Hanesbrand is Poised to Grow

Hanesbrands Inc. (HBI, Financial) is a leading marketer of innerwear, outerwear and hosiery apparel under strong consumer brands, including Hanes, Champion, Playtex, Bali, JMS/Just My Size, barely there and Wonderbra. The company designs, manufactures, sources and sells T-shirts, bras, panties, men's underwear, children's underwear, socks, hosiery, casualwear and activewear. Hanesbrands has approximately 45,000 employees in more than 25 countries.

This consumer goods company designs, manufactures, sources and sells various basic apparels primarily in the United States, Canada, Mexico and other leading markets in the Americas, Asia and Europe.

Third-quarter performance

For the third quarter ended Sept. 27, 2014, net sales increased 17 percent to $1.40 billion, adjusted operating profit excluding actions increased 23 percent to $217 million, and adjusted diluted EPS excluding actions increased 41 percent to $1.73. Hanes has delivered three consecutive quarters of double-digit growth in net sales, adjusted operating profit and adjusted EPS. Third-quarter results were aided by acquisition-related sales and profit contributions, modest base sales growth led by innovative products, and significant efficiency gains from global supply chain operations.

The company’s updated 2014 full-year financial guidance includes an increase in expected adjusted EPS to a range of $5.55 to $5.65, up from a previous guidance of $5.40 to $5.60. The company continues to expect net sales of approximately $5.350 billion to $5.375 billion.

“Our business continues to perform very well, particularly in an uncertain consumer environment,” Hanes Chairman and Chief Executive Officer Richard A. Noll said. “We have delivered more earnings in the first three quarters of 2014 than we did all of last year. Our Innovate-to-Elevate strategy, global self-owned supply chain, and acquisitions continue to generate shareholder value and give us confidence in our potential for many years to come.”

Innerwear Segment. Innerwear net sales increased 16 percent in the third quarter as a result of the Maidenform acquisition, while the company’s base business was up slightly compared with a year ago. Operating profit increased 29 percent on acquisition benefits and increased base-business profitability.

  • Retail Environment. Sales in the quarter were affected by a continued uneven and challenging retail environment. Sales growth of at least mid-single digits in socks, boys’ underwear, and panties were offset by softness in other Innerwear categories. Innovation platforms, including ComfortBlend and X-Temp underwear and Flexible Fit bras, continued to outperform their respective categories.
  • Profitability Improvement. Innerwear’s operating profit margin increased 200 basis points to 19.8 percent as a result of strong supply chain performance and Innovate-to-Elevate.

Activewear Segment. Activewear sales increased 5 percent, while operating profit declined 1 percent versus a strong year-ago third quarter.

  • Continued Strong Profitability. The segment’s operating profit margin was 16.1 percent in the third quarter, and the year-to-date operating margin of 14.1 percent is 95 basis points better than a year ago.
  • Mixed Sales Environment. Retail Activewear sales increased by 1 percent, while Gear for Sports sales increased by double digits.

International Segment- The acquisitions of Maidenform and DBApparel contributed to International sales growth of 63 percent and operating profit growth of 74 percent in the third quarter, while foreign exchange rates on currency continued to have a negative impact on both measures. On a constant-currency basis, base International net sales decreased 3 percent in the quarter and operating profit decreased 1 percent.

(Source: Company’s Website)

What to Expect

HBI is expected to generate around $5 billion in the next 5 years. HBI expects to add around $1.00 annually by 2018 through the acquisition of DBA. The takeovers that this company has recently initiated are going to bolster future profits. The new full-year guidance implies fourth-quarter guidance of approximately $1.55 billion to $1.57 billion in net sales; a range of $187 million to $207 million for adjusted operating profit; and a range of approximately $1.35 to $1.45 for adjusted EPS. The fourth-quarter guidance includes estimated contributions from DBA of approximately €155 million to €175 million in net sales, or $194 million to $219 million, and approximately €14 million in adjusted operating profit, or approximately $17 million, with an expected currency exchange rate of approximately $1.25 to the euro.

To end

HBI has a long history of innovation and has a solid brand reputation. Approximately more than 80% of U.S. households use its products. Unlike most apparel companies, Hanes primarily operates its own manufacturing facilities. In Walmart (WMT, Financial) stores, HBI commands more rack space as compared to its peers like Jockey.

Further, DBA acquisition will create a significant growth and margin-expansion opportunities by leveraging strong brands, leading market positions, disciplined innovation, and the best apparel supply chain in the industry. I am therefore pretty bullish that this leading manufacturer will continue this trend and won’t let its valued investors down.

HBI is investing in product innovation, marketing and infrastructure to advance and solidify its brand reputation to gain momentum around the globe. The company offers designs and comfort at very reasonable prices internationally. Naturally, it is becoming a hit among the customers. The company is in a good phase witnessing high revenues. According to me, it should be a buy as of now. It is going to create shareholder returns.