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HanesBrands (HBI) Up 5.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for HanesBrands (HBI - Free Report) . Shares have added about 5.7% in that time frame, outperforming the S&P 500.

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

Hanesbrands Q3 Earnings & Sales Surpass Estimates

Hanesbrands reported third-quarter 2020 results, with the top and bottom line outpacing the Zacks Consensus Estimate. However, sales and earnings declined year over year.

Q3 in Detail

Hanesbrands posted adjusted earnings of 42 cents a share that surpassed the Zacks Consensus Estimate of 36 cents. However, the metric declined 11% year over year.

Net sales fell 3.1% to $1,808.3 million but outpaced the Zacks Consensus Estimate of $1,604.4 million. On an adjusted basis, the metric rose 3.4%. Excludingthe exited programs and foreign-exchange fluctuations, total constant-currency (cc) net sales increased 2.6%.

Notably, apparel sales trends improved sequentially across all business segments. Also, global sales of Champion increased significantly from the prior quarter as consumer demand remains solid. The company registered online sales growth of approximately 70% on a rebased basis via its e-commerce websites, retailer websites, business-to-business customers and large internet pure-plays. Moreover, Hanesbrands sold personal protective garments worth $179 million worldwide.

Moving on, adjusted operating profit declined 9% to $227 million.

Segment Details

Innerwear: Excluding protective garment, U.S. Innerwear sales increased 8.4% on the back of growth in the basics and intimate apparel businesses. Overall U.S. Innerwear revenues surged 37% led by sales of protective garments, continued favorable point-of-sale trends as well as inventory restocking.

When compared with the prior-year quarter’s rebased sales figure to reflect the exit of the C9 Champion mass program as well as the DKNY intimate apparel license, revenues increased 11.5% on excluding protective garments. Overall this metric surged 41%.

Activewear: Sales in U.S. Activewear business declined 41%.When compared with the prior-year quarter’s rebased sales figure to reflect the exit of the C9 Champion program, the metric fell 27%.

International: Sales in the segment fell 5% on a reported basis (down 7% at cc). Excluding the protective garment sales, revenues declined 7%.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $731.5 million, long-term debt of $3,972.2 million and stockholders’ equity of $1,149.5 million. In the third quarter, the company generated operating cash flow of $249 million.

Q4 Outlook

For the fourth quarter of 2020, net sales are anticipated in the range of $1.60-$1.66 billion. This projection includes nearly $50 million of protective garment sales and almost $10 million in foreign exchange benefit. The midpoint of guidance represents a net sales decline of 7% year over year. When the mid-point of guidance is comparedwith rebased figures to reflect exits of the C9 Champion and DKNY programs, fourth-quarter sales are likely to fall nearly 2%.

Further, management expects gross and operating margins to be affected by negative manufacturing variances and escalated SG&A expense in the fourth quarter. Adjusted operating profit is likely to be in the range of $160-$180 million.

Also, adjusted EPS are envisioned in the band of 25-30 cents in the quarter. When the mid-point of guidance is compared with rebased figures to reflect exits of the C9 Champion and DKNY programs, fourth-quarter adjusted EPS are likely to decline roughly 39%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -29.95% due to these changes.

VGM Scores

Currently, HanesBrands has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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