Gildan Activewear Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 29, 2025
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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Gildan Activewear's twenty twenty five Q1 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jessie Hamm, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead.

Jessy Hayem
Jessy Hayem
SVP & Head - IR & Global Communications at Gildan Activewear

Thank you, Sarah. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our results for the first quarter and maintaining our guidance for 2025. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents are expected to be filed with the Canadian Securities and Regulatory Authorities and the U.

Jessy Hayem
Jessy Hayem
SVP & Head - IR & Global Communications at Gildan Activewear

S. Securities Commission today, and they're available on our corporate website. As a reminder, please note that we'll be holding our AGM tomorrow morning at ten a. M. Eastern Time, with more information available on the Events page of our corporate website.

Jessy Hayem
Jessy Hayem
SVP & Head - IR & Global Communications at Gildan Activewear

Now joining me on the call today are Glenn Chemandy, President and CEO of Gildan Luca Barile, Executive Vice President, Chief Financial Officer and Chuck Ward, Executive Vice President, Chief Operating Officer. This afternoon, we'll take you through the results for the quarter and then a question and answer session will follow. Before we begin, please take note that certain statements included in this conference call may constitute forward looking statements, which involve unknown and known risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward looking statements. We refer you to the company's filings with the U. S.

Jessy Hayem
Jessy Hayem
SVP & Head - IR & Global Communications at Gildan Activewear

Securities and Exchange Commission and Canadian securities regulatory authorities. During this call, we will also discuss certain non GAAP financial measures. Reconciliations to the most directly comparable IFRS measures are provided in today's earnings release as well as our MD and A. And now, I'll turn it over to Glenn.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Thank you, Jesse, and good afternoon, everybody. As we highlighted in our press release, you can see that the Gildan Sustainable Growth Strategy, or GSG, continues to drive profitable growth, We delivered first quarter sales of $712,000,000 which were up 2.3% versus last year, driven primarily by strong Activewear sales growth of 9%. Our first quarter growth rate would have been mid single digits when you exclude the phase out of our Under Armour business. Our adjusted earnings per share of $0.59 essentially flat year over year, which includes a negative impact of the enactment of global minimum tax and the positive impact of job credits.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Despite the rapidly evolving environment, we remain highly committed to continue executing in our ESG strategy across its three pillars: capacity, innovation and ESG. We continue to be on a path to deliver on our three year objectives for twenty twenty five to '20 '20 '7 period, which include net sales growth of mid single digit range and adjusted EPS growth in the mid teen range. Now looking at the current year, with the recent tariff announcement and despite the challenging macroeconomic environment, we are maintaining our guidance for 2025, supported by many drivers, which should allow us to deliver on our objectives for the full year. As we mentioned in the past, about three quarters of our expected sales growth for 2025 is coming from new programs. And we remain very excited about our innovation pipeline, such as our soft cotton technology, our plasma print, our color blast, just to name a few, which is increasing our competitive advantage and allowing us to continue drive market share gains.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Luca will go over our 2025 guidance in more detail, but I'd like to address the current operating environment and the recent tariff announcement. Although the situation remains fluid with respect to tariffs, the 10 reciprocal tariff now in effect on goods imported to The US from most countries, I'd like to leave you with three points to keep in mind. First, remember, we are a global vertically integrated low cost manufacturer, which we believe is our competitive advantage as it provides a great deal of flexibility and agility. Second, we have a significant US cotton and yarn content in our products, which should allow for significant tariff savings since a 10% reciprocal baseline tariff does not apply to the value of US content imported products, which puts us in a very strong competitive advantage. Finally, we had other levers which we can use in this environment, such as price.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So in conclusion, we will continue to monitor the situation closely. We are cautiously optimistic as we look ahead. Though we are well positioned to maneuver through a period of uncertainty, thanks to our strong industry positioning, our agility to operate in dynamic environments. However, while we continue to focus on the things that we can control, I'd like to emphasize that regardless of the environment, we will continue to leverage our ESG strategy with a focus on executing long term shareholder value. I look forward to answering your questions after our formal remarks.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And now, I'd like to turn over to Luca for a financial review.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Thank you, Glenn, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter results. Let me start by saying that I'm very pleased to be here today and to have the opportunity to take you through our company's first quarter performance. Before we begin, I'd like to take a brief moment and thank Glenn, Rod and the rest of the management team for their continued support as I step into this role. Let me begin by covering the specifics of the quarter, and then I will comment on our outlook and guidance for 2025.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

So let's begin with the quarter's results. We reported first quarter sales of $712,000,000 up 2.3% year over year. If we exclude the impact of the phase out of Under Armour, net sales for the quarter are up mid single digits. This was driven by a strong performance in Activewear, up $55,000,000 or 9.3%, driven by higher sales volumes, which reflected a favorable product mix in North America with a higher proportion of fleece and ring spun products. Although the quarter started slower than expected, we observed an improving trend as we move through the February and into March.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

