Company Reports

Narrow-moat Hanesbrands is the market leader in basic innerwear (about 60% of sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, slowing demand for apparel, higher interest rates, and a highly competitive athleisure market, we think Hanes' share leadership in replenishment apparel categories puts it in position for improving results after 2023. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Momentum remains elusive for narrow-moat Hanesbrands, which missed our fourth-quarter forecast and issued disappointing 2024 guidance. Shares fell about 12% on the report, and we expect to reduce our $18.80 fair value estimate by a high-single-digit percentage. Even so, we believe the company is making progress on its key initiatives, including product enhancements and reductions in debt, inventory, and costs, and rate shares as very undervalued.

Narrow-moat Hanesbrands announced that it has reached a standstill agreement with activist shareholder Barington Capital that will make Barington an advisor to the company and bring three new members to its board. In August, Barington sent an open letter to Hanes’ chairman calling for cost cuts, inventory reduction, and faster gross margin recovery to generate cash and pay down debt. We think these were reasonable suggestions given Hanes’ heavy debt and weak stock performance. Barington’s letter also suggested that Hanes needed new board members and, possibly, a new CEO, but the company has since announced some strategic moves, including the possible sale of Champion, that Barington apparently supports. We think a co-operation agreement between Hanes and Barington is a positive step for shareholders and are holding our Standard Capital Allocation Rating and our $18.80 fair value estimate. We think Hanes is very undervalued and will achieve significant debt reduction and improve free cash flow over the next few years.

Narrow-moat Hanesbrands is the market leader in basic innerwear (about 60% of sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, slowing demand for apparel, higher interest rates, and a highly competitive athleisure market, we think Hanes' share leadership in replenishment apparel categories puts it in position for improving results after 2023. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Hanesbrands showed progress in improving its margins in the third quarter even as consumer demand for its basics and activewear has been soft. We intend to lower our fourth-quarter forecast given market conditions and its guidance but are confident that Hanes will exit 2023 with less inventory and an improved gross margin run rate in the high 30s.

Narrow-moat Hanesbrands is the market leader in basic innerwear (about 60% of sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, slowing demand for apparel, higher interest rates, and a highly competitive athleisure market, we think Hanes' share leadership in replenishment apparel categories puts it in position for improving results after 2023. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Narrow-moat Hanesbrands' second-quarter results were in line with our expectations, but it guided to disappointing profit recovery in the second half of the year due to slow sales of Champion and tough market conditions in Australia. Hanes now expects full-year adjusted EPS of $0.16-$0.30, down from its prior range of $0.31-$0.42. However, as our EPS estimate of $0.31 was at the bottom of its prior range and we do not expect to adjust our long-term estimates (including 3% annual sales growth and 13% operating margins), we expect to make only a low-single-digit percentage reduction to our $20 per share fair value estimate.

Narrow-moat Hanesbrands is the market leader in basic innerwear (about 60% of sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, slowing demand for apparel, higher interest rates, and a highly competitive athleisure market, we think Hanes' share leadership in replenishment apparel categories puts it in position for improving results after 2023. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Although it reported a small net loss, narrow-moat Hanesbrands’ 2023 first-quarter results were in line with its outlook and our estimates. Moreover, the company reiterated its full-year guidance, including a 2% sales decline (at the midpoint) and adjusted EPS of $0.31-$0.42. Hanes’ shares edged up by a mid-single-digit percentage on this news, likely because expectations were extremely low. As our estimates align with the current outlook, we do not expect to make any material change to our $20 per share fair value estimate and continue to view Hanes’ shares as very undervalued. While the company lacks sales momentum and is contending with slowing consumer demand, we anticipate its profit margins will improve markedly by the end of 2023 due to lower input costs, putting it on track to return to operating margins of around 13% within about two years, up from just 9% (adjusted) in 2022.

Narrow-moat Hanesbrands is the market leader in basic innerwear (about 60% of sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, the strong U.S. dollar, and lower inventory levels at retailers, we think Hanes' share leadership in replenishment apparel categories puts it in better shape than some competitors. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Hanesbrands reported 2022 fourth-quarter results that were largely in line with our expectations and its mid-January preannouncement. However, this report was overshadowed by a disappointing 2023 outlook, a large non-cash write-down of deferred tax assets, and the news that it has chosen to eliminate its dividend to focus on debt reduction. While the latter was likely anticipated by the market (dividend yields have been close to 10%), we had expected that Hanes could continue to pay its dividend while working to refinance its $1.4 billion in spring 2024 debt maturities. However, the combination of higher interest rates and its lack of business momentum probably necessitated the move.

