Hanesbrands (HBI) Beats Q3 Earnings Estimates, Hikes View

Hanesbrands (NYSE:HBI) Inc. HBI has reported third-quarter 2021 results, wherein the bottom line beat the Zacks Consensus Estimate, while the top line missed the same. Results gained from market share gains in global innerwear and activewear businesses, brand strength, the progress of the Full Potential plan, and strong point-of-sale performance. Encouragingly, management hiked the 2021 view.

Shares of this Zacks Rank #2 (Buy) company have gained 28.4% year to date compared with the industry’s growth of 25.8%.

Q3 in Detail

Hanesbrands has posted adjusted earnings of 53 cents a share, surpassing the Zacks Consensus Estimate of 47 cents. The metric increased from 46 cents and 48 cents reported in third-quarter 2020 and third-quarter 2019, respectively.

Net sales rose 5.8% to $1,789.6 million but missed the Zacks Consensus Estimate of $1,798 million. Total constant-currency (cc) net sales increased 5%. This can be attributable to favorable demand and a strong point-of-sale performance in the United States, Europe, Americas and certain Asia markets, which more than offset adverse impacts of the COVID-related lockdowns in Australia and Japan.

The top line also grew 11% (up 10% at cc) from third-quarter 2019, driven by solid consumer demand in the global innerwear and activewear businesses, robust 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.

The company’s online sales surged 62% from third-quarter 2019, which includes 50% growth on company-owned websites. This was mainly driven by brand strength across its owned websites, pure-plays and retailer-owned websites.

Adjusted gross margin of 39.1% expanded 250 basis points (bps) year over year and improved roughly 65 bps from third-quarter 2019. The uptick can be attributable to cost-saving programs and gains from the business mix, which more than offset the rise in transportation and inflation expenses.

Adjusted operating profit of $264 million advanced 9% year over year and 8% from third-quarter 2019. The adjusted operating margin expanded 50 bps to 14.7%, owing to cost-saving programs and gains from the business mix, which more than offset higher marketing investments and cost inflation. Meanwhile, the metric contracted nearly 40 bps from third-quarter 2019 due to increased investments in marketing and cost inflation.

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Segmental Details

Innerwear: Sales in the U.S. Innerwear segment of $702.6 million declined 11% year over year due to the overlap of PPE sales last year. The metric advanced 25% from third-quarter 2019, with mid to high-single-digit growth in men’s, women’s, kid’s and socks, pent-up consumer demand, strong point-of-sale growth, and market share gains.

Activewear: Sales in the U.S Activewear segment rallied 42% year over year to $462.5 million on the back of double-digit growth in Champion and Hanes brands, favorable point-of-sale trends in key channels, and pent-up consumer demand. The top line grew 4% from third-quarter 2019, driven by growth across online, wholesale and distributor channels, which somewhat offset the sluggishness in the college bookstore business.

International: Revenues in the International business rose 6% year over year to $536.5 million. Excluding PPE, sales increased 7% on a cc basis, driven by solid demand, particularly in the Americas, Europe and China. The metric rose 4% (up 1% at cc) from third-quarter 2019, owing to sales growth in Australia, Europe and parts of Asia, which more than offset COVID-related woes in Japan and Australia.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $909.4 million, long-term debt of $3,739.4 million, and total stockholders’ equity of $814 million. For the quarter ended Oct 2, 2021, the company generated $217.2 million as net cash from operating activities.

For 2021, cash flow from operating activities is likely to be $550-$600 million, up from the previously mentioned $550 million. Capital expenditure for 2021 is expected to be $75-$85 million.

The company revealed plans to redeem its $700 million worth of 5.375% 2025 senior notes, which will result in $35 million of annual savings, out of which $4 million will be generated in fourth-quarter 2021. It also intends to refinance its senior secured credit facility in the fourth quarter.

Guidance

For the fourth quarter of 2021, net sales are anticipated to be $1.71-$1.78 billion. The mid-point of the guidance suggests year-over-year net sales growth of 3% and includes an expected gain of $6 million from favorable currency movements. Excluding PPE, net sales at the mid-point are likely to rise 8% year over year. The metric is also expected to grow 15% from that reported in fourth-quarter 2019.

Adjusted operating profit is likely to be $200-$220 million for the quarter. At the mid-point, this indicates an operating margin of 12%, including the impacts of cost inflation and higher brand investment. Adjusted earnings per share are envisioned to be 40-45 cents for the fourth quarter.

For 2021, net sales are anticipated to be $6.76-$6.83 billion compared with the earlier mentioned $6.75-$6.85 billion. Notably, it reported $6.13 billion last year. The estimated range includes $108 million benefits from favorable currency rates. The mid-point of the guidance suggests 11% year-over-year net sales growth and a 13% rise from that reported in 2019.

Adjusted operating profit is likely to be $910-$930 million for the quarter, up from the previously communicated $880-$910 million. This indicates 18% year-over-year growth and 12% from that reported in 2019. At the mid-point, this indicates an operating margin of 13.5%.

Adjusted earnings per share are envisioned to be $1.79-$1.84 for 2021, up from the earlier mentioned $1.68-$1.76. The view also includes higher cost inflation year over year and on a two-year basis, while brand marketing investment is likely to rise year over year.

Business Developments

As part of its Full Potential plan, management remains focused on investing in high-growth categories. Keeping in these lines, the company entered a deal to divest its European Innerwear business to an affiliate of Regent, L.P. The transaction is likely to conclude by the first quarter of 2022.

Other Stocks to Consider

PVH Corp (NYSE:PVH) PVH currently sports a Zacks Rank #1 (Strong Buy) and has a long-term earnings growth rate of 59.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear (NYSE:GIL) GIL presently has an impressive long-term earnings growth rate of 28% and a Zacks Rank #2.

Lululemon Athletica (NASDAQ:LULU) LULU has a long-term earnings growth rate of 20%. The company has a Zacks Rank #2 at present.

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