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Hanesbrands Inc (NYSE:HBI)
Q4 2020 Earnings Call
Feb 9, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the HanesBrands Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded.

I'd now like to turn the conference over to your host today, Mr. T.C. Robillard, Chief Investor Relations Officer. Please go ahead.

Thomas C. Robillard -- Chief Investor Relations Office

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 fourth quarter of 2020. 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 the impact of the COVID-19 pandemic and measures taken by governmental or regulatory authorities to combat the pandemic on our business and operations, as well as the business and operations of the consumer, our customers, suppliers, business partners and labor force. 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 actions related charges. The use of the term PPE relates to our personal protection garment business including face masks, face coverings and gowns. Also, please note that unless otherwise stated all prior-year comparisons are to 2019 results that have been rebased to reflect the exited C9 program at Target and the DKNY intimates license. Additional information including a reconciliation of these and other non-GAAP performance measures to GAAP can be found in today's press release.

With me on the call today are Steve Bratspies, our Chief Executive Officer; and Scott Lewis, our Chief Accounting Officer and Interim 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 B. Bratspies -- Chief Executive Officer

Thank you, T.C. Good morning, everyone, and welcome. It's hard to believe that it has been a year since the pandemic began. I hope you and your families are staying safe and healthy. To that end, I want to begin by thanking the entire HanesBrands team around the world for its ongoing dedication, hard work and focus on safety and service. I'm extremely proud of how much the team has accomplished over the past year especially under such challenging circumstances.

I'm excited to speak with you today to provide an update on the progress we've made since our last call. We're going to center the conversation on two main topics. First, our execution and the financial results in the fourth quarter that drove a strong finish to the year. Second, is the launch of our multi-year growth strategy, which we're calling our full potential plan that's being developed as a strategic assessment I outlined last quarter. First, in terms of the fourth quarter, we delivered solid results as revenue, operating profit, earnings per share and operating cash flow all came in above our expectations despite the increasingly unpredictable environment. We experienced strong consumer demand for our brands and products around the world, which drove market share gains in a number of categories including US basics and US intimates. We also saw revenue momentum continues to build across our three largest businesses. US Innerwear, we delivered another quarter of above category growth. The sales excluding PPE increasing 16% over prior year.

We're also pleased with the global performance of our Champion brand during the quarter. On a constant currency basis, global Champion sales increased 11% over prior year. And outside of the COVID challenge, sports and college licensing business, global sales were up 18% in the quarter. In international along with Champion strong performance, constant currency sales in our Australian Innerwear business increased 8% over prior year.

Now turning to the second topic, we've made significant progress on our growth strategy. Since our last call, we've defined our growth drivers, we've identified the strategic initiatives needed to unlock growth and improve productivity and we began the early implementation of our full potential plan. It was clear from our analysis of the business that simplification is critical to our future growth. It will make us faster, it will lower costs and it will focus resources. Specific actions that we've initiated over the past few months as we began to implement our full potential plan include portfolio streamlining and SKU rationalization. I'd like to briefly touch on both of these. First, we're streamlining our portfolio to increase our business focus and improve future returns. Specifically, we are exploring strategic alternatives for our European Innerwear business. While we are in the very early stages, we're committed to be transparent and we'll provide updates as we move through the process.

We're also moving on from PPE. It's encouraging to see that COVID vaccines are rolling out around the world. As a result, this rollout along with slowing retail orders and a flood of competitive offerings have dramatically reduced our future sales opportunities. Therefore, we do not view PPE as a future growth opportunity for the company.

The second action we've taken to simplify our business is rationalizing our SKUs. Based on the inventory review that we discussed on our last call, we are removing 20% of our SKUs. We're also implementing a formal product life cycle management process. This will heighten our product design and consumer focus as well as streamline our product offerings, which in turn should lower costs, improve in stocks and drive sales at higher volume, higher margin SKUs. As a result of these actions, we've made the difficult but important decision to writedown our entire PPE inventory-related balance, as well as the inventory tied to our SKU rationalization. Scott will provide more detail on this during his review of our financial results.

As I mentioned last quarter, our goal is to become a consumer-centric growth company, one that generates higher and more consistent revenue growth while also delivering higher levels of profitability over time. Our full potential plan is the footprint [Phonetic] to accomplish this goal. As you can see, we are moving forward with purpose and with urgency. We've already taken action and we're focused on executing our full potential plan.

I look forward to sharing more details about this shortly, but first, I'll turn the call over to Scott for a review of our results and our first quarter guidance. Scott?

M. Scott Lewis -- Chief Accounting Officer and Controller

Thanks, Steve. Overall, HanesBrands delivered solid fourth quarter results. On an adjusted basis, we exceeded the high end of our expectations across all of our key metrics driven by continued top line momentum. Looking at the details of our fourth quarter results, sales increased 8% over prior year to $1.8 billion. Excluding PPE, sales increased nearly 7% as we experienced continued sequential improvement in our Innerwear, Activewear and international segments. For the quarter, FX in the 53rd week contributed 190 and 290 basis points of growth respectively.

Adjusted gross margin of 41% was above our expectations for the quarter due to higher sales and product mix. As compared to last year, gross margin declined 80 basis points due to the expected negative manufacturing variances, which were partially offset by higher sales and favorable product mix. Adjusted operating margin declined 250 basis points over prior year to 12% as a gross margin declined along with the expected higher cost caused by COVID and our full potential plan more than offset the benefits from higher sales and mix.

Pre-tax restructuring and other related charges were $661 million in the quarter, of which 96% were non-cash. The vast majority of these costs, approximately $611 million were inventory related charges tied with the business simplification action Steve mentioned as we began implementing our full potential plan. Breaking this down, $400 million is related to the entire PPE inventory-related balance that we referred to on last quarter's call. The other $211 million is related to our SKU reduction initiative and representative approximately 12% of our non-PPE inventory balance at the end of the year. The remaining $50 million of charges in the fourth quarter reflect $25 million for a COVID-related goodwill impairment of our US hosiery business, $17 million from a write-off of a discrete tax asset tied to our Bras N Things acquisition and $8 million for business accelerated [Phonetic] actions as well as the previously disclosed supply chain restructuring.

Our adjusted tax rate which excludes $67 million of one-time tax benefits was 19%. This was above our expectations due to the higher than expected profit in the quarter. And adjusted earnings per share were $0.38, while on a GAAP basis, we had a loss of $0.95 per share.

