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Can Hanesbrands' Solid International Unit Help Revive Stock?

Zacks Equity Research

Hanesbrands Inc. HBI is losing investors’ preference due to weak innerwear unit, adverse currency movements and pressures from rising input costs. Nevertheless, strength in the international unit, sturdy organic sales trend and gains from savings efforts are some positives.

Let’s take a closer look and see if these upsides can help uplift the stock that declined 7.3% in the past three months, almost in line with the industry.

Strong International Business & Other Upsides

Hanesbrands boasts a solid performance in the international segment, which contributed 32.3% to net sales in the second quarter. Sales in the segment rose 4.2% in the said quarter. Strong performance across Europe, Asia and Australia were key upsides. Moreover, the segment’s operating margin improved nearly 20 basis points. Volume gains and acquisition synergies were the primary catalysts to operating margin growth in the unit.

The international unit has been a key driver to the company’s organic sales. In second-quarter 2019, Hanesbrands organic sales grew 5% at constant currency, marking the company’s eighth straight quarter of increase. Markedly, growth in the Champion brand also fueled organic sales. The Champions brand has been performing strongly for a while and fueling the company’s growth on a global scale. Hanesbrands expects to continue with stellar organic sales performance in the forthcoming quarters, backed by focus on innovation.

Apart from these factors, the company’s focus on boosting savings through its multi-year program — Project Booster — is an upside. The initiative focuses on driving investment for growth and minimizing costs. The company had earlier stated that this project is anticipated to produce nearly $150 million of annualized cost savings by 2019. Of the total nearly $50 million will be reinvested in targeted growth opportunities. Furthermore, cost savings from Project Booster, along with synergies from buyouts and diversified revenues are estimated to help Hanesbrands achieve its cash flow target of an annual run rate of $1 billion by the end of 2019.

Can Efforts Uplift the Stock?

Hanesbrands has been battling soft sales in the Innerwear segment for quite some time. In second-quarter 2019, Innerwear sales dipped 2.3% due to softness across intimates and basics. Management is apprehensive regarding its Innerwear segment for the third quarter, wherein U.S. Innerwear sales are likely to decline 2%.

Additionally, adverse currency movements are a headwind for the company. Evidently, unfavorable currency rates exerted pressure on adjusted operating profit, gross margin and the top line during the second quarter. Going ahead, management expects currency headwinds of almost $20 million on sales during the third quarter. Moreover, the company is battling raw material cost inflation since the past few quarters. Higher costs are mainly being witnessed for logistics and commodity. Management expects costs to continue rising in the forthcoming quarters.

Nevertheless, we expect the company’s sturdy global business growth along with prudent endeavors to boost savings to help tide over the barriers. Moreover, this Zacks Rank #3 (Hold) company’s diversification as well as brand-investment efforts are yielding, which along with the aforementioned upsides are likely to help the stock revive.

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