Clothing company Hanesbrands (NYSE:HBI) missed analysts' expectations in Q2 CY2024, with revenue down 30.8% year on year to $995.4 million. Next quarter's revenue guidance of $935 million also underwhelmed, coming in 38.3% below analysts' estimates. It made a non-GAAP profit of $0.15 per share, improving from its loss of $0.01 per share in the same quarter last year.
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Hanesbrands (HBI) Q2 CY2024 Highlights:
- Revenue: $995.4 million vs analyst estimates of $1.35 billion (26.4% miss)
- EPS (non-GAAP): $0.15 vs analyst estimates of $0.10 ($0.05 beat)
- Revenue Guidance for Q3 CY2024 is $935 million at the midpoint, below analyst estimates of $1.51 billion
- The company dropped its revenue guidance for the full year from $5.41 billion to $3.61 billion at the midpoint, a 33.3% decrease
- EPS (non-GAAP) guidance for Q3 CY2024 is $0.12 at the midpoint, below analyst estimates of $0.25
- EPS (non-GAAP) guidance for the full year is $0.34 at the midpoint, missing analyst estimates by 25.9%
- Gross Margin (GAAP): 30.8%, down from 33.2% in the same quarter last year
- EBITDA Margin: 67.5%, up from 9.1% in the same quarter last year
- Free Cash Flow of $70.59 million, up from $5.91 million in the previous quarter
- Constant Currency Revenue fell 2.4% year on year (-3.7% in the same quarter last year)
- Market Capitalization: $1.83 billion
“We delivered solid second-quarter results in a challenging consumer and apparel market, including better-than-expected U.S. innerwear performance and margin expansion,” said Steve Bratspies, CEO.
A classic American staple founded in 1901, Hanesbrands (NYSE: HBI) is a clothing company known for its array of basic apparel including innerwear and activewear.
Apparel, Accessories and Luxury Goods
Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Hanesbrands's revenue declined by 5.2% per year. This shows demand was weak, a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Hanesbrands's recent history shows its demand has stayed suppressed as its revenue has declined by 13.5% annually over the last two years.
We can dig further into the company's sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 8.6% year-on-year declines. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Hanesbrands. 
This quarter, Hanesbrands missed Wall Street's estimates and reported a rather uninspiring 30.8% year-on-year revenue decline, generating $995.4 million of revenue. The company is guiding for a 38.1% year-on-year revenue decline next quarter to $935 million, a deceleration from the 9.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 9.3% over the next 12 months, an acceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Hanesbrands has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.5%, subpar for a consumer discretionary business.
Hanesbrands's free cash flow clocked in at $70.59 million in Q2, equivalent to a 7.1% margin. This quarter's result was good as its margin was 1.6 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.
Key Takeaways from Hanesbrands's Q2 Results
We were impressed by how significantly Hanesbrands blew past analysts' EPS expectations this quarter. We were also glad its constant currency revenue outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance missed and its full-year earnings guidance fell short of Wall Street's estimates. Overall, this was a weaker quarter for Hanesbrands. The stock traded up 6% to $5.50 immediately following the results.
So should you invest in Hanesbrands right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.