Now, let me take you through our segment performance. For the quarter, US Innerwear sales increased 20% over prior year driven by an 18% increase in Basics, an 8% increase intimates and the inclusion of $22 million of PPE revenue. Excluding PPE, US Innerwear sales increased 16% over prior year. Some of our strong consumer demand at point of sale, space gains in kids underwear, continued inventory restocking by retailers and the contribution from a 53rd week. In our Basics business, we experienced growth in each product category. And within our intimates business, gross sales increased at a double-digit rate, which more than offset the COVID-driven decline in shapewear sales. For the quarter, Innerwear's operating margin declined 60 basis points over prior year to 24.1% driven primarily by higher distribution costs, which were partially offset by the benefits from higher sales in mix.

Turning to US Activewear, revenue increased 7% compared to last year, driven by growth in the online, wholesale and distributor channels. While our sports and college licensing business declined over prior year due to continued campus closures and limited attendance to sporting events, we saw sequential improvement in this year-over-year revenue trend in the fourth quarter. Looking at the Champion brand across all the channels in our Activewear reporting segment, Champion sales increased 11% over last year. Activewear's operating margin was 8.9% in the fourth quarter. As expected Activewear's margin declined compared to prior year due to the expected negative manufacturing variances, which were partially offset by the benefits from higher sales in mix.

Putting to our international segment, revenue increased 2% compared to last year. Excluding the $6 million of PPE sales, international revenue increased 1% and with respect to the Champion brand within our international reporting segment, sales increased 6%. On a constant currency basis, international sales declined 3% over prior year. We experienced growth in Australia driven by our Bonds and Bras N Things brands across the retail, wholesale and online channels. We also saw growth in Canada and Latin America. However, this growth was more than offset by COVID-driven declines in Asia and Europe. For the quarter, the international segment's operating margin declined 160 basis points over prior year to 14.3% [Phonetic] due to the expected negative manufacturing variances, COVID expenses in mix.

Turning to cash flow, we generated $217 million of operating cash flow in the quarter, which exceeded our guidance and $448 million for the full year. Looking at the balance sheet, excluding the actions and writedowns previously discussed, inventory declined approximately 4% sequentially and leverage at the end of the quarter was 3.3 times on a net debt to adjusted EBITDA basis which compares to 2.9 times at the end of last year.

And now turning to guidance. I'll point you to our press release and FAQ document for additional guidance details. At this time, we are providing guidance for the first quarter. We plan to provide a full-year 2021 outlook as well as three-year financial targets as part of the detailed review or full potential plan at our upcoming Investor Day in May.

With respect to the first quarter, we expect the uncertainty created by the COVID-19 pandemic to continue to impact the global consumer environment and we have reflected this on our outlook. At the midpoint, we expect total sales growth of 14% over the prior year. Adjusting for $50 million of foreign currency benefit, the midpoint of our sales guidance implies 10% growth on a constant currency basis. We expect adjusted operating profit of $150 million to $160 million, which at the midpoint implies an operating margin of 10.3%. Expected year-over-year margin expansion is due to higher sales, positive manufacturing variances and the anniversary of last year's COVID-driven volume deleverage. We expect interest and other expense of approximately $48 million and a tax rate of 16% and our guidance for both adjusted and GAAP earnings per share is $0.24 to $0.27.

So in closing, we delivered strong fourth quarter results and with the momentum we are seeing across our business, we believe we are well positioned to deliver continued growth in the first quarter of 2021. And with that, I'll turn the call back over to Steve.

Stephen B. Bratspies -- Chief Executive Officer

Thank you, Scott. We're excited about our future and we're confident in our ability to build on our business momentum in 2021 while also positioning the company for long-term success. And now I'd like to spend a few minutes providing some additional details on our full potential plan. Through the plan, we have defined our four pillars of growth and identify the initiatives to unlock this growth and create a more efficient and productive business model.

My confidence in the strengths of HanesBrands that I outlined on last quarter's call have only been reinforced as we've developed our growth strategy. We have iconic brands, we have global breadth and supply chain scale, we have a solid balance sheet, we have a long-standing commitment to sustainability and we have a dedicated passionate team with a genuine appetite and readiness for change. This is a strong foundation to leverage and capturing opportunities for growth and driving shareholder value. With respect to our four growth pillars of our full potential plan, they are grow Champion globally, drive Innerwear growth with products and brands that appeal to younger consumers, build e-com excellence across channels and streamline our global portfolio.

Touching briefly on each of these. First, with Champion, we're making rapid progress developing our global brand strategy that defines our consumer segments, geographies, product offerings and channels of distribution. We have solid momentum in this business and we're being thoughtful in how we position the brand going forward. We see significant opportunity to grow Champion over the next three to four years. We're engaging directly with the consumer through digital platforms, we're leveraging our global design centers to deliver innovative products, we're driving category expansion including a greater focus on women's and kids as well as layered outerwear and casual athletic footwear and we're expanding in China with our partners to an integrated front-end strategy stand-alone stores and online.

Our second growth pillar is to get younger in Innerwear. In Australia, we'll build our momentum by fueling the growth of our Bonds and Bras N Things brands, particularly through our D2C channels. In the US, our plan is to build on our recent Innerwear growth by shifting our portfolio younger while defending our core, we must maintain our strength with our current consumers while adding the growing base of younger US consumers. We are well positioned to capture this growth opportunity by targeting our incredible brand portfolio of Hanes, Maidenform, Bali and more to reach unique consumer groups. We plan to invest to meet changing lifestyles targeted in innovative products.

Third, we're building e-com excellence across all online channels. Consumers are rapidly adapting digital tools as a way to connect with our brands and buy our great products. To be successful over time, we must build our e-comm capabilities to serve consumers however they shop. We're leveraging data analytics to get to know our consumers better and build long-term loyalty, we're improving performance marketing so consumers can find our products online and we're developing a frictionless shopping experience to help consumers easily buy and receive our products, whether it's on our own sites or our retail partner sites.

Finally, we're streamlining our portfolio and positioning for global growth. This will allow us to focus our resources and efforts on higher growth, higher margin businesses. As I mentioned earlier, we're moving on from PPE and we are exploring strategic alternatives for European Innerwear.

