Post by
retiredcf on Jul 15, 2022 9:03am
CIBC
This is a US$ target. GLTA
EQUITY RESEARCH
July 14, 2022 Earnings Update
GILDAN ACTIVEWEAR INC.
Q2 Preview: Moderating Expectations With Macro Slowing
Our Conclusion
GIL will report its Q2 results on Thursday, August 4. Our Q2 EPS estimate is
unchanged, but we have moderated our revenue and earnings estimates for
H2/F22 and F23 to reflect growing recession concerns. Furthermore, we are
taking a more cautious approach to valuation and lowering our target P/E
multiple to 13x (from 15x). Our price target falls to $40 (from $47), and Gildan
is rated Outperformer.
Key Points
Thoughts Around Falling Cotton Prices: Cotton prices have declined
significantly recently as fears of a recession weigh on commodities. The last
time cotton prices fell rapidly, Gildan gave distributors a special devaluation
discount, which led to negative earnings revisions and saw GIL’s P/E multiple
contract from 14x to 9.5x. We do not expect this scenario to repeat, or as
materially, largely because recent price increases have been mostly in the
form of lower promotional spending as opposed to unit price increases, which
provides more flexibility around pricing.
Slower Revenue Growth With Macro Slowing: Though we expect
management to provide commentary on Q3 trends to date with the Q2 results,
we have moderated our revenue growth estimates for H2/F22 and F23 amidst
slowing global economic activity. Earnings estimates fall accordingly.
What We Will Be Listening For On The Call: 1) outlook for demand across
key end markets (i.e., corporates, retail, etc.), 2) the cadence of POS sell-
through in Q2 and trends quarter to date, 3) inflationary pressures and
pricing, and 4) distributor inventory levels vs. 2019.
Q2 Preview: We forecast $846MM in sales, driven by higher volumes and
pricing. Below the top line, we forecast 200bps of GM% compression due to
inflationary pressures partially offset by volume and pricing. Strong opex
control leads to EBIT of $160MM and EPS of $0.78. GIL has also been
active with its NCIB program and repurchased 3.6MM shares in Q2. The
table in Exhibit 1 summarizes our estimates and consensus.