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Hanesbrands (HBI) Displays Solid Prospects Despite Risks

Hanesbrands Inc. HBI has been progressing well with its Full Potential plan, which was unveiled in May 2021. The plan includes growing the global Champion brand, reigniting innerwear growth, driving consumer-centricity and focusing on the portfolio.

Management remains optimistic about significant growth opportunities as it continues to expand women’s and kids’ businesses for the brand. The expansion into new markets like China and the deepening of adjacent product categories, including footwear, bode well.

The company focuses on investing in product innovation and digital initiatives, apart from maintaining strong operational execution. The company launched Hanes Originals, which is a line of innovative products aimed at younger customers. This marks the company’s first multi-category, multi-geography product introduction under its new global innovation process.

Hanesbrands has been executing full-potential supply chain strategies to remain competitive and increase margins over time. Management has also been investing in data analytics and supply chain improvements to fuel growth.

Moreover, the company has taken several proactive steps to further increase its financial flexibility. HBI has eliminated quarterly cash dividends, which will increase its free cash flow and help pay down its debt. Also, it refinanced its 2024 maturities in the first quarter of 2023.

However, the company has been witnessing sluggish demand for its products in the United States and Australia due to the inflationary environment. For instance, in the first quarter of 2023, its net sales declined 11.8% to $1,389.4 million. These headwinds are likely to persist in the first half of the year and adversely impact its near-term performance. For second-quarter 2023, HBI anticipates net sales to be in the range of $1.42-$1.47 billion, reflecting a 3% decline year over year on a constant currency (cc) basis and a 5% decline on a reported basis.

Hanesbrands has been subject to the impacts of commodity and ocean freight inflation, coupled with an adverse product mix and increased labor rates. For instance, in the first quarter of 2023, its adjusted gross profit margin was 32.7%, down 440 basis points (bps) on a year-over-year basis. Management expects the gross and operating margin pressure to continue in the first half of 2023.

HBI currently carries a Zacks Rank #3 (Hold).

Zacks Investment Research
Zacks Investment Research


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The company’s shares have lost 20.6% in the past month compared with the industry’s 10.5% decline.

3 Key Picks

Some better-ranked stocks are Conagra Brands, Inc. CAG, Celsius Holdings, Inc. CELH and Nomad Foods Limited NOMD, all of which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Conagra Brands operates as a leading branded food company in North America. The Zacks Consensus Estimate for CAG’s current financial-year sales and earnings per share suggests growth of 7.1% and 17%, respectively, from the corresponding year-ago reported figures. The company has a trailing four-quarter earnings surprise of 13.2%, on average.

Celsius Holdings specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements. The Zacks Consensus Estimate for CELH’s current financial-year sales suggest 67.9% growth, while earnings per share are expected to rise by 154% from the corresponding year-ago reported figures. The company has an earnings surprise of 81.8%, in the last reported quarter.

Nomad Foods manufactures and distributes frozen foods. The company has a trailing four-quarter earnings surprise of 8.5%, on average. The Zacks Consensus Estimate for NOMD’s current financial year sales suggest growth of 8%, while earnings are likely to decline 3.4%, from the prior-year reported numbers.

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