Activewear and innerwear label Hanesbrands’ restructuring falters

January 14, 2023 written by

A global apparel brands, Hanesbrands Inc. focusses majorly on activewear and innerwear among other clothing such as socks, and T-shirts. It also owns several leading labels such as Hans, Bonds, Bali, Champion, Playtex, Maidenform, Wonderbra, and Bras N Things.

The company has been into a restructuring mode and focussed on attaining ‘full potential’ plan that was announced on its 2021 investor day. Following up on this plan, it has completed the sale of its European innerwear business in March this year. It also put up its US Sheer Hosiery for sale recently. This restructuring plan seems to have three main goals –
• Stimulate the topline growth to hit $7.4 billion in revenue by the year 2024, i.e., 6% CAGR from last year’s $6.25 billion estimate

• Increase operating margins to more than 14% from 13.3% expected last year

• Decrease leverage to 2-3x Net Debt/ EBIDTA while still maintaining the dividend The report card about the brands goes thus – it reported $6.8 billion in revenues last year and $6.6 billion in LTM revenue. This looks on track for $7.4 billion revenue by 2024. But, as per the latest quarterly report, the retailer decreased its full year guidance from $7.0 – $7.17 billion in revenues to $6.45 – $6.55 billion in revenues this year.

Last year, the operating margins of 11.7% were reported. But it also included restructuring costs of $132 million. Adjusted operating margins would have been 13.7%, excluding the restructuring charges.
The management launched the restructuring plan as the operation margins in the first half this year were worse than those of 12.7% in 2020.

Besides, Hanesbrands has also become a victim of a ransomware attack. This incident affected order fulfilment by 3 weeks. It also affected the sales negatively amounting to $100 million and adjusted operating earnings of $35 million.
However, the company’s restructuring approach to up sales, improve profitability and decrease debt seems to be failing. But the stick has dipped to attractive valuation levels with a Forward P/E of only 7.3x on management’s recently reduced 2022 guidance. Long-term investors may start collecting shares near support of ~$7 to $8/share, more so as they are being paid a 7.1% dividend yield to wait.
However, the main innerwear business garners high profits and should offer a base level of earnings for the company.

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