HanesBrands Inc

NYSE:HBI

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Hanesbrands First Quarter 2024 Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to T.C. Robillard, Vice President, Investor Relations. Please go ahead.

[T. Robillard, executive]

Good day, everyone, and welcome to the Hanesbrands quarterly investor conference call and webcast. We are pleased to be here today to provide an update on our progress after the first quarter of 2024. Hopefully, everyone has had a chance to review the news release we issued earlier today. The news release, updated FAQ document and the replay of this call can be found in the Investors section of our hanes.com website.

On the call today, we may make forward-looking statements, either 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 related to current macroeconomic conditions, consumer demand dynamics, our ability to successfully execute our strategic initiatives, including our Full Potential transformation plan, the Champion performance plan and our evaluation of strategic alternatives for our global Champion business, our ability to deleverage on the anticipated time frame and the inflationary environment.

These risks also include those detailed in our various filings with the SEC, which may be found on our website as well as in our news releases. The company does not undertake to update or revise any forward-looking statements, which speak only to the time at which they are made.

Unless otherwise noted, today's references to our consolidated financial results and guidance exclude all restructuring and other action-related charges. Additional information, including a reconciliation of these and other non-GAAP performance measures to GAAP, can be found in today's news release.

With me on the call today are Steve Bratspies, our Chief Executive Officer; and Scott Lewis, our Chief Financial Officer. For today's call, Steve and Scott will provide some brief remarks, and then we'll open it up to your questions.

I will now turn the call over to Steve.

[Stephen Bratspies, executive]

Thank you, T.C. Good morning, everyone, and welcome to our call.

Hanesbrands delivered solid first quarter results, with sales at the midpoint of our outlook, better-than-expected operating profit, positive cash flow generation and further reduction of our leverage. The year is unfolding as anticipated. And given our strong visibility to our operating profit and cash flow guidance, we reiterated our full year outlook.

In addition, we further strengthened our market leadership position in Innerwear. We continued our progress on Champion. And with the positive inflection in margins and our lower fixed cost structure, we believe we're well positioned to accelerate earnings growth and further reduce debt, putting in place a flywheel for shareholder value creation over the next several years.

For today's call, I'll briefly touch on our Innerwear and Champion businesses. Then I'll discuss the value creation opportunity we see ahead of us.

Looking at our global Innerwear business. As expected, apparel sales globally remain under pressure as stretched consumers limit their spending. However, despite the headwind, we focused on strengthening our market-leading Innerwear businesses. And our strategy of consumer centricity is working as we gain share and outperform the market.

We're launching new consumer-led innovation, including Maidenform M, Bonds shaped bra and the second phase of our successful Hanes Originals platform called SuperSoft. With our robust product pipeline, we expect 2024 to be another record year of innovation. We're increasing brand marketing investments to support our current and future innovation launches, build greater brand relevance with younger consumers, gain incremental shelf space with seasonal programming and further solidify the leadership position of our brand portfolio.

In parallel, we continue to improve our operating model, including better inventory management capabilities and SKU discipline, improved service and on-shelf availability as well as a lower fixed cost structure. As a result of our strategic work over the last 3 years, our brands are healthier. Our product pipeline is full and is resonating with consumers. Our gross margin is back to historical levels.

We're investing more in marketing than we have in over a decade, and we're seeing all of this reflected in our market share, particularly with younger consumers as we gained another 50 basis points of market share during the quarter across both men's and women's in the U.S. We're widening the gap against our competitors, and we're well positioned for growth as the category returns to its historical trend of steady growth.

Turning to Champion. We're aggressively implementing our performance enhancement plan designed to strengthen the brand and position Champion for long-term profitable growth. We also continued our focus on building brand heat particularly with younger consumers, including strategic collaborations as well as targeted new product offerings in key channels. We moved our kids' business to a license model, which is part of our strategic plan to optimize the portfolio.

