Hanesbrands Beats; Retains Guidance - Analyst Blog
20 July 2011 - 11:45PM
Zacks
Hanesbrands Inc.
(HBI) reported earnings per share of 87 cents for its second
quarter 2011, which were flat with the prior-year quarter.
However, the result surpassed the
Zacks Consensus Estimate of 86 cents by a penny.
Profits were primarily impacted by
acquisitions, organic growth and operational efficiency.
The company believes third-quarter
EPS could increase by as much as 30% over last year’s 63 cents. It
reiterated its full-year 2011 diluted EPS guidance of $2.70 to
$2.90. EPS is expected to grow at a rate of 25 -34% over fiscal
2010.
Revenues and Operating
Profits
Total revenue for the quarter
climbed 14% to $1,225.23 million from $1,075.85 million in the
year-ago period. The growth in net sales was driven by strong
performance of the acquired ‘Gear For Sports’ business, as well as
growth in the organic Outerwear segment and Internationally.
For the quarter, the company
expects net sales growth in the third and fourth quarters to be in
the low double digits to mid teens. For the full year 2011
Hanesbrands expects net sales growth of 14-16%. It reiterated full
year net sales guidance of $4.9 billion to $5 billion.
Hanesbrands delivered an operating
margin expansion of 70 basis points (bps), despite $51 million in
higher cotton and commodity costs and an operating profit decline
in the Innerwear segment.
Segment
Details
Hanesbrands’ Outwear segment posted
maximum year-over-year growth of 25.9%, followed by the
International segment with growth of 23.7%. Net sales for the
Innerwear segment climbed 8.1% from the year ago quarter, while
Hosiery and Direct to Consumer both reported year-over-year
increases of 6.4% and 3.8% respectively.
The strong performance of the
Outwear segment was fueled by ‘Gear For Sports’ as well as
Champion active wear sales growth.
Outerwear’s operating profit soared
by 109.0% to $35.91 million compared to $17.18 million a year ago.
All other segments reported an upward trend in operating income in
the quarter, except the Innerwear segment, which reported a decline
of 0.6% from the year ago quarter.
Other Financial
Updates
The company exited the year with
cash and cash equivalents of $44.65 million and long-term debt of
$1,998.23 million. The company used $68.25 million for operating
activities. The amount used for investing activities totaled $44.69
million.
The company expects free cash flow
in the year 2011 to be in the range of $100 million to $200 million
and its leverage ratio to improve to between 3.0 to 3.5 times
EBITDA. However inventory units are estimated to be at a
lower level than the year-ago period.
Our
Recommendation
Hanesbrands is a leading player in
the innerwear, casual wear and active wear markets in the U.S.
Moreover, the company commands a portfolio of well-recognized
flagship brands, including Hanes, Champion, Playtex and Bali, which
provides a competitive advantage to the company and reinforces its
well established position in the industry among stiff competitors
like Limited Brands Inc. (LTD) and
Maidenform Brands Inc. (MFB).
Hanesbrands is undertaking prudent
steps to optimize inventory levels in accordance with sales trends,
thereby improving margins and operating cash flow.
However, Hanesbrands’ debt-ridden
balance sheet and unfavorable foreign translations may weigh upon
both the top and bottom lines.
Hanesbrands currently holds a
short-term Zacks #4 Rank (Sell). On a long-term basis, we maintain
a ‘Neutral’ rating.
HANESBRANDS INC (HBI): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
MAIDENFORM BRND (MFB): Free Stock Analysis Report
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