Gildan Activewear’s Earnings Call Highlights Growth and Challenges

Gildan Activewear ((TSE:GIL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Gildan Activewear’s recent earnings call presented a cautiously optimistic sentiment, highlighting strong performance in the Activewear segment fueled by innovation and competitive advantages. Despite facing challenges in international and hosiery segments, along with increased tax rates and cash flow usage, the company remains positive about its growth outlook and strategic positioning.

Activewear Sales Growth

Gildan Activewear reported first-quarter sales of $712 million, marking a 2.3% increase year-over-year. This growth was primarily driven by a robust 9% rise in Activewear sales, underscoring the segment’s strength and the company’s ability to capture market demand effectively.

Gross Margin Improvement

The company achieved a gross margin of 31.2%, reflecting a 90-basis point improvement over the previous year. This enhancement was largely attributed to lower raw material costs, showcasing Gildan’s operational efficiency and cost management strategies.

Strong Financial Position

Gildan ended the quarter with a net debt of approximately $1.8 billion and a leverage ratio of 2.2x net debt to adjusted EBITDA. This positions the company well within its targeted financial range, indicating a solid financial foundation.

ESG Achievements

Gildan continues to make strides in sustainability, being included in S&P’s 2025 Sustainability Yearbook for the 13th consecutive year and in CDP’s leadership band for climate change disclosures. These achievements highlight the company’s commitment to environmental and social governance.

Innovation Pipeline

The company boasts an exciting innovation pipeline, featuring new products like Soft Cotton Technology, Plasma Print, and Color Blast. These innovations are expected to enhance market share gains and further solidify Gildan’s competitive edge.

Maintained 2025 Guidance

Gildan has reaffirmed its guidance for 2025, projecting mid-single digit net sales growth and adjusted EPS growth in the mid-teen range. This confidence in future performance underscores the company’s strategic initiatives and market positioning.

Decline in International Sales

International sales saw a 2% decline year-over-year, with particular softness in Asia due to macroeconomic challenges and tougher comparisons in Latin America. This highlights the ongoing challenges in global markets.

Hosiery and Underwear Segment Decline

The hosiery and underwear segment experienced a significant 38% decline year-over-year, primarily due to the phase-out of the Under Armour business. This segment remains a challenge for Gildan.

Increased Tax Rate

The adjusted effective income tax rate rose to 15% from 3.6% the previous year, influenced by the enactment of the Global Minimum Tax. This increase poses a challenge to the company’s financials.

Cash Flow Challenges

Cash flows used in operating activities totaled $142 million, a significant increase from $27 million in the first quarter of 2024. This was primarily due to an increase in non-cash working capital, indicating cash flow management challenges.

Forward-Looking Guidance

Looking ahead, Gildan Activewear maintains its guidance for 2025, expecting mid-single digit net sales growth and adjusted EPS growth in the mid-teen range. The company anticipates an adjusted operating margin improvement of approximately 50 basis points, CapEx at 5% of sales, and free cash flow above $450 million. These projections reflect Gildan’s strategic focus and competitive positioning.

In summary, Gildan Activewear’s earnings call conveyed a cautiously optimistic outlook, with strong performance in the Activewear segment and promising innovation initiatives. Despite facing challenges in international sales and increased tax rates, the company’s strategic positioning and growth prospects remain robust, offering a positive outlook for the future.