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Hanesbrands (HBI) Q1 Earnings Top Estimates, Sales Rise Y/Y

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Hanesbrands Inc. (HBI - Free Report) reported first-quarter 2022 results, with the top and the bottom line beating the respective Zacks Consensus Estimate. Net sales increased year over year while earnings declined. Management reaffirmed its 2022 guidance ranges for sales, operating profit and earnings per share (EPS).

Hanesbrands Inc. Price and EPS Surprise

 

Hanesbrands Inc. Price and EPS Surprise

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

 

Q1 in Detail

Hanesbrands posted adjusted income from continuing operations of 34 cents a share, surpassing the Zacks Consensus Estimate of 28 cents per share. The metric declined from 39 cents reported in the year-ago quarter.

Net sales from continuing operations rose 4.5% to $1,576.2 million and beat the Zacks Consensus Estimate of $1,541.3 million. Excluding the $30-million impact from unfavorable currency rates, net sales rose 7%.Consumer demand for its brands fueled growth in the U.S., Americas and Europe region. Global Champion brand sales jumped 6% year over year in constant currency (cc). Sales in the U.S. Innerwear category inched up 1.5% on retail space gains, increased prices and a positive mix.

Adjusted gross profit came in at $585 million, down from $605 million reported in the year-ago quarter. Adjusted gross margin was 37.1%, down almost 305 basis points (bps) due to the expected impact of increased inflation and more-than-planned strategic investment in expedited freight to support new retail space gains and product innovation. Efficiency improvements in manufacturing and cost savings from initiatives like the SKU reduction program, among others, offered some respite.

Adjusted operating profit came in at $175 million, down $34 million from the first quarter of 2021. Adjusted operating margin of 11.1% contracted nearly 280 bps as SG&A leverage was more than offset by inflation and expedited freight costs.

Segmental Details

Innerwear: Segment sales rose 1.5% year over year. The upside was a result of retail space gains, favorable mix and partial-quarter gains from price increases. During the quarter, sales increased across Women’s, Men’s and Socks product categories.

Activewear: Sales rose 6% year over year. Management highlighted that Champion sales were in line with the year-ago quarter. Champion brand delivered impressive growth against last year’s solid growth in the unit, on the back of solid growth in the collegiate channel.

International: Revenues in the International business rose 7% year over year at cc. The upside was driven by growth in Europe, the Americas and China.Sales at cc fell across Japan, thanks to the ongoing pandemic-induced pressures. Also, it witnessed product delays in Australia.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $369.2 million, long-term debt of $3,325 million and total stockholders’ equity of $779.4 million. It had roughly $1.05 billion of available capacity under its credit facility at the end of the quarter. At the end of the quarter, the company’s leverage was in-line with the year-ago quarter’s ratio of 3.1 times on a net debt-to-adjusted EBITDA basis. For the quarter ended Apr 2, 2022, the company used $231.2 million as net cash from operating activities.

Inventory came in at $1.82 billion, up 22% year over year. Management repurchased shares worth $25 million in the quarter. The company returned $77 million to shareholders, which includes $52 million of a regular quarterly dividend and $25 million in share repurchases.

For 2022, cash flow from operating activities is likely to be almost $400 million. Capital expenditure for the year is expected at $150-$175 million.

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Guidance

For second-quarter 2022, net sales from continuing operations are expected to be $1.68-$1.73 billion, including a projected headwind of nearly $40 million from currency rates. At the midpoint, the guidance reflects net sales in-line with the year-ago quarter on a cc basis or down 3% on a reported basis. Adjusted operating profit from continuing operations is expected in the range of $170-$190 million, including a projected headwind of nearly $5 million from currency rates. The midpoint of adjusted operating profit reflects an operating margin of almost 10.5%. Adjusted EPS from continuing operations are envisioned to be around the 32-36 cents range for the second quarter.

For 2022, net sales from continuing operations are anticipated to be about $7-$7.15 billion, which includes an anticipated currency headwind of nearly $125 million. The midpoint of the guidance suggests about 4% year-over-year net sales growth and a nearly 6% rise at cc.

Management highlighted that in the last three months, it saw escalated challenges in the operating environment globally, resulting in an incremental $65 million of net cost headwinds compared with the previous outlook. Incidentally, the company is anticipating results to be near the midpoint of its guidance range for sales and near the low-end of its operating profit and EPS ranges in 2022.

For 2022, adjusted operating profit from continuing operations is likely to be in the $840-$910 million range for the year, including a currency headwind expectation of roughly $17 million. In 2022, Hanesbrands expects to incur charges associated with the Full Potential plan of nearly $60 million. Adjusted EPS from continuing operations are envisioned to be approximately in the $1.64-$1.81 range.

Shares of this Zacks Rank #3 (Hold) company have decreased 8.5% in the past three months compared with the industry’s decline of 8.7%.

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