Gildan Activewear (GIL) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q2 sales of $862 million, an increase of$ 22 million or 3% year-over-year, at the higher end of guidance [7] - Adjusted earnings per share (EPS) were $0.74, a 17% increase from$ 0.63 in the prior year [11] - Gross margin improved to 30.4% from 25.8% in the prior year, a 460 basis point increase [9] - Operating margin was 22.7%, up 620 basis points compared to the prior year, exceeding the target range of 18% to 20% [10] Business Line Data and Key Metrics Changes - Activewear sales increased by $45 million or 6%, driven by positive point-of-sale (POS) trends and higher replenishment of fleece [8] - Hosiery and Underwear sales decreased by 16% due to the phase-out of the Under Armour business, but would have been up mid-single-digits excluding this impact [9] - International sales grew by 7% in the quarter [9] Market Data and Key Metrics Changes - The company experienced strong market share gains in fleece and ring spun products, key growth categories [8] - POS trends improved throughout the quarter, with June ending mid-single-digits [23] - International markets showed positive growth, particularly in Continental Europe [23] Company Strategy and Development Direction - The company is focused on a sustainable growth strategy with three pillars: capacity growth, innovation, and ESG [5] - The ramp-up of the new manufacturing complex in Bangladesh is on track, expected to reach 75% capacity by year-end [13] - The company aims for mid-single-digit revenue growth and mid-teen adjusted diluted EPS growth from 2025 to 2027 [17] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a mixed global macroeconomic backdrop but reiterated confidence in the company's execution of its GSG strategy [15] - The company expects revenue growth for 2024 to be flat to low-single-digits, with adjusted operating margins slightly above the high end of the target range [15] - Management expressed optimism about market share gains and the overall strength of the business despite challenges [44] Other Important Information - The company resumed share repurchases, returning$ 182 million to shareholders in Q2 [12] - A new NCIB program was approved to repurchase up to 10% of the company's public float over the next 12 months [12] - The adjusted effective income tax rate for the quarter was 27%, significantly higher than the previous year's 4.8% [11] Q&A Session Summary Question: Strongest and weakest POS trends during the quarter - Management noted improving POS trends, particularly in fleece and ring spun categories, with overall market down slightly [22][23] Question: Competitive landscape impact on pricing - Management indicated that while there was initial price pressure due to competitor inventory liquidation, the situation has stabilized [24] Question: Clarification on fleece category performance - Management clarified that while the overall market was down, Gildan gained market share in fleece, with strong sales and a large order book [26][27] Question: Current capacity utilization in Bangladesh - Management confirmed that the ramp-up in Bangladesh is on track, with expectations to reach 75% capacity by year-end [28][29] Question: Impact of civil unrest on operations - Management stated that civil unrest had minimal impact on operations, and the business is running as usual [29] Question: Sustainable level of SG&A - Management expects SG&A to be in the 9% to 9.5% range moving forward, with potential for further leverage [30] Question: Drivers of gross margin expansion - Management attributed gross margin expansion to improved raw material costs and manufacturing efficiencies [32] Question: Transition to soft cotton impact - Management indicated that the transition to soft cotton has been well received, with positive POS trends and no price changes [34]