Gildan Can't Escape Retail Challenges, Despite Q3 Beat

Gildan Activewear Inc (USA) GIL reported a better-than-expected third-quarter 2017 EPS Thursday, but Stephen MacLeod of BMO Capital Markets decided to downgrade the stock from Outperform to Market Perform and lowered his price target from $34 to $30.

Earnings per share were rosier than projected due to a lower tax rate and strength in printwear, MacLeod said. (See MacLeod's track record here.)

Good performance in this area was enough for the company to rise above the weakness in branded apparel, according to BMO. Sock sales were particularly weak, and the segment is going to remain challenged, while underwear and activewear performed well, MacLeod said. 

Macleod downgraded Gildan Activewear because retail headwinds are going to weigh on the company's earnings growth, he said. While the company is positioned to achieve incremental growth in printwear as well as retail shelf space in branded apparel, lower traffic trends and destocking in the retail industry are going to reduce its earnings visibility, at least in the near term, MacLeod said. 

BMO reduced its fourth-quarter EPS estimate from $0.32 to $0.30 on more modest branded apparel sales expectations. The firm's ull year estimate is in line with guidance. MacLeod modestly lowered his 2018 EPS estimate to $1.88. The price target of $30 is based on 11.6 times 2018E EV/EBITDA, which is in line with the long term average.

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Photo courtesy of Gildan.