HBI Beats Estimates, Ups FY14 View

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Apparel retailer Hanesbrands Inc. (HBI) reported fourth-quarter 2013 earnings per share of 98 cents, down 9.2% from the comparable prior-year quarter. Earnings lagged year-ago results due to planned increases in advertising and debt-reduction costs.  

However, earnings beat the Zacks Consensus Estimate of 90 cents by 8.9%. Although earnings were lower than year-ago results, they were higher than management’s guidance of a range of 82 cents to 92 cents due to higher-than-expected revenues in most of the segments.

Moreover, higher margins backed by the success of the ‘Innovate-to-Elevate’ strategy backed the earnings upswing. The strategy focuses on value-added, higher-priced and higher-margin items that can be supplied at lower cost.

Revenues and Operating Profits

Quarterly revenues gained 12.0% and came in at $1.29 billion backed by 9 percentage point (pp) contribution by the Maidenform brand and 3 pp contribution by the rest of the segments. Sales were slightly ahead of the Zacks Consensus Estimate of $1.25 billion due to higher-than-expected revenues in all the business segments.

Gross profit went up 11.4% year over year to $443.5 million, while gross profit margin remained flat year over year at 34.5% in the fourth quarter as lower cost of sales was offset by acquisition charges.

Operating profit in the quarter inched down 0.3% to $152.5 million from $153.0 million in the year-ago quarter. Operating profit margin shrank 140 basis points (bps) to 11.9% as charges from the Maidenform acquisition weighed down margins by 90 bps.

Segment Details

Innerwear: Net revenue for the Innerwear segment climbed 19.6% year over year to $700.5 million in the reported quarter driven by double-digit growth in socks and panties, and single-digit growth in men’s underwear and bras segment.

Operating profit in the segment declined 3.5% year on year to $125.1 million, due to higher investment in advertisement to support campaigns for Hanes underwear and panties.

Activewear: Activewear segment sales went up 1.0% from the year-ago period to $340.4 million, backed by mid single-digit gains in the Champions brand. Higher sales in the Gear for Sports brand also contributed to sales growth in the segment.

The segment’s operating profit was up 9.0% to $43.7 million, compared to $40.1 million a year ago driven, by lower selling, general and administrative expenses.

International: Net sales in the International segment inched up 0.7% to $137.5 million in the quarter. Foreign exchange headwinds primarily hurt the segment results. Excluding currency, revenues in this segment increased 4% in the quarter. Operating profit slipped 8.2% to $11.2 million due to unfavorable currency translation.

Direct to Consumer: Direct to Consumer segment’s sales went up 14.3% to $107.4 million backed by contributions from the Maidenform acquisition. However, operating profit surged 30.8% to $9.3 million compared with the year-ago level backed by higher sales from in the Maidenform brand.

Fiscal Results

For fiscal 2013, earnings per share went up 49% year over year to $3.91 backed by higher profitability as a result of lower cotton costs and benefits of the company’s Innovate-to-Elevate initiative. Earnings were ahead of the Zacks Consensus Estimate of $3.82 by 2.4%.

Quarterly revenues increased 2% to $4.63 billion, while on a constant currency basis, net sales increased 3%. Sales were slightly ahead of the Zacks Consensus Estimate of $4.61 billion due to higher-than-expected sales in most of the business segments.

Other Financial Updates

The company exited the fourth quarter of 2013 with cash and cash equivalents of $115.9 million compared with $132.3 million in the previous quarter. Long-term debt was $1.5 billion in the fourth quarter of 2013 compared with $1.25 billion in the previous quarter.

On Jan 28, 2014, Hanesbrands hiked the quarterly dividend by 50% to 30 cents per share payable on Mar 11, 2014, to shareholders of record at the close Feb 18, 2014

Guidance

For full-year 2014, the company expects business momentum to continue backed by the Innovate-to-Elevate strategy. Hanesbrands now expects earnings per share in the range of $4.60 to $4.80, higher from previously announced range of $4.25 to $4.50. It expects operating profits between $640 million and $660 million for the year and net sales slightly less than $5.1 billion in fiscal 2014.

Hanesbrands engages in the marketing of innerwear, outerwear and hosiery apparel and carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry are Columbia Sports Inc. (COLM), Michael Kors Holding Limited (KORS) and Abercrombie & Fitch Co. (ANF). All these stocks carry a Zacks Rank #2 (Buy).

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