With that overview of our growth opportunities, let me turn to the other key components of our plan, setting the strategic initiatives and making investments to unlock growth and create a more efficient and productive business model. We've already begun executing on a number of these including a multi-year cost savings program intended to substantially self-fund our investments. We've identified 20 strategic initiatives, each with its own leader, tactical team, KPIs and deliverable schedule. While I'm not going to run through all these initiatives today, let me provide some high level thoughts. We'll be coming more consumer and product focus. We will lead with product design and innovation. We'll elevate the discipline of brand and channel management and we'll extend our sustainability heritage beyond our supply chain and into our brands and consumer marketing.

We're optimizing data and modernizing our technology. Data and technology are key enablers for a number of our initiatives in our full potential plan. We're making data a tool through standardization and accessibility across the global organization and we're investing in technology to make us more efficient, both in terms of revenue optimization and cost management. We're segmenting our supply chain so we can better serve our customers. Our supply chain is a competitive advantage, and it's been a long-standing strength of the company.

Given our broad diversified portfolio of products, we're enhancing our capabilities to adapt to the changing environment and needs of the digital consumer. Segmenting our supply chain allows us to efficiently meet growth opportunities, deliver innovation and be quicker to market for our respective Innerwear and Activewear businesses and over time, this should provide greater revenue opportunities while also lowering cost. And we're transforming our organization to speed up decision making, align ourselves to deliver future growth and to build a winning culture. We're designing a flatter and more responsive organization around the global Innerwear and global Activewear structure. This will help us to leverage innovation, improve supply chain service and efficiency and build powerhouse brands that meet the changing demands of our consumers and customers around the world. We're bringing in new capabilities and leadership. We've added outstanding new leaders including our CHRO, our Chief Consumer Officer and most recently, our President of Global Innerwear. We've also restructured and reorganized a number of existing goals to drive alignment and to focus expertise on critical components of our full potential plan particularly within supply chain and IT functions, all of which designed to leverage and unleash the knowledge and expertise of our long-tenured talent base.

So to sum up, we're excited about the progress we made in the quarter. Revenue momentum continues to build across our business, which was evident in our strong fourth quarter performance and we've begun implementing our full potential plan to drive growth and higher long-term profitability. This gives us confidence that we can build on our business momentum in 2021 while also positioning the company for long-term success. We're looking forward to a more in-depth discussion about our growth strategy at our May Investor Day.

And in closing, I'd like to once again thank the entire HanesBrands team around the world for all your efforts in these challenging times. And with that, I'll turn the call over to T.C.

Thomas C. Robillard -- Chief Investor Relations Office

Thanks, Steve. That concludes our prepared remarks. We will now begin taking your questions and we'll continue as time allows. I'll turn the call back over to the operator to begin the question-and-answer session. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Omar Saad with Evercore ISI.

Omar Saad -- Evercore ISI

Good morning. Thank you for taking my question. A nice quarter. I guess, Stephen, my number one question would be, as you think about the full potential plan, and thanks for laying out some of the initial details and thoughts around that, maybe you could share some of the findings behind, during the comprehensive review, the findings behind -- some of the key findings behind that are behind the plan especially around the Champion brand. Thanks.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Thanks for the question. Appreciate you being on the call. When we started, really my first day back in August to look at the business and really assess it, we did a real comprehensive review and we looked at everything. We looked at how our brands are positioned, how we go-to-market, how the supply chain is performing, who are key customers, what's our channel mix on a global basis. So we took a very comprehensive look and really got to what we call the unvarnished truth underneath our business. And every time we do that, of course you learn things about your business, things you're better at than you initially thought, things that you have big opportunities to improve upon. So we looked at all of that and the strategy that we built came right out of that. So if you think about growing Champion what we learned is -- what I learned is how strong the brand really is and how much potential it really has. And as I said in the last call, it's one of the reasons I joined the company because I think there's so much opportunity there when you think about the brand from its heritage and this is a 100-year old brand, it's got incredible track record of innovation, it's got a really strong global footprint and continuing to grow, we 're seeing a lot of excitement behind the brand. So it's an area that we need to lean into and we need to continue to build upon and I think the foundation is really strong and the upside in the future is really good. The other really key growth areas is the US Innerwear business and it's a business that's been inconsistent in terms of its growth, I would say, over the last couple of years and obviously it's a large part of our business, a very profitable part of the business. And as we look at our brands, really understanding where we are, what we learned is that our brands are tending to skew a little bit and a lot of the growth in the category is coming younger, younger consumers shopping differently, looking for different products. So we're looking at our brand portfolio. I love the brands that we have. I think, in particular, the Hanes brand is a bit underleveraged right now and has massive opportunity to grow as we expand that and we're going to spend a lot of time thinking about how do we segment each brand, have a very clear reason for being a very clear consumer segment that it's targeting and capture a larger consumer base as we go forward. Just -- just one example I'll give you I think that we learned getting very granular. Look at the Hanes men's underwear business in the US. We have the number one share position in the over 35 age group and we also have the number one share position in the under 35 age group, but the actual share is very different. We have a lot more share, absolute share in the over 35 and the growth is coming in the end of 35. So we saw that as a big opportunity for us to understand that consumer a little bit better, how they are shopping, what products that they want and we're going to be very focused and targeted on and going after that consumer and we have had some products in the pipeline that are coming very soon that will enable us to capture that opportunity

One of the other key learnings I would say that we had with that I don't think we are doing a good enough job leveraging our global learnings behind our brands and our consumer. So tie back to that men's underwear example that I just give you, our Australian business, particularly the Bonds brand had gone through a very similar exercise just a couple of years ago. They found themselves aging a little bit and then pivoted and now are doing extremely well capturing younger consumers with a bit of a different positioning, different brands, different product offering over time. So there's a lot of learning inside this global company that we can build upon and improve upon. So that's one of the connection points that we're trying to make as we go forward. So just a couple of the learnings that tie directly into key actions that we're taking going forward.

Omar Saad -- Evercore ISI

Got it, That's super helpful. And then for a quick follow-up. Did you guys provide the e-commerce and digital metrics this quarter? I know it's one of the strategic priorities building e-commerce excellence across channels. Thanks.

Stephen B. Bratspies -- Chief Executive Officer

Sure. We didn't in our -- in our release. But let me just talk a little bit about where we are from our -- we call our consumer directed business. So from an online basis, it's about 21% of our sales and the quarter grew 46%. So we are pretty pleased with the performance at that business over the year and that was both with our third-party suppliers and with our sales in our own personal side. So continue to see momentum in our online business. Work to be done there. It's one of our strategic priorities. I think we can get a lot better. We're good, not great, and we need to improve upon that. But consumer continues to find us and we keep seeing momentum there.

