Gildan Activewear Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Gildan's sustainable growth strategy is on track, with record second quarter sales of $919 million, up 6.5% year-over-year, and record adjusted diluted EPS of $0.97 per share, up 31% year-over-year.
• Bangladesh facility is fully ramped up and performing as expected. There's a large innovation pipeline with more product launches to come in 2025 and 2026.
• Released 21st ESG report in May, recognized as one of Canada's Best 50 Corporate Citizens for a fourth consecutive year and featured among TIME's World's Most Sustainable Companies.
• Gaining market share in key growth categories, with strong sales to North American distributors and national account customers supported by existing brands like Gildan Soft Cotton Technology, Comfort Colors, American Apparel, and new brand offerings under AllPro and Champion.
• Reaffirmed 2025 full year guidance, with focus on controlling controllables, profitable growth, and operating global vertically integrated low-cost manufacturing facilities to be flexible and agile in the operating environment.

Segment Performance:

• Activewear: Record second quarter sales of $919 million, up 6.5% year-over-year. Activewear sales were up 12% driven by higher sales volumes, favorable product mix, and higher net prices. Revenue contribution from Activewear is significant.
• International markets: Sales down 14% year-over-year due to moderated demand in Europe, softness in Asia, and tough comparative period in Latin America (last year's quarter included large election-related purchases).
• Hosiery and underwear: Sales down 23% year-over-year stemming from broad-based market demand softness, unfavorable mix, and program resets towards the second half of the year.

Guidance:

• Reaffirmed 2025 full year guidance, narrowing the range of adjusted diluted EPS to $3.40 to $3.56.
• Expect revenue growth for the full year to be mid-single digits.
• Full year adjusted operating margin to increase approximately 50 basis points.
• CapEx to come in at approximately 5% of sales.
• Free cash flow expected to be above $450 million.
• Third quarter net sales expected to be up low single digits year-over-year, with adjusted operating margin in the same range as Q2 and adjusted effective income tax rate similar to 2024.

Risks:

• Macro-economic uncertainties impacting international markets, with sales down in Europe, Asia, and Latin America due to various factors.
• Softness in hosiery and underwear market, including broad-based demand softness, unfavorable mix, and program resets.
• Tariff impacts, with need to implement pricing actions to mitigate effects, and uncertainties around tariff changes and their impact on different regions and product categories.

Question and Answer: Q: How much was taken from 3Q and how much shifts from 3Q into 4Q, and about the underwear and hosiery business impact and backfilling Under Armour?

A: Luca and Chuck responded that second quarter was strong with Activewear sales up, some orders ahead of pricing action, sequential improvement expected in underwear/hosiery, and program resets are timing issues that will work out.

Q: Comment on the comment in the press release about Activewear business seeing continued momentum from national accounts and changes in the industry landscape.

A: Chuck and Glenn explained that they are seeing benefits from being a globally vertically integrated manufacturer, gaining market share in key categories like ringspun, and well-positioned due to U.S. cotton and yarn content to mitigate tariff impacts.

Q: Follow up on nearshoring national accounts and GLB tariff relocation opportunities, and Bangladesh facility efficiency.

A: Glenn said they are adding capacity in Central America, Bangladesh is fully ramped up, using U.S. cotton there, and seeing operating margin expansion from Bangladesh with yarn modernization project to impact later years.

Q: Clarify on pricing consistency across channels and segments, and price gaps to peers.

A: Glenn stated pricing is rolling out uniformly across products and categories, with everyone in the market facing similar tariff impacts, and price elasticity is significant in wholesale business.

Q: Impact of U.S. distributor landscape consolidation on Gildan.

A: Glenn said no impact on Gildan as Activewear sales are up, acquisition integration is complete, and they are continuing to take market share with new brands and strong brand performance.

Q: Outlook on activewear growth components, new products in back half of 2025.

A: Glenn and Chuck mentioned growth driven by brand strategies like Gildan Soft Cotton Technology, Comfort Colors, American Apparel, AllPro, and Champion, with new programs launched in the back half contributing to sales growth.

Q: Operating margin outlook and drivers, and sales growth for 2026.

A: Luca explained operating margin accretion driven by Bangladesh ramp-up, yarn optimization, Central American mix optimization, and Glenn stated good visibility for 2026 with new programs.

Q: Evolution of acquisitions during market weakness and impact of Hanes-S&S distribution agreement.

A: Glenn said they are taking share by growing existing brands and launching new ones, and not significantly affected by Hanes-S&S agreement as they focus on innovation and market share gain.

Q: Capacity increases in Central America cost and impact on international markets.

A: Glenn said CapEx is within guidance, expanding in existing facilities with minimal investment, and international markets have different dynamics with smaller market size, expecting sequential improvement in Q3.

Q: Impact of tariff reverts on Bangladesh production and margins.

A: Glenn stated they have flexibility to repurpose production to mitigate tariff impacts, well-positioned with U.S. cotton use in Bangladesh, and comfortable with current positioning.

Q: Key differences between low end and high end of EPS guidance.

A: Luca explained the guide is balanced, considering market assumptions, share gains, potential risks like slow demand recovery, and cautious optimism with top line and margin profile driving the EPS range.