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Hanesbrands (HBI) Gains on Full Potential Plan, Online Strength

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Hanesbrands Inc. (HBI - Free Report) , like a number of other textile-apparel companies, has been benefiting from its strong online operations, especially amid the pandemic. Also, the company has been benefiting from strength in its Innerwear business. Further, Hanesbrands concluded a comprehensive business assessment and started implementing its Full Potential plan during the fourth quarter of 2020, wherein both top and bottom lines cruised ahead of the Zacks Consensus Estimate and the former increased year over year.

Hanesbrands’ Growth Drivers in Detail

Hanesbrands has been focused on making incremental investments in its online business to keep pace with consumers’ evolving shopping patterns especially as the coronavirus pandemic has increased digital shopping penetration. During the fourth quarter of 2020, its online business surged 46% and formed nearly 21% of the company’s sales. The company’s online sales were impressive in 2020, courtesy of its own site as well as third-party suppliers. Management continues to see momentum in this business. Incidentally, driving e-commerce excellence is also a core part of the  Full Potential plan.

This plan aims at keeping the company concentrated on four pillars to aid growth and improve long-term profitability. These include global growth of the Champion brand, driving Innerwear segment growth (with products and brands appealing to younger consumers), creating e-commerce brilliance across all networks and streamlining the global portfolio. Markedly, global Champion sales advanced 11% at cc in the fourth quarter. In connection with the four abovementioned pillars, Hanesbrands has identified 20 strategic initiatives and introduced a multi-year cost savings program. Through the savings plan, the company intends to largely self-sponsor the  investments required to attain its goals under the Full Potential plan.

Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. price-consensus-eps-surprise-chart | Hanesbrands Inc. Quote

As part of the Full Potential plan implementation, management does not see PPE as a long-term growth opportunity. Also, per a comprehensive strategic inventory review, Hanesbrands is curtailing its SKUs by 20% to increase focus on highest-volume, fastest-growing and more profitable products. Moreover, the company unveiled plans to seek strategic alternatives for its European Innerwear business to further simplify its operations and thereby, allocate resources on areas with growth opportunities.

Wrapping Up

While the company issued an impressive view for the first quarter of 2021, it continues to operate amid an extremely volatile landscape, given the coronavirus-related concerns and the associated restrictions enforced by governments across the world. Additionally, in the fourth quarter of 2020, gross margin contracted 80 basis points due to the anticipated adverse negative manufacturing variances. Further, adjusted operating margin fell 250 basis points to 12% on account of a soft gross margin, along with costs associated with COVID-19 as well as the Full Potential plan.

Nevertheless, we believe that the aforementioned upsides are likely to help Hanesbrands counter these hurdles and keep its growth story going.  In fact, net sales for the first quarter of 2021 are anticipated in the range of $1.485-$1.515 billion. The midpoint of the guidance represents net sales advancement of 14% year over year and includes an expected gain of $50 million from favorable currency movements. At cc, the midpoint suggests a 10% rise in net sales. Adjusted operating profit is likely to be in the range of $150-$160 million. At the midpoint, this indicates an operating margin of 10.3% compared with 4.8% in the year-ago period.

The anticipated margin expansion is likely to come on the back of increased sales, favorable manufacturing variances and the anniversary of last year’s volume declines stemming from the pandemic. Adjusted earnings per share are envisioned in a band of 24-27 cents in the first quarter.

We note that the Zacks Rank #3 (Hold) stock has rallied 42.5% in the past three months compared with the industry’s growth of 2.8%.

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