The fundamental catalysts on the short side for HBI have perhaps never been this plentiful.
- The company is losing shelf space to Gildan private label inside Wal-Mart at an accelerating pace as management stands by its statement that private label is not a risk to Innerwear.
- The large C9 program at Target is going away in January, with the company seemingly not trying to find a new home for the brand with no bidders.
- Champion remains the only growth driver with revenue growth slowing and signs of over inventoried retail and potential weakening of the growth story.
- FX remains a headwind; and we expect apparel retail door closures to hit new highs in 2019, then highs again in 2020, meaning lost distribution for HBI.
With that setup the street is expecting flat Innerwear revenue, margin expansion, and slight earnings growth in 2020. We think there is a good probability that HBI will miss 2H numbers and/or have to materially guide down 2020 purely on the risk within Innerwear and C9.
If Champion cracks in the next 12 months (which is becoming more likely) the reason to own this name becomes nil; and with a levered balance sheet, the equity could easily see mid-single digits per share or 50% plus downside from current levels.
We’ll go through all the detail on risks for each segment and business line in our black book next Tuesday.
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