We continued to experience a strong market response to our recently introduced products, which feature key innovations, including our soft cotton technology. We also saw continued momentum with national account customers driven by our competitive positioning and the ongoing benefits from recent changes in the industry landscape. Looking at international markets, sales decreased by 2% year over year following two strong quarters of growth. Europe, our largest market, performed well in the quarter, but was offset by softness in Asia, which persisted due to the macroeconomic backdrop and a tougher year over year comp in Latin America. Turning to hosiery and underwear.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

This category was down 38% versus the prior year, mainly due to the phase out of our Under Armour business, along with unfavorable mix within this category. We also continued to see broader market softness in hosiery and underwear in the category in Q1, though we are encouraged to see some pickup in momentum for underwear in the current quarter. Turning our focus to margins for the quarter. Our gross margin was 31.2%, a 90 basis point improvement over the prior year, primarily due to lower raw material costs. SG and A expenses decreased by $18,000,000 to $87,000,000 versus $105,000,000 last year, which included significant proxy contest and leadership charges.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Excluding these charges, adjusted SG and A for the quarter was $86,000,000 or 12.1% of sales and essentially flat year over year, as the positive benefit of the jobs credit introduced by Barbados in the second quarter of twenty twenty four was largely offset by higher variable compensation and higher distribution expenses. As we bring all these elements together, and after adjusting for restructuring and acquisition related items in both years, we generated adjusted operating income of $135,000,000 or 19% of net sales, up 100 basis points year over year, well ahead of guidance provided, driven primarily by higher gross margins. Moving on to taxes. The company's adjusted effective income tax rate for the quarter was 15% compared to 3.6% last year, reflecting the enactment of global minimum tax in Canada and Barbados in the second quarter of twenty twenty four as previously communicated. After reflecting higher net financial and income tax expenses and our lower outstanding share base, we reported GAAP diluted EPS of $0.56 in the first quarter, up 19% versus the prior year, whereas adjusted diluted EPS of $0.59 came in flat year over year after adjusting for the negative impact of proxy costs in 2024.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Now turning to cash flow and balance sheet items. Cash flows used in operating activities totaled $142,000,000 compared to $27,000,000 in the first quarter of twenty twenty four, primarily due to an increase in non cash working capital, largely in line with the company's expectations. After accounting for CapEx of $23,000,000 the company consumed approximately $166,000,000 in free cash flow. We also returned $62,000,000 to shareholders by repurchasing 1,200,000.0 shares in the quarter. Finally, we ended the quarter with net debt of about $1,800,000,000 and a leverage ratio of 2.2 times net debt to adjusted EBITDA, well within our targeted range of 1.5 to 2.5 times.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

So overall, and concluding on the results, we're very pleased with the quarter and we remain confident in our ability to deliver this continued financial performance despite a dynamic macroeconomic environment. Now turning to our strategy and outlook. As Glenn highlighted earlier, we are pleased with our execution and the progress made on the three pillars of our GSG strategy. First, our new manufacturing complex in Bangladesh continues to ramp up and is well on track. Moreover, on the innovation front, we continue to tap into the largest innovation pipeline in the company's history, with more product launches to come in 2025, as detailed by Glenn.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

And lastly, with regards to ESG, we remain fully on track with our next generation objectives. In this regard, we are pleased to have been included in S and P's twenty twenty five sustainability yearbook for the thirteenth consecutive year. Moreover, Bilden was also included in CDP's leadership band for its 2024 climate change disclosures for the fifth time, highlighting our strong commitment to sustainable practices. With regards to our outlook, we continue to feel cautiously optimistic. As Glenn detailed, we are committed to executing on our ESG strategy.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

And despite an evolving and challenging macroeconomic backdrop, we believe that our low cost, vertically integrated business model, along with our industry positioning and our demonstrated agility in operating in dynamic environments, underscore our confidence in reconfirming our guidance metrics for 2025, which include: revenue growth for the full year to be up mid single digits full year adjusted operating margin to increase approximately 50 basis points CapEx to come in at approximately 5% of sales adjusted diluted EPS to be in the range of $3.38 to $3.58 up between approximately 1319% year over year. And free cash flow is expected to come in above $450,000,000 Further, the outlook that I just laid out is underpinned by some key assumptions, including the following: Firstly, based on the information available at this time, we have considered the impact of tariff measures in place on our operations as well as on industry demand, in conjunction with mitigation initiatives that are available to us and our ability to leverage our flexible business model as a low cost vertically integrated manufacturer. We also continue to expect growth in key product categories, driven by recently introduced innovation, a favorable impact from new program launches and continued market share gains.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

