What happened

Shares of Hanesbrands (NYSE:HBI) were heading lower today after the seller of apparel basics issued disappointing guidance in its third-quarter earnings report. Though the results were better than expected, the guidance shows performance decelerating heading into the holiday season, as the company is experiencing some of the same impacts as other apparel brands.

Hanesbrands shares were down 20% as of 2:28 p.m. EST.

A man wearing a Champion sweatshirt.

Image source: Hanesbrands.

So what

The owner of brands including Champion, Playtex, and its namesake said that revenue in the quarter ticked down 3.1% to $1.81 billion, ahead of estimates at $1.67 billion. Innerwear, which includes underwear and t-shirts, rose 8.4% as consumers spent more time at home, but activewear plunged 41%, or 27% excluding the impact of Target's decision to stop selling the Champion C9 brands. The decline shows that Champion did not benefit from broader trends supporting exercise gear.

On the bottom line, earnings per share adjusted for charges related to COVID-19, as well as supply-chain restructuring and program exits, fell from $0.47 to $0.42, which topped estimates at $0.37.

Separately, the company announced an in-depth business review as it sought to refine its long-term strategy. CEO Steve Bratspies acknowledged that some of the company's brands are aging a bit, but touted the quarterly performance, saying, "I'm pleased with our third-quarter results as we saw significant improvements across our business and exceeded our expectations for sales, profits and cash flow from operations." 

Still, the combination of the business review, weak performance in activewear, and disappointing guidance seemed to sink the stock. 

Now what

Citing uncertainty around the COVID-19 pandemic and a new round of lockdowns in Europe, the company forecast fourth-quarter revenue of $1.6 to $1.66 billion, equal to a 7% decline at the midpoint, and earnings per share of $0.25 to $0.30, compared to $0.51 a year ago. Both numbers were below the analyst consensus at $1.71 billion and $0.45, respectively. 

Hanesbrands shares had bounced back strongly from the March sell-off, but the guidance shows the company still faces stiff headwinds. 


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