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Why Hanesbrands’ 1Q17 Organic Sales Could Be Under Pressure

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Innerwear sales to remain weak in fiscal 2017

Hanesbrands (HBI) reports its business under four major segments. Innerwear is its largest segment, and it accounted for 43% of the company’s top line in fiscal 2016. Sales from this segment plunged 2% during the year. Fourth quarter performance was the worst, as innerwear sales were down 8%, missing the lower end of management’s guidance and driving the company’s top-line miss during the quarter.

The company now expects this segment to remain flat in fiscal 2017. During the first quarter, revenue is likely to fall as a result of store closings and tight inventory management.

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Activewear to return to growth in fiscal 2017

Activewear, HBI’s second-largest segment, remained flat in fiscal 2016. However, it reported healthy 3% growth during the fourth quarter, driven by double-digit growth in the mass channel, expansion into the high school channel, and organic growth in the college bookstore channel. Management expects this segment to grow at a modest pace during fiscal 2017, supported by momentum in the Champion brand and expansion of its Licensed Sports Apparel business.

Expectations from International and DTC

The International and DTC (direct-to-consumer) segments accounted for 25% and 5% of HBI’s fiscal 2016 top line. While international business grew 35%, backed by acquisitions, DTC channel sales plunged 14% during the year.

Management expects international sales to rise at a double-digit rate in 2017, driven by both organic growth and recent acquisition contributions.

DTC segment sales are expected to continue the decline resulting from the company’s exit from the domestic catalog business and noncore offerings.

Investors looking for 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.

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