What happened

Shares of HanesBrands (HBI -2.26%), which makes clothing and undergarments, sold off sharply at the open on Tuesday. At one point in the first half-hour of trading, the stock was down by as much as 15%. Although an early decline in the broader market didn't help any, the real reason for the dour mood around this company in particular was its first-quarter earnings release. Oddly enough, it wasn't a bad report.

So what

HanesBrands reported top-line sales of $1.51 billion, up 25% year over year. Wall Street was expecting sales to come in at $1.5 billion, so that was a slight beat. On the bottom line, adjusted earnings were $0.39 per share in Q1, up from $0.07 per share in the prior-year period. Analysts had been forecasting $0.26 per share. Investors normally look upon this type of outperformance favorably, but on Tuesday, they did not reward the stock. As of 10:55 a.m. EDT, it was still down by more than 14%.  

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Image source: Getty Images.

As noted, a part of the issue for HanesBrands on Tuesday morning was that the broader market was selling off. As of 10:55 a.m. EDT, the S&P 500 was down by 1.5%. However, HanesBrands also provided some additional information when it reported earnings that may have spooked investors about its business specifically. Most notably, it offered second-quarter and full-year guidance.

Early this year, revenue got a boost from retailers restocking their stores, as well as enhanced consumer spending that was buoyed by the last round of federal stimulus checks. However, one big takeaway from HanesBrands' 2021 outlook is that management expects those tailwinds to dissipate as the year progresses.

Overall, the company thinks its sales are likely to increase by just 2%, at the midpoint, in 2021. Adjusted earnings are expected to increase by around 7%. Investors may have been expecting numbers that were a little more robust, and a fresh plan to enhance the company's performance didn't seem to raise their opinions about the stock.   

Now what

Even after factoring in Tuesday morning's drop, HanesBrands stock has roughly doubled in the past year. It is also 30% above where it ended 2019. And yet, even if it hits the top end of its current guidance range for 2021, earnings will be lower this year than they were in 2019. With that backdrop, it seems like investors are pricing more good news into the stock than is showing up in its results right now. In that light, Tuesday's share price decline may not be as surprising as it would at first appear.