Hanesbrands (HBI)

Clothing company Hanesbrands (NYSE:HBI) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 2.1% year on year to $760.1 million. On the other hand, next quarter’s revenue guidance of $970 million was less impressive, coming in 0.6% below analysts’ estimates. Its non-GAAP profit of $0.18 per share was significantly above analysts’ consensus estimates.

Company Overview

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.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Hanesbrands's primary competitors include Fruit of the Loom (owned by Berkshire Hathaway NYSE:BRK.A), Gildan Activewear (NYSE:GIL), PVH (NYSE:PVH, owner of Calvin Klein and Tommy Hilfiger), Delta Apparel (AMEX:DLA), and Under Armour (NYSE:UAA).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Hanesbrands’s demand was weak and its revenue declined by 11.8% per year. This was below our standards and is a sign of poor business quality.

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 trend. Hanesbrands’s annualized revenue declines of 4.3% over the last two years suggest its demand continued shrinking.

We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 4.4% year-on-year declines. Because this number aligns with its normal revenue growth, we can see that Hanesbrands has properly hedged its foreign currency exposure.

This quarter, Hanesbrands grew its revenue by 2.1% year on year, and its $760.1 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Hanesbrands, its EPS declined by 14.6% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, Hanesbrands reported EPS at $0.18, up from negative $0.02 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Hanesbrands’s full-year EPS of $0.63 to shrink by 17.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Hanesbrands has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.6%, subpar for a consumer discretionary business.

Hanesbrands burned through $119.4 million of cash in Q1, equivalent to a negative 15.7% margin. The company’s cash burn increased meaningfully year on year and is a deviation from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Hanesbrands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Hanesbrands’s ROIC averaged 4.5 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Hanesbrands reported $175.9 million of cash and $2.63 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $518 million of EBITDA over the last 12 months, we view Hanesbrands’s 4.7× net-debt-to-EBITDA ratio as safe. We also see its $190.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Hanesbrands blew past analysts’ constant currency revenue expectations this quarter. We were also excited its EPS outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 8.4% to $5.29 immediately following the results.

Updated: May 15, 2025 at 10:45 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Hanesbrands, you should also grasp the company’s longer-term business quality and valuation.

Hanesbrands falls short of our quality standards. For starters, its revenue has declined over the last five years. On top of that, Hanesbrands’s constant currency sales performance has disappointed, and its declining EPS over the last five years makes it a less attractive asset to the public markets.

Hanesbrands’s P/E ratio based on the next 12 months is 10.1x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $6.51 on the company (compared to the current share price of $5.28).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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