Hanesbrands (HBI) Q1 Earnings: Can Strategies Pare Cost Woes?

Hanesbrands Inc. (NYSE:HBI) is slated to release first-quarter 2018 results on May 1. The company has a mixed record of earnings surprises in the trailing four quarters. Well, it has been battling higher cost of sales and marketing expenses, thanks to a challenging U.S. wholesale landscape. On a positive note, rising organic sales and strong international performance has been a boon to Hanesbrands’ top line. Also, the company’s acquisitions and cost-reduction efforts have been positively impacting performance. With these in mind, let’s see what to expect from Hanesbrands when it reports results this time.

International Business & Buyouts Bode Well

Hanesbrands has long been benefiting from the solid performance of its international segment, driven by store openings, robust consumer demand and extensive online sales. In fact, the segment accounted for nearly 33% of the company’s net sales in fourth-quarter 2017. Driven by such upsides, analysts polled by Zacks expect revenues of $524 million from this segment, depicting a growth of almost 9.9% from the prior-year quarter’s figure.

Moreover, management is focused on making investments and innovations, internationally, to sustain growth in this segment. This is evident from its recent buyout of intimate apparel seller Bras N Things that operates in Australia, New Zealand and South Africa.

Speaking of buyouts, the company has long been gaining from contributions from Champion Europe and Hanes Australasia that were acquired in 2016. Moreover, Hanesbrands acquired Alternative Apparel in 2017, which boosted sales at the Activewear segment by 5 points. Management anticipates approximately $180 million in sales from the buyouts of Alternative Apparel and Bras N Things in 2018.

Hanesbrands Inc. Price, Consensus and EPS Surprise

Organic Sales & Other Factors Aiding Performance

Hanesbrands organic sales has been gradually picking pace, evident from 3% and 1% rise witnessed in the preceding two quarters, respectively. In fact, management is optimistic about sustaining organic sales growth in the forthcoming periods and envisions it to grow roughly 1% on a constant-currency basis in 2018.

Additionally, Hanesbrands’ online sales have been growing at a solid rate and formed about 11% of the company’s total sales in fourth-quarter 2017. Notably, online sales surged 22% year over year, fueled by growth across several channels. Hanesbrands, which is a global partner for Amazon (NASDAQ:AMZN) , is focused on making incremental investments in its online business to keep pace with consumers’ evolving shopping patterns. That said, management is committed toward growing its online sales to 15% of net sales in the coming years.

Buoyed by the aforementioned efforts, analysts polled by Zacks expect revenues of $1,431 million for the first quarter, reflecting a rise of almost 3.7% from the year-ago quarter’s figure. This expectation also falls within management’s forecast of net sales in the band of $1.42-$1.44 billion for the impeding quarter.

Hurdles in the Path

Higher cost of sales and SG&A expenses have been dragging the company’s performance lately. Further, management continues to be cautious about the challenging U.S. wholesale landscape in 2018. Also, rising input costs and increased marketing investments to support new innovations are likely to affect margins. Incidentally, management expects operating margin for the first half of 2018 to be hurt by escalated marketing and distribution costs. Such headwinds have also kept investors on the side lines, evident from the stock’s 20.1% fall in the past six months, versus the industry’s gain of 15.3%.

Moreover, such factors have negatively impacted the consensus marks for earnings for the first quarter. The current Zacks Consensus Estimate for earnings is pegged at 24 cents, representing a 17.2% decline from the year-ago quarter. The projection, which has remained stable over the past 30 days, lies within management’s projected range of 23-25 cents for the first quarter.

All said, lets now take a look at the picture unveiled by the Zacks Model for the upcoming quarterly announcement.

Zacks Model

Our proven model doesn’t show that Hanesbrands is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Although, Hanesbrands’ Zacks Rank #3 increases the predictive power of ESP, its Earnings ESP of -0.92% makes us less confident about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Poised to Beat Estimates

Here are some companies that possess the right combination of elements to post an earnings beat:

Guess?, Inc. (NYSE:GES) , a Zacks #1 Ranked stock, has an Earnings ESP of +16.18%.

Columbia Sportswear Company (NASDAQ:COLM) has an Earnings ESP of +1.32% and a Zacks Rank #2.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>