Operating margin to decline in fiscal 2017
Hanesbrands’ (HBI) management has predicted an operating profit range of $935 million–$975 million for fiscal 2017. This forecast translates to 4.5% YoY (year-over-year) growth at the midpoint. In fiscal 2016, operating profit grew 6.2% YoY to $914 million.
Operating margin, however, is expected to decline 50 basis points in fiscal 2017 due to the short-term dilution from lower-margin acquisitions. The company is awaiting, however, a meaningful improvement in margins over the next two to three years as it starts to reap the synergy benefits from its Pacific Brands and Champion Europe acquisitions.
Fiscal 2017 earnings per share expectations
HBI’s earnings are likely to land between $1.93 and $2.03 in fiscal 2017, growing 7% at the midpoint. The company’s earnings grew 11% YoY in 2016 and stood at $1.85.
Wall Street is in line with management and expects a 6% YoY increase in EPS to $1.96. HBI missed consensus estimates twice during the last fiscal year.
For a view on first quarter earnings expectations, read the next part of this series.
Comparing HBI’s margins to peers
HBI has recorded better profitability than other branded apparel peers. Its trailing-12-month operating margin of 12.7% is higher than PVH Corp’s (PVH) 9.7%, VF Corp’s (VFC) 12%, and Ralph Lauren’s (RL) 3.3%. Handbag manufacturers Michael Kors (KORS) and Coach (COH), however, have higher trailing-12-month operating margins of 21% and 15%, respectively.
Investors interested in exposure to HBI can consider pooled investment vehicles like the First Trust Large Cap Value AlphaDEX Fund (FTA), which invests 0.4% of its holdings in Hanesbrands.