March 29, 2022
Gildan Activewear Inc.
Key takeaways from the 2022 Investor Day
Our view: Gildan Activewear Inc. (“Gildan”) held its 2022 Investor Day earlier today, where the company gave an update on its addressable market, provided details on demand drivers and capacity expansion plans, and reiterated its 3-year financial targets. We outline our key takeaways below. Reiterating our US$51 price target and Outperform rating.
Key points:
3-year outlook reiterated – Gildan reiterated its 3-year sales growth and operating margin targets that were introduced at Q4/21 reporting. The 3- year targets include: 1) Net Sales CAGR of 7–10% (volume to be the primary driver, with additional capacity in Bangladesh/Central America supporting this growth); and, 2) Adjusted operating margin of 18–20%. With regard to capital allocation, the company is guiding to Capex as a percentage of Sales of 6–8%, as well as annual dividend growth and continued share repurchases. See inside for additional details.
Updated outlook on total addressable market (“TAM”); Fleece and Ring- spun (fashion basics) to lead growth – Gildan has identified its total addressable market as ~$22 billion, with ~75% attributable to Activewear and ~25% to Hosiery and Underwear. Geographically, the company splits its addressable market ~80/20 between North America and International, respectively. The company notes that T-shirts are expected to remain the largest product group within the North America market, growing in the low- to mid-single-digit range from 2022 to 2027. In comparison, Fleece accounts for ~40% of the North American market, and management expects this product group to grow in the mid- to high-single-digit range during the same period. Additionally, the recovery in International markets is lagging the pace of recovery in North America, according to management. As a result of recent geopolitical events, management believes the International recovery will remain slow over the near term.
Expanding manufacturing capacity – Gildan expects to invest $600– 900MM to support capacity expansion and vertical integration by 2024. The company is undertaking an expansion of its Central American and Caribbean operations to support an incremental $500MM in sales by the end of 2022, as well as investment in “Kohinoor Phase 1”, which is incremental capacity in Bangladesh to support an additional $500MM in sales in 2023 and 2024. Beyond 2024, management outlined three expansion opportunities: Kohinoor Phase 2, vertical integration in Bangladesh, and building a greenfield facility in Central America and the Caribbean.
Next Generation ESG strategy – Gildan introduced its “Next Generation” ESG strategy earlier this year. The strategy is centered around five key pillars, three of which are focused on: 1) Climate, Energy, and Water (includes goals such as reducing Scope 1 and 2 CO2 emissions by 30% by 2030); 2) Circular Economy (includes goals such as sourcing 100% sustainable cotton by 2025); and, 3) Human Capital Management (includes goals such as improving gender parity).