And as we highlighted last quarter, we're increasing marketing investments to build on the momentum of our Champion What Moves You campaign ahead of our new fall/winter product offering. It's early, but we've seen some initial green shoots that our marketplace segmentation strategy is working. As we've previously stated, it will take time for our strategic actions to fully translate to the P&L.

Global Champion sales in the first quarter decreased 25% on a constant currency basis. During the quarter, we began the planned strategic move of our kids' business to a license model. This move accounted for approximately 500 basis points of the decline. Normalizing for this, we saw a sequential improvement in Champion's year-over-year trends.

We expect the sales decline to continue to moderate in the second quarter. And we continue to expect Champion sales to trough in the first half as we move past our channel cleanup actions, our collegiate business returns to its normal seasonal cadence, and we build on our momentum in Asia.

With respect to our review of strategic alternatives for the global Champion business, the process is progressing as expected. We continue to evaluate the right path forward as we've seen strong interest from our broad and diverse group of global parties. And while there's nothing specific to add at this time, we remain committed to updating you as appropriate when there's news to share.

Now I'd like to turn to the significant value creation opportunity we see over the next several years.

The underlying financial model of this company has always been strong with healthy margins and consistent cash generation. While inflation, market disruption and a challenging consumer demand environment have masked us for some time, the strength is once again visible.

And over the past 3 years, we've taken necessary actions across the business to further enhance our operating and financial models. We've built new capabilities around brand building, data analytics as well as inventory management and SKU discipline. We've added talent. We streamlined our supply chain and extended our advantages, and we've taken out more than $200 million of fixed costs, nearly half of which were in SG&A.

With our leading brand positions, lower fixed cost structure, reestablished gross margin, consistent cash generation and a commitment to reduce debt, we have created a flywheel for shareholder value creation, one that we believe positions us over the next several years to accelerate earnings growth, drive faster deleverage of our balance sheet as well as free up incremental capital to invest in growth initiatives.

As I close, I'd like to take a moment and thank the entire Hanesbrands team. Your dedication, teamwork and commitment to our transformation journey is beginning to show in our results. We delivered a solid first quarter in a difficult consumer and apparel market. We have strong visibility to achieving our outlook for the year, we strengthened the long-term operating and financial models for the company, and we believe we're well positioned to unlock shareholder value over the next several years.

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

[Markland Lewis, executive]

Thanks, Steve. At a high level, we delivered solid first quarter results as we met or exceeded guidance across all of our key metrics. And as I look at our results, I'm reminded of where we were a year ago and the progress we've made delivering on the core financial objectives we laid out. Gross margins are back to historical levels. We're taking costs out of the business. We're generating consistent cash flow, and we're paying down debt and reducing leverage. We are also continuing to strengthen our operating model. We're increasing brand investment. We're rolling out even greater levels of product innovation, all of which is expected to generate strong earnings growth this year as well as position us for more consistent top and bottom line growth over time.

For today's call, I'll touch on the highlights from the quarter, our improved financial position, and then I'll provide some thoughts on our outlook. For additional details on the quarter's results and our guidance, I'll point you to our news release and FAQ document.

Looking at the details of the quarter. Net sales of $1.16 billion was at the midpoint of our guidance range. This represents a decrease of $233 million or nearly 17% versus prior year. Of this decrease, approximately $15 million was from FX, $20 million was from the U.S. hosiery divestiture last year and $65 million was from discrete timing-related items within the Activewear segment that we discussed on last quarter's call. These include the strategic shift of the Champion kids' business to a license model, accelerated orders from customers ahead of our SAP implementation and shipment timing within our collegiate business, all of which benefited last year's first quarter. Adjusting for these, the comparable sales base of our business decreased approximately 10% year-over-year in the first quarter.

Looking at sales by segment. Within U.S. Innerwear, as expected, the category remained challenging in the quarter. Sales decreased 8% as compared to prior year. This was roughly 200 basis points below our outlook, driven by a higher-than-anticipated level of inventory management actions by select retailers. However, we are seeing that our strategy is working. We are winning in the marketplace. Our point-of-sale trends outperformed the market as we gained another 50 basis points of share in the quarter.