Operator

Our next question comes from Paul Lejuez with Citigroup.

Paul Lejuez -- Citigroup

Hey, thanks, everyone. Just curious if you could on e-com business if you give those metrics on the company-owned piece of it, excluding the third-party sites. Just to follow up on Omar's question there and want to understand a little bit more about the SKU reduction. As you said 20% of SKUs, 12% of inventory. What percentage of scales does that represent and what we see from the brand? Is that happening more on the Champion side, more on the Innerwear side, if you could provide any help there. Thanks.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Let me take them in reverse order and I'll let Scott talk a little bit about the online. From a SKU activity perspective, I think -- what I think that's important to understand kind of context around why we did what we did, and it's really part of the initial full potential plan in the fourth quarter kick-off, is we took a number of actions to simplify our business and simplify is a theme that you're going to hear from me a lot. I think it's really critical for us to be able to increase speed, lower costs, create focus in our -- in our resources and also ultimately that means provide our consumers with a better experience whether that's in stock, whether that's better products, whether that's better cost of the shelf. So we're going to focus on simplification and the SKU rationalization initiative is a key step in that and it is about 20% of the SKUs that is -- that we took action on. It was about 12% of our inventory at the end of the year as we went forward. From what are you going to see, I don't -- I actually hope you don't see anything and that you don't necessarily notice this and I think that's kind of the intent that you're not going to be a consumer who's now disappointed that they can't get product x or they can't get brand y. When you think about SKU rationalization is this pruning. One, is to reduce, but it's also to create room for other things, for newer areas so that we can drive growth.

So while we take 20% of our SKUs out, we're still adding SKUs where it makes sense to our business for us to grow. But we took a very disciplined approach to the SKU reduction. I would bucket it into three areas for you. Some of it is just no regrets. There is some routine clean up that needs to be done, small amount -- SKU has small amount of inventory, can be broken inventory irregular. So you shouldn't see that at all. Others is some, what I would call some unnecessary downstream complexity in packaging configurations or maybe some sub-brands or labels that are relatively small and our kind of declining businesses legacy businesses that we wanted to clean up. And the third area is really kind of past season merchandise that we're continuing to replenish over time for certain customers where we are really confident that we can move them into a more recent version of the product. So, which is a very disciplined approach. This is a global activity. All of our businesses we're involved, we followed it in a very rigorous manner that got us to the 20%. But I don't see you looking at and go, and now I'm missing this. We intend this actually to accelerate growth in our system to be able us to move faster and for us to improve margins over time. So it should be -- it should be seamless from a consumer perspective.

M. Scott Lewis -- Chief Accounting Officer and Controller

[Indecipherable] your other question and thanks for your question on this. So the online [Indecipherable] online as far as the growth there. It was about 21% of sales versus 16% last year. So we are seeing an incredible amount of growth there as we -- as we -- as the consumer behaviors -- shopping behaviors change and adapt and so this is another area that as far as far as the full potential plan. We know there's a lot of opportunity with e-commerce and online. And so we have more capabilities that we're going to invest into as we really look for this is an opportunity to grow even more as we move forward.

Stephen B. Bratspies -- Chief Executive Officer

And having said that, our web -- our own websites are about 27% of our total online sales. So you can kind of get a feel for how important they are to us and the opportunities that they present for us going forward.

Operator

Our next question comes from David Buckley with Bank of America.

David Buckley -- Bank of America.

Hi, good morning. Thanks for taking my question. I know we will hear more details in May, but just given the first quarter guide, do you believe you can return to fiscal '19 earnings level in 2021. And then can you share any details on the size and margin profile of the European Innerwear business. Thank you.

M. Scott Lewis -- Chief Accounting Officer and Controller

Yes. So let me start off and I appreciate your question. As far as the 2021 and as we mentioned in our prepared remarks, we're not giving the full 2021 guidance and outlook at this time. We are still working through and developing our full potential plan and we look forward to addressing that fully in the May Investor Day. And so as we think about the first quarter, again, we're really encouraged about the momentum that we're seeing within the business across all our segments and we're seeing -- we saw that momentum continue into January and we feel really good about the first quarter based on what we've seen so far and as we think about going down the P&L from a margin perspective looking for pretty substantial margin accretion there both from a gross profit and SG&A standpoint as we continue to have top line growth where we are really able to leverage the fixed cost and the SG&A.

Stephen B. Bratspies -- Chief Executive Officer

And I agree with Scott. I think we will see good momentum in the business and we feel good about heading into 2021. In terms of our European Innerwear business, I will give you just a little bit of color. We are at very early stages, so we don't have a lot to share in terms of process but we wanted to just to let you know that we're starting the process and our commitment to be transparent with you. But just a few details overview of the business. In 2020, it's a $500 million to $600 million in sales. The corporate operating -- the average operating margin is a bit below the corporate average. It's largely a wholesale business, but it does have some online, some own-retail with it. The biggest countries we operate in are France, Germany, Italy, Spain and the business has some great brands and if you're familiar with that market, the DIM brand in France and our Die [Phonetic] in Germany, a Bond Dorado in Spain, Lovable in Italy are really -- really good brands. We've got a very strong team over there. But for us, this is just -- we have finite resources and we are focusing on where we think we can generate the best long-term returns. So it's a good business, but -- which is questioning that is it the right business for us right now. So we started this process and we'll keep you in the loop as more develops.

David Buckley -- Bank of America.

Thank you. I appreciate the color.

Operator

Our next question comes from Adrienne Yih with Barclays.

Adrienne Yih -- Barclays

Good morning. Good morning. Let me add my congratulations. Steve, thanks for all the color. My first question is, is actually, how are you viewing some of the opportunities sort of some of the digitally native brands have sort of offered up. It seems like they are making a pretty good connection with the millennial whether it's third love or something really small and days like a Tommy John. So my first question just thematically and then my second question is for Scott. On the manufacturing variance aspect of it, does the SKU reduction in anyway, the SKU reduction combined with the non-go forward PPE, will that have any impact on their manufacturing variance and kind of along with that, are you replacing sort of the non-go forward SKUs with more innovation? Thank you very much.

