Hanesbrands (NYSE:HBI) is one of the largest sellers of basic apparel, including socks, underwear and undershirts. Demand for its products is relatively consistent and predictable. Lately though, cotton input costs have been erratic, and the company has a hefty debt load, which it was saddled with when spun off back in 2006.

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Company Overview
Hanes' business model is relatively straightforward. It sells apparel to mass merchants and retailers. Wal-Mart (NYSE:WMT) is its largest customer and retailers as diverse as CVS Caremark (NYSE:CVS) and Macy's (NYSE:M) are also key partners. Most sales (87% of 2011 sales) occur in the United States, though the company continues to build out its international customer base. Between 2010 and 2011, U.S. sales growth was respectable at 6% and international sales were more than double that amount at 14%. Hanes also has a growing direct-to-consumer business through its online sales channel.

The company lists itself as the market share leader in the socks, men's underwear, women's bras and hosiery apparel categories it competes in.

SEE: Is Online Shopping Killing Brick-And-Mortar?

Outlook and Valuation
Analysts project modest, low-single digit sales growth over the next two years. For 2012, they expect top-line growth of less than 3% and total sales of nearly $4.8 billion. For 2013, growth could exceed 3% with total sales reaching almost $5 billion. The 2012 profit projection currently stands at $2.56 and its projected to improve by 24.2% to $3.18 by the end of 2013. This puts the forward earnings multiples at 10.9 and 8.8, respectively.

SEE: Investment Valuation Ratios: Introduction

The Bottom Line
Hanesbrands expects to report between $400 million and $500 million in operating cash flow for the year. This should allow it to continue to pay down its hefty debt load of $2 billion, which it received as part of being spun out from Sara Lee (NYSE:SLE) back in 2006. However, debt has actually increased lately, though management has a stated goal of lowering it back down to approximately $1.5 billion by the end of the year.

Management plans to focus on debt reduction through 2013, and then shift to selective acquisitions, stock buybacks and dividend payments. At this point though, it may pay for investors to wait for it to deliver on its stated delivering ambitions. Right now, a sales hiccup or return to volatile cotton commodity costs that could hit profits would be magnified with the large debt load.

SEE: Cashing In On Corporate Restructuring

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: HBI, SLE, M, WMT, CVS

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