Revenue: $712 million, up 2.3% year over year. Activewear Sales Growth: Increased by 9.3%, driven by higher sales volumes and favorable product mix. Gross Margin: 31.2%, a 90 basis point improvement over the prior year. SGNA Expenses: Decreased by $18 million to $87 million. Adjusted Operating Income: $135 million, or 19% of net sales, up 100 basis points year over year. Adjusted Effective Income Tax Rate: 15%, compared to 3.6% last year. GAAP Diluted EPS: $0.56, up 19% versus the prior year. Adjusted Diluted EPS: $0.59, flat year over year. Cash Flows Used in Operating Activities: $1,442 million, primarily due to an increase in non-cash working capital. Free Cash Flow: Consumed approximately $166 million. Share Repurchase: $62 million returned to shareholders by repurchasing 1.2 million shares. Net Debt: Approximately $1.8 billion with a leverage ratio of 2.2 times net debt to adjusted EBITDA. 2025 Guidance: Revenue growth expected to be up mid single digits; adjusted operating margin to increase approximately 50 basis points; CapEx at approximately 5% of sales; adjusted diluted EPS between $3.38 to $3.58; free cash flow expected above $450 million.

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Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Gildan Activewear Inc (NYSE:GIL) reported first quarter sales of $712 million, up 2.3% year over year, driven by strong activewear sales growth of 9%. The company maintained its guidance for 2025, expecting mid single-digit revenue growth and adjusted EPS growth in the mid-teen range. Gildan's gross margin improved by 90 basis points to 31.2%, primarily due to lower raw material costs. The company is benefiting from its vertically integrated, low-cost manufacturing model, which provides flexibility and agility in a challenging macroeconomic environment. Gildan is seeing strong market response to its innovation pipeline, including soft cotton technology and plasma print, which is enhancing its competitive advantage.

Negative Points

Sales in international markets decreased by 2% year over year, with softness in Asia and a tougher year-over-year comparison in Latin America. The hosiery and underwear category saw a significant decline of 38% due to the phase-out of the Under Armour business and unfavorable mix. The company's adjusted effective income tax rate increased to 15% from 3.6% last year, reflecting the enactment of global minimum tax in Canada and Barbados. Cash flows used in operating activities totaled $1,442 million, a significant increase from $27 million in the first quarter of 2024, primarily due to an increase in non-cash working capital. Gildan faces challenges from the recent 10% reciprocal tariff on goods imported to the US, although it has strategies in place to mitigate the impact.

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Q & A Highlights

Q: Can you talk about POS trends in each of your major channels and whether you're seeing any signs of destocking amongst your major customers? Also, what specific tariff pressure did you bake into guidance from a cost perspective and what sort of mitigation did you build in on the pricing side? A: Chuck Ward, COO: We had a strong quarter in activewear, gaining market share despite a market downtrend. We haven't seen any signs of destocking. Luca Barile, CFO: Our guidance considers current tariff measures and their impact on operations and demand. We benefit from significant US content in our products, which mitigates tariff impacts. We've also factored in some price adjustments and leveraged our low-cost manufacturing flexibility.

Q: The MDNA notes benefits from national accounts due to changes in the industry landscape. Is this due to competitor weakness, new product success, and vertical integration? Is this leading to near-shoring? A: Glenn Chamandy, CEO: The competitive landscape has changed with some competitors exiting the channel, which benefits us. Near-shoring is becoming more relevant, especially with tariff changes. The US imports a significant portion of apparel from Asia, and with high tariffs, there's potential for more near-shoring, which could positively impact us.

Q: How do you adjust to meet growth if Bangladesh tariffs are reinstated at a higher rate? Is there capacity in Honduras? A: Glenn Chamandy, CEO: We have flexibility in our supply chain. Our Bangladesh operations are cost-effective even with tariffs due to US content. We have capacity in Central America and are looking to increase it, anticipating opportunities from tariff changes.

Q: Does your guidance now incorporate a more conservative outlook in terms of industry demand? A: Glenn Chamandy, CEO: Yes, our guidance assumes the market will be flat to down low single digits. However, we expect to gain market share and have significant growth from new programs, which account for about 75% of our projected growth.

Q: Can you provide more details on the innovation pipeline for 2025? A: Glenn Chamandy, CEO: We've revamped most of our product lines with innovations like soft cotton technology. We have new technologies like plasma print coming, which improves printability. We're also expanding in different fabrications and product categories, ensuring a robust pipeline of innovation through 2025 and beyond.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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