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HanesBrands in Fiscal 2016: The Word from the Street

Sonya Bells

A Sneak Peek inside HanesBrands ahead of Its 1Q16 Results

(Continued from Prior Part)

Management’s outlook for fiscal 2016

HanesBrands (HBI) expects fiscal 2016 sales to be in the range of $5.8 billion–$5.9 billion, which would represent a growth of 1%–3% over the previous year. To achieve the lower end of its sales range, the company only needs $70 million of incremental sales in fiscal 2016. HBI can easily hit this figure by adding $50 million from its acquisition contributions.

Another $50 million–$60 million is expected to come as a result of the absence of last year’s Innerwear headwinds from retail inventory destocking, which is expected to be partially offset by approximately $40 million in currency headwinds.

To achieve the upper end of its sales target, HBI has designed several sales-focused initiatives. These initiatives, as mentioned by the company in its last earning call, include:

  • continuing to drive the “Innovate-to-Elevate” model by expanding innovation platforms like X-Temp

  • applying “Innovate-to-Elevate” to HBI’s core products by driving innovation and making investments deliver better volume growth

  • pushing online sales and building upon the company’s market share positions across all brands

  • delivering product enhancements and the Champion brand across all channels

HBI is expecting its operating profit to increase by 7%–10%. It expects its net cash from operating activities to increase by $575 million.

Wall Street’s view of HanesBrands

Wall Street’s consensus for HBI’s revenue is in line with the company’s outlook for fiscal 2016. Wall Street is expecting the company’s revenue to grow by more than 2% in fiscal 2016. But revenue is predicted to remain almost flat in the first quarter of 2016. The consensus on adjusted EPS (earnings per share) is $1.88 in fiscal 2016 and $0.22 in 1Q16.

HanesBrands’ and peers’ valuations

HBI is currently trading at a one-year forward earnings multiple of 14.7x. This means that HBI’s shareholders are paying around 15 times its EPS of $1.88 (as of April 15, 2016) for the next four fiscal quarters. With this valuation, the company is cheaper than peers Kate Spade (KATE), VF Corp (VFC), and Coach (COH), which are trading at one-year forward PE (price-to-earnings) of 31x, 20x, and 19x, respectively.

HBI’s earnings multiple is comparable to PVH Corp (PVH), which is currently trading at 14.7x. We should note, however, that PVH’s earnings are predicted to deaccelerate and register an EPS growth of -9% during the next twelve months. By comparison, HBI is predicted to register an EPS growth of more than 13% in the next twelve months.

The iShares Morningstar Mid-Cap Growth Index Fund (JKH) invests 0.81% of its holdings in HanesBrands.

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