EUR 850.00 For Business Accounts Only

Morningstar | Champion and other brands provide Hanesbrands with a narrow moat, but there are many challengers.

Narrow-moat Hanesbrands is the market leader in basic innerwear (63% of its 2018 sales) in multiple countries. Its innerwear has more than double the market share of its leading competitor at U.S. mass market retail. It has successfully launched brand extensions at major retailers and grown through acquisitions. However, we believe that Hanesbrands must find new areas of growth because innerwear is a replenishment product with limited prospects. Hanesbrands’ Champion brand (26% of 2018 sales) is key for the company. We view management's goal of $2 billion in Champion sales in 2022 (excluding the mass channel and up from $1.36 billion in 2018) as attainable. Growth is expected from Champion despite the upcoming loss of the C9 label at Target. While the overall apparel market in the U.S. grows less than 1% per year, NPD reports activewear has grown at annual rates of 2%-4% over the past four years. Further, NPD reports that activewear represented 24% of U.S. apparel sales in 2018, up from 22% in 2017. Champion and other activewear apparel have become more than just athletic apparel and are increasingly worn as lifestyle/fashion brands. This trend is favorable as lifestyle brands have good growth and attractive price points, which underlies our forecast for 3% segment growth longer term.Hanesbrands has improved its production efficiency over the past 10 years. The company claims a nearly 90% increase in per-factory output by both units and weight since 2008. Further, it claims a 33% increase in manufacturing efficiencies over the same period. In the first quarter of 2017, Hanesbrands also announced a cost efficiency program that it calls “Project Booster.” This effort is targeted to reduce annual expenses by $150 million by the end of 2019. While Hanesbrands can continue to take excess costs out of its system, we do not believe that it has a permanent cost advantage over rivals. It owns 50 or so factories in such low-wage countries as Honduras, El Salvador, Slovakia, and Vietnam, but competitors operate production facilities in many of these same countries as Hanesbrands.