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Hanesbrands (HBI) Q4 Earnings Miss Estimates, Stock Down

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After reporting in-line earnings in the preceding two quarters, Hanesbrands Inc. (HBI - Free Report) succumbed to a negative earnings surprise in the fourth quarter of 2017. The company, which entered into a deal to acquire specialty intimate apparel seller Bras N Things, posted adjusted earnings of 52 cents a share that missed the Zacks Consensus Estimate by a penny.

Moreover, earnings fell roughly 1.9% from the year-ago period. Even an increase in top line failed to act as a savior. We noted that higher cost of sales and SG&A expenses as well as increased interest expense hurt the bottom line. Also, management provided a bleak outlook, which weighed upon investors’ sentiment.

Evidently, shares of Hanesbrands are down roughly 7% during pre-market trading hours. In the past six months, this Zacks Rank #4 (Sell) stock has declined 9.7% against the industry’s growth of 14.3%.

Including tax charge related to U.S. federal income tax reform, the company reported loss of $1.06 per share compared with earnings of 41 cents.

Hanesbrands Inc. Price, Consensus and EPS Surprise

 

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


Net sales of $1,645.2 million climbed 4.4% from the year-ago period, and also came ahead of the Zacks Consensus Estimate of $1,631 million, after missing the same in the preceding quarter. The year-over-year upside was backed by growth across all segments.

Notably, the quarter witnessed a rise of 3% in organic sales, following an increase of 1% in the previous quarter. Global activewear organic sales jumped 7%, with global Champion sales up 15%. Global innerwear organic sales rose 2%. The company’s online sales also remained strong in the quarter, surging 22%. Notably, online sales formed about 11% of the company’s total sales.

Hanesbrands' adjusted gross profit improved 5.7% to $659.6 million on the back of higher sales. Adjusted gross margin expanded 50 basis points (bps) to 40.1%. However, adjusted operating profit slipped 7.7% to $231.3 million in the reported quarter, with the operating margin contracting 180 bps to 14.1%. This stemmed from escalated SG&A costs (also as a percentage of sales).

Management hinted that higher marketing investment and distribution expenses may impact operating margins in the first half but went on to add that distribution efficiencies and price actions will favorably impact the same in the second half.

Segment Details

Innerwear: Sales grew 0.8% in the quarter to $594.6 million buoyed by robust men’s and children’s underwear growth. Online channel sales surged 12%. Operating profit declined 6.4% to $120.1 million.

Activewear: Sales advanced 8.7% to $427.7 million, while organic sales rose 4%. Core Champion performance, comprising robust sales of the Champion Life line of products and reverse-weave fleece, and increased sports apparel sales positively impacted the segment. Alternative Apparel contributed $18 million in sales. Online channel sales surged 27% during the quarter. Operating profits jumped 1.5% to $65.5 million.

International: Sales for the segment improved 8% to $545.3 million, while organic sales in constant currency jumped 3%. New store openings and robust consumer demand at retail and online aided activewear and innerwear strength across the Americas, Asia, Europe and Australia. Notably, operating profit grew 7.7% to $76.2 million in the quarter.

Other: Sales declined 10.8% to roughly $77.6 million in the quarter. The segment posted an operating profit of $7.1 million, up 31.9% year over year.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $421.6 million, long-term debt of $3,702.1 million and equity of $686.2 million. Hanesbrands generated $655.7 million in net cash from operations for 2017, up from $605.6 million reported in the prior year. Management projects capital expenditure investment of approximately $90-$100 million for 2018.

In the final quarter, the company bought back about $100 million of shares at an average price of slightly more than $20 per share. During 2017, the company repurchased approximately 20 million shares of worth $400 million.

Guidance

Hanesbrands now projects net sales in the band of $6.72-$6.82 billion. Further, it now envisions adjusted earnings in the range of $1.72-$1.80 per share. The Zacks Consensus Estimate of $1.95 for 2018 is currently pegged higher than the projected range. The company’s GAAP EPS is now projected in the band of $1.54-$1.62. Net cash from operations is now anticipated to be in the band of $675-$750 million.

Organic sales growth for 2018 is now envisioned to be roughly 1% on a constant currency basis. Moreover, the company anticipates approximately $180 million in sales from the buyouts of Alternative Apparel and Bras N Things.

For the first quarter, management projects total net sales in a band of $1.42-$1.44 billion. Adjusted earnings per share are envisioned in a band of 23-25 cents, while GAAP earnings are projected to range from 17-20 cents. The Zacks Consensus Estimate for the quarter is currently pegged quite higher, at 30 cents. On a constant currency basis, organic growth is projected to decline less than 1% in the quarter.

Stocks to Consider

Zumiez Inc. (ZUMZ - Free Report) delivered an average positive earnings surprise of 22.2% in the trailing four quarters. It has a long-term earnings growth rate of 18% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, Ltd. (GIII - Free Report) delivered an average positive earnings surprise of 6.1% in the trailing four quarters. It has a long-term earnings growth rate of 15% and a Zacks Rank #2 (Buy).

Ross Stores, Inc. (ROST - Free Report) delivered an average positive earnings surprise of 5.5% in the trailing four quarters. It has a long-term earnings growth rate of 10% and a Zacks Rank #2.

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