Canaccord Genuity analyst Luke Hannan has slashed his price target on shares of Gildan Activewear Inc. (GIL-N, GIL-T) ahead of the company’s earnings in early August. The analyst believes slowing consumer appetite for the apparel manufacturer’s products will limit upside in earnings and the stock price.
He reiterated his “buy” recommendation and cut his price target to US$37 from US$48
For the quarter, he is forecasting revenue of $784 million, below the consensus’ $826 million estimate. Similarly, he is forecasting adjusted EPS of $0.72, below consensus’ $0.77 forecast, with his estimate implying 6% EPS growth from a year earlier.
Mr. Hannan pointed out that Gildan mentioned alongside its first quarter results that point of sale [POS] data in the second quarter to date showed signs of meaningful deceleration.
“Granted, the quarter-to-date YoY growth management alluded to was in the mid-single-digit range, which suggests despite the deceleration, demand (at the time) was still healthy. That said, we note consumer sentiment has materially weakened since GIL’s Q1/22 print, with Target specifically mentioning basics apparel as an area of relative weakness on its last earnings call. Accordingly, we estimate POS, and by extension shipments from GIL, softened for the balance of the quarter,” he said in a note to clients
“Price increases taken in H2/21 and in Q1/22, though, should moderate the top-line impact from lower sales volumes,” he added.
The analyst said the bigger near-term concern for investors is whether distributor demand will weaken for the balance of the year, implying negative earnings estimate revisions are in the cards. “Indeed, distributor inventories remain lean, which suggests the probability of a prolonged period of destocking (and hence fewer shipments from GIL) isn’t quite as high as it has been in years past,” he said.