In our U.S. Activewear business, sales decreased approximately 31% or $97 million as compared to prior year, which was in line with our outlook. Approximately $65 million or 2/3 of the decline was driven by the previously mentioned timing-related items in the prior year quarter. Adjusting for this, Activewear sales decreased nearly 14%, which represents a sequential improvement in the underlying year-over-year trends in both the Champion brand and the Activewear segment.

And in our International business, constant currency sales decreased 9% compared to last year, which was in line with our outlook. For the quarter, growth in Latin America, Japan and China were more than offset by decreases in Europe and Australia as macroeconomic headwinds continued to impact demand in these regions.

Turning to margins. Gross margin of 39.9% was strong, coming in 140 basis points above our outlook. As compared to last year, gross margin increased 720 basis points driven primarily by the benefits from lower input costs, cost savings initiatives as well as the impact from business mix.

With respect to SG&A, we decreased expenses $13 million as compared to last year, in line with our outlook. The lower expense was driven primarily by the benefits from cost savings initiatives and disciplined expense management. These savings helped fund a 50% increase in brand marketing investments, which was focused on our U.S. Innerwear and global Champion businesses in the quarter.

This resulted in an operating margin of 7.3% for the quarter, an increase of 270 basis points over last year and ahead of our expectation, driven by the strong gross margin performance.

Looking at the remainder of the P&L. Interest and other expenses were $76 million. Tax expense was $15 million, and earnings per share for the quarter was a loss of $0.02, which was ahead of our outlook.

Turning to cash flow and the balance sheet. We continue to strengthen our balance sheet and our financial flexibility in the quarter. We generated cash flow from operations of $26 million. This was driven by better-than-expected profit performance and disciplined working capital management. Leverage at the end of the quarter was 5x on a net debt-to-adjusted EBITDA basis, which was nearly 0.5 turn lower than last year. The improvement in our leverage was driven by lower debt, reflecting the $500 million of debt we paid down last year. And all of this has led to a strong liquidity position of more than $1.2 billion at the end of the first quarter.

And now turning to guidance. All of my comments will refer to adjusted results and will be based on the midpoint of our guidance ranges. We reiterated our full year guidance for sales, operating profit, earnings per share and operating cash flow. Our view for the year is unchanged since our previous call. As a reminder, we highlighted that we expect the macro consumer environment to remain challenging for our categories in 2024, with progression in the year-over-year sales trends as we move through the year.

We continue to remain highly confident in our operating profit guide, which implies 26% growth over last year as we believe we have appropriately derisked in this uncertain consumer environment. Our confidence in delivering $500 million to $520 million of operating profit is based on visibility to input costs on our balance sheet through the rest of the year and our proven cost savings programs that continue to exceed our expectations.

With respect to our second quarter outlook, we expect net sales on a reported basis to decrease approximately 6% as compared to last year. Adjusting for the impact from the U.S. hosiery divestiture and FX headwinds, organic constant currency sales are expected to decrease approximately 3%. That said, we expect second quarter operating profit to increase approximately 40% over prior year, and operating margin to expand nearly 300 basis points to 9%, driven by the benefits from lower input costs and our cost savings initiatives. And given the lower debt balances, we expect interest expense to decrease year-over-year, resulting in earnings per share of $0.09 as compared to a loss of $0.01 last year.

So in closing, the year is unfolding as anticipated. We have confidence and visibility in our full year outlook. We're paying down debt and lowering interest expense, and we're increasing investments to drive growth. This has created a multiyear flywheel to generate meaningfully higher earnings and significantly reduced debt, which we believe will drive strong shareholder returns over the next several years.

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

[T. Robillard, executive]

Thanks, Scott. That concludes our prepared remarks. We'll now begin taking your questions and will continue as time allows.

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

[Operator]

[Operator Instructions] Our first question comes from the line of Jay Sole with UBS.