We expect ongoing benefits from the Jobs Credit program that took effect in Barbados in 2024, and we anticipate that our effective tax rate for 2025 will remain at a similar level to what we saw for the full year in 2024. Lastly, we expect to continue repurchasing shares under our NCIB program, given the strength of our balance sheet, our expected strong free cash flow, and our leverage framework target of 1.5 to 2.5 times net debt to adjusted EBITDA. Finally, we have also provided guidance for our second quarter, with net sales expected to be up mid single digits year over year and adjusted operating margin expected to be in a similar range as the second quarter of twenty twenty four, which included the significant positive benefit from the jobs credit introduced in May 2024 by Barbados and which was retroactive to 01/01/2024. We also expect our adjusted effective income tax rate in the second quarter of twenty twenty five to be at a similar level to the full year 2024 adjusted effective income tax rate. In summary, while we are mindful of the uncertain economic environment, our solid foundation, our resilient, low cost, vertically integrated business model, and our operational and financial discipline provide us agility, confidence, and the foundation to navigate through this environment.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Thank you. And now, I'll turn it over to Jessie.

Jessy Hayem
Jessy Hayem
SVP & Head - IR & Global Communications at Gildan Activewear

Thank you, Luca. This concludes our prepared remarks, and now we'll begin taking your questions. Before moving to the Q and A session, as usual, I'd like to remind you to limit your questions to two, and we'll circle back for a second round if time permits. Sarah, you may begin the Q and A session.

Operator

Thank you. Your first question comes from Paul Lejuez with Citigroup. Your line is open.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Hey, thanks guys. Two questions. One, 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? And then second, can you talk about what specific tariff pressure you bake into guidance from a cost perspective?

Paul Lejuez
Paul Lejuez
Managing Director at Citi

And what sort of mitigation you build in on the pricing side?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Okay. Well, Chuck will start off with the POS.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

Yeah. Hi, Paul. We had as Glenn mentioned in his comments, we had a very strong quarter from an activewear perspective, and we're really happy with where we landed there. We continue to gain share in a market that was down low to mid single digits, but we gained share capitalizing on the same drivers that we have talked about the last few quarters. Our innovation in tees and fleece with our soft cotton technology, our comfort colors and American Apparel were both of them, double digit again as well.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

And then Luca mentioned, obviously, we had a strong momentum in national accounts. One, we had wraparound effect of business from that we picked up from Delta and the closure last year, but also we started to ship some of the new programs that we've been talking about. So, again, we performed better than the market and we're happy with the activewear side and what we saw. He did mention also on the innerwear, we did see we were down in innerwear, but largely driven by underwear.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And as far as the inventory in the channel, it's in good balance and we haven't seen any sign of destocking. And Luca?

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Now with respect to the guidance and the assumptions with respect to tariffs, I think it's important to understand that when we gave we maintained our guidance. Our guidance is based on elements that we can control. What we've done is we've taken the impact of the current measures that are in place and we've factored in how that impacts our operations, we factored in what that means in terms of demand, and we factored in those mitigating factors that you alluded to. So again, in terms of our guidance for the full year, revenue is up mid single digits. And if you peel back the onion and you take a look at the market assumption, we're a bit conservative there.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

And we're saying, look, the market is going to be flat to down low single digit based on the uncertainty that's in the market and the impacts of tariffs more broadly. With respect to tariffs, I think the headline that you have to remember is that with respect to Gildan, tariffs impact before any mitigation strategies is well below the 10% of the headline number that you see in the overall environment. And the reason for that is because we benefit from the amount of U. S. Content that is in our product.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

So we know that U. S. Inputs make up a meaningful percentage of our cost of sales and so we've baked that into our guidance assumptions. And in terms of the mitigation factors, we've taken a little bit of price and that assumption is in there. And we also take a look at, let's not forget, we're the low cost manufacturer and we have flexibility within our supply chain.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

So there's elements that we've already put in place within our supply chain using that flexibility to mitigate some of those factors. So in summary, we're very comfortable, we're confident in the guidance that we've maintained. We've given you a little bit of the assumptions behind the curtain and it takes into account the measures that are in place today.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Got it. Thank you. Good luck.

Operator

The next question comes from Brian Morrison with TD Cowen. Your line is open.

Brian Morrison
VP & Director at TD Securities

Thanks very much. Good evening, Glenn and welcome, Luca. First question, the MD and A you note benefits from national accounts due to changes in the industry landscape.

Brian Morrison
VP & Director at TD Securities

I just want to make

Brian Morrison
VP & Director at TD Securities

sure I understand this. It sounds like competitor weakness, new product success and I assume vertical integration widening your cost advantage. Can you confirm that? And then the question is, is this leading to near shoring?

