Why Hanesbrands Inc. Stock Dropped 23% Last Year

By Jeremy Bowman Markets Fool.com

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What happened

Shares of Hanesbrands Inc. (NYSE: HBI) were looking threadbare last year, falling 26%, according to data from S&P Global Market Intelligence. The diversified apparel maker, parent of brands like Hanes, Maidenform, and Champion, saw its stock steadily decline during a tough year for the apparel industry in general. Weaker-than-expected growth at Hanesbrands seemed to be the key culprit:

HBI data by YCharts.

So what

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Shares of the company plummeted sharply after the company reported fourth-quarter 2015 earnings. The stock dropped 15% as it missed earnings estimates and reported slower-than-expected sales growth. Adjusted earnings per share improved from $0.36 to $0.44, but that was short of expectations of $0.46. Perhaps more importantly, sales fell 7.4% to $1.4 billion, below estimates of $1.5 billion, as management blamed unseasonably warm weather in November and December for weak traffic. In its 2016 guidance, the company called for 1% to 3% sales growth and a 7% to 10% increase in operating profit.

Shares bounced back from what would prove the stock's worst day of the year, but the poor performance seemed to set the tone for the rest of 2016. Hanesbrands made some key acquisitions in April, buying Champion Europe for about $200 million and Pacific Brands for $800 million (including debt), continuing its long strategy of growth through acquisition.

Although it popped briefly after its first-quarter earnings and when it updated its guidance to factor in those acquisitions, the stock started sliding through the spring; it fell again after missing earnings estimates in its second-quarter report. To close out the year, the stock missed out on the post-election rally, instead falling by about 10%.

Now what

Hanesbrands' business performance for 2016 was decent, but the stock seemed to get dinged for carrying a price-to-earnings ratio near 30 at the beginning of the year. With a couple of solid acquisitions last year and a more modest valuation, the company should be in a better position for 2017. The stock is up more than 4% thus far, though it's only January.

Still, I wouldn't expect fireworks from Hanesbrands, as both the apparel industry and the traditional distribution model through brick-and-mortar stores remain challenged.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.