[Jay Sole, analyst]

Great. Steve, you touched on this in your prepared remarks a little bit, but can you just elaborate on the visibility you feel like you have into the company's profit recovery? And maybe just touch on the long-term earnings algorithm with margins coming back. How do you see it? If you could give us a little bit more color there, that would be great.

[Stephen Bratspies, executive]

Thanks, Jay. I think when you think about profit, as we stated in the remarks, we are highly confident in the operating profit guide that we have for the year. And we continue to expect that year-over-year improvement each quarter in both gross and operating margins.

The macro consumer environment is going to remain challenging for us, and we think we factored that in appropriately. But when we look at the input to the visibility costs that we have on the balance sheet through the remainder of the year, the cost savings programs that we have in place, which continue to overdeliver, so I thank the team for the hard work that they're doing there, we're really confident that we've got the $500 million to $520 million guide covered.

And I think we see risks appropriately. We haven't put all the cost savings in. So despite a challenging sales environment, we feel pretty good about where we are and where we can take it going forward.

[Operator]

Our next question will come from the line of Paul Lejuez with Citi.

[Brandon Cheatham, analyst]

This Brandon Cheatham on for Paul. I just wanted to dig on the gross margin you reported for the quarter is above expectations. I guess what are you expecting for the rest of the year? Why wouldn't you be able to achieve a similar rate in the back half? What are some of the puts and takes there?

[Stephen Bratspies, executive]

Thanks, Brandon. Why don't I start, and then Scott, you can comment.

I think we are very confident in our gross margin for the rest of the year. And while there's business mix changes that happened throughout the year, when you think about some of the key components, whether it's cotton, whether it's distribution, we have really good visibility to that, and it's already on the balance sheet. So we know what's going to roll off throughout the year.

So obviously, we had a really strong first quarter at 39.9% and are really pleased with where that is. And we feel really good about where we've been. We think that our guide is actually relatively conservative overall, but a lot of confidence that we can get there based on what we know about our business already.

[Markland Lewis, executive]

Yes. And just to add a little bit of color for the first quarter rightly, like Steve said, a great start to the year. The mix point and something -- I think you probably recall this, like in the first quarter, we have had a heavier mix of sales in our International business, which is a higher concentration of retail. And so that has a higher gross margin rate but also a higher SG&A rate, so we saw that in the first quarter.

That's a normal seasonal trend that you see in the first quarter and over the course of the year. And like Steve said, the rest of the year, we have great visibility to the input cost. And as you think about from a modelings perspective, for the second quarter, I would guide you to a 38.5% to 39% gross margin rate. And then as you think about the rest of the year and the full year, I will continue to use that at 38.5% to 39% rate for gross margin.

Again, great visibility. We have the cost identified. We know what's going to roll off. We have cost savings that are in place. Again, we've derisked that profit guide. So it gives us a lot of confidence that we know we can deliver that profit number.

[Brandon Cheatham, analyst]

Got it. And just to clarify, you're not seeing any pricing pressure to pass through some of those cost savings?

[Stephen Bratspies, executive]

Sorry, we lost the last part of your question. Could you say it again?

[Brandon Cheatham, analyst]

Sure. Yes. And just to clarify, you're not seeing any pricing pressure to pass through some of the savings [ you may be receiving in costs ]?

[Stephen Bratspies, executive]

Yes, on cotton. No, we actually think we're in a really good position. And we have really good visibility, cotton, all the way through this year. We know where we're going to be. So if there's any movement, it's not going to be anything this year that we incur at all.

[Brandon Cheatham, analyst]

Okay. And one more -- sorry, if my line is breaking off, but can you quantify the POS trends that you're seeing right now and the retailer decision to take down inventory? Is there potentially restocking opportunity there eventually? And can they continue to destock? Because I feel like we've heard about them continuing to destock that channel for a while now. So would you suspect that inventories are pretty [ low ]?

[Stephen Bratspies, executive]

Yes. So let me talk about POS overall. Then I'll talk about inventory.

