HanesBrands Delivers Resilient Q1 Results Amid a Challenging Retail Landscape

HanesBrands Inc. (NYSE: HBI) kicked off 2025 with a solid first-quarter performance, defying headwinds from tariffs, foreign exchange, and a sluggish retail environment. The apparel giant reported net sales of $760 million, up 2.1% year-over-year, driven by cost discipline, margin expansion, and strategic investments in key categories. While challenges such as U.S. tariffs and foreign exchange headwinds remain, management’s focus on operational efficiency has positioned the company to navigate these obstacles.

Financial Highlights: Margin Gains Take Center Stage

The standout achievement in Q1 was the dramatic improvement in profitability. Gross margin expanded by 170 basis points to 41.7%, fueled by lower input costs, SKU rationalization, and a better product mix. Operating margin surged 575 basis points to 10.5%, with adjusted operating profit jumping 61% to $81 million. These gains reflect the success of HanesBrands’ long-term initiatives to reduce fixed costs, streamline supply chains, and optimize inventory.

Segment Performance: U.S. Strength, International Resilience

• U.S. Sales: Declined 1.4% to $536 million, as struggles in the intimate apparel category offset growth in basics, active wear, and new businesses. However, U.S. operating margin jumped 285 basis points to 20.9%, showcasing the benefits of cost cuts and better inventory management.
• International Sales: Fell 2.2% in reported terms but rose 4% in constant currency, with strong performances in Australia and Asia. International operating margin improved 310 basis points to 11.5%, driven by efficiency gains.

Balance Sheet and Liquidity: A Healthier Profile

Inventory levels dropped 5% year-over-year to $977 million, reflecting stricter SKU management and lower raw material costs. The net debt-to-EBITDA ratio improved to 3.6x from 5.0x in Q1 2024, signaling stronger liquidity. However, operating cash flow turned negative ($108 million) due to inventory builds ahead of the back-to-school season—a temporary drag on free cash flow.

Strategic Priorities: Cost Discipline and Tariff Mitigation

CEO Steve Bratspies emphasized the company’s ability to offset $60 million in annual tariff headwinds through pricing, cost reductions, and leveraging its Western Hemisphere supply chain. Strategic initiatives such as SKU rationalization and cloud-based IT investments aim to cut fixed costs further.

Risks and Challenges

• Tariffs and Trade Policies: While HanesBrands has mitigated tariff impacts, ongoing geopolitical tensions could disrupt supply chains.
• Foreign Exchange: Currency headwinds are expected to reduce full-year sales by ~$60 million.
• Consumer Demand: Softness in apparel spending, particularly in intimate apparel, remains a risk.

Outlook: Guidance Reaffirmed, Growth Within Reach

HanesBrands reaffirmed its full-year 2025 guidance:
- Net Sales: $3.47–3.52 billion (flat reported, +1% organic).
- Adjusted EPS: $0.51–$0.55, up sharply from a loss of $0.05 in 2024.
- Free Cash Flow: Targeted at $300 million, supported by $65 million in capital spending.

Conclusion: A Buy for Patient Investors

HanesBrands’ Q1 results underscore its resilience in a challenging environment. Margin expansions of 575 basis points in operating profit and $300 million in projected free cash flow highlight management’s execution of cost-saving strategies. While tariffs and forex remain risks, the company’s diversified supply chain and brand strength—spanning iconic names like Hanes and Bali—position it to capitalize on recovery in apparel demand.

With shares trading at ~9.5x forward 2025 earnings (vs. a 5-year average of 14x), the stock appears undervalued. However, investors should monitor execution against guidance and macroeconomic trends. For now, HBI’s operational turnaround and disciplined strategy make it a compelling pick for investors willing to look beyond near-term volatility.

Final Note: HanesBrands’ Q1 results are a testament to its ability to turn cost discipline into sustained margin growth. While risks linger, the path to profitability is clear—if management can keep executing.