Hanesbrands Says No to Tags

Hanesbrands Inc. ( HBI - Analyst Report ) , one of the world’s leading intimate, underwear, sleepwear and casual apparel manufacturer and seller is geared up for promoting its tagless men’s underwear. The company recently undertook a promotional campaign for its tagless men’s innerwear.

Commercials for the product will be in expensive advertisement slots in the middle of high-profile entertainment and sports programs. The company has again roped in basketball legend Michael Jordan to promote the tagless underwear.

Hanesbrands was the first to introduce tagless undershirts in the American market. After the huge success of the product innovation, the company introduced its tagless concept to its range of briefs, boxers and boxer briefs that gave much needed comfort to its male customers.

The promotional campaign for tagless underwear is mainly targeted at affluent customers and it can be concluded that this is part of Hanesbrands’ strategy to focus more on its premium brands that are less competitive. Also, we believe this is in response to the aggressive pricing taken up by its competitors like Warnaco ( ) . The company plans to focus more on the premium and core sectors where pricing is more favorable and does not require aggressive promotional pricing.

Amidst high inflationary pressure on cotton prices, major suppliers of cotton garments are adopting competitive pricing resulting in the price of garments reaching a record low artificially. This was putting pressure on Hanesbrands’ margins. However, its recent decision to focus on migrating its business model to a more value based brand owner is helping the company to maintain profit in the innerwear category.

Hanesbrands has also taken a step towards this goal by announcing the sale of its European imagewear division and exit from the private label category in the US. It also plans to divest its Outer Banks brand.

While the company maintained its previously announced fiscal 2012 earnings guidance of $2.50 to $2.60, it expects the restructuring to reduce sales in the second half of the year by about $60 million. The company also maintained its earnings outlook for 2013. Zacks Consensus Estimates for FY12 and FY13 are $2.55 and $3.22, respectively.

Currently, we have a Neutral recommendation on Hanesbrands, which carries a Zacks #3 Rank (short-term Hold rating).