Hanesbrands (NYSE:HBI) owns an appealing array of apparel brands, including Hanes, Champion, Playtex, Bali, JMS/Just My Size, barely there, Wonderbra and Gear For Sports. Volatile cotton costs and uneven buying patterns from some of its larger accounts have made near-term sales and profit trends more murky, but the long-term appeal of the business is still there, provided management delivers on its promise to reduce debt.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Full-Year Recap
Net sales advanced 7.2% to $4.6 billion. Three of five operating segments reported positive growth. This was lead by outerwear (Champion brand t-shirts, shorts), which jumped 15.9% to $$1.5 billion, or 31.5% of total sales. International also jumped 14.1% and grew to 12.5% of sales. Innerwear (socks, underwear) logged modest 2.2% growth to account for the largest percentage of total sales at 44.4%. Hosiery and the direct-to-consumer units logged slight sales declines and collectively accounted for roughly 12% of sales.

Reported operating profits jumped 18.3% to $478.3 million on very strong profit trends in outerwear and direct-to-consumer. This offset profit declines in hosiery while international and innerwear both posted profit growth just over 5%. Overall, product and selling costs, as well as operating SG&A expenses, grew modestly to allow for some sales leverage. Operating profit improved one percentage point to 10.3% of sales. A drop in other expenses helped push net income up 26.2% to $266.7 million, or $2.69 per diluted share.

Outlook
For 2012, Hanes projects respectable sales growth between 2 and 4%. Analysts currently project sales growth of 4.1% and total sales of just over $4.8 billion. However, management projects earnings in a range of $2.50 and $2.60, due primarily to a 30 cent loss in "imagewear," or the "the wholesale category of casualwear and activewear products sold to the screen-print industry." This is a subset of its outerwear unit.

The Bottom Line
Indications of challenges in imagewear first came about when rival Gildan Activewear (NYSE:GIL) reported its full year results back in December 2011. It lowered its earnings guidance on struggles in its printwear business and also reported a first quarter loss that it attributed in part to volatile cotton costs and inventory destocking by its distributors.

Hanesbrands looks to be experiencing similar issues in the near term. During the fourth quarter, outerwear profits fell 35% and also reported double-digit profit declines in hosiery and its international businesses. Major customers include giant retailers such as Wal-Mart (NYSE:WMT) and J.C. Penney (NYSE:JCP), so changes in their order activity can have a big impact on smaller suppliers such as Hanes.

With the short-term volatility in its business, Hanesbrands has returned to focusing on paying down its hefty debt load. It offered a detailed pay down schedule and also detailed that free cash flow for the year should come in between $400 million and $500 million. That works out to a range of roughly $4 and $5 per diluted share. Given the current share price of $27 per share, this represents a compellingly-low free cash flow multiple of below seven. With more visible growth trends going forward, the stock could rally up to 50%. The fact that Berkshire Hathaway (NYSE:BRK.B) owns archrival Fruit of the Loom also indicates the business model overall is highly appealing.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center