Gildan Activewear Inc (GIL) (Q3 2026) Earnings Call Highlights: Sales Miss and Guidance Cut ...

Positive Points

• Net sales from continuing operations rose 61% year-over-year to $1.47 billion, driven by the HanesBrands acquisition.

• Adjusted diluted EPS from continuing operations increased 54% to $1.54, reflecting strong margin performance.

• Adjusted operating margin expanded 380 basis points to 27%, surpassing guidance of 26%.

• The company generated $622 million in free cash flow through the first nine months and expects $700-$750 million for the full year.

• Hanes integration remains on track, with approximately $100 million in synergies expected for 2026 and a $250 million annual run-rate target by 2028.

• The sale of HanesBrands Australia for approximately $490 million was completed, with proceeds used to repay debt.

• A new normal course issuer bid was approved to repurchase up to 5% of outstanding shares, supporting shareholder returns.

• Premium brands like Comfort Colors, American Apparel, and Champion continue to perform well with customers.

Negative Points

• Third quarter net sales of $1.47 billion fell short of guidance of approximately $1.65 billion, due to greater-than-anticipated demand softness and unfavorable mix.

• Full-year 2026 revenue guidance was significantly reduced to $5.4-$5.5 billion from the previous low end of $6.0-$6.2 billion.

• Adjusted diluted EPS guidance for 2026 was lowered to $3.70-$3.80 from $4.65-$4.75, reflecting the sales shortfall.

• The company withdrew its previously communicated 2026-2028 objectives, citing rapid macroeconomic changes and a need to rebase expectations.

• Product availability and service constraints, primarily in retail, resulted in an estimated $60 million sales impact in Q3.

• Fleece demand weakened meaningfully in September, with POS down mid-to-high teens, creating an unfavorable mix impact.

• Lower-than-anticipated customer replenishment, as retailers manage working capital, is expected to reduce Q4 sales by approximately $145 million.

• Net debt stands at $4.14 billion with a leverage ratio of 2.7x, above the target range of 1.5x-2.5x, though the company aims to return within range by the end of 2027.

Q & A Highlights

Q: Chris Li of Desjardins asked how to think about the first half of 2027, given Q4 sales are implied to be down roughly 16% and the company will lap last year's proactive destocking. A: CFO Luca Barile declined to guide 2027, noting Gildan typically issues annual guidance with Q4 results. He explained Q3 sales of $1.47 billion were down 8.9% versus pro forma, driven by softer demand, unfavorable mix from lower fleece sales (September POS down mid-to-high teens), and the prior-year pull-forward ahead of price increases. He said the wholesale market is now down mid-single digits versus prior expectations of flat to down low single digits, and Q4 guidance assumes lower customer replenishment of about $145 million ($45 million wholesale, $100 million retail) as customers manage working capital. He stressed that Comfort Colors, American Apparel, and Champion continue to perform well and that the underlying business remains strong.

Q: Jay Sole of UBS asked what Gildan will rethink strategically given the withdrawn three-year outlook, and whether the change reflects a lower base or diminished growth potential. A: CEO Glenn Chamandy said the consumer is under pressure from higher interest rates, oil, and food costs, but Gildan's positioning is unchanged, citing its brand portfolio, low-cost manufacturing, and momentum with retail partners on innovation, packaging, and advertising. He noted the integration heavy lifting is largely done, with $100 million of synergies expected in 2026, line of sight to another $100 million in 2027, and confidence in the $250 million run-rate target by 2028. CFO Luca Barile clarified the withdrawn guide reflects a rebasing of the top line rather than lost growth potential, with the lower revenue flowing through to SG&A deleverage and the reduced margin outlook.

Q: Vishal Shreedhar of National Bank asked whether years of wholesale price increases are pressuring sales, and whether Gildan might revert to its historical strategy of lowering prices. A: CEO Glenn Chamandy pushed back, noting the fastest-growing product, Comfort Colors, sells at about $5 while basic shirts still wholesale at $2.30-$2.50, and that higher-priced items like fleece, ALLPRO, and Champion have been growth drivers. He attributed the weakness to consumer spending pressure and inflation rather than pricing, and said rising costs for cotton, polyester, dyes, chemicals, energy, transportation, labor, and freight likely leave room for further price increases industry-wide.

Q: Vishal Shreedhar of National Bank asked how long wholesale destocking is expected to persist. A: CEO Glenn Chamandy said the $145 million inventory reduction is mostly retail ($100 million) as retailers lower weeks of coverage, while the $45 million wholesale reduction tracks the negative POS and reflects distributors maintaining weeks of supply rather than a broad destock. He said channel inventory should be roughly balanced by the end of 2026.

Q: Brian Morrison of TD Securities asked whether today's macro-driven reset is comparable to 2019 and whether prior cycles still take two to three quarters to normalize. A: CEO Glenn Chamandy said 2019 followed a cotton bubble and was resolved by passing through higher costs sooner to take share, whereas today's K-shaped economy is squeezing lower-income consumers. He said a return to growth requires inflation to subside, and prices may even need to rise in 2027. He emphasized confidence in the innovation pipeline and retail share gains, noting the benefits of Hanes integration and new packaging will flow through in 2027.

Q: Brian Morrison of TD Securities asked which wholesale segments and products were most impacted beyond fleece. A: CCO Chuck Ward said the impact was broad across the channel, but fleece was the biggest driver given its 10%+ annual growth over the past three to four years and higher average selling price. Record warmth in parts of the U.S. and Europe delayed the fleece season, and outside of fleece, softness was spread across all categories.

Q: Martin Landry of Stifel asked about Gildan's exposure to the low-income consumer. A: CEO Glenn Chamandy said the bulk of innerwear revenue comes from mass-market customers oriented toward lower-income consumers, while wholesale is more discretionary and event-driven. He cited the K-shaped economy, where affluent consumers are doing well but lower-income shoppers are cutting discretionary purchases like event T-shirts.

Q: Martin Landry of Stifel asked how spring 2027 retail planogram and shelf-space discussions are progressing. A: CCO Chuck Ward said retailers responded with excitement to the new innovation, including upgraded fabrics and waistbands in men's bottoms, improved shoppable packaging across price tiers, and brand campaigns on programs like Thursday Night Football. He said product-specific messaging will follow in 2027, but exact space commitments are not yet finalized.

Q: John Zamparo of Scotiabank asked for monthly POS performance through Q3 and October. A: CFO Luca Barile declined to provide monthly detail but said the deceleration was rapid, with fleece POS down mid-to-high teens in September as the season began. CCO Chuck Ward added that a good June gave way to softening in July and further deceleration in August and September, and October is trending in line with the updated guidance.

Q: John Zamparo of Scotiabank asked why Gildan's industry is disproportionately hurt by low-income consumer weakness. A: CCO Chuck Ward said households earning $100,000 and under are making tough trade-offs between essentials like fuel and food and discretionary replenishment of innerwear. He believes the category will recover because innerwear is replenishable, but consumers are deferring purchases for now.

Q: Neven Yocum of BMO Capital Markets asked about the retail product availability and service constraints and whether the impact is isolated to 2026. A: CCO Chuck Ward said the constraints spanned categories and retailers, driven by shifts in order cadence and pack sizes, minor production tightness during facility integration, and longer lead times and freight transit from Asia amid the Middle East conflict. He noted retail orders cancel if unfilled, unlike wholesale back orders. Gildan is raising onshore inventory targets for long lead-time items, and he said the constraints are largely behind the company and should not impact 2027.

Q: Neven Yocum of BMO Capital

For the complete transcript of the earnings call, please refer to the full earnings call transcript .