis points to 600 basis points different run rate than we’ve had in the past, but we’re confident we can get there.

T.C. RobillardChief Investor Relations Officer

Our next question is from David Swartz at Morningstar. David, go ahead with your question.

David SwartzMorningstar — Analyst

Yes, can you tell us a little bit more about the situation with Champion in Asia, where it is right now and how it has grown in the past? And how it factors into the $3 billion target for Champion?

Stephen B. BratspiesChief Executive Officer

Jon, do you want…

Jonathan RamGroup President, Global Activewear

Thank you, David. Appreciate the question. We’ve been operating, first of all, in Asia for some time, with Japan being certainly a strong growth driver for us. And approximately about 2.5 years ago, we entered the marketplace with some very purposeful business partnership with an organization called Dmall. And at the beginning of last year, we increased our distribution partnership with a company called Belle. And we’re extremely focused on growing the business, but growing it with purpose, growing it very deliberately. And when we work with our partners in the marketplaces, like China and like South Korea, for example, we’re doing that in a very deliberate way with a very long-term view. And everything that we see is growth ahead in those markets. It represents — the Asia Pacific region will represent about 30% of the growth over the next few years. And we’re very comfortable with that number, and it could be more. We’ll see how that goes.

Stephen B. BratspiesChief Executive Officer

Okay, the brand certainly seems to be resonating very well

Jonathan RamGroup President, Global Activewear

The brand is resonating. And I think one of the other things that we’re seeing is we’ve seen, in China, in particular, the brand awareness level go from 39% to 57% in a very, very short period of time. So that just tells a great story of where we’re headed. And with our partnerships in place, with their understanding of retail as well as e-commerce and social commerce, we’re really excited about the prospects ahead.

Kristin L. OliverChief Human Resources Officer

Sure. Thank you.

T.C. RobillardChief Investor Relations Officer

And our final question, we’re circling back to Adrienne Yih at Barclays. Adrienne, please ask your follow-up.

Adrienne YihBarclays — Analyst

Thanks. So my final question is, how much of the growth should we think about as coming from new doors versus more shelf space in existing doors versus new products? And maybe the focus in North America, and then — because obviously, these new geographies is an entirely new avenue of growth, so focusing on North America. Thank you.

Stephen B. BratspiesChief Executive Officer

Sure. Yes, I assume — mostly focused on the Innerwear business, I’m assuming, based on your previous question. So I think there is a new door opportunity. I don’t think it’s going to be the biggest part of our growth because one of the great things about our business is we have pretty good expansion going forward. I do think we have shelf space opportunity, Joe, and I do think we have innovation opportunity. We talked in our presentation earlier today about Total Support Pouch and how well that’s done to reach new consumers. It’s certainly on our website, we’re seeing an awful lot of youngsters. I think it’s 30% new consumers are younger consumers that have joined us in that business. So it’s going to be a combination of both. And I honestly think we need to be aggressive on both. I think there’s more shelf space to be had, and we’re gaining it right now quite frankly because of the service of our supply chains during these challenging times. And I think you should expect a much more robust growing innovation pipeline from us than maybe you’ve seen in the past. So I would say those are the two buckets that I think are going to drive the biggest part of growth for us.

Well, I think we’re just going to wrap up. Let me just close with thank you to everybody for taking all this time today to spend with us. Thank you for your interest in HanesBrands. Thank you to the team for all the hard work that you put into getting us to where we are. We’re off to a really great start. I’m really pleased with our Full Potential plan, where it can take us. The upside that’s in front of us. And hope you continue to follow us. I think you’re going to see great things from this company. So thank you very much, and everyone, have a great day.

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