Providing some relief to beleaguered shareholders, Hanesbrands announced that its fourth-quarter net sales came in slightly above the top end of its $1.4 billion-$1.45 billion guidance (issued in November) and that its adjusted operating income was in the middle of its $70 million-$100 million anticipated range. For some perspective, 2021’s fourth-quarter numbers were considerably higher at $1.75 billion and $220 million, respectively. Even so, meeting even low guidance must be seen as a mild positive (shares edged up about 9% in Jan. 12 postmarket trading) given the concerns about Hanes’ weak cash flow, tough market conditions, elevated inventories, and the roughly $1.4 billion in debt maturities looming in spring 2024. The firm will report its full 2022 results on Feb. 2. In the meantime, neither our forecast nor our $22 fair value estimate is materially affected by the announcement, and we view Hanes as significantly undervalued. While the company is coming off a tough year, we believe it is making progress on its cost containment, inventory management, and product initiatives under its Full Potential plan. Moreover, we believe it will refinance its debt while continuing to pay its sizable dividend (current high-single-digit yield). Our narrow moat rating, based on the strength of Hanes’ key brands, holds.

Narrow-moat Hanesbrands is the market leader in basic innerwear (60% of its 2021 sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, the strong U.S. dollar, lower inventory levels at retailers, and COVID-19, we think Hanes' share leadership in replenishment apparel categories puts it in better shape than some competitors. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Hanesbrands' 2022 third-quarter profitability met expectations, but this was overshadowed by a dim fourth-quarter outlook as consumers are cutting back on spending, retailers are managing inventories tightly, and the strong U.S. dollar affects international results. Peers like narrow-moat VF and no-moat Gildan have recently reported similar conditions. Hanes now expects a nearly 20% sales decline and adjusted EPS of $0.04-$0.11 for the fourth quarter versus our estimates of a 4% sales drop and $0.28 in adjusted EPS. While declining input costs and Hanes' actions, including inventory reductions and product innovation, should allow for improving results in 2023, tough industry conditions may last well into the year. Thus, we expect to make a high-single-digit percentage reduction in our $24 fair value estimate, although we do view Hanes as undervalued. Despite a disappointing 2022, we think Hanes' issues are primarily due to the broader economy and that its brand intangible asset, the source of our narrow-moat rating, remains intact.

Investors have forsaken apparel manufacturers and retailers, which we believe present numerous attractive opportunities. These firms have struggled with many issues in 2022, including higher inventories, lower operating margins, inflation, logistical challenges, tough comparisons with 2021, low international travel, and an extremely strong U.S. dollar. However, we see positive signs. In recent weeks, shipping has shown signs of normalizing, and gas prices have dropped. Moreover, we anticipate inventory levels will improve as manufacturers cancel shipments and sales increase in the holiday season (as is typical). In 2023, we anticipate the benefits of investments in supply chains and other operations by many apparel firms will become more apparent. Consequently, despite widespread pessimism in the market, we believe now is a good time to consider the many apparel stocks trading well below our fair value estimates.

Narrow-moat Hanesbrands is the market leader in basic innerwear (60% of its 2021 sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, currency movement, shipping delays, and COVID-19, we think Hanes' share leadership in replenishment apparel categories puts it in better shape than some competitors. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Narrow-moat Hanesbrands is the market leader in basic innerwear (60% of its 2021 sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, currency movement, shipping delays, and COVID-19, we think Hanes' share leadership in replenishment apparel categories puts it in better shape than some competitors. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Inflation, a slowdown in sales, the stronger U.S. dollar, and even a ransomware attack led to disappointing second-quarter results and a lowered 2022 outlook for Hanesbrands. Specifically, the company guided to sales of $6.45 billion-$6.55 billion and adjusted EPS of $1.11-$1.23 on for the year, down from the $7 billion-$7.15 billion and $1.64-$1.81 that it projected just three months ago. We expect to cut our $26 per share fair value estimate by close to 10% on this gloomy outlook but continue to view Hanes, offering a dividend yield above 5%, as undervalued at a P/E of about 10 on depressed earnings.

Narrow-moat Hanesbrands is the market leader in basic innerwear (60% of its 2021 sales) in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, currency movement, shipping delays, and COVID-19, we think Hanes' share leadership in replenishment apparel categories puts it in better shape than some competitors. In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

Although narrow-moat Hanesbrands outperformed our expectations in 2022’s first quarter, its shares fell by a mid-single-digit percentage as higher costs, freight delays, and unfavorable currency movement are expected to impact the second quarter and rest of the year. Despite this disappointment, Hanes believes underlying demand remains strong and expects to implement price increases on Champion in the third quarter. Moreover, as our 2022 forecast for $7.06 billion in sales and $1.76 in adjusted EPS remains within the firm’s ranges of $7 billion-$7.15 billion and $1.64-$1.81, respectively, we do not expect to make any material change to our $26 fair value estimate. Trading at a single-digit P/E and with a dividend yield above 4%, we view Hanes’ shares as very attractive.