Brian Morrison
VP & Director at TD Securities

And if so, are you

Brian Morrison
VP & Director at TD Securities

seeing further incomings including GLB?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Well, change in the competitive landscape on a year over year basis is really some of the competitors that left the channel. Delta, who closed down last year, other competitors have vacated the channel, and a combination of as well as potentially near shoring and other activities coming back to this hemisphere. I think that things are changing now rapidly, particularly with the tariffs. The one thing maybe from a near shoring perspective, when you look at the, I think, imports into The United States, maybe to put things in perspective, China represents around over 20% of the products being sold into The United States today. And obviously, with their tariff levels, that's prohibitive for them to supply products into the market.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And then if you take the Asiana type countries, which is Vietnam, Indonesia, Cambodia, Thailand, Philippines, Myanmar, those are also countries which still have to negotiate their tariff levels that had high tariff levels in the first go around. They represent another 31. So I would say that when you look at the overall structure, particularly in retail because you have a lot more Asian type product in the retail servicing retail markets than you would in the wholesale. I think we're going to see a lot of people thinking about their supply chain and that could be a positive impact for us on people looking to a niche near shore. And maybe just to add one last thing on that is that the CAFTA region only represents around 9% of total parallels in United States.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So we think that there's a lot of opportunity with the way the landscape is changing and our competitive positioning, particularly on how we're positioned globally today.

Brian Morrison
VP & Director at TD Securities

That's great, Glenn. My second question is, and I noticed you left out Bangladesh from your comment there. From a strategy perspective, Bangladesh is being built as a ring spun hub for The U. S. The tariff is 10% now and I understand you source cotton and yarn from The U.

Brian Morrison
VP & Director at TD Securities

S. And you're agile, but how do you adjust to meet growth if Bangladesh tariffs are reinstated at that higher rate? Is there capacity in Honduras? How should we think about this?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Well, first of all, we've a lot of flexibility in our supply chain number one, which is the first thing you have to understand is how we can maneuver things. I would say to you is look, firstly, from Bangladesh, Fifty Percent of the, you know, it was a $500,000,000 and we're running at full. Mean, the things running full. I mean, today, just to put things in perspective. And, you know, of the 500,000,000 we're running out of the plant today, 50% of that servicing international markets in Canada, which we still provide product into these countries.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

The other 50% is producing ring spun products, which are coming back to The US. Now to put things in perspective, what we said is that the cost once the factory is fully ramped up, we'll have a 25% reduction in cost relative to our Central American cost. So if you look at the 10% minus the input of US component, that's still not moving the needle and still very viable for us to produce goods in Bangladesh and particularly in the run spring spring category. In the same breath, I would say to you is that we have the capabilities of maneuvering within our supply chain if tariffs do come back at a higher rate. Bangladesh, to answer your question before, it represents around 9% of the apparel going back into The US just for that perspective.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And at the same time, one thing I would tell you is that we're actually in the process now of looking we're running our capacity today is running around 90%. So we do have available capacity. Most of our capacity that's available is in Central America because of the way we've optimized our capacity. And we ramped up Bangladesh to a % of its utilization. But within our footprint in Central America, we're also looking to actually increase the capacity as well.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Because we think that there's gonna be a lot of opportunity as we go forward, particularly with the way the tariffs are evolving. And the fact is that we think we're gonna be at a cost advantage relative to other geographical areas. So, all things put in place, with our supply chain, I think we've got a very effective opportunity here to take advantage of the situation.

Brian Morrison
VP & Director at TD Securities

Thank you very much.

Operator

The next question comes from Chris Li with Desjardins. Your line is open.

Chris Li
Managing Director - Equity Research at Desjardins Group

Hi, good afternoon everyone. My first question is I just want to confirm just your answer to an earlier question about what's embedded in your guidance. Does it now incorporate a more conservative outlook in terms of industry demand? Think it was mentioned it's now flat to down low single digit. I think it was flat last quarter.

Chris Li
Managing Director - Equity Research at Desjardins Group

So have you kind of tweaked your outlook to reflect sort of single down low single digit for industry demand?

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Yes. Thank you for your question, Chris. Yeah, absolutely. So look, when you take a look at the guidance for the full year, revenue up mid single digit, okay. So the first element is the market.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

So we did add that element of conservatism and the market is now the assumption is that it will be flat to down low single digit. But then you have to go one step further and we have to say, we're in a great position to take share and we have the assumption that we're going to continue to take share on our core business. And then let's remember that around 75% of our growth going forward is based on new programs. And those new programs, there's meaningful T shirt and fleece programs in the national account business, as well as the Champion license, in our printwear channel. So those are the elements you have to keep in mind.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

And definitely what we did factor in is some of that conservatism when it comes to the market assumption.

Chris Li
Managing Director - Equity Research at Desjardins Group

Got it, okay. And my follow-up question is that in terms of that 75% coming from your programs, how much, visibility do you have? How how secure are they? Are they dependent on market conditions? I.

