Gildan Activewear Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Third Quarter Results: The company reported record adjusted diluted EPS of $1 this quarter, up 17.6% versus the same period last year. Adjusted operating margins were 23.2%. Net sales in Activewear grew by 5.4%.
• Innovation and Brands: Continues to drive growth in key categories. Comfort Colors brand is performing well, celebrating its 50th anniversary. New brand offerings such as ALLPRO and Champion have been introduced.
• HanesBrands Acquisition: Planning the integration of the proposed acquisition of HanesBrands, aiming for at least $200 million in run rate synergies. The transaction is expected to close late 2025 or early 2026.
• Financials: Third quarter sales were $911 million, up 2.2% year-over-year. Gross margin was 33.7%. Adjusted operating income was $212 million. Free cash flow was $200 million in the third quarter.

Segment Performance

• Activewear: Third quarter sales were $911 million, with a 5.4% growth. Driven by favorable product mix and higher net prices. Contributed significantly, with Comfort Colors performing well and new offerings like ALLPRO and Champion.
• Hosiery and Underwear: Down 22% year-over-year in the third quarter, due to a timing shift of shipments to the fourth quarter and broader market weakness.
• International Markets: Sales were down $4 million or 6.1% year-over-year, primarily reflecting ongoing demand softness across markets.

Guidance

• Revenue: Full year revenue growth is expected to be mid-single digits.
• Adjusted Operating Margin: Expected to increase approximately 70 basis points compared to previous guidance of 50 basis points.
• Adjusted Diluted EPS: Ranges from $3.45 to $3.51.
• CapEx: Expected to come in at approximately 4% of sales, down from previous guidance of 5% of sales.
• Free Cash Flow: Expected to be approximately $400 million, down from previous guidance of above $450 million.

Risks

• Macroeconomic Uncertainty: The fluid macroeconomic backdrop poses risks that could cause actual results to differ from forward-looking statements.
• Market Softness: Continued weakness in the hosiery and underwear segment and potential market softness in other areas could impact performance.
• Tariffs and Supply Chain: Uncertainty around tariffs and supply chain reorientation could affect business operations and results.

Question and Answer

Q: Talk about the weakness in the underwear business and the market stability.

A: Chuck Ward mentioned that the innerwear business was impacted by retailer floor set delays, inventory management issues, and product resets. The market is stable similar to Q2, with low single-digit decline.

Q: Discuss the guidance update regarding free cash flow and operating margin.

A: Luca Barile explained that free cash flow guidance was affected by transaction costs and working capital timing. Operating margin improvement is due to manufacturing cost control and optimization.

Q: Talk about the fleece business and the impact of tariffs.

A: Glenn Chamandy said the fleece business is performing well with sales meeting expectations. Tariffs are causing supply chain reorientation uncertainty, but there are opportunities in polyester categories.

Q: Explain the reason for the market weakness despite a growing economy.

A: Glenn Chamandy cited large retailers managing inventory, corporate promotional concerns, and tariff impacts affecting the printwear market.

Q: Discuss Comfort Colors expansion and market dynamics.

A: Chuck Ward discussed Comfort Colors' strong growth, doubling manufacturing capacity, and expansion into hats, bags, and women's collections, leveraging its cotton-based pigment dyed technology.