M. Scott Lewis
Chief Financial Officer at Hanesbrands
Thanks, Steve. I'm proud of our global team as they delivered further improvement on our key performance metrics while simultaneously continuing to transform the business. And to be able to do this, given the prolonged consumer headwinds in the apparel category demonstrates their ability to adapt to near-term challenges and take action by controlling the things that are within our control. We're making structural changes to our business model. We're positioning our brands for long-term growth. We're taking out costs and driving efficiencies to help free up growth-related investments and we're strengthening our balance sheet. For the progress we've made today and our increased financial flexibility, we're confident in our ability to deliver continued margin and cash flow improvement and pay down debt.
For today's call, I'll touch on the highlights from the quarter, our improved financial position, including the amendment to our credit facility and then I'll provide some thoughts on our fourth quarter outlook. For additional details on the quarter's results and our guidance, I'll point you to our news release and FAQ document.
As expected, the global macroeconomic environment remained challenging which continued to pressure sales. For the quarter, net sales were $1.5 billion, a decline of 9.5% versus prior year or 9.3% on a constant currency basis. Touching briefly on sales by segment. In US Innerwear, segment sales were consistent with prior year and in line with our expectation. Despite continued softness in apparel spending, we continue to gain market share across the men's, women's and socks categories. In particular, we saw strong performance in our women's business in the quarter. This strength was led by the continued positive consumer response, particularly younger consumers to our Hanes Originals products as well as the launch of our M by Maidenform innovation.
Looking at US Activewear, third quarter sales decreased 17% compared to last year, which was essentially in line with our outlook for a mid-teens decline. This was driven by continued category headwinds in the quarter, including soft consumer demand and excess channel inventory. In addition, Champion sales performance reflected the expected short-term impact from the continued strategic actions we're taking to drive stronger brand health through a more disciplined product and channel segmentation approach, a shift in mix and changes to our assortment. We continue to improve Champion's operations globally. And as Steve highlighted, we're encouraged by the initial green shoots. We also recognize that given the retail calendar lead times within the Activewear category, it will take a few more quarters before we begin to see the impact of our strategic actions translate to the P&L.
With respect to our International segment, constant currency sales decreased 11%. In Australia, which is our largest international market, the previously discussed macroeconomic headwinds continue to pressure consumer demand in the quarter. The segment sales performance was below our outlook for a high single-digit decline driven primarily by two markets. In Europe, wholesaler ordering was even more cautious than expected. And in Japan, while sales increased at a low double-digit rate, the growth was below our expectation as travel and tourism in the region recovered at a slower pace than expected.
Turning to margins. Adjusted gross margin of 35.5% was above our expectation. This represents an increase of 190 basis points sequentially and 100 basis points over prior year. The year-over-year improvement was driven by the combination of factors, including the overlap of last year's manufacturing time-out cost, benefits from select pricing actions and our cost savings initiatives, which more than offset the impact of product mix as well as the continued but diminishing headwinds from input cost inflation.
With respect to adjusted SG&A, expenses decreased $15 million as compared to last year. The lower expense was driven by the combination of cost savings initiatives, disciplined expense management and lower variable expense. As a percent of sales, SG&A expense increased 160 basis points over prior year as the benefits from our cost savings and cost control initiatives were more than offset as we overlap last year's variable compensation benefit and experienced deleverage from lower sales. This resulted in an adjusted operating margin of 9.5% for the quarter, which was near the high end of our outlook. Looking at the remainder of the P&L, interest and other expenses, tax expense and earnings per share were all broadly in line with our outlook for the quarter.
And in terms of restructuring charges in the quarter, the $3 million of costs associated with our transformation strategy was below our outlook of $10 million. In addition, given the continued headwinds in the Activewear category and our evaluation of the global Champion business, we accelerated and enhanced several strategic actions geared towards improving Champion's brand position, regaining momentum ahead of the launch of our first global product line from the new team and positioning the business for long-term profitable growth.
In the quarter, the $74 million of Champion performance plan-related actions included inventory write-downs. With a new brand direction, we're executing a more disciplined channel and product segmentation strategy, shifting our mix and improving our assortment, which is driving the decision to clean up discontinued program. The actions also include store exit costs as we work to elevate our international retail experience and profitability and initiatives we're taking to further streamline operations, lower cost and position the brand for a higher level of growth-related investments.
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, increased liquidity as well as amended our credit facility. We saw further improvement in our inventory position as we continue to implement and build our capabilities around inventory management. For the quarter, inventory decreased 17% sequentially and decreased 29% or $620 million as compared to last year. We're on track to achieve our goal and end the year with inventory below $1.5 billion.
We generated $155 million of operating cash flow in the quarter, bringing year-to-date operating cash flow to $287 million. We're on track to generate approximately $500 million of operating cash flow for the full year. We paid down $144 million of debt in the quarter and $270 million year-to-date. Our leverage was 5.5 times on a net debt to adjusted EBITDA basis, which was below our third quarter covenant of 6.75 times. We remain committed to using all of our free cash flow to pay down debt and we're on track to pay down more than $400 million of debt this year. All of this has led to our liquidity position increasing to approximately $1.2 billion at the end of the third quarter.
Touching on our credit facility, we proactively amended the terms of our credit facility through the third quarter of 2025 to provide greater strategic financial flexibility as we remain focused on improving the core fundamentals of our business in a volatile, high interest rate economic environment. I want to be very clear, this action does not foreshadow EBITDA declines going forward, quite the opposite. Given our input cost visibility and cost savings initiatives, we expect EBITDA recovery and growth in the coming quarters.
And now turning to guidance. We updated our full year outlook to reflect the ongoing macroeconomic headwinds that continue to weigh on sales as well as our visibility to gross margin improvement, our strong cost discipline and the progress on our inventory reduction initiatives. With respect to sales, we now expect full year sales of $5.7 billion. Of the $100 million adjustment to the low end of our prior outlook, approximately $40 million reflects a mark-to-market of three items. First, third quarter actuals account for $10 million. Second, FX for the second half of the year flipped from a tailwind in our prior guide to a headwind, which accounts for $15 million. And third, our prior guide included a full year of sales from US Hosiery. With the sale of this business at the end of the third quarter, it is no longer in our outlook, which accounts for $15 million.
We updated our full year adjusted operating profit to approximately $425 million, which is the low end of our prior guidance range. We continue to expect year-over-year gross margin improvement in the fourth quarter and expect to exit the year in the high 30% range as we begin selling lower cost inventory and we anniversary last year's manufacturing time-out costs. We are also remaining vigilant with respect to SG&A expense, given the challenging environment. We reiterated our full year operating cash flow guidance of approximately $500 million given our profit outlook and our strong working capital performance, particularly within inventory, and we continue to expect to pay down more than $400 million of debt in 2023. With respect to other components of our full year guidance, we expect interest and other expenses of approximately $310 million, tax expense of approximately $75 million and adjusted EPS of approximately $0.12.
So in closing, let me end with where I began. The team is doing a tremendous job. Over the last few years, we've accomplished a lot despite an extremely challenging apparel environment. Our Innerwear business has returned to gaining market share. We're working to position our brands for long-term profitable growth. We've made structural changes to our business, including segmenting our supply chain. We're taking out costs and driving efficiencies to help free up growth-related investments. We turned the corner on gross margin and are on track to return to historical levels as the inflation-related headwinds are behind us. Operating cash flow is returning to historical levels, driven by a much improved inventory position. We're paying down debt and strengthening our balance sheet and we're exploring alternatives for our global Champion business, all of which we believe positions us to drive shareholder value creation over the next several years.
And with that, I'll turn the call over to T.C.
