Hanesbrands (NYSE:HBI) Inc. HBI reported fourth-quarter 2021 results, wherein the top and bottom lines increased year over year and beat the respective Zacks Consensus Estimate. Results gained from strength in the Champion brand, the progress of the Full Potential plan and the strong point-of-sale performance. Encouragingly, management hiked its 2024 targets under the Full Potential plan.
Q4 in Detail
Hanesbrands posted adjusted income from continuing operations of 44 cents a share, surpassing the Zacks Consensus Estimate by a penny. The metric increased from 42 cents and 39 cents reported in the fourth quarter of 2020 and the fourth quarter of 2019, respectively.
Net sales from continuing operations rose about 4% to $1,752.3 million and beat the Zacks Consensus Estimate of $1,748 million. This included 10% growth from Champion brand sales. On excluding sales from personal protective equipment (“PPE”), sales from an additional week in the year-ago period and currency headwinds in the quarter under review, net sales jumped 9% year over year in the fourth quarter of 2021.
This can be attributed to robust consumer demand and the strong point-of-sale performance in the United States, Europe, America and certain Asia markets (including China). These upsides more than countered persistent pandemic-led hurdles in Australia and Japan. Total constant-currency (cc) net sales rose 4% in the fourth quarter.
Compared with the fourth quarter of 2019, the top line also grew 15% (up 14% at cc) and included a 25% increase in Champion brand sales internationally. The strength in global innerwear and activewear businesses was backed by solid consumer demand, increased point-of-sale performance and market share gains. The comparisons with 2019 reflect the impacts of the discontinuation of the European Innerwear business, the C9 Champion mass program and the DKNY intimate apparel license.
Adjusted gross margin of 38.4% contracted 195 basis points (bps) year over year and roughly 235 bps from the fourth quarter of 2019. The downside was a result of higher expedite costs. Cost savings from initiatives like the SKU reduction program, efficiency enhancements in manufacturing and gains from a business mix battled a chunk of inflation and a rise in transportation costs.
Adjusted operating profit of $220 million fell 4% year over year and 3% from the fourth quarter of 2019. Adjusted operating margin contracted around 100 bps year over year and 240 bps from the fourth quarter of 2019 due to the decline in gross margin. Management stated that effective SG&A expense management essentially countered higher marketing investments and escalated labor costs.
Image Source: Zacks Investment Research
Segmental Details
Innerwear: Segment sales rose 3% year over year, excluding PPE. This was backed by a point-of-sale improvement in all channels. The year-ago period included considerable post-pandemic inventory restocking by retailers as well as PPE sales worth $22 million. The metric advanced 19% from the fourth quarter of 2019, with mid to double-digit growth in men’, women’s, kids and socks businesses.
Activewear: Sales rallied 11% year over year due to favorable point-of-sale trends in activewear brands. The top line grew 19% from the fourth quarter of 2019.
International: Revenues in the International business rose 4% year over year. Excluding PPE from the last year’s comparable period, sales increased 7% on a cc basis, driven by solid demand, particularly in America, Europe and China. The metric rose 10% (up 7% at cc) from the fourth quarter of 2019 due to sales growth in Australia, Europe, America and China, which more than offset pandemic-related woes in Japan.
Other Financial Details
Hanesbrands ended the quarter with cash and cash equivalents of $536.3 million, long-term debt of $3,326.1 million and total stockholders’ equity of $702.5 million. It had roughly $1.2 billion of available capacity under its credit facility as of the end of 2021. At the end of 2021, the company’s leverage decreased to 2.7 times on a net debt-to-adjusted EBITDA basis compared with 3.5 times at the end of 2020. For the year ended Jan 1, 2022, the company generated $623.4 million as net cash from operating activities.
At the end of 2021, HBI lowered its SKUs by more than 30% year over year as part of its SKU reduction initiative.
Management announced quarterly cash dividend of 15 cents per share, payable on Mar 8, 2022, to stockholders of record as of Feb 15. Management also approved a three-year share buyback plan, which authorizes repurchases up to $600 million. The plan, which is valid till Dec 28, 2024, replaces Hanesbrands’ previous program unveiled in February 2020. The company expects to start its share buybacks in the first quarter of 2022.
For 2022, cash flow from operating activities is likely to be in the range of $500-$550 million. Capital expenditure for the year is expected at $150-$175 million.
