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Hanesbrands (HBI) Lags Q2 Earnings & Sales Estimates, Cuts View

·7-min read

Hanesbrands Inc. HBI reported dismal second-quarter 2022 results, with the top and the bottom line missing the respective Zacks Consensus Estimate. Net sales and earnings declined year over year. Management lowered its 2022 guidance ranges for sales, operating profit and earnings per share (EPS).

Quarterly results were hurt by a cyber event that temporarily impacted its global supply chain network and restricted its ability to fulfill customer orders for nearly three weeks. Management projects the cyber event to have affected the second-quarter performance by nearly $100 million in net sales, $35 million in adjusted operating profit and 8 cents in adjusted earnings per share (EPS). That said, it believes that the event has been contained at present.

Hanesbrands Inc. Price, Consensus and EPS Surprise

 

Hanesbrands Inc. Price, Consensus and EPS Surprise
Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. price-consensus-eps-surprise-chart | Hanesbrands Inc. Quote

 

Q2 in Detail

Hanesbrands posted adjusted income from continuing operations of 28 cents a share, missing the Zacks Consensus Estimate of 33 cents per share. The metric declined from 47 cents reported in the year-ago quarter.

Net sales from continuing operations declined 14% to $1,513.5 million and missed the Zacks Consensus Estimate of $1,697.5 million. The downside can be attributed to the impact of the ransomware attack (cyber event) and softer-than-anticipated point-of-sale trends. Adjusting the $38-million impact from unfavorable currency rates, net sales fell 11% on a constant-currency (cc) basis. Global Champion brand sales slumped 20% year over year in cc and 23% on a reported basis, with the same declines across the United States and internationally.

Adjusted gross profit came in at $573 million, down from $684 million reported in the year-ago quarter. Adjusted gross margin was 37.8%, down almost 120 basis points (bps) due to the impact of reduced sales volume, input cost inflation, additional costs related to the cyber event and unfavorable foreign currency rates. Benefits from the business mix, first-quarter price rise in Innerwear division, cost savings and lower air freight offered some respite.

Adjusted operating profit came in at $154 million, down $82 million from the second quarter of 2021. Adjusted operating margin of 10.2% contracted nearly 335 bps.

Segmental Details

Innerwear: Segment sales fell 12% year over year. The downside was a result of softer-than-anticipated point-of-sale trends and the cyber event. Benefits from the first-quarter price rises and retail space gains offered some respite. Segmental operating margin stood at 20.7%, down roughly 320 bps.

Activewear: Sales fell 18% year over year. The company saw continued growth in the collegiate channel, which was more than offset by softness in the other channels stemming from headwinds like point-of-sales trends, retailer inventory levels and the cyber event. Segmental operating margin of 6.9% contracted nearly 325 bps.

International: Revenues in the International business declined 3% year over year at cc. Sales fell at a low-single-digit rate across Europe and Australia, which more than offset growth in the Americas. In the Asia region, sales remained flat year over year at cc. Segmental operating margin stood at 13.2%, up nearly 25 bps.

Other Financial Details

Hanesbrands ended the quarter with cash and cash equivalents of $247.9 million, long-term debt of $3,627.2 million and total stockholders’ equity of $712.2 million. It had roughly $720 million of available capacity under its credit facility at the end of the quarter.

For the quarter ended Jul 2, 2022, the company used $209.9 million as net cash from operating activities.

Inventory came in at $2.09 billion, up 37% year over year. The company declared a cash dividend of 15 cents per share, payable on Sep 14, 2022, to shareholders of record as on Aug 24. The company has approximately $575 million remaining under its current repurchase authorization.

Capital expenditure for the year is expected at $150-$175 million.

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Guidance

Management has taken a more prudent view of its back-half net sales and profit view to reflect changes in currency rates, short-term costs related to actions undertaken to lower inventory by the 2022-end. The updated view also considers softness in consumer demand along with a tough retail environment.

For 2022, net sales from continuing operations are now anticipated to be $6.45-$6.55 billion, which includes an anticipated currency headwind of nearly $165 million. The midpoint of the guidance suggests a 4% year-over-year net sales decline on a reported basis and a nearly 2% fall at cc. Earlier, 2022 net sales from continuing operations were anticipated to be $7-$7.15 billion, suggesting about 4% year-over-year net sales growth and a nearly 6% rise at cc at the midpoint.

For 2022, adjusted operating profit from continuing operations is likely to be in the $630-$680 million range for the year, including a currency headwind expectation of roughly $22 million. Earlier, management expected the metric in the $840-$910 million range, including a currency headwind of approximately $17 million. In 2022, Hanesbrands expects to incur charges associated with the Full Potential plan of nearly $60 million. Adjusted EPS from continuing operations is envisioned to be in the $1.11-$1.23 range during 2022, down from the previous guidance range of $1.64-$1.81.

For third-quarter 2022, net sales from continuing operations are expected to be $1.73- $1.78 billion, including a projected headwind of nearly $58 million from currency rates. At the midpoint, the guidance reflects 1% year over year net sales growth on a cc basis or down 2% on a reported basis. Adjusted operating profit from continuing operations is expected in the range of $160- $180 million, including a projected headwind of nearly $8 million from currency rates. Adjusted EPS from continuing operations are envisioned to be around the 27-32 cents range for the third quarter.

Shares of this Zacks Rank #4 (Sell) company have decreased 9.8% in the past three months compared with the industry’s decline of 0.4%.

Top 3 Consumer Discretionary Picks

Some better-ranked stocks are Snap-on SNA, Marriott International, Inc. MAR and Choice Hotels International, Inc. CHH

Snap-on, a global provider of professional tools, equipment and related solutions for technicians, vehicle service centers, original equipment manufacturers and other industrial users, currently has a Zacks Rank #2 (Buy). SNA has a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Snap-on’s current financial year’s sales and EPS suggests growth of 4.7% and 6.8%, respectively, from the year-ago period's reported numbers.

Marriott, a leading worldwide hospitality company, carries a Zacks Rank #2. MAR has a trailing four-quarter earnings surprise of 18.6%, on average.

The Zacks Consensus Estimate for Marriott’s current financial year sales and EPS indicates growth of 46.1% and 101.6%, respectively, from the year-ago period’s reported levels.

Choice Hotels is one of the largest hotel franchisors globally. CHH carries a Zacks Rank #2. Choice Hotels has a trailing four-quarter earnings surprise of 11.2%, on average.

The Zacks Consensus Estimate for CHH’s current financial year sales and EPS indicates growth of 18.1% and 19.4%, respectively, from the year-ago period’s reported levels.


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