Hanesbrands Inc. HBI is grappling with inflationary pressure, hurting its margins. The persistent macro-driven slowdown in consumer spending threatens the basic apparel company’s performance.

These factors hurt the company’s second-quarter 2023 results, with the top and the bottom line declining year over year. At the time of its quarterly results, management lowered its 2023 view.

Shares of the Zacks Rank #4 (Sell) company have slumped 25.7% in the past six months compared with the industry’s 2.4% decline. The stock has underperformed the Zacks Consumer Discretionary sector’s decline of 1.5% during this time.

Let’s delve deeper.

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Macroeconomic Challenges Hurt Q2 Results

Hanesbrands is witnessing persistent macroeconomic hurdles, which hurt its second-quarter results. The company’s adjusted loss from continuing operations of 1 cent a share deteriorated from 28 cents per share in the year-ago quarter. Net sales from continuing operations decreased 4.9% to $1,439 million, which includes $18 million negative impact from foreign exchange rates. The downside was caused by declines in U.S. Activewear and a persistent macro-driven slowdown in consumer spending affecting Australia.

Global Champion brand sales tumbled 16%, with a decline of 25% in the United States and a 1% decrease internationally. Global Champion brand sales fell 15% at cc, while international brand sales aligned with the year-ago quarter’s levels. Management recently announced that it is evaluating strategic options for the Champion business, including a potential sale.

Cost Woes Stay

Hanesbrands is grappling with a rising inflationary environment, which continued in the second quarter. The adjusted gross margin was 33.6%, down nearly 425 basis points (bps). The downside was caused by commodity and ocean freight inflation, which represented almost 245 bps of margin headwind as it continued to sell through higher-cost inventory. Also, unfavorable business mix and increased labor rates were hurdles.

Lowered View

Considering the challenging apparel market, mainly in Australia, along with softness in the U.S. activewear category, management lowered its view for the back half of the year. For 2023, net sales from continuing operations are now anticipated to be $5.80-$5.90 billion, including an anticipated currency headwind of nearly $37 million. The midpoint of the guidance suggests a nearly 6% year-over-year decline on a reported basis and cc basis. The metric was expected to be $6.05-$6.20 billion earlier.

For 2023, adjusted earnings per share (EPS) from continuing operations is envisioned to be in the 16-30 cents range compared with the 31-42 cents projected earlier.