Gildan Activewear Inc.

 

Gildan is a global manufacturer of apparel including T-shirts, fleece, sport shirts, underwear, socks, hosiery, and shapewear. Recently they acquired the brand of American Apparel; they have over 48,000 employees and revenues over U.S. $2bn.  The company has its manufacturing facilities mainly in Central and North America, Bangladesh, and the Caribbean.  The company invests in state-of-the art facilities with proprietary equipment and it also invests in the communities and families where they operate.  The company’s stock has languished for approximately 2 years as their results have varied and as the company and its customers adjusted to fluctuating commodity prices (mainly cotton) and market shifts to retailers increasing their focus on their private labels and sales shifting online. 

Gildan reports in $U.S.

Ests:     1Q24   2Q24   FY24    FY25

Revs    692m   863      3.27b   3.4b

EPS      .51       .80       2.93     3.26

 

P=C$47.60, U.S. $34.59, div=0.82, yield=2.4%, TTM EPS=2.71, TTM P/E=13X, D/C=35% but NWC > debt by 1.47/sh

 

1Q24 .59 vs .45, est .51 down from .58

  • May 1, 2024, P= C$47.60, U.S. $34.59, TTM EPS=2.71, P/E=13X

  • Revs -1% to 696m, GM 30.3% vs 26.2%, adj OM 18% vs 14.6%

  • Activewear +0.7% to 592m

  • Hosiery -9.9% to 103.7m, phasing out Under Armour as license expired in March and market weakness

  • 2Q Outlook: Revs flat to +LSD (est +2.7%), OM above high end of 18-20% target range

  • FY24 Outlook: Reiterated

 

Mid-Quarter Update – April 15, 2024

  • New CEO’s 90-day update

  • Reaffirmed FY24 Outlook, 1Q Preliminary Revs -1% (est -3.1%)

  • Medium-term targets: MSD rev CAGR, adj OMs 18-21%, adj EPS CAGR HSD-LDD

  • Not deviating from previously established GSG (Gildan Sustainable Growth) strategy

  • 5 key priorities:

  • Supply chain efficiencies

  • Brand leverage

  • Focus on existing and potential retail partners

  • Increase attention to certain international markets while remaining tight focus on US.

  • Strengthen “world-class” talent, “more collaborative leadership model”

  • No indication of sale process or any bids.

3Q20   .30 vs .53 -43%, est .05

  • Oct 29, 2020, P=C$28.61, U.S. $21.48, TTM EPS=(0.23), FY21 P/E=18X

  • Revs -18.6% to 602m, adj GM 22.5% vs 27.4%, OM 12.2% vs 16.5%, OpInc -40% to 73.5m, EBITDA -34% to 107m, CFO 151m vs 124m, FCF 137m vs 87.3m

  • Activewear -26.3% to 456m, Hosiery and Underwear +21% to 146m

  • Activewear decline driven by imprintables, distributor destocking significantly lower than in 2Q, retail activewear down slightly y/y, underwear doubled due to Gildan and private label, hosiery flat q/q, down slightly y/y.

  • POS in imprintables remained stable during 3Q but still -15-25% y/y (no big events but seeing some opportunities), but improving to -10-25% in 4Q depending on market, “a lot of demand from large screen printers that service retailers and online sellers” doesn’t always have Gildan label, retailers up y/y driven by underwear. Mgmt pleased with “Back to Basics” strategy, growing share through simplified portfolio, reduced cost and complexity to leverage their “world-class, sustainably-focused, vertically-integrated manufacturing platform”.

  • Some other things like basic t-shirts and fleece was positive in 3Q and accelerating in 4Q, 

  • Back to Basics strategy includes being aggressive on price for foreseeable future to drive share growth, they don’t believe competitors have staying power to be price competitive

  • At end of 3Q, Manufacturing utilization back to 75% of pre-pandemic levels 

  • Net debt 850.4m, liquidity 1.3bn

  • While TTM EPS is now negative, entirely due to 2Q20 now results are recovering, 18X FY21 estimates but still 12X FY18 EPS, it will be a long road to recover but I still think GIL emerges stronger with greater market share..  

