Hanesbrands Gains On Strong International Unit Despite Hurdles

Hanesbrands Inc. (NYSE:HBI) is gaining from strong International business, sturdy organic sales growth, solid online business and focus on its five-year savings program. Notably, shares of the company have gained 20.2% year to date, outperforming the industry’s growth of 13.2%.

However, sluggishness in the innerwear unit and adverse currency fluctuations remain.

Let’s delve deeper.

Key Catalysts

Hanesbrands’ international segment has been delivering solid performance. The segment contributed 35.5% to net sales in the third quarter of fiscal 2019. Sales in the segment rose 7.1% to $663.5 million in the quarter. Sturdy sales in innerwear and activewear units acted as growth drivers. Moreover, the segment’s operating margin improved nearly 10 basis points. Management is optimistic about the segment’s performance in the fourth quarter.

Further, the company remains focused on developing online sales. Notably, the same aided growth in Global consumer-directed sales and boosted Hanesbrands’ overall top line in the third quarter. Additionally, organic sales rose 2% on a constant-currency (cc) basis, marking the company’s ninth straight quarter of growth. Organic sales were driven by increased sales from the International unit, mainly fueled by strength in Champion.

Strength in the Champions brand has been driving the company’s growth on a global scale for a while. Hanesbrands is on track with the expansion of its Champions product portfolio along with increasing distribution in large economies such as China and South Korea. The company expects such well chalked-out plans to deliver double-digit sales growth for Champion in 2020 and beyond.

Moreover, Hanesbrands is progressing well with Project Booster Program, which was launched in first-quarter 2017. The multiyear program is likely to boost the company’s ‘Sell More, Spend Less, Generate Cash’ strategy for additional gains. It expects the project to generate annualized cost savings of $150 million by 2019.

Headwinds

The company has been grappling with soft sales at its Innerwear segment for quite some time now. In third-quarter 2019, Innerwear sales dipped 3.5%, thanks to an adverse back-to-school retail environment, which impacted Innerwear basics. For the fourth quarter of 2019, Hanesbrands projects U.S. Innerwear sales decline of 2%.

Also, unfavorable movement in foreign currency has been acting as a deterrent. Management expects adverse currency fluctuations to hurt net sales by $20 million in the fourth quarter. Also, currency headwinds are expected to lower 2019 net sales by $123 million.

Bottom Line

Nevertheless, we expect the Zacks Rank #3 (Hold) company’s growth endeavors to offset the aforementioned hurdles and help it sustain solid momentum.

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