M. Scott Lewis
Chief Financial Officer at Hanesbrands
Thanks, Steve. Let me echo your thanks to the global Hanesbrands team. 2023 certainly presented sales challenges. But through a continued focus on executing our initiatives to simplify the business, reduce costs, deliver innovation and leverage our supply chain capabilities, we were able to exit the year with momentum across several key performance metrics.
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. At a high level, the fourth quarter was mixed relative to our expectations. Sales were below our outlook as the consumer environment proved more challenging than we expected, particularly in the U.S. Activewear market and in Australia. This in turn drove lower-than-expected operating profit and EPS.
That said, we continue to reduce SG&A with expense dollars decreasing as expected. We delivered results that were ahead of our expectations for gross margin, inventory reduction and operating cash flow, and we paid down more debt than planned. Looking at the details of the quarter, net sales were $1.3 billion. This represents a decrease of 12% versus prior year with 130 basis points coming from the U.S. hosiery divestiture and 40 basis points from FX headwinds. On organic constant currency basis, net sales decreased 10% in the quarter. Touching briefly on sales by segment.
Our U.S. Innerwear business was essentially [Indecipherable] with our outlook. For the quarter, sales decreased 1% versus last year, which compared against a 5% decrease for the overall market. We gained market share in the quarter driven by retail space gains, improved on-shelf availability, as well as successful consumer-led innovation and new product launches. In our international business, constant currency sales decreased 7% as macroeconomic pressures continue to weigh on consumer demand in Australia and Europe. These headwinds more than offset growth in our Innerwear business in the Americas and our Champion business in China.
And in our U.S. Activewear business, sales decreased 24% as compared to last year. The decrease was driven by the continued combination of challenges within the Activewear apparel category and the expected top line headwinds from the strategic actions we've taken to strengthen the Champion brand and position it for long-term profitable growth. Turning to margins.
Adjusted gross margin of 38.2% was strong and above our expectation. This represents an increase of 395 basis points over prior year. The year-over-year improvement was driven primarily by the benefits from our inventory and cost savings initiatives as well as lower input costs from commodities and ocean freight. These two factors more than offset the impact from wage inflation.
With respect to adjusted SG&A, expenses decreased $38 million as compared to last year, in line with our outlook. The lower expense was driven by a combination of cost savings initiatives, disciplined expense management and lower variable expense, which more than offset increased brand marketing investments. As a percent of sales, SG&A expense increased 100 basis points over prior year. The deleverage despite lower SG&A dollars was driven primarily by the impact from lower sales, increased brand investments. This resulted in an adjusted operating margin of 8.5% for the quarter, an increase of 295 basis points over last year.
Looking at the remainder of the P&L, interest and other expenses were $77 million. Adjusted tax expense was $22 million, which excludes a onetime discrete tax benefit of $81 million and adjusted earnings per share for the quarter was $0.03. Turning to the balance sheet and cash flow.
We continue to strengthen our balance sheet and increase our financial flexibility as we reduced inventory, paid down debt and increased liquidity. We saw further improvement in our inventory position as we continue to implement and build our capabilities around inventory management. We ended the year with inventory of $1.37 billion, which represents an improvement of 31% or $612 million as compared to last year. This was more than $100 million ahead of our $1.5 billion target as we are progressing faster than expected on our inventory initiatives. We generated $562 million of operating cash flow for the year, which was ahead of our $500 million goal and we successfully unlocked tied up working capital. We paid down more than $500 million of debt for the full year, $100 million ahead of our debt reduction target, driven by the higher-than-expected operating cash flow.
Our leverage was 5.2 times on a net debt to adjusted EBITDA basis, was below our fourth quarter covenant of 6.75 times and our peak of 5.6 times in the second quarter of 2023. We remain committed to using all of our free cash flow to pay down debt. We expect to further reduce our leverage in 2024, driven by a combination of EBITDA growth and continued debt reduction. And all of this has led to our liquidity position increasing to more than $1.3 billion at the end of the fourth quarter. And now turning to guidance. All of my comments will refer to adjusted results from continuing operations that will be based on the midpoint of our guidance ranges.
At a high level, we expect the sales environment in our categories to remain challenging in 2024, particularly the first quarter. We expect positive progressions on top line trends through the year, driven by two factors.
First, our global Champion business. As we previously discussed, our fall, winter 2024 line is the first global offering from the new team that's based on a global segmentation approach. Therefore, with the actions we're taking ahead of that launch, particularly on cleaning up our inventory in the channel, we believe we're moving through the trough of Champion sales in Q1 and the first half this year.
Second, in our global Innerwear business, based on our forecasting analytics and consumer consumption trends, we expect the category headwinds to be most challenging in the first quarter before moderating through the rest of the year. And we expect to outperform the category as we're well positioned to gain market share behind our innovation launches and increased brand marketing investments. While we expect a challenging sales environment, we believe we're well positioned to deliver strong operating profit growth for the year.
This outlook is based on input cost visibility we have on the balance sheet and our cost savings initiatives as well as the conservatism we've layered into our profit outlook. We expect year-over-year improvement in both gross and operating margins in each quarter of 2024. And with lower interest expense due to lower outstanding debt balances, we expect earnings per share to grow even faster than operating profit for the year.
With respect to our first quarter outlook, we expect net sales on a reported basis to decrease approximately 16% 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 14%. That said, we expect first quarter operating profit to increase approximately 10% over prior year and operating margin to expand approximately 145 basis points to 6%. And with the timing of last year's refinancing, interest expense is expected to be up year-over-year, resulting in an EPS loss of $0.07, which is essentially in line with last year.
Turning to our full year outlook. We expect net sales on a reported basis to decrease 4% as compared to last year. Adjusting for the impact of the U.S. hosiery divestiture and FX headwinds, organic constant currency sales are expected to decrease approximately 2%.
We expect full year operating profit to increase approximately 26% over prior year and operating margin to expand approximately 225 basis points to 9.4%. And for EPS, the midpoint of our guidance range is $0.45, which implies a 650% growth over prior year.
Lastly, with our expected profit recovery and additional working capital opportunities, we expect to generate approximately $400 million in cash flow from operations for the year.
So in closing, while 2023 was challenging from a sales perspective, we made significant progress across a number of key performance metrics, including reaching a positive inflection in our margins and our leverage. As we look to 2024, we expect the sales challenges to continue, particularly in the first quarter.
However, with our view to input costs and cost savings initiatives, we have visibility to deliver on strong operating profit and EPS growth outlook. Furthermore, we believe we're well positioned to continue to expand margin to deliver another strong year of operating cash flow and to continue to delever our balance sheet.
And with that, I'll turn the call over to T.C.
