Hanesbrands

[sjos]

Amazon sets Thanksgiving holiday weekend record with Hasbro, Champion products amongst the hot sellers

Amazon (NASDAQ:AMZN) announced that the extended Thanksgiving holiday shopping weekend was its biggest ever with customers purchasing hundreds of millions of products over the five days.
The e-commerce giant pointed to Home, Fashion, Toys, Beauty, and Amazon Devices as the best-selling categories.
The best-selling items on Amazon were Echo Dot, Fire TV Stick, and Apple AirPods. Other top sellers included Hasbro (HAS) Gaming CONNECT 4, Burt’s Bees Christmas Gifts, apparel from Champion (HBI), apparel and shoes from New Balance, the Amazon smart plug, Echo Show, and Nintendo Switch.
Of note, AMZN said customers supported small businesses during the holiday shopping weekend, with more than $1B in sales generated.

bron: https://seekingalpha.com/news/3912467-a ... ot-sellers

Zie ook: https://seekingalpha.com/article/455781 ... -headwinds

[sjos]

Hanesbrands: Extreme Value During A Cyclical Downswing
Dec. 19, 2022
Summary
HBI boasts a potential 300% return with a 10% dividend, along with share repurchases.
Negative sentiment has overcomplicated this basic inner and outerwear brand we all know and love.
Shareholders could see massive returns when they get back to pre-covid levels during a market upswing.
Any decision towards a dividend cut, attacking debt, or repurchasing shares, will generate value at this low of a stock price...

bron: https://seekingalpha.com/article/456530 ... -downswing?


$5.88 -0.01 (-0.17%) 4:00 PM 12/19/22
NYSE | $USD | Post-Market: $5.93 +0.05 (+0.85%) 7:59 PM

[sjos]

Hanesbrands: The Trouble With Debt
Mar. 05, 2023 4:35

Thesis
Hanesbrands (NYSE:HBI), the once dominant basic-wear and active-wear manufacturer of days of yore, has fallen on hard times. The company recently posted an 8% decline in overall sales for 2022, and, perhaps most importantly, eliminated its dividend in order to focus on paying down debt.
With a market capitalization of $2 billion and 2022 annual sales of $6.2 billion, HBI stock currently trades below $6 per share. It seems clear that the company is in crisis mode, and that it’s once-vaunted Full Potential turnaround plan has failed to yield the results management had expected.
In this article we’ll assess how Hanesbrands got here, and what we can expect going forward.

