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Hanesbrands and L Brands: Good Long-Term Buys for Investors

May 22, 2014 | About:

Hanesbrands (NYSE:HBI) and L Brands (NYSE:LB) are popular names in the intimate apparel market space. These stocks can be growth drivers for investors' portfolio for many reasons. Let's take a look at these companies which are moving forward at a good pace.

A Look at Hanesbrands

Hanesbrands acquired Maidenform Brands recently for $583 million. This acquisition adds brands like Maidenform, Flexees and Self Expressions to Hanesbrands' market leading brands like Playtex, Bali, Just My Size, Hanes, Barely There, Wonderbra, Champion and L'eggs, adding more value to its brand.

Soon after the acquisition, Hanesbrands started selling Maidenform’s products. Hanesbrands saw positive customer response selling Maidenform’s products on its e-commerce sites and in over 100 of the company-owned outlet stores.

Hanesbrands undertook various strategies to improve its profitability. Its strategy of “innovate to elevate” was a growth driver for the company as it saw a margin expansion of 200 basis points. With this strategy, Hanesbrands focuses on its e-commerce sites and over 100 of the company-owned outlet stores. As a result of the success of this strategy, Hanesbrands reported fantastic earnings, outpacing analysts’ estimate. EPS rose by 10.8% versus the same period a year ago to $1.23 per share. The consensus estimated EPS at $1.14.

Despite beating analysts’ estimate in earnings, Hanesbrands saw weakness in sales resulting in the decline of its revenue. Besides weakness in sales, Hanesbrands came across many factors such as macro economic factors, inconsistent employment scenario, etc., which in turn affected the company’s sales resulting. So, Hanesbrands posted disappointing revenue, which was less than consensus estimates. In addition, as a result of currency fluctuations, Hanesbrands saw a decline in international sales.

But Hanesbrands is confident about its comeback through its “innovate to elevate” strategy as this strategy helped it attain the high end of its EPS range. Further, Hanesbrands is expecting gains from its Maidenform acquisition. With such a confident step, Hanesbrands has a revenue forecast of over $5 billion within three years, adding $0.60 per share in earnings. With such a concrete outlook, Hanesbrands is looking profitable for the future.

The U.S. is a large market for Hanesbrands as it sells its products through two of the largest discount retailers, Wal-Mart and Target. Hanesbrands is expecting the wide store network of these two retailers to help it improve its distribution channel.

Analyzing L Brands

One of the rivals of Hanesbrands is L Brands, which is a market leader in lingerie, personal care and beauty segments with brands like Victoria's Secret and Bath & Body Works. It has outperformed in recent times as it focuses on cost control, inventory management, merchandise and speed-to-market initiatives.

L Brands is in a strong financial position, which is evident from its strong quarterly results, delivering 25% growth in the net income. Its brand image led to an increase in sales by 6% to $2.2 billion. Further, L Brands is looking to benefit from growth in the intimate apparel market by tapping into international markets.

A move toward Western fashion and rising standard of living of the people are giving bright opportunities to L Brands to excel globally. L Brands' expansion strategy is expected to continue this year also, as the company is working on expanding its Victoria's Secret and Bath & Body Works stores in the global markets. Driven by such expansion, L Brands was able to raise its fiscal 2013 earnings guidance to a range of $3.06 to $3.21 per share from an earlier range of $2.95 to $3.15 per share.


L Brands looks better than Hanesbrands, but looking at the ratios, it is clear that Hanes is comparatively cheaper than L Brands. Hanesbrands' acquisition of Maidenform Brands and its margin expansion strategy look encouraging and should lead to earnings growth. Thus, investors looking to benefit from the intimate apparel market should definitely consider Hanesbrands for their portfolio.

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