Stephen B. Bratspies -- Chief Executive Officer

Let me talk about the digitally native brands first. Yeah, there is a lot of them out there and they are some interesting -- obviously, we watch them very closely and learn from them and understand how they are attracting consumers and what they can do. I look at it versus our brand portfolio where we have really strong brands in the business whether that's Hanes, whether that's Bali, whether it's Maidenform. The challenge for us going forward and the work that we're doing right now is to make sure that we do a very clear segmentation and positioning of each one of these brands. One of the challenges that we have is, I think in many times, our brands overlap a little bit too much and are are too close to each other. We need to push them apart, segment them, position them to capture the younger consumer. And I think we have the capability to do that and we're seeing the momentum with our bra business being up double digits in the last quarter. We're already starting to implement a few things that have been under way, but there's more to be done, but I think where we have the brands that we need right now to position it. We need to improve our e-commerce presence and performance that we talked about earlier, we need to make sure we have the right innovation. But we look forward to growing that business and I think we're well positioned to do it. We have work to do, but I think we have the assets in place that we need.

M. Scott Lewis -- Chief Accounting Officer and Controller

Good morning. Thanks for your question. Regarding the SKU reduction and manufacturing capacity, we do not anticipate any manufacturing kind of variance a drag as we go into next year. Just recall back when COVID emerge and we did start a supply our chain down and the PPE business was able to absorb and kind of take on that capacity in the interim and as things ramp back up, we were back to full capacity as we kind of look through the rest of the year. So we did have some manufacturing variances in the second half of the year within our international Activewear and we talked about that in the last quarter's call. We saw that play out in the fourth quarter, but again that was a short-term drag and as we go into 2021, it will be behind us.

Stephen B. Bratspies -- Chief Executive Officer

And I would just add to that the idea we will be adding new SKUs. The answer is yes. We're looking at adding. We're trying to not -- we're obviously not going to raise our SKU count back to where we were in the past. So we're going to be constantly be adding and pruning and manage that as we go forward. But we are looking to add SKUs to drive growth and more newness in our assortment whether -- and there's different ways of doing that [Technical Issues] new products or events. Some of it is back to being a global company, how do we lift and land global styles and share on a more global basis. I think we have an opportunity to be more seasonally relevant with color and print rotations, different silhouettes and fabrications, we're looking at for the younger consumers. So the 20% reduction gives us room in our operating model to do more. It simplifies the manufacturing process, it simplifies our distribution process and allows us to be focused on where the true growth opportunities are. So we're looking to grow and we'll definitely add SKUs as we need to.

M. Scott Lewis -- Chief Accounting Officer and Controller

Yeah. And just one more point on the SKU reduction and Steve was just pointing out the efficiencies. Again, these efficiencies will help drive down cost actually with some of the SKUs that we identified of low performing and shorter run times and so we're able to kind of offset that with core higher volume SKUs. So I would expect, if anything, it will be more efficient over time.

Operator

Our next question comes from Laurent Vasilescu with Exane BNP Paribas.

Laurent Vasilescu -- Exane BNP Paribas

Good morning and thanks for taking my questions. Steve, Scott, could you possibly give us some direction on where Champion should grow for first quarter and then I think last quarter you talked about spring-summer bookings to be higher than 2019 levels for Champion, is that still the case? And then second question, just how do we think about the US Activewear EBIT margin since it was down 700 bps for the fourth quarter, how do we think about it for the first quarter? Thank you very much.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Scott, you will start with the margin first and [Indecipherable].

M. Scott Lewis -- Chief Accounting Officer and Controller

Yeah, sure. Definitely. Good morning and thanks for your question. So from an Activewear margin standpoint and actually overall for the quarter we're actually pleased with Activewear's result and on a margin perspective, we talked about this in the last call, we expect the margins to be down in the fourth quarter with the -- we had some manufacturing variances that were unfavorable that were incurred early in the year and now were flowing through in the second half. And so that was negatively impacting our margins for the Activewear business now. That is a short-term headwinds that we had and as we move into 2021, that's going to be behind us. And so that's going to be a good rebounding from a margin perspective from Activewear as we go into 2021 and then [Indecipherable] on layering on top of that as volumes and and top line increases in growth there, we are going to be able to spread cost even more so as we get a margin expanding back to where it was before.

Stephen B. Bratspies -- Chief Executive Officer

Good morning, Laurent. In terms of Champion, we're feeling really good about the business and where it's going, and yes, bookings continue to be up and strong as we go forward and we're expecting good performance from Champion in the first quarter. The big headwind that we had that we talked about in the 3rd quarter was around our sports and college licensing business and as activities aren't -- or muted and people aren't attending events and college bookstores are closed, that obviously remains a headwind for us, but when you look at the quarter and you look at global Champion being 11% and then up 18% when you back out the challenge sports and college licensing business, you can see the impact there, but we feel good about Champion in the quarter. We think we're going to continue to have momentum and consumers are really reacting, innovation is working and the channels are working for us as well. So we're very bullish on Champion going forward.

Operator

Our next question comes from Michael Binetti with Credit Suisse.

Michael Binetti -- Credit Suisse

Hey, guys, good morning and thanks for all the details today. I guess to jump off, could you speak to the guidance for the first quarter, sorry, focus on the near-term for a minute, but it points to an operating margin that's above the first quarter of 2019. A lot of us are trying to model to pre-COVID level. So I'm trying to think maybe you could help us with the gross margin versus SG&A in the first quarter just so we can think about how those businesses come -- or how those lines compared to the first quarter of '19 as well. And is that -- is that being above those margins, is that a sustainable dynamic as we try to roll through the next few quarters after 1Q understanding that you don't want to guide us yet for the full year. I'm just trying to get a better picture of what this business looks like on the other side. And then, Steve, when we look at the potential options early on in the strategy to exit the Europe business, is the comments that you can self-fund these transformation initiatives, does that assume that you have the savings initiatives that you're looking at, have enough savings to offset any potential dilution from the Europe business? I'm assuming there some stranded [Phonetic] costs there even though, Scott, you said that margin is below the corporate average.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Let me let me go first and then Scott, you can go back for the guidance. So, yeah, we are kicking off a very substantial cost savings initiative that we think can help transform our cost structure over time and substantially self-fund our investment separate from any changes we made to our portfolio. I would just think about the investments or the self-funding of the investments from cost savings initiatives kind of our ongoing base business and I think you should include that in 2021 as you think about your modeling. Those cost savings start today and our investments start today. So I think you can connect those in 2021 as we go forward. HCI depending upon, sorry, when I refer to HCI, our European Innerwear business, it's our internal words, sorry about that. Our European Innerwear business, we'll see where that goes. And as I said, it's early but that would be separate from our cost savings initiatives. It's not -- that's not how we're tending to fund investments going forward.

