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Stock Strategist

Margin Gains in Store for Hanes

Improved profitability should follow the apparel maker's return to revenue growth.

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We have a high degree of confidence in the defensibility of  Hanesbrands(HBI) competitive position, given advantages that are difficult for competitors to replicate: the company’s large owned and controlled supply chain, core product positioning in a space where brand is more important than price, and economies of scale achieved through a growing portfolio of synergistic brands. We think the company is poised to post significant operating margin growth through recognition of synergies ($85 million in 2018 and 2019), $100 million in net cost savings from Project Booster, and $30 million-$40 million in manufacturing efficiencies.

The company operates 50 manufacturing facilities, mostly in Asia, Central America, and the Caribbean Basin. In 2017, more than 70% of units sold were from its own plants or those of dedicated contractors. When Hanesbrands can internalize high-volume styles, we estimate that it saves as much as 15%-20%. Utilizing this manufacturing platform, Hanesbrands has been successful in making acquisitions to drive earnings growth.

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Bridget Weishaar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.