Chris Li
Managing Director - Equity Research at Desjardins Group

E. If if the economy does take a sort of downturn, are are those programs at at risk? If they are, will you be compensated somehow by the customers? How much protection do you have on those new We're

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

going to launch these programs. We look at what the opportunity is in the POS or the point of sale of these programs once they get launched. So let's say you take our program, you put it in retail. These are all replenishment, no fashion risk type programs. If the market is slightly down, yeah, maybe we can lose a couple percentage points on the overall program and then in our anticipation, which we factored into our forecast.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

But overall, I would say to you that they're pretty secure because we're taking space to spaces quantified into sales per square foot. And that sales per square foot should yield the three quarters of our sales guide that we laid out. That answer your question?

Chris Li
Managing Director - Equity Research at Desjardins Group

Okay. Yes, perfect. Thanks and best of luck.

Operator

The next question comes from Luke Hannon with Canaccord Genuity. Your line is open.

Luke Hannan
Equity Research Analyst at Canaccord Genuity - Global Capital Markets

Yes, thanks. Good evening, everyone. Glenn, you talked about some of the innovation that's going to continue within 2025. Just curious we can get a little bit more granularity on it, specifically if it's going to be concentrated if at all across any of your main channels being basic spring spun or fleece? And then secondly, what about the cadence of that as well?

Luke Hannan
Equity Research Analyst at Canaccord Genuity - Global Capital Markets

And is it going be filling white space within the portfolio? Or is it going to be more about revamping some of the existing SKUs that you sell? Thanks.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

I'll start off by saying that, look, what we did in 2024 after two years of a lot of work is we really revamped almost all of our product lines. Our basics, our fleece. I mean, basically, we touched almost every product line, you know, with our soft cotton technology, but our fleece basically with the MBS yarn, etcetera. So we also changed the way the fabric is constructed. It's softer, it pills less.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So there's all kinds of different things that we've done through the innovation of our yarn spinning, etcetera, etcetera. But we also have a pipeline of other product categories. Chuck, maybe you want to just

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

Yeah, sure. Look, Glenn said, we've touched a lot of product, if not all the product over the last two years. But as he was talking, we also have something called plasma print technology that's coming online that'll come on later this year, early next year that really improves the printability from a direct to garment printing perspective. We did showcase it at the ISS show in Long Beach earlier this year and the reception to it has been outstanding. And so we're going to continue to innovate across all of our product lines.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

We have some additional programs coming out in innerwear as well. We're moving into different fabrications, that sort of thing where we're picking up space. And so we're really taking the innovation throughout our product and picking up new programs across all categories.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And we also have innovation in quite a few new products that we're offering in our Comfort Colors brand as well. So, we're constantly we just got a whole pipeline of innovation that's going to continue to roll out through 2025 and into 2026.

Luke Hannan
Equity Research Analyst at Canaccord Genuity - Global Capital Markets

That's great. Thanks. And then as a follow-up to, the tariff conversation, you mentioned that, even the product that you're you're creating in Bangladesh, that does use US cotton. I believe you do most of your your yarn spinning within The US, but, in Bangladesh, you do use third party spinners. You can correct me if I'm wrong.

Luke Hannan
Equity Research Analyst at Canaccord Genuity - Global Capital Markets

But if that is the case, do you envision setting up more yarn spinning facilities of your own to support your operations in Bangladesh?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Well, we have a vested interest in all of our yarn spinning facilities in Bangladesh. And we use US cotton, so we ship the cotton. We purchase the cotton. We ship it to Bangladesh, it gets spun into yarn and produce. Cotton is a large component of our total cost structure, particularly on basic T shirts.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So important part of our ESG strategies and let alone our whole manufacturing process. So in The States, obviously, we have a little bit S. Content in The U. S.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Because of the yarn spinning in this hemisphere. But we're well positioned, I think, a tariff perspective. You can do the math and cotton and spinning is a a large proponent of our cost structure.

Luke Hannan
Equity Research Analyst at Canaccord Genuity - Global Capital Markets

Okay. Thank you very much.

Operator

The next question comes from Stephen MacLeod with BMO Capital Markets. Your line is open.

Stephen MacLeod
Stephen MacLeod
Managing Director at BMO Capital Markets

Thank you. Good evening,

Stephen MacLeod
Stephen MacLeod
Managing Director at BMO Capital Markets

everyone. Lots of great color so far, so thank you. But I just had two follow-up questions. One is, I'm just wondering if you can provide any color on what you've seen on a quarter second quarter to date basis with respect to the North American distributor channel in terms of the sales trends. And then secondly, Glenn, you talked a little bit about the opportunities to increase capacity in Central America, which I think is particularly interesting.

