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Bear of the Day: Hanesbrands (HBI)

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Madeleine Johnson
·3 min read
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Hanesbrands (HBI) is a well-known designer and manufacturer of apparel essentials for men, women, and kids. Its brand portfolio includes Hanes, Champion, and Playtex, among others.

Q3 Earnings Recap

Revenue fell 3.1% to $1.81 billion, and adjusted earnings per share slipped to $0.47 per share; both the top and bottom lines, however, beat consensus estimates.

Breaking down by segment, Hanesbrands’ Innerwear, which includes underwear and t-shirts, rose 8.4% as consumers continue to spend more time at home.

Activewear plunged 41%. Excluding Target’s (TGT) decision to stop selling the Champion C9 brand, the segment fell 27%. The disappointing performance in Activewear shows that Champion, despite its popularity among Millennials and Gen-Zers, did not benefit from the rise in athleisure last year.

CEO Steve Bratspies said that "I'm pleased with our third-quarter results as we saw significant improvements across our business and exceeded our expectations for sales, profits and cash flow from operations." 

But he acknowledged that some of HBI’s brands are underperforming, and management announced a separate in-depth business review to refine long-term growth strategies.

Bottom Line

HBI is now a Zacks Rank #5 (Strong Sell).

One analyst cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen four cents to $1.35 per share; earnings are expected to experience a double-digit decline for fiscal 2020.

Shares are up over 13% in the past one-year period, slightly lagging the S&P 500’s 17% rebound during the same time frame.

Despite posting solid returns since last March’s lows, Hanesbrands still faces some headwinds.

The company only forecasts Q4 revenue of $1.6 billion to $1.66 billion, representing a 7% decline at the midpoint. EPS is expected in the range of $0.25 to $0.30 (compared to $0.51 in the year-ago period).

This weak guidance shook investors, and HBI plummeted 20% the day of its earnings release.

Current investors will be comforted by the company’s 3.75% dividend yield and sufficient cash flow to support these payments. But until the outlook looks brighter, potential new investors may want to stay on the sidelines.

Investors who are interested in adding a Textile-Apparel stock to their portfolio could consider casual shoemaker Crocs (CROX). CROX is a #2 (Buy) on the Zacks Rank, and earnings are expected to grow over 73% for the current fiscal year.

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Target Corporation (TGT) : Free Stock Analysis Report
 
Hanesbrands Inc. (HBI) : Free Stock Analysis Report
 
Crocs, Inc. (CROX) : Free Stock Analysis Report
 
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