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International Sales to Boost Hanesbrands (HBI) Q3 Earnings?

Hanesbrands Inc. HBI is slated to release third-quarter 2017 results on Nov 1. The question lingering in investors’ minds is whether this apparel manufacturer and designer will be able to deliver a positive earnings surprise in the quarter to be reported. The company has a very mixed record of earnings surprises in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

Hanesbrands Inc. Price and EPS Surprise

Hanesbrands Inc. Price and EPS Surprise | Hanesbrands Inc. Quote

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 61 cents, which reflects year-over-year growth of 8.9%. Also, the earnings estimate has trended upward in the last seven days. Moreover, analysts polled by Zacks expect revenues of $1,806 million, up 2.6% from the year-ago quarter.

Factors at Play

Hanesbrands reported preliminary numbers for third-quarter 2017 last week, when it also announced the buyout of Alternative Apparel. Hanesbrands further stated that it anticipates net sales for the quarter to come in at roughly $1.8 billion, which marks a year-over-year increase of 2.5%. Also, the bottom line is envisioned to be approximately 60 cents per share, showing growth of 7.1% from the prior-year period. These projections fall within management’s previously guided range. Notably, both top and bottom lines for the quarter are likely to be fueled by robust growth at the company’s international segment. Also, management earlier predicted more back-to-school shipments to fall in the third quarter versus a year ago, which should lead to higher sales.

A Look Back at Q2 & Estimates for Q3

Well, the international segment largely drove Hanesbrands’ results in the last quarter, which broke the company’s negative sales surprise trend of five quarters. During the quarter, both sales and earnings jumped year over year, mainly backed by acquisition related synergies. The benefits from acquisitions were mainly related to Champion Europe and Hanes Australasia that had been completed in 2016. Moreover, sales from online channel globally increased 25%, majorly benefitting from strength in Global Champion Activewear.

Looking at segments, the international segment witnessed a substantial 76% surge in sales that came in at $475.2 million. The growth was primarily driven by acquisitions and strong results in Asia. In fact, European acquisition synergies led to a 152% increase in the operating profit of the segment. Turning to the Activewear segment, sales climbed 1% to $379.6 million, though the operating profit tumbled 10% due to higher Project Booster expense and retailer bankruptcies. In fact, Project Booster expenses also marred operating profit at the Innerwear segment, wherein sales declined 2.5% to $719 million. Nevertheless, the rate of sales decline decelerated from the previous two quarters.

Clearly, the international segment appears to be the driving factor for Hanesbrands’ top and bottom lines in the quarter to be reported. Evidently, the Zacks Consensus Estimate for international revenues is currently pegged at $502 million for third-quarter 2017, showing a 5% rise from the year-ago reported figure. The consensus estimates for Activewear and Innerwear revenues are pegged at $530 million and $689 million, reflecting year-over-year advancements of 3.7% and 0.1% respectively.

Possible Deterrents

While online sales grew year over year, it only formed 9% of the company’s total sales. Thus, the company still generates a major chunk of sales from brick-and-mortar operations, which have been pressurized owing to an evolving retail landscape. Also, the retail landscape has been highly competitive and promotional, which may also weigh upon Hanesbrands’ performance. Some analysts also perceive the company’s North American operations to be troubled, on account of such headwinds. However, we expect growth in the international segment, benefits from buyouts and focus on Project Booster to drive Hanesbrands’ performance this quarter. Notably, the company’s shares have gained 7.7% year to date, surpassing the industry’s rise of 4.6%.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Hanesbrandsis likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Hanesbrands currently carries a Zacks Rank #2 (Buy). However, the company currently has an Earnings ESP of -0.03%. The combination of Hanesbrands’ Zacks Rank #2 and a negative ESP makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Estée Lauder Companies Inc. EL has an Earnings ESP of +0.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren Corporation RL has an Earnings ESP of +2.63% and a Zacks Rank #2.

Big Lots, Inc. BIG has an Earnings ESP of +15.39% and a Zacks Rank #2.

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