M. Scott Lewis
Chief Accounting Officer and Controller at Hanesbrands
Thanks, Steve. Overall, we accomplished a lot in the first quarter. We delivered results that were above the midpoint of our guidance for revenue, operating profit, operating margin, and earnings per share. We generated positive operating and free cash flow. And based on the commodity and freight cost that are running through our supply chain today, we're manufacturing products at gross margin levels that are in line with 2021 and early 2022. All of this gives us confidence that we are on track for the year to deliver meaningfully higher margin run rates as we exit the year generating $500 million of operating cash flow and pay down debt.
For today's call, I'll touch on the highlights from the quarter as well as provide some thoughts on our outlook for the remainder of the year. For additional details on the quarter results and our guidance, I'll point you to our news release and FAQ document.
First quarter sales of $1.4 billion declined 12% versus prior year, which includes the 200 basis point headwind from the impact of foreign exchange rates. On a constant currency basis, sales declined 10% as we lapped last year's strong results.
The year-over-year decline was primarily due to the macro driven slowdown in consumer spending in the US and Australia, which more than offset constant currency growth in Europe, Canada, Latin America and Japan. In the US, the decline was primarily driven by Activewear where sales of our Champion brand and other Activewear brands down 19% as compared to prior year.
While Champion's performance was consistent with our outlook, sales in our other Activewear brands declined more than expected in the quarter. The Activewear decline was driven by the slowdown in consumer spending which resulted in lower point of sale and higher inventory levels at retail, as well as the strategic channel cleanup work we're doing within the Champion in the US.
On the positive side, we experienced another quarter of year-over-year growth in our collegiate business. Our US innerwear business performed well above our expectations as we saw a balancing of shipments with point of sale. We also expanded distribution of our Hanes Original Bond, which is aimed at attracting younger consumers as we're seeing good initial results behind the national media launch.
Shifting on to International business, constant currency sales were down 3% compared to last year, driven by a decline in innerwear sales in Australia and lower sell-in shipments of Champion in China. In Australia, inflation-related pressures are impacting consumer spending, which drove lower traffic in our stores as well as a mix shift towards wholesale.
With respect to our Champion International business, constant currency sales declined 7% compared to prior year, driven by lower sell-in shipments in China. We expect shipment growth to improve in China as point of sale or sell-through in the first quarter was up low-double digits over last year. In addition to China's reopening, we experienced constant currency growth in Europe, Australia, Japan, and the Americas in the quarter. So, overall, our Champion International business remains healthy.
Turning to margins, adjusted gross margin of 32.7% declined 440 basis points compared to prior year. The decline was driven by input cost inflation, which was in line with our expectation, as well as lower sales volume and mix. These headwinds more than offset the partial quarter lap of last year's innerwear price increase, lower air freight expense, and cost savings benefits. Relative to our gross margin outlook, the difference was primarily driven by channel and product mix in the quarter.
With respect to SG&A, as a percent of sales, adjusted SG&A expense was 28.1%. SG&A expense delevered 215 basis points as compared to last year due to lower sales. However, this was 155 basis points better than our outlook, driven by benefits from our cost savings initiatives, particularly within distribution, disciplined expense management, as well as channel mix. This result in an adjusted operating margin of 4.6% for the quarter, which is above the midpoint of our outlook.
Interest and other expenses excluding the $7 million of costs associated with our refinancing were $66 million. This was in line with our guidance as the timing and pricing of our refinancing was as expected. And tax expense and EPS were both in line with our outlook.
Turning to our balance sheet and cash flow, in the second half of 2022, we took actions to reduce our inventory units, which in turn positions us to unlock working capital in 2023. We began to see the benefits of these actions in the quarter as inventory declined 1% sequentially and we generated $45 million of operating cash flow in the quarter, which is notable because we historically have used cash in the first quarter.
With respect to our debt, as expected, our leverage was elevated at 5.4 times on a net debt to adjusted EBITDA basis, which was below our first quarter covenant of 6.75 times.
In the quarter, we successfully refinanced our 2024 maturities with a combination of a term loan B and unsecured notes. The refinancing was the first step on our path to lowering our leverage. With positive cash flow generation in the quarter, we believe that we are on track to use all of our free cash flow to pay down debt this year.
And now turning to guidance. We reiterated our outlook for the full year, including net sales of $6.05 billion to $6.2 billion, adjusted operating profit of $500 million to $550 million, adjusted earnings per share of $0.31 to $0.42, and operating cash flows of approximately $500 million. Our outlook continues to reflect our immediate view of the consumer demand environment, given the macroeconomic uncertainty. We continue to expect margin pressure in the first half as we sell through our higher cost inventory.
As we move through the second half, particularly the fourth quarter, we expect year-over-year margin improvement as we begin selling lower cost inventory and we anniversary last year's manufacturing timeout costs.
As I highlighted earlier, based on the commodity and freight costs that are running through our supply chain today, we're manufacturing product at gross margin levels that are in line with 2021 and early 2022. This gives us visibility and the confidence that we're on track to exit the year at meaningfully higher margin run rates. With respect to our outlook for the second quarter, at the midpoint, we expect net sales to decline 3% on a constant currency basis or approximately 5% on a reported basis.
For adjusted operating profit, we are guiding to a range of $70 million to $90 million. We expect interest and other expense to be approximately $80 million, tax expense of approximately $10 million, and adjusted EPS to range between breakeven and a loss of $0.05.
So in closing, we delivered first quarter results in line with our outlook. We began the year generating positive operating cash flow as we started to unlock working capital, and we have visibility through our product margins as lower input costs are flowing through our facilities today. The year is unfolding as expected, and we believe we're on track to deliver our 2023 goals, including a return to high 30% gross margin levels as we exit the year, generating $500 million of operating cash flow and paying down debt.
And with that, I'll turn the call over to T.C.
