Why Hanesbrands' Shares Are Down Despite Q1 Earnings Beat?

Shares of Hanesbrands Inc. (NYSE:HBI) have underperformed both the Zacks categorized Textile – Apparel Manufacturing industry and the broader sector in the past one year. The stock was down 24.9%, while the industry declined 19.9%. In fact, the industry is currently placed at bottom 25% of the Zacks Classified industries (191 out of 256). Meanwhile, the Zacks categorized Consumer Discretionary sector gained 16.6%. We note that shares fell nearly 8% since the company reported first-quarter 2017 results on May 2, probably due to sluggish sales environment.

Let’s Delve Deep

Hanesbrands has been witnessing lower-than-expected sales for the past few quarters, mainly due to soft sales in brick-and-mortar stores. In fact, its sales have lagged the Zacks Consensus Estimate in 12 of the past 13 quarters, including the first quarter of 2017.

We note that the company remains exposed to unfavorable foreign currency translations as nearly one-third of its total sales come from international businesses. In fact, currency is expected to negatively impact 2017 sales as well.

Though management reiterated its projection for 2017 but it issued a soft guidance for the second quarter. Further, organic sales are estimated to decline in the second quarter due to current retail sales scenario coupled with a timing shift of back-to-school shipments. In addition, sluggish traffic at its stores coupled with intense competition in its premium brands remain concerns. Further, the Zacks Consensus Estimate that declined by 2 cents over the last 30 days, is pegged at 53 cents.

On the positive note, we saw that the company has delivered a positive earnings surprise of 3.6% in the first quarter. Also, its earnings rose year over year backed by higher sales and gross margin.

Notably, this Zacks Rank #3 company’s Project Booster, a multiyear program is expected to drive investment for growth, minimize costs as well as increase cash flow.

Though we remain optimistic about the company’s robust brand portfolio, strong e-Commerce business along with strategic acquisitions, sluggish traffic at its stores coupled with intense competition in its premium brands remain concerns.

Stocks to Consider

Some better-ranked stocks in the same industry include Cherokee Inc. (NASDAQ:CHKE) , Gildan Activewear Inc. (TO:GIL) and PVH Corp. (NYSE:PVH) .

Cherokee has a long-term earnings growth rate of 15% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear carries a Zacks Rank #2 (Buy) and has increased 11.8% year to date. Also, it has a long-term earnings growth rate of 12.3%.

PVH Corp, a Zacks Rank #2 stock has jumped 18.6% year to date. Also, it has a long-term earnings growth rate of 10.7%.

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