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Hanesbrands Down 15% in 6 Months: What's Hurting the Stock?

Zacks Equity Research

Hanesbrands Inc. HBI appears to be in troubled waters. The company, which has been struggling with softness in its Innerwear segment as well as foreign currency headwinds, has seen its shares decline 15% in the past six months against the industry’s growth of 5.2%. Moreover, the company has underperformed the broader Zacks Consumer Discretionary sector’s growth of 5.9%.

Let’s delve deeper into the factors weighing on this Zacks Rank #4 (Sell) company.

What’s Leading to the Decline?

Hanesbrands has long been battling soft sales at its Innerwear segment, which accounted for nearly 31% of the company’s top line in the third quarter of 2019. In the quarter, sales in the segment dropped 3.5% due to an adverse back-to-school retail environment, which impacted Innerwear basics. In the first and second quarters, the unit witnessed a sales decline of 3% and 2.3%, respectively.


 

For the fourth quarter of 2019, Hanesbrands remains wary of its Innerwear segment, wherein U.S. Innerwear sales are likely to have witnessed a 2% decline. Although management is on track with product launches, the company is yet to see growth in this unit. Notably, intense competition in the intimate apparel space is a threat to Hanesbrands.

Additionally, the company is exposed to unfavorable foreign currency translations, as nearly one-third of its total sales come from international businesses. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or lower profit margins in locations outside the country. Adverse currency fluctuations are likely to have hurt net sales by approximately $20 million in the fourth quarter and by $123 million in 2019.

We believe that these downsides have made analysts less optimistic about the stock’s performance. Evidently, the Zacks Consensus Estimate for 2019 has declined a penny to $1.76 per share over the past 60 days. Additionally, the consensus mark for 2020 has gone down a couple of cents to $1.78 per share in the same time frame. Also, we note that the Zacks Consensus Estimate for 2020 sales suggests a 2.2% year-over-year decline to $6.81 billion.
 
Although Hanesbrands’ strong International segment, focus on Project Booster and strength in online business bode well, we cannot ignore the aforementioned hurdles. Until then, investors can count on better-ranked apparel stocks.

3 Apparel Stocks Worth a Look

Zumiez ZUMZ, with a Zacks Rank #1 (Strong Buy), has a long-term earnings per share growth rate of 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Buckle BKE, also with a Zacks Rank #1, has an impressive earnings surprise record.

lululemon athletic LULU, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 17.6%.

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lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
Zumiez Inc. (ZUMZ) : Free Stock Analysis Report
 
Buckle, Inc. (The) (BKE) : Free Stock Analysis Report
 
Hanesbrands Inc. (HBI) : Free Stock Analysis Report
 
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