2Q20   (.99) vs .56, est (.38)

  • Jul 30, 2020, P= C$23.94, U.S. $17.99, TTM EPS 0.00

  • Revs -71% to 230m, GM (52%) vs 27.8%, OM (77.2%) vs 16.3%

  • Adjustments to EPS incl 29m restr and 24m inventory w/d and 2m return allowance, another 170m of other items were not excluded including a price reduction, manufacturing idling costs which normally would be absorbed into COGS, unwinding excess commodity hedges and cotton commitments, other retail inventory charges, excluding all those other items, GM would have been 18% and EPS would have been ~(.13)

  • Activewear -80.2% to 131.6m, Hosiery and underwear -27.9% to 98.1m

  • FCF 177.1m vs 26m, still 1bn in inventories (down from 1.19bn in 1Q), net debt 901m almost offset by NWC, available liquidity 1.2bn

  • Distributors also worked down inventories, distributors that sell online have probably doubled sales

  • US imprintables average POS was -50%, ending 2Q around -20%, further improved in early July but retraced to -15-20% range, In June POS in certain US imprintables categories including feece and fashion basics turned positive, EU and LatAm were still down y/y but performing better than they expected

  • 2Q retail was down significantly y/y but men’s underwear was +23.5% as the private label is rolled out in all stores of their largest retailer (Walmart), encouraged by the “significant gains in market share”,good performance in activewear at some retailers, retail sales so far tacking slightly positive, mass and online posting strong double-digit but some mid-tier retailers (department stores, national chains, and sports specialty still down 20-30%)

  • Manufacturing resuming with improving demand but ramping below sales recovery to consumer inventories and generate free cash flow.

  • Doing their part in helping local governments with PPE but doesn’t see it as a sustainable business, pre-pandemic masks were $0.03 now selling for $1.50 and a lot of capacity coming online.  

  • Negotiated covenant flexibility to exclude 2Q20, also increased leverage ratio from 3.5X to 4.5X until 1Q21

  • Results horrible but positive FCF demonstrates solid balance sheet as they worked down inventories, still have substantial inventories to service customers.  Plenty of room for earnings recovery over the next few years. 

  • Mgmt focused on strengthening their competitive position by accelerating their Back to Basics strategy to simplify product portfolios, better support customers, and drive market share growth, their low-cost position should resonate with value-conscious consumers, also look to benefit from shifts in global supply chains.  

     

1Q20   .06 vs .16 -63%, est .11 down from .27

  • April 29, 2020, P= C$22.28, U.S. $16.06, TTM EPS=1.56, P/E=10X, FY20 P/E=19X

  • Revs -26% to 459m, GM 24.6% vs 25.8%, OM 4.3% vs 6.9%, OpInc -54%

  • Activewear -24.5% to 352.6m

  • Hosiery and underwear -33.7% to 86.5m

  • So far no customer-specific AR write-offs but increased allowance of credit losses

  • FCF -235m vs -127.8m mainly due to higher inventories

  • Net debt 1.1bn, 2.2X TTM adj EBITDA 

  • Most operations are idle, producing gowns and masks, mgmt. forgoing 50% of salaries

  • Available liquidity >950m after 400m additional LT debt incl 300m available on revolver, suspended dividend and stock buybacks, deferring non-critical capex, 

  • Withdrew guidance, deterioration continued from March.

  • April POS levels in NA imprintables -75%, sell-through POS -45%, likely to have significant earnings loss in 2Q, mgmt. encouraged by liquidity position and inventory levels to service customers 

  • On March 23 update expected to get cash burn down to 35-40m per month, on track with that.   

  • Horrible results not surprising, last few days trend than -75% but still early. 

4Q19   .41 vs .43 -4.7% ex charges, est .41, FY19 adj EPS -11% to 1.66

  • Feb 20, 2020, P= C$36.17, U.S. $27.31, TTM EPS 1.66, P/E=16X, FY20 P/E=14X

  • Raised dividend 15% to $0.62, yield=2.3%, announced share repurchase up to 5% of shares

  • Revs -11% to 658.7m, GM 25.6% vs 26.3%, SG&A 11.6% vs 12.4%, adj OM 14.1% vs 13.5%

  • Revs net of 19m return allowance for discontinued SKUs, GMs largely impacted by higher royalties on licensed brand sock sales with some higher mfng input costs. 

  • Activewear -15% to 483.5m due to distributor de-stocking and return allowance. 

  • Hosiery and underwear +1% 175.1m as strong underwear offset weaker socks. 

  • e-commerce sales strong, +>50%

  • Imprintables softness and distributor inventory de-stocking, retail demand weaker than expected particularly for hosiery, underwear had strong double-digit growth.

  • Decided to significantly reduce imprintables SKUs, exiting ship-to-the-piece activities as contemplated in 3Q call 

  • Continue to execute on efficiency initiatives to hit targets of 30% GM and <12% SG&A

  • FY20 Guidance: Revs +2-4%, adj EPS 1.85-1.95, expect growth in activewear and hosiery and underwear (stable hosiery, strong growth in underwear driven by more retail shelf space), FCF 325-375m vs 227m.

