Hanesbrands Inc. ( HBI Quick Quote HBI - Free Report) is grappling with escalated cost inflation, which has been marring its margin performance for a while now. The consumer goods company is grappling with supply chain logistic headwinds. Apart from these, unfavorable foreign currency rates are a concern. The abovementioned factors hurt HBI’s second-quarter 2022 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate. Management lowered its 2022 guidance. Shares of the Zacks Rank #5 (Strong Sell) company have plunged 28.7% in the past three months compared with the industry’s decline of 7.6%. Let’s delve deeper. Dismal Q2 Numbers, View
Hanesbrands’ second-quarter 2022 performance was hurt by a cyber event that temporarily impacted its global supply chain network and restricted its ability to fulfill customer orders for nearly three weeks. The company posted adjusted income from continuing operations of 28 cents a share, down from 47 cents reported in the year-ago quarter. Net sales from continuing operations declined 14% to $1,513.5 million. The downside can be attributed to the impact of the ransomware attack and softer-than-anticipated point-of-sale trends. Global Champion brand sales slumped 20% year over year in constant currency(cc) and 23% on a reported basis, with the same declines across the United States and internationally.
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The company has taken a more prudent look at its back-half net sales and profit view to reflect changes in currency rates and short-term costs related to actions undertaken to lower inventory by the 2022-end. The updated view also considers softness in consumer demand and a challenging retail environment.
For 2022, net sales from continuing operations are anticipated to be $6.45-$6.55 billion. The midpoint of the guidance suggests a 4% year-over-year net sales decline on a reported basis and a nearly 2% fall at cc. The metric was anticipated to be $7-$7.15 billion, suggesting about 4% year-over-year net sales growth and a nearly 6% rise at cc at the midpoint. Adjusted operating profit from continuing operations is projected in the $630-$680 million range. Adjusted earnings per share (EPS) from continuing operations are envisioned to be in the $1.11-$1.23 range during 2022, down from the previous guidance of $1.64-$1.81.
Margin Pressure, Currency Headwinds
During the second quarter of 2022, adjusted gross profit came in at $573 million, down from $684 million reported in the year-ago quarter. Adjusted gross margin was 37.8%, down almost 120 basis points (bps) due to reduced sales volume, input cost inflation, additional costs related to the cyber event and unfavorable foreign currency rates. Adjusted operating profit came in at $154 million, down $82 million from the second quarter of 2021. Adjusted operating margin of 10.2% contracted nearly 335 bps.
Due to its international presence, Hanesbrands is exposed to unfavorable currency fluctuations. For third-quarter 2022, net sales from continuing operations will likely include a projected headwind of nearly $58 million from currency rates. For 2022, net sales from continuing operations are anticipated to reflect a currency headwind of $165 million. However, volatility in exchange rates are a concern. Wrapping Up
Hanesbrands is progressing well with its Full Potential plan, unveiled in May 2021. The plan includes growing the global Champion brand, reigniting innerwear growth, driving consumer-centricity and focusing on the portfolio. The company is investing in the business to unlock growth, enhance consumer brand experience, reduce costs and improve efficiencies. Efforts to bolster brands via robust innovations are likely to keep supporting Hanesbrands.
All said, let’s see if these upsides can help Hanesbrands’ counter the aforementioned hurdles. Solid Consumer Discretionary Bets
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