Hanesbrands' (HBI 3.66%) stock price hit the skids earlier this month after the company released earnings and issued disappointing guidance. This leaves the shares down 1% for the year compared to a 12% gain for the S&P 500 index.
Now is a good time to evaluate Hanesbrands' prospects and determine whether the current price represents a good value -- or if the recent results and stock price movement are a warning sign for investors to stay away.
Even though retailers started reopening in the quarter, customers did not return en masse to stores. While Hanesbrands was able to sell $179 million worth of personal protection equipment (PPE) to offset some of this weakness, third-quarter sales were down 3% versus a year ago to $1.8 billion.
One of the company's hardest-hit areas was its activewear division, which sells items like performance T-shirts, sports shirts, and teamwear. Target's (TGT 0.76%) decision to stop selling the C9 Champion brand hurt sales, but the segment's sales were still down 27% even excluding this impact.
Still, aside from the sale of PPE, which is likely to remain strong until a vaccine is approved, Hanesbrands has other things going for it. The company's innerwear division, which sells basic items such as underwear and intimate apparel, did very well. This category experienced a 37% increase in sales to $792.6 million.
CEO Steve Bratspies stated that he and his team are conducting an "in-depth review of our business." While it is unclear what that means at this point, I am encouraged that Hanesbrands has incredible, well-known brands under its umbrella, which is a great starting point.
Hanes, which includes underwear, socks, and T-shirts, is found in nine out of 10 U.S. households. Champion sells athletic wear, and Maidenform is best known for its shapewear that fits the contours of the body.
With these popular brands, Hanesbrands' results will not stay down for long.
Paid to wait
While waiting for results to improve, the company continues to pay its regular quarterly dividend. Paying $0.15 a quarter, this works out to a 4.1% dividend yield.
It looks like there's sufficient cash flow to support these payments, too. For the first nine months of the year, the company's free cash flow, which is operating cash flow minus capital expenditures, was $182.2 million. This left a cushion to pay the $158.1 million of dividends.
While no one likes to hear a company issue an outlook that shows a negative sales figure and faltering profitability versus a year ago, the dividends should give investors patience to wait until results show improvement. While there are near-term challenges, Hanesbrands is in a good position to overcome them with its best-selling brands.