Apparel retailer Hanesbrands Inc. HBI raised its earnings and sales guidance for 2016 based on expectations of increased synergies from pending acquisitions and debt refinancing.
The company now expects adjusted earnings for fiscal 2016 in the range of $1.89 to $1.95, up from the previous guidance of $1.85 to $1.91. The company has also raised its sales guidance to $6.15 billion to $6.25 billion from the previous $5.8 billion to $5.9 billion. The company expects operating profit in the range of $940 million to $975 million, up from $920 million to $950 million expected previously.Apart from synergies from the buyouts, the guidance reflects contributions from debt refinancing and the tax-rate effect of the new FASB Accounting Standards Update related to accounting for stock compensation.
Hanesbrands has two acquisitions scheduled to close in 2016. In an attempt to boost its presence in Europe, in April 2016 the company had announced the takeover of Champion Europe, which designs, sources and sells Champion-branded athletic apparel. The company also announced the takeover of Pacific Brands Limited, the leading underwear and intimate apparel retailer in Australia in April 2016. While Hanesbrands expects to close the Champion Europe takeover in late June, the Pacific Brands acquisition is likely to complete in July.
Champion Europe operates through 130 retail stores in Italy and Greece. Hanesbrands owns Champion brand since its acquisition in 2010, and expects to consolidate the brand with the Champions Europe buyout. Hanesbrands will be able to expand the Champion brand to the markets of Europe, the Middle East and Africa, where Champion Europe has a strong presenceThe company had debuted in Europe with the DBApparel acquisition.
On the other hand, Pacific Brands operates through three business units – Underwear, Sheridan and Tontine & Dunlop. However, Hanesbrands intends to divest the Tontine pillow and Dunlop Flooring businesses as the company does not consider them to be part of its core business. The takeover will expand the company’s global presence and market share in Australia.
Hanesbrands expects the acquisitions to contribute approximately $800 million to net sales and around $70 million to operating profit before synergies in fiscal 2016. The company further expects to incur annualized interest expenses of $40 million owing to the acquisitions.
Hanesbrands has a Zacks Rank #3 (Hold). Better-ranked stocks in the textile apparel industry include Oxford Industries Inc. OXM and Delta Apparel Inc. DLA, both carrying a Zacks Rank #1 (Strong Buy). Another stock in the textile apparel sector worth considering is Perry Ellis International Inc. PERY with a Zacks Rank #2 (Buy).
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