Gildan Activewear Slips 1.8% After Hours as Q1 Beat is Overshadowed by Maintained 2025 Guidance

Gildan Activewear (TSX: GIL) shares fell 1.8% in after-hours trading despite reporting a modest Q1 2025 earnings beat, as investors focused on the company’s decision to maintain its full-year 2025 guidance amid mixed regional performance and persistent macroeconomic headwinds. While the results highlighted resilience in its North American core business, the lack of upward revisions to its revenue and margin targets underscored lingering concerns about the Textile-Apparel sector’s broader challenges.

A Resilient Quarter, But Growth Questions Remain

Gildan delivered adjusted EPS of $0.59, narrowly beating estimates by 3.5%, while total revenue rose 2.3% to $711.7 million. The results marked the fourth consecutive quarter of EPS outperformance, driven by strong demand in North America, where Activewear sales surged 9% due to volume growth and improved product mix.

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However, the company’s international performance faltered, with Latin America and Asia sales declining due to weak demand. This geographic imbalance highlights a key vulnerability: Gildan’s reliance on North America for nearly two-thirds of its revenue leaves it exposed to regional economic shifts.

Maintaining Guidance: A Cautionary Signal

Despite the Q1 beat, Gildan reaffirmed its 2025 targets: mid-single-digit revenue growth and a 50-basis-point improvement in adjusted operating margins. These projections, however, contrasted with the stock’s current Zacks Rank #4 (Sell), driven by unfavorable earnings estimate revisions and the Textile-Apparel industry’s low ranking in the bottom 31% of Zacks’ sectors.

The decision to maintain guidance—rather than raise it—suggests management is prioritizing caution over optimism. This is likely due to macroeconomic pressures, particularly in international markets, and the company’s $1.849 billion net debt burden, which requires disciplined capital allocation.

Investors will scrutinize whether the company can execute its Bangladesh manufacturing expansion—a $265 million initiative—to diversify production and reduce costs. Progress on this front could alleviate concerns about geographic concentration and supply chain risks.

Navigating Sector-Wide Headwinds

Gildan’s challenges mirror those of peers like Revolve Group (RVLV), which also reported weak EPS estimates despite revenue growth. The Textile-Apparel sector’s struggles stem from shifting consumer preferences, pricing pressures, and overcapacity in certain markets. Gildan’s vertical integration and scale remain competitive advantages, but these must be leveraged to offset broader industry slowdowns.

Key Risks and Strategic Priorities

• Debt Management: With net debt exceeding $1.8 billion, Gildan must balance growth investments with financial flexibility.
• Geographic Diversification: The Bangladesh expansion aims to reduce reliance on Latin America, where political and economic instability persists.
• ESG Commitments: Sustainability initiatives, including carbon reduction targets, align with long-term consumer trends but require sustained capital.

Conclusion: A Mixed Picture with Strategic Potential

Gildan’s Q1 results reflect a company navigating a challenging environment with discipline. While its North American dominance and brand portfolio (Champion®, Gildan®, GoldToe®) provide a solid foundation, the maintained guidance signals cautious optimism. The stock’s underperformance post-earnings suggests investors are prioritizing near-term risks—such as international softness and high debt—over incremental wins.

To justify a rebound, Gildan must demonstrate:
1. Margin Expansion: Achieving the 50-basis-point improvement in operating margins through cost optimization.
2. International Turnaround: Stabilizing sales in Latin America and Asia through targeted marketing or pricing adjustments.
3. Debt Reduction: Using free cash flow to lower leverage while advancing its Bangladesh project.

With a 2025 EPS consensus of $3.45 and a forward P/E of 16x (vs. a 5-year average of 18x), the stock appears moderately undervalued. However, until macroeconomic conditions improve and guidance is upgraded, Gildan’s path to outperformance will remain fraught with sector-specific headwinds.

Investors should monitor Q2 results and management commentary on demand trends, as well as the progress of its Bangladesh facility. Until then, the stock’s after-hours dip underscores the market’s skepticism toward maintaining guidance in a slow-growth environment.