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, Burtâ€™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
Laatste artikelen op Beursig.com
Dec. 19, 2022
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
Mar. 05, 2023 4:35
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 itâ€™s once-vaunted Full Potential turnaround plan has failed to yield the results management had expected.
In this article weâ€™ll assess how Hanesbrands got here, and what we can expect going forward.
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 Hanesbrandsâ€™ largest customer. A new CEO with inroads there could certainly help open doors for new opportunities.
The market, however, didnâ€™t react well. Almost immediately following the investor day, the stock began to slide. Up to now, the stock has fallen 70%.
How Itâ€™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 seemsâ€¦ 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.
Itâ€™s clear that managementâ€™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 Companyâ€™s earnings and operating cash flows do not start to recover as currently estimated by management, this could impact the Companyâ€™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?
Apr. 21, 2023 9:52 AM ETHanesbrands Inc. (HBI)
The stock was down 66% in a year and the dividend elimination likely scared off mutual funds.
Competition is a more significant issue for the company. It must choose between cost or fashion focus.
The company saw a path to higher margins and operating cash flows for the year by reducing costs and cleaning out inventories.
Hanesbrands (NYSE:HBI) stock is down 66% in a 1-year period and has not rebounded even after the company successfully refinance its debt. We also believe the elimination of dividends scared away mutual fund investors. However, it cannot be ignored that Hanesbrands still has a strong cost leadership position in the industry. Its commitment to maintaining control over its production process and reducing inventory shows promising signs for the company's future.
However, we believe that the competition the company faces is a more important issue. The company, which is at a crossroads, must choose between continuing to be cost- or fashion-focused.
Given that the valuation multiples are not cheap enough, the upward potential appears to be constrained for both short-term trading and long-term investing. We rate the stock as Neutral.
Hanesbrands Inc. operates in the global innerwear and global activewear apparel categories.
During 2022, net sales from its Innerwear, Activewear, and International segment, represented approximately 39%, 25%, and 31% of total net sales.
Hanes is the company's largest brand in the portfolio.
The company launched the Hanes Originals line of innovative products with modern silhouettes aimed at younger consumers.
Champion is the company's second-largest brand and is known for authentic American style and athletic-wear innovation.
Maidenform is an American shapewear brand and has been trusted since 1922 for modern bras, panties, and shapewear.
The company manufactured more than 60% of its products in its own facilities. This gives the company flexibility to customize products or control the quality and costs.
By geography, the company generated 69% of its revenues in the U.S. and 31% in international markets.
In its U.S. segment, it generated 19%, 8%, 17%, and 25% of its revenues from (1)mass merchants, (2)mid-tier and department stores, (3)direct-to-consumer, and (4) others
In its international segment, it generated 56% from wholesale retailers and 44% from the direct-to-consumer channel.
The company's largest customer is Walmart Inc. (WMT), accounting for 16% of its revenues in 2022.
The company has launched a multi-year cost savings program to self-fund the necessary investments to achieve its Full Potential plan's objectives, which include growing the Champion brand globally, driving growth in Innerwear with brands and products that appeal to younger consumers, building e-commerce excellence across channels, and streamlining the global portfolio.
In June 2022, a company acquired the Champion trademark for footwear in the US, Puerto Rico, and Canada.
The company currently faces a headwind, and its revenues declined 8% in 2022 and were in a decelerating trend. Its revenues decreased by 16% in Q4 2022.
The company's inventory increased by 25% and its operating cash outflow was $358 million in 2022. It had cash on hand of $238 million as of Dec 2022.
On the Q4 2022 earnings call, the company highlighted its results, debt and balance sheet actions, and the 2023 outlook.
Hanesbrands exceeded sales expectations for the quarter and delivered earnings per share that were on target.
The company expected macroeconomic challenges and inflation pressures to continue in 2023.
Hanesbrands announced strategic actions to strengthen their long-term financial foundation, such as eliminating the dividend and committing to reducing debt.
The company saw a path to higher margins and operating cash flows for the year by reducing costs and mitigating near-term macro-related challenges.
