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Hanesbrands' (HBI) Global Champion Business Sale to Fuel Growth

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Hanesbrands Inc. (HBI - Free Report) has been focused on accelerating growth. The company has made significant strides in revitalizing its innerwear business, increasing market share, attracting younger consumers and strengthening its operating model. Moving forward on the growth trajectory, the company recently inked a deal to offload the intellectual property and certain operating assets of its global Champion business to Authentic Brands Group (or Authentic),

Inside the Headlines

Management had earlier stated that it was exploring strategic options for the global Champion business. The aforementioned sale is likely to maximize the value for Champion while helping HBI speed up debt reduction and positioning it for long-term growth. The transaction, valued at $1.2 billion, is anticipated to conclude in the second half of 2024. Net proceeds from the transaction are expected to be nearly $900 million, and Hanesbrands plans to use it for debt reduction.

On concluding the sale of the global Champion brand, Hanesbrands intends to focus on enhancing its position in the innerwear category and achieving above-market growth via consumer-centric product innovation and elevated investments across leading brands such as Hanes, Bonds, Maidenform and Bali.

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Strong Operating Model

Hanesbrands’ foundational financial model has consistently been robust, characterized by healthy margins and steady cash generation. Over the past three years, the company has taken necessary actions across the business to enhance its operating and financial models. This includes developing new capabilities in brand building, data analytics, inventory management and SKU discipline.

Additionally, management has recruited new talent, streamlined the supply chain and eliminated fixed costs of more than $200 million (about half of which were part of SG&A). Also, gross margins have returned to historical levels.

In the first quarter of 2024, the adjusted gross margin was 39.9%, up nearly 720 basis points (bps). The upside was driven by reduced input costs stemming from moderate commodity and ocean freight inflation. Gains from cost savings initiatives and the impact of the business mix also contributed to the upside. Adjusted SG&A expenses declined 3% to $378 million on cost savings initiatives, disciplined expense management and reduced distribution expenses.  

The adjusted operating margin stood at 7.3%, up nearly 270 bps. We believe that the abovementioned actions are likely to drive strong earnings growth this year and position the company for more consistent top and bottom-line growth over time. Management envisions operating profit and earnings per share to increase year over year in the second quarter and full-year 2024 despite expecting soft sales.

Shares of this Zacks Rank #1 (Strong Buy) company have rallied 33.9% in the past six months against the industry’s decline of 16.3%

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Crocs (CROX - Free Report) designs, develops, manufactures, markets, distributes and sells casual lifestyle footwear and accessories. It currently carries a Zacks Rank #2 (Buy). CROX has a trailing four-quarter average earnings surprise of 17.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings suggests growth of 4.4% and 5.2%, respectively, from the year-ago reported numbers.

Guess? (GES - Free Report) , which designs, markets, distributes and licenses lifestyle collections of apparel and accessories, currently carries a Zacks Rank #2. The Zacks Consensus Estimate for GES’ current fiscal-year sales indicates growth of 11.7% from the year-ago reported figure.

Guess? has a trailing four-quarter earnings surprise of about 31%, on average.

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The Zacks Consensus Estimate for Kontoor Brands’ current financial-year earnings suggests growth of roughly 11% from the year-ago reported numbers.

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