M. Scott Lewis -- Chief Accounting Officer and Controller

Excellent. Good morning and thanks for your question on our Q1 guidance. And let me kind of first step back. I know you're asking about the large and so I think it's important to understand kind of the broader view of kind of what we're looking at from a topline perspective that actually drive margin performance as well. Again, like I said earlier, we are off to a strong start to 2021. We have some really good momentum across the business and you can see that in our -- actually in our segment topline guidance with double-digit growth expected for US Innerwear both in the US Activewear and international we're expecting mid to high single-digit growth in the first quarter. So, again, really continuous momentum, the underlying momentum that we saw in the second half. Now that being said, we are still facing unknowns. We have continued headwinds from COVID and some operational challenges but again, we are very overall very optimistic as we go into 2021.

On a margin perspective, again we are anticipating a big pop as far as a profit improvement 550 basis points over the first quarter of last year and I think it's important to understand when you're comparing to 2020, of course, there is a lot of noise in 2020. In the first quarter of last year, I got some COVID charges that we incurred. The first part was in gross margin when we had a $12 million negative manufacturing variance from surfing our supply chain down back in March time frame and that started for a couple of months and we also had a bankruptcy charge relative to a retail customer of $11 million. So those two things were in the margin of last year that would not repeat for the first quarter of this year or not anticipating. The balance of the improvement is a mix between gross profit and SG&A going back to the SKU reduction initiative. We're actually seeing the benefits already in the first quarter of that. We're expecting lower excess and obsolete inventory charges and we're also anticipating the savings from the supply chain restructuring actions we've done recently as well.

So we're seeing same -- same this [Phonetic] flows to the P&L. Now we're going to have some incremental costs as you think about the first quarter. Like I mentioned, we have some operational challenges and and these are widespread supply chain and logistics constraints that industry wide are same, the port congestion and product availability issues and an impact of this a little bit in Q4, but offset is going to continue through the first quarter and that includes incremental cost like higher freight and some repackaging costs where we're trying to leverage existing inventory, repackaging that to meet customer demand to kind of work through that and meet deadlines there.

From an SG&A perspective, it's really mostly about just leveraging the top line growth and leverage those fixed costs and getting the higher -- higher spreading that cost over a larger sales volume.

Stephen B. Bratspies -- Chief Executive Officer

I would just -- I would just add on top of all that. So, Scott, I think you're -- that's a really good kind of where we are today. But as we kick off the full potential plan and we work toward this and when we get together in May at our Investor Day, we'll share a much longer-term view of it. But our goal and our intent is to be a higher growth, more consistent growth company that delivers higher levels of profitability over time. So we're building a long-term plan that enables that and we feel like we're going to have a good story to tell you when we get together in May, and we'll be able to put all the pieces together to show you how we get there.

Operator

Our next question comes from Susan Anderson with B. Riley.

Susan Anderson -- B. Riley.

Hi, good morning. Thanks for taking my question. I was wondering if you could talk a little bit about the performance of C9 on Amazon in the quarter. I guess how the consumer resonating with the brand and how is it performing versus your expectations?

Stephen B. Bratspies -- Chief Executive Officer

Sure. Good morning, Susan. Yeah, C9, our full year sales were in line with our expectations. We are focused on Amazon right now. We're looking at the business in total as part of our global Champion brand strategy and it's really trying to understand where we can drive Champion and how C9 fits into that strategy as we go forward. We do know that there is still good consumer equity and royalty in the brand and we're looking to see how we manage that in the long term. But to answer your question directly, it's performing to our expectations on Amazon and what they expect and what we expect going forward and both are pleased with the business.

Susan Anderson -- B. Riley.

Great. And then I just like to add follow-up. I'm curious how you're thinking about the long-term growth of the segment -- segments particularly Innerwear which is inherently a lower growth business. I guess after we get past the restocking, how are you thinking about kind of a more normalized growth levels for that segment of the business? Thanks.

Stephen B. Bratspies -- Chief Executive Officer

Yeah. I'm not going to give you what the long-term number is for our growth right now. What I would tell you is, yes, traditionally, Innerwear in total has been modest growth business. But there are segments of the business that are growing much faster than others. And one of the things that we've done in our assessment of the business is really go back in and understand what product categories, what consumer groups, ages, channels, demographics are growing, and we have a much more granular understanding of that today than we've had in the past and I think what we need to do and what we will do is we will target those opportunities specifically, so that -- there is growth underneath and when you pull back the covers and the key is to be able to have the right brands, the right products, right pricing structure, the right channel approach to go after those opportunities.

So our plan is to have consistent growth in our Innerwear business particularly our US Innerwear business going forward which will be an inflection point for the company as we move forward. In May, we'll talk a little bit more about that.

Operator

Our next question comes from Paul Trussell with Deutsche Bank.

Paul Trussell -- Deutsche Bank.

Hey, good morning. Thank you for the color. I guess, wanted to maybe just see if there is any additional information you can provide around what you're seeing year-to-date. You spoke about momentum across the business in 4Q. Maybe just more specifically on what you're seeing from the different divisions and the different geographies, particularly Europe quarter-to-date.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Good morning, Paul. Yeah. In total, we feel good about the business and performance. You saw it in Q4, consistent performance across the business, whether that was Innerwear, Activewear and strength in our international business in total that was driven by Champion and our Australia, Innerwear business is really performing and we're very pleased with that business and we appointed a new leader there. Tanya Deans is going to take that business to the next level for us. We feel really good about that. Europe and Asia are headwinds and we're headwinds in the fourth quarter, particularly Europe with a lot of just closings, just openings. It's -- it's moving back and forth, but that's been a bit of a headwind for us in the Innerwear business. The Champion business in Europe has held up. It's held up well and we're pleased with that performance and we continue to see that performing over time. But European market is a challenge and Asia is a challenge in total. There's different parts. Japan was a very big headwind last year. We are starting to see a little -- potentially some good news coming out of Japan of some opening, but that's certainly was a headwind. But the other side of Asia, in China, we like where we're headed with the Champion business and our partnerships there to build both online and and physical retail in China with the Champion business. So the portfolio is mix around the globe and it's really a week-to-week type environment to understand government closings with the spikes in cases and things like that. If it is for us, I feel like we're managing through it very well. The supply chain has held up very well through this and our ability to have one. We have manufacturing in different places around the world, controlling a lot of our own -- our own supply chain has helped and allowed us probably to provide better service maybe than some of our competition, which has certainly helped us and for some longer term space gains as we go forward.

