Hanesbrands Stock: Overlooked 7.3%-Yielder Boasts Strong Q4 Results

By John Whitefoot, BA | January 24, 2023

Why Investors Should Look at HBI Stock

Thanks to sky-high inflation and fears of a recession, consumer cyclical stocks have been taking a hit lately. In 2022, the Vanguard Consumer Discretionary Index Fund ETF (NYSE:VCR) lost 36% of its value. The S&P 500 had one of its worst years in decades, going down by 19.4% in 2022.

Many investors think that, in times of economic uncertainty, if people don’t have a lot of money and they don’t need something, they probably won’t splurge on it. Apparently, some investors thought this goes for things like underwear and socks, too. Shares of Hanesbrands Inc. (NYSE:HBI) have been beaten down recently, but the outlook for Hanesbrands stock recently got a little brighter.

Hanesbrands is a consumer goods company that designs, manufactures, and sells a wide range of basic apparel (underwear, tops, bottoms, sleepwear, bras, socks, legwear, etc.) for men, women, and children. The company sells its products primarily under the brands “Hanes,” “Bellinda,” Champion,” “DKNY,” “Maidenform,” “Playtex,” “Polo Ralph Lauren,” and “Wonderbra.” (Source: “Fact Sheet,” Hanesbrands Inc., last accessed January 23, 2023.)

Its products are sold in many locations, including department stores, college bookstores, dollar stores, food stores, drug stores, club retailers, and nearly 1,000 company-owned stores worldwide—as well as the Internet.

Unlike most apparel companies, more than 70% of all of the clothing that Hanesbrands sells is manufactured in its own facilities or by dedicated contractors. The company owning the majority of its supply chain has a positive effect on its costs, scale, and flexibility.

Hanesbrands Inc. Launches Plan to Improve Revenue & Profits

In May 2021, Hanesbrands launched its “Full Potential” plan to drive approximately $1.2 billion in incremental revenue and expand its operating margins to 14.3% by 2024. (Source: “Hanesbrands Announces Full Potential Plan to Drive Approximately $1.2 Billion in Incremental Revenue and Operating Margins Above 14% by 2024,” Hanesbrands Inc., May 11, 2021.)

The plan calls for Champion to become a $3.0-billion global brand by 2024, expanding at a compound annual growth rate (CAGR) of 14%. The company also expects to increase its global innerwear revenue by $200.0 million through 2024, fueled in large part by sales in the U.S. and Australia. This growth represents a two-percent CAGR from its 2021 sales of $3.7 billion.

Hanesbrands Inc. has been investing in its brand marketing and digital capabilities, including its digital marketing, e-commerce, and advanced analytics. The company has also been streamlining its business, from its global holdings to its stock-keeping unit (SKU) count, allowing it to invest resources in key global brands, categories, and growth markets.

Hanesbrands expects its Full Potential plan to generate higher and more consistent levels of revenue growth and overall profitability.

Despite Headwinds, Q3 Results in Line With Expectations

For the third quarter ended October 1, 2022, Hanesbrands announced that its net sales fell by seven percent year-over-year to $1.7 billion. Its gross profit went down by 20% year-over-year to $563.0 million, while its adjusted gross profit margin declined by 460 basis points year-over-year to 34.5%. (Source: “HanesBrands Announces Third-Quarter 2022 Results,” Hanesbrands Inc., November 9, 2022.)

The company’s income from continuing operations in the third quarter of 2022 was $80.0 million, or $0.23 per diluted share. This compares to $177.0 million, or $0.50 per diluted share, in the same quarter of 2021. Its adjusted income from continuing operations in the third quarter of 2022 was $102.0 million, or $0.29 per diluted share, versus $188.0 million, or $0.53 per diluted share, in the third quarter of 2021.

Commenting on the company’s 2022 third-quarter results, Steve Bratspies, Hanesbrands Inc.’s CEO, said, “Our business fundamentals, brands and categories remain strong, and we are focused on controlling those things that are in our control.” (Source: Ibid.)

He added, “We’re making progress in reducing SKUs and inventory, while optimizing our global supply chain. We’re launching products aimed at younger consumers. We’re taking aggressive actions to manage through the near-term challenges as we execute the Full Potential strategy, which will put us in an advantaged position when the macroenvironment stabilizes.”

Business Outlook

For the fourth quarter, Hanesbrands Inc. expects to report:

Net sales from continuing operations in the range of $1.4 to $1.45 billion
Operating profit from continuing operations in the range of $53.0 to $83.0 million
Adjusted operating profit in the range of $70.0 to $100.0 million
Earnings per share (EPS) in the range of zero to $0.07
Adjusted EPS in the range of $0.04 to $0.11

(Source: Ibid.)

On January 12, Hanesbrands announced preliminary fourth-quarter 2022 results, which included net sales above the top end of the company’s guidance range and adjusted operating profit at the midpoint of its guidance range. (Source: “HanesBrands Updates Fourth Quarter 2022 Financial Outlook; Announces Departure of Chief Financial Officer Michael Dastugue and Refinancing Plans,” Hanesbrands Inc., January 12, 2023.)

“We are pleased we delivered fourth quarter net sales and adjusted operating profit[s] that were above or in-line with our outlook given the dynamic [macroeconomic] environment, including ending 2022 with inventory units below last year’s level, ” said Bratspies.

“Our Full Potential plan is progressing, and we have a clear financial strategy that we will continue to execute, including plans to refinance upcoming maturities as well as increase cost savings.”

Hanesbrands Stock’s Quarterly Dividend Maintained at $0.15/Share

In the third quarter of 2022, Hanesbrands Inc.’s board declared a regular cash dividend of $0.15 per share, for a current yield of 7.3%. This represents the company’s 39th consecutive quarterly dividend.

Hanesbrands has maintained a quarterly payout of $0.15 per share since the start of 2017. Once the current macroeconomic headwinds subside, the company could begin to increase its dividends again. As of this writing, the company’s payout ratio is just 59.4%, but being prudent during one of the worst economic periods of the last 100 years isn’t such a bad thing.

Hanesbrands Inc. didn’t repurchase any of its own shares in the third quarter of 2022, although the company has approximately $575.0 million remaining under its current repurchase authorization.

HBI stock’s frothy, reliable dividends certainly helped investors weather the stock market volatility in 2022. That year, Hanesbrands stock slid by 59%, but it has been rebounding lately, in large part due to the January Effect and investors’ hopes that any recession this year will be mild and short-lived.

As of this writing, shares of Hanesbrands Inc are:

Up by 38% over the last month
Up by eight percent over the last three months
Down by 20% over the last six months
Down by 46% over the last 12 months

Chart courtesy of StockCharts.com

The near-term outlook for HBI stock is solid, with its 21-day moving average (the blue line in the above chart) crossing over the 50-day moving average (the red line). This is a bullish indicator that points to a sustained uptrend.

The Lowdown on Hanesbrands Inc.

As mentioned above, Hanesbrands stock is a consumer cyclical stock that has taken a beating over the last year. But that had more to do with economic headwinds than anything going on at Hanesbrands. Nevertheless, the company recently initiated a plan to drive up its revenues and operating margins.

Hanesbrands Inc. reported wonderful third-quarter and preliminary fourth-quarter 2022 financial results. Once the macroeconomic headwinds stabilize and the stock market bottoms, look for HBI stock to rebound significantly. Until then, dividend hogs can sit back and enjoy the company’s stable, high-yield dividends.