Cotton Costs Dampen Hanesbrands' 1Q - Analyst Blog
20 April 2012 - 10:15PM
Zacks
Hanesbrands Inc.
(HBI) reported loss per share of 27 cents in its first quarter
2012, down 155.1% from the prior-year quarter. However, the
company fared well as compared with the Zacks Consensus Estimate of
a loss of 33 cents per share.
Sharp uptick in cotton prices
during the quarter affected the margins, eventually dragging the
company to report loss.
Revenues and Operating
Profits
Total revenue for the quarter
slipped 2.7% to $1,008.3 million from $1,036.4 million in the
year-ago period. It surpassed the Zacks Consensus Estimate of
$1,004.0 million.
Hanesbrands’ gross profit margin
and operating profit margin both contracted owing to higher cotton
and commodity costs.The quarter’s operating profit contracted to
$6.1 million, 94.0% lower than the year-ago level.
Segment
Details
As the hosiery segment has reduced
in size, HanesBrands decided not to report it as a separate segment
starting this quarter. It is included within the Innerwear
segment.
Net revenue at the Innerwear
segment went up 1% from the previous year on the back of decent
performance of men’s underwear, women’s panties and sheer hosiery.
Operating profit slid 31% compared with last year.
Outerwear segment sales shrank 9%
from the year-ago period due to poor performance of the imagewear
segment. Strong Champion retail activewear sales and new Hanes
retail casualwear programs partially offset lower Just My Size
sales. Outerwear segment reported operating loss of $23.9 million
in the quarter.
Net sales at International segment
slipped 5% in the quarter, owing to soft results in the European
imagewear category. Operating profit fell 84% in this segment.
Direct to Consumer segment sales
increased 2% and operating profit increased 231% in the quarter
Other Financial
Updates
The company exited the first
quarter of 2012 with cash and cash equivalents of $34.6 million
compared with $35.3 million in the previous quarter and long-term
debt of $1,935.8 million compared with $1,807.8 million in the
fourth quarter 2011. Operating activities used $94.1 million of
cash compared with $101.0 million in the previous year.
Guidance
The company expects fiscal 2012
diluted EPS to be in the range of $2.50 to $2.60 based on net sales
growth assumption of 2-4%. Gross margin percentage is expected to
be in the low-30s in the second half of the year.
For 2012, the company expects free
cash flow to be in the range of $400 million to $500 million. The
company’s near-term priority for the usage of free cash flow is to
reduce long-term debt and de-leverage its balance sheet.
Our
Recommendation
Hanesbrands is a leading player in
the innerwear, casual wear and active wear markets in the U.S. It
is well established in the industry among stiff competitors like
Limited Brands Inc. (LTD) and Maidenform
Brands Inc. (MFB).
However, Hanesbrands’ debt-ridden
balance sheet and unfavorable foreign translations may weigh upon
both the top and bottom lines. Its soft guidance also hurts
investors’ confidence.
Hanesbrands currently holds a
short-term Zacks #3 Rank (Hold). 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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