So I think the organization is managing through it. I'd be remiss if I don't take a second and thank our entire organization for the really hard work that they put in, in the last year and continue to put in to position us to be successful in a difficult environment. So, I feel good about where we are and we continue to manage it very closely, and we have all the processes and controls in place to make sure that we can thrive in a very challenged, difficult environment.

Paul Trussell -- Deutsche Bank.

Appreciate it. And then on PPE, I certainly understand the strategic thought process. Maybe, could you just remind us or give us some numbers to kind of think about as you cycle that business year-over-year. What was the impact to the P&L from a top line and EBIT contribution standpoint over the last 12 months?

Stephen B. Bratspies -- Chief Executive Officer

Sure. I appreciate you following up on that, Paul. If the PPE one -- this is challenging one for us, obviously. We have finite resource as a company and it's -- we really want to focus and we see the best growth opportunity in. The market has changed. Back in the 3rd quarter, we did just under $180 million of sales; in Q4, it was 28. So it's declined pretty significantly. Sales trends have changed as I mentioned, competition is different, consumer is changing in what they're looking for and the type of products is a lot more novelty and different things like that and it's not where we want to go.

In terms of the impact. In sales, it was roughly $1 billion for the total year, which is obviously a big number, but I would tell you while we are writing it down and it was a big sales contributor in 2020, we don't see it as a headwind in 2021 from a sales perspective.

Operator

Our next question comes from Jay Sole with UBS.

Jay Sole -- UBS

Great. Thanks so much for taking my question. So, Steve, I just want to clarify something from one of the earlier questions. You say that the multi-year cost savings program is intended to substantially self-fund the investment as necessary. What exactly do you mean by substantial. Does that mean like entirely you will cover the cost of investments with the cost savings or there will be some incremental investments on top of the cost savings. And then secondly, when you think about R&D and advertising, traditionally R&D is maybe 50 bps of total sales, advertising a little bit less than 3% of total sales. With the cost savings program, do you intend to take those percentages higher? Can you just tell us where you see those two line items within the P&L moving? Thank you.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Let me take the questions in reverse order. So in terms of R&D and advertising, I think we have an opportunity to invest there. I think we have an opportunity to spend more particularly in advertising. If you look back historically back to 2013 to 2015, we spent in the 3.2% to 3.5% range. 2017 to 2019, that was down in the low 2s and then this last year, we were at about 2. Now, 2020 is a different year. So there's lot going on there, but I think we're [Indecipherable] in corporate advertising as a percent of sales, and it varies by brand, it varies by part of the part of the world that we're in, but fundamentally, I think we have an opportunity to have our brands work harder for us and do more and expect for us to invest in that and a lot of that comes along with R&D. Product development is a big opportunity for us as we go forward. So you should look for us to invest in those areas as we go forward.

In terms of substantially self-fund our investments. Yeah, I don't know the exact number at this point, to be perfectly honest with you. I know we're going to be making investments. I know we have line of sight to some significant cost reduction opportunities over time, and this is going to be a journey. It's going to be a couple of years to get there. When get -- when will we be able to self-fund 100% of it, I don't know. At this point, our goal is to to self-fund as much of it as we possibly can and we think we will be able to self-fund a substantial portion of that.

Operator

Our next question comes from Ike Boruchow with Wells Fargo.

Ike Boruchow -- Wells Fargo

Hi, everyone. Just two quick ones from me. One, in the first quarter basically you got the share count is guided to come up a couple of million, just kind of curious what's going on there and then Steve, maybe I'm not understanding. Can you clarify when you're saying the PPE was $1 billion and you're wrapping it without that revenue recurring but you don't view that as a headwind. I'm not sure I'm understanding how you're describing it.

Stephen B. Bratspies -- Chief Executive Officer

Sure. Let me -- sorry, the PPE, it was about a bit -- when I say it wasn't headwind is I think we'll be able to lap it with our base business and our current businesses as we go forward. So it's obviously a big number, but were in -- we see the opportunity as markets open up to to cover that billion dollars of sales that we had in the past from that category.

M. Scott Lewis -- Chief Accounting Officer and Controller

Yeah. From a share count standpoint, we're not anticipating any large fluctuations in our share price or the stock outstanding shares. Really, a function of the share count can be a mix of stock price. We also have a long-term incentive plan as share base. So as you have a grant investing that tends to kind of make the share price and the outstanding shares going to fluctuate over the year but nothing significant to call out.

Operator

Our next question comes from John Kernan with Cowen.

John Kernan -- Cowen

Hey, good morning. Thanks for taking my question. So, Steve, maybe just on US Innerwear in the back half, even ex the PPE sales organic growth much better than trend in the first half and certainly on a multi-year basis. Maybe talk to the specific drivers of what is producing the better organic growth in Innerwear. And then just on the competitive dynamics within the category, what your view -- what's your view on private label? You did talk earlier a little bit about some of the DTC brand, so what's your view on the overall competitive environment with private label?

Stephen B. Bratspies -- Chief Executive Officer

Sure. In terms of -- in terms of Innerwear and the momentum that we have there, there is a couple of things going on. Obviously, there was particularly in Q3, a lot of restocking going on and the momentum behind that. We got some benefit out of that in Q4. It will probably be a little bit going forward, but obviously that starts to wane over time as everyone catches up. We see good POS performance. Consumers pulling the product and some of that from space gains that the team has had, some of it through, I think we've simplified our assortment in certain -- in certain accounts that has really helped us improved points and our inventory and stocks have been pretty good from a relative perspective. So executing the fundamentals of the business in the Innerwear is -- has helped us and I think it's an opportunity for us going forward. I still think we can get a lot better at it and as we add new products and as we execute the fundamentals in the basics of the business as well, we should see momentum and growth there.

