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Organic Sales to Fall, Acquisitions to Drive HBI’s Top Line

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Recent top line growth

With trailing-12-month sales of more than $6.2 billion, Hanesbrands (HBI) is one the largest marketers of basic apparel in the United States. The company’s top line rose 5.2% YoY (year-over-year) in 2016, largely driven by acquisitions in Europe, Japan, and Australia.

The company has recently outperformed most of its branded apparel peers. VF Corporation (VFC), Ralph Lauren (RL), and The Gap (GPS) reported top line falls of 0.1%, 10.2%, and 1.8%, respectively, during their most recently reported fiscal years. PVH Corporation (PVH), the owner of the iconic Tommy Hilfiger and Calvin Klein brands, posted a sales rise of 2.3%.

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1Q17 performance

During 1Q17, HBI posted solid top line growth of 11%. However, this rise was completely driven by acquisitions, as the company’s organic sales fell 4% during the quarter.

The fall in HBI’s organic sales was the result of an expected fall in its innerwear business. Its management expects the business to normalize by 2H17.

The online channel accounted for 10% of Hanesbrands’ domestic sales in the United States, compared to 9% in 1Q16. HBI’s management expects strong double-digit growth in the company’s online business during 2017.

Looking to 2Q17

Hanesbrands’ 2Q17 top line is expected to land at ~$1.7 billion, according to its guidance. Acquisitions are likely to contribute ~$200 million to its 2Q17 sales. HBI’s organic sales are once again expected to fall due to a tough retail sales environment and a shift in the timing of back-to-school shipments.

Investors wanting exposure to HBI can consider the iShares Morningstar Mid-Cap ETF (JKG), which invests ~0.5% of its portfolio in the company.

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