Fast Fashion Trends Will Erode Core Apparel Demand

Key Takeaways

• Shifting consumer preferences, rising competition, and retail partner changes are expected to erode sales and pressure Hanesbrands' margins and market share.
  
• Persistent debt burdens and weak brand repositioning constrain adaptation, limiting investment in growth, innovation, and digital transformation.
  
• Operational momentum, margin expansion, debt reduction, product diversification, and technology investments are driving stronger profitability and financial flexibility for Hanesbrands.

Catalysts

Designs, manufactures, sources, and sells a range of range of innerwear apparel for men, women, and children in the Americas, Europe, the Asia pacific, and internationally.

• Hanesbrands faces long-term erosion in demand for its core basics and innerwear products due to a global consumer shift toward fast fashion, sustainability-focused brands, and demographic changes such as declining birth rates in developed markets. This will likely constrain revenue growth and eventually lead to secular sales declines.
  
• The company's persistent brand association with value and basic apparel, combined with a slow pivot towards premium, sustainable or higher-margin categories, will limit its ability to raise average selling prices, resulting in stagnant or falling gross margins over the coming years.
  
• Intensifying competition from e-commerce giants and direct-to-consumer brands, as well as increasing reliance on traditional wholesale and brick-and-mortar channels, will raise customer acquisition costs and pressure both sales volumes and operating margins, undermining long-term earnings power.
  
• Despite recent cost savings, Hanesbrands is still hampered by elevated debt levels and high interest expenses, restricting its ability to make meaningful investments in digital transformation, innovation or marketing, which will weigh on net income and reduce financial flexibility well into the future.
  
• Retail partner consolidation and an industry-wide shift toward retailer-owned private label basics are likely to reduce Hanesbrands' shelf space, negotiating power, and long-term market share, causing declining sales and compressed margins as the company is forced into more promotional pricing.

Hanesbrands Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hanesbrands compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hanesbrands's revenue will decrease by 2.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.8% today to 8.9% in 3 years time.
• The bearish analysts expect earnings to reach $294.9 million (and earnings per share of $0.83) by about September 2028, up from $170.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 1.7x on those 2028 earnings, down from 13.2x today. This future PE is lower than the current PE for the US Luxury industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.89%, as per the Simply Wall St company report.

Hanesbrands Future Earnings Per Share Growth

Risks

• Hanesbrands has demonstrated three consecutive quarters of better-than-expected sales, gross margin, operating profit, and earnings per share, accompanied by raised full-year guidance, indicating strong operational momentum and the potential for continued improvements in revenue, profit margins, and earnings.
  
• The company is achieving structurally higher and sustainable profit margins through significant cost restructuring, productivity initiatives, supply chain improvements, and increased investment in brand innovation, all of which are supporting stronger net margins and bottom-line growth.
  
• Hanesbrands has reduced its debt by $1.5 billion and brought leverage substantially closer to its target range, resulting in lower interest expenses and greater financial flexibility that may support earnings growth and reinvestment into the business.
  
• Strategic expansion into new product categories-such as loungewear, scrubs, absorbency products, and premium T-shirts-and exclusive partnerships (including with Urban Outfitters and S&S in printwear) are unlocking diversified revenue streams and contributing to consistent top-line increases.
  
• Advanced investments in technology, such as AI-driven analytics for inventory, assortment management, and forecasting, are driving operational efficiencies, optimizing working capital, and enabling margin expansion, signaling the possibility of sustainable improvements in profitability over the long-term.

Valuation

• The assumed bearish price target for Hanesbrands is $1.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hanesbrands's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.3, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $294.9 million, and it would be trading on a PE ratio of 1.7x, assuming you use a discount rate of 11.9%.
  
• Given the current share price of $6.36, the bearish analyst price target of $1.0 is 536.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.