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Here's Why Hanesbrands Inc. Stock Just Got Cut

By Bradley Seth McNew – Feb 3, 2017 at 1:16PM

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The clothing brand known for its undergarments is under pressure today after a disappointing earnings report.

A man opening his button-down shirt to show the white undershirt underneath.

Image source: Getty Images.

What happened

Shares of Hanesbrands Inc. (HBI -3.73%) are tanking today, down more than 15% as of noon EST after the market had time to digest the company's Q4 and full-year earnings that it posted yesterday. 

So what

The quarter actually looked positive for Hanesbrands, which reported earnings per share of $0.41, a nice jump over the $0.30 per share a year ago. Sales also rose nicely to $1.58 billion compared to $1.41 billion in Q4 2015. 

However, those numbers were below expectations. Even though those results are a record for the company, CEO Gerald W. Evans Jr. said that they "fell short of our expectations as a result of unanticipated fourth-quarter retail weakness." Its 2017 guidance was also lower than analyst forecasts, even though it expects to earn $1.93 to $2.03 per share, a 38%-45% increase over 2016. 

Now what

One important quality of this company is its growing dividend. Hanesbrands increased its dividend by 36% in January, the fourth time in a row it's posted annual double-digit dividend growth since establishing the dividend four years ago.The yield now sits at over 2.5%.  

Hanesbrands faces some serious competitive pressures in its undergarments niche, from a declining retail environment to more market entrants on both the low-cost and premium ends. Still, Evans said during the earnings call that the company's growth has been from "a combination of acquisitions, execution of our online growth strategy, synergies from prior deals, product innovation, and strong working capital management." He added, "Our results provide further proof that our multifaceted business model is designed to create significant long-term returns for our shareholders." 

Even though Q4 earnings came in below expectations, the company is growing operations, increasing its dividend, and even with the lowered guidance, looks cheap at its current P/E ratio of less than 15 times.  

Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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