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Hanesbrands’ Management Expects Margin Deterioration in 1Q18

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1Q18 profit expectations

Hanesbrands (HBI) delivered in-line or better-than-expected earnings in all quarters of fiscal 2017. However, its EPS (earnings per share) fell year-over-year in 4Q17, driven by higher cost of sales, increase in SG&A[1. selling, general, and administrative] expenses, and interest costs. Its adjusted operating profit fell 7.7% YoY, while its operating margin deteriorated 180 basis points.

The first quarter of 2018 is expected to witness a further decline in profitability, as the company’s management anticipates lower distribution efficiencies and growth‐related marketing investments. HBI’s adjusted earnings per share are projected to be $0.23–$0.25, declining 17.0% at the midpoint.

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2H18 could see improved profitability for HBI

However, Hanesbrands is expected to witness margin expansion in 2H18 as distribution efficiencies improve and cost inflation is offset. Its adjusted operating profit is projected to be $950.0 million–$985.0 million, including $30.0 million in benefits from acquisitions. Its operating margin should remain flat in fiscal 2018 as the benefits from Project Booster and acquisition synergies offset higher marketing expenses and commodity inflation.

Hanesbrands’s full-year adjusted earnings are expected to be $1.72–$1.80, reflecting a 9.0% decline at the midpoint. Wall Street is in line with HBI’s management and predicted a 9.0% fall in earnings per share to $1.76.

Read the final article in this series to see how HBI’s margins compare with its peers and how it’s placed in terms of valuations.

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