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Hanesbrands' (HBI) Q4 Earnings Beat Estimates, Sales Grow Y/Y

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Zacks Equity Research
·6 min read
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Hanesbrands Inc. HBI reported robust fourth-quarter 2020 results, wherein both top and bottom lines cruised ahead of the Zacks Consensus Estimate and the former increased year over year. Also, management unveiled its Full Potential plan. The company issued an impressive earnings and sales view for the first quarter of 2021. It expects to provide full-year 2021 guidance along with three-year financial goals in its upcoming Investor Day in May, wherein it will offer a detailed analysis of the Full Potential plan.

Shares of the company gained nearly 2% in the pre-market trading session on Feb 9.

Q4 in Detail

Hanesbrands posted adjusted earnings of 38 cents a share that surpassed the Zacks Consensus Estimate of 29 cents. However, the metric declined 17.4% year over year.

Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. Price, Consensus and EPS Surprise
Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. price-consensus-eps-surprise-chart | Hanesbrands Inc. Quote

Net sales climbed 2.8% to $1,800.8 million and outpaced the Zacks Consensus Estimate of $1,625 million. Markedly, revenues from personal protective garments (PPE) offered globally contributed $28 million to the top line in the fourth quarter. Excluding sales from the exited C9 Champion mass program, the DKNY intimate apparel license that was recorded in the year-ago period and foreign-exchange fluctuations, total constant-currency (cc) net sales grew 6%.

Hanesbrands delivered robust sales growth in the fourth quarter, including sustained revenue momentum in its biggest businesses as well as solid market share performance in the Innerwear and Activewear segments. Management stated that year-over-year revenue trends improved in all three segments on a sequential basis, barring PPE. Global Champion sales advanced 11% at cc. Excluding the sports and college licensing business (which is largely reeling under pandemic-induced shutdowns and limitations), global Champion sales rose 18% at cc.

Moving on, adjusted operating profit of this Zacks Rank #4 (Sell) company declined 10% to $217 million.

Segment Details

Innerwear: Excluding PPE, U.S. Innerwear sales improved 13% on the back of solid point-of-sale trends, constant inventory restocking by retailers, space gains in kids’ underwear and contributions from an additional week. Notably, Hanesbrands saw market share improvement in U.S. basics and intimates. When compared with the prior-year quarter’s rebased sales figure to reflect the exit of the C9 Champion mass program as well as the DKNY intimate apparel license, sales increased around 16%, excluding PPE.

Activewear: Sales in the U.S. Activewear segment rose approximately 7% on a rebased basis, driven by strength in online, distributor and wholesale networks. Incidentally, this segment saw its third straight quarter of sequential growth, courtesy of a robust show by the global Champion brand.

International: Revenues in the segment climbed 2%, while core international revenues inched up 1%, excluding PPE sales (worth $6 million). At cc, international sales slipped nearly 3%. During the quarter, Australia continued to deliver a strong show (sales up 8% at cc), thanks to gains in Bonds as well as Bras N Things. Further, Canada and Latin America witnessed growth, while Asia and Europe continued to battle hurdles related to the pandemic.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $909.4 million, long-term debt of $3,739.4 million and stockholders’ equity of almost $814 million. In 2020, the company generated $448.5 million as net cash from operating activities.

Additionally, management declared a quarterly cash dividend of 15 cents per share, which is payable on Mar 9, 2021, to shareholders of record as of Feb 19. This marks the company’s 32nd straight quarterly return of cash to shareholders. Hanesbrands has paid out quarterly dividends worth more than $1.3 billion since the program began in April 2013.

Full Potential Plan

Management concluded a comprehensive business assessment and started implementing its Full Potential plan during the fourth quarter of 2020. The Full Potential plan aims at keeping the company concentrated on four pillars to aid growth and improve long-term profitability. These include global growth of the Champion brand, driving Innerwear segment growth (with products and brands appealing to younger consumers), creating e-commerce brilliance across all networks and streamlining the global portfolio.

In connection with these four pillars, Hanesbrands has identified 20 strategic initiatives and introduced a multi-year cost savings program. Through the savings plan, the company intends to largely self-sponsor the investments required to attain its goals under the Full Potential plan. Management said that a comprehensive overview of the Full Potential plan is likely to be offered at its Investor Day in May.

As part of the Full Potential plan implementation, management does not see PPE as a long-term growth opportunity. Also, per a comprehensive strategic inventory review, Hanesbrands is curtailing its SKUs by 20% to increase focus on highest-volume, fastest-growing and more profitable products. Moreover, the company unveiled plans to seek strategic alternatives for its European Innerwear business to further simplify its operations and thereby, allocate resources on areas with growth opportunities.

Guidance

The company continues to operate amid an extremely volatile landscape, given the coronavirus-related concerns and the associated restrictions enforced by governments across the world. For the first quarter of 2021, net sales are anticipated in the range of $1.485-$1.515 billion. The midpoint of the guidance represents net sales advancement of 14% year over year and includes an expected gain of $50 million from favorable currency movements. At cc, the midpoint suggests a 10% rise in net sales.

Adjusted operating profit is likely to be in the range of $150-$160 million. At the midpoint, this indicates an operating margin of 10.3% compared with 4.8% in the year-ago period. The anticipated margin expansion is likely to come on the back of increased sales, favorable manufacturing variances and the anniversary of last year’s volume declines stemming from the pandemic.

Also, adjusted earnings per share are envisioned in a band of 24-27 cents in the first quarter. The consensus mark is presently pegged at 16 cents per share.

Shares of the company have gained 1.3% in the past six months compared with the industry’s growth of 26.9%.

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Crocs’ CROX currently has a Zacks Rank #1 (Strong Buy) and a long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. PVH, with a Zacks Rank #1, has a long-term earnings growth rate of 18%.

Delta Apparel DLA, with a Zacks Rank #1, has delivered back-to-back positive earnings surprises in the last two quarters.

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