HBI 1Q Preview


In looking at the upcoming quarter for HBI before the market open tomorrow, we expect few surprises. We’re shaking out at $0.34 for the quarter. Relative to consensus, we expect slightly stronger top-line results to be offset by lighter margins. We don’t expect disappointment as it relates to guidance, as the company still has three quarters of the ‘Gear for Sports’ acquisition to go, which will relieve strain in the P&L that might otherwise be there in the core business. Here’s a look at our assumptions for the quarter:



  • Top-line growth of 10% in the quarter will be driven equally by organic and inorganic growth in Q1.
  • The Outerwear segment will account for the majority of growth. Gear For Sports alone will account for 5% with another ~2% driven primarily by continued strength at Champion. The balance of incremental revenue is going to be derived from shelf space gains (~2% alone from DG) in addition to modest price increases towards the end of the quarter.

Gross Margin:

  • Cotton remains the primary driver here. With average cost of $0.82 versus $0.52 last year, we expect margins down -200bps by our math with pricing and supply chain savings of nearly +100bps partially offsetting a -300bps cotton headwind.


  • Aside from the top-line, this is where we are most differentiated from consensus. We expect SG&A growth of 8% driven by two key factors, the incremental Gear costs (~$10mm) and continued 3rd party fulfillment expenses of another ~$10mm.

Taking into account $4mm in incremental interest expense related to the acquisition and a tax rate of 21% (one of the greater variables, which could tweak earnings higher) we’re looking at $0.34 versus the Street at $0.34E for the quarter and $2.66 vs. $2.73 for the year. Given the challenging setup from a SIGMA perspective, we see limited opportunity for upside in the quarter with compares getting progressively more favorable providing an offset over the balance of the year. We have numbers going up to $3.11 in EPS next year with FCF increasing from $173mm to $297mm (~$3/sh) in ’11 and ’12 respectively.


With the shares up over 20% since reporting Q4, pricing, additional shelf gains, and the latest update on where cotton is secured will be key elements in driving continued outperformance from current levels that we will be looking for on tomorrow’s call.


Additionally, one of the keys to the management’s strategic plan and our thesis is that Hanes will be able to command a certain element of pricing in order to navigate current inflationary pressures. In order to track the progress and timing of these price adjustments as well as consumer receptivity, we’ve created a tracking mechanism utilizing our SportScan data that captures ASPs, YY change, and resulting sales growth across four different categories – Champion, Undergarments, T-shirts, and Socks. The charts below illustrate the results. Call us with any questions, or if you’re interested in receiving this with regularity going forward please let us know.



Casey Flavin



HBI 1Q Preview - HBI MdlgAssmpts 4 11


HBI 1Q Preview - HBI S 4 11


HBI 1Q Preview - HBI PriceMonitor1 4 11


HBI 1Q Preview - HBI PriceMonitor2 4 11


HBI 1Q Preview - HBI PriceMonitor3 4 11



Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more