Hanesbrandsâ€™ full potential plan was delayed to 2026 due to the realities of the current economic environment, but the company was confident in its ability to achieve $8 billion in sales and a 14% operating margin.
The company has made improvements to its business operations, such as exiting non-strategic businesses and improving supply chain efficiency.
The innerwear business was in a replenishment mode and had seen significant inventory action to reduce inventory.
Our comments are:
The company faced significant management problems. Since 83% of its sales came from the wholesale channel, it should have been in early contact with its wholesale partners.
For institutional investors such as mutual funds, who prefer to deploy cash to businesses that pay dividends, the dividend drop is frightening. This implies that the company is in survival mode as the debt holders were not requesting the elimination of dividends.
Here is an excerpt from the conference call when analyst David Swartz questioned management on the decision to stop paying dividends:
Did the market require you to eliminate your dividends for the refinancing?
No the amendment, the basket does allow us to pay a dividend of up to $75 million annually. So to Steveâ€™s point, we thought it was prudent to utilize all of the cash after we've made the investments in the business to retire debt.
The innerwear industry is in a replenishing phase, and the company anticipated that its cash flow will normalize in 2023. We believe that this is the prediction that the company made after speaking with its wholesale partners.
A report from McKinsey reveals the fashion industry will be slowing down in 2023 due to macro tension and weak consumer confidence.
The above projection can be supported by signs spotted in many other companies that had reported Q1 earnings. In addition, based on the U.S. Census Bureau data, March 2023 clothing sales were down 1.8% and 1.7% from Mar 2022 and Feb 2023.
The sales of men's underwear also serve as an unofficial indicator of economic health. The men's underwear index is an indicator to reflect economic conditions. Vice versa, as the recession expectation is approaching, sales of men's underwear may fall.
The men's underwear index (MUI) is an economic index that can supposedly detect the beginnings of a recovery during an economic slump. The premise is that men's underwear is a necessity in normal economic times and sales remain stable. During a severe downturn, demand for these goods changes as new purchases are deferred. Hence, men's purchasing habits for underwear (and that of their spouses on their behalf) are thought to be a good indicator of discretionary spending for consumption at large especially during turnaround periods.
During a recession, men's underwear sales may decrease. However, one advantage for companies selling men's underwear is that it is typically not considered a fashion item. This means that the company can sustain a longer wait period before the inventory becomes outdated, unlike holding fashionable apparel items.
The company's EBITDA decreased by 28% in 2022 and debt increased by 15%. Its net debt/EBITDA ratio increased to 4.6x. The company amended its credit agreement to temporarily increase its debt/EBITDA ratio restriction to 7.25x in 2023 and step down to 4.5x before Mar 2024.
In March 2023, the company completed the refinancing of 2024 maturities and closed a $900 million term loan B financing and $600 bond issuance to refinance its bonds maturing in 2024.
The banks continued their support for the company. Its financial covenant was temporarily allowed to increase to 7.25x debt/EBITDA, implying that the company's EBITDA might decrease by as much as 38% in 2023.
We think that the competition risk poses the greatest threat to the company. The majority of the company's portfolio consisted of very outdated brands. Younger underwear companies like Calvin Klein and Aerie were well-liked by this generation. Calvin Klein has also been successful in getting on Walmart's supplier list.
American Eagle Outliers, Inc. (AEO), G-III Apparel Group, Ltd. (GIII), and PVH Corp. (NYSE:PVH) all outperformed Hanesbrands in terms of sales and were predicted to do so in the future.
Hanesbrands has bought the Champion brand in an effort to return to growth. Champion is a more popular brand among the younger generation and is more fashion-driven than the Hanes brand. Additionally, the company introduced the Hanes Originals brand with contemporary shapes geared toward younger consumers.
We appreciate its efforts to cater to customers. However, the company had previously been concentrating on cost leadership for decades. We are concerned that running a brand with a fashion focus requires a very different approach than marketing a cost-driven brand. This paradigm shift in thinking can occasionally be extremely risky for a large corporation like Hanesbrands.
