Gildan Activewear Inc.
(GIL-N, GIL-T) US$31.25 | $37.88
Q2/22 Results: Strong Quarter and Cautious Guide as Anticipated Event
This morning Gildan reported Q2/22 results that beat expectations due to top-line strength. Gildan also renewed its NCIB and maintained its 3-year guidance metrics.
Impact: Slightly Positive
Q2/22 Summary: We view the Q2/22 results positively. A material outperformance in Activewear sales was partially offset by weakness within Hosiery/Underwear. This resulted in consolidated sales growth of ~20% that was well ahead of consensus expectations. Complemented by margin strength in line with our forecast that resulted in EPS of $0.86, handily above our forecast/consensus of $0.80/$0.77.
Guidance/Market Outlook: Gildan is off to a strong start YTD, with sales up ~25% YTD and operating margins trending toward the high-end of its target range. This is supportive of management maintaining its 3-year sales and operating margin guidance this morning. As anticipated, the company did highlight that POS trends have slowed to start H2/22. We remain confident that Gildan can achieve its financial guidance, but believe the applied multiple may remain tempered near-term with H2/22 earnings growth forecast to slow y/y as it laps strong comparable periods.
Financial Position: We reiterate that the consistent y/y FCF profile of Gildan is relatively underappreciated by the investment community. Gildan generated attractive FCF in Q2/22 supportive of its active NCIB. The Board renewed its NCIB (5% outstanding) for 2022/2023 that we forecast will be utilized in full.
Conclusion: We believe investors were overly punitive on the earnings outlook for Gildan heading into the quarter based on the potential impact of a softening global economic outlook, and rapid increase/volatility of cotton and other key input costs. With this morning's release, we believe there will be limited change to the consensus expectations that highlight a depressed multiple well below the low-end of Gildan's historical range. With our forecast for slowing EPS growth in H2/22 relative to the TTM, and pockets of softness in key markets, we believe it is prudent to be cautious with target multiples until visibility in the growth outlook improves. Even with this approach, we see attractive value in Gildan at the current level.
TD Investment Conclusion
We are maintaining our BUY recommendation with a revised $44.00 target price