Hanesbrands Is Not An Opportunity After Rumours Of $1 Billion Price For Champion

Core Viewpoint - Hanesbrands is experiencing a recovery in profitability driven by cost reductions, but faces significant revenue challenges across all segments, particularly with Champion brand, leading to a Hold rating on the stock [2][3][27] Financial Performance - In 1Q24, all segments of Hanesbrands reported negative revenue results, with Champion experiencing a 25% year-over-year decline [4] - The innerwear segment, primarily Hanes in the US, saw an 8% decrease, while the international segment declined by 9% [5] - Despite revenue declines, gross margins improved by 770 basis points year-over-year due to cost reductions in cotton and freight [6] - Adjusted operating margin for 1Q24 is estimated at 9% after accounting for restructuring charges and increased marketing expenses [7][8] Champion Brand Sale Considerations - Management did not provide updates on the potential sale of Champion, although there are rumors of interest from Authentic Brands at a price between $1 billion and $1.5 billion [9][10] - Champion's global sales are estimated to have fallen to approximately $1.5 billion from a peak of $2 billion in FY21 [13] - The potential sale could impact revenues significantly, with estimates suggesting a decrease of $1.5 billion in revenues and a reduction in operating income by $120 million if sold [22] Valuation Insights - Hanesbrands currently has a market cap of $1.8 billion and an enterprise value (EV) of $4.85 billion, with a suggested EV/NOPAT multiple of 15x deemed excessive for the company’s current challenges [14][18] - If Champion is sold for $1 billion, the adjusted EV would be $3.85 billion, leading to a P/E ratio of 13.8x, which is still considered high given the company's circumstances [25][26] Future Outlook - The company reaffirmed its FY24 guidance, projecting revenues of approximately $5.4 billion and operating income of about $430 million [8] - There are potential upside risks, including a higher sale price for Champion, lower-than-expected sales and profits post-sale, or a successful turnaround of the Champion brand [28][29][30]