When you come -- when we came through the quarter, the beginning of the quarter was softer on POS than the month of March was. Some of that is just the strengthening of the business. Some of that is there's an Easter flip in there. So -- but March was definitely stronger than January and February. And as we get through the Easter foot, we're starting to see that more positive trend in POS as we start to come into April.

So we feel pretty good about our POS performance. Category is still struggling. There's no doubt about that, and it's soft, but our POS is definitely outperforming, and that's why we got the 50 basis points here as we go forward.

When you think about the inventory, as we planned Q1 and guided, we expected some inventory reduction to be there. It turned out to be a little more than we expected, but it's only -- it's about $10 million to $15 million lower than we expected. We don't think this is a business model shift. There's always some changes and adjustments that are made, but we don't anticipate this being an ongoing challenge of a movement in inventory.

Will it be a restocking? Look, we're always trying to find opportunities for inventory out there. We work very closely with our partners to find opportunities where there's gaps in assortment or gaps in inventory all the way down to the store level. We've built a lot of data analytics to help us do that and really partner with them, and we have a really good working relationship on that front. But overall, we have not put a restock into our guide going forward.

[Markland Lewis, executive]

Yes. And just maybe one more point on the earlier comment about cotton. Because you may be also asking about from a pricing standpoint, like we said over last year, we did not fully price for the inflationary peak. So that's stabilizing off, and we're not anticipating again a pricing pressure on that side of the product.

[Operator]

Our next question comes from the line of Ike Boruchow with Wells Fargo.

[Irwin Boruchow, analyst]

Maybe, Steve, can you talk a little bit to -- maybe a little bit more granular on some of the categories that are key to you guys? There have been some kind of reach on some of your competitors, I think, on the underwear category being under the most pressure. Kind of curious if you can kind of parse out the different pieces of Innerwear and if you're seeing kind of varying degrees of demand. And just any other color would be kind of helpful when you think about that into 2Q and beyond.

[Stephen Bratspies, executive]

Sure, Ike. As you think about the categories, at the most macro level, it's pretty consistent performance when you look at POS. And if you look at our share gains, pretty consistent across the business, which add up to that 50 basis points. You will see that men's underwear is outperforming more than other businesses, and it's always been probably the strongest category for this company. And we're going to continue, obviously, to lean into that. We've got all the innovation in that space with SuperSoft, which is doing extremely well.

I'm encouraged about what's happening with Maidenform and with the launch of M and Bali with brief coming at the end of the year. So we're looking for some impact in the back half on that.

But the categories overall, there's not major differences across the board. There's puts and takes in 1 month over another, but it's relatively consistent.

[Markland Lewis, executive]

Yes. And maybe add a little bit too from a guide standpoint. I know we don't guide by segments, but let me give you some directions on, I guess, the U.S Innerwear business. We've had the 8% decline in Q1. But as you look at Q2, again, we expect that moderating trend to continue. And also, we're going to continue to outperform the category for all the things that Steve was talking about. We got brand investments supporting the innovations that are coming. So as you think about the U.S. Innerwear, we're guiding, again, directionally to a 3% to 4% year-over-year decline, factoring all of that in.

And then just to touch on while we're talking about segments, just real quick on the International side. As you think about modeling for Q2, I would say that would be down mid-single digits on a reported basis and essentially flat on a constant currency basis. And then on Activewear in the U.S., I would guide you down to, say, mid- to high single digits. And that compares to down 14% in the first quarter on an adjusted basis when you factor and take out the timing items that we talked about in the earlier remarks.

[Operator]

Our next question comes from the line of David Swartz with Morningstar.

[David Swartz, analyst]

Firstly, can you let us know if you're seeing any differences in trends in Australia and if it seems like that business is getting better? Or is it remaining under pressure?

Secondly, are you confirming that you have decided to maintain control of Champion and will not be selling the business?

