Hanesbrands (HBI) Q4 Earnings: Currency, Cost Woes to Linger?

Hanesbrands Inc.HBI is slated to release fourth-quarter 2018 results on Feb 7. The designer and manufacturer of apparel for men, women and children has a mixed earnings surprise record in the trailing four quarters. Let's see what's in store for the company this time around.

Hanesbrands Inc. Price and EPS Surprise

Hanesbrands Inc. Price and EPS Surprise | Hanesbrands Inc. Quote

What to Expect?

The Zacks Consensus Estimate has remained stable in the past 30 days at 47 cents, which reflects a decline of 9.6% from the year-ago quarter's figure. Nonetheless, the consensus mark for revenues is $1,716 million, which depicts a rise of 4.3% from the year-ago quarter.

International Strength, Buyouts Likely to Aid

Hanesbrands should continue benefitting from strength of its international segment, which contributed nearly 34% to the company's net sales in the third quarter of 2018. Sales for the segment improved 11.3% (up 15% at cc) to $619.4 million. Organic sales rose 10% on a currency-neutral basis, on the back of strong Champion sales across Europe and Asia. Contributions from the acquisition of Bras N Things ($32 million) also fueled International sales. Management is focused on making investments and innovations internationally, which are major drivers for the impending quarter.

In fact, many other apparel companies like Ralph Lauren RL , lululemon LULU and Columbia Sportswear COLM , among others, have been gaining from strong international business. Coming back to Hanesbrands, the Zacks Consensus Estimate for sales in the International segment is currently pegged at $579 million for the fourth quarter, reflecting a rise of 6.2% from the year-ago quarter's tally.

Strategic buyouts have been another vital strategy favoring Hanesbrands' top-line and portfolio growth. To this end, contributions from acquisitions (Bras N Things and Alternative Apparel) played a solid role in augmenting Hanesbrands' third-quarter sales. Evidently, these acquisitions contributed $48 million to the top line. Apart from this, the company has largely been gaining from contributions from Champion Europe and Hanes Australasia that were acquired in 2016. Talking of Champions business, Hanesbrands' Activewear and International segments have long been gaining from splendid performance by its Champion business. During the third quarter, Global Champion sales surged 30% on a currency-neutral basis, backed by double-digit increases in Asia, Europe and the United States. Management expects Champion sales growth to remain sturdy and continue driving Hanesbrands' Activewear and International units' performances in the fourth quarter.

Such well-chalked efforts along with impressive organic sales are expected to aid the company's top-line in the upcoming quarterly release. For the fourth quarter, management projects net sales of $1.70-$1.74 billion. The mid-point of this range reflects year-over-year growth of nearly 5%. On a constant-currency basis, organic sales are projected to improve 3.5% in the quarter (at the mid-point of the projected sales outlook).

Can Hurdles be Offset?

Hanesbrands has been bearing the brunt of raw-material cost inflation. Although gross margin grew in the third quarter, it was hurt by increased input costs to some extent. Unfortunately, raw-material inflation is likely to persist, which is a threat to margins. Also, the company has been battling soft sales at its Innerwear segment for quite some time now. In third-quarter 2018, Innerwear sales fell 6.9% to $599.7 million, due to softness across both Innerwear Basics and Innerwear Intimates. Hanesbrands anticipates its Innerwear sales to remain flat in the fourth quarter.

Additionally, adverse currency movements weighed on Hanesbrands' sales in the third quarter of 2018. Further, currency woes along with impacts from Sears Holdings' bankruptcy led management to tighten its outlook for 2018. Notably, management now expects currency to have a greater negative impact on net sales compared to what was projected earlier. Management now envisions adjusted earnings of $1.69-$1.73 per share, lower than the previous guidance of $1.72-$1.80. This includes negative impact of nearly 5 cents from Sears Holdings' bankruptcy and currency woes. These factors make us cautious about Hanesbrands' upcoming release as well.

Although Hanesbrands has been focusing on enhancing savings through the Project Booster program, it is less likely to completely offset the aforementioned hurdles. Markedly, management predicts adjusted earnings of 46-50 cents in the fourth quarter compared with 52 cents in the year-ago quarter.

What Does the Zacks Model Unveil?

Our proven model doesn't show that Hanesbrands can beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Though Hanesbrands carries a Zacks Rank #3, the company's Earnings ESP of -2.13% makes surprise prediction difficult. You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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