Editor’s note: This article is part of “A Year of Evolution: CFOs on 2021” series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
The coronavirus pandemic forced many large, multinational manufacturers to overnight adapt to rapidly changing conditions, which has included switching to remote working, making new products, and shoring up liquidity.
Hanesbrands, a US-based apparel maker that generated about $7 billion in net sales in 2019, is one of them. The publicly traded company has been in business for more than a century. It is known for making socks, underwear, hosiery, bras, and athletic wear such as hoodies, T-shirts, and sweatpants, which it sells in Europe, Asia Pacific, and the Americas.
The economic and health impacts of the pandemic hit the company head-on. Months-long store closings and business disruptions wholesale customers experienced affected sales and inventories. Hanesbrands responded by shutting down production. But measures to counter the financial damage and manage risk were also underway.
The company raised nearly $700 million in cash by selling senior notes to shore up liquidity and converted some of its production capacity to making personal protective equipment (PPE). By the end of the third quarter, PPE sales had generated $931 million. Net sales for the nine months ending 26 September were down only 6.8% compared to the same period a year earlier, according to filings with the US Securities and Exchange Commission.
Scott Lewis, CPA, interim CFO and chief accounting officer, and Jonathan Aves, vice-president for global transaction services, talked to FM about the lessons they learned during the pandemic and how these lessons are likely to shape things at Hanesbrands going forward.
With no sign of the pandemic abating, what do you see as the main constraints for your business in 2021?
Lewis: It depends on the product category and what channel you’re selling. Certain products are more impacted than others. For example, if you're not going to the office, you don’t have the need for hosiery. Another example is our sports licence business. It’s heavily dependent on sporting events, and as they are cancelled or held without attendance or limited attendance, that impacts that business more than others.
But we’re seeing offsets in the sweatshirt and sweatpants business, which helps mitigate the impact.
Also, there are geographical differences, depending on how restrictive the government response to the pandemic is. In Europe and Australia, for example, they tightened down quite a bit more than in some other countries when cases spiked.
What approach are you taking to budgeting and forecasting for 2021? And is it different from past years?
Lewis: We learned a lot this year. We learned that you can do business differently. There’s less travel needed, even in a post-pandemic environment. We can operate with lower expenditures in certain areas going forward, again if it’s travel, certain supplies, things like that.
We’re leveraging our technology more.
Cash expenditures are always tightly looked at, but we’re a little more careful and cautious as we bring expenses back on.
How are you managing costs, and are you conserving cash?
Lewis: Back in March and April, we were tightly managing our expenditures. Especially cash-based expenditures and discretionary spending like media. We took salary reductions and furloughs across many of the countries that we're in. We looked at our payables and worked with our vendors to delay payments. Many of our customers were extending terms on us.
We chose to issue bonds to increase liquidity and provide some insurance under a stress-test scenario in which we assumed store closures for an extended period of time. We wanted to make sure we had enough cash and liquidity.
Aves: During the second quarter, we put into place liquidity reviews. Leading up to the bond offering and after the bond offering, we were carefully monitoring all of that. We put into place extra levels of reporting to try to manage the cash expenses on a weekly basis.
Lewis: Into the third quarter we continued a lot of those savings and those actions. And we’ll continue to be very cautious moving forward.
With people working from home and lockdowns closing stores, how has productivity been affected? How do you help build the mental strength of yourself and your team as the pandemic drags on?
Lewis: I’ve been very pleased about how things have gone, how efficient and productive we've been. We’ve closed the books every month. We've timely reported out externally our earnings. We've had board meetings. We've had a variety of normal events that happened every month.
The technology has been really good, like Zoom and Microsoft Teams, to stay connected. Communication is really critical.
I look forward to the day when we can bring most folks back in and be able to work together again, but we’ll be doing things differently going forward to retain people, top talent, and to attract the top talent.
