Hanesbrands (HBI) Battles Macro-Driven Slowdown & High Costs
Hanesbrands Inc. HBI is operating amid an inflationary environment, hurting its performance. The basic apparel company is battling a persistent macro-driven slowdown in consumer spending, which hurt its second-quarter 2023 results.
Let’s discuss this in detail.
Weak Performance
During the second quarter of 2023, HanesBrands’ adjusted loss from continuing operations of 1 cent a share deteriorated from 28 cents per share in the year-ago quarter. Net sales from continuing operations decreased 4.9% to $1,439 million, which includes $18 million negative impact from foreign exchange rates. The downside was caused by declines in U.S. Activewear and a persistent macro-driven slowdown in consumer spending affecting Australia. Global Champion brand sales tumbled 16%, with a decline of 25% in the United States and a 1% decrease internationally.
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High Costs Hurt Margin
Hanesbrands is grappling with a rising inflationary environment, which continued in the second quarter. The adjusted gross margin was 33.6%, down nearly 425 basis points (bps). The downside was caused by commodity and ocean freight inflation, representing almost 245 bps of margin headwind as it continued to sell through higher-cost inventory. Also, unfavorable business mix and increased labor rates were hurdles.
Challenging Road Ahead
Considering the challenging apparel market, mainly in Australia, along with softness in the U.S. activewear category, management lowered its view for the back half of the year. For 2023, net sales from continuing operations are now anticipated to be $5.80-$5.90 billion, including an anticipated currency headwind of nearly $37 million. The midpoint of the guidance suggests an almost 6% year-over-year decline on a reported basis and at constant currency. The metric was expected to be $6.05-$6.20 billion earlier.
For 2023, adjusted earnings per share (EPS) from continuing operations is envisioned to be in the 16-30 cents range compared with the 31-42 cents projected earlier.
Final Thoughts
Hanesbrands is on track with bolstering its brands through customer-friendly innovations. Management is on track with its Full Potential plan, which includes reigniting innerwear growth, driving consumer-centricity and focusing on the portfolio. The company’s supply chain segmentation work has focused on lower inventory, profitable SKUs and increased efficiencies.
All said, whether the upsides can help Hanesbrands stay afloat amid hurdles is yet to be seen.
Shares of the Zacks Rank #4 (Sell) company have slumped 39% year-to-date compared with the industry’s 8.1% decline.
Eye These Solid Picks
Some better-ranked companies are Guess?, Inc. GES, G-III Apparel Group, Ltd. GIII and lululemon athletica LULU.
Guess?, which designs, markets, distributes and licenses lifestyle collections of apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GES’ current financial-year revenues and earnings suggests growth of 3.4% and 9.9%, respectively, from the year-ago reported figure. Guess? has a trailing four-quarter earnings surprise of 43.4%, on average.
GIII Apparel sports a Zacks Rank #1. GIII is a manufacturer, designer and distributor of apparel and accessories
The Zacks Consensus Estimate for GIII Apparel’s current financial year’s sales and earnings suggests growth of 2.4% and 14.7%, respectively, from the year-ago period’s reported figures. GIII has a trailing four-quarter earnings surprise of 526.6%, on average.
lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for lululemon athletica’s current financial year sales and earnings suggests growth of 18.1% and 20.5%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 6.8%, on average.
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Hanesbrands Inc. (HBI) : Free Stock Analysis Report
Guess?, Inc. (GES) : Free Stock Analysis Report
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G-III Apparel Group, LTD. (GIII) : Free Stock Analysis Report
