) reported second quarter 2012 earnings per share of 67 cents, down
14.1% from the prior-year quarter. Sharp increase in cotton prices
during the quarter affected the margins, eventually bringing the
earnings down. However, earnings outpaced the Zacks Consensus
Estimate of 49 cents per share.
Revenues and Operating Profits
The quarterly revenues inched up 1.0% to $1.2 billion, driven by
sales growth in both Innerwear and Outerwear segments. This
was almost in line with the Zacks Consensus Estimate of $1.24
Hanesbrands' gross profit margin and operating profit margin
both contracted owing to higher cotton and commodity costs.
Gross profit went down 10.5% year over year to $366.9 million
and gross profit margin shrank 400 basis points to 31.1% during the
second quarter. The decline in profit resulted from inflation in
cotton prices. The quarter's operating profit contracted to $119.9
million, 11.7% lower than the year-ago level. Operating profit
margin contracted 80 basis points 10.2%.
Net revenue at the Innerwear segment increased 2.2% year on year
to $664.9 million in the reported quarter. The increase came on the
back of decent performance of men's underwear, women's panties and
socks. Operating profit in the segment went up 17.9% year on year
to $121.2 million, driven by profitable bra and panty business that
offset high cotton cost.
Outerwear segment sales climbed 1.2% from the year-ago period to
$295.4 million. Strong sales of Champion activewear sales and new
Hanes casualwear were partially offset by lower sales in branded
printwear. Outerwear segment reported operating loss of $977.0
million in the quarter.
Net sales at International segment slipped 1.8% to $125.7
million in the quarter. Operating profit went down 0.3% to $11.6
million in this segment. The reason for decline in revenue was
foreign exchange headwinds.
Direct to Consumer segment sales went down 3% to $94.6 million
and operating profit slipped marginally by 0.3% to $11.7 million in
Other Financial Updates
The company exited the second quarter of 2012 with cash and cash
equivalents of $29.7 million compared with $34.6 million in the
previous quarter and long-term debt of $1.7 billion compared with
$1.8 billion in the first quarter of 2012. Operating activities
used $12.7 million of cash compared with $94.1 million in the
The company maintained its fiscal 2012 diluted EPS guidance to
be in the range of $2.50 - $2.60 on net sales of $4.52 billion -
4.57 billion. Gross and operating margin percentage is expected to
improve sequentially for the third and fourth quarter.
For 2012, the company expects free cash flow to be in the range
of $400 million to $500 million. The company's near-term priority
for the usage of free cash flow is to reduce long-term debt and
de-leverage its balance sheet. The company expects to further
reduce bond debt to $1 billion by the end of 2013. The company
expects to reduce interest expense from prior year to $17 million
on the back of debt reduction.
Hanesbrands is a leading player in the innerwear, casual wear
and active wear markets in the U.S. It is well established in the
industry and competitors include the likes of
Limited Brands Inc.
Maidenform Brands Inc.
However, Hanesbrands' debt-ridden balance sheet and unfavorable
foreign translations may weigh upon both the top and bottom lines.
Its soft guidance also hurts investors' confidence.
Hanesbrands currently holds a short-term Zacks #3 Rank (Hold).
On a long-term basis, we maintain a 'Neutral' rating.
HANESBRANDS INC (HBI): Free Stock Analysis
LIMITED BRANDS (LTD): Free Stock Analysis
MAIDENFORM BRND (MFB): Free Stock Analysis
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