Gildan Activewear NYSE: GIL lowered its 2026 financial outlook and withdrew its longer-term objectives after third-quarter sales fell short of expectations, as weaker apparel demand and retail product availability issues weighed on the business.
The company reported net sales from continuing operations of $1.47 billion for the quarter, up 61.1% from a year earlier, primarily because of its acquisition of HanesBrands. Sales were below Gildan’s guidance of approximately $1.65 billion and down from $1.61 billion on a prior-year pro forma basis.
“The demand recovery we had anticipated did not materialize as expected,” President and CEO Glenn Chamandy said. He added that margins and cash flow held up, supported in part by tariff refunds.
Gildan Cuts Full-Year Forecast
Gildan now expects 2026 revenue of $5.4 billion to $5.5 billion, compared with its previous forecast for the low end of a $6 billion to $6.2 billion range. It also reduced its adjusted diluted earnings forecast to $3.70 to $3.80 per share, from $4.65 to $4.75.
The company expects an adjusted operating margin of approximately 20%, down from its earlier forecast of approximately 21.8%. Free cash flow is projected at $700 million to $750 million, compared with the previous expectation of approximately $1 billion.
CFO Luca Barile said the revised outlook reflects the third-quarter sales shortfall and expectations that softer demand will persist in the fourth quarter. The company attributed approximately $300 million of the reduction in its full-year revenue forecast to weaker-than-expected consumer demand and unfavorable product mix, particularly lower fleece shipments.
Gildan also cited approximately $145 million in lower-than-anticipated customer replenishment, $75 million related to product availability and service constraints, and $30 million in lower-than-expected net selling prices.
The company withdrew its previously communicated objectives for 2026 through 2028 and intends to provide an updated long-term outlook at an investor day in spring 2027. Barile said the withdrawal reflected the need to adjust the revenue base following the weaker performance. Gildan did not provide 2027 guidance on the call.
Warm Weather Weighs on Fleece Sales
Chief Commercial Officer Chuck Ward said higher interest rates and persistent inflation in household essentials had made lower- and middle-income consumers more selective about apparel purchases. Retailers have responded by emphasizing lower-priced products and smaller pack sizes, he said.
Of the third-quarter shortfall against guidance, approximately $100 million reflected weaker-than-expected demand and unfavorable mix, mainly in wholesale, while about $60 million reflected product availability and service constraints, primarily in retail, Ward said.
Ward said unusually warm weather in the U.S. and Europe contributed to weaker fleece demand. Fleece point-of-sale performance declined by a mid- to high-teens percentage in September, management said. Because fleece carries a higher average selling price than basic T-shirts, the shift also hurt the company’s sales mix.
Wholesale sales fell 10.8% to $735 million from $823 million on a prior-year pro forma basis. Retail sales declined 7% to $732 million from a pro forma $787 million.
Ward said the availability constraints affected multiple categories and reflected changing order patterns, some production tightness during facility integration, and longer lead times and transit times for certain products sourced from Asia. The company is increasing inventory targets for some longer-lead-time items, he said, adding that the constraints are largely behind it.
Tariff Refunds Support Margins
Adjusted diluted earnings per share from continuing operations rose 54% to $1.54. Adjusted operating margin was 27%, above Gildan’s guidance of approximately 26%.
Barile said the margin exceeded guidance partly because some planned reinvestment of tariff refunds shifted from the third quarter into the fourth. That benefit was partly offset by greater selling, general and administrative expense deleverage on lower sales.
Adjusted gross margin rose to 43.3% from 33.7% a year earlier, helped by approximately $177 million in IEEPA tariff refunds and lower manufacturing and raw material costs. Gildan’s full-year outlook includes approximately $220 million in expected tariff refunds and assumes a significant portion of the benefit will be reinvested in growth initiatives.
Integration and Capital Returns
Chamandy said the Hanes integration remains on track to generate approximately $100 million in targeted synergies in 2026 and an annual run rate of approximately $250 million by the end of 2028. Gildan plans to roll out new and enhanced products progressively through 2027, beginning with men’s underwear and socks.
The company completed the sale of the HanesBrands Australia business on Oct. 26 for approximately $490 million in cash and used the net proceeds to repay debt. Unless otherwise indicated, the results discussed on the call excluded that business as a discontinued operation.
Gildan’s board also approved a new normal course issuer bid to repurchase up to 5% of outstanding common shares. Barile said the company remains focused on maintaining an investment-grade credit rating and expects to return to its target leverage range of 1.5 to 2.5 times net debt to trailing 12-month pro forma adjusted EBITDA by the end of 2027.
About Gildan Activewear (NYSE:GIL)
Gildan Activewear Inc is a Montreal, Quebec-based apparel manufacturer that produces and sells everyday basic clothing for consumers and businesses. The company's product portfolio includes activewear, T-shirts, fleece garments, underwear, socks and hosiery, as well as other apparel basics.
Gildan sells products primarily through wholesale distributors and screen printers, who supply decorated apparel to businesses, schools, teams, organizations and retailers. Its portfolio includes the Gildan, American Apparel, Comfort Colors, Gold Toe and Anvil brands.
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