Most of its valuation multiples trade slightly below its 5-year average and sector median for reasons. The company expects to have positive cash flow and flat sales in FY2023. Based on our analysis of the risk above, the company's EBITDA may decrease by as much as 40% in 2023, and it also faced competition risk and the possibility of a paradigm shift issue. Given that the valuation multiples are not cheap enough, the upward potential appears to be constrained from the standpoint of short-term trading. The paradigm shift within the organization is more of a long-term concern. Its long-term upside potential is still unclear to us.
Divestiture fashion-driven brand
As per our analysis above regarding competition risk, we believe the company must decide whether to remain focused on fashion or on costs. The company's strong cost leadership position didn't do much for the Champion brand. If Champion tries to compete with other brands on price, it might also fail. Hence, selling Champion to other firms for cash and keeping the focus on cost-driven can be a solution for the company. As a result, the market is likely to reprice the stock.
Some mutual funds cannot purchase the shares because of the elimination of dividends. Thus, starting dividend payments again may be a strategy to draw mutual funds back.
In conclusion, in 2022, the company faced challenges, including an 8% decline in revenue and an increase in inventory. The company successfully refinanced its debt in Mar 2023. The management is still confident in achieving its sales target of $8 billion and a 14% operating margin long term.
The company's valuation multiples trade slightly below its 5-year average and sector median due to various risks, including competition risk, solvency risk, and the possibility of a paradigm shift issue. Overall, the company's future success will depend on its ability to adapt to changing industry trends and consumer demands while managing its risks effectively. We rate the stock as Neutral.
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Hanesbrands: Temporary Headwinds, Long-Term Value Investment
May 03, 2023 10:24 PM ETHanesbrands Inc. (HBI)
Hanesbrands appears cheap from an NPV perspective.
A refinancing of its nearest-term debt was recently completed.
Currently impacted by inflation, high inventory and low consumer demand.
Hanesbrands (NYSE:HBI), an otherwise stable every apparel company, is currently under pressure from high inventories, weak consumer demand and inflation. Although these are good reasons for the stock price to trade lower, these are temporary and do not indicate fundamental problems with the companyâ€™s business model or financial practices. A probability-weighted NPV calculation below arrives at a share price of $11, indicating a great long-term value investment from current $5 levels.
Introduction to company
Hanesbrands Inc. is an American casual clothing company with top brands such as Champion, Bonds, Maidenform, Bali, Playtex, and not the least Hanes under its belt. It owns most of its supply chain as more than 70% of the apparel sold has been manufactured in their facilities or close contractors which helps it navigate the cost structure of its business better. It sells its branded clothing through its more than 250 branded retail stores across the US and through wholesale customersâ€™ stores and websites as well as their own. Hanesbrandsâ€™ products are worn by people of all gender and age with each brand focusing more so on, for example, streetwear as is the case with Champion. It has recently embarked on its Full Potential plan which is its new strategy for becoming more stable financially and more growing its brands more consumer centric.
Based on 2022 numbers, 69% of net sales were derived in the United States while the rest had taken place elsewhere. Its products are primarily distributed through wholesale customers, such as Walmart and Target, which accounted for about 19% of net sales in 2022. These mass merchant products are priced to be accessible to end customers of all incomes whereas its sales to department stores target a higher-income end customer. The latter accounted for approximately 8% of net sales while sales direct-to-consumer accounted for about 17% of net sales. Sales to other customers, including the United States military and various colleges, were about 25%.
Recent Company ReFi and Plan
The Full Potential plan is the companyâ€™s growth plan. It includes growing the Champion brand especially in Europe and Asia through partnerships and retail channels, using cash flow to pay down debt. It aims to become more profitable across market cycles which are the result of changes in general consumer confidence. It also increases investment in e-commerce and the project compounded annual growth rate in top line revenue is expected to be 6%.Much in line with the plan, the company has successfully refinanced its 2024-due notes as of March 9th, enabling the company to meet its short-term obligations and complete the planned investments in e-commerce and presence in Europe and Asia.
Its Q1 2023 net sales in USD terms were $ 1.39 billion, about 12% lower than the Q1 2022 figure of $1.58 billion. Primarily a result of a macro-driven consumer demand slowdown, it resulted in a net loss of $34.4 million, or, a loss of 0.1 per share. These numbers also reflect the companyâ€™s efforts in driving down inventory through discounts, resulting in more margin pressure. Other than that, inflation in the form of ocean freight and cotton prices also continue to exert downward pressure on margins. Therefore, the companyâ€™s recent focus on growing its brands are not visible in the financial statements, as sales are down across business segments.
From an income statement perspective, the company does not seem as healthy as it has been in the past whereas from a balance sheet perspective, it also seems rocky with Q1 2023 Net debt/EBITDA ratio increasing to an unhealthy level of 5.4 from 2.8 in Q1 2022. Also, its quick ratio stands at 0.6, indicating a clear dependence on being able to offload its inventory in order to meet its obligations for the next year with cash from its continuing operations.
In order to value HBI stock, it is appropriate to create two future cash flow scenarios with the first one reflecting a continuation of the companyâ€™s prior results as measured by the average annual free cash flow and the second one reflecting a continuation of its current results which are negatively impacted, especially by current consumer trends. By probability-weighing these valuation outcomes, one can arrive at a great estimate.
For the first scenario, the intrinsic value of one share is about $13 with assumptions of a 2% growth rate in free cash flow, a discount rate of 8% and a terminal multiple of 10 which would be very much in line with the companyâ€™s prior results.
The base from which to project future cash flows off for the second scenario is the 3-year average of annual cash flows per share which amounts to about $0.37. This is assumed to repeat in 2023 and 2024, before recovering and stagnating in the years 2025 to 2033. The intrinsic value then arrives at $11.13, not that far from scenario 1â€™s $13. This means that the valuation price is not as dependent on the actual cash flows as on changes in the general investment environment as measured by discount rates and exit multiples.
Probability-weighing these scenarios with a 50/50 probability distribution results in a share price of about $11, indicating a potential of doubling the initial investment from May 2ndâ€™s $5 price levels. This is of course not a guaranteed outcome as risks are associated with every financial investment.
In conclusion, Hanesbrands has the potential to be a great value investment from current $5 levels and has a track record of delivering stable returns in the past through selling everyday clothing at affordable prices. The companyâ€™s stock price is currently under pressure as their business segment is noticeably affected by inflation worries, the current consumer slowdown, and high inventories.
Bron: https://seekingalpha.com/article/459967 ... investment?
May 10, 2023
I explain why Hanesbrands Inc. is under distress and how this exhibits a turnaround opportunity.
I discuss what Hanesbrands management is doing to turn the ship around and why I'm bullish on these actions.
I explain why the stock is undervalued through discounted cash flow analysis and comparing multiples.
I perform market research on the Hanesbrands Inc. social media platforms and their products on Amazon.
What's With Smackdown?
Hanesbrands Inc. (NYSE:HBI) is in distress and I expect a 1.5X-4X when they return to normal business levels.
Artificially low interest rates and supply chain threats motivated retailers to overorder apparel products. While Hanesbrands Inc. does have retail stores, they are primarily a vertically integrated manufacturer, owning 60% of their plants. These orders created an illusion of demand, so their plants started to make mounds of apparel. Whilst this was happening, cotton prices screamed to a ten-year high of almost $160/lb. This also happens to be the second highest in the last 100 years when prices were $200/lb in 2011. They were essentially making products with raw material input prices that happen only once a century.
When Covid slowed down, and interest rates were on the rise, demand for apparel products wasn't quite what the retailers expected. Hanesbrands was left with excess inventory made from high cost raw materials. To sell these pieces, they would have to mark off or suffer from inventory overload. The culmination of these issues, destroyed their margins over the last couple years.
During the same time, freight and shipping containers 10Xd. Hanesbrands manufactures a great majority of their products overseas, and they expanded globally such as their Bonds line in Australia. This meant paying costs for shipping only further destroyed their balance sheet.
On top of that, Hanesbrands has a looming debt that management decided to not address until now. They were busy spending money on buybacks, dividends and acquisitions. The financials of the company started to get uglier and uglier.
But it doesn't end there. With the threat of popular athleisure in *** (***), NIKE (NKE), and others, Hanesbrands Inc.'s segments in Champion started to lose traction. Private labeling and other unknown brands have challenged the idea of affordable basic clothing such as t-shirts and underwear. And although they are now investing in necessary infrastructure, they also suffered a ransomware attack.
It has been a perfect storm for Hanesbrands lately, and now it trades at historical lows. What a great opportunity to jump on a brand we all know and love.
Why Am I So Bullish?
I'm not expecting a turnaround of the century, but I am expecting a return to normal for Hanesbrands Inc. The price of Hanesbrands is so low right now, a return to normal could 1.5 - 4X the current entry. Some analysts had Hanesbrands at $40 stock post pandemic based on cash flow expectations. But the biggest "why" is how management is learning from their mistakes and turning the ship around. They are managing the debt and dividend now, growing their brand through excellent marketing, and growing other streams such as their collegiate apparel and ensuring their products are saturated in ecommerce on Amazon.
Managing The Debt And Dividend
In February, Hanesbrands launched an offering of $600 million of senior notes due in 2031 at a 9% coupon to prolong their debt obligations due in 2024. Although this comes with a high interest rate, it does help them survive for another 8 years to turn the company around. Along with this, management has eliminated the dividend completely and is allocating all future cash flows to pay down this debt. This angered dividend investors, but now provides an opportunity to value investors.
Growing Their Brands
Hanesbrands segments include: Hanes, Champion, Bonds, Maidenform, Bali, Bras N Things, Playtex, JMS/Just My Size, Gear for Sports, Wonderbra, Berlei, Comfortwash and Alternative.
For the most part, the revenue from these brands has stayed flat for the last 5 or so years. I compiled segment revenue from their last 10-Ks to get an idea of the breakdown, and it seems everything has stayed pretty consistent.
The bread and butter for Hanesbrands is their innerwear segment. In fact, in their last quarterly earnings, innerwear only dropped 4% compared to a total revenue drop of 12%. This means for Hanesbrands to grow, they have to streamline their innerwear segment or promote growth in their Activewear with the major brand Champion, and they are taking a smart approach to do this.
They are trying to grow Champion by promoting to the younger generation through social media marketing and streamlining their data driven model with their new SAP integration. This means they should be able to make intelligent design and marketing decisions based on data driven models rather than throwing a dart at the board. For fun, I decided to take a gander at their Instagram and was pleasantly surprised with the content quality thus far.
They tout over 5 million followers and average around 3-4k interactions per post with some of their popular lines gathering over 20k. We can compare this to ***, which has 4.5 million followers, but the interactions are more dense with 15-20k on average.
I chose to compare to *** because it is the cream of the crop for brand strength right now. I was a bit surprised with how strong Champion's social media presence is comparatively.
Furthermore, Hanes has kicked off their new marketing campaign "Make yourself comfortable." It is a tasteful campaign that nods to the Victorian 1901 era roots and embodied music from Blondie and comedic relief, along with notes from the popular Netflix (NFLX) hit series Bridgeton. This campaign and video shorts were targeted to the NBA playoffs, NBC and TNT. I recommend those interested in Hanesbrands to watch the two-minute clip and see where your marketing costs are going to. Personally, I thought it was well done and captured a wide range of audiences.
They are stacking on this campaign by sending influencers Victorian styled boxes filled with Hanes originals to show off to fans. It embodies what we think of when we buy a pair of Hanes - reliable comfort.
In Hanesbrands' last earnings, Scott Lewis mentioned their collegiate apparel business exhibited another quarter of YoY growth, which is a heck of a good sign. They are the world's largest supplier for collegiate fan apparel and just recently signed an exclusive Apparel Collaboration with UCLA.
Unless people decide to stop repping their favorite schools, I'd be hard pressed to say this isn't considered a mini-moat.
Let's Go Shopping On Amazon
If you're like me, you prefer to do your shopping for basics on Amazon.com, Inc. (AMZN). Now there is quite a bit of private labeling or fake brands, which brings up one of my arguments: private labeling will not destroy strong brands over the long run.
There is a lot of fish in the sea for basic clothing and there are some things I don't care to have a million options for. If I'm shopping for basics, then I want to pick a brand I can trust and ship it to me. I don't care to dilly dally with returns. So I thought it'd be fun to put this to the test to see how strong Hanesbrands is in an ecommerce setting. For a little marketing research, I decided to type a basic term in the search bar and see what shows up.
The first term I searched was "Men's Underwear" and then "Men's Boxers," and the first couple line items were as follows.
Mens Underwear - Amazon (Amazon)
Men's Boxers - Amazon (Amazon)
I was impressed by the shear relevancy, volume, and price of Hanes compared to competitions. It is clear Fruit of the Loom and Gildan are competitive in this sense, but Hanes is definitely a strong brand here.
Moving on, I decided to type "hoodie" and "sweatshirt" and again, the first couple lines and massive reviews and stars were dedicated to Hanes and Champion.
Continuing, I searched the term "bra" and again, the first line had and relevant comments and reviews with Bali and Playtex taking the cake.
Bra - Amazon (Amazon)
This was done for "socks" and "t-shirts" and over and over, Hanesbrands segments were always one of the most relevant. It is very clear to me they are serious about their online retail and have strong brands.
I perceive Hanesbrands Inc. stock to be extremely undervalued. Valuation was performed through a Discounted Cash Flow ("DCF") by projecting out revenue and free cash flow margins, and using the perpetual growth method to find the terminal value. Historical Revenue, Cashflow from Operations ("CFO"), Capital Expenditures, Net Debt, and Shares Outstanding, were copied and pasted from Seeking Alpha and are located in the light blue boxes. My assumptions are in the tan boxes and final fair values are in the yellow. The results or shown with access to the file here:...
I made the conservative assumption for 2% growth revenue based on historical data, analysts expectations and assuming there is little future growth prospects for the company. I make the Free Cash Flow Margin ("FCF Margin") value of 8%, based on the assumption that Hanesbrands will return to normal margins exhibited from 2015-2019 prior to increased commodity prices, shipping rates, and as they start to clear the inflated inventory over the next few quarters. The fair value, including their massive debt, shows us Hanesbrands around $4.50. However, we know management will be allocating all capital to reduce debt, so I thought a fair value before the debt was applied would be interesting to look at. We get around $16 a share with this. Based on this, if Hanesbrands can return to normal margin levels, there is a possibility they could 3X.
Another form of valuation is by looking at multiples. Hanesbrands typically trades at lower multiples compared to industry and some of more premier players such as *** and Nike, so to compare their historical multiples to other companies doesn't make too much sense to me. Afterall, Hanesbrands is considered a boring underwear stock to Wall Street and will typically trade at boring underwear multiples, unless the financials are tremendous. This being said, it makes the most sense to compare multiples to its own historical values.
For example, its current price to sales is floating around 0.25 at the time of writing this article. This is an all-time low, rivaling only at 2020, when everyone thought the world was going to end. Baseline seems to be around 1.00, indicating Hanesbrands could 4x if it returns to normal business' levels.
Some may say Price to sales is not a great metric in this situation due to the debt destroying its market cap. Although, I would argue this is okay since management has cut the dividend and all future cash flows will go towards reducing debt, we can still look at a valuation which encompasses this debt in Enterprise Value to Sales Ratio.
In this case, EV/Sales is floating under 1.00. I would put baseline at 1.5, indicating a 1.5X if returned to normal business' levels.
Risks And Conclusion
The main risk is failure to return to normal margin levels. If this is the case, then they will have serious issues paying off their debt and will be distressed for some time. I'm optimistic on them returning however due to recent quarterly performance and guidance of $500 to $550 million in operating profit this year. But I'm also optimistic due to the current price which has baked in a lot of this risk along with the experience seeing the sheer amount of Hanesbrands products in stores, online, and wearing myself without notice...
Because of the current valuation, I think the Hanesbrands Inc. risk reward profile is heavily favored to the reward side. I had an article issuing a "Strong Buy" just below $6. It screamed higher to $8 and then pulled down. Clearly, I jumped the gun, but over the long run, I believe Hanesbrands Inc. is one of the strongest plays of current times.
Hanesbrands, a major apparel company, has faced significant challenges due to prolonged consumer weakness, causing its stock to decline sharply and leading to the suspension of its dividend.
The company is making progress by reducing debt, focusing on margins, and investing in its business, including improving supply chains, with potential for significant growth if consumer sentiment recovers.
Caution is advised for investors considering HBI, as the stock is not yet out of the woods and there are high risks of prolonged volatility in consumer-focused stocks.
A big part of my long-term macro thesis is consumer weakness. Prolonged above-average inflation, energy supply issues, food inflation, and other issues are toxic for consumer spending, which is a major driver of economic growth in developed nations.
However, I underestimated how bad things would get for Hanesbrands (NYSE:HBI), which is one of the world's largest apparel companies. The stock is down 30% year-to-date. It's 62% below its 52-week high and down 88% from its all-time high.
On top of that, the company has suspended its dividend.
The good news is that the company is making progress. It's reducing debt, focusing on margins, and investing in its business, including smooth supply chains.
When (not if) it gets support from stronger consumer sentiment, the stock price is likely to take off. The problem is finding an entry, as the company isn't out of the woods yet.
So, let's dive into the details!
What's Hanesbrands? And Why Does It Matter?
I have no investments in industries that are based on trends. For example, I do not invest in apparel retail stores or luxury brands.
Not only do I hate shopping, but I'm also not going to try to predict the next fashion trend - let alone depend on it with my hard-earned money.
However, Hanesbrands is different.
Hanesbrands isn't a company that thrives on fashion trends - at least not the kind of trends other companies are dependent on.
With a market cap of $1.6 billion, Hanesbrands is a company that markets everyday basic innerwear and activewear apparel under various well-known brands, including Hanes, Champion, Bonds, Maidenform, Bali, Playtex, Wonderbra, and more.
The company operates in three segments: Innerwear, Activewear, and International.
The Innerwear segment includes men's and women's underwear, socks, and intimate apparel.
The Activewear segment focuses on T-shirts, fleece, performance apparel, and sports accessories.
The International segment sells a wide range of products across different regions, including Australia, Europe, Asia, and the Americas.
The company operates globally, selling its products through mass merchants, department stores, specialty stores, e-commerce sites, and its own retail locations and websites.
Essentially, it's a company that produces affordable yet high-quality apparel for a wide audience. People who need good clothes without having the need to post them on Instagram. I'm painting with a very broad brush here, but I think readers understand what I'm saying here.
HBI is more dependent on general consumer confidence than fashion trends.
The company's growth strategy, called the Full Potential plan, focuses on four pillars:
Global expansion of the Champion brand, Targeting younger consumers with appealing innerwear products, Building e-commerce excellence, and Streamlining the global portfolio.
Furthermore, to support this growth, the company has launched a cost-savings program and is investing in initiatives aligned with its Full Potential plan.
When looking at the HBI stock price, we see a huge rally between 2012 and 2015. These were the best years for the (global) consumer. Rates were declining, inflation had peaked, and the housing market made a stunning comeback. After 2015, consumer sentiment weakened a bit and investors had no interest in owning a company like HBI. In 2020, the pandemic hit, which resulted in temporary store closings and an implosion in in-store spending.
However, it was followed by a steep rally as stores reopened and people went out to spend. Inflation was low, government support helped fuel spending, and most goods were in short supply.
Then, after 2021, inflation skyrocketed, supply chains were damaged, and consumer sentiment started to implode.
It caused HBI to suspend its dividend while its stock price fell below 2012 levels.
...Now, the question is:
How Is Hanesbrands Doing?
While its year-to-date stock price may not suggest it, HBI is improving its business.
In the first quarter, Hanesbrands demonstrated progress toward its near-term goals. The company achieved revenue, operating profit, and earnings per share that were in line with its outlook.
While the company achieved its goals, numbers were still impacted by severe consumer weakness on a large scale.
Sales declined 12% Y/Y, mainly due to a macro-driven slowdown in consumer spending in the US and Australia.
The international business saw a constant currency sales decline of 3%, primarily driven by lower innerwear sales in Australia and reduced sell-in shipments of Champion in China.
