Buyouts Drive Hanesbrands (HBI) In Q1 Earnings, Stock Gains

Hanesbrands Inc. (NYSE:HBI) released first-quarter 2018 results, wherein both top and bottom lines came ahead of the Zacks Consensus Estimate and the former also advanced year over year. This was backed by strength in organic sales and contributions from buyouts. Further, management retained its outlook for 2018. The better-than-expected results seems to have raised investors’ optimism in the stock.

Evidently, shares of Hanesbrands are up roughly 4.2% during pre-market trading hours. Let’s see if the bullish note can continue and help the stock revive as in the past six months, the company’s shares have declined 6.6% against the industry’s growth of almost 28%.

Q1 in Detail

The company posted adjusted earnings of 26 cents a share that came ahead of the Zacks Consensus Estimate of 24 cents, while tumbling 10.3% year over year. Nevertheless, adjusted earnings came ahead of management’s guided range of 23-25 cents. On a GAAP basis, earnings from continuing operations jumped 16% to 22 cents per share. The year-over-year earnings comparison was impacted by greater corporate tax rate in 2018, stemming from the recent tax reforms.

Net sales rose 6.6% to $1,471.5 million and also came ahead of the Zacks Consensus Estimate of $1,431 million. This marked Hanesbrands’ second consecutive sales beat. Sales growth was driven by contributions from acquisitions (Bras N Things and Alternative Apparel) as well as solid organic sales, which in turn was backed by solid customer base. This in turn compensated for the softness in U.S. brick-and-mortar channel. Acquisitions contributed $32 million to the top line.

Organic sales climbed 1% on a currency-neutral basis, following an increase of 3% in the previous quarter. However, this marked Hanesbrands’ third straight quarter of organic sales increase. Organic sales were fueled by better-than-expected Champion sales across all regions as well as solid online sales. Notably, Global Champion sales soared 22% year over year, while it increased 17% on a currency-neutral basis.

Further, the company’s Global consumer-directed sales (including retail and online networks) jumped 23% year over year and formed 21% of its overall sales. Delving deeper, we note that retail sales grew 24%, whereas online sales saw a surge of 20% — courtesy of growth across all regions.

Hanesbrands' adjusted gross profit improved 6.2% to $589.7 million, while the adjusted gross margin fell 10 basis points (bps) to 40.1%. Adjusted operating profit grew 0.5% to $165.7 million in the reported quarter, with the margin contracting 60 bps to 11.3%. This stemmed from escalated SG&A costs (also as a percentage of sales). Also, management stated that operating profit improvements in the International region was countered by softness in U.S. operating profit.

Segment Details

Innerwear: Sales fell 2.8% in the quarter to $491.1 million owing to softness across both Innerwear Basics and Innerwear Intimates. Operating profit tumbled 13% to $101.4 million on account of soft volumes and raw material inflation.

Activewear: Sales advanced 5.7% to $346.1 million, while organic sales rose 1%. Sales were backed by gains from Alternative Apparel’s buyout. Champion sales remained robust, as it jumped at a high-single-digit rate. Online channel sales surged 26% during the quarter. Operating profits slumped 11.7% to $38.3 million accountable to raw-material inflation and escalated distribution expenses.

International: Sales for the segment improved 19.4% to $569.9 million, backed by favorable currency movements, acquisition synergies (including old and latest buyout of Bras N Things) and organic growth. Organic sales jumped 7% on a currency-neutral basis, on the back of a double-digit growth in Champion sales across Europe and Asia. Organic consumer-directed sales ascended 22% and represented about 28% of International sales. Operating profit at this segment soared 46.3% to $77.1 million in the quarter.

Other: Sales declined 8.5% to roughly $64.4 million in the quarter. The segment posted an operating profit of $2.6 million, almost flat year over year.

Other Financial Details

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $373.7 million, long-term debt of $4,185.3 million and equity of $705.7 million. Hanesbrands used $128.1 million in net cash from operations during the first quarter of 2018, in comparison to using $22.8 million reported in the prior-year period.

In the first quarter, the company paid dividends worth nearly $54 million.

Guidance

Hanesbrands remains impressed with its first-quarter show and expects organic sales to grow year over year in 2018, backed by strength in online, global Champion, and International sales. However, the company remains cautious about a challenging consumer environment and brick-and-mortar store closures. It also expects witnessing higher commodity and marketing expenses to support innovations.

All said, Hanesbrands retained its outlook for 2018, alongside providing a fresh view for the second quarter.

For 2018, management still projects net sales in the band of $6.72 million to $6.82 billion. Adjusted operating profit is expected to range between $950 million and $985 million. Effective tax-rate for 2018 is projected to be toughly 16%.

Further, it continues to envision adjusted earnings in the range of $1.72-$1.80 per share. The Zacks Consensus Estimate of $1.76 for 2018 is currently pegged within the projected range. The company’s GAAP EPS is projected in the band of $1.54 to $1.62. Net cash from operations is still anticipated to be in the band of $675 to $750 million.

For the second quarter, management projects total net sales in a band of $1.7 billion to $1.725 billion. On a constant currency basis, organic growth is projected to decline less than 1% in the quarter (at the mid-point of the projected sales outlook). Adjusted earnings per share are envisioned in a band of 44-46 cents, while GAAP earnings are projected to range from 38-40 cents. The Zacks Consensus Estimate for the quarter is currently pegged at 46 cents.

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