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Why Is HanesBrands (HBI) Down 9.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for HanesBrands (HBI). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HanesBrands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hanesbrands Q2 Earnings Beat Estimates, Sales Up Y/Y

Hanesbrands released second-quarter 2019 results. The company posted adjusted earnings of 45 cents a share, which outpaced the Zacks Consensus Estimate by a penny. However, quarterly earnings remained flat year over year.

Net sales improved around 3% to $1,761 million and also surpassed the Zacks Consensus Estimate of $1,752 million. On constant-currency (cc) basis, organic sales were up 5%, marking the company’s eighth straight quarter of growth. The upside in this quarter was backed by increased sales from Activewear and International units, mainly fueled by strength in Champion.

Global Champion sales soared more than 50%, excluding mass channel, backed by double-digit sales growth across all regions. Also, the company’s consumer-direct sales (including retail and online networks) rose 8% year over year.

Moving on, adjusted operating profit grew 0.6% to $246.6 million. However, adjusted operating margin contracted 30 basis points (bps) to 14%.

Segment Details

Innerwear: Sales dipped 2.3% in the quarter to $678.6 million due to softness across Innerwear intimates and Innerwear basics. Further, operating profit declined 6% to $149.5 million. Nevertheless, the company witnessed strong performance in the shapewear category. Also, it remains on track with its plans for the bra turnaround strategy.

Activewear: Sales advanced 10.5% to $448.3 million, courtesy of higher Champion sales. Also, sales of Champion at mass business grew roughly 8%. Operating profit rose 19.6% to $68.8 million.

International: Sales at this segment improved 4.2% to $568.9 million (up 10% at constant currency), boosted by solid growth across Europe, Asia and Australia, and sturdy sales in innerwear and activewear units. Operating profit at the International segment rose 5.9% to $81.1 million in the quarter.

Other: Sales declined 5.7% to roughly $65.2 million. This segment posted an operating profit of $6 million, down 15.8% year over year.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $257.9 million, long-term debt of $3,671.1 million and stockholders’ equity of $1,135 million. Also, the company generated $136.9 million in net cash from operations during the quarter.

Guidance

Management retained its 2019 view and issued guidance for third-quarter 2019. For the third quarter, it anticipates the top line to be $1.84-$1.875 billion. Adjusted operating profit is expected to be $276-$286 million. Moreover, the company projects adjusted earnings to be 52-55 cents. The Zacks Consensus Estimate for the metric is pegged at 55 cents.

For 2019, net sales are predicted to be $6.885-$6.985 billion. GAAP operating profit is likely to be $900-$930 million. Adjusted operating profit is assumed to be $955-$985 million. Further, the company envisions adjusted earnings of $1.72-$1.80 for the year along with net cash from operations of $700-$800 million.

At the mid-point, the current guidance for the year reflects year-over-year growth of roughly 2% in net sales, 5% in operating profit on a GAAP basis and 2% in adjusted operating profit. Further, the guidance represents mid-point growth of 7% and 3% for GAAP and adjusted earnings, respectively, coupled with a 17% improvement in operating cash flow.

How Have Estimates Been Moving Since Then?

Estimates review followed a flat path over the past two months.

VGM Scores

Currently, HanesBrands has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

HanesBrands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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