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HanesBrands Acquired Pacific Brands for ~$800 Million

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Price movement

HanesBrands (HBI) has a market cap of $10.1 billion. It fell by 0.56% to close at $26.55 per share on July 15, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 1.1%, 1.7%, and -9.0%, respectively, on the same day. HBI is trading 1.9% above its 20-day moving average, 0.53% below its 50-day moving average, and 6.3% below its 200-day moving average.

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Related ETF and peers

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 was 4.6% on July 15.

The market caps of HanesBrands’ competitors are as follows:

  • L Brands (LB)—$20.1 billion
  • Ralph Lauren (RL)—$8.2 billion
  • Gildan Activewear (GIL)—$7.5 billion

HanesBrands acquired Pacific Brands

HanesBrands has completed the acquisition of Pacific Brands Limited, an underwear and intimate company, for ~$800 million on an EV (enterprise value) basis, or slightly more than ten times its projected calendar 2016 EBITDA (earnings before interest, tax, depreciation, and amortization).

The company added that “This acquisition of Pacific Brands adds Bonds, Australia’s top brand of underwear, babywear and socks, and Berlei, the country’s No. 1 sports bra brand and leading seller of premium bras in department stores, to HanesBrands’ worldwide portfolio of leading innerwear brands supported by the company’s global low-cost supply chain and manufacturing network.”

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Performance in fiscal 1Q16

HanesBrands reported fiscal 1Q16 net sales of $1.22 billion—a rise of 0.84%, as compared to net sales of $1.21 billion in fiscal 1Q15. The company’s cost of sales as a percentage of net sales and operating profit rose by 1.6% and 36.2%, respectively, in fiscal 1Q16 compared to fiscal 1Q15.

The company’s net income and EPS (earnings per share) rose to $80.3 million and $0.21, respectively, as compared to $52.6 million and $0.13, respectively, in fiscal 1Q15. It reported adjusted EPS of $0.26—a rise of 18.2% over fiscal 1Q15.

HanesBrands’ cash and cash equivalents and inventories rose by 4.1% and 8.6%, respectively, in fiscal 1Q16 over fiscal 4Q15. Its current ratio and debt-to-equity ratio rose to 2.3x and 5.1x, respectively, in fiscal 1Q16, as compared to 1.9x and 3.4x, respectively, in fiscal 4Q15.

Projections for 2016

The company revised its guidance for fiscal 2016. Its new projections are as follows:

  • net sales of $6.2 billion–$6.3 billion
  • EPS of $1.51–$1.57
  • operating profit of $780 million–$815 million
  • non-GAAP (generally accepted accounting principles) EPS of $1.89–$1.95
  • non-GAAP operating profit of $940 million–$975 million
  • net cash flows from operations of $750 million–$850 million
  • capital expenditures of ~$75 million
  • tax rate in the high single digits
  • contributions of ~$800 million in net sales and ~$70 million in operating profit before synergies from the acquisitions of Champion Europe and Pacific Brands

This guidance reflects the contribution from the completed acquisition of Champion Europe and Pacific Brands Limited.

In the next part of this series, we’ll look at Pool Corporation.

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