Quiet Confidence in HanesBrands Earnings

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 |  About: Hanesbrands Inc. (HBI)
by: David Kretzmann

Today HanesBrands (NYSE:HBI) reported its 1Q 2008 results.

  • Sales down 5% to $987.8 million from $1.04 billion in 1Q 2007
  • International sales up 15% to $104.64 million from $90.78 million in 1Q 2007
  • Cost of sales $642.88 million from $700.22 million in 1Q 2007
  • Gross profit margin 34.9% from 32.7% in 1Q 2007
  • Net income up 200.1% to $36.02 million ($0.38 per share) from $12 million ($0.12 per share) in 1Q 2007
  • Profit margin 3.65% from 1.14% in 1Q 2007
  • Diluted share count 95,610,000
  • Company repurchased $8.3 million worth of shares (334,980 shares) in 1Q 2008
  • Cash $120.79 million

Press Release

Analysts were expecting an EPS of $0.33 on sales of $1.05 billion. So, Hanesbrands managed to beat EPS estimates but slightly missed sales estimates.

I think this was a very impressive quarter, but we'll need to wait and see what the final picture is for cash flow and balance sheet numbers. Lower interest expense due to lower debt was part of the reason for the increase in earnings, so HBI most likely did continue paying down debt this quarter.

It's important to remember that the company is still in a turnaround stage (coming out of it, but still in one) and we're not in easy country right now. One thing I'm not particularly happy about is the stock buyback. As we've seen with Select Comfort, buying back stock can be a nice idea but it can turn deadly if you get carried away. HanesBrands is purchasing pretty modest but still noticeable amounts, so I'm not too concerned. As long as they keep paying off debt (which should be top priority right now) and reinvesting in the business first, buying back some shares is fine with me.

HanesBrands is a very interesting business story and I feel comfortable investing in the company. Management does not fret about short-term results or speculation, it adjusts and makes the best of the situation while focusing on long-term results. All but one segment of the company saw sales go down this quarter, that one being international sales. International sales were boosted up a decent amount, partly because of the lower dollar and favorable currency rates as well as growth there in general. It's good to know that HanesBrands does have some exposure to the benefits of a lower dollar, but it's not enough yet to have much of an impact of overall sales.

Anyway, this seems like a successful quarter (I believe it to be) and management continues to improve results and focus on the long run. I remain confident in HanesBrands and I think the company does indeed have a bright future. Management is cost-cutting and improving efficiency, and I believe there is still plenty of this that can be done, so we should see some good margins this year. For the 2Q 2008, analysts are expecting an EPS of $0.65 on sales of $1.14 billion.

Disclosure: Author is long HBI.