Stephen MacLeod
Stephen MacLeod
Managing Director at BMO Capital Markets

So I'm just curious if you could provide just even a little bit of color around, would that be potentially something expansion within your current re enacting facility? Or is there something new that you're potentially contemplating?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Well, was telling you, look at like everything else, we have a lot of flexibility in our system. And we're continuing to look like everything else. When, you know, we build our plants, we we build them in, and we are capable of expanding them quickly. We always give ourselves a little bit of room to maneuver. So our objective is that we don't want to spend a lot of capital to expand, and we need to expand quickly.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So most likely, working with existing structure, basically, is the best way for us to do it. It's going to maximize our cost and efficiency, keep us within our CapEx range and allow us to maximize output. So I would say that we're very optimistic that we can increase our capacity in this hemisphere. And it's part of what we think is a big opportunity. Now, one of the things I would say to you is that, as I mentioned earlier, in terms of the imports from Asia, we're already seeing customers coming and looking for filling shelves really at the end of the day.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

I mean, there's definitely going to be, we think, potentially a shortage of product because it's prohibited to bring product in from China. So we think we need to take advantage of it. And we're cautiously optimistic. So we can put and align our capacity without really sticking our neck out, but giving us all the flexibility that as we go forward, if things materialize and we have opportunity, we can take advantage of it. And I would say to you on another front is that we have a lot of, I would say, momentum as we already move into 2026 in terms of building new business.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And I think that that's also because it takes time to do these things, but we're starting to see retailers allocate or work with our team. And we're pretty excited about that too. So our pipeline is strong for 2026. And I think that we even have a chance to do some fill in for this year. And that's really why we're excited and really focusing on expanding our capacity.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

And on quarter to date Q2 POS front and business front, we've kind of seen the trend as we talked about last few quarters where a quarter would start out a little slower and then accelerate. But we're actually seeing so in January, saw it start off a little slower, impacts of weather, fires, different things happening. It improved sequentially in February. It improved again in March. Well, the good news is it's going ahead and improving again in April.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

So we're continuing to see consistent improvement through April. So we feel good about how this quarter has started out.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

I would say just to end off on second quarter is that we've put the guidance right that our revenue is up mid single digits and we feel comfortable with the outlook that we've laid out. We remain cautiously optimistic. But for the second quarter you should see some of the same trends as we finished the first quarter, right, where there's market share gains across the channels and key product categories, and we start to see some of the impact of the new program. So second quarter revenue up mid single digit. We're quite pleased.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

It's still very early in the quarter, but we're quite pleased with what we see.

Stephen MacLeod
Stephen MacLeod
Managing Director at BMO Capital Markets

Yeah. Okay. That's great, guys. Thanks so

Stephen MacLeod
Stephen MacLeod
Managing Director at BMO Capital Markets

much for the color.

Operator

The next question comes from Paul Kearney with Barclays. Your line is open.

Paul Kearney
Paul Kearney
VP - Equity Research at Barclays

Hey, good evening. Thanks for taking my questions. Can you talk about what you're seeing in terms of pricing in the market? Have prices in your key categories already started to rise for tariff costs? And my second question is, given your relative advantage, how do you balance accelerating the potential market share gains versus taking some benefit on margin?

Paul Kearney
Paul Kearney
VP - Equity Research at Barclays

Thank you.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

Thank you, Paul. On the pricing front, mean, we've seen pricing remain fairly stable through Q1 and into early Q2. Not a lot of price changes at that point. We have taken selective minimal price so far to offset inflation and some of the tariffs. Some of that will begin taking effect later in Q2.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

But again, we're not seeing that as both Glenn and Luke have mentioned, with our ability, with our vertically integrated supply chain, our flexibility, we think that'll continue to be selective minimal price offsetting that tariff and not large price changes as you may have to see from other regions or other suppliers.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

And I guess just to round out the question from the margin perspective, for the full year, we're guiding to an improvement in the operating margin by 50 basis points versus 2024. And if you boil it down to the levers that we need in order to achieve the expected operating margins, underpin our guidance, The first is fully leveraging our greenfield project in Bangladesh, right, and that flow through in cost of sales. The second is improving the utilization of the Central American capacity, produce more fleece, high growth products, right. And the third is benefiting from the yarn modernization investments and other strategic initiatives that optimize our supply chain. And finally, successfully navigate the tariff situation with the levers that are available to us, which is we went over, but the flexibility in our operations as well as a little bit of price.

Paul Kearney
Paul Kearney
VP - Equity Research at Barclays

Okay. Thank you very much.

Operator

The next question comes from Vishal Shreedhar with National Bank. Your line is open.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Hi, thanks for taking my questions. With respect to the industry trends in Q1, when you talked about the declines, was that in sales or units?

