Hanesbrands (HBI) Slips To Sell: What's Taking It Down?

In order to cushion their portfolio, it is important for investors to exit underperforming stocks, which may dent their portfolio returns. Well, basic apparel retailer Hanesbrands Inc. (NYSE:HBI) seems to be one such underachiever that needs to be plucked out of investors’ stock garden immediately.

This Zacks Rank #4 (Sell) stock has declined 19.2%, underperforming the Zacks Textile-Apparel Mfg market, which has showcased a decline of 5.1%.. Let’s delve deeper to find out what’s weighing upon investor sentiment.

What’s Wrong with Hanesbrands?

Hanesbrands has been witnessing downward estimate revisions since it released lower-than-expected top-line results for the third quarter of fiscal 2016 on Nov 27, 2016. Although the company posted in-line earnings, top line marginally missed Zacks Estimate by 0.25%. Lower year-over-year growth in the Activewear and Direct-to-Consumer segments resulted in the soft to in-line results during the quarter. (Read: Hanesbrands (HBI) Posts In-Line Earnings & Sales in Q3)

Notably, Hanesbrands has lowered the higher end of its fiscal top and bottom-line outlook to reflect the soft results in the year-to-date period. For 2016, Hanesbrands anticipates adjusted earnings in the range of $1.89–$1.92 per share compared to $1.89–$1.95 expected previously. The company anticipates sales between $6.15 billion and $6.18 billion compared to $6.15 billion and $6.25 billion projected earlier. Hanesbrands estimates operating profit in the range of $940 million to $955 million compared to the range of $940 million to $975 million anticipated previously.

Apart from this, Hanesbrands remains prone to macroeconomic headwinds like increased payroll taxes, fluctuating fuel prices, risk of unemployment and delayed tax refunds. Further, Hanesbrands’ limited exposure to international markets makes it more susceptible to these factors. Moreover, the company unlike its peers does not have any manufacturing facilities in key growth markets like Asia and Latin America where labor is relatively cheaper.

Additionally, its business is heavily dependent on the tastes and preferences of consumers that keep changing with time. Hence, the failure to identify consumer needs and act accordingly may reduce demand for its products and weigh on its financial performance.

Further, the company’s strategy to focus more on premium brands and increase prices in these categories come with the inherent risk of consumers shifting to more competitively-priced brands offered by competitors.

Other Picks in the Sector

Better ranked stocks in the broader consumer discretionary sector include:

Perry Ellis International Inc. (NASDAQ:PERY) has an average earnings surprise of 19.5% in the last four trailing quarters.

While PVH Corporation (NYSE:PVH) has an expected earnings growth of 11%, Devry Education Inc. (NYSE:DV) has an expected earnings growth of 9.2%.All these stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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