Executive Summary / Key Takeaways

• Transformative Resurgence: Hanesbrands has successfully executed a multi-year transformation, shedding non-core assets like Champion and streamlining operations, resulting in a leaner, more focused, and structurally more profitable enterprise.
• Robust Financial Performance: The company delivered better-than-expected Q2 2025 results, with net sales up 2% to $991.33 million, operating profit surging 22% to $154.66 million (15.6% margin), and EPS of $0.24, driven by significant cost savings and margin expansion.
• Strengthened Balance Sheet & Outlook: HBI has aggressively reduced debt by $1.5 billion over two years, lowering leverage to 3.3x net debt to adjusted EBITDA, nearing its 2-3x target. Full-year 2025 guidance was raised, projecting $3.53 billion in sales, 17% operating profit growth to $485 million, and 65% EPS growth to $0.66.
• Technological & Supply Chain Advantage: Leveraging advanced analytics and AI for inventory, assortment management, and demand planning, coupled with a diversified Western Hemisphere-centric supply chain, provides a competitive moat and a strategic advantage in a dynamic market, particularly amidst tariff shifts.
• Resilient Growth Drivers: Despite macroeconomic headwinds, HBI is driving growth through brand investment, innovation (e.g., Hanes Moves, Bonds US debut, scrubs, loungewear), and capitalizing on tariff-related revenue opportunities, positioning it for sustained market share gains.

The Unveiling of a Transformed Hanesbrands

Hanesbrands Inc. (NYSE:HBI), a venerable name in everyday apparel since 1901, has long been synonymous with comfort and quality through its iconic brands like Hanes, Bonds, Bali, and Playtex. For years, the company operated as a sprawling global holding entity, accumulating a diverse portfolio. However, a multi-year strategic transformation, initiated around 2019-2020, has fundamentally reshaped HBI into a focused, agile global operating company. This strategic pivot, aimed at simplifying the business, enhancing profitability, and strengthening the balance sheet, is now yielding tangible results, positioning HBI as a compelling investment in the consumer cyclical sector.

The company's journey involved a significant portfolio simplification, divesting its European Innerwear and U.S. Sheer Hosiery businesses in 2023. This was followed by the strategic decision in 2024 to exit the global Champion business, its U.S.-based outlet stores, and Champion Japan, reclassifying these as discontinued operations. The sale of the global Champion business, including its intellectual property, was largely completed by January 2025. These decisive actions have allowed HBI to concentrate on its core, high-potential brands and operational strengths, fostering a leaner, more consumer-centric business model.

Technological Edge and Operational Excellence

Hanesbrands' competitive differentiation extends beyond its brand equity into its operational DNA, particularly through its sophisticated application of technology and supply chain optimization. The company is actively leveraging advanced analytics and artificial intelligence (AI) to drive significant operational improvements across its global footprint. This includes enhancing inventory and assortment management, as well as refining demand planning and forecasting.

The tangible benefits of this technological integration are evident in HBI's SKU optimization efforts, which have seen a remarkable 50% reduction in SKUs. This disciplined approach targets and eliminates underperforming and margin-dilutive products, directly contributing to structurally higher and more sustainable margins. Furthermore, AI-driven demand planning minimizes waste, improves inventory turns, and ensures better in-stock positions, enhancing service levels for retailers. HBI's streamlined supply chain, balanced between Western Hemisphere (Dominican Republic, El Salvador, Honduras) and Eastern Hemisphere (Vietnam, Thailand) networks, is made more efficient and flexible by these analytics, providing capacity for growth and responsiveness to market shifts. This operational prowess, underpinned by technology, forms a crucial competitive moat, allowing HBI to maintain efficiency and agility against rivals.

Competitive Landscape and Strategic Positioning

In the apparel manufacturing industry, Hanesbrands competes with a diverse set of players, from large, diversified corporations to niche brands and indirect disruptors. Key direct competitors include Gildan Activewear (GIL), VF Corporation (VFC), and PVH Corp (PVH).

Against Gildan Activewear, known for its cost-leadership in commoditized basic apparel, HBI differentiates itself through a broader portfolio of consumer-recognized brands and a strategic focus on innovation. While Gildan's gross profit margin (31% TTM) might reflect its lean manufacturing, HBI's TTM gross profit margin of 42.23% demonstrates superior value capture, partly due to its SKU optimization and brand investments. HBI's AI-driven operational improvements are designed to further enhance efficiency and narrow any cost gaps.

Compared to VF Corporation, which emphasizes premium activewear and lifestyle brands, HBI's strength lies in its mass-market penetration and affordability for everyday essentials. VF's TTM gross profit margin of 53% reflects its premium positioning, but HBI's TTM operating profit margin of 12.75% significantly outperforms VF's 3%, indicating HBI's superior cost control and operational leverage post-transformation.

Against PVH Corp, a leader in premium branded apparel and intimate wear, HBI's extensive, accessible brand lineup and broad distribution network provide a distinct advantage in volume sales. PVH boasts a higher TTM gross profit margin of 59%, but HBI's TTM operating profit margin of 12.75% again surpasses PVH's 8%, underscoring HBI's effective management of operating expenses.

Indirect competitors, including fast-fashion retailers and e-commerce giants like Amazon (AMZN), pose challenges through rapid trend cycles and aggressive pricing. HBI counters these by leveraging its brand strength, continuous innovation, and the agility of its Western Hemisphere supply chain, which offers speed-to-market advantages. HBI's market share gains, particularly with younger consumers, and its ability to secure permanent retail space, underscore the effectiveness of its brand investment and innovation strategy.

Financial Performance: A Story of Margin Expansion and Debt Reduction

Hanesbrands' recent financial performance vividly illustrates the success of its strategic transformation. For the second quarter ended June 28, 2025, the company reported net sales of $991.33 million, a 2% increase over the prior year. This growth was notably amplified down the income statement, with operating profit surging 22% year-over-year to $154.66 million. The operating profit margin expanded significantly to 15.6% from 6.5% in Q2 2024, a testament to the company's operational improvements. Diluted earnings per share (EPS) reached $0.24, a substantial turnaround from a loss of $0.39 in the comparable prior-year period.

The robust margin expansion is a direct outcome of HBI's strategic initiatives. Gross margin for Q2 2025 increased by 145 basis points year-over-year to 41.2%. This improvement was driven by approximately 95 basis points from supply chain cost savings, 75 basis points from disciplined expense management, and 50 basis points from lower input costs. A particularly impactful factor was the dramatic reduction in restructuring and other action-related charges, which decreased from $189 million in Q2 2024 to just $1 million in Q2 2025, contributing approximately 1955 basis points to operating margin improvement. Selling, General, and Administrative (SG&A) expenses decreased 2% year-over-year, leveraging 110 basis points as a percentage of sales.

The first six months of 2025 further underscore this positive trajectory. Net sales increased 1.9% to $1.75 billion, while operating profit soared to $234.57 million, up 944% from the prior year, with the operating margin reaching 13.4% compared to 1.6%. Combined interest expense also saw a significant reduction, decreasing by approximately $18 million in Q2 2025 and $41 million in the first six months of 2025, driven by lower outstanding debt and a reduced weighted average interest rate (7.34% in Q2 2025 vs. 7.51% in Q2 2024).

The company's balance sheet has also seen dramatic improvement. Hanesbrands has paid down an impressive $1.5 billion of debt over the past two years, reducing its net debt-to-adjusted EBITDA leverage ratio by nearly 2.5 turns. As of Q2 2025, this ratio stood at 3.3x, steadily approaching the company's target range of 2-3x. A key step in this deleveraging was the successful refinancing of its 2026 maturities in March 2025, securing new term loan facilities and a revolving credit facility, which provides greater financial flexibility. The company remains in compliance with all financial covenants.

Strategic Initiatives and Growth Drivers

HBI's growth strategy is multifaceted, focusing on brand investment, innovation, and capitalizing on new market opportunities. The company has consistently invested in its brands at levels more than double those of four years ago, targeting approximately 5% of sales. This investment fuels innovation, such as the expansion of "Hanes Moves" into the athleisure category and the successful U.S. debut of the Australian Bonds brand. New categories like absorbency products, loungewear, and scrubs are also gaining traction, with new businesses experiencing 165% growth in Q2 2025. The Printwear business, celebrating the 50th anniversary of the Hanes Beefy-T, is another area of renewed focus and expected growth.

While the U.S. segment saw a slight sales decrease (less than 1%) in Q2 2025 due to macroeconomic pressures, particularly in intimate apparel, growth in basics and active apparel partially offset this. The intimate apparel category, especially the Maidenform brand, remains a focus for improvement, with a strategic pivot towards T-shirt bras and expanded mass/online distribution. The International segment, despite a 3% sales decrease due to unfavorable foreign currency, showed consistency on a constant currency basis, with Australia demonstrating resilience through online growth and strategic product launches like "Bonds everyday value."

A significant strategic advantage for HBI has emerged from the current tariff environment. With zero exposure to China for its U.S. products and a robust Western Hemisphere supply chain, HBI is uniquely positioned. The company anticipates fully mitigating tariff headwinds through a combination of leveraging U.S. content exemptions, accelerated cost reductions, strategic pricing, and supply chain optimization. Furthermore, tariff-related disruptions are creating incremental revenue opportunities, with retailers actively seeking HBI's Western Hemisphere capabilities to replace products previously sourced from high-tariff countries.

Outlook: Sustained Momentum

Hanesbrands' management has expressed strong confidence in its forward trajectory, raising its full-year 2025 guidance. The company now expects net sales of approximately $3.53 billion, representing an increase over the prior year. Operating profit is projected to increase 17% to approximately $485 million, and EPS is expected to grow 65% to approximately $0.66. For the third quarter of 2025, the outlook includes sales of approximately $900 million, operating profit of approximately $122 million, and EPS of approximately $0.16.

These projections are underpinned by assumptions of a continued, albeit muted, consumer environment, coupled with HBI's strong visibility into input costs and ongoing cost savings initiatives. The company expects to generate approximately $350 million in operating cash flow for the year, which will be primarily directed towards further debt reduction, aiming for a leverage ratio of around 3.0x by year-end 2025. Management's consistent track record of exceeding expectations and their proactive approach to market challenges reinforce the credibility of this positive outlook.

Risks to the Investment Thesis

Despite the strong performance and positive outlook, investors should consider several risks. Ongoing macroeconomic pressures and consumer demand headwinds, particularly impacting the intimate apparel category, could persist longer than anticipated. The company's indefinite-lived trademark in Australia remains at high risk for future impairment if economic conditions in the region worsen. While HBI has robust plans to mitigate tariff impacts, unforeseen changes in trade policies or an inability to fully execute mitigation strategies could affect profitability. Furthermore, while the company is currently in compliance with its debt covenants, a significant downturn in earnings could necessitate further amendments to its credit facilities, posing a liquidity risk.

Conclusion

Hanesbrands Inc. has demonstrably transformed itself into a leaner, more focused, and fundamentally stronger apparel company. The strategic divestitures, aggressive debt reduction, and a relentless focus on operational efficiency, powered by advanced analytics and AI, have created a robust foundation. This "new Hanesbrands" is not merely reacting to market dynamics but proactively shaping its future through brand investment, innovation, and a strategically optimized supply chain.

The company's ability to consistently deliver better-than-expected financial results, coupled with a clear roadmap for sustained margin expansion and continued deleveraging, paints a compelling picture. HBI's competitive advantages, particularly its diversified brand portfolio, global distribution, and technologically enhanced operational agility, position it to capture market share and capitalize on emerging opportunities, even in a challenging consumer landscape. For investors seeking exposure to a resilient consumer staple with a clear path to enhanced shareholder value, Hanesbrands represents a compelling opportunity, poised to build on its momentum and achieve its long-term financial targets.