Gildan Activewear (NYSE: GIL) reported Q4 EPS of $0.43, in-line with the analyst estimate of $0.43. Revenue for the quarter came in at $742.7 million versus the consensus estimate of $716.79 million.

• Q4 2018 GAAP diluted EPS of $0.29, up 16%, adjusted diluted EPS1 of $0.43, up 39% over last year and in-line with Company guidance
• Net sales of $742.7 million, up 13.6% in the quarter driven by activewear growth of 22%
• Operating margin and adjusted operating margin1 up 100 and 230 basis points, respectively, over prior year driven by 300 basis point improvement in SG&A as a percentage of sales
• Strong free cash flow1 in Q4 drives full year free cash flow of $429 million
• Projected GAAP EPS and adjusted diluted EPS growth for 2019 of 17% and 10%, respectively, at midpoint of guidance, on projected sales growth in the mid-single-digit range
• Company announces seventh consecutive annual 20% increase in quarterly dividend
• Renewal of normal course issuer bid to repurchase up to 5% of issued and outstanding common shares

Outlook

For 2019, we are projecting GAAP diluted EPS growth of 17% and adjusted diluted EPS growth of 10% over 2018, at the midpoint of our guidance range, on projected sales growth in the mid-single-digit range. We are initiating guidance for 2019 calling for GAAP diluted EPS of $1.90 to $2.00, and adjusted diluted EPS in the range of $2.00 to $2.10 after excluding the impact of projected restructuring and acquisition-related costs of approximately $20 million, which we expect to incur as we drive operational efficiencies across the organization. Adjusted diluted EPS in the first half of the year is projected to be down compared to the first half of 2018, and higher in the second half of 2019 over the same period in the prior year. Adjusted EBITDA for 2019 is expected to be in excess of $630 million and we expect to generate approximately $350 to $400 million in free cash flow for 2019.

Sales growth in 2019 is expected to be driven by higher sales volume in key growth areas, including fashion basics, international markets, global lifestyle brands, and strong underwear growth. Projected sales growth also assumes the benefit of favourable product-mix and selling price increases to cover higher raw material and other input costs. The positive impact of these factors on sales are expected to be partly offset by anticipated lower sales of activewear basics and socks, as well as an unfavourable impact of foreign exchange.

Projected growth in adjusted diluted EPS for 2019 reflects our sales growth assumptions, continued cost benefits from supply chain initiatives which are expected to start to flow through in the latter part of 2019, SG&A leverage and the benefit of share repurchases. These positive factors are projected to be partly offset by higher raw material and other input costs, including inflationary pressures. While raw material costs are expected to be up for the full year, the unfavourable impact is expected to be more meaningful in the first half of the year. For the full year we are targeting gross margin in line with the prior year level and we are targeting SG&A expenses as a percentage of sales to continue to improve over 2018 levels. Accordingly, operating margin for 2019 is expected to be slightly higher than 2018 and our income tax rate is projected to be approximately 4%.

We are projecting adjusted diluted EPS of $0.24-$0.26 for the first quarter of 2019, down from adjusted EPS of $0.34 in the first quarter of 2018, as a result of high raw material and other input cost pressures and a mid to high-single-digit sales decline projected in the first quarter of 2019. We are projecting lower sales of imprintables in the first quarter this year, as we do not anticipate the same level of distributor restocking that occurred in the same quarter last year in advance of the price increase implemented in the latter part of the first quarter of 2018. Our sales projection for the first quarter of 2019 also assumes lower sales in the hosiery and underwear category, ahead of the roll-out of our new private label men’s underwear program which is planned to ship during the second and third quarters of 2019. These sales impacts are expected to normalize as we move into the second quarter, with sales growth expected during the remaining quarters of the year, aligning to deliver our overall sales guidance for 2019. Finally, the full year unfavourable impact of foreign exchange on sales is expected to be more meaningful in the first half of 2019.

For 2019, the Company is projecting capital expenditures of approximately $125 million primarily for the continued development of the Rio Nance 6 facility in Honduras, investments in existing textile facilities, sewing capacity expansion to align with increases in textile capacity, as well as expenditures in information technology.

GUIDANCE:

Gildan Activewear sees FY2019 EPS of $2.00-$2.10, versus the consensus of $2.09.

Gildan Activewear sees Q1 2019 EPS of $0.24-$0.26, versus the consensus of $0.40.

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