It’s a catastrophe for Hanesbrands (NYSE:HBI), as the clothing retailer sold off one of its biggest names: Champion. Without the Champion brand, the outlook for Hanesbrands looks just a little grimmer than before, and investors abandoned ship. Worse, they took over 10% of Hanesbrands’ market cap with them.
Authentic Brands picked up the Champion label for just over $1 billion, and the sale is expected to close sometime in either May or June. Investors clearly panicked mainly because Champion was the second-largest brand in the entire Hanesbrands portfolio. Losing Champion sales will be a serious blow to Hanesbrands’ future operations.
Nevertheless, Hanesbrands took the leap anyway, noting that it was part of a larger effort to “…adapt and ensure all brands in both innerwear and outerwear are on the optimal path to achieve long-term success.”
Not Looking Good
While there are some signs of life for Hanesbrands, like a three-year extension of a clothing deal with U Miss, there are plenty of other problems afoot here. For instance, there are signs that investors are concerned about Hanesbrands’ overall return on capital employed, which suggests a business in a potential death spiral. Meanwhile, Hanesbrands has labor troubles; word of unpaid wages in Central American factories emerged in a WRC report, and another 159 jobs in Winston-Salem went the way of the dodo just weeks ago.
What Is the Future of Hanes Stock?
Turning to Wall Street, analysts have a Hold consensus rating on HBI stock based on four Holds and one Sell assigned in the past three months, as indicated by the graphic below. After a 1.34% loss in its share price over the past year, the average HBI price target of $4.20 per share implies 17.89% downside risk.
