S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
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It wasn’t me: Ex-UK PM Truss blames 'system' for her failure
'Knock at the Cabin' knocks off 'Avatar' at the box office
S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
Route to Super Bowl dangerous for Mexico's avocado haulers
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
Europe bans Russian diesel, other oil products over Ukraine
Biden's State of the Union to tout policy wins on economy
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
How will EU ban and West's price cap on Russian diesel work?
Evacuations urged in Ohio town as train wreck smolders
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
It wasn’t me: Ex-UK PM Truss blames 'system' for her failure
'Knock at the Cabin' knocks off 'Avatar' at the box office
S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
Route to Super Bowl dangerous for Mexico's avocado haulers
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
Europe bans Russian diesel, other oil products over Ukraine
Biden's State of the Union to tout policy wins on economy
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
How will EU ban and West's price cap on Russian diesel work?
Evacuations urged in Ohio town as train wreck smolders
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
It wasn’t me: Ex-UK PM Truss blames 'system' for her failure
'Knock at the Cabin' knocks off 'Avatar' at the box office
S&P 500   3,852.36
DOW   32,920.46
QQQ   306.18
Route to Super Bowl dangerous for Mexico's avocado haulers
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
Europe bans Russian diesel, other oil products over Ukraine
Biden's State of the Union to tout policy wins on economy
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
How will EU ban and West's price cap on Russian diesel work?
Evacuations urged in Ohio town as train wreck smolders
Cash Holders STILL Aren't Taking Steps to Prepare (Ad)
It wasn’t me: Ex-UK PM Truss blames 'system' for her failure
'Knock at the Cabin' knocks off 'Avatar' at the box office

Hanesbrands May be Signaling a Bad Week for Retail Stocks

Key Points

  • Hanesbrands stock is trading at 10-year lows. And the real problem for investors is that shares may have further to fall.  
  • The company faces strong competition for the cash-strapped low- to middle-income consumer. 
  • Refinancing existing debt will expose the company to rising interest rates. 
  • Without a better macroeconomic outlook, Hanesbrands appealing dividend looks like a yield trap. 
  • 5 stocks we like better than Hanesbrands
Hanesbrands May be Signaling a Bad Week for Retail Stocks

Hanesbrands (NYSE:HBI) is down just about 2% the day after reporting weak third quarter earnings and lowering its guidance for the coming quarter. But that drop of 2% is on the coattails of the broader market which is surging after the October Consumer Price Index (CPI) number came in lower than expected. Immediately after the company released its earnings report, the stock was down 6%.  

Next week many retailers will be reporting earnings and investors will want to hear about low inventory and pricing power. The problem is that with Hanesbrands, they heard neither. And with the economic outlook likely to get worse before it gets better, now is a time to avoid HBI stock even though it looks cheap.  

Inflation is Affecting the Company’s Core Customer 

A bullish case that some may offer for HBI stock is that sales could be better as items like underwear and socks have always served as low-cost holiday gifts. Add in the fact that the company sells Champion brand sportswear and there’s some merit to the argument. 

Except the company has already lowered its guidance for the current quarter which includes holiday sales. In the earnings report, Hanesbrands forecasts net sales of $1.4 billion to $1.5 billion. That’s well below expectations for $1.63 billion. It would also be the lowest net sales figure since the onset of the Covid-19 pandemic.  

And the earnings outlook is equally grim. The company is now saying earnings will come in between 4 cents and 11 cents per share. Analysts were expecting 21 cents per share. 

The issue is not the company’s pricing, per se. Hanesbrands fits into a price point that should be attractive for low- and middle-income consumers who are looking to stretch their dollars further. The problem is these consumers are feeling the biggest pinch from inflation. And that, according to a Wells Fargo (NYSE:WFC) analyst who downgraded the stock, “is driving lower replenishment orders and order cancellations at key mass retailers.” 


Rising Interest Rates Create a Double Whammy 

In addition to declining demand, the Federal Reserve already says it is likely to continue raising interest rates into 2023. The Fed also says it is prepared to keep interest rates at these higher levels for a sustained period. 

Hanes is carrying approximately $1 billion in notes that mature in the next 18 months. When interest rates were low, refinancing carried the same or lower costs. Not so at this time. The company will refinance. And they will have to pay heavily for the privilege.  

The same Wells Fargo analyst who downgraded the stock forecasts that refinancing will add between $55 million and $65 million of interest expenses to the company’s balance sheet heading into 2023.  

Don’t Count on the Dividend to Save HBI Stock 

At first glance, an attractive quality for Hanesbrands stock would be its dividend which currently sports a yield of over 8%. And the company just announced it would pay its dividend which comes out to 15 cents per share quarterly for this most recent quarter. That means shareholders of record on or before the ex-dividend date of November 21, 2022 will receive the dividend in mid-December.  

That currently calculates to about 49% of the company’s net income. A few years and several rate increases ago, that may have been sustainable. But with the company’s financials under pressure, a dividend cut or suspension is likely, particularly if the macroeconomic outlook deteriorates further.  

I can’t tell you that Hanesbrands doesn’t look cheap. But this looks like a time when stocks are cheap for a reason. If you want to buy the stock to collect a quick dividend, you have a window to make that work. But as a long-term play, there are better options than HBI stock.  

Should you invest $1,000 in Hanesbrands right now?

Before you consider Hanesbrands, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Hanesbrands wasn't on the list.

While Hanesbrands currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Hanesbrands (HBI)
2.3107 of 5 stars
$6.55+4.3%9.16%-18.19Hold$10.00
Wells Fargo & Company (WFC)
2.8136 of 5 stars
$47.58+0.7%2.52%15.15Moderate Buy$52.09
Compare These Stocks  Add These Stocks to My Watchlist 

Chris Markoch

About Chris Markoch

Contributing Author: Retirement, Individual Investing

Chris Markoch is a freelance financial copywriter with over five years of experience covering various aspects of the financial markets. You may find his writing a little different than other stock articles you’ve read. And that’s OK with him. Chris doesn’t have a traditional finance background. What he does bring to the table is a strong business and marketing background having worked for agencies that serviced Fortune 500 companies. With that in mind, he isn’t overly impressed with what companies say, and more focused on what they do. And because buyer behavior dictates so much of what happens with a stock, Chris always keeps the end consumer close in mind. Chris has been writing for MarketBeat since 2018.

Contact Chris Markoch via email at CTMarkoch@msn.com.

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