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Stock Strategist

Margin Gains in Store for Hanes

Improved profitability should follow the apparel maker's return to revenue growth.

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We have a high degree of confidence in the defensibility of  Hanesbrands(HBI) competitive position, given advantages that are difficult for competitors to replicate: the company’s large owned and controlled supply chain, core product positioning in a space where brand is more important than price, and economies of scale achieved through a growing portfolio of synergistic brands. We think the company is poised to post significant operating margin growth through recognition of synergies ($85 million in 2018 and 2019), $100 million in net cost savings from Project Booster, and $30 million-$40 million in manufacturing efficiencies.

The company operates 50 manufacturing facilities, mostly in Asia, Central America, and the Caribbean Basin. In 2017, more than 70% of units sold were from its own plants or those of dedicated contractors. When Hanesbrands can internalize high-volume styles, we estimate that it saves as much as 15%-20%. Utilizing this manufacturing platform, Hanesbrands has been successful in making acquisitions to drive earnings growth.

Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.