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Things You Must Note Ahead of Hanesbrands (HBI) Q4 Earnings

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Hanesbrands Inc. (HBI - Free Report) is slated to release fourth-quarter 2017 results on Feb 8. The question lingering in investors’ minds is whether this apparel manufacturer and designer will be able to deliver a positive earnings surprise in the quarter to be reported. Hanesbrands has a mixed record of earnings surprises in the trailing four quarters. Let’s see what’s in store this time.

Hanesbrands Inc. Price and EPS Surprise

Hanesbrands Inc. Price and EPS Surprise | Hanesbrands Inc. Quote


International Strength & Focus on Buyouts Remain Drivers

Hanesbrands has been delivering top and bottom-line growth annually for more than a year now. Hanesbrands has mainly been gaining from its focus on buyouts and strength in its international division. These factors also fueled the company in third-quarter 2017, wherein Hanesbrands organic sales growth for the first time in eight quarters. This, in turn was backed by solid International sales that represented nearly 31% of the company’s top line.

International sales were fueled by strength in Hanes Europe Innerwear; Champion Europe and Hanes Australasia, with global Champion sales growing 16% in the quarter. Notably, sales at the International segment jumped 14% on a currency neutral basis. Apart from the aforementioned factors, extensive online sales growth also bolstered sales improvement at the segment. Management expects the fourth quarter to mark another quarter of organic sales growth. Also, we expect the International segment to continue being a major driver in the fourth quarter. Notably, the Zacks Consensus Estimate for International sales is pegged at $551 million, representing a 9.1% rise from the year-ago period.

While these factors are likely to drive the top line, focus on Project Booster program should help the company generate cost savings and aid the bottom line. Notably, by 2019, this project is anticipated to produce nearly $150 million of annualized cost savings, out of which roughly $50 million will be reinvested in targeted growth avenues.

Factors Raising Concerns

However, a tough retail landscape has been hurting Hanesbrands’ brick-and-mortar performance. Evidently, this marred Hanesbrands’ domestic sales in the quarter. Further, the company’s Innerwear segment has been delivering soft results for a while now on account of soft brick-and-mortar performance stemming from sluggish traffic. In third-quarter 2017, sales at this unit declined 5.2% in the quarter to $644.1 million, as the apparel category bore the brunt of a tough back-to-school retail landscape.

Management expects the soft retail U.S. trends to linger in 2017, which raises concerns over its fourth-quarter performance. Incidentally, for the fourth quarter, the consensus mark for Innerwear sales stands at $594 million, down 2.8% from the year-ago period.  Also, the fourth quarter is likely to be impacted by additional marketing investments; the recently announced buyout of Alternative Apparel and effects of Sears Canada bankruptcy.

Q4 Expectations in Numbers

Considering all factors, the company projects fourth-quarter net sales in a band of $1.63 billion to $1.65 billion, with the mid-point depicting an increase of nearly 3% on an organic basis. This outlook is based on a conservative view for the U.S. sales landscape; sales of roughly $15 million expected from Alternative Apparel and negative effects from Sears Canada bankruptcy. Adjusted earnings are envisioned in a band of 51 cents to 53 cents, while GAAP earnings per share are projected to range from 47-49 cents.

The earnings estimate (both GAAP and adjusted) includes 5 cents from higher marketing investment, greater mix of International sales and the expected adverse impact from Sears Canada bankruptcy somewhat negated by greater-than-expected buyout synergies.  

The current Zacks Consensus Estimate for the quarter under review is pegged at 53 cents, which is in line with the year-ago period. This estimate has witnessed an uptrend over the last 30 days. Moreover, analysts polled by Zacks expect revenues of $1,631 million, up 3.6% from the year-ago quarter.

What the Zacks Model Unveils

Our proven model doesn’t conclude that Hanesbrands is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Unfortunately, Hanesbrands fails both the criteria, as the Zacks Rank #4 (Sell) company has an Earnings ESP of -0.14%. Note that we caution against Zacks Rank #4 or 5 (Strong Sell) stocks going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies that possess the right combination of elements to post an earnings beat:

Campbell Soup Company (CPB - Free Report) has an Earnings ESP of +1.44% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The J. M. Smucker Company (SJM - Free Report) has an Earnings ESP of +0.75% and a Zacks Rank #3.

Coty (COTY - Free Report) has an Earnings ESP of +1.99% and carries a Zacks Rank of 3.

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