Key Morningstar Metrics for Gildan Activewear
- : C$130.00Fair Value Estimate
- : ★★★★★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of Gildan Activewear’s Earnings
Gildan’s pro forma second-quarter sales fell 8% due to intentional inventory reduction and weak demand late in the period. Due to Hanesbrands’ impact, Gildan’s adjusted gross margin rose 3 percentage points to 34.5%, but its adjusted operating margin declined 40 basis points to 22.3%.
Why it matters: Gildan continues to cut costs while integrating the retail operations that it acquired from Hanesbrands. We think the firm remains on track to achieve USD 250 million in annual cost savings and reach durable adjusted operating margins of 24.0% in 2029, up from 21.5% in 2025.
- With retail demand soft, Gildan’s 8% sales decline was slightly worse than our estimate for a 7% fall. However, its adjusted operating margin beat our 19.8% forecast by 250 basis points, and we lift our full-year forecast to 21.8% from 20.1% based on this result and a more favorable outlook.
- Specifically, although we cut our 2026 sales guidance to USD 6.05 billion from USD 6.11 billion, Gildan’s profitability is boosted by an expected USD 220 million in tariff refunds (about half of which is to be reinvested), lower duties going forward, some price increases, and reduced costs.
The bottom line: We lift our fair value estimate to C$134 per share from C$130 on Gildan’s Canada-listed shares due to US dollar appreciation but maintain our USD 95 fair value estimate for its US shares. We think shares do not reflect the benefit of Hanesbrands and are undervalued.
- Although the acquisition brings more exposure to volatile retail demand, we believe Gildan’s manufacturing cost edge (the source of its narrow moat), profitability, and sales growth prospects have improved.
Key stats: Gildan announced the sale of Hanesbrands Australia to a financial buyer for USD 490 million. Although this price is about USD 200 million lower than we had expected, free cash flow is trending higher, so our expectations on debt reduction hold.
- We still project Gildan will reach its net leverage target of 1.5-2.5 times by the end of 2026.
