uploads/2016/04/hbi-pm.png

HanesBrands’ Acquisition of Champion Europe: So What?

By

Updated

Price movement of HanesBrands

HanesBrands (HBI) has a market cap of $10.8 billion. HBI rose by 2.8% to close at $27.87 per share on April 7, 2016, bringing the stock’s weekly, monthly, and YTD (year-to-date) price movements to -1.7%, -2.6%, and -4.9%, respectively.

On the same day, HBI was trading 2.4% below its 20-day moving average, 1.2% below its 50-day moving average, and 6.5% below its 200-day moving average.

HanesBrands' Acquisition of Champion Europe: So What?

Article continues below advertisement

ETFs and competitors

The iShares Morningstar Mid-Cap Growth Index Fund (JKH) invests 0.87% of its holdings in HanesBrands. The ETF tracks a market-cap-weighted index of midcap companies selected by Morningstar based on their growth characteristics. The YTD price movement of JKH is -1.3% as of April 6, 2016.

The market caps of HanesBrands’ competitors are as follows:

  • L Brands (LB)—$24.1 billion
  • Ralph Lauren (RL)—$7.9 billion
  • Gildan Activewear (GIL)—$7.2 billion

HanesBrands acquires Champion Europe

In a press release on April 7, 2016, the company stated that “HanesBrands has entered into a definitive purchase agreement to acquire Champion Europe, which owns the trademark for the Champion brand in Europe, the Middle East, and Africa.

HBI also stated that “the company will acquire privately held Champion Europe, based in Italy, in an all-cash transaction. The purchase price will be 10 times actual calendar 2016 EBITDA (earnings before interest, tax, depreciation, and amortization), subject to adjustment for cash, debt, and working capital.”

It also said that “Champion Europe expects 2016 net sales of more than 190 million euro, operating profit of ~15 million euro, and EBITDA of ~20 million euro.”

This transaction is expected to be close in mid of 2016. The acquisition will likely provide unified growth platform and increase the visibility in the global market.

Article continues below advertisement

Performance of HanesBrands in 4Q15 and 2015

HanesBrands reported fiscal 4Q15 net sales of ~$1.4 billion, a fall of 7.4% as compared to net sales of ~$1.5 billion in fiscal 4Q14. Sales from its Innerwear, Activewear, Direct to the Customer, and International segments fell by 5.9%, 1.3%, 8.9%, and 16.8%, respectively, in fiscal 4Q15 as compared to fiscal 4Q14.

The company’s net income and EPS (earnings per share) rose to $119.2 million and $0.30, respectively, in fiscal 4Q15, as compared to $89.4 million and $0.22, respectively, in fiscal 4Q14.

Fiscal 2015 results

In fiscal 2015, HBI reported net sales of ~$5.7 billion, a rise of 7.6% YoY (year-over-year). Its net income and EPS rose to $428.9 million and $1.06, respectively, in fiscal 2015, as compared to $404.5 million and $0.99, respectively, in fiscal 2014.

HanesBrands’ cash and cash equivalents and inventories rose by 33.1% and 18.0%, respectively, in fiscal 2015. Its current ratio and debt-to-equity ratio rose to 1.9x and 3.4x, respectively, in fiscal 2015, as compared to 1.7x and 2.8x, respectively, in fiscal 2014.

Projection

The company has made the following projections for fiscal 2016:

  • net sales in the range of $5.8 billion–$5.9 billion
  • adjusted operating profit in the range of $920 million–$950 million
  • GAAP (generally accepted accounting principles) EPS in the range of $1.60–$1.77
  • GAAP operating profit in the range of $820 million–$880 million

Now let’s look at ConAgra Foods.

Advertisement

More From Market Realist