Looking Back
On May 11, 2021, Hanesbrands held a virtual investor day conference. It was a big day. CEO Stephen Bratspies had been with the company for less than a year, and the leadership team was ready to announce its new, strategic vision for the company. It was dubbed the Full Potential plan, and it outlined a three-year roadmap for the company going forward.
The plan was comprised of four pillars. Those pillars were:
Generate $1.2 billion in incremental revenue from 2022 to 2024 primarily from growth in the Champion brand.
Renew innerwear brand growth at a 2% annual rate over 3 years.
Focus on consumer centricity (essentially makes Hanes products visible online). No real metrics were provided here.
Focusing the portfolio by reducing SKUs and investing in key global markets.
At the time, the market still seemed to think that things might go somewhat according to plan. Bratspies had come to Hanesbrands from Walmart (WMT), after all, which was and continues to be Hanesbrands’ largest customer. A new CEO with inroads there could certainly help open doors for new opportunities.
The market, however, didn’t react well. Almost immediately following the investor day, the stock began to slide. Up to now, the stock has fallen 70%.
How It’s Going
At the end of FY 2020, Hanes reported $6.1 billion in sales, with a goal under Full Potential of clocking in $8 billion in annual top line revenue within three years. In 2022, it reported $6.2 billion in revenue. Steve Bratspies noted that Hanesbrands would not disregard Full Potential, but instead adjust the target for delivering $8 billion in revenue to 2026 instead of 2024.
However, the company's ability to execute on this refreshed timeline seems… doubtful. While at one time analysts expected the company to generate $8 billion in revenue in 2025, current analyst estimates for the year have fallen to $6.5 billion.
It’s clear that management’s plan has failed, and it will be difficult for investors to believe them now that a turnaround identical to what was presented years ago will suddenly be within reach. For investors of a certain temperament, it may seem even insulting or stupefying that management continues to insist that the same goal is just within reach while simultaneously instructing investors to strap on their life preservers now that an iceberg of debt is visible just ahead. More on that in a moment.
In our opinion, Hanesbrands now represents a company in triage with a potentially life-threatening problem of debt. With the dividend now eliminated, what should investors do?
A (BIG) Question of Debt
Problems surrounding debt have plagues Hanesbrands for some time, and they have only gotten worse in recent years.
As of the last quarter's report, total debt stood at $4.3 billion (long-term portion was $3.6 billion). While this amount is below historical levels, the company's total debt to capital has climbed to new, unsustainable highs, crossing 90% at the end of 2022.
Debt was high on analyst's minds during the FY2022 earnings call. Management announced that they were working to temporarily increase allowed debt ratios, and that they would going into the market to raise funds to pay off the $1.4 billion of debt coming due in the second quarter of 2024.
While the adjustment of allowable debt ratios was highly visible on the earnings call, the details were buried deep in Hanesbrands 2022 10K (page F-32). There, Hanesbrands disclosed the details of the Covenant Relief Period. While no investor wants to see a company enter into covenant relief on its debt, the final paragraph of the section adds a bit more alarm.
If economic conditions worsen and the Company’s earnings and operating cash flows do not start to recover as currently estimated by management, this could impact the Company’s ability to maintain compliance with its amended financial covenants and require the Company to seek additional amendments to its Senior Secured Credit Facility. If the Company is not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, its lenders could require the Company to repay its outstanding debt. In that situation, the Company may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.
One could say that this is simply the company covering the bases in terms of what could happen, but the caveat that if cash flows and earnings do not recover in accordance with management's estimates, then a default is likely if the company cannot secure additional amendments.
Let's dive a little deeper here. The company's long-term debt stack looked like this at the end of 2022:
The two senior notes with maturity dates of 2024 garnered an emphasis of matter from Hanesbrands' auditor, simply noting that a large amount of debt will soon be due. In February 2023, the company effectively refinanced these two notes when it issued $600 million in new bonds with a 9% coupon along with taking on a $900 million term loan (at SOFR plus 375 basis points).
The company has also almost maxed out its Accounts Receivable Securitization [ARS] facility (they've borrowed $209 million with a max available amount of $275 million), as well as pulled on $32 million under international credit facilities.
The biggest threat in the debt stack, however, is the Senior Secured Credit Facility [SSCF], which is comprised of the Revolving Loan Facility and Term Loan A. When the company announced it was entering into a covenant relief period, it was principally referring to the debt held in the SSCF.
Keep in mind, the SSCF debt rate is not fixed. It has a 10-basis point spread to SOFR. This is critical.
The lenders under the Senior Secured Credit Facility have received a pledge of substantially all of our existing and future direct and indirect U.S. subsidiaries and certain foreign subsidiaries, with certain customary or agreed-upon exceptions for certain subsidiaries. Additionally, these lenders generally have a lien on substantially all of our assets and the assets of our U.S. subsidiaries and certain other foreign subsidiaries, with certain exceptions... if we fail to meet our payment or other obligations under the Senior Secured Credit Facility, the lenders under that facility will be entitled to foreclose on substantially all of our assets and, at their option, liquidate these assets[.]
Based upon this disclosure and Hanesbrands' negotiated amendment to its covenants regarding the SSCF, we begin to get the sense that issue has the potential to become existential.
Moody's recently downgraded Hanesbrands' corporate family rating and probability of default rating from Ba3 to Ba3, and Ba2-PD to Ba3-PD respectively. In the number scale within each letter rating, 3 is the lowest tier.
Moody's defines the Ba rating for default probability as: "Corporate families rated Ba-PD are judged to be speculative and are subject to substantial default risk."
The Interest Rate Environment
Let's return for a moment to the floating rate nature of the SSCF, which is pegged at a spread above SOFR. At the end of 2022 the Revolving Loan Facility had an interest rate of 5.83%, and Term Loan A had an interest rate of 5.92%. At the end of 2022, SOFR was 4.3%, implying a roughly 150 basis point spread for the Revolving Loan Facility and 160 basis points for Term Loan A.
As of this writing, SOFR has increased 25 basis points to 4.55%. Assuming that Hanesbrands' SSCF indeed maintain our implied spread, this represents $33 million in additional interest costs on Hanesbrands' $1.32 billion in outstanding debt under the SSCF.
It does not bode well, then, that the company's operating and free cash flows were negative for 2022 and that the Fed continues to beat the drum that interest rates will continue to rise.
Forbes recently published an opinion that it expects rates to cap out at 4.9% this year (conservative, in our view). Given that SOFR tracks the fed funds rate relatively closely, this estimate implies that Hanesbrands' effective SSCF rates would be 6.4% for its revolver, and 6.5% for its Term Loan A. Should inflation continue to prove difficult to tamp down, these estimates may be quite conservative.
The Bottom Line
While the elimination of the dividend is perhaps no surprise, we believe that Hanesbrands faces enormous threats from both the erosion of cash flows in its business and the prospect of further interest rate hikes.
Management has projected that brighter days are likely ahead in the second half of 2023, but this speculation should, in our view, be taken with a grain of salt. Given the lack of results from the Full Potential plan, we believe investors would do better to believe their calculators over management's projections.
bron: https://seekingalpha.com/article/458465 ... -with-debt?