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Investing.com -- S&P Global has revised the credit outlook for U.S.-based clothing manufacturer Hanesbrands (NYSE:HBI) Inc. to positive from stable, following improved leverage and debt reduction efforts in fiscal 2024. The 'B+' issuer credit rating for Hanesbrands has been affirmed, and the company's proposed loans and revolving credit facility have been rated 'BB'.
Hanesbrands' leverage improved in fiscal 2024, compared to 2023, supported by the sale of its Champion business. The company used the proceeds from this sale to reduce its debt by $1 billion in 2024. This resulted in a decrease in S&P Global Ratings-adjusted leverage to mid-5x in 2024, down from over 7x in 2023.
The positive outlook is based on the expectation that Hanesbrands will continue to improve operationally and meet its performance plans. The company aims to revive innerwear growth and focus on everyday basic replenishment in the coming year.
Despite seeing a 3.6% decline in net sales from continuing operations to $3.50 billion in 2024, compared to $3.6 billion in 2023, Hanesbrands' operations performance remained steady between fiscal 2023 and 2024. The company's S&P Ratings-adjusted EBITDA was nearly $500 million in fiscal 2024, down from $555 million in 2023.
The company is expected to further improve its leverage in 2025 to below 5x, as it continues to focus on improving operations and reducing debt. Hanesbrands plans to invest in its business and reduce debt through fiscal 2025, navigating a volatile macroeconomic environment.
The company is likely to generate stronger cash from operations in 2025 than in 2024 and modestly expand S&P Global Ratings-adjusted EBITDA margins to 15% in 2025 from 14% in 2024. This is expected to result from market share gains, cost-saving initiatives, and improvements in supply chain management.
Hanesbrands' refinancing is viewed as credit positive, given the 2026 maturity on the term loan A and revolver. The company is also expected to address its 2026 notes this year.
The company has limited exposure to China, with a supply chain that is balanced across the world, including central America and southeast Asia. Hanesbrands saw its leverage decline to 3.4x on its calculation basis in 2024, down from 5.2x in 2023. It aims to reduce net leverage by its calculations to the 2x-3x range in the near term.
Hanesbrands expects to increase cash flow from operations to $350 million in 2025 from $264 million in 2024. The company plans to use available free cash flow to pay down debt and does not anticipate plans to return capital to shareholders until it is back in the 2x-3x leverage range.
S&P Global could lower the ratings if Hanesbrands sustained leverage of 5x or higher. This could occur if innerwear sales declined further due to global consumer trading down, performance deterioration, or the adoption of more aggressive financial policies. The rating could also be lowered if the company's business risk was unfavorably reassessed.
Conversely, S&P Global could raise the rating if Hanesbrands sustained leverage below 5x. This could occur if 2025 sales growth exceeded expectations, driven by geographical and product line expansion, or if profitability continued to improve from manufacturing leverage, assortment management, and cost-savings realization.
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