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Hanes, Old Navy, Value Brands in Demand

Underwear may be boring, but the margins can be surprisingly good

Andrew Willis 6 July, 2020 | 1:49AM
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Andrew Willis: Last time we checked in on the clothing sector, we went high-end and frankly, overvalued with Lululemon. This time, we want value. In these times of financial constraint, consumers are looking for bargains – and bargains could make for excellent investment opportunities!

Take Hanesbrands, for example. They’re one of the best for deals, profitability and popularity, with equity analyst David Swartz noting that their unseen undergarments segment has some seriously overlooked profitability. Hanes beats competitors on costs by the double-digits, and when it comes to demand, their men’s underwear is the world’s best-selling brand by a wide margin.

It has been a long road for Hanes to get to this point with its stock price suffering for about five years now – but those years of neglect aren’t a surprise given how undervalued this essential product is right now.

Another great business that’s been hiding in plain sight is Old Navy. If it weren’t for Old Navy, its parent company Gap might be in trouble. Now making up 80% of the company’s operating profit, we believe it’s a solid business supporting a stock price valued at twice today’s going rate.

Fun and energetic commercials from Old Navy aside, both GAP and Hanes have mastered the art of basic, affordable – yet profitable clothing, and that’s very much in vogue right now.

For Morningstar, I’m Andrew Willis.

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Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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