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Takeaway: Potentially good move long-term, though would first need a big guide-down in the model to re-start the brand. Best Idea Short.

Below is a complimentary research note from our Retail analysts Brian McGough and Jeremy McLean. If you are an institutional investor interested in accessing our research email sales@hedgeye.com

$HBI | Thoughts on New CEO - 6 9 2020 10 37 36 AM

Hanesbrands (HBI) announced its new CEO. Stephen Bratspies will take over as CEO of HBI on Aug 3rd 2020.

Bratspies was last employed as CMO of Walmart stores, seemingly leaving/being forced out around the Greg Foran leadership changeover. 

Bratspies definitely has a solid pedigree and a marketing person is probably good for HBI over the long term, but potentially bad over the near term.  The best action for protecting the Hanes business is to take margins down and start marketing/investing in the brands to protect long term share in the core that has been bleeding for nearly a decade.  

That would mean a reset of expectations and likely a big guide down vs street numbers in the out years. This would be a dangerous course to take right now with current leverage and business trends under Covid, so perhaps there will be an investor event in 2021 outlining a new plan with no sudden movements.

The replacing of Gerald Evans could mean a real changing of the guard for HBI.  Evans has been with the company for a long time, he was Rich Noll’s right hand man basically since the spin out of Sara Lee. Evans got the CEO job when Rich Noll retired in 2016, though Noll still looked over from the board until the middle of last year. Now Noll is gone, Evans is heading out, and few of the core Noll crew are left.  

New leadership will perhaps mean an opportunity for HBI to go in a new direction outside of the M&A margin milking model that worked well coming out of the recession, but has done nothing but destroy equity value since 2015. 

Perhaps HBI can change course, but we think there is still upwards of 50% downside in the stock before the business can explore a turnaround. With a current valuation reflecting that of pre-covid level despite big hits to the business both domestically and in international, a likely end to the Champion growth story, and higher leverage, HBI remains a best idea short.

GIL Thought

Perhaps the hiring of a WMT exec by HBI is small net negative for GIL given he likely has intimate knowledge of GIL’s programs with WMT, but we don’t see a real risk to the long term GIL story from this.  HBI can’t compete with GIL in a manufacturing cost / private label business battle.