Here's Why Hanesbrands Stock Dropped Like a Rock Today

What happened

Shares of apparel company Hanesbrands (HBI -0.82%) dropped like a rock on Thursday after the company provided lackluster financial guidance and announced some substantial pivots to management's priorities. As of 11:40 a.m. ET, Hanesbrands stock was down 23% -- particularly painful, considering the market is soaring today.

So what

On one hand, fourth-quarter revenue of $1.47 billion beat guidance from Hanesbrands' management. And adjusted earnings per share of $0.07 was within guidance. On the other hand, management is pushing out financial targets and changing its financial priorities.

Regarding financial priorities, Hanesbrands kicked off 2022 by announcing a $600 million share repurchase authorization plan. And as of the third quarter of 2022, the company had paid a dividend for 39 consecutive quarters. However, management only used $25 million to repurchase shares in 2022. And today, it announced it eliminated its dividend.

Instead, Hanesbrands management will now focus on paying down its debt. As of the end of Q4, it had a whopping $3.6 billion in long-term debt -- substantial for a company that only had $616 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2022.

Now what

For investors, this probably feels like a sudden shift -- not something they typically appreciate. Moreover, Hanesbrands is abruptly altering some of its forward guidance. 

For starters, Hanesbrands' management only expects $500 million in operating cash flow in 2023. For perspective, the company generated $623 million in net cash from operating activities during its fiscal 2021. And it's reflective of weak consumer demand for Hanesbrands' products -- a problem going into the rest of 2023.

Moreover, in May 2021, Hanesbrands' management introduced its "Full Potential Plan," which called for full-year 2024 revenue of $7.1 billion and an operating margin of 14.3%. Until recently, it seemed the plan was on track. But with today's financial results, management is pushing its goals out to 2026 -- for the record, the 2026 goals are $8 billion in revenue and operating margins of 14.4%.

In other words, investors are being asked to wait longer for the things they were hoping for with Hanesbrands stock. And that didn't sit well with investors today.