  • 1Q20 Guidance: Revs down high single digit to low double-digits, EPS down, recently started seeing improvement in NA imprintables activity but expect down y/y (est .27 vs .28 ex receivable impairment last year)

  • Solid margin performance in challenging period, 1Q expected to be down y/y, P/E of 16X on soft earnings seems pretty attractive, TTM EPS likely to trough in 1Q or 2Q.  

  • See little impact from coronavirus in China as China is a small proportion of sales, inventory levels should be sufficient to absorb supply-chain disruption (some hosiery sourced from China).  

3Q19   .53 vs .57 -7%, est .54 down from .66

  • Oct 31, 2019, P= C$33.85, U.S. $25.77, TTM EPS=1.80, P/E=14X, FY20 P/E=13X

  • Revs -2% to 740m, GM 27.4% vs 29%, OM 16.5% vs 17.3%, OpInc -6.4% to 122.3m

  • Activewear +1.1% to 619.2m, Hosiery -15.1% to 120.5m

  • Hosiery and underwear down due to lower sock sales in mass (Exited socks in mass) and other retail, good growth in private label offset by absence of initial inventory loading in 3Q18

  • Mgmt was expecting low-single digit growth in NA imprintables in 3Q but saw high-single digit decline, weakness continues into 4Q, mgmt does not believe weaker imprintables is structural change to business or competitive dynamic.

  • GM impacted by higher raw material costs (ending) and other input costs and fx, partly offset by better product mix and slightly higher ASPs. SG&A margin improved 100bps 

  • Mgmt continues to focus on growth initiatives including private label in addition to driving operating efficiencies and cost reductions.  

  • Moving textile and sewing production from Mexico to lower-cost Central America and Caribbean, evaluating full phase-out of direct ship-to-the piece imprintables business which is lower volume and higher cost, simplifying product offering, reducing complexity, focuses on distributors. They acquired various businesses (such as Comfort Colors), will take the best-selling products to distributors, ending dropship and sales to low-volume distributors. 

  • Major capacity expansion in Bangladesh is still on track.  

  • FY guidance in line with warning (FY sales down low-single digits).  See GM expansion in FY20 as high cost-cotton is consumed and replaced with lower cost in addition to efficiency initiatives.  

  • Stock has significantly corrected since the warning, if this is a short-term adjustment and results normalize towards FY20 estimates, this is a cheap stock again (while cotton prices spiked in from under $0.60/lb in 2016 to almost $1/lb in mid-2018, much smaller than the 2011 spike to over $2. Mgmt did indicate distrubtors are destocking, mgmt. indicated historically this hasn’t gone on longer than 2-3 quarters. 

 

Mid Quarter Update – Oct 17, 2019

GIL warned, weaker than expected imprintable demand in NA and ongoing softness in international imprintable markets 

Expects 3Q adj EPS -7% to .53 vs previous guidance flat, FY19 adj EPS 1.65-1.70 vs previous guidance of 1.95-2.00, reduced 3Q Guidance by .04 and FY guidance by .30

My guess this is an inventory adjustment. 

2Q19   .56 vs .52, +7.7%, est .55

  • Aug 1, 2019, P=C$51.98, U.S. $39.37, TTM EPS=1.84, P/E=21X, FY20 P/E=17X

  • Revs +4.9% to 801.6m, GM 27.8% vs 28.3%, OM 16.3% vs 16.2%, OpInc +5.2% to 130.4m

  • Activewear +6.5% to 665.6m, Hosiery -2.2% to 136m

  • FY19 Guidance: Reiterated revenues, EPS now 1.95-2.00 including .12 impairment from 1Q, ex impairment 2.07-2.12 (moved up bottom end).  3Q Guidance Revs +mid single digits which is lower than they previously expected due to timing of fleece sales into 4Q, EPS flat, implies 4Q EPS .66-.71 vs .43, continued cost benefits into 2020.  

  • Successful rollout of private label underwear at WalMart, much more shelf space than their previous branded, products, program to be expanded in 4Q and further supply to Central American stores in 2020, positioning as supplier of private brands appears to be working as some investors/analysts were worried.

  • Exiting low margin programs.  

  • Continued decent results, not cheap on current earnings but looks reasonable on FY20 estimates.  

