Hanesbrands (HBI) Stock Rises on Q2 Earnings & Sales Beat
Shares of Hanesbrands Inc. HBI rose nearly 5% before the market trading session on Aug 5, following robust second-quarter 2021 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and increased year over year. Results gained from customers’ continued demand for global innerwear and activewear businesses and its Full Potential plan. Encouraged by the strong business momentum, management hiked the 2021 view.
Shares of this Zacks Rank #3 (Hold) company have gained 27.9% year to date outperforming the industry’s growth of 17.8%.
Q2 in Detail
Hanesbrands has posted adjusted earnings of 47 cents a share that surpassed the Zacks Consensus Estimate of 39 cents. The metric increased from 46 cents and 38 cents reported in second-quarter 2020 and second-quarter 2019, respectively.
Net sales rallied 13% to $1,751.3 million and outpaced the Zacks Consensus Estimate of $1,579 million. Total constant currency (cc) net sales increased 10%. This can be attributable to growth in both global innerwear and activewear businesses on the back of strong point-of-sale performance as well as gains from government stimulus. The top line also grew 15% (up 14% at cc) from second-quarter 2019, driven by the aforementioned factors and pent-up consumer demand. The comparisons with 2019 reflect the discontinuation of the European Innerwear business, the C9 Champion mass program and the DKNY intimate apparel license.
Adjusted gross margin of 39% expanded 450 basis points (bps) year over year and improved roughly 75 bps from second-quarter 2019. Leverage from higher sales volume, favorable product mix and the positive impacts from currency translations were more than offset somewhat by increased costs related to stronger-than-expected demand.
Moving on, adjusted operating profit of $236 million inched up 1% year over year and 14% from second-quarter 2019. Adjusted operating margin contracted 170 bps to 13.5%, owing to the overlap of the prior year’s PPE sales as well as cost-saving initiatives undertaken in order to mitigate the loss of sales in the apparel unit due to the impacts of COVID-19. The metric contracted nearly 15 bps from second-quarter 2019 due to increased investments in marketing, which offset fixed-cost leverage from higher sales.
Segmental Details
Innerwear: Sales in the U.S. Innerwear segment of $780.7 million declined 29% year over year due to the overlap of PPE sales last year. The metric also advanced 19% as compared to second-quarter 2019, with double-digit growth in basics and intimates. Basics’ revenues rose 48% on the back of strength in all product categories. Intimates’ revenues surged 150%, driven by double-digit growth in bras and shapewear.
Activewear: Sales in the U.S Activewear segment skyrocketed 140% year over year to $404.2 million on the back of strength in Champion and Hanes brands, sports and college licensing businesses, strong point-of-sale trends in key channels, and pent-up consumer demand, the easing of restrictions and gains from government stimulus. The top line grew 15% from second-quarter 2019, driven by growth across online, wholesale and distributor channels, which more than offset the sluggishness in the sports and college licensing businesses.
International: Revenues in the International business surged 91% year over year to $478.9 million. On a cc basis, sales increased 70%, driven by solid demand, particularly in Australia, the Americas, Europe and the Asia Pacific. The metric rose 11% (up 5% at cc) from second-quarter 2019, owing to sales growth in Australia, Europe and the Americas, which more than offset weakness in the Asia Pacific due to COVID-related woes in Japan.
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Other Financial Details
Hanesbrands ended the quarter with cash and cash equivalents of $667.3 million, long-term debt of $3,647.5 million, and total stockholders’ equity of $562.2 million. For the quarter ended Jul 3, 2021, the company generated $195.3 million as net cash from operating activities. For 2021, cash flow from operating activities is likely to be $550 million, up from the previously mentioned $500-$550 million.
Management declared a quarterly cash dividend of 15 cents per share, payable Aug 31, 2021, to shareholders of record as of Aug 10. This marks the company’s 34th straight quarterly return of cash to shareholders. Hanesbrands has paid out quarterly dividends worth $1.5 billion since the program began in April 2013.
Guidance
For the third quarter of 2021, net sales are anticipated to be $1.78-$1.81 billion. The mid-point of the guidance suggests year-over-year net sales growth of 6% and includes an expected gain of $16 million from favorable currency movements. Excluding PPE, net sales at the mid-point are likely to rise 19% year over year. The metric is also likely to grow 11% from that reported in third-quarter 2019.
Adjusted operating profit is likely to be $235-$245 million for the quarter. At the mid-point, this indicates an operating margin of 13.4%, whereas it reported 14.3% in the year-ago period. The anticipated margin contraction will come due to inflation and higher brand investment. Also, adjusted earnings per share are envisioned to be 45-48 cents for the third quarter.
For the fourth quarter of 2021, net sales are anticipated to be $1.71-$1.78 billion. The mid-point of the guidance suggests 3% year-over-year net sales growth and includes a gain of $6 million from favorable currency movements. Adjusting for PPE sales and 53rd week in 2020, net sales at the mid-point are likely to rise 8% year over year. The metric is also likely to grow 15% from that reported in fourth-quarter 2019.
Adjusted operating profit is likely to be $200-$220 million for the quarter. At the mid-point, this indicates an operating margin of 12%, whereas it reported 13.5% in the year-ago period. The anticipated margin contraction will come due to inflation and higher brand investment. Also, adjusted earnings per share are envisioned to be 37-42 cents for the fourth quarter.
For 2021, net sales are anticipated to be $6.75-$6.85 billion, up from the earlier mentioned range of $6.2-$6.3 billion. Notably, it reported $6.13 billion last year. The estimated range includes $116 million benefits from favorable currency rates. The mid-point of the guidance suggests 11% year-over-year net sales growth and a 13% rise from that reported in 2019. Adjusted operating profit is likely to be $880-$910 million for the quarter, up from previously communicated $815-$845 million. This indicates 15% year-over-year growth and 9% from that reported in 2019. At the mid-point, this indicates an operating margin of 13.2%. Also, adjusted earnings per share are envisioned to be $1.68-$1.76 for 2021, up from earlier mentioned $1.51-$1.59.
Hanesbrands Inc. Price, Consensus and EPS Surprise
Hanesbrands Inc. price-consensus-eps-surprise-chart | Hanesbrands Inc. Quote
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