Don't Sweat Through Your Hanes

On mornings when I'm preparing to wear the classic banking style white shirt, more often than not the T-shirt underneath happens to be from Hanesbrands (NYSE:HBI). I choose Hanes because the shirt breathes well and is exceptionally comfortable. As a believer in investing where you spend your dollars, Hanes deserves a review from me and from investors who may be unaware that Hanes has them covered.

Hanes Stained By Falling Sales
Given the problems in retail, it's not surprising that Hanes experienced falling sales during the second quarter. With revenue of $1.1 billion for the second quarter, total revenue for the first six months of the year reached $2.1 billion, down 4.7% from the same period a year ago. Hanes reported an operating profit of $120 million for an operating margin of 10.4%. This was nearly identical to the 10% operating margin reported for the same period a year ago. The decline in revenue led to a one-day five-point drop in Hanes stock price at the end of July.

Hanes reported higher inventories during the second quarter partly in response to continued concerns over the cost of raw materials including cotton, oil, freight and currency. Hanes has been reluctant to raise prices for its apparel, but if commodity prices do not abate, the decision will have to be implemented. (For related reading, check out Measuring Company Efficiency.)

Looking Forward To Q3
A later start for school means that Hanes will have the opportunity to include revenue from back-to-school shopping during the third quarter. The missed revenue was expected to fall in the second quarter. The third quarter also puts Hanes closer to the crown jewel for retailers, the holiday shopping season.

In search of cost cutting measures Hanes opened two sewing plants in Vietnam and one in Thailand bringing its total number of plants in Asia up to four. Ramping up production in larger plants in Central America and the Dominican Republic are also meant to limit the costs of producing and transporting Hanes apparel.

Apparel Retailers
VF Corp.'s (NYSE:VFC) stock has proved to be more resilient since the beginning of the year, rising over 6% year to date while Hanes has fallen nearly 18%. VF is the company behind several popular brands including Wrangler, Lee Jeans, Vans, North Face and Eastpak. The company reported 11% growth in revenue up to $1.67 billion for the second quarter driven largely by sales from its outdoor division. Its North Face brand revenues increased 40% while its Vans revenues also increased 14%. Polo Ralph Lauren (NYSE:RL) is another apparel retailer to consider since its stock is down less the 5% year to date while the S&P 500 is down nearly 16%.

Final Thoughts
A dollar-cost averaging approach may be the best option for investors who have an apparel investment in mind with no idea of when to actually buy in. I cannot predict the future, but I do know that buying quality at a discount is the best way to make it through a volatile market.

For more on this strategy, read Dollar-Cost Averaging Pays.