On November 9, 2023, Hanesbrands Inc (HBI, Financial), a global leader in iconic apparel brands, released its third-quarter earnings, revealing a mix of challenges and strategic improvements. Despite a difficult sales environment, the company has made notable progress in key financial metrics, including margin improvements and debt reduction.
Financial Performance and Challenges
HBI's net sales from continuing operations reached $1.51 billion, marking a 9.5% decrease compared to the previous year. This decline reflects the ongoing pressure from a challenging global macroeconomic environment. GAAP gross margin declined by 260 basis points to 31.1%, while the adjusted gross margin increased by 100 basis points to 35.5%, surpassing expectations. The company attributes this improvement to easing input cost inflation and the benefits of cost savings and efficiency initiatives.
Balance Sheet and Cash Flow Highlights
HBI has made significant strides in strengthening its balance sheet. Inventory levels were reduced by 17% sequentially and 29% year-over-year, contributing to a $155 million cash flow from operations in the quarter. Year-to-date, the company has generated $287 million in operating cash flow. HBI also reduced its total debt by $144 million in the quarter and approximately $270 million year-to-date, ending the quarter with around $1.2 billion in liquidity.
Strategic Initiatives and Market Share Gains
CEO Steve Bratspies highlighted the company's focus on driving core fundamentals and evaluating options to unlock shareholder value. HBI has seen a 40% increase in revenue from new product innovation over the prior year, both in the third quarter and year-to-date. The company's U.S. Innerwear segment has gained market share, driven by successful product launches and international expansion of its innovative lines.
Outlook and Guidance
Looking ahead, HBI continues to expect year-end improvements in gross and operating margins. The company updates its full-year outlook, projecting approximately $500 million in operating cash flow and a debt reduction of more than $400 million for 2023. For the fourth quarter, HBI anticipates net sales of approximately $1.36 billion and adjusted earnings per share from continuing operations of approximately $0.09.
Conclusion
Despite the sales downturn, HBI's strategic initiatives are yielding positive results in margin enhancement and inventory management. The company's proactive approach to navigating the challenging economic landscape is reflected in its improved liquidity and reduced debt levels. Investors and analysts will likely monitor HBI's progress closely as it continues to execute its transformation plans and optimize its global Champion business.
For a detailed analysis of Hanesbrands Inc's financials and strategic outlook, visit GuruFocus.com.
Explore the complete 8-K earnings release (here) from Hanesbrands Inc for further details.
