Shares of Hanesbrands Inc. (HBI - Free Report) have rallied 25% over the past month, outperforming the industry’s gain of 15%. The company, which has been gaining from its international strength, strong online business and impressive organic sales, has rallied 19.1% since the release of first-quarter 2018 results.
During the first quarter, Hanesbrands continued with its organic sales growth, which helped fuel the company’s overall top line. Organic sales climbed 1% on a currency-neutral basis, thereby marking Hanesbrands’ third straight quarter of organic sales increase.
Organic sales were fueled by better-than-expected Champion sales across all regions, including solid online sales. In 2018, organic sales growth is still envisioned to be roughly 1% on a constant currency basis.
Also, the company has long been gaining from solid performance of its international segment that constituted nearly 39% of the company’s net sales in the first quarter. Sales for the segment improved 19.4% to $569.9 million, backed by favorable currency movements, acquisition synergies (including old and latest buyout of Bras N Things) and organic growth.
Moreover, organic consumer-directed sales ascended 22% and represented about 28% of International sales. Hence, management remains focused on making investments and innovations.
Hanesbrands is also expected to keep riding on benefits from acquisitions, which remains one of its core strategies for long-term growth. To this end, Hanesbrands acquired Alternative Apparel last year, which witnessed sales growth of 8% in the first quarter. Also, the company bought Bras N Things recently, and is on track with its integration.
Markedly, contributions from acquisitions (Bras N Things and Alternative Apparel) played a solid role in augmenting Hanesbrands’ first-quarter sales. Evidently, acquisitions contributed $32 million to the top line. Apart from this, the company has largely been gaining from contributions from Champion Europe and Hanes Australasia that were acquired in 2016.
However, the company is battling raw material inflation, which hurt the company’s margins in the first quarter of 2018. During the quarter, the company was hit by raw material inflation to the tune of about $14 million. Unfortunately, management expects these hurdles to persist in 2018. It presumes higher commodity and marketing expenses this year. These factors remain a threat for margins.
Apart from this, the company has been struggling soft sales at its Innerwear segment for quite some time now. Nevertheless, we expect the aforementioned growth drivers along with strong online sales and Hanesbrands’ Project Booster program to offset these hurdles. Incidentally, the Zacks Rank #3 (Hold) company launched the multiyear Project Booster program in the first quarter of 2017 to drive investment for growth, minimize costs and increase cash flow.
This program, which is well-positioned for the next five years, is likely to boost the company’s Sell More, Spend Less, Generate Cash strategy for additional gains. 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 opportunities. The company is progressing well with its Project Booster plan, which should help it achieve margin expansion in the second half of 2018.
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