Mr. Market is taking a sudden interest in the underwear manufacturer HanesBrands Inc. (NYSE: HBI).
Hanes’ share price grew from $10.77 on 9 July 2020 to $15.95 on 11 August 2020. However, HanesBrands began 2020 at a price of $15.04 on 2 January.
So why do Mr. Market and ordinary investors like HanesBrands? My theory is that investors want Hanes because it is a retail clothing brand that does not require a brick and mortar store.
How HanesBrands can make money without a retail store
To elaborate, HanesBrands’ (NYSE: HBI) can sell its products through whatever channel consumers prefer.
For example, Hanes can sell its underwear through Walmart (NYSE: WMT) or Amazon (NASDAQ: AMZN). If Americans order all their clothes online, Hanes makes money because Amazon can ship its undershirts and briefs straight to Prime members.
Statista estimates there were 112 million Amazon Prime members in December 2019. Moreover, the number of Amazon Prime members grew from 95 million June 2018. Importantly, Statista estimates the average American customer spends $1,400 a year on Amazon Prime.
How HanesBrands can Make Money in the Retail Apocalypse
Finally, Statista projects the number of U.S. Amazon Prime customers could grow to 143 million in 2022.
Hanes can make money from Amazon because it has a well-known brand customers recognize. People who need underwear will search for Hanes on Amazon, which benefits HanesBrands.
Moreover, 25,000 brick and mortar stores could close in 2020, Coresight Research estimates. Furthermore, UBS (NYSE: UBS) forecasts that 75,000 brick and mortar stores could close by 2026.
Hence Hanes’ potential online market is growing. In addition, HanesBrands is finding new markets. For example, Hanes is selling facemasks through its website and other outlets.
Thus, Hanes could make more money if experts’ claims that the Coronavirus pandemic will last into 2021 come true. People will need masks and Hanes can provide them.
Additionally, people will be afraid to go out and shop. So they will order their Hanes masks and underwear through Amazon or other ecommerce platforms.
What Value Does HanesBrands Have?
Hanes’ current value is limited. For instance, HanesBrands (HBI) had just $683.11 million in cash and short-term investments on 30 June 2020.
Moreover, Hanes reported total assets of $8.113 billion on 30 June 2020. Interestingly, Hanes’ cash and short-term investments fell from $1.084 billion on 31 March 2020. In contrast, Hanes’ current assets grew from $3.951 billion on 31 March 2020.
I think HanesBrands could collapse fast because it had $4.348 billion in long-term debts on 30 June 2020. On the other hand, I think Hanes has tremendous value in the stable of proven consumer brands.
Those brands include Playtex bras, Bali, Maidenform, Champion, Leggs pantyhouse, the infamous Wonderbra, and more. I think the brands could have value because their name recognition could attract attention on Amazon.
Can HanesBrands compete with Berkshire Hathaway?
Unfortunately, Hanes (NYSE: HBI) has a cash-rich competitor in the form of Berkshire Hathaway (NYSE: BRK.B) subsidiary Fruit of the Loom.
Hence, Hanes has to compete with a Berkshire company. In addition, Hanes faces the collapse of its traditional retail distribution system.
Under these circumstances, I think HanesBrands could become an acquisition target. Amazon (NASDAQ: AMZN), for instance, could buy HanesBrands to get exclusive products to sell.
How Much Money is HanesBrands Making?
HanesBrands makes money. For instance, Hanes reported a quarterly gross profit of $633.01 million and quarterly revenues of $1.739 billion on 30 June 2020.
Those numbers grew from $1.316 billion in quarterly revenues and a quarterly gross profit of $473.73 million on 31 March 2020. Additionally, HanesBrands reported a quarterly operating income of $241.54 million on 30 June 2020. Impressively, that quarterly operating income grew from $34.13 million on 31 March 2020.
Plus, HanesBrands reported a quarterly common net income of $161.18 million on 30 June 2020. In contrast, HanesBrands reported a -$7.87 million common net loss on 31 March 2020.
How Much Cash Does HanesBrands have?
HanesBrands (NYSE: HBI) generates some cash. In particular, Hanes reported a quarterly operating cash flow of $65.42 million on 30 June 2020. Conversely, Hanes reported a negative quarterly operating cash flow of -$83.22 million on 31 March 2020.
Interestingly, Hanes reported a negative quarterly ending cash flow of -$400.67 million on 30 June 2020. In contrast, Hanes reported a quarterly cash flow of $1.084 billion on 31 March 2020.
On the other hand, HanesBrands is paying off its debts. Hanes reported a financing cash flow of -$462.2 million on 30 June 2020. I think that shows Hanes paid off $462 million in debt.
Is HanesBrands a Good Stock?
I predict value investors will examine HanesBrands (HBI) because of its low share price.
However, Hanes could attract income investors because it will pay a 15₵ dividend on 10 August 2020. Overall, HanesBrands shares offered an annualized dividend of 60₵ and a dividend yield of 4.2%.
Despite the dividend, I think HanesBrands Inc. (NYSE: HBI) is a questionable stock. I think HanesBrands is a poor long-term investment because it has little cash and no margin of safety.
Only people who can afford to gamble and take the risk of losing money need to look at HanesBrands. I advise ordinary investors to stay away from HaneBrands because it is a weak company with little cash that could collapse fast.