Hanesbrands Inc. HBI posted third-quarter 2024 results, wherein the top and bottom lines came ahead of the Zacks Consensus Estimate and earnings increased year over year. Management expects to revert to revenue growth in the fourth quarter and raised its full-year profit guidance.
Strategic actions to streamline and focus the business are delivering results, enabling significant changes to the cost structure, boosting operational efficiency, lowering inventory and freeing capital for growth investments. These efforts are expected to drive improvements in margins, cash flow, and debt reduction through 2025.
A Look at HBI’s Quarterly Results
The company posted adjusted earnings from continuing operations of 15 cents per share, surpassing the Zacks Consensus Estimate of 11 cents. The metric increased considerably from the adjusted loss from continuing operations of 2 cents per share reported in the year-ago quarter.
Hanesbrands Inc. Price, Consensus and EPS Surprise
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Net sales from continuing operations declined 2.5% to $937.1 million while exceeding the Zacks Consensus Estimate of $928 million. The metric includes an impact of nearly 180 basis points (bps) from the U.S. Hosiery divestiture and about 75 bps from currency headwinds. On a constant-currency (cc) basis, organic net sales came in line with the year-ago period figure.
Adjusted gross profit came in at $392 million, up 11% year over year. The adjusted gross margin was 41.8%, up nearly 525 bps. The year-over-year improvement can be attributed to reduced input costs, gains from cost-saving measures and its assortment management effort.
Adjusted SG&A expenses stood at $269 million, up 1% year over year. As a percentage of net sales, adjusted SG&A expenses increased by 90 bps to 28.7%. This increase was due to a 150-bps rise in brand marketing investments. However, this was partially mitigated by cost-saving measures and careful expense management.
Adjusted operating profit came in at $122 million, up 46% year over year. Adjusted operating margin stood at 13%, up 435 bps driven by enhanced gross margin.
Decoding HBI’s Segmental Performance
Starting with second-quarter 2024, HBI reorganized its reporting segments into the U.S. and International categories.
The U.S. Segment: The segment’s net sales dropped 1% year over year to $678.3 million. Despite the expected market downturn this quarter, the company’s consumer-centric strategy proved effective. Year to date, the company’s point-of-sale performance has surpassed the overall market, fueled by heightened brand investments and product innovation across its Hanes, Maidenform and Bali lines. This strategy is securing permanent retail placements and increasing market share, especially among younger consumers. The segmental operating margin was 22.1%, up roughly 665 bps.
International Segment: International net sales grew 1.3% to $259.1 million. This includes a $7 million impact from unfavorable foreign exchange rates. At cc, international sales rose 4% year over year, fueled by growth in the Americas and Asia. Sales in Australia remained in line with the year-ago period. The operating margin improved to 14.2%, up nearly 465 bps and is backed by reduced input costs and the advantages of cost-saving measures.
Hanesbrands’ Financial Health Snapshot
The company ended the quarter with cash and cash equivalents of $317.3 million, long-term debt of $3,211.2 million and total stockholders’ equity of $149.3 million. HBI had roughly $1.1 billion of available capacity under its credit facility at the end of the quarter.
At the end of the quarter, year-to-date cash flow from operations amounted to $197 million. Free cash flow was $165 million in the same time frame.
After the end of the third quarter of 2024, the company concluded the sale of its global Champion business to Authentic Brands Group.
What to Expect From HBI in 2024
For 2024, net sales from continuing operations are anticipated to be around $3.61 billion, including anticipated headwinds of nearly $50 million from the U.S. Hosiery divestiture and a currency headwind of about $42 million. This guidance suggests a roughly 4% year-over-year decline on a reported basis and an approximately 2% decline on an organic basis at cc. Earlier, net sales from continuing operations were anticipated to be $3.59-$3.63 billion.
Adjusted operating profit from continuing operations is likely to be $417 million now, including a currency headwind expectation of approximately $8 million. The metric was expected to be in the range of $395-$415 million.
Adjusted earnings per share (EPS) from continuing operations are envisioned to be approximately 39 cents compared with 31-37 cents expected earlier.
Cash flow from operations is forecasted to be nearly $250 million, while capital investments are estimated to be around $50 million. Free cash flow is expected to be approximately $210 million in 2024.
Hanesbrands’ Guidance for Q4
For fourth-quarter 2024, net sales from continuing operations are expected to be around $900 million, including anticipated headwinds of roughly $4 million from currency headwinds. The guidance suggests a nearly 2% year-over-year growth on a reported basis and an approximately 3% increase on an organic basis at cc.
Adjusted operating profit from continuing operations is likely to be around $115 million, including an expected currency headwind of about $1 million. Adjusted earnings from continuing operations are envisioned to be about 14 cents per share in the quarter.
HBI’s shares have gained 15.6% in the past three months compared with the industry’s 16.8% growth. The company currently carries a Zacks Rank #4 (Sell).
Top Three Picks
Ralph Lauren Corporation RL, which designs, markets and distributes lifestyle products, currently carries a Zacks Rank #2 (Buy). RL has a trailing four-quarter average earnings surprise of 10.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for Ralph Lauren’s current financial year sales and earnings indicates advancements of 1.8% and 9.9%, respectively, from the prior-year figures.
Gildan Activewear Inc. GIL, which manufactures and sells various apparel products, carries a Zacks Rank of 2. GIL has a trailing four-quarter earnings surprise of 5.4%, on average.
The consensus estimate for Gildan Activewear’s current financial year sales and earnings indicates advancements of 1.5% and 15.6%, respectively, from the prior-year figures.
Kontoor Brands, Inc. KTB, a lifestyle apparel company, currently carries a Zacks Rank #2. KTB has a trailing four-quarter average earnings surprise of 12.8%.
The Zacks Consensus Estimate for Kontoor Brands’ current fiscal year earnings indicates growth of 13.2% from the year-ago actuals.
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