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Hanesbrands (HBI) Poised on Full Potential Plan, Online Strength

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Hanesbrands Inc. HBI is benefiting from various growth endeavors like its Full Potential plan. Also, the company’s solid online business is yielding. It posted impressive first-quarter 2021 results, with the top and the bottom line increasing year over year as well as beating the Zacks Consensus Estimate.

For fiscal second-quarter, net sales are anticipated in the range of $1.56-$1.59 billion. The midpoint of the guidance suggests net sales increase of nearly 2% year over year. Also, adjusted earnings per share are envisioned in the band of 37- 40 cents for the second quarter. Notably, the consensus mark for quarterly earnings is currently pegged at 39 cents per share.

Full Potential Plan in Action

The company 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.

Incidentally, the company expects revenue to increase to nearly $7.4 billion by 2024, from midpoint of its 2021 guidance of $6.25 billion. Further, operating margin is likely to expand 100 basis points to nearly 14.3% by 2024 compared with the midpoint of 2021 guidance of 13.3%.

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Zacks Investment Research

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Strength in Online Business

Hanesbrands is focused on making additional investments in its online business to keep pace with consumers’ evolving shopping patterns especially as the coronavirus pandemic has increased digital shopping penetration. During fiscal first quarter, Hanesbrands’ 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.

Is all Rosy for Hanesbrands?

Although Hanesbrands’ adjusted operating margin expanded in the first quarter of 2021, management expects the metric 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.

In spite of sales in the Activewear segment rallying 26%, the company continued to bear the brunt of pandemic-led hurdles in the first quarter. Notably, the sports and college licensing business remained challenged by campus shutdowns and restrictions on sports attendance amid the pandemic.

Nevertheless, we believe that the aforementioned upsides are likely to help Hanesbrands counter hurdles and maintain its growth trajectory. Notably, the Zacks Rank #3 (Hold) stock has returned 38.1% in the past six months compared with the industry’s growth of 4.8%.

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Gildan Activewear, Inc. GIL currently sports a Zacks Rank #1 (Strong Buy) and has a long-term earnings growth rate of 28.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs CROX currently sports a Zacks Rank #1 and has a long-term earnings growth rate of 15%.

Columbia Sportswear Company COLM currently carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 32%.

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