Apparel manufacturer Hanesbrands (NYSE:HBI) leaned into the pandemic last year by spinning up a business in personal protective equipment (PPE) that helped offset sales declines in the core innerwear and activewear businesses. While the move helped boost revenue, the company no longer sees PPE as a long-term growth opportunity.

Along with its fourth-quarter report, Hanesbrands announced its new Full Potential Plan, designed to drive growth and improve profitability. Under the plan, the company will aim to grow the Champion brand, boost the innerwear business by focusing on younger consumers, up its game in e-commerce, and streamline its product portfolio.

As part of the streamlining initiative, Hanesbrands is dropping about 20% of its stock keeping units (SKUs) and putting PPE on the back burner. The company wrote off $611 million of inventory related to this plan, including a $400 million write-off of its entire PPE inventory and $211 million in its dropped SKUs. Hanesbrands is also exploring strategic alternatives for its European innerwear business. A sale would further simplify the company's operations.

Hanesbrands headquarters.

Hanesbrands headquarters in Winston-Salem, North Carolina. Image source: Hanesbrands.

Solid results

These write-offs led to a big loss in the fourth quarter, but results were otherwise solid. Total revenue of $1.8 billion was up 2.8% year over year, driven by 13% growth in the U.S. innerwear business excluding PPE. Activewear sales were up 7% excluding the C9 Champion mass market line, which was exited in 2019, while international sales rose 2%.

Hanesbrands posted an operating loss of $444 million largely due to the previously mentioned inventory charges. Adjusted for these and other one-time charges, operating profit was $217 million for the quarter. That's down from $242 million in the prior-year period. The U.S. innerwear segment stood alone in growing operating income, with both the activewear and international segments suffering declines.

GAAP earnings per share showed a loss of $0.95, while adjusted EPS was a profit of $0.38. Revenue and adjusted earnings came in ahead of analyst expectations of $1.64 billion and $0.29, respectively.

For the first quarter of 2021, Hanesbrands expects revenue between $1.485 billion and $1.515 billion, up 14% year over year at the midpoint. Adjusted EPS is expected to come in between $0.24 and $0.27. Analysts were expecting revenue guidance of $1.46 billion and EPS guidance of $0.18.

More details coming in May

Hanesbrands will hold an Investor Day in May where it will lay out its Full Potential Plan in detail and provide three-year financial targets.

It's already successfully growing the Champion brand: Sales were up 11% in the fourth quarter, and they were up 18% excluding the sports and college licensing business. While innerwear sales soared in the fourth quarter, the company's core Hanes brand doesn't exactly appeal to the younger consumers that Hanesbrands is now going after. Driving long-term innerwear growth may require a brand refresh.

In e-commerce, Hanesbrands will likely try to grow its direct sales as well as expand its presence on third-party sites. The company derived just 10% of its innerwear sales in 2017 from online channels, so there's plenty of work to do.

I've long singled out Hanesbrands as a solid value stock that could soar. While the company's growth plan will require successful execution, investors now have a story to latch on to.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.