1Q19   .16 vs .34, est .15 incl .12 announced impairment, down from .40

  • May 1, 2019, P=C$48.85, U.S. $36.30, TTM EPS ex .12 impairment 1.80, P/E=20X

  • Revs -3.6% to 624m, GM 25.8% vs 17.2%, ex receivable impairment, OM 10.9% vs 12.8% and OpInc -18%

  • Activewear -4.1% to 493.6m, Hosiery -1.8% to 130.4m

  • Sales better than mgmt. guidance due to better than expected sales of fleece and earlier shipping of new private label men’s underwear 

  • Expect continued supply chain initiatives will materialize in 4Q19 and benefit 2020

  • Completed purchase of land in Bangladesh, expect to complete first facility for late 2021 prodn, expect capacity ~$300m in sales, eventual total capacity >$500m, gives mgmt. flexibility to drive international sales from Bangladesh rather than Central America which can be used to drive North American growth.

  • Guidance unchanged from update in March, ex .12 impairment FY19 Guidance 2.02-2.12 (+8.6% to +14% core EPS growth over FY18 or remainder of the year +12-19% y/y)

  • Ex impairment, results slightly better than guidance given at 4Q report.

4Q18   .43 vs .31, +39%, est .43, FY18 EPS 1.86 vs 1.72, +8%

  • Feb 21, 2019, P=C$45.02, U.S. $34.17, TTM EPS=1.86, P/E=18X, FY 19 P/E=16X

  • Increased dividend 20% (7thconsecutive year of 20% div growth), renewed share repurchase up to 10.3m shares (5% of shares outstanding) vs 12.6m repurchased in last 12m.

  • Revs +13.6% to 742.7m, GM 26.3% vs 27.1%, OM 13.5% vs 11.2%, OpInc +36.8%, FY OpInc +3.2%

  • Activewear +22.3% to 569m, Hoisery and Underwear -7.9% to 173m

  • Guidance: 1Q EPS .24-.26 vs .34, est .40, higher raw mats costs, Revs down high-single-digits as last year benefited from distributor restocking, hosiery and underwear expected to be down due to transition to new private label men’s underwear which starts shipping in 2Q.  FY19 Revs up mid-single-digits, EPS $2.00-2.10 (~+10% at midpoint, est 2.09), higher raw mats costs in FY19 but bigger impact in 1H, expect benefits from efficiency initiatives and supply chain initiatives in 2H (continuing efforts on SG&A), FY19 EBITDA $630m (vs 595.5m), FCF 350-400m vs 429m ($2.08/share), FCF expected to be down due to WC?

  • Expected FY19 sales drivers: volume growth in fashion basics, international, global lifestyle, underwear, lower sales in activewear basics and socks.  

  • Mgmts favored metric, RONA, 15.6% in FY18 vs 14.9% in FY17 and 14% in FY16

  • Mgmt sees continuing trend of private label to be a big opportunity, have new private label programs to benefit FY19. Gildan, Gold Toe, Under Armour are growing ex lower sales of Gildan underwear so not giving up on brand strategy.  E-commerce sales also growing strong double digit, approaching 100m in sales.  

  • Solid results, 1Q guidance is bad but not representative due to transitory issues and tough comps, FY19 guidance is ok and is an acceleration above FY18, various initiatives should drive continued improvement in 2020

3Q18   .57 vs .53, +7.5%, est .57 down from .63

  • Nov 1, 2018, P=C$39.35, U.S. $29.91, TTM EPS=1.74, P/E=17X, FY 19 P/E=14X

  • Revs +5.3% to 754.4m with ~30m impact from hurricanes, GM 29% vs 31%, OM 17.3% vs 17.8%, adj OpInc +2.6%, adj NI -0.2% on higher int exp and tax, EPS up on lower shares.

  • Activewear +12.1% to 612.4m, Hoisery and underwear -16.6% to 142m

  • U.S. +3.6% to 642.6m, Canada -7% to 30.4m, International +27.6% to 81.3m

  • Secured a large private-label underwear deal for 2019 with its largest mass retail customer, feels they are well positioned to pursue other private label deals

  • FY18 Guidance: Brought down top of EPS range to 1.85-1.87 from 1.85-1.90, FCF range now 400-425m due to higher working capital requirements for FY19, 4Q EPS .42-.44 (vs .31, est .43) 

  • Decent results continue, 4Q and FY19 continue to be well set up for operating leverage.

2Q18 .52 vs .49. +6%, est .49

  • August 2, 2018 P=C$33.80, U.S.$25.98, TTM EPS=1.70, P/E=15X, FY19 P/E=13X

  • Revs +6.8% to 764.2m, GM 28.3% vs 29.8%, OM 16.2% vs 17.3%, OpInc flat to 124m

  • Activewear +17.3% to 625m, Hoisery and underwear -24% to 139m due to continued pressure at mass retailers focusing on private label, U.S. +4.8% to 644m, Canada -11% to 30m, International +35% to 89.4%, winning some private label deals which will start rolling out later this year.

