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Hanesbrands (HBI) Up More Than 20% YTD: Will Momentum Stay?

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Strength in e-commerce business is favoring Hanesbrands Inc. HBI. Moreover, the company’s impressive Full Potential plan is mention worthy. Owing to such upsides, Hanesbrands’ stock has rallied 22.3% so far this year compared with the industry’s growth of 13.3%.

Let’s discuss further.

What’s Favoring Hanesbrands?

Hanesbrands is focused on making additional investments in its online business to keep pace with consumers’ evolving shopping patterns, especially when the pandemic has increased digital shopping penetration. During first-quarter 2021, the company’s online channel registered 82% growth. The company’s online sales were impressive in 2020, courtesy of its own site as well as third-party suppliers. Management continues to see momentum in this business.

Also, driving e-commerce excellence is a core part of the company’s Full Potential plan. The company is making moves to create e-commerce excellence across all online channels. To this end, it is using data analytics to understand consumers better; enhancing performance marketing to help consumers find products easily as well as experience hassle-free online shopping on its own and retail partner sites. In its last earnings call, management highlighted that it plans to improve its online platform that includes champion.com. The company expects to grow online business with focus on consumer, innovation and brand development. Management is on track to make investments in technology, data science and core digital capabilities to deliver growth in traditional and online retail partners as well as owned and partner retail stores in key markets along with its owned e-commerce sites.

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We note that Hanesbrands recently unveiled Full Potential, a three-year growth plan aimed at achieving nearly $1.2 billion additional revenues and expand operating margins to 14.3% by 2024. The plan is based on four pillars — growing global Champion, reigniting innerwear growth, driving consumer centricity and focusing the portfolio. To this end, the company expects Champion to become a global brand worth $3 billion by 2024, witnessing 14% compound annual growth rate from 2021 projected sales figure. The company expects to achieve this objective by forming deeper connections with consumers, undertaking impressive innovations, growing presence in key geographies along with expanding online channels including Champion.com.

Further, management anticipates global innerwear revenue growth of nearly $200 million by 2024, led by sales in the United States and Australia. The company expects to drive global Innerwear growth by using new capabilities in global design, robust innovations and an enhanced contemporary voice.

Wrapping Up

While sales in the Activewear segment jumped 26% year over year, it continued to bear the brunt of pandemic-led hurdles in first-quarter 2021. Notably, the company’s sports and college licensing business remained challenged by campus shutdowns and restrictions on sports attendance amid the pandemic.

Apart from this, management expects adjusted operating margin to decline year over year in the second quarter. Notably, adjusted operating profit is likely to be in the range of $200-$210 million in the second quarter. At the midpoint, this indicates an operating margin of 13% compared with 15.2% in the year-ago period. The downside is likely to be caused by inflation and higher brand investment.

Nevertheless, we believe that the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company keep its growth story alive.

Top Picks

PVH Corp. PVH, which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 18%. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, Ltd. GIII, which sports a Zacks Rank #1, has a long-term earnings growth rate of 11.6%.

Crocs, Inc CROX, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 15%.

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