Hanesbrands Inc. (NYSE:HBI) reported its financial results for the fiscal second quarter of 2015, ended July 4 on Thursday. Following a mixed earnings report, the apparel maker’s stock has dropped by nearly 10% today. The company reported total revenue of $1.52 billion for the quarter, 13% more than it pulled it during the same period a year ago, though this still missed the Street’s expectations by $40 million. Hanesbrands Inc. (NYSE:HBI) also reported total operating profit of $265 million for the quarter, up by 15% year-over-year. The apparel maker reported 16% higher adjusted EPS from the same quarter in 2014, at $0.50, which met the Street’s expectations exactly. The latest earnings is Hanesbrands Inc. (NYSE:HBI)’s sixth consecutive quarter of record results. The company also slightly adjusted its full year guidance, as it expects net sales of $5.9 billion, down from the previous guidance of $5.9 billion to $5.95 billion, while anticipating adjusted operating profit of $855 million to $875 million, up $2 million on both the high and low ends from previous guidance, and maintaining its previous outlook for its adjusted EPS., at $1.61 – $1.66. Hanesbrands Inc. (NYSE:HBI) achieved significant sales growth during the quarter, driven by its activewear and the acquisition of DBApparel and Knights Apparel. It was also revealed on Thursday that Hanes’ website was hacked and some customer details including names/addresses/phone numbers and the last four digits of credit card numbers were compromised during the attack. However, the company assured that the full credit card information was not stolen during the attack. This also worked against the company in the market today.
The stock’s slide appears to have been anticipated by the smart money tracked by Insider Monkey. At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in Hanesbrands Inc. (NYSE:HBI), with a total investment of $956.7 million, reduced from aggregate holdings of $983.8 million held by 36 hedge funds at the end of 2014. Meanwhile, the stock appreciated 20% during the January – March period, which shows that hedge funds pulled a lot of money out of the stock during the period.
Why do we pay attention to hedge fund sentiment. Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 34 months and outperformed the S&P 500 Index by 66 percentage points (see the details here).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that could lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Hanesbrands Inc. (NYSE:HBI), one of the Directors of Hanesbrands Inc. (NYSE:HBI), Jessica Mathews, purchased 1,800 shares on April 27. But on the contrary, Chairman and CEO Richard Noll sold around 7.96 million shares during the January – April period, while Chief Operating Officer Gerald Evans sold around 128,000 shares in March and June.
Taking this into account, we’re going to check out the fresh hedge fund action encompassing Hanesbrands Inc. (NYSE:HBI).
What have hedge funds been doing with Hanesbrands Inc. (NYSE:HBI)?
According to Insider Monkey’s hedge fund database, Chieftain Capital, managed by John Shapiro, holds the largest position in Hanesbrands Inc. (NYSE:HBI) with around 6.93 million shares valued at $232.1 million, comprising 12.7% of its 13F portfolio at the end of March. On Chieftain Capital’s heels is Scopus Asset Management, led by Alexander Mitchell, holding around 3.75 million shares worth $125.7 million; the fund has 2.5% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Phill Gross and Robert Atchinson‘s Adage Capital Management, David Harding’s Winton Capital Management, and Ken Griffin‘s Citadel Investment Group.
Due to the fact that Hanesbrands Inc. (NYSE:HBI) has faced a declination in interest from the aggregate hedge fund industry, logic holds that there were a few funds that decided to sell off their positions entirely heading into the second quarter. Interestingly, Robert Bishop‘s Impala Asset Management cut the largest stake, as it sold all of its 763,067 shares during the first trimester. Ross Margolies’ fund, Stelliam Investment Management, also dropped its 502,500 shares during the same period. These moves are intriguing to say the least, as total hedge fund interest fell by two funds heading into the second quarter.
Overall, smart money was bearish as top hedge fund managers like Robert Bishop opted to say good bye to this stock during the first three months of the year. Top executives of the company also decided to unload a lot of shares during the same period. The mixed second quarter earnings did not help the stock, while the data breach just piled on more misery for its shares. Considering the bearish hedge fund sentiment, we don’t recommend a long position at this time.
Disclosure: None
