What happened
Week to date, shares of Hanesbrands (HBI +0.00%) were down 10.5% through Thursday's close, according to data provided by S&P Global Market Intelligence. The move wasn't based on any company-specific news. However, fears escalated across the retail sector this week after Walmart and Target reported disappointing earnings results.
Since announcing its new Full Potential Strategy a year ago, Hanesbrands has underperformed the broader market. The stock is currently down 39.7% over the last year, compared to a decline of 5.2% for the S&P 500 through Thursday's close.
HBI data by YCharts.
So what
Investors usually look to comparable stocks to get a read on how another company in the same sector will likely perform. While Walmart and Target both reported a healthy increase in comparable-store sales year over year, it was the earnings miss that disappointed investors. If inflationary cost pressures can hurt top retailers, it certainly doesn't bode well for a smaller apparel company like Hanesbrands.
To its credit, Hanesbrands reported better-than-expected earnings in early May. For the first quarter, adjusted earnings per share (EPS) came in at $0.34, beating estimates by 21%. Sales performance also looked good, up 5% year over year.
Image source: Getty Images.
Now what
Hanesbrands' Full Potential Strategy calls for growing sales and adjusted EPS at a compound annual rate of 6% and 9%, respectively, through 2024. This plan includes growing the popular Champion activewear brand to $3 billion in annual revenue, representing a 14% annualized growth rate.
The stock looks cheap, trading at a price-to-earnings ratio of 9 with a high dividend yield of 5.13% at the time of this writing.
The only negative is that the company carries a heavy debt burden on its balance sheet. As of April 2, Hanesbrands held $3.3 billion in long-term debt and only $369 million in cash. This presents extra risk if inflation erodes Hanes' profitability and it struggles to service the debt. That's probably why investors were quick to sell the stock after Walmart's earnings report.
