Gildan Activewear Inc.’s Earnings Calls Reveal Capacity-Utilization Contradictions and Conflicting Demand Forecasts

Date of Call: Feb 26, 2026

Financials Results

• Revenue: $3.6B from continuing operations, up 31.3% YOY in Q4; full year excluding Hanes $217M, up 4% YOY
• EPS: Adjusted diluted EPS from continuing operations of $3.51, up 17% YOY; GAAP diluted EPS $0.32 vs $0.86 prior year
• Gross Margin: Adjusted gross margin 32.2% vs 30.8% prior year, up 140 basis points
• Operating Margin: Adjusted operating margin 21.5% for full year, up 20 basis points YOY; Q4 adjusted operating margin 20.7% vs 21.3% prior year

Guidance:

• Revenue for 2026 (continuing operations): $6.0B-$6.2B.
• Full year adjusted operating margin: ~20%.
• Adjusted diluted EPS: $4.20-$4.40, up 20%-25% YOY.
• Free cash flow: >$850M.
• CapEx: ~3% of net sales.
• Q1 2026 net sales: ~$1.15B.
• Q1 adjusted operating margin: ~12.9%.
• Three-year (2026-2028) targets: 3%-5% CAGR sales growth; adjusted EPS growth low 20% range.

Business Commentary:

Record Revenue and Strategic Acquisition:

• Gildan Activewear reported record revenues from continuing operations of $3.6 billion for 2025, with a strong adjusted operating margin of 21.5% and a year-over-year adjusted diluted EPS growth of 17%.
• This growth was driven by the strategic acquisition of HanesBrands, which doubled Gildan's scale and combined iconic brands with its low-cost, vertically integrated platform.

Cost Synergies and Integration Progress:

• The company anticipates approximately $250 million in run rate cost synergies over the next 3 years, with $100 million expected in 2026 and 2027, and at least $50 million in 2028.
• The increase in synergy expectations is due to the successful integration of HanesBrands, including manufacturing footprint optimization and a new organizational structure.

Inventory Management and Capacity Optimization:

• Gildan is proactively reducing inventory levels across customer channels due to tight capacity in the short term, which will impact Q1 2026 sales guidance.
• This action is part of a plan to optimize production volumes and leverage Gildan’s low-cost structure following the closure of two Hanes textile factories.

Bangladesh Expansion and Long-term Growth:

• Gildan is moving forward with phase two of its Bangladesh complex, with initial production expected in late 2027.
• This expansion is aimed at reinforcing cost leadership and enhancing flexibility to support long-term demand and growth plans for 2028.

HanesBrands Australia Divestment:

• The HanesBrands Australia business (HAA) has been classified as held for sale, with a formal sale process initiated.
• The divestment is intended to align with Gildan’s strategic focus and optimize its portfolio, with proceeds to be used to pay down debt and improve leverage.

Sentiment Analysis:

Overall Tone: Positive

• "2025 was another important year for Gildan, and we concluded on a high note with record revenues." "We are very excited about the Hanes acquisition, which doubles our scale... and unlocks a powerful engine for innovation and growth." "Given the pace and the quality of the progress so far, we are raising our synergy expectations." "We are pleased with the quarter, and we’re excited to continue to provide you with updates."

Q&A:

• Question from Brandon Cheatham (Citigroup): Could you talk more about the destocking cadence? Is it primarily in Q1? Are orders being unfulfilled or are you working with customers?
  Response: The inventory reduction is proactive due to short-term capacity tightness from integrating Hanes closures; it is managed across channels and should allow inventory to be rebuilt later in 2026/2027 without affecting POS.

• Question from Brandon Cheatham (Citigroup): After closing two Hanes facilities, what sales capacity do you have? Does Bangladesh phase two add ~$500M in capacity?
  Response: Current capacity supports the 3-year growth guide; Bangladesh phase two will support 2028/2029, with all capacity expansions already within CapEx guidance.

