Basic apparels are needed every day. As people consider them daily, so they should consider the manufacturer also in their portfolio. Hanesbrands Inc. (HBI, Financial) (founded in 2005), the leader in basic apparel is playing well. 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.
This Winston-Salem, N.C. based company operates in four segments: Innerwear, Activewear, Direct to Consumer, and International. Its innerwear and activewear apparel brands include Hanes, Champion, Playtex, Bali, Maidenform, Flexees, JMS/Just My Size, barely there, Wonderbra and Gear for Sports. In addition, the company’s international brands include Zorba, Sol y Oro, Rinbros, Track N Field and Ritmo. Hanesbrands also offers its products through retailers, wholesalers, as well as directly to consumers. In October 2013, this basic apparel manufacturer acquired Maidenform Brands LLC. (MFB, Financial) which has helped to create a strong customer base, more international regions to cover, and increased margins.
Going by the numbers
On July 23, 2014, this leading marketer of everyday basic apparel under world-class brands reported better than expected second-quarter 2014 results. Net sales increased by 12% to $1.34 billion, mainly driven by strong performance of activewear segment. The Maidenform acquisition contributed almost $141 million to total sales in the quarter. Hanesbrands’ adjusted operating profit excluding actions increased 27% to $231 million, and adjusted diluted EPS excluding actions increased 44% to $1.71. A chart has been provided below to show the company’s segment wise performance.
The strong performance of innerwear segment was mainly due to the Maidenform acquisition and growth of intimate apparel. Operating profit increased as a result of Innovate-to-Elevate. Activewear segment’s sales were backed by strong performance of the retail, branded printwear and Gear for Sports businesses. Increased channel penetration and shelf-space gains, innovation platform success, and supply-chain leverage through the increased internalized production helped to increase profits in this segment. Direct to Consumer segment’s sales were increased because of contributions from the Maidenform acquisition.
Expanding its wings
To expand its wings in Western and Central Europe, Hanesbrands acquired DBApparel on Sept. 3, 2014 for €400 million or $528 million. DBA is a European leader in the design, manufacture and distribution of branded intimate apparel, hosiery and socks and men’s underwear. It has a portfolio of strong brands with the leading share in its core markets. DBA is No.1 in market share for intimate apparel in France and Spain and No. 2 in Italy; No. 1 in men’s underwear in France and Spain; and No. 1 in hosiery in France and Germany. Combining DBA’s brands, product development capabilities, and talented employees with HanesBrands’ innovation, supply chain, and talented employees, makes Hanesbrands a true international powerhouse in innerwear apparel. After acquiring DBA, Hanesbrands has increased its 2014 guidance.
Positive outlook
After acquiring DBA, Hanesbrands raised its outlook and expects net sales to be within $5.35 to $5.38 billion, up from previous guidance of approximately $5.075 billion. The company has also increased guidance for adjusted operating profit by $25 million to a range of $735 million to $755 million, up from the previous guidance range of $710 million to $730 million. Hanesbrands has also raised its EPS guidance to a range of $5.40 to $5.60 from $5.20 to $5.40, which reflects DBA’s contributions to sales, adjusted operating profit and the corporate tax rate, partially offset by higher interest expense. It has increased its guidance for interest expense and other expense by $5 million to approximately $90 million to reflect the DBA purchase. The company expects net cash from operating activities to be $500 million to $600 million for the year.
Hanesbrands’ self-owned supply chain has a competitive advantage. Its other competitive advantages include low cost network of large scale facilities, technical knowledge to invent innovation platforms, and internalize production to drive unit costs down. The company has a track record of consistent strong cash flow generation which is provided in the chart below.
On a concluding note
Hanesbrands greatest assets are strong brands, stable and predictable annual business model, growth in earnings per share, an increase in net income, revenue growth, expanding profit margins and solid stock price performance. The company’s innovate-to-elevate strategy, self-owned supply chain and substantial cash flow will help to deliver superior shareholder returns over time.
Source: Company website
Further, DBA acquisition will create a significant growth and margin-expansion opportunities by leveraging strong brands, leading market positions, disciplined innovation, and the best apparel supply chain in the industry. I am therefore pretty bullish that this leading manufacturer will continue this trend and won’t let its valued investors down.
