As I look at there, I can really see opportunities beyond what we’ve already achieved in our working capital as we get into ’24.
Scott Lewis: And I think your final question was about Australia and how big that is. We don’t release the exact number, but low teens percent of total HBI is the right number for you to anchor on and the majority of that business is in Innerwear business?
Paul Lejuez: Got it.
Operator: Our next question will come from the line of Paul Kearney with Barclays.
Paul Kearney: Great, thanks for taking my question. Can you go over where are inventory levels by brand for Hanes versus Champion? You mentioned cleaning out the channel inventories for Champion. So, where do you see channel inventories particularly there? And it goes back to the first question, but with the Q1 guidance for organic sales down 14% and full-year down 2%, what gives you all the confidence that the business can reaccelerate through the year? And what are the main drivers behind that improvement? Thanks.
Stephen Bratspies: Sure. So, from an inventory perspective, we don’t break it out by business, but closing the year at 1.37 puts us in a really good position. I think we’re balanced across our portfolio. Our inventory reduction actions and process improvement through management capabilities, life cycle planning, SKU discipline, that applies pretty consistently across the business. So, the actions we’re taking are consistent and we use the same methodology and same mindset, if you will and philosophy of how we manage inventory across the business. So, we feel like we’re in good shape across the total business. In terms of sales, maybe I’ll go a little deeper then on some of the things that I talked about earlier. We have pretty good understanding, particularly in Innerwear, of predictive capability, where the market is right now and understanding where it’s going.
And that’s based on forecasting analytics and predictive algorithms that are tied to historical correlations of the business along with macroeconomic metrics, so we think we’re in pretty good shape of understanding where the category is going and we think it will improve throughout the year. But For Innerwear, if we look at where we are today, there’s some shipment timing things, there’s some inventory actions things, the innovation timing, all the innovation that we’re bringing, which is going to be our biggest year yet. 2023 was historical year, we’re going to have another one this year on top of that with the launches across Hanes, across Bally, across bonds, which I’m very encouraged about and we’re going to lean into that with some media spending at higher levels than we have in the past.
So, I think you’re going to see a ramp in the Innerwear business as we go forward, and I’m comfortable with that. And in Champion, it’s the same thing. I think this business is going to drop out in the first-half. And we’re taking a lot of actions to prepare ourselves for the Fall Winter business that’s coming, so that we’re clean and that we have enough room to settle that in and it’s flowing in well. Retailers are a bit cautious, but we think the cleaning up that we’re doing is working well. And then, you’re going to see some, the college business is going to rebound for us. It’s been choppy over the last couple of years. I mean, last year, the heat that we had in the back-half of the year affects that business. We think it’s going to be a more normal year.
The Pinnacle accounts are excited about our business that’s coming in. That’s going to land in the back-half. We are focusing more on a replenishment model than a made to order model this year. That’s going to allow us to leverage our supply chain strengths and capture demand in real time. So, we have a process around never out SKUs, that’s more disciplined than it’s been in the past on Champion. It’s going to help drive that business. We’re going to be spending more behind the brand. The marketing campaign that we’ve been driving is working, it’s working globally and we’re going to lean into that. And there’s spots around the world that are continuing to grow, like our China growth has continued to accelerate with our partner there. So, we think the business is going to move forward throughout the year.
We’ve got a lot of activity coming. We’re ready as a company. We have the cost structure in place. And Scott, as you mentioned earlier, the profit is going to come with that in the back-half. So, we feel like we’ve got sales kind of nailed down and we’ve got programming to drive the business for the year.
Paul Kearney: Thank you, best of luck.
Operator: Our next question will come from the line of Ike Boruchow with Wells Fargo.
Ike Boruchow: Hey, good morning, everyone. A couple of questions from me, more follow-ups to some of the answers you guys gave. Steve, I think — just to make sure I heard right, I think you said for the year, you’re expecting the gross margin to be above 38.5%. Did I hear that right?
Stephen Bratspies: That’s correct, Ike.
Ike Boruchow: Okay. And then, I was just kind of curious, is there seasonality to it? The business has changed a lot, but it is usually 1Q a little bit higher than that and the rest of the year kind of more like similar Q2 to Q4. Is there any seasonality we should kind of keep in mind?
Stephen Bratspies: Yes, we do have seasonality with the business. But as I look at ’24, I would just kind of hold more of a steady gross margin rate is what I would anticipate and I would guide you to throughout the year. The cash flow is seasonal. Typically in the first-half, it’s more of a breakeven cash flow, the cash flow is more generated in the back-half. But I think from a gross margin standpoint, I would say that again, more of a steady. Again, like I mentioned earlier to the earlier question, we have great visibility to the cost, right? And so, from input costs that are lower, the cost savings that are also on the balance sheet, we can see this roll out over the course of the quarters. And again, and that’s not all on the guide. We’ve not baked all that in. We took incremental conservative assumption from a profit standpoint to make sure we can derisk and hedge from a sales outlook there.
Ike Boruchow: Got it. And then, just a last quick one, is there any chance you guys would give a specific guide for both Champion and Innerwear for Q1 and for the fiscal year. And if not, I guess, what I’m just trying to understand, because it sounds like there’s confidence growing on Innerwear and Champion Trophy, but you’re also the year-over-year decline you’re guiding to in 1Q is worse than the decline you had in 4Q which missed your plan. So, I’m just trying to kind of square that up a little bit. If you can if there’s any way to kind of give us a little bit more info, that’d be great.
Scott Lewis: Yes, we don’t guide by segments, but let me give you some directional kind of thoughts about the first quarter for segments top line. And Steve, feel free, you have to chime in that detail. So, on U. S Innerwear, we expect the U. S Innerwear business to be down mid-single-digit year-over-year, that’s in line with where the category is for the first quarter. On the international side, international business, it will be down low double-digits on a reported basis and down around 10% constant currency. Again, some of the challenges that we talked about earlier that Steve referenced with Australia and then just cautious view from a Europe retailer standpoint. On U. S. Activewear, there’s a couple of things to keep in mind.
We’re expecting that to be down roughly 30% in the first quarter kind of same headwinds that we’ve been talking about. It’s important to note there though about two-thirds of that decline is the kind of more kind of lapping some timing issues from last year. If you remember last year in the first quarter, we implemented SAP. So, there was some timing acceleration of shipments ahead of that SAP implementation. We also benefited from timing from a collegiate business standpoint. Just there’s some unseasonably strong sales in Q1 of last year that we are lapping. And then, the last piece of that is just with our kids business. We moved that to a licensee model and so you have some changes year-over-year for that. So, again, that’s two-thirds of the fluctuation from year-to-year.
Ike Boruchow: Got it. Thanks so much.
Operator: Our next question will come from the line of Hale Holden with Barclays. Your line is now open.
Hale Holden: Good morning. I was wondering if you could just give us some context on why you think the Innerwear category has been down so much over the course of the year and projected down in the first quarter. It just feels like a lot for what has historically been a replenishment category, understanding that you’re gaining share within the category.
Stephen Bratspies: Yes, thanks for the question. I think when you go back and you look at last year, the category was down about 3% and then it decelerated a little bit in Q4 to about 5% and we’re expecting a little bit of that continuation into Q4. When you go back and you look at historically, this category has been roughly a 1% unit growth business. And we would expect that the category is going to bounce back to that. You go back and look over the last four years, all the volatility that we’ve had through supply chain and everything that’s gone on, it’s been certainly a volatile couple of years. The category has actually grown roughly that 1%. I know it doesn’t feel like that, but you’ve had a huge spike of 21, and that’s been down, and our growth during that time’s been about 2%.
So, when you look at this in macro, the category’s actually been behaving at historical levels, and we’ve been outpacing that category, and from the beginning we’ve been saying our goal is we’re going to grow two times the category rate, and if you look at it over four years, that’s what we’ve done. Again, it doesn’t feel like that quarter-to-quarter and it’s very, very choppy, but we expect that the category is going to return to historical levels. It’s going to be a good stable category at which you take share in, and we’re better prepared to do that in the past. There was a time when we were losing share. There was a time when we weren’t growing, but we pivoted that and that reignited of our innerwear business is working now and the innovation we’re coming this year is going to be a big impact on that.
Hale Holden: Great. Thank you very much.
Operator: Thank you. Our next question will come from the line of Carla Casella with J.P. Morgan.