• Question from Jay Sole (UBS): What allowed you to raise synergy guidance to $250M over 3 years, and are there opportunities beyond 2028?
  Response: Progress in integration and streamlining operations led to raised synergy expectations; additional synergies are possible beyond 2028, especially from internalizing more sourcing in Bangladesh.

• Question from Jay Sole (UBS): Can you grow the Hanes brand portfolio over time given its past sales trends?
  Response: Yes, by investing in innovation, product reinvigoration, and leveraging Gildan's low-cost platform, the company aims to grow the portfolio, particularly in activewear and innerwear.

• Question from Brian Morrison (TD Cowen): Why no change to the 2028 EPS CAGR guide despite increased aggregate synergies?
  Response: The three-year guidance was maintained as the increased synergies are incorporated, with the company comfortable achieving the stated CAGR and EPS growth.

• Question from Brian Morrison (TD Cowen): How far along is the Australia (HAA) divestiture process?
  Response: The process is underway as planned; the company will only proceed if terms are attractive and in stakeholders' best interest, with no further updates until conclusion.

• Question from Ian Liu (Scotiabank): Can you unpack the Q4 innerwear performance and factors driving improvement?
  Response: Organic innerwear was flat in Q4 but improved sequentially from Q3; both Gildan and Hanes businesses continued to gain market share.

• Question from Ian Liu (Scotiabank): What are the drivers of organic growth expectations outside of inventory reduction?
  Response: Growth is driven by key categories (fleece, ring spun, Comfort Colors, Champion, ALLPRO), national account growth, and retail share gains across categories.

• Question from Martin Landry (Stifel): How will you integrate two large Hanes facilities into your existing capacity?
  Response: All integration will be internal using existing expanded capacity in Bangladesh, Central America, and additional DR facility; volumes will be ramped up to match installed capacity.

• Question from Martin Landry (Stifel): In the $6B-$6.2B revenue guide, what is the impact of inventory reduction?
  Response: The guide reflects underlying growth offset by ~2/3 from proactive inventory reduction and ~1/3 from optimizing commercial mix.

• Question from Vishal Shreedhar (National Bank): Can you explain the increase in leverage ratio post-acquisition?
  Response: Leverage is at 3x due to higher debt from the earlier-than-expected closing and pro forma adjustments; strong free cash flow and potential HAA sale will accelerate deleveraging.

• Question from Vishal Shreedhar (National Bank): How has the EPS CAGR guidance changed with the Australia divestiture?
  Response: The $4.20-$4.40 EPS guide excludes HAA, which is projected at $0.21; combined with HAA, it aligns with prior 20%+ growth communication.

• Question from Stephen MacLeod (BMO Capital Markets): How do you balance Q1 inventory reduction with potential sell-through challenges?
  Response: The company is confident inventory levels are sufficient and quality is high; proactive optimization will not negatively impact POS.

• Question from Stephen MacLeod (BMO Capital Markets): What was Hanes Australia's adjusted EBITDA in Q4?
  Response: HAA contributed $0.04 of earnings in Q4 (discontinued operations) and is expected to contribute $0.21 for 2026.

• Question from Chris Li (Desjardins Capital Markets): Did you see sequential demand improvement in Q4? What is the 2026 demand outlook?
  Response: Market was okay in Q4 with units down slightly but value-driven; 2026 outlook is flat to low single-digit growth supported by new programs.

• Question from Chris Li (Desjardins Capital Markets): Would you consider divesting the underperforming US intimate business?
  Response: No, the plan is to stabilize, revitalize, and improve margins for the business, not divest it.

• Question from Ryland Conrad (RBC Capital Markets): What is the assumed underlying margin expansion for standalone Gildan in 2026?
  Response: Margin drivers remain: Central America optimization, yarn optimization, Bangladesh cost advantage, SG&A discipline, plus synergies from Hanes integration.

