Gildan Activewear Inc T.GIL

TD

[retiredcf]

Gildan Activewear Inc.

(GIL-N, GIL-T) US$37.10 | $46.94

Q3/21 Preview: Successfully Navigating Inflationary Headwinds

Event

Gildan is scheduled to report Q3/21 results on November 4.

Impact: NEUTRAL

Q3/21 Preview: We forecast a material improvement in y/y EPS in Q3/21 as demand for imprintables continues to improve with the reopening of the U.S. economy. This should be complemented by market-share gains in national accounts and global lifestyle brands, with a heightened shift to onshoring as global supply-chain issues persist. We believe that operating margins should remain near Gildan's annual target forecast as cost-efficiency progress offsets inflationary headwinds. We note that our financial forecasts are ahead of the consensus estimate.

Financial Outlook: We maintain our positive EPS growth outlook for Gildan over our forecast horizon despite inflationary headwinds on key input costs such as fiber and energy. This view is a function of strong demand and market-share gains in key verticals, cost initiatives driving leverage, and recent price action being implemented across the industry. Although labour shortages are affecting yarn availability in the U.S., we believe that Gildan should benefit relative to its competition due to its vertically integrated operations. That stated, we anticipate inventory levels at both producers and across the North American distributor channel to remain tight over the next several quarters. This should lead to a notable future replenishment cycle.

Return of Capital: With an improving industry outlook and financial position well below its target leverage, Gildan reinstated its dividend with its Q1/21 release and its NCIB with its Q2/21 release. Disclosure indicates that the company has been very active with its NCIB since early-August.

Investment Thesis: As we approach the Q3/21 earnings season, we see Gildan as the best positioned within our consumer discretionary coverage to exceed consensus expectations. We believe that Gildan should be a net benefactor from global freight issues, while cost initiatives and price action should offset inflationary pressure and maintain operating margins. This should lead to attractive FCF generation that we anticipate will be returned to shareholders in large part through its active NCIB.

TD Investment Conclusion

We are maintaining our ACTION LIST BUY recommendation and US$48.00 target price. We believe that improving investor confidence in its growth outlook should prove a catalyst for the share price