Full Potential Plan Update
Management remains encouraged with its fast start to the Full Potential growth plan even amid an extremely tough operating landscape. Despite battling major inflation and global logistic headwinds, the company surpassed its initial full-year 2021 target offered on its May 2021 Investor Day. Encouragingly, management raised its 2024 Full Potential financial outlook due to high consumer demand for its brands globally and the strength of its Full Potential growth strategy among other factors.
For 2024, Hanesbrands now expects sales of nearly $8 billion compared with roughly $7.4 billion expected earlier. Global Champion sales are anticipated to be about $3.2 billion from nearly $3 billion envisioned earlier. Adjusted operating profit is likely to be roughly $1.15 billion now compared with the earlier view of nearly $1.05 billion. Adjusted operating margin is likely to be approximately 14.4% now compared with the earlier view of nearly 14.3%. Cumulative three-year free cash flow is now expected to be around $1.6 billion, up from nearly $1.5 billion anticipated before.
As part of its Full Potential plan, management remains focused on investing in high-growth categories. Keeping in these lines, the company unveiled plans to divest its U.S. Sheer Hosiery business.
Guidance
For the first quarter of 2022, net sales from continuing operations are anticipated to be nearly in the $1.51-$1.57 billion range. The midpoint of the guidance suggests year-over-year net sales growth of 2% and includes an expected adverse impact of about $35 million from currency movements. Adjusted operating profit from continuing operations is likely to be in the $135-$165 million range for the quarter, including an expected currency headwind of about $5 million. At the midpoint, this indicates an operating margin of 9.7%. Adjusted earnings per share (EPS) from continuing operations are envisioned to be around the 24-31 cents range for the first quarter.
For 2022, net sales from continuing operations are anticipated to be about $7-$7.15 billion, which includes an anticipated currency headwind of nearly $100 million. The midpoint of the guidance suggests about 4% year-over-year net sales growth and a 5.5% rise at cc.
Adjusted operating profit from continuing operations is likely to be in the $840-$910 million range for the year, including a currency headwind expectation of roughly $14 million. At the midpoint, this indicates an operating margin of 12.4%. In 2022, Hanesbrands expects to incur charges associated with the Full Potential plan of nearly $60 million. Adjusted EPS from continuing operations are envisioned to be approximately in the $1.64-$1.81 range.
Shares of this Zacks Rank #4 (Sell) company have decreased 13.9% in the past six months compared with the industry’s decline of 14.6%.
Stocks to Consider
Some better-ranked stocks are Crocs (NASDAQ:CROX), Inc. CROX, Guess?, Inc. GES and Gildan Activewear (NYSE:GIL) Inc. GIL.
Crocs, the designer, developer, manufacturer, marketer and distributor of casual lifestyle footwear and accessories, currently sports a Zacks Rank #1 (Strong Buy). Shares of Crocs have declined 26.2% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Crocs’ 2022 sales and EPS suggests growth of 48.7% and 23.2%, respectively from the year-ago reported figure. CROX has a trailing four-quarter earnings surprise of 41.6%, on average.
Guess?, which designs, markets, distributes and licenses lifestyle collections of apparel and accessories, carries a Zacks Rank #2 (Buy) at present. Shares of Guess? have moved up 4.8% in the past six months.
The Zacks Consensus Estimate for Guess?’s fiscal 2022 sales and EPS suggests growth of 6% and 11.7%, respectively, from the year-ago reported number. GES has a trailing four-quarter earnings surprise of 97%, on average.
Gildan Activewear, which manufactures and sells various apparel products, carries a Zacks Rank #2 at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of Gildan Activewear have moved up 16.8% in the past six months.
The Zacks Consensus Estimate for Gildan Activewear’s 2022 sales and EPS suggests growth of 8.2% and 9.4%, respectively, from the year-ago reported figure. GIL has a trailing four-quarter earnings surprise of around 85%, on average.
Just Released: Zacks Top 10 Stocks for 2022
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022?
From inception in 2012 through 2021, the Zacks Top 10 Stocks portfolios gained an impressive +1,001.2% versus the S&P 500’s +348.7%. Now our Director of Research has combed through 4,000 companies covered by the Zacks Rank and has handpicked the best 10 tickers to buy and hold. Don’t miss your chance to get in…because the sooner you do, the more upside you stand to grab.
See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Hanesbrands Inc. (HBI): Free Stock Analysis Report
Guess, Inc. (NYSE:GES): Free Stock Analysis Report
Crocs, Inc. (CROX): Free Stock Analysis Report
Gildan Activewear, Inc. (GIL): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research