HanesBrands (HBI) Up 10.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for HanesBrands (HBI). Shares have added about 10.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is HanesBrands due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Hanesbrands Q2 Earnings & Sales Surpass Estimates
Hanesbrands reported robust second-quarter 2020 results, with the top and bottom lines significantly outpacing the Zacks Consensus Estimate and improving year over year. In spite of the pandemic-led crisis, quarterly performance was driven by robust base-case scenario for the company’s apparel business and the latest protective garment business.
Amid the global pandemic, Hanesbrands remains focused on serving channels of trade that were open, reopening production, preserving liquidity, and impressive distribution and selling operations. The company has also developed a product line of personal protective garments which resonates well with the present environment, commercial and consumer demand. It has been selling face masks to customers globally under its brand names, including Hanes, Champion, Bonds and Dim. Notably, the protective garments business signifies an ongoing growth opportunity.
Q2 in Detail
Hanesbrands posted adjusted earnings of 60 cents a share that significantly outshone the Zacks Consensus Estimate of 2 cents. Also, the metric increased roughly 58% year over year, driven by robust apparel performance including online sales growth of 68% aided by the company’s ability to pivot personal protective garments’ production and sales.
Net sales dipped 1.3% to $1,738.8 million but outpaced the Zacks Consensus Estimate of $1,278 million. On an adjusted basis, the metric rose 5.9%. Excluding the exited programs and foreign-exchange fluctuations, total constant-currency (cc) net sales grew 7%.
Moreover, Apparel sales and protective garment sales outpaced the company’s base-case scenario in the reported quarter. Robust sales growth across channels of trade such as online, dollar store, mass retail, and food and drugs contributed to results. The company registered global online sales growth of over 70% via the e-commerce websites, retailer websites, large internet pure-plays and business-to-business customers on a rebased year-over-year comparison. It sold about $752 million of personal-protection garments worldwide. As part of the protective garment sales in the quarter, it delivered over 450 million cloth face coverings and above 20 million medical gowns to the U.S. government. Excluding sales of protective garments, online sales accounted for roughy 30% of total sales in the quarter.
Moving on, adjusted operating profit surged 41% to $305 million. Also, adjusted operating-profit margin expanded 430 basis points (bps) to 17.5%.
Innerwear: Sales at the segment climbed 61% on a reported basis, gaining from better-than-expected apparel performance and robust protective garments sales. Excluding the protective garments, the metric declined 29%. However, excluding protective garments, the Innerwear point-of-sale trends accelerated through the quarter, being positive in May and June. While the Innerwear basics increased over 300 bps of market share, the Innerwear intimate apparel point-of-sale trends reverted to pre-COVID-19 levels entering July.
Activewear: Sales fell 62% on a reported basis due to the adverse effects of the pandemic and lower C9 Champion sales in mass retail when compared to the year-ago quarter. The pandemic resulted in fall in demand for its printwear and sports apparel businesses. However, sales through the enhanced Champion.com website rose about 200% in the quarter.
International: Sales at this segment fell 20% on a reported basis (down 17% at cc). Excluding the protective garment sales, revenues plunged 44%. Other: Sales came in at $18.7 million in the reported quarter.
Other Financial Details
Hanesbrands ended the quarter with cash and cash equivalents of $683.1 million, long-term debt of $3,985.6 million and stockholders’ equity of $1,079.3 million. 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 the second quarter, the company operating cash flow of $65 million, which resulted in growth of roughly $40 million for the first half in comparison to the prior-year period. Disciplined working capital, decline in temporary costs, and inventory control and production timeouts contributed to cash generation. Further, inventory fell 12% year over year.
Owing to the continued uncertainty stemming from COVID-19, Hanesbrands did not provide quarterly and full-year performance outlook. Management highlighted that fall in apparel sales in the reported quarter was better than the company’s base-case scenario. It now projects improvement in the rate of sales decline in the third and fourth quarters. Further, it has exited the C9 Champion mass program and DKNY license for intimate apparel. The foreign currency exchange fluctuations are likely to hurt net sales and operating profit in 2020. Moreover, Hanesbrands expects selling over $150 million of protective garments in the second half, mostly in the third quarter. This excludes the potential for additional government contracts. Furthermore, management expects positive cash flow and tax rate of nearly 17.5% for the back half.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, HanesBrands has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HanesBrands has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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