  • Repurchased 7.2m shares during 2Q, 10.96m YTD (~5%), increasing program up to 10%

  • Guidance: expect Sales and EPS at the higher end of previous range (now 1.85-1.90), expects FCF>425m (previously >400m), increased share buyback program

  • Solid results especially considering supply chain disruptions due to unrest in Nicaragua (point of an analyst downgrade), NI slightly up due to lower taxes, EPS up due to lower share count, business displaying resiliency despite pressures on hosiery and underwear and supply chain issues, still looks positioned to deliver continued top line growth coupled with operating leverage. Mgmt said they expect 3Q EPS up high single digit to low double digit (est is +18%) and strong double digit growth in 4Q, feels like solid momentum building for FY19

1Q18   .34 vs .39, est .36 down from .43

  • Revs -2.7% to 647.3m, GM 27.2% vs 28.4%, OM 12.8% vs 15%, adj OpInc -17% to 82.7m

  • Activewear +3.2% to 514.5m, Hosiery and underwear -20.4% to 132.8m as mass retailers position to favour their private label brands

  • Strong sales momentum in higher growth product areas, international markets +23.8% to 66m, temporary supply constraints capped revs (discussed last quarter), destocked the channel ~$60m, 2Q is usually strongest quarter so likely take until 3Q to match supply and demand.

  • Repurchased 3m shares and another 2.37m shares in April.

  • Recenly launched men’s underwear on Amazon, ecommerce sales up double-digits. Launched American Apparel international direct-to-consumer online platform.

  • Mgmt encouraged by discussions with retail and wholesale customers on Gildan and private label opportunities.

  • Guidance: FY Guidance reaffirmed, expects 2Q rev growth but OMs to be lower y/y, still sees positive leverage in 2H

4Q17   .31 vs .28, ex restr and .04 tax recovery last year, est .31, FY17 EPS 1.72

  • Raised dividend 20% for 6th consecutive year, renewed share repurchase plan to buy back up to 5% of shares, FY17 FCF +30% to 519.2m, new record level.

  • Revs +11.2% to 653.7m, GM 27.1% vs 26.7%, OM 11.2% vs 11.9%, adj OpInc +4.3%, adj EBITDA +11.1%

  • Printwear +27.6% to 415.6m, OM 19.9% vs 21%, Branded Apparel -9.2% to 238.1m, OM 7.1% vs 9.1%, American Apparel contributed 16.6m

  • Margins down due to higher raw materials costs, prodn shutdowns due to election in Honduras, higher distribution costs and development of e-commerce infrastructure.

  • Announced organizational consolidation plan to drive operational efficiencies and lower costs, initially cost savings to be reinvested in distribution and e-commerce

  • Guidance: 1Q18 to be lower than last year due to product constraints resulting from disruptions from election in Honduras, FY18 Revs +low-mid single digit growth, EPS 1.80-1.90 (est 1.90) with OMs down in 1H and up in 2H

3Q17   .53 vs .50, est .51

  • Revs flat at 716m, GM 31% vs 30.4%, OM 17.8% vs 18.3%

  • Printwear +4.1% to 480.7m, OpInc +3,3%, Branded Apparel -6.9% to 235.7m, OpInc -14% due to weakness in socks and retailers reducing inventories.

  • American Apparel (Revs $15m), was accretive, have now launched over 700 styles, expanding distribution and sales, think there’s a large opportunity in 2018 and beyond.

  • Guidance: Revs now up mid-high single digit vs previous expectation of high single digit due to softer Branded Apparel, Raised FY EPS to 1.70-1.72, +13%, Free cash flow >$425

2Q17   .49 vs .41, est .481

Revs +3.8% to 715.4m, GM 29.8% vs 27.4%, OM 17.3% vs 15.3%

Printwear +1.9% to 480.1m, OpInc +10%, Branded Apparel +8.1% to 235.3m, OpInc +52%

Re-launch American Apparel direct-to-consumer e-commerce site within next 2 weeks.

FY Guidance: EPS towards the high end of 1.60-1.70 previously given, 2H facing tougher comps which is indicative of trailing EPS vs FY guidance (already there). 

 

1Q17   .39 vs .28, est .35

  • Revs +12% to 665m, GM 28.4% vs 26.4%, OM 15% vs 13%

  • CFO 65.9m vs -20.5m, FCF 41.3m vs -58.4m due to higher earnings, better working capital management, and lower capex

  • FY guidance: reaffirmed previous guidance of sales +high single digits, EPS 1.60-1.70, EPS growth weighted to 1H as expects higher raw material costs in 2H

  • Solid quarter, Revs in line and 11% EPS beat but company leaving guidance unchanged