Hanesbrands profit tops view, sales miss

By Martinne Geller

NEW YORK (Reuters) - Underwear maker Hanesbrands Inc <HBI.N> reported a much better-than-expected quarterly profit on Monday, due to efforts to cut costs and reduce interest expense by paying off debt.

But total net sales fell 5 percent due to the weak retail environment, falling short of analysts' average estimate and helping to push its shares down as much as 6.9 percent in early trade before recovering its losses by midday.

BB&T Capital Markets analyst Eric Tracy called the early drop an overreaction and said the market was "misfocused" on the sales decline and the impact of higher cotton prices. Rather, the market should be encouraged by the company's current restructuring, which includes consolidating factories and moving some production overseas.

"It is our belief that the earnings power story is much more predicated on supply chain initiatives that manifest in significant margin expansion," Tracy said. "I think that's obviously evidenced in (Hanesbrands) still being able to realize significant upside to the bottom line despite the weaker top line."

The company, whose brands include Bali, Playtex and Wonderbra, said net profit rose to $36 million, or 38 cents a share, in the first quarter that ended March 29, compared with $12 million, or 12 cents a share, a year earlier.

Excluding items, the company earned 42 cents per share.

Total net sales in the quarter fell to $987.8 million from $1.04 billion a year ago, hurt by declines in most product categories across most customers.

Two analysts had an average profit expectation of 32 cents per share, while three analysts on average expected revenue to rise slightly to $1.05 billion, according to Reuters Estimates.

Shares of Hanesbrands, which was spun off from Sara Lee Corp <SLE.N> in 2006, were down 6 cents, or 0.2 percent, at $33.48 on the New York Stock Exchange.

(Additional reporting by Aarthi Sivaraman; editing by Maureen Bavdek and Derek Caney)