Executive Summary / Key Takeaways

• Strategic Consolidation and Market Leadership: Gildan Activewear is executing a powerful strategy of vertical integration, innovation, and market consolidation, notably with the definitive agreement to acquire HanesBrands Inc. for an enterprise value of approximately $4.4 billion. This move is set to create a global basic apparel leader, significantly enhancing Gildan's competitive moat and market positioning.
• Robust Financial Performance and Outlook: The company reported record Q2 2025 sales of $919 million, up 6.5% year-over-year, and record adjusted diluted EPS of $0.97, an increase of 31% year-over-year. Gildan reaffirms its full-year 2025 guidance for mid-single-digit revenue growth and adjusted diluted EPS in the range of $3.40 to $3.56, supported by new programs and operational efficiencies.
• Technological and Operational Edge: Gildan's core competitive advantage stems from its low-cost, vertically integrated manufacturing model, enhanced by innovations like Soft Cotton Technology, Plasma Print, and ColorBlast. The Bangladesh facility's full ramp-up is expected to yield a 25% cost reduction relative to Central American operations for fashion basics, while ongoing yarn modernization further improves product quality and efficiency.
• Capitalizing on Industry Shifts: Gildan is strategically gaining market share by leveraging a weakening competitive landscape, including the exit of players like Delta and Fruit of the Loom from the printwear market. New brand offerings (AllPro, Champion) and significant new programs, accounting for three-quarters of 2025's expected sales growth, are driving this expansion.
• Disciplined Capital Allocation: Despite substantial investments in capacity and innovation, Gildan maintains a strong balance sheet with a net debt to adjusted EBITDA leverage ratio of 2.2x, within its target range. The company continues to return significant capital to shareholders, repurchasing 2.9 million shares and returning $206 million in the first half of 2025, alongside a 10% dividend increase for 2025.

Gildan's Apparel Empire and Strategic Evolution

Gildan Activewear Inc. (NYSE:GIL), founded in 1946, has evolved from Textiles Gildan Inc. into a global powerhouse in basic apparel. The company's core business revolves around manufacturing and selling activewear, hosiery, and underwear under a diverse portfolio of brands including Gildan, Comfort Colors, American Apparel, GoldToe, Peds, All Pro, and Champion. This extensive reach positions Gildan as a leading player in the activewear manufacturing sector.

The company's overarching strategy, the Gildan Sustainable Growth (GSG) strategy, is built on three pillars: capacity expansion, innovation, and ESG. This strategy underpins its ambition for profitable growth and market leadership. Gildan's historical journey, marked by acquisitions like Golto in 2011 and continuous investment in its manufacturing footprint, has forged a formidable vertically integrated, low-cost model that is central to its competitive advantage.

A Foundation of Vertical Integration and Innovation

Gildan's vertically integrated manufacturing model is a cornerstone of its competitive moat, providing unparalleled cost control, flexibility, and agility in a dynamic global market. This model encompasses everything from yarn spinning to finished garment production. The company has invested over $100 million in modernizing its Frontier yarn spinning facilities in the United States, with these projects expected to be fully complete after 2025. These investments are crucial for enhancing product quality and driving cost efficiencies.

Technological differentiation is a key driver of Gildan's market share gains. The company's Soft Cotton Technology, applied across its basic categories, has significantly improved the feel and appeal of its products, making them competitive with higher-end fashion items. This innovation has resonated strongly with end-users, contributing to positive point-of-sale (POS) growth in basics for consecutive quarters. Furthermore, Gildan is developing Plasma Print Technology, which is slated to come online later in 2025 or early 2026. This technology aims to improve printability for direct-to-garment printing, offering a significant benefit to screen printers and potentially reducing their digital printing costs. The Comfort Colors brand, a high-growth fashion brand, benefits from innovations like ColorBlast, contributing to its impressive 40% sales growth in 2024.

The new manufacturