Hanesbrands Inc. (HBI) is a global leader in the design, manufacture, source, and sale of everyday basic apparel products, including innerwear, activewear, and casual wear. The company's diverse portfolio of industry-leading brands, such as Hanes, Bonds, Bali, Maidenform, and Champion, has made it a trusted name in the apparel industry for generations.
Business Overview and History: Hanesbrands was founded in 1901 as a small hosiery company in Winston-Salem, North Carolina. Over the decades, the company has evolved and expanded its product offerings, driven by strategic acquisitions and a focus on innovation. In 2006, the company spun off from its parent company, Sara Lee Corporation, and began trading as an independent public entity on the New York Stock Exchange.
The company's growth trajectory includes several notable milestones. In the 1940s, Hanesbrands partnered with Harley-Davidson, providing the iconic motorcycle company with t-shirts and other apparel. This collaboration marked the beginning of Hanesbrands' focus on building strong brand partnerships. The company continued to expand its product offerings and geographic reach through strategic acquisitions, including Bali in 1979 and Wonderbra in 1991.
Hanesbrands has faced and overcome various challenges throughout its history. In 2022, the company experienced a ransomware attack that impacted some of its information technology systems. In response, Hanesbrands activated its incident response and business continuity plans, working with cybersecurity experts to contain the incident and restore operations. The company's insurance coverage for cyber-attacks and business interruption insurance helped mitigate the financial impact of this event.
As part of its ongoing strategy to streamline its portfolio, Hanesbrands made the decision to divest its U.S. Sheer Hosiery business, including the iconic Leggs brand, in 2021. This divestiture was completed in 2023, allowing the company to focus on its core innerwear and activewear businesses.
Today, Hanesbrands operates in two main business segments: U.S. and International. The U.S. segment, which accounts for approximately 90% of the company's total revenue, primarily sells innerwear products such as underwear, socks, and hosiery to mass retailers, department stores, and online platforms. The International segment, representing the remaining 10% of revenue, sells a diverse range of apparel products in markets outside the United States, with a strong presence in Australia, Canada, and Latin America.
Financial Performance and Ratios: In the most recent fiscal year, Hanesbrands reported total revenue of $5.64 billion, with a net loss of $17.73 million. The company's operating cash flow was $561.75 million, and free cash flow was $517.69 million. For the most recent quarter, revenue was $995.39 million, representing a 4% year-over-year decrease, primarily due to continued macroeconomic pressures impacting consumer spending, higher-than-expected inventory management by select retailers, and the divestiture of the U.S. Sheer Hosiery business. These headwinds were partially offset by growth in the International segment. The company reported a net loss of $298.38 million for the quarter, with operating cash flow of $78.43 million and free cash flow of $70.59 million.
Performance by geographic markets shows that the U.S. segment, which comprises about 90% of the business, experienced a 1.5% revenue decline in the most recent quarter. The International segment, primarily operating in Australia, Latin America, and Canada, saw a 2% constant-currency revenue increase.
The company's financial ratios suggest a relatively stable financial position. As of the end of the most recent quarter, Hanesbrands had a current ratio of 1.46 and a quick ratio of 0.86, indicating a reasonable ability to meet its short-term obligations. The debt-to-equity ratio stood at 51.76, suggesting a moderate level of leverage.
Solvency and Liquidity: As of the most recent quarter, Hanesbrands had $213.77 million in cash and cash equivalents. The company has a $1 billion Revolving Loan Facility, of which $996.44 million was available. Additionally, HBI has a $200 million Accounts Receivable Securitization Facility, with $123.30 million available. This liquidity position, combined with the company's ongoing efforts to optimize its capital structure and reduce debt, suggests a reasonable ability to meet its financial obligations and fund its operations.
Guidance and Outlook: For the full fiscal year 2024, Hanesbrands has provided the following guidance: - Net sales are expected to decrease 2% on an organic, constant-currency basis. - Operating profit is projected to increase 36%, with operating margin expanding 330 basis points to 11.2%. - Earnings per share (EPS) are expected to increase 670% to $0.34.
For the third quarter of 2024, the company expects: - Net sales to decrease 1% on an organic, constant currency basis. - Operating profit to increase 34%, with operating margin expanding 330 basis points to 12%. - EPS to increase 650% to $0.11.
Hanesbrands expects to pay down an additional $1 billion of debt in the second half of 2024, leading to a decline of around 1.5 turns in their leverage ratio by year-end. Looking further ahead, the company aims to end 2025 with a leverage ratio of approximately 3 times net debt to adjusted EBITDA.
The company's guidance reflects its ongoing efforts to streamline its business, improve operational efficiency, and drive margin expansion through cost-saving initiatives and pricing actions. Additionally, Hanesbrands' recent announcement of the sale of its global Champion business for an estimated $900 million in net proceeds is expected to further strengthen the company's balance sheet and provide additional financial flexibility.
Risks and Challenges: Hanesbrands faces several risks and challenges that could impact its future performance, including: - Macroeconomic conditions and their effect on consumer spending patterns - Intense competition in the apparel industry and the ability to maintain brand loyalty - Potential supply chain disruptions and the impact of geopolitical tensions on sourcing and manufacturing - The ability to successfully execute its cost-saving initiatives and integrate acquired businesses - Regulatory and compliance requirements, particularly in its international operations
Despite these risks, Hanesbrands' diverse product portfolio, strong brand recognition, and focus on operational efficiency position the company to navigate the challenges and capitalize on growth opportunities in the global apparel market.
Conclusion: Hanesbrands Inc. (HBI) is a well-established player in the branded everyday apparel industry, with a diverse portfolio of iconic brands and a global footprint. While the company has faced some financial headwinds in recent years, its ongoing efforts to streamline its business, improve operational efficiency, and strengthen its balance sheet suggest a path forward for sustainable growth and value creation for shareholders. The company's recent performance and forward-looking guidance demonstrate a commitment to margin expansion and debt reduction, which could potentially lead to improved financial results in the coming years.