Hanesbrands (NYSE:HBI) is offering an enticing 5.4% dividend yield, which is likely to attract many income-oriented investors. However, there have been numerous dividend cuts during the ongoing coronavirus crisis, even from companies with rock-solid business models and strong balance sheets, such as Ross Stores (ROST) and The TJX Companies (TJX). Due to the impact of the pandemic on the business of Hanesbrands and its high debt load, the company is likely to suspend its dividend soon.
Business overview
Hanesbrands was somewhat struggling even before the coronavirus crisis. The company has spent approximately $2.8 billion on acquisitions over the last seven years, but these acquisitions have not exhibited satisfactory returns. Given also the heating competition in the intimate apparel business, Hanesbrands has accumulated a high amount of debt and has dramatically underperformed the market over the last five years, as it has slumped 67% whereas the S&P (SPY) has rallied 47%.
On the bright side, Hanesbrands greatly improved its performance last year, primarily thanks to the rapid global expansion of its brand Champion. The company grew its revenues 2% and its operating cash flows 25% over prior year, to a record of $803 million. The turnaround was in progress in the first quarter of this year as well, until the pandemic showed up, towards the end of the quarter. Hanesbrands estimated that the pandemic reduced its earnings per share in the first quarter by $0.20, from $0.25 to $0.05.
The effect of coronavirus will be even greater in the second quarter, as the stores of Hanesbrands were closed for an appreciable period. All the stores of the company are now open, but their traffic is likely to remain suppressed due to the cautiousness of consumers. In addition, the pandemic has caused a severe recession, and thus, the unemployment rate has essentially
