There seems to be a lot of cheer in the Textile-Apparel industry with many companies putting up a stellar show — driven by favorable economic indicators and strategic growth endeavors. Ranked among the top 13% out of more than 250 Zacks industries, the industry has gained 11.1% in the past three months.
On the contrary, we have Hanesbrands Inc. HBI which has lost 10.8% in the same time frame, thereby being a drag on the otherwise buoyant space. Notably, other players like Michael Kors KORS, Lululemon Athletica LULU and PVH Corp. PVH have contributed to the industry’s rally, keeping pace with the evolving consumer trends, international expansion and brand enhancement efforts. While all these stocks sport a Zacks Rank #2 (Buy), Hanesbrands carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
So, let’s delve deeper into the factors that have caused Hanesbrands to be the odd one out and see if there’s any scope for turnaround.
Why is Hanesbrands the Odd One Out?
Hanesbrands has been struggling with its domestic performance, owing to soft store traffic and a tough retail landscape. Evidently, these headwinds hurt the company’s back-to-school selling season performance, which along with the U.S. hurricanes and earthquake in Mexico have affected the company in third-quarter 2017.
Apart from this, Hanesbrands is also battling soft sales at its Innerwear segment for quite some time now on account of soft brick-and-mortar performance stemming from sluggish traffic. In the third quarter, sales at this unit declined 5.2% to $644.1 million as the apparel category bore the brunt of a tough back-to-school retail landscape. Prior to this, sales for the segment fell 2.5% in the second quarter of 2017, 6% in the first quarter of 2017 and 8% in the fourth quarter of 2016.
Well, the Intimate Apparel/Innerwear industry is highly competitive and extremely price sensitive. Therefore, the company’s strategy to focus more on premium brands and increase prices in these categories come with the inherent risk of consumers shifting to more competitively-priced brands. This, in turn, is a threat to Hanesbrands’ market share.
Unfortunately, management expects the effect of the aforementioned natural disasters and a difficult retail sales environment to linger in 2017 as well. Moreover, it anticipates the fourth quarter to be impacted by additional marketing investments to capture market share, the recently announced Alternative Apparel buyout and effects of Sears Canada bankruptcy.
Considering all the above factors, Hanesbrands had lowered the upper end of its sales and earnings guidance for 2017 during the third quarter earnings announcement. The company now projects net sales in the band of $6.45-$6.48 billion and adjusted earnings from continuing operations in the $1.93-$1.95 per share range. Consequently, estimates for the fourth quarter and 2017 have moved south by a notch to 52 cents and $1.94, respectively, since the earnings announcement.
Any Scope for Revival Ahead?
Nevertheless, Hanesbrands’ international segment has been gaining from its focus on acquisitions, particularly Champion Europe and Hanes Australasia. On a currency-neutral basis, sales at the International segment jumped 14% in the third quarter, wherein Hanesbrands posted organic sales growth for the first time in eight quarters. Apart from the aforementioned factors, extensive online sales growth also bolstered sales improvement at the segment. Going forward, management expects organic sales growth to remain positive as it anticipates the fourth quarter to mark another quarter of organic sales growth.
While these factors and cost savings from Project Booster make us hopeful about Hanesbrands’ revival prospects, it remains to be seen if these drivers can actually place the company in tandem with the other industry gainers.
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