Hanesbrands Down 10% In 3 Months: Is A Turnaround Likely?

Unlike most textile-apparel players, Hanesbrands Inc. (NYSE:HBI) has been in the red territory for a while now, due to weakness at its Innerwear unit, cost inflation and adverse currency fluctuations. These hurdles also affected the company’s recently reported third-quarter 2018 results and further dented investors’ sentiments. Well, Hanesbrands has lost 9.6% in the past three months, while the industry declined 13.2%.



However, the company has enough potential for revival, given the strength of its International segment, strong Champion business and prospective buyouts. Moreover, Hanesbrands’ focus on its robust savings plan is expected to help it alleviate cost headwinds and help the stock witness a turnaround. Let’s delve deeper.

Strength of Champion Business

Hanesbrands’ Activewear and International segments have long been gaining from splendid performance by its Champion business. During the third quarter, Global Champion sales surged 30% on a currency-neutral basis, backed by double-digit increases in Asia, Europe and the United States. Further, sales advanced across all channels, including wholesale, owned-retail and online. Champion sales soared 40% on a constant-currency basis (cc), excluding mass channel. Management expects Champion sales growth to remain sturdy and continue driving Hanesbrands’ Activewear and International units’ performances in the fourth quarter. In fact, management anticipates Champion sales to jump at a significant double-digit rate, courtesy of solid order bookings through the first half of fiscal 2019. Moreover, the company expects Champion sales outside the mass channel to surpass $1.3 billion in 2018.

Buyouts a Major Driver

Hanesbrands makes strategic acquisitions to strengthen its business portfolio, which is one of its core strategies for long-term growth. To this end, contributions from acquisitions (Bras N Things and Alternative Apparel) played a solid role in augmenting Hanesbrands’ third-quarter sales. Evidently, these acquisitions contributed $48 million to the top line. Apart from this, the company has largely been gaining from contributions from Champion Europe and Hanes Australasia that were acquired in 2016.

Such upsides have been fueling Hanesbrands’ International segment, which constituted nearly 34% of the company’s net sales in the third quarter. Sales for the segment improved 11.3% (up 15% at cc) to $619.4 million. Organic sales rose 10% on a currency-neutral basis, on the back of strong Champion sales across Europe and Asia. Contributions from the acquisition of Bras N Things ($32 million) also fueled International sales. Management is focused on making investments and innovations internationally, which are major drivers for the company.

Focus on Project Booster Program

Hanesbrands launched a multiyear program in first-quarter 2017 to drive investment for growth, minimize costs and increase cash flow. This program is likely to boost the company’s Sell More, Spend Less, Generate Cash strategy for additional gains, mainly from the global commercial and supply-chain scale through acquisitions. By 2019, this project is anticipated to produce nearly $150 million of annualized cost savings, out of which roughly $50 million will be reinvested in targeted growth opportunities. Notably, this reinvestment should generate approximately $100 million in a run rate of net annualized savings that will begin by the end of 2019. Furthermore, the Project Booster cost savings along with other cash flow drivers, like synergies from buyouts and diversified revenues, are anticipated to help Hanesbrands achieve its cash flow target of an annual run rate of $1 billion by the end of 2019.

Although Hanesbrands’ tightened its 2018 earnings outlook owing to currency woes and impacts from Sears Holdings’ bankruptcy, we expect the aforementioned drivers to help this Zacks Rank #3 (Hold) stock revive in the long run.

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