HanesBrands is Gearing Up for Growth

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HanesBrands (HBI, Financial) is a leading marketer of innerwear, outerwear and hosiery apparel under strong consumer brands, including Hanes, Champion, Playtex, Bali, JMS/Just My Size, barely there and Wonderbra. The company designs, manufactures, sources and sells T-shirts, bras, panties, men's underwear, children's underwear, socks, hosiery, casualwear and activewear. Hanesbrands has approximately 45,000 employees in more than 25 countries.

This consumer goods company designs, manufactures, sources and sells various basic apparels primarily in the United States, Canada, Mexico and other leading markets in the Americas, Asia and Europe.

The company recently made an entry to the Fortune 500 list of America’s largest companies for the first time. Hanes ranks No. 490 on the list of largest American public companies by revenue published in the Fortune magazine issue dated June 15, 2015. Hanes made the list after posting record sales of $5.32 billion in 2014, up 15% over the company’s previous record for sales in 2013.

The company generated great results so far, with operating margins up 370 basis points over the past three years.

Impressive First Quarter Results

Sales

Net sales during the quarter were $1.2 billion (which was an increase of 14% from the prior year period).

Operating Profit

Operating profit (excluding actions) increased by 16% and was $133 million during the quarter.

Operating profit (on a GAAP basis) increased by 25% and was $90 million.

The company’s adjusted operating profit margin increased 20 basis points in the first quarter. Core adjusted operating margin increased 90 basis points but was partially diluted as expected by the acquisition of DBApparel.

Adjusted EPS

Adjusted EPS (excluding actions) also increased by 16% and was $0.22.

Adjusted EPS (on a GAAP basis) increased by 30% and was $0.13.

Segment wise Summary

Innerwear Segment: During the quarter, net sales decreased by 4% and adjusted operating profit increased by 13%.

Activewear Segment: Net sales increased by 1% and adjusted operating profit decreased by 3%.

Cash Dividend

HBI recently declared a regular quarterly cash dividend of $0.10. The quarterly dividend is the ninth consecutive return of cash to stockholders since Hanes initiated its cash dividend program in April 2013.

Expectations for 2015

The company expects the following for 2015:

  1. Sales are expected to be in the range of $5.9 billion-$5.95 billion.
  2. Adjusted operating profit is expected to be around $853 million-$873 million.
  3. Adjusted EPS is expected to be around $1.61- $1.66.
  4. Interest expense and other expense are expected to be approximately $95 million to $100 million combined.
  5. Full-year tax rate is expected to be approximately 13%.
  6. Capex is expected to be approximately $80 million to $85 million.
  7. HBI expects approximately 410 million weighted average fully diluted shares outstanding in 2015.

Acquisition of Knights Apparel

HBI recently acquired Knights Apparel, a leading seller of licensed collegiate logo apparel in the mass retail channel. Knights Apparel sells T-shirts, sweatshirts and other sports apparel with college logos and graphics primarily to mass merchant retailers. Knights is valued at around $200 million on an enterprise basis.

This acquisition is going to create value for both the companies. HBI expects to benefit from this acquisition of around $450 million.

Wrap Up

HBI has a long history of innovation and has a solid brand reputation. Approximately more than 80% of U.S. households use its products. Unlike most apparel companies, Hanes primarily operates its own manufacturing facilities. In Walmart (WMT, Financial) stores, HBI commands more rack space as compared to its peers like Jockey.

The company experienced solid first quarter results due to its acquisitions. The company continues to derive significant benefits from the previous acquisitions of Gear for Sports and Maidenform. The company delivered double-digit increase in EPS. Despite currency headwinds and Target’s exit from Canada, International sales and operating profit increased significantly, with strong contributions from DBApparel, Japan and Latin America. The innerwear market is booming and HBI has plenty of room to grow.

HBI is well positioned in this industry. In 2014, the acquisition of Maidenform contributed around $490 million to its net sales. While volatility is inherent, their strong consumer franchise in large, stable categories means shipments should equal its annualized sell-through and balance out over time. This annual stability demonstrates how their broad consumer base spanning age, ethnicity and income can withstand macro headwinds.

Since 2010, HBI grew revenue $500 million, operating profit over $200 million, EPS nearly $2 and generated cumulative cash flow of nearly $1.5 billion. The company expects Maidenform to contribute over $500 million in revenue and by 2016 it expects $80 million in operating profit.

Apparel consumers are driven by brands and HBI has a strong brand reputation. Over the years, the company spent billions of dollars on advertising, R&D, and quality improvements to further strengthen its brands. Both men’s and kids’ active apparel are growing at high single-digit rates and women’s is growing at low double-digit rates.

HBI is investing in product innovation, marketing and infrastructure to advance and solidify its brand reputation to gain momentum around the globe. The company offers designs and comfort at very reasonable prices internationally. Naturally, it is becoming a hit among the customers. The company is in a good phase witnessing high revenues. It should be a buy as of now. It is going to create shareholder returns.

(Source: Company’s Website)