Key points:
Our view – Gildan reported strong Q2 results which reflected higher- than-expected contribution from both the Activewear and the Hosiery & Underwear segments. Activewear was driven by higher unit sales volumes in all regions. Hosiery & Underwear segment results reflected double-digit POS growth in both socks and underwear. Looking ahead, we expect continued recovery in the imprintables channel (stronger recovery expected in North America, with International segment still impacted by weaker tourism). Overall, we are encouraged by the strong Q2 print and the commentary regarding supply/demand trends heading into H2, and have revised our forecasts higher to reflect the current outlook.
U.S. POS trends improved into H2 – Imprintables POS was down ~8% relative to Q2 2019 (pre-pandemic), which reflected North America POS "down" in the single-digit-range, a sequential improvement from down ~10% in Q1 2021. Management commentary indicated that U.S. Printwear trends are improving sequentially into H2 2021, and the company is starting to see large orders (i.e., likely reflecting a modest rebound in tourism/ event driven end-markets). International POS was down ~30% due to weaker tourism activity (which is a bigger driver of imprintables demand in international markets). We note that our H2 2021 sales are above H2 2019 levels, reflecting the strong demand trends we have observed YTD, and the expectation for continued improvement in the U.S. and in International markets (including a slow but steady recovery in larger gatherings, and continuation of "new" demand for Activewear products that has materialized through the pandemic).
Q2 sales and earnings well above RBC/consensus forecasts –
Q2 consolidated sales of $747MM (+225% YoY) were above RBC/ consensus forecasts of $700MM/$697MM and Adjusted EPS of $0.68 was also above RBC/consensus forecasts of $0.53/$0.52. Relative to our forecasts, stronger-than-expected sales, higher-than-expected gross margin, combined with lower-than-expected SG&A as a % of sales drove Adjusted EPS ahead of our forecasts.
Return of capital: NCIB in place for 5% of shares outstanding – Recall that in conjunction with Q1/21 reporting, Gildan reinstated its quarterly dividend at $0.154/share (in line with prior dividend pre-pandemic). At Q2 reporting, Gildan announced the resumption of its share buyback program (to repurchase up to 5% of its shares outstanding). The resumption of the dividend and the approval of the NCIB highlight the strong recovery in results to-date, the solid balance sheet, and the outlook for continued improvement in the operating backdrop. Net Debt/LTM EBITDA was 0.5x as of Q2 2021 (vs. 1.8x in Q1 2021