Financial Strength
Hanes’ excessive debt is a significant concern in the current environment of uncertain credit conditions. The balance sheet was improving before the pandemic but has been negatively affected by rocky results over the past three years, including negative free cash flow to equity in 2022. However, Hanes refinanced about $1.4 billion in debt that was set to mature in 2024 and is generating positive free cash flow again. Thus far, Hanes has reduced its debt to about $3.4 billion from $3.9 billion at the end of 2022. We forecast it will produce nearly $2.6 billion in free cash flow to the firm between 2023 and 2026 and reduce its total debt to about $2.1 billion, which should allow to reach its goal of bringing debt/EBITDA below 3 times by the end of 2026.
Hanes issued quarterly dividends from 2013 through 2022 but elected to eliminate its dividend in early 2023 to focus on debt reduction. While a drastic move, it was probably necessary, given the drop in free cash flow in 2022 and the high debt. We anticipate the firm may resume paying dividends in 2027. Hanes repurchased a small amount of stock in early 2022 but has since held off on buybacks as it pays down debt. We anticipate it may resume repurchases in 2025.
Hanes has not made a major acquisition since 2018. At this point, we believe internal investments and debt retirement are higher priorities than acquisitions.
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