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Bear of the Day: Hanesbrands (HBI)

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A tough retail environment and new outside competition have left traditional apparel makers in a tight battle for whatever is left of brick-and-mortar clothing sales. Unfortunately, we have seen even some of our most recognizable brands—like Hanesbrands Inc. (HBI - Free Report) —struggle to keep up.

Hanesbrands is a leading marketer of innerwear, outerwear, and hosiery apparel under strong consumer brands, including Hanes, Champion, Playtex, Bali, Just My Size, barely there, and Wonderbra. The company designs and sells T-shirts, bras, panties, men's underwear, children's underwear, socks, hosiery, casual wear, and active wear.

In its most recent quarterly earnings report, Hanesbrands management lowered the upper end of its sales and earnings guidance for the remainder of fiscal 2017, leading to a plethora of negative estimate revisions and helping the stock earn its Zacks Rank #5 (Strong Sell).

Latest Earnings and Outlook

Hanesbrands most recently reported earnings on Nov. 1. The company posted adjusted earnings of $0.60 per share, which was in line with the Zacks Consensus Estimate and about 7% higher than the year-ago quarter. Total revenues of $1.8 billion fell short of our consensus estimate and advanced just 2% year-over-year.

Strong international sales helped the company grow its top and bottom line, but Hanesbrands is growing increasingly worried about weak results in North America. Management has blamed soft store traffic and a tough retail landscape, along with the impact of U.S. hurricanes and the bankruptcy of Sears Canada, for this weak domestic performance.

Hanesbrands expects the fourth quarter to be impacted by additional marketing investments, the recently announced buyout of Alternative Apparel, and effects of Sears Canada’s bankruptcy. The company now projects revenues of $6.45 - $6.48 billion, compared with $6.45 - $6.55 billion expected earlier. Earnings are now expected to fall in a range of $1.93 - $1.95 per share, down from the previously announced range of $1.93 - $2.03.

Estimate Revisions


This is estimate revision snapshot is clearly less than ideal, but what is most concerning is that analysts seem to be recently cooling off on the company’s upcoming fiscal year. Based on management’s warning in November, we already knew that Q4 would be difficult—an extension of those challenges into 2018 is not a good sign.

Other Options

Interestingly, HBI’s “Textile – Apparel” industry is actually sitting in the top 31% of the Zacks Industry Rank right now. Investors looking for a stronger pick in this industry could look at stocks like Crocs, Inc. (CROX - Free Report) , G-III Apparel (GIII - Free Report) , and Perry Ellis International PERY, all of which currently carry a Zacks Rank #2 (Buy).

Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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