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Hanesbrands (HBI) Hurt by Cost Inflation: Down 28% in 6 Months
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Escalated cost inflation has been marring Hanesbrands Inc.’s (HBI - Free Report) margin performance for a while now. The consumer goods company is grappling with supply chain logistic headwinds. Apart from these, unfavorable foreign currency rates are a concern. That said, Hanesbrands’ Full Potential plan is offering some respite.
Shares of the Zacks Rank #5 (Strong Sell) stock have plunged 28.1% in the past six months compared with the industry’s decline of 26.7%. Let’s delve deeper.
Image Source: Zacks Investment Research
Cost Hurdles & Supply Chain Issues
Hanesbrands is grappling with higher inflation, which affected gross margin performance during the first quarter of 2022. During the quarter, adjusted gross profit came in at $585 million, down from $605 million reported in the year-ago quarter. Adjusted gross margin was 37.1%, down almost 305 basis points (bps) due to the expected impact of increased inflation and more-than-planned strategic investment in expedited freight to support new retail space gains and product innovation. Adjusted operating margin of 11.1% contracted nearly 280 bps, thanks to inflation and expedited freight costs.
In its first-quarter earnings call, Hanesbrands highlighted that it has been operating amid a harsh global environment for the past three months. The company is grappling with COVID-induced supply chain logistic headwinds. The war in Eastern Europe and inflation, exerting pressure on cost and consumer budgets, are headwinds. In the past three months, management saw escalated global challenges in the operating environment, resulting in an incremental $65 million net cost headwinds compared with the previous outlook.
Currency Headwinds
Owing to its international presence, Hanesbrands is exposed to unfavorable currency fluctuations. The weakening of foreign currencies against the U.S. dollar might require the company to either raise prices or contract profit margins in locations outside the country. The unfavorable foreign currency exchange rate was a 200 bps drag on the company’s sales growth during the first quarter of 2022. For the second quarter of 2022, net sales from continuing operations will likely include an adverse impact of $40 million from currency movements. For 2022, net sales from continuing operations are anticipated to reflect a currency headwind of $125 million. Certainly, the volatility in exchange rates is a concern.
Wrapping Up
Hanesbrands is progressing well with its Full Potential plan, unveiled in May 2021. The plan includes growing the global Champion brand, reigniting innerwear growth, driving consumer-centricity and focusing on the portfolio. The company is investing in the business to unlock growth, enhance consumer brand experience, reduce costs and improve efficiencies.
However, we cannot ignore the aforementioned hurdles in the near term.
The Zacks Consensus Estimate for G-III Apparel 's current financial-year sales suggests growth of 12.9%, while the same for earnings per share (EPS) indicates a rise of 10.4% from the respective year-ago reported figures.
Gildan Activewear (GIL - Free Report) has a Zacks Rank #1 at present. GIL manufactures and sells various apparel products. Gildan Activewear has a trailing four-quarter earnings surprise of 38.7%, on average.
The Zacks Consensus Estimate for Gildan Activewear’s 2022 sales and EPS suggests growth of almost 12% and 12.5%, respectively, from the corresponding year-ago reported figures.
lululemon athletica (LULU - Free Report) , an athletic apparel company, carries a Zacks Rank #2 (Buy) at present. LULU has a trailing four-quarter earnings surprise of 14.9%, on average.
The Zacks Consensus Estimate for lululemon’s current-year sales and EPS suggests growth of 23.1% and 21.3%, respectively, from the year-ago reported figures.
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Hanesbrands (HBI) Hurt by Cost Inflation: Down 28% in 6 Months
Escalated cost inflation has been marring Hanesbrands Inc.’s (HBI - Free Report) margin performance for a while now. The consumer goods company is grappling with supply chain logistic headwinds. Apart from these, unfavorable foreign currency rates are a concern. That said, Hanesbrands’ Full Potential plan is offering some respite.
Shares of the Zacks Rank #5 (Strong Sell) stock have plunged 28.1% in the past six months compared with the industry’s decline of 26.7%. Let’s delve deeper.
Image Source: Zacks Investment Research
Cost Hurdles & Supply Chain Issues
Hanesbrands is grappling with higher inflation, which affected gross margin performance during the first quarter of 2022. During the quarter, adjusted gross profit came in at $585 million, down from $605 million reported in the year-ago quarter. Adjusted gross margin was 37.1%, down almost 305 basis points (bps) due to the expected impact of increased inflation and more-than-planned strategic investment in expedited freight to support new retail space gains and product innovation. Adjusted operating margin of 11.1% contracted nearly 280 bps, thanks to inflation and expedited freight costs.
In its first-quarter earnings call, Hanesbrands highlighted that it has been operating amid a harsh global environment for the past three months. The company is grappling with COVID-induced supply chain logistic headwinds. The war in Eastern Europe and inflation, exerting pressure on cost and consumer budgets, are headwinds. In the past three months, management saw escalated global challenges in the operating environment, resulting in an incremental $65 million net cost headwinds compared with the previous outlook.
Currency Headwinds
Owing to its international presence, Hanesbrands is exposed to unfavorable currency fluctuations. The weakening of foreign currencies against the U.S. dollar might require the company to either raise prices or contract profit margins in locations outside the country. The unfavorable foreign currency exchange rate was a 200 bps drag on the company’s sales growth during the first quarter of 2022. For the second quarter of 2022, net sales from continuing operations will likely include an adverse impact of $40 million from currency movements. For 2022, net sales from continuing operations are anticipated to reflect a currency headwind of $125 million. Certainly, the volatility in exchange rates is a concern.
Wrapping Up
Hanesbrands is progressing well with its Full Potential plan, unveiled in May 2021. The plan includes growing the global Champion brand, reigniting innerwear growth, driving consumer-centricity and focusing on the portfolio. The company is investing in the business to unlock growth, enhance consumer brand experience, reduce costs and improve efficiencies.
However, we cannot ignore the aforementioned hurdles in the near term.
Top 3 Picks
G-III Apparel Group, Ltd. (GIII - Free Report) , a women's and men's apparel company, currently sports a Zacks Rank of 1 (Strong Buy). GIII has a trailing four-quarter earnings surprise of 97.5%, on average.You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for G-III Apparel 's current financial-year sales suggests growth of 12.9%, while the same for earnings per share (EPS) indicates a rise of 10.4% from the respective year-ago reported figures.
Gildan Activewear (GIL - Free Report) has a Zacks Rank #1 at present. GIL manufactures and sells various apparel products. Gildan Activewear has a trailing four-quarter earnings surprise of 38.7%, on average.
The Zacks Consensus Estimate for Gildan Activewear’s 2022 sales and EPS suggests growth of almost 12% and 12.5%, respectively, from the corresponding year-ago reported figures.
lululemon athletica (LULU - Free Report) , an athletic apparel company, carries a Zacks Rank #2 (Buy) at present. LULU has a trailing four-quarter earnings surprise of 14.9%, on average.
The Zacks Consensus Estimate for lululemon’s current-year sales and EPS suggests growth of 23.1% and 21.3%, respectively, from the year-ago reported figures.