We are maintaining our Neutral recommendation on
). Champion and Just My Size brands seized a major share of the
market and boosted sales in the recent quarters.
The Pros and Cons
The company commands a portfolio of well-recognized flagship
brands, including Hanes, Champion, Playtex and Bali, which
reinforces its well-established position in the industry. The
company has also undertaken customer-specific programs like the C9
and Just My Size programs at stores of retailers like
), which have helped boost sales of brands like Champion and Just
My Size. The Champions brand has reported double-digit growth
consecutively for the last few quarters.
Moreover, the company has undertaken a program that uses the
'Kanban' concept for its inventory management. The multi-initiative
'Kanban' effort determines production quantities, and in doing so,
it facilitates just-in-time production and ordering systems.
Eventually, it ensures that the supply of products meets customer
demands while effectively managing inventory levels. This will
improve the cash conversion cycle and prevent oversupply of goods
for the company.
the Intimate Apparel/Innerwear industry is highly competitive and
very price sensitive. Hanesbrandsfaces intense competition in both
domestic and international markets from other established players,
Warnaco Group Inc.
Maidenform Brands Inc
Gildan Activewear Inc.
). The company's strategy to focus on more premium brands and raise
prices in these categories comes with the inherent risk of
consumers shifting from Hanesbrands' high-priced apparels to more
competitively priced brands of competitors, like Warnaco's Calvin
Klein and Warner's brands.
Moreover, a bad harvest in Asia and surging demand has more than
doubled cotton prices since last year. Hanesbrands, which
specializes in cotton T-shirts and undergarments, is most
vulnerable to price volatility because raw material costs make up a
greater percentage of the total cost. The company has raised prices
thrice during fiscal 2011 and plans to do so again in fiscal 2013.
The price increases affected margins and piled up inventories as
well as reduced market share in the industry.
During the first quarter of fiscal 2012, Hanesbrands posted a
loss per share of 27 cents, which was narrower than the Zacks
Consensus Estimate of a loss of 33 cents. However, it fell well
short of the prior-quarter earnings of 49 cents on the back of
lower margins due to high cotton costs and weak performance in the
Outerwear and International segments.
Currently, Hanesbrands carries a Zacks #3 Rank (short term Hold
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