M. Scott Lewis
Chief Financial Officer at Hanesbrands
Thanks, Steve. I want to add my thanks to the global Hanesbrands' team for their continued hard work, dedication, and results over the past several quarters. We've simplified our business, strengthened our financial foundation, and our balance sheet, and unlocked cost savings that are funding increased investments to drive top line growth. The actions we've taken and the changes we've made have accelerated a step function change in lowering our cost structure. These benefits are expected to build over the next several quarters, giving us further visibility into continued margin improvement, strong cash generation, and continued debt reduction. For today's call, I'll touch on the highlights from the quarter, provide details on the additional debt pay down in October. And then, I'll provide some thoughts on our outlook, which include raising our profit and cash flow guidance. Overall, we've delivered strong third quarter results. We saw continued sequential improvement in top line trends as expected. Operating profit increased 46% over prior year, and interest expense decreased due to lower levels of debt, all of which drove an 850% increase in EPS. For the quarter, net sales of $937 million was at the midpoint of our outlook. This represents a decrease of 2.5% versus prior year, with 180 basis points coming from the overlap of last year's U.S. hosiery divestiture and 75 basis points from FX headwinds. On our organic constant currency basis, net sales were consistent with prior year, representing another quarter of sequential improvement in year-over-year trends. Looking at our segments, in the U.S., net sales decreased 1% compared to last year, in line with our outlook.
Despite the challenging environment, our strategy is working, and we're continuing to win in the marketplace. Through increased brand investments, product innovation, and incremental retail programs, our point-of-sale trends have outperformed the market year-to-date. In our international business, net sales increased 4% over prior year on a constant currency basis driven by growth in the Americas and Asia. With respect to our Australian business, sales were essentially flat with last year as we were mitigating the challenging consumer environment of strategic actions to launch innovation, drive consumer engagement, and align our assortment with the current buying behavior of the consumer. Touching briefly on our other segment, all of our year-over-year sales decrease in the quarter was due to the divestiture of our hosiery business, which was sold in the third quarter last year, as well as the completion of the transition service agreement between our supply chain and our previously owned European innerwear business. Turning to margins, we saw significant year-over-year improvement in our gross and operating margins, both of which came in above the high end of our guidance. While we continue to see a year-over-year benefit from input costs as we anniversary the impact from peak inflation, we are also seeing the benefits from our permanent cost savings initiatives and assortment management. This is allowing us to drive structurally higher and sustainable margins while supporting increased levels of brand investment. And this was evident in our results.
For the quarter, our gross margin increased 525 basis points to an all-time high of 41.8%. Our operating margin increased 245 basis points to 13%. For our visibility to input costs and our cost savings initiatives, we're confident we can continue to deliver year-over-year margin expansion in our gross and operating margins for the fourth quarter and through 2025 and beyond. And with respect to EPS, our focus on paying down debt yielded a reduction of more than $8 million of interest expense in the quarter as compared to last year. The lower interest expense coupled with higher profit margins drove EPS to $0.15, up from last year's loss of $0.2. Turning to cash flow in the balance sheet, with better than expected profit performance and disciplined working capital management, we generated $92 million of operating cash flow in the quarter and nearly $200 million year-to-date. We also continue to strengthen our balance sheet. Leverage at the end of the quarter was 4.3 times on a net debt to adjusted EBITDA basis, which was more than a full-term lower than last year's 5.5 times. And in October, we paid down $870 million of debt, giving us further confidence and visibility to deliver our goal of paying down $1 billion of debt in the second-half of this year. And now turning to guidance, where all of my comments were referred to adjusted results. As we began the year, while our outlook disowned a community consumer environment around the globe, we expected progression in the year-over-year sales trends each quarter, including a return to growth by the end of the year.
And in terms of margins, we said we were well-positioned for year-over-year margin expansion and profit growth in each quarter given our visibility to input cost and cost savings initiatives. The year continues to play out as we expected, which is evident in our results as well as our outlook. We raised our profit and EPS guidance for the fourth quarter and full-year. We raised our full-year cash flow guidance, and we expect net sales to come in at the midpoint of our prior guidance range for both fourth quarter and full-year. Touching on the specifics, we expect net sales of approximately $900 million for the fourth quarter. On an organic constant currency basis, this represents a 3% growth over last year. Turning to operating profit, we expect fourth quarter profit to increase 17% over last year to approximately $115 million, and operating margin to expand approximately 160 basis points to 12.8%.Looking at EPS, we expect fourth quarter EPS to increase more than 130% to approximately $0.14. And with our commitment to pay down debt and our outlook for continued margin improvement, we believe we are well positioned for double-digit EPS growth next year. And with respect our outlook on cash flow and leverage, we raised our operating cash flow outlook for the full-year to approximately $250 million. With our debt payments to date and internal cash generation, we continue to expect our year-end leverage ratio to decrease approximately 1.5 times year-over-year and to end 2025 at approximately three times on the net debt to adjusted EBITDA basis. So, in closing, the year is unfolding as expected. I am confident in our strategy to unlock value creation opportunities in front of us. Sales trends are improving. We're driving structurally higher and sustainable margins and we're aggressively paying down debt. We believe we are well-positioned to increase shareholder returns over the next several years to a combination of double-digit earnings growth and continued debt reduction.
And with that, I'll turn the call over to T.C.