HanesBrands (HBI) Down 16.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for HanesBrands (HBI). Shares have lost about 16.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HanesBrands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hanesbrands Q4 Earnings Meet Estimates, Sales Down Y/Y

Hanesbrands Inc. reported its fourth-quarter 2019 results, with the bottom line improving year over year and meeting the Zacks Consensus Estimate. However, the company’s net sales declined year over year.

Q4 in Details

The company posted adjusted earnings of 51 cents a share, in line with the Zacks Consensus Estimate. Notably, earnings improved 13% from the year-ago quarter’s reported figure.

Net sales inched down around 1% to $1,751 million. The Zacks Consensus Estimate was pegged at $1,748 million. However, organic sales at constant currency (cc) were up slightly.

Sales in domestic Champion and international Champion surged 22% in the fourth quarter. In its international segment, sales rose across all regions including Europe, Asia and Australia.

Also, consumer-directed sales (including retail and online networks) rose 17% at cc and contributed 30% to total sales in the fourth quarter.

Moving on, adjusted operating profit inched up1.6% to $263 million. Also, adjusted operating profit margin increased 40 basis points (bps) to15%.

Segment Details

Innerwear: Sales in the segment declined 4.1% to $569.6 million due to earlier-than-anticipated disruption from ongoing store resets, which impacted innerwear basics. Also, sales of innerwear intimates were down during the quarter. Nevertheless, operating profit increased 4.7% to $140.4 million.

Activewear: Sales fell 6.7% to $453 million due to decline in C9 Champion program. Operating profit fell 8.2% to $71.6 million, thanks to increased SG&A expenses.

International: Sales in this segment rose 6.9% to $650.8 million (up 10% at cc). The uptick was driven by sturdy sales in innerwear and activewear units. Operating profit in the International segment declined 1.8% to $96.8 million in the quarter.

Other: Sales dropped2.7% to $77.6 million. The segment posted an operating profit of $8.4 million, up 17.3% year over year.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $328.9 million, long-term debt of $3,256.9 million and stockholders’ equity of $1,236.6 million.

During the quarter, the company generated net cash from operations of $558.7 million and incurred capital expenditures of $21.1 million.

Guidance

Management issued guidance for the first quarter of 2020. For the quarter, it anticipates the top line in the range of $1.466-$1.496 billion. The midpoint of guidance suggests a decline of 7% from the year-ago quarter’s figure. Adverse currency fluctuations are expected to hurt net sales by approximately $14 million compared with first-quarter 2019. Adjusted operating profit is expected in the band of $145-$155 million. The midpoint suggests a decline of 12% compared with the prior-year quarter’s figure. Moreover, the company projects adjusted earnings in the range of 23-26 cents per share, a midpoint decline of nearly 7% from 2019.

For 2020, net sales are expected in the range of $6.675-$6.775 billion. Adverse currency fluctuations are expected to lower net sales by about $25 million for the full year. Adjusted operating profit is forecasted in the band of $900-$930 million. Further, the company envisions adjusted earnings in the range of $1.72-$1.80 for the year.

At the mid-point, the current guidance for 2020 indicates year-over-year growth of 3% in net sales, 7% in adjusted operating profit. Further, the guidance represents mid-point growth of 15% for adjusted earnings.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -9.82% due to these changes.

VGM Scores

At this time, HanesBrands has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, HanesBrands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.