Hanesbrands Inc. (HBI - Free Report) is treading on a difficult path, thanks to weakness in the innerwear segment, currency headwinds and rising input costs. Well, the stock has plummeted 27.3% in the past six months compared with the industry’s decline of 15.3%. Nevertheless, the company is striving to keep matters steady on the back of well-performing activewear and international businesses. Further, it is undertaking saving efforts. Let’s have a closer look.
Strong Activewear & International Units
The company’s Champions brand has been performing strongly for a while and progressing on a global scale. The brand has played a significant role in fueling growth in the activewear and international units as well as boosting organic sales.
Speaking of the international business, consistent growth in the Champions brand along with strong performance across Europe, Asia and Australia were the key upsides in the second quarter. Moreover, volume gains and acquisition synergies have been boosting the unit’s operating margin. Going ahead, management expects its diversification strategies and brand investments to keep boosting activewear and international operations. Apart from Hanesbrands, many textile-apparel players like Columbia Sportswear (COLM - Free Report) and Ralph Lauren (RL - Free Report) are benefitting from solid international presence.
Saving Efforts & Robust Online Business
Hanesbrands is on track with multi-year program namely, Project Booster, to drive savings. This program, which is well positioned for the next five years, is likely to boost the company’s strategy to Sell More, Spend Less and Generate Cash for additional gains. The Project Booster cost savings along with other drivers like synergies from buyouts and diversified revenues are estimated to enable Hanesbrands achieve its cash flow target of an annual run rate of $1 billion by the end of 2019.
Apart from this, the company is gaining from strong online business. Hanesbrands, which is global partner with Amazon (AMZN - Free Report) , is focused on making incremental investments in this space.
Will Efforts Offset Headwinds?
Hanesbrands has been battling soft sales in the innerwear segment for quite some time. In second-quarter 2019, Innerwear sales dipped 2.3% due to softness across intimates and basics. The company is quite conservative regarding this segment for the third quarter, wherein U.S. innerwear sales are likely to decline 2%.
Further, we note that volatile currency movements have been affecting the company’s business. Evidently, adverse currency movements weighed on Hanesbrands’ adjusted operating profit in the second quarter to the tune of nearly $4 million. The same was also a drag on gross margin and the top line in the said quarter. Going ahead, management expects currency headwinds of almost $20 million on sales during the third quarter. Moreover, the company is struggling with high input costs, mainly in logistics and commodity.
Nevertheless, we expect this Zacks Rank #3 (Hold) company’s growth catalysts to help it stand firm amid the hurdles and make a comeback to investors’ good books.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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