[Stephen Bratspies, executive]

So in terms of Australia, we're starting to see some improvement, and it really depends on the business over there. The Bonds business over there is we continue to do particularly strong -- it's been particularly strong, particularly in the wholesale business and the grocery channel. The D2C business with bras and things has remained a little bit softer, but we're starting to see a little bit of improvement. We are expecting some tax relief in the back half of this year and anticipating a little bit of interest rate improvement, although there is some uncertainty right there.

But the comps and compares get easier as we go into the second half. So we anticipate that business starting to rebound. I would tell you, I'm really pleased with the work team is doing over there. I'm excited about the innovation in baby and the Bonds shaped bra product. So we're leaning in. We have some aggressive advertising campaigns that are going on right now that are resonating. So I feel good about that business as we go forward.

In terms of Champion, we're not making any announcement today in terms of us keeping the business as you ask the question or selling it. The process is continuing. We're going to continue to evaluate the right path forward. The process is progressing as we expected. And in parallel with that, we're going to continue to implement the long-term growth strategy, like we said we always have. And we will follow the same protocol as we have in the past, and we will update you as appropriate when there's news for us to share.

[Operator]

Our next question comes from the line of Paul Kearney with Barclays.

[Paul Kearney, analyst]

On the brand marketing opportunities and the investments you're making, angle over what you're doing differently today and where the marketing investments are concentrated and kind of the timing of those through the year.

[Stephen Bratspies, executive]

Sure. As we said, we increased our investment pretty significantly in the first quarter. And this has been built over the last couple of years. One of the things that we've been focused on for a while now is strengthening our brands. And I think these brands have been underinvested in for a long period of time. And if you want to be a consumer-centric company, you want to be a brand-driven company, you want to be an innovation-driven company, you have to invest, and you have to continue to lean into your brands.

The bulk of our advertising in the near term has been around and is going to continue to be around innovation. Leverage the brand, but talk about the news. And the news last year was really around Originals. This year, it's around M by Maidenform. It's the next stage of Originals, which is SuperSoft. On the Champion side, it's going to continue to talk about the brand and our positioning and how -- what that brand represents and really leaning in when we have our new fall/winter line that's coming as we go forward. And along with that, in the back half, we'll have Bali brief. So when you think about our advertising, you think about our media, think about it as leaning in behind branded innovation. And I think that's the best way for us to talk about it.

The mix over time is going to continue to change and depending upon the brand. So Hanes will go to market differently than Champion will go to market. It will show up in different channels, whether that's linear TV or that's more direct-to-consumer channels.

And what gives me confidence is we're starting to see the results of that. So take a M, Maidenform, for example, when we started to literally lean into that in the first part of this year, we saw POS jump 18% in that business. So we've got confidence that our messaging is right. Our approach is right, and we're going to continue to make those investments over time.

Tying back to some of the things we talked about earlier, our cost position and the way we continue to take costs out, the gross margin improvement, the SG&A focus enables us to fund those investments. And we're going to continue to find that right balance as we go forward.

[Operator]

Our next question comes from the line of Hale Holden with Barclays.

[Hale Holden, analyst]

The last couple of quarters, we've talked about declines in the U.S. Innerwear kind of industry, not necessarily your segment but the whole sort of sales opportunity set. And I was wondering, it sounds like you've seen that stabilize this quarter and into next quarter. And maybe if you could give us some dynamics about what you're seeing in the segment.

[Stephen Bratspies, executive]

Yes. I think when you think about the Innerwear segment, I think you have to think more broadly about the consumer environment and where it is. Overall, consumer demand remains challenging for apparel across the board in -- whether that's U.S., Europe, Australia. We've been seeing those headwinds for several quarters, whether it's interest rate impact, inflation. Consumers are definitely seeking value. We can see their activity of shopping events, and you definitely see that in the POS.

When we look at the category from a long-term perspective, I've got a ton of confidence that it's going to rebound to historical levels, which is 1%-plus growth. You've seen that you go back to '08, '09, when all the challenges in the market right there, the category's impacted, and then it rebounded. We expect that's going to happen over time.