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

We're speaking mainly in units, from a unit perspective, but I I think sales perspective tracks the same.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

I see. And with respect to Gildan, when you, when what was your units? What were your units year over year in q one?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

The price is neutral. Our price is neutral. And our activewear sales were up 9%, basically, by the our innovation, basically, our soft style technology, our fleece, our comfort colors, our AA. Basically, you know, we had a I think we had a good quarter. We're taking share.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

We have a little bit of revenue from our new programs. But basically all in all, there was no real price moving in quarter.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Right. But given that mix was favorable, presumably units was something less than nine, but still positive?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

No, mix was slightly the same. I don't think mix was

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Well, think again, if we take a look, have to start with the market assumption, right? Or how the market performed. The market was down low to mid single digit in the first quarter. And for the reasons that Glenn went over, we were taking share and we saw strength in our U. S.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

In our national accounts business, the categories that are touched by innovation, like Glenn mentioned, comfort colors, American Apparel, those were up double digits. So those really underpin the 9% growth in activewear. We're quite pleased with that performance. That's good performance in our quarter and the first quarter is usually the lowest quarter and we have to remember that. Now on the underwear and hosiery side, that's where we did have lower sales 38%, but that's because of the phasing out of the Under Armour business.

Vishal Shreedhar
Vishal Shreedhar
Analyst at National Bank

Okay. And when do you anniversary the introduction of the soft cotton technology?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Soft cotton technology? Well, it's hard to say though, because you know why? Because it takes a long time for it to constantly get out to the marketplace. So like if you look at last year, we started being flat in sales and we were slight Q2, we were flattish, slightly up one. And then as we move through the quarters, it got a little bit better.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So it's hard to say, to be perfectly honest with you. But I would say to you that it's resonating with end users. It's a product of choice. And I would say, particularly, when you look in a market where inflation is a factor, people look to trade down. And our soft cotton technology is a great trade down product.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

And, you know, maybe one other point that we haven't crossed today is that, you know but people don't realize that, you know, the wholesale the wholesale cost on our cost, what our customers are selling to end users, our basic, you know, bread and butter t shirt is selling for $2.30. So there's two important points here. One, you know, is that even if there's a slight price increase on $2.30, it's not gonna even move the needle because by the time our products get sold to end users and end up at either a souvenir store or somewhere else, I mean, they're selling for between 20 and 20 5 dollars. So that that, you know, couple cents assured is never gonna move the needle. And secondly, because the price you know, because of our price point is so, you know, so favorable, you know, we think that we have a good chance and trade down, etcetera, etcetera.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

So I think we're well positioned overall to continue our momentum and continue taking share. And we're better positioned than anybody else in the market, which is I think is an important part because not everybody can offset the tariff costs like we do because of our vertically integration, our low cost manufacturing, our flexibility, our agility and everything else we have working for Gildan. We're pretty excited about the opportunity.

Operator

Question comes from Martin Landry with Stifel. Your line is open.

Martin Landry
Martin Landry
Managing Director at Stifel Financial Corp

Hi, good evening everyone. My question is on your Q2 guidance for margins, for operating margins. You're guiding for operating margins to be stable year over year. Last year, it was your highest quarter, I think, at 22.7%. So this would be in last year, you had the Barbados tax credit for six months.

Martin Landry
Martin Landry
Managing Director at Stifel Financial Corp

That was a significant help. So this year you're to have the highest gross operating margin you've had in long time. So the question is, how sustainable is that margin level? And where could margins go next in the long term? Is there upside your 2025 level or are you maxed out?

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Well, you for your question Martijn. I think when you take a look at the operating margin and you take a look at the evolution of the business, And like you said, last year, operating margin was 22.7%. We've guided to a similar operating margin for the second quarter of this year. You're correct, last year included the positive benefit of the jobs credits. It was introduced in May by Barbados.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

It was retroactive to the first quarter and in our disclosures, you see there $17,000,000 of that benefit now. So that we have to take into account. But nonetheless, it is like you say, it's a strong operating margin and we're comfortable with guidance that we've given for the second quarter, given the trends that you see exiting Q1, right. When you take a look at where the growth comes from, coming from categories such as comfort colors, American Apparel, fleece. So these are categories that really do benefit the margin.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

And then with respect to the future view, we've given the guidance for the full year, right, 50 basis points versus twenty twenty four. And then again, if you peel back the onion there, when you look at the assumptions, we are cautiously optimistic, but at the same time, we're comfortable with the guidance that we gave. So similar to last year in Q2 and 50 basis point expansion for the full year. That's the way I would think about it.

Martin Landry
Martin Landry
Managing Director at Stifel Financial Corp

Okay, that's helpful. Glenn, just coming back to the dynamic at play here, it seems like your competitive advantage is improving. It seems like you could increase your capacity utilization. I mean, would assume that gives you a bit more flexibility to pick and choose, which program and you want to play in and maybe potentially improve your margin. Is that a fair assessment?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Well, would say to you is that obviously that's our goal is always to return and focus on shareholder value. So I would say yes, that would be the answer. But you look at there's strategic opportunities for us right now. We're going to continue to focus on the long term for the business and making sure that we work with our customers for the long term. And I think that's really going to be the most important decision that will drive our decision making.

