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    HanesBrands Inc (HBI)

    Q2 2024 Earnings Summary

    Reported on Jan 16, 2025 (Before Market Open)
    Pre-Earnings Price$5.20Last close (Aug 7, 2024)
    Post-Earnings Price$5.61Open (Aug 8, 2024)
    Price Change
    $0.41(+7.88%)
    • Margin Expansion and Double-Digit Earnings Growth: Hanesbrands expects to improve gross margins to operate in the low 40% range, driven by strong cost-saving initiatives, supply chain optimization, and operational efficiencies following the divestiture of Champion. This margin improvement is anticipated to happen quarter-over-quarter, leading to double-digit operating profit and EPS growth, regardless of the broader economic challenges.
    • Innovation and Market Share Gains: The company is leveraging its strong brands to drive top-line growth through innovation, expanding into adjacent categories like medical scrubs, and gaining shelf space. Hanesbrands has a robust pipeline of innovation with visibility through 2026, and is successfully introducing global products like Hanes Originals and Supersoft across markets.
    • Debt Reduction and Strengthened Financial Position: Hanesbrands plans to pay down $1 billion of debt in the second half of the year, reducing its leverage ratio by 1.5 turns year-over-year. The company expects to end next year around 3x leverage, positioning it for stronger financial health and the potential to return capital to shareholders in the longer term.
    • Hanesbrands operates in a low-growth category with depressed demand for innerwear products, and it may take several quarters before sales normalize. The CEO acknowledged that the category has been challenged, averaging around 1% growth historically, and it's unclear when demand will return to growth. [Index 10]
    • The company's reliance on significant cost-cutting measures to drive margin improvement raises concerns about the sustainability of earnings growth without robust revenue growth. While margins are expected to improve through cost actions in SG&A and supply chain, the growth is projected to be in the low single digits, highlighting potential limitations in driving future profitability. [Indexes 14, 15]
    • Closure of unprofitable outlet stores and the absence of the Champion brand may limit distribution channels and negatively impact sales. The outlet stores were already profit-challenged, and without Champion, they became significantly less profitable, leading to their closure. This reduction in retail presence could affect how the company reaches consumers. [Index 13]
    1. EPS Guidance Increase
      Q: How much did EPS guidance increase and why?
      A: Management raised full-year operating profit outlook from prior adjusted $390 million to $405 million, pulling through strong Q2 results and expecting incremental upside in the second half.

    2. Leverage Targets
      Q: What is the new net debt-to-EBITDA target?
      A: They aim to end next year around 3x leverage, reducing by 1.5 turns year-over-year, and may target lower than the previous 2–3x range in the future.

    3. Gross Margin Outlook
      Q: Where is gross margin expected to head?
      A: Gross margins are expected to operate in the low 40% range over time, driven by cost actions, supply chain efficiencies, and lower input costs like cotton.

    4. Cost Savings Initiatives
      Q: What are the opportunities for SG&A cost reductions?
      A: Significant cost savings will come from reducing headcount, consolidating technology applications, and vendor management, starting in H2 2024 and continuing into 2025.

    5. Growth Rate Expectations
      Q: How should we plan for the business's growth rate?
      A: Sales are expected to grow in the low single digits, with operating profit and EPS growing at double-digit rates, driven by innovation, brand expansion, and market share gains.

    6. Cotton Cost Tailwinds
      Q: How will cotton costs impact next year?
      A: With cotton prices low and about 60% fixed for next year, cotton is expected to be a tailwind for costs going forward.

    7. Inventory and POS Trends
      Q: How are inventory levels and POS trending?
      A: Retailers are cautious on inventory, but POS is tracking with shipments; the company is gaining shelf space and outperforming the market in sales.

    8. Innerwear Basics Recovery
      Q: When will the basics business sales bounce back?
      A: While the category remains challenged, it is expected to return to its historical 1% growth rate over time; POS is slowly improving, and they continue to gain share.

    9. Closure of Outlet Stores
      Q: Why are you closing outlet stores?
      A: The outlet stores are not profitable, especially without Champion products; closing them will not create inventory clearance issues.

    10. Promotional Environment
      Q: Are you seeing pricing pressures in promotions?
      A: Consumers are seeking promotions, but the environment isn't overly pressured; promotional activities are within their plan, and they aim to grow at twice the rate of the category.

    11. Capital Expenditures
      Q: Will CapEx be elevated due to cost-saving projects?
      A: CapEx will increase slightly due to technology investments, but with operating cash flow around $300 million, they can support the necessary CapEx levels.

    12. Competition from Low-Priced Imports
      Q: Is increased competition from low-priced imports impacting you?
      A: The company is not significantly impacted; their brands remain strong, continuing to gain market share despite competition from low-priced imports.