S&P Global Ratings revised its outlook on Hanesbrands Inc., the parent of Champion, to negative from stable. The rating agency said Hanesbrands will face significant sales and profitability declines in the upcoming quarters due to store closures and a drop in consumer spending on nonessential items arising from the COVID-19 pandemic and resulting economic recession.
As a result, S&P forecast the company’s credit measures will weaken and leverage will temporarily exceed 4x in fiscal 2021. The negative outlook reflects the heightened risk that a prolonged slowdown in consumer spending could prevent Hanesbrands from improving credit metrics, and keeping leverage elevated at over 4x in 2021.
S&P also said it was affirming its ‘BB’ issuer credit rating.
S&P said, “Store closures and a drop in consumer spending on nonessential items will hurt Hanesbrands’s sales and margins. In response to the COVID-19 pandemic, Hanesbrands temporarily closed about 1,200 of its retail locations in the U.S., Europe, and Australia. While the company is less reliant on the traditional department store channel than some other apparel peers and generates a good portion of revenue from mass segment stores (Target, Walmart) that remain open, we believe consumer traffic and spending on discretionary items will remain weak as consumers are increasingly limiting their purchases to grocery and hygiene products. In addition, some stores are barred from selling nonessential items in order to reduce foot traffic and prevent the spread of the coronavirus. These measures to contain the spread of COVID-19 pandemic will hurt Hanesbrands’ sales in the upcoming quarters despite the replenishable nature of many of its products.
“The negative outlook reflects the risk that stores will remain closed for a prolonged period because of the COVID-19 pandemic and cause a deeper recession in the U.S. and Europe. This could cause a slower recovery of Hanesbrands’ sales and profits and hinder the company’s ability to restore credit metrics for a prolonged period of time.
“We could lower our ratings within the next 12 months if Hanesbrands’ operating performance is weakened for a prolonged period by store closures or a recession, and the company sustains adjusted leverage above 4x in fiscal 2021.
“We could revise the outlook to stable if Hanesbrands can weather the pandemic and we believe the company can restore profitability, which would enable it to strengthen credit metrics, including leverage below 4x in fiscal 2021.”
The company’s brands include Hanes, Champion, Bonds, DIM, Maidenform, Bali, Playtex, Lovable, Bras N Things, Nur Die/Nur Der, Alternative, L’eggs, JMS/Just My Size, Wonderbra, Berlei, and Gear for Sports.
Photo courtesy HanesBrands