Why Is HanesBrands (HBI) Down 0.8% Since Last Earnings Report?

A month has gone by since the last earnings report for HanesBrands (HBI). Shares have lost about 0.8% 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 its most recent earnings report in order to get a better handle on the important drivers.

Hanesbrands Q1 Earnings Lag Estimates on Coronavirus Impact

Hanesbrands Inc. reported dismal first-quarter 2020 results, with the top and the bottom line missing the Zacks Consensus Estimate and declining year over year. Quarterly performance was mainly hurt by coronavirus. Management stated that the late-quarter pandemic impacts hurt revenues by roughly $181 million, operating profit by $86 million, and earnings per share by nearly 20 cents in the quarter. Significant declines in sales and profits were witnessed in the last two weeks of the quarter. Also, the company exited DKNY license for intimate apparel and C9 Champion mass program.

Before the impact of coronavirus was felt, the company saw robust revenue and profit trends on solid Champion performance and increased U.S. Innerwear business sales. Owing to uncertainty tied to the pandemic, management did not provide guidance for the year but expects foreign currency translation to hurt sales and operating profit in 2020.

Nevertheless, the company has taken actions like preserving cash and strengthening liquidity to deal with the tough times. Furthermore, the company has been producing cloth face coverings and medical gowns for the U.S. government. It is also speeding up the launch of a cotton face mask business for consumers and expects to create a product line of basic personal protective garments. In 2020, sales from this business are anticipated to cross $300 million.

Q1 in Detail

The company posted adjusted earnings of 5 cents a share that lagged the Zacks Consensus Estimate of 11 cents. Also, the metric plunged significantly from 27 cents earned in the year-ago quarter.

Net sales fell 11.9% to $1,316.5 million and also missed the Zacks Consensus Estimate of $1,353 million. Excluding the exited programs, impact of pandemic and foreign exchange fluctuations, total constant-currency (cc) sales would have grown 1.6%. Moreover, the company’s total online sales grew 5% globally in the quarter. Impressively, growth rates at online channels accelerated over the last two weeks of the quarter, which continued in April. Moving on, adjusted operating profit plunged 57.8% to $63 million. Also, adjusted operating profit margin contracted 520 basis points (bps) to 4.8%.

Segment Details

Innerwear: Sales at the segment declined 9.4% to $422.4 million, mainly due to the exit of C9 Champion mass retail program and the adverse impact of pandemic. On a reported basis, the segment sales declined 11%. However, prior to mid-March, the segment’s sales and profits were better than expected owing to robust performance of basics and intimates. Moreover, operating profit declined 20.9% to $81.6 million.

Activewear: Sales fell 10.2% to $288 million due to a decline in C9 Champion sales in mass retail and coronavirus impact. Its sales plunged 29% on a reported basis. Prior to mid-March, the segment was seeing strong performance on consumer demand for Champion brand, increases in other brands in sports licensing business’ mass and midtier channels, and online seasonal activewear. Also, operating profit tumbled 66.5% to $8.1 million, thanks to an uptick in SG&A expenses.

International: Sales at this segment fell 14% to $555.9 million (down 11% at cc) due to coronavirus-led store closures in March. Prior to the coronavirus impact the segment’s sales at cc matched expectations. Operating profit for the segment declined 47.9% to $52 million in the quarter.

Other: Sales dropped 17.2% to $50.2 million. The segment posted an operating loss of $6.1 million against operating profit of $0.8 million reported in the same quarter a year ago.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $1,083.8 million, long-term debt of $4,237 million and stockholders’ equity of $873.6 million. At quarter-end, the company reported negative net cash from operating activities of $83.2 million, and incurred capital expenditures of $25.8 million in the first quarter. Moreover, it bought back nearly 14.5 million shares in the first quarter and put share repurchases on hold for rest of the year.

In light of the coronavirus pandemic, management has taken actions to stay firm and strengthen liquidity. The company has been curbing discretionary and capital spends, managing inventories as well as temporarily cutting salaries and furloughing certain employee groups. Its production and distribution facilities are functioning on a demand-adjusted basis. Such temporary pay cuts, furloughs and lower discretionary spending on media and marketing are likely to save nearly $200 million in 2020.

In addition, Hanesbrands plans to secure around $500 million debt financing, subject to market conditions, using proceeds to repay the company’s revolver and reinforce liquidity. It also negotiated a 15-month covenant amendment to its senior secured credit facility, with suspension of leverage covenant till the end of second-quarter 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -307.41% due to these changes.

VGM Scores

At this time, HanesBrands has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, HanesBrands has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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