Gildan Activewear, Inc. Q4 FY2024 earnings call

• The sustainable growth strategy (GSG) is driving profitable growth, with record fourth-quarter sales and adjusted EPS.
• Key operational highlights include:
  • Record fourth-quarter sales of $822 million and full-year revenues of about $3.3 billion.
  • Adjusted EPS grew 17% for the full year, closing at $3, fully within guidance.
  • Innovations like soft cotton technology drove double-digit POS growth in the fourth quarter of 2024.
  • Comfort Colors brand saw a 40% full-year growth in 2024.
  • Expansion of the Champion brand via a license for the printwear channel, aiming to gain share in the distributor channel in 2025.
  • Capacity expansion in Bangladesh and optimization of Central American operations to enhance international business and product availability.
  • Expanding shelf space in underwear and securing new national account programs for Activewear, tees, and fleece.

Gildan Activewear Inc. reported record fourth-quarter sales of $822 million, representing a 5% year-over-year increase. Excluding the phase-out of Under Armour, the growth rate would have been low double digits. Activewear saw a $70 million or 11% rise, driven by higher sales volumes. International sales experienced a 20% increase in the last two quarters due to market recovery and capacity expansion in Bangladesh. Hosiery and underwear were down 23% year over year primarily because of the Under Armour phase-out, but excluding this, hosiery and underwear sales would have been up in the high single digits. Revenue contribution details weren't explicitly provided in absolute percentages, but the focus was on the absolute financial performance of each segment.

• For 2025, management anticipates:
  • Revenue growth in the mid-single-digit range.
  • Adjusted operating margin to increase approximately 50 basis points.
  • Adjusted diluted EPS in the range of $3.38 to $3.58, representing an 11%-19% year-over-year increase.
  • Free cash flow to be above $450 million.
  • First quarter net sales to be up in the low single digits excluding the Under Armour sock license agreement, with adjusted operating margin in line with the full-year guidance of approximately 50 basis points improvement.
  • The adjusted effective income tax rate in the first quarter of 2025 to be significantly higher than the prior-year quarter due to global minimum tax implementation.

• Trade policy uncertainties involving China, Canada, and Mexico could impact the business.
• Geopolitical uncertainties and the potential long-term effects of some trade policies pose risks to sales and margins.
• Mixed macroeconomic conditions may present challenges in achieving growth targets and maintaining margin performance.

Q: Brandon Sheetham inquired about Q1 expectations for Activewear and hosiery, and gross margin in Q4.

A: Rhodri Harries responded that Activewear showed good strength in Q1 with growth across all areas, and gross margin in Q4 was 30.8%, a 60 basis point improvement due to lower raw material costs, with pricing remaining stable.

Q: Jay Sole asked about new product innovation and the Champion brand.

A: Glenn Chamandy stated that new products like soft cotton technology are driving growth, with Comfort Colors up 40%, and the Champion brand expansion via a license is aimed at gaining market share in the printwear channel.

Q: Mark Petrie questioned SKU levels and the share buyback pace.

A: Glenn Chamandy mentioned that SKUs are managed while adding new brands, and Rhodri Harries said the share buyback pace in 2025 will return to a historical cadence of 5-6% of the float.

Q: Brian Morrison asked about POS relative to the industry and pricing.

A: Chuck Ward noted positive POS across channels and categories, and Rhodri Harries indicated that pricing is stable with volume growth being the driver of the business.

Q: Martin Landry inquired about capacity utilization and margin differential.

A: Glenn Chamandy said there is ample capacity to support the guidance, and Rhodri Harries noted that margin percentages are consistent across different channels.

Q: Stephen MacLeod asked about Bangladesh capacity and the customer landscape.

A: Glenn Chamandy stated that Bangladesh capacity is expected to be close to 100% ramp-up by the end of Q2, and Chuck Ward noted that distributor consolidation is positive for Gildan's share gain.

Q: Vishal Shreedhar asked about international growth drivers and the cadence for 2025.

A: Chuck Ward said international growth is due to Bangladesh capacity and product innovation, with 2025 cadence expecting growth but being cautious due to the macroeconomic environment.

Q: Chris Lee asked about customer inventory levels and sales growth cadence.

A: Chuck Ward said inventories are well balanced, and Glenn Chamandy noted that 75% of growth in 2025 is expected from new programs with a conservative outlook but potential upside.