Why Is Hanesbrands Stock Gaining Premarket Wednesday?

Zinger Key Points
  • Hanesbrands is selling its Champion business to Authentic Brands Group for up to $1.5 billion.
  • Hanesbrands will use the $900 million net proceeds to accelerate debt repayment and reduce stranded costs within a year.

Hanesbrands Inc. HBI shares are trading higher after the company inked a deal to sell its Champion business to Authentic Brands Group for a transaction value of $1.2 billion.

The transaction value could reach up to $1.5 billion, including an additional contingent cash consideration of up to $300 million based on meeting performance thresholds.

This agreement, unanimously approved by the HanesBrands Board of Directors, marks the successful conclusion of the company’s evaluation of various strategic options for the global Champion business.

The transaction is subject to customary closing conditions and is expected to be finalized in the second half of 2024.

Following the transaction closure, the company plans to maintain its hold in the innerwear category and achieve above-market growth through consumer-centric product innovation and increased investment in its leading brands, including Hanes, Bonds, Maidenform, and Bali.

HanesBrands expects net proceeds of around $900 million from the transaction, including working capital adjustments and other customary costs, excluding contingent cash consideration.

HanesBrands will use all net proceeds to accelerate debt repayment, aiming for significant deleveraging on a net debt-to-adjusted EBITDA basis.

As of the end of the first quarter of 2024, the global Champion business generated approximately $75 million in adjusted EBITDA over the trailing 12 months, accounting for around $60 million in stranded costs.

HanesBrands plans to eliminate all stranded costs within a year of the transaction closing. The company plans to classify Champion business as discontinued operations starting in the second quarter 2024.

Consequently, HanesBrands will update its full-year 2024 guidance in conjunction with the release of its second-quarter earnings results.

Steve Bratspies, CEO, said, “Over the past three years, we have taken necessary actions to enhance the Company’s operations and financial performance – returning to historical gross margins, reducing our cost structure, lowering our debt levels, and generating consistent cash flow. The successful completion of this transaction further simplifies our business, deleverages our balance sheet and enhances the Company’s operations and financial performance.”

Last month, the company reported a first-quarter adjusted loss per share of two cents, narrower than the analyst consensus for a loss of 7 cents

At the end of first-quarter 2024, cash and equivalents stood at $191 million and over $1 billion of available capacity under the credit facilities.

Investors can gain exposure to the stock via Pacer US Small Cap Cash Cows 100 ETF CALF.

Price Action: HBI shares are up 13.49% at $5.73 premarket at the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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