In terms of private label. Yes, [Indecipherable] the category and we're looking at all the different brands, but being the top brand and the top share brand is a good position to be in and I've mentioned this before, but for me, private label is -- it's something we need to think about, but we need to do our jobs as brands and as brand leaders, and we do the right thing for our brands. When we we're producing high quality products that consumers want, when we manage price gaps and we have a reasonable price and good value, which we should be able to do from our low-cost manufacturing and we continue to invest in our brand the way we need to, I think will hold up extremely well versus the private label environment.

Retailers want brands like Hanes, like Bali, like Maidenform to drive traffic to their stores. That's what -- that's why they had brands, so that people come into their stores. So our part of that equation is to make sure that we're innovating, that we're messaging back to the advertising discussion we just had a minute ago, we're getting our message out there, we're making our brands incredibly relevant and brands that are in desire and if we do that, we drive traffic to retailers and retailers are happy -- are happy with the business over time. So we need to act like the leading brands that we are and put the foundation behind that and if we do that, I think we will compete very well as private label along with all the other brands that are out there.

Operator

Our next question comes from Jim Duffy with Stifel.

Jim Duffy -- Stifel

Good morning. Thanks for taking my question. I wanted to start by congratulating HanesBrands organization, the A List recognition for sustainability and reducing the carbon footprint. Great work there, guys.

Stephen B. Bratspies -- Chief Executive Officer

Thank you.

Jim Duffy -- Stifel

Stephen, I think the HanesBrands has having been in the process of tightening the belt over a number of year period, where the further areas of where you find savings to fund the investment that you're talking about. Can you highlight some of the opportunities. And then, Scott, I know you're not giving guidance for '21, but can you share thoughts on tax rate given the changing business mix going forward. And then, Scott, what's behind the increase in accrued liabilities in the fourth quarter?

Stephen B. Bratspies -- Chief Executive Officer

Let me start, Jim. First of all, thank you for the recognition and the call out on sustainability. It's something that is very important to us, something that we're very proud of and something that you really ingrained in the DNA of the company and we're going to continue to do and strive and continue to improve in that place. And I think you're going to see us start to talk about it more and ingrain it into our brand. It's ingrained in the company. We are going to ingrain it in our brands going forward, which is an opportunity for us to be increasingly relevant to younger consumers over time.

In terms of -- in terms of cost program that you talked about. Hanes has had a lot of programs over time in the past and have learned a lot about those in the approach they have taken. Here is I would say is the difference to you, is in the past a lot of the cost reduction programs just been about reducing costs and they're kind of isolated programs. This cost reduction program is going to be tied into the full potential plan and it's integrated into the strategies and all the initiatives, the 20 initiatives that we talked about to help find savings over time. So it's not just -- it worked horizontally across the organization, finding lots of different opportunities from how we're going to work differently. This is about changing the work and that enables us to reduce cost over time, but we're looking at all the big buckets. I mean, if you look at our P&L, the big buckets are around SG&A, and we're going to looking at all of the non-labor activities around SG&A and obviously part of COVID changes, how we think about operating our business going forward. So there will be some opportunities there.

Our labor model as we think about segmenting the supply chain and going to market differently and serving consumers differently and then the other big line is obviously cost of goods. So we're doing a really in-depth look at sourcing -- sourcing a procurement optimization, how do we get more efficient. But we're doing it through the lens of full potential plan. It's not a stand-alone cost initiative and I think that's what really makes us different and that's what's going to unlock a lot of cost for us going forward.

M. Scott Lewis -- Chief Accounting Officer and Controller

Thanks for your question. So on the tax rate again, we are expecting a 16% tax rate in the first quarter. Not at this time I can give you anything on the full year, but we're always working with our advisors to really try to optimize our tax rate just under the rules and regulations that exists. Again, that can ebb and flow a little bit over the time as you mentioned, the mix of income that we always try to kind of manage that from year to year.

From a standpoint of accrued liabilities, it's really more of a function of the strong fourth quarter results that's driving the accrued liabilities up. You have the higher sales volumes that creates higher trade incentive accruals at the end of the year, higher taxes payable at the end of the year. That's really largely a portion of what's driving the higher balance there and then you have some just timing items that can -- that can tend to go back and forth over the year, but that's really what's driving us to higher performance in Q4.

Operator

Our next question comes from the line of Steve Marotta with C.L. King Associates.

Steve Marotta -- C.L. King Associates

Good morning, Steve and Scott and T.C. Very one quick question, Stephen, regarding the e-commerce excellence. One of the challenges in the owned DTC channel over the years has been shipping costs versus a lower average AURs for HanesBrands. How do you think about that going forward in particular, by the way, in the recent season when shipping costs have increased? Have you cracked that code there? If not, how do you think that if code will be cracked going forward?

Stephen B. Bratspies -- Chief Executive Officer

Sure. It's a great question and the short answer is, no. I don't think we've cracked the code on how to do that yet and it's something that obviously we're thinking about as we build out both our own e-commerce and partner with our third parties. Shipping costs are a major part of the P&L, so we have to be smart about SKUs and how we offer pack sizes and how we go-to-market on that, but I would tell you it's not something we've solved at this point necessarily differently from all of our other competitors that everyone is struggling with as we go forward. But as we build this business, we're building it through the lens of how do we do it in most profitable sense from SKU assortment, what's our SLA that we want to have over time. We're looking at all of those different things, but its work to be done as we build our e-commerce excellence because that's certainly a headwind that everyone faces, and we have to understand exactly how we want to play and where we want to play on on that paradigm. It's not something that we have necessarily unlocked in or figured out yet at this point.

Steve Marotta -- C.L. King Associates

That's helpful. I'll take the balance of my questions offline. Thanks.

Stephen B. Bratspies -- Chief Executive Officer

Thank you.

Operator

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

Thomas C. Robillard -- Chief Investor Relations Office

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

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Thomas C. Robillard -- Chief Investor Relations Office

Stephen B. Bratspies -- Chief Executive Officer

M. Scott Lewis -- Chief Accounting Officer and Controller

Omar Saad -- Evercore ISI

Paul Lejuez -- Citigroup

David Buckley -- Bank of America.

Adrienne Yih -- Barclays

Laurent Vasilescu -- Exane BNP Paribas

Michael Binetti -- Credit Suisse

Susan Anderson -- B. Riley.

Paul Trussell -- Deutsche Bank.

Jay Sole -- UBS

Ike Boruchow -- Wells Fargo

John Kernan -- Cowen

Jim Duffy -- Stifel

Steve Marotta -- C.L. King Associates

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