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Hanesbrands (HBI) Q2 Earnings Miss Estimates, Sales Rise Y/Y

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Hanesbrands Inc. (HBI - Free Report) released second-quarter 2018 results, with the bottom line missing the Zacks Consensus Estimate and declining year over year. The top line gained from acquisitions and contributions from Champion. Further, management retained outlook for 2018.

Q2 in Detail

The company posted adjusted earnings of 45 cents a share that missed the Zacks Consensus Estimate of 46 cents. The bottom line fell 15% year over year, thanks to increased corporate tax rate and reduced operating profit.

Nevertheless, net sales during the period rose 4.2% to reach $1,715 million and beat the Zacks Consensus Estimate was $1,711 million. The upside was mainly driven by contributions from acquisitions (Bras N Things and Alternative Apparel), increased sales from the Champion brand and higher consumer-directed sales.

Further, organic sales during the second quarter inched up 0.1%. This was backed by growth in Champion and increase in innerwear sales in certain regions. This marks Hanesbrands’ fourth straight quarter of organic sales increase.

Notably, Global Champion sales rose 18% year over year and increased 16% on a currency-neutral basis. Further, the company’s Global consumer-directed sales (including retail and online networks) jumped 20% year over year and contributed 22% to overall sales.

Hanesbrands' adjusted gross profit improved 3.2% to $671 million, while the adjusted gross margin fell 40 basis points (bps) to 39.1%.

Moving on, adjusted operating profit declined 5.6% to $245.2 million in the reported quarter, with adjusted operating margins contracting 150 bps to 14.3%. Weakness in operating profit during the period was primarily caused by input-cost inflation, high costs of investments and distribution inefficiencies.

Hanesbrands Inc. Price, Consensus and EPS Surprise

Segment Details

Innerwear: Sales fell 3.4% in the quarter to $694.7 million, due to softness across Innerwear Basics and Innerwear Intimates. Operating profit fell 10.4% to $159.1 million on account of unfavorable mix and raw material inflation.

Activewear: Sales advanced 6.9% to $405.8 million and organic sales inched up 1.5%. The upside was mainly backed by gains from Alternative Apparel’s buyout. Further, Champion sales remained robust, driven by consumer demand surge, gains in specialty channel and strong online presence. However, operating profits slumped 2.5% to $57.5 million accountable to raw-material inflation, escalated distribution expenses and manufacturing inefficiencies.

International: Sales in the segment improved 14.9% to $545.9 million. Organic sales jumped 5% on a currency-neutral basis on the back of a double-digit growth in Champion sales across Europe and Asia as well as contributions from the acquisition of Bras N Things. Operating profit in this segment soared 27.3% to $76.6 million in the quarter.

Other: Sales declined 4.8% to roughly $69.1 million in the quarter. The segment posted an operating profit of $7.1 million, declining almost 7.2% year over year.

Other Financial Details

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $398 million, long-term debt of $4,149 million and equity of $767.2 million. Also, Hanesbrands provided $64 million in net cash from operations during the second quarter of 2018.



Price Performance

Hanesbrands’s shares have gained 28.8% in the past three months compared with the industry’s rise of 11.5%.

Guidance

Management is impressed with solid organic sales growth trend, backed by strength in Champion and International sales. Further, the company’s ‘Sell More, Spend Less and Generate Cash’ strategy has been yielding. The company expects the same to continue in the second half of 2018. Also, management expects to improve margins in the second half of 2018 through acquisition synergies and organic sales growth.

Additionally, management stated that it will not renew contract with Target Corporation (TGT - Free Report) , when the same expires in January 2020.  

All said, Hanesbrands retained outlook for 2018 and provided a fresh view for the third quarter.

For 2018, management still projects net sales in the band of $6.72-$6.82 billion. Adjusted operating profit is expected in the range of $950-$985 million. Effective tax-rate for 2018 is projected at roughly 16%.

Further, it continues to envision adjusted earnings in the range of $1.72-$1.80 per share. The Zacks Consensus Estimate of $1.76 for 2018 is currently pegged within the projected range. The company’s GAAP EPS is projected in the band of $1.54-$1.62. Net cash from operations is still anticipated in the band of $675-750 million.

For the third quarter, management projects total net sales in a band of $1.85-$1.9 billion. On a constant-currency basis, organic growth is projected to improve 2% in the quarter (at the mid-point of the projected sales outlook). Adjusted earnings per share are envisioned in the band of 54-57 cents, while GAAP earnings are projected in the range of 49-52 cents. The Zacks Consensus Estimate for the quarter is currently pegged at 55 cents.

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