Hanesbrands Inc.
(
HBI
) reported earnings per share of 41 cents for its fourth quarter
2011, which was 41.4% higher than the prior-year quarter. However,
the EPS was significantly lower than the Zacks Consensus
Estimate of 51 cents.
For fiscal 2011, the company reported earnings per share of
$2.69, which was 24.5% higher than the prior-year quarter. The
result however, missed the Zacks Consensus Estimate of $2.79 by
3.6%.
Profits were primarily impacted by strong performance in the
underwear and socks, partially offset by late fourth-quarter
softness.
The company expects fiscal 2012 diluted EPS of $2.50 - $2.60.
The company's gross margin percentage is expected to be in the
mid-20s in the first quarter, resulting in a loss per share of up
to 35 cents.
Revenues and Operating Profits
Total revenue for the quarter slipped 0.4% to $1,145.13 million
from $1,149.65 million in the year-ago period. Management
attributed the shortfall of sales in the fourth quarter to
"unexpected and substantial" slowing of orders in December as
retailers tried to lower their inventory levels.
'Destocking', or clearing of inventory stocks, reported by many
retailers recently can be the cause for the decrease in orders for
the apparel manufacturer.
Higher cost of cotton and other products has also pulled down
the quarter's operating profit to $75,288 million, 7.7% lower than
the year-ago level. Hanesbrands operating margin shrank 50 basis
points (bps), coupled with a gross profit margin contraction of 120
bps, owing to higher cotton and commodity costs.
Segment Details
Hanesbrands' Hosiery and international segment went up
marginally by 0.8% and 0.6%, respectively. Direct to consumer,
Innerwear and Outerwear segments all declined by 1.6%, 0.7% and
0.6%, respectively. However, sock sales posted almost double-digits
rise with strong growth in both
Hanes
and
Champion
branded socks.
Outerwear's operating profit slumped 35% on flat sales as a
result of lower profitability in the retail casual wear category,
which lost a key program, and the wholesale category, which was
impacted by competitive pricing. International segments operating
profit plummeted the most by 45% year over year.
However, Innerwear operating profit increased 20% in the quarter
backed by strong expense control.
Other Financial Updates
The company exited the quarter with cash and cash equivalents of
$35.34 million and long-term debt of $1,807.77 million. Operating
activities provided $167.95 million. The amount used for investing
activities totaled $90.09 million.
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.
Our Recommendation
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 among stiff competitors like
Limited Brands Inc.
(
LTD
) and
Maidenform Brands Inc.
(
MFB
).
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 #4 Rank (Sell).
On a long-term basis, we maintain a 'Neutral' rating.
HANESBRANDS INC (
HBI
): Free Stock Analysis Report
LIMITED BRANDS (
LTD
): Free Stock Analysis Report
MAIDENFORM BRND (
MFB
): Free Stock Analysis Report
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