• Question from Ryland Conrad (RBC Capital Markets): Are there assumptions in the sales guidance for new Comfort Colors categories?
  Response: Yes, there is muted contribution from new Comfort Colors categories (e.g., accessories) in the forecast, reflecting initial expansion.

Contradiction Point 1

Capacity Planning and Utilization

Contradiction on existing capacity's adequacy for growth plans.

Brandon Cheatham (Citigroup) - Brandon Cheatham (Citigroup)

2025Q4: Existing capacity is sufficient to support the 3-year (2026-2028) sales growth guidance of 3%-5% CAGR. - Glenn Chamandy(CEO) and Luca Barile(CFO)

What is your current sales capacity after closing the two Hanes facilities, and should Bangladesh Phase Two add ~$500M in sales capacity? - Jay Daniel Sole (UBS Investment Bank)

2025Q2: The industry is experiencing changes due to tariffs... Gildan's global vertically integrated manufacturing model provides stability in this uncertain environment... The company is also positioned to take advantage of potential tariff-related opportunities by incrementally adding capacity in Central America. - Chuck J. Ward(COO) and Glenn J. Chamandy(CEO)

Contradiction Point 2

Market Demand Outlook

Contradiction on the near-term market growth trajectory.

Chris Li (Desjardins Capital Markets) - Chris Li (Desjardins Capital Markets)

2025Q4: The company expects the market to be flat to up low single digits for 2026. - Chuck Ward(COO)

Did you see sequential improvement in industry demand in Q4, and what is the demand outlook underpinning 2026 guidance? - Martin Landry (Stifel Nicolaus Canada Inc.)

2025Q2: The market was down in Q1 (partly due to January anomalies) and is expected to see only slight improvement in 2025. - Glenn J. Chamandy(CEO)

Contradiction Point 3

Inventory Management and Channel Dynamics

Contradiction on whether inventory reduction will cause channel destocking or impact POS.

Brandon Cheatham (Citigroup) - Brandon Cheatham (Citigroup)

2025Q4: The company is proactively reducing inventory levels across customer channels... The Q1 sales guidance of ~$1.15 billion reflects this inventory reduction. - Glenn Chamandy and Luca Barile(CFO)

Could you provide more details about the planned destocking for the year, including its expected cadence (particularly in Q1), potential for a rebound later in the year, and whether it's driven by capacity changes (e.g., Hanes facility closures) or customer order fulfillment issues? - Paul Lejuez (Citigroup)

2025Q1: No signs of destocking in the channel. - Chuck Ward(CFO) and Luca Barile(CFO)

Contradiction Point 4

Growth Outlook and Demand Assumptions

Contradiction on the underlying market demand outlook for the guidance year.

Ian Liu (Scotiabank) - Ian Liu (Scotiabank)

2025Q4: The foundational growth (3%-5% CAGR) is driven by... new programs and categories... The outlook for 2026 remains positive. - Luca Barile(CFO) and Chuck Ward(CFO)

What are the drivers of organic growth in the 2026 sales guidance, broken down by segment and factors like volume vs. pricing? - Chris Lee (Desjardins)

2025Q1: Yes, guidance assumes the market is flat to down low single digit for 2025. - Luca Barile(CFO) and Glenn Chamandy(CFO)

Contradiction Point 5

Inventory Management and Sales Guidance

Proactive inventory reduction impacts near-term sales guidance and growth trajectory.

Brandon Cheatham (Citigroup) - Brandon Cheatham (Citigroup)

2025Q4: The Q1 sales guidance of ~$1.15 billion reflects this inventory reduction, along with higher sales in Q1 2025 from pre-buying related to anticipated tariffs. - Glenn Chamandy and Luca Barile(CFO)

Can you provide details on the planned destocking, including its expected cadence (primarily Q1), potential rebound later in the year, and whether it's driven by capacity changes (Hanes facility closures) or customer order fulfillment issues? - Brandon Cheatham (Citi)

2024Q4: Q1 sales ... are expected to be up mid-single digits. The business is running well with good momentum into the year. - Rhodri Harries(CFO)