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HanesBrands (HBI) Down 2.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for HanesBrands (HBI). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HanesBrands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Hanesbrands Q4 Earnings & Sales Beat Estimates

Hanesbrands released fourth-quarter 2018 results. The company posted adjusted earnings of 48 cents a share, which outpaced the Zacks Consensus Estimate by a penny. However, quarterly earnings declined 7.7% year over year from 52 cents registered in the year-ago period. The downside can be attributed to higher tax rate.

Nevertheless, net sales improved 7.5% to $1,768.3 million and also surpassed the Zacks Consensus Estimate of $1,716 million. On a constant currency (cc) basis, organic sales rose 6%, marking the company’s sixth straight quarter of increase. The upside was driven by increased sales from Activewear and International units, mainly fueled by strength in Champion.

Further, Global Champion sales soared more than 50% at cc, excluding mass channel. Also, the company’s consumer-direct sales (including retail and online networks) increased 23% year over year and represented 25% of overall sales.

Moving on, adjusted operating profit rose 10.3% to $259.6 million. Adjusted operating margin expanded 40 basis points (bps) to 14.7% driven by gains contributions and fall in selling, general and administrative costs, as a percentage of sales.

Segment Details

Innerwear: Sales dipped 0.1% in the quarter to $594.2 million due to softness across Innerwear intimates, somewhat offset by growth at Innerwear basics. However, operating profit inched up 0.3% to $134 million. Further, the company progresses well with its revitalization plans for the intimates business and bra turnaround strategy.

Activewear: Sales advanced 13.5% to $485.4 million, thanks to higher sales at Champion and American Casualwear, and contribution from the Alternative Apparel’s buyout. Meanwhile, champion sales remained robust driven by broad-based growth across channels, including solid stores and online sales. However, sales of Champion at mass retail fell roughly 3%. Further, operating profits increased 3.8% to $78 million.

International: Sales at this segment improved 11.7% (up 16% at cc) to $608.9 million backed by strong Champion sales across Europe and Asia. Organic sales rose 9% on a currency-neutral basis. Contributions from the acquisition of Bras N Things ($43 million) also fueled International sales. Operating profit at this segment rallied 27.7% (up 33% at cc) to $98.5 million in the quarter, thanks to organic growth, contribution from Bras N Things and integration synergies.

Other: Sales grew 2.8% to roughly $79.8 million. The segment posted an operating profit of $7.2 million, down 21.2% year over year.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $433 million, long-term debt of $3,534.2 million and equity of $970.3 million. Also, the company generated $643.4 million in net cash from operations during 2018.

Further, management announced a quarterly cash dividend of 15 cents per share, which will be paid on Mar 12, 2019, to its stockholders of record as on Feb 19.

Guidance

Management remains impressed with its quarterly results. Further, the company continued with organic sales growth trend, improved margins and curtailed debt leverage. Results were largely backed by Champion sales. Also, Hanesbrands is executing its diversification strategy.

For 2019, the company issued an initial outlook. Net sales are projected in the $6.885-$6.985 billion range. While GAAP operating profit is likely to come in at $900-$930 million band, adjusted operating profit is anticipated in the range of $955-$985 million.

Further, the company envisions adjusted earnings of $1.72-$1.80 for the year, along with net cash from operations of $700-$800 million. Earnings per share on a GAAP basis are estimated to be $1.59-$1.67.

At the midpoint, the current guidance for the year reflects year-over-year growth of roughly 2% in net sales, 5% in operating profit on a GAAP basis and 2% in adjusted operating profit. Further, the guidance represents midpoint growth of 7% and 3% for GAAP and adjusted earnings, respectively, coupled with 17% improvement in operating cash flow.

Effective tax-rate for 2019 is projected at roughly 14%. Further, it anticipates roughly 366 million shares outstanding, which shows a slight improvement from 2018 figure.

For the first quarter, management projects net sales of $1.52-$1.55 billion, with adjusted operating profit of $157-$167 million. Moreover, operating profit on a GAAP basis is estimated to come in at $135-$145 million. The company envisions adjusted EPS in the range of 24-26 cents. GAAP EPS is likely to come between 19 cents and 21 cents.

Notably, the guidance includes contributions of $17 million to sales from the buyout of Bras N Things. Further, organic sales at cc for the year are estimated to grow roughly 2.5%. Unfavorable foreign currency is likely to hurt net sales by nearly $60 million, mainly in the first quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -10.71% due to these changes.

VGM Scores

At this time, HanesBrands has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

HanesBrands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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