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Why Is Hanesbrands (HBI) Down 7.1% Since its Last Earnings Report?

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It has been about a month since the last earnings report for Hanesbrands Inc. (HBI - Free Report) . Shares have lost about 7.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is HBI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Hanesbrands Q4 Earnings Miss Estimates

Hanesbrands posted fourth-quarter 2017 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.

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.

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 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. On a constant currency basis, organic growth is projected to decline less than 1% in the quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 19.7% due to these changes.

Hanesbrands Inc. Price and Consensus

 

VGM Scores

At this time, HBI has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise HBI has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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