Gildan Activewear Inc T.GIL

TD Report

[retiredcf]

Again, this is a US$ target. GLTA

Gildan Activewear Inc.

(GIL-N, GIL-T) US$39.80 | $49.04

Q4/21 Results: Turning Focus to LT Earnings Power Event

This morning, Gildan reported Q4/21 results that were well above consensus. Management introduced high-level three-year guidance implying a double-digit CAGR for EPS. Lastly, the Board increased its annual dividend and the size of its NCIB.

Impact: POSITIVE

Q4/21 Summary: The Q4/21 results are a further illustration of the success of its Back-to-Basics strategy. Gildan is clearly winning market share in its target markets, courtesy of its industry leading cost structure, and product availability/innovation aided by its vertically integrated operations. A strong demand environment coupled with pricing power offset the impact of cost inflation, while realized costs efficiencies and scale are flowing through SG&A. As such, this resulted in adjusted EPS of $0.76 handily exceeding our forecast/consensus of $0.62/$0.60. The beat was on both the top-line and operating margin.

Gildan Sustainable Growth Strategy: Gildan introduced its three-year growth plan. The simplified strategy looks to build on the reduced complexity and cost benefits of its manufacturing operations. This plan targets annual top-line growth of 7%-10%, and an improvement within its target annual operating margin. Should these targets be achieved, we would anticipate ongoing attractive FCF generation, and an EPS CAGR in the low-to-mid double digits.

Return of Capital: Gildan achieved almost $600mm in FCF in 2021. Despite the strategic acquisition of Frontier Yarns in Q4/21, Gildan's leverage remains below its target. This financial position and outlook support management increasing its annual dividend and NCIB today.

Conclusion: Gildan will provide additional details of its revised growth strategy at its March investor day. We believe the company will continue to leverage the advantage of its low-cost operations to drive market share in its target verticals of fashion basics, private label, national accounts, and internationally. These markets each represent a material opportunity to drive share gains. It is our view the strong demand environment and growing addressable market make its targets appear reasonable. As such, we believe investors should shift their focus to the mid-to-long term earnings power of Gildan that illustrates compelling value at the current level.

TD Investment Conclusion

We maintain our BUY recommendation with a revised $51.00 target price.