Adjusted gross margin stood at 32.7%, down 440 basis points Y/Y, impacted by cost inflation and sales volume mix.
However, Hanesbrands reiterated its full-year guidance, including net sales of $6.05 to $6.2 billion, adjusted operating profit of $500 to $550 million, adjusted EPS of $0.31 to $0.42, and operating cash flow of roughly $500 million.
The company successfully refinanced its 2024 maturities and experienced benefits from initiatives aimed at unlocking working capital.
Notably, inventory declined sequentially, and positive operating cash flow was generated, bucking the historical trend of cash usage in Q1.
Unfortunately, debt reduction has not resulted in lower leverage, as lower EBITDA has caused the net leverage ratio to jump to 7.4x.
When it comes to the company's long-term growth targets, Hanesbrands' growth strategy centers around becoming a more consumer-centric and data-driven organization while enhancing efficiency and profitability.
In the 1Q23 earnings call, CEO Steve Bratspies shared his first-hand experience visiting Hanesbrands' operations in Australia and world-class manufacturing facilities in Vietnam, Thailand, and Honduras.
As expected, he expressed confidence in supporting the company's growth in the direct-to-consumer ("D2C") model, highlighting investments in technology, automation, and distribution center efficiency.
Hanesbrands is leveraging data analytics and machine learning to improve output, drive innovation, and optimize marketing investments through loyalty programs.
Not only is direct-to-consumer an emerging trend, which should allow the company to improve margins on a prolonged basis, but the company is also improving its supply chain using the aforementioned levers.
For example, Hanesbrands implemented the Skip Flow initiative, directly shipping products from factories to customers' warehouses, reducing costs and increasing delivery speed.
Patience is key. Hanesbrands is expected to grow its free cash flow from negative $470 million in 2022 to positive $380 million in 2023. If everything goes right, the company will be able to keep its free cash flow close to that level, which implies a >20% free cash flow yield. This is also good for the return of shareholder distributions at some point in the future.
Speaking of the dividend, the company has eliminated its dividend to reduce its debt, which means most of its money will go toward debt reduction.
This year, net debt is expected to fall to $3.3 billion, which implies a net leverage ratio of 5.5x EBITDA. In this case, 2023 EBITDA is expected to be $600 million.
Next year, net debt is expected to fall to $3.0 billion, which would be 4.2x 2024E EBITDA of $710 million (+18% versus 2023E).
So, using 2024 numbers, the company is on a path to an EV/EBITDA multiple of 6.5x.
If the economy rebounds, I believe HBI will trade close to 8x EBITDA again.
Using these numbers, there's a path for HBI to trade at $7.50 again in the next 24 months.
The problem is estimating when the stock might take off. Right now, I'm not necessarily expecting another implosion.
However, given that I expect commodities to do well on a long-term basis (as explained in this article - and many others), I'm not betting on a quick recovery in consumer-focused stocks.
Hence, I expect HBI to trade in a volatile sideways trend for at least two to four more quarters. After that, it needs to be seen if improving consumer sentiment can give HBI the boost to what looks like to be a much higher fair value.
Needless to say, investors looking to buy HBI or any of its peers need to be careful and incorporate high risks of prolonged volatility.
Hanesbrands, a major apparel company, has faced significant challenges due to prolonged consumer weakness caused by inflation, energy supply issues, and food inflation.
The stock has experienced a sharp decline, down 30% year-to-date and 88% from its all-time high, leading to the suspension of its dividend.
However, the company is making progress by reducing debt, focusing on margins, and investing in its business, including improving supply chains.
The stock's future prospects depend on a recovery in consumer sentiment, which could potentially lead to significant growth.
Unfortunately, despite signs of improvement, caution is advised as HBI is not yet out of the woods, and investors should consider the high risks of prolonged volatility in consumer-focused stocks.
Patience may be key, with a potential path for HBI to trade at $7.50 again in the next 24 months, although estimating the timing of a stock turnaround remains uncertain.
So, I wouldn't call it a dumpster fire, but it's definitely a wildcard investment that needs to be handled with caution.
Bron: https://seekingalpha.com/article/460982 ... pportunity?