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Commodities & Metals

Underwear and the Price of Cotton (HBI, UA, MFB)

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By Paul Ausick Updated Published
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Last April, cotton prices had climbed to around $2.10/pound as drought in Texas threatened to play havoc on the crop. The March price this year was $0.995/pound and the today’s price is around $0.90/pound. Yet underwear maker Hanesbrands Inc. (NYSE: HBI) said in its earnings report today that high cotton prices held down the company’s profits in the first quarter.

Compared with cotton prices of under $0.50/pound in March 2009, today’s prices are indeed higher, but after the price spike that got started in the fall of 2010, it seems that Hanesbrands, makers of Hanes, Playtex, and Champion brands, would have figured out how to control its commodity costs. Competitors Under Armour Inc. (NYSE: UA) and Maidenform Brands Inc. (NYSE: MFB) should be facing the same issues, but Under Armour reported better-than-expected earnings this morning and Maidenform, which posted a loss in its fourth quarter, at least has not blamed cotton prices for its woes.

Hanesbrands did say that the worst of the cotton inflation was behind it and that the firm has locked in cotton costs through December. The remaining question is at what price did the firm lock-in its cotton prices? The trend for pricing is to continue falling, and Hanesbrands could have made the wrong call here.

But today, Hanesbrands is standing in the tall cotton, up 11.2% at $29.96 in a 52-week range of $21.74-$33.36.

Paul Ausick

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About the Author Paul Ausick →

Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.

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