Martin Landry
Martin Landry
Managing Director at Stifel Financial Corp

Okay. Thank you and best of luck.

Operator

The next question comes from Mark Petrie with CIBC. Your line is open.

Mark Petrie
Equity Research Analyst at CIBC Capital Markets

Yes, good afternoon. Thanks for the question. Just a couple follow ups. I guess first, with regards to price, have you observed any price activity or price increases from your competitors?

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

We've seen have seen selective pricing out by some competitors as well. So, I think we're going to continue to see that dynamic play out through the rest of this quarter. I think it was early days, took some people time to assess our supply chain. I think we could do so quickly due to our vertically integrated manufacturing, our ability to control what we do. So we've moved accordingly.

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

But I think we'll continue to see that happen over the coming weeks and months.

Mark Petrie
Equity Research Analyst at CIBC Capital Markets

And would you characterize your moves as being roughly in line with the competitive set or lagging or leading?

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Well, since early days still, so I would say to you that look at I mean, we have a I think an advantage because of our US content, both our cotton and our yarn versus some of the competitors in the market. So we'll see what happens. I mean, or they might just sacrifice our margin. We'll see. But I think we've, we're being cautious on how we've maneuvered in the market on price and we're going to leverage our infrastructure and our low cost manufacturing.

Mark Petrie
Equity Research Analyst at CIBC Capital Markets

Yeah, understood. Okay, thanks. And then just on the cash flow, working capital, is that just sort of typical seasonality or is there something else there and we should just sort of expect it to continue to normalize throughout the balance of the year? And then also related to that, suppose, of a slower pace on buybacks for you in Q1 versus, you know, obviously being more aggressive on the re leveraging in 2024, but how should we think about the pace of buybacks through the balance of the year, you know, assuming the 5% to 6% sort of general target is still the right number?

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

Yes, Mark, thank you for your question. So for the first part, in terms of the working capital, look, the working capital is under control, right? So like heading into season, it's normal that the working capital as a percentage of sales will be higher. But in terms of our projections and really our target is that would moderate back to something around let's say 37% of sales towards the end of the year. And the components of that will in terms of the receivables and the inventory will both moderate.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

So we feel very comfortable there. We're also well positioned when you look at working capital at this juncture, working capital is a good thing because don't forget, number one purchasing criteria for our customers is availability. So that comes with working capital cost upfront and then you monetize. So by the end of the year, normalize back to 37%. And in terms of the return of capital to shareholders, that's of utmost importance for us.

Luca Barile
Luca Barile
EVP & CFO at Gildan Activewear

We've laid that out in our capital allocation strategy. First quarter '60 '2 million, '1 point '2 million shares. And the way to think about our NCIB program is that we will continue to buy back shares in a sustained cadence and 5% to 6% over the course of the year is the way to think about that. And really important to us is that as we provide capital back to shareholders and as we meet our objectives, we have to maintain a healthy balance sheet and our leverage framework of 1.5 to 2.5 times is what we're comfortable with and so you'll see that also be monitored in conjunction with the way we buy back stock. So I think those that should answer both of your questions.

Mark Petrie
Equity Research Analyst at CIBC Capital Markets

Yeah, yeah, does. Thank you. And maybe actually just one quick one. I think I'm hearing you say that the account wins for 2025 were maybe slightly in place for Q1, but obviously getting much more material throughout the year. Is that right?

Chuck Ward
Chuck Ward
EVP & COO at Gildan Activewear

Yes, that's right. I mean, we feel most of those will continue through the back half and you'll see it accelerate there. And also, as Glenn mentioned, we also have line of sight of new programs into 2026 that we think will also give us the same level of sustained growth as we look through and support our mid single digit growth going into 2026.

Mark Petrie
Equity Research Analyst at CIBC Capital Markets

Yeah, understood. Okay, thanks for all the comments. All the best.

Glenn Chamandy
Glenn Chamandy
Co-Founder, President & CEO at Gildan Activewear

Thank you.

Operator

This concludes the question and answer session. I'll turn the call to Jessie Hayam for closing remarks.

Jessy Hayem
Jessy Hayem
SVP & Head - IR & Global Communications at Gildan Activewear

Thanks, Sarah. Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great evening.

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect.

Executives
    • Jessy Hayem
      Jessy Hayem
      SVP & Head - IR & Global Communications
    • Glenn Chamandy
      Glenn Chamandy
      Co-Founder, President & CEO
    • Luca Barile
      Luca Barile
      EVP & CFO
    • Chuck Ward
      Chuck Ward
      EVP & COO
Analysts
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Earnings Conference Call
Gildan Activewear Q1 2025
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