Gildan Activewear Inc.
(GIL-N, GIL-T) US$35.66 | $45.27
Q1/22 Results: Industry Shifts Manufacture Another Earnings Beat Event
Last night, after market close, Gildan reported Q1/22 results that handily beat expectations as EPS of $0.76 exceeded our/consensus forecasts of $0.55/$0.51.
Impact: POSITIVE
Q1/22 Summary: Gildan continues to capitalize on the ongoing industry shifts that include casualization, near-shoring, and to a lesser extent this quarter, private brands. This, in combination with pricing power, its vertically integrated operations, and its persistent focus on its industry-leading cost structure, is driving market- share gains, in our view. As a result, Gildan was able to exceed Q1/22 consensus expectations on sales, operating margin, and EPS. In addition, the company was active with its NCIB, purchasing more than five million shares in the quarter.
Market Outlook: The imprintable market benefited from consumer demand strength again this quarter, as illustrated by volumes and pricing increasing mid-teens. Notably, there was no meaningful replenishment in the distributor channel that remains lean. Although management noted that growth has slowed in recent weeks, that was an area of focus on the call, it appears to remain healthy by historical standards. We acknowledge that concerns are escalating about the outlook for the U.S. economy and the impact that it may have on the industry/Gildan. That stated, we take a degree of comfort that industry shifts, including near-shoring/casualization, appear to be increasing Gildan's total addressable market, its industry-leading cost structure gap continues to widen, and that key drivers of its activewear segment remain in the early stages of recovery from the pandemic. We maintain an attractive growth outlook over our forecast horizon.
Conclusion: In our view, there remains a material runway for long-term earnings growth for Gildan as it gains market share in fashion basics, national accounts, fleece, and internationally. Although Gildan is susceptible to an economic downturn, we see the company as top-quartile within our coverage in managing such an event and coming out stronger on the other side. This is based on its beneficial position to industry shifts, balance-sheet strength/track-record of attractive FCF, and advantageous cost structure. We believe Gildan's near- and mid-term growth outlook warrant an improved valuation.
TD Investment Conclusion
We are maintaining our BUY recommendation and $51.00 target price.