There are probably going to be some roles not having to work every day in the office. Maybe they’ll be a few days on-site, a couple days off-site. Some positions may be permanently off-site. We still don’t have those answers yet; we're still just dealing with the day-to-day right now. But I can see that moving forward, we will be operating differently as we think about our processes and activities.
Aves: If you'd told me a year ago that my team has got to work remotely every day of the week, I would have said I just don’t think we can pull this off. But the team has done a fantastic job of pulling this off. People have been incredibly flexible, incredibly hard-working. You think of people who have young children, and they’re trying to figure out how to be a schoolteacher part of the time and then work. And they’re just balancing this all; they’re doing an amazing job.
They’re facing a lot of pressures. In the spring and early summer, we had furloughs; we had all the liquidity exercises going on. I got a bit concerned then, and we talked to them about it. Like you've got to make sure you’re taking some vacation, right, and getting a break. Don’t save it all to the end of the year, because you need to have a break. So, I think we're still working through that, honestly.
I’ve had periodic roundtables with small parts of the team to be more open and to allow a freer conversation. I want to hear from everyone on the team. Sometimes in the past, we've used town halls as our format. By slimming it down we're able to get more feedback from a group of maybe eight to ten people.
How will the pandemic affect your finance functions or your company’s digital transformation? Any plans to accelerate or hold off initial plans?
Lewis: We were moving at a relatively decent pace with technology and digital tools that were available, but the pandemic accelerates how fast we need to get even better at leveraging digital technology. We definitely have to use those tools even more so than we’ve ever had before, increasing automation, trying to figure out ways to do that.
To leverage those tools, we need to find and take out manual activities and leverage more tools to increase automation. If it’s robotics, AI, whatever it might be, I think it’s going to be even increasingly more important to be able to do our jobs more effectively and efficiently going forward.
What’s your most important priority going forward?
Lewis: It’s evolved every day and every month. In the early stages it was preserving cash and liquidity. That was the number one financial priority. We got an opportunity through the government to sell face masks. That helped us out significantly to offset our apparel business being down for a period of time.
We feel we're in a really good place from a liquidity standpoint. It’s a dynamic, challenging environment where you're not sure if more lockdowns are going to come. So we’re always focused on protecting cash and our liquidity balances. To me that’s a really critical point.
Moving forward, we saw trends accelerate this year.
The department store channel has experienced a higher level of store closures over the years. That trend has accelerated tremendously and is expected to continue. Many of our customers’ sales concentration shifted from bricks-and-mortar stores to a much heavier concentration of online sales. Having an e-commerce capability is really critical. We’re really making sure we’re investing in the right places, from our tools to resources and people to be in the place where our consumers are. That’s critical for us as we move forward as a company.
Have your business drivers changed during the pandemic? Are they being reassessed? And is changing the business model a consideration?
Lewis: We have a new CEO who came in August, and we're conducting a comprehensive review of our business. We’re looking into investing in e-commerce capabilities, but also our brands, our IT infrastructure. I’m excited about the changes and the direction we are going. Not exactly sure what they’re going to be. Once we finish developing our plan, we’ll be communicating to the investment community.
Rapid fire questions
What has been your biggest lesson from this pandemic?
Lewis: I’m surprised how well we're doing working remotely. We've had a few things we had to work through, but it’s gone much better than I ever anticipated.
What one piece of technology is a must-have in your 2021 budget?
Lewis: Communication is so critical. Zoom and all the technology platforms are great. I was amazed what we could do with what we already had in place. But I imagine we’ll get better with those tools as we move forward and stay up to speed with them.
What is one skill you want to develop in your team?
Lewis: Analytical skills are more important today than ever. Having the right skillset is absolutely critical for the finance team.
Aves: Speed and analytics. CFOs need quick answers, so our team needs to be very nimble and flexible and be able to take on new projects and look at the data in a new way.
— Sabine Vollmer (Sabine.Vollmer@aicpa-cima.com) is an FM magazine senior editor.