If you look at the last 3 years, on average, the category performed at historical rates. It's just been incredibly disruptive. 2001, I hate to go back that far, was such a massive growth, 24%, 25%. And then it's been challenged ever since. But we expect that to moderate over time. We're starting to see some stability over time, and we have a lot of confidence that this category will perform to its long-term run rate as we go forward.

[Operator]

Our next question comes from the line of William Reuter with Bank of America.

[William Reuter, analyst]

For the sales decreases of Champion, I was wondering if you could talk a little bit about what channels those decreases in, whether those were kind of specialty channels, whether they were off-price channels, mass versus department stores. Where did you see the biggest declines in your sales into?

[Stephen Bratspies, executive]

Yes. Thanks for the question. When you think about it, it really varies by geography in terms of overperforming. In the U.S., it's really kind of generally across most channels or all channels. And that has a lot to do with cleaning up of inventory that's been out there. And I think we've finally repositioned ourselves to a place where the channels are cleaner, and we can prepare to move forward. And as I mentioned earlier, we're excited about the fall/winter line that's coming and think that that's going to help start to rebuild the business as we go forward.

In Europe, wholesale has been challenging. And the customers are just being conservative with -- they've been in inventory challenges in the past, and I think they're challenged going forward.

When we look at Asia, Asia is performing pretty well. Japan is up. China is up. We're seeing opportunities there to continue to grow, and those markets have rebounded from where they've been the last couple of years.

So I think it's a mix by geography. But I think going forward, we're well positioned across all the different channels. If you look at in the U.S., our e-commerce business was up 12% in the first quarter. So we're starting to build some momentum there. And more importantly, the programming that we have now is channel specific. And I think that's what has been missing in the past. We weren't -- we don't differentiate it enough by channel. We weren't segmented enough by channel and by product.

And the product that we have going forward accomplishes all that. We've instituted a more global approach to how we go to market. And that's really what's going to make the difference for us in terms of global platforms on product, on fit, on color. All those different things are going to help us win across channels, and it's something that we haven't done very well in the past.

[William Reuter, analyst]

I guess just one, a little more specifically on that. Were there intentional reductions to off-price that impacted the sales of Champion?

[Stephen Bratspies, executive]

No, nothing intentional. We're managing through or have been managing through high inventory positions in the channels and consistently looking for opportunities as we go there. We think the brand can play very effectively across a lot of different channels, and we'll continue to activate that way.

[Operator]

Our last question today will come from Michael Coppola with JPMorgan.

[Michael Coppola, analyst]

The first one we had was on the Champion kids licensing deal. Did you guys receive any cash payment for that? And I know you kind of called out that there was a 500-basis-point impact to revenue. Just how we think about revenue and margins pro forma for that going forward.

[Markland Lewis, executive]

Yes, that wasn't a transaction where we sold something. [ Basically, it's really ] more of a top line wholesale model to a license model, so we get a royalty income stream going forward.

[Stephen Bratspies, executive]

And you'll see that was -- the biggest headwind from that will be in Q1, and it will moderate as we go forward.

[Michael Coppola, analyst]

Okay. Great. And then the second one, I know you guys kind of reaffirm that you plan on paying down about $300 million of debt this year. If you -- any comment on where you prefer to go after term loan or bonds for that as well? Or does it -- any way you're thinking about that?

[Markland Lewis, executive]

Yes. Great. Thanks for your question. Again, we paid down $500 million last year of debt. We got another $300 million plus coming in this year, feel really good about the cash flow generation. We talked about the profit driving that. Working capital is coming through. As you think about how to apply that $300 million plus of debt pay down, we have a lot of flexibility with our debt structure.

We have a senior secured credit facility. We have the Term A and Term B loans that are prepayable without any penalty. And so that's higher-rate debt, it's prepayable, and that's what we'll focus on, on the debt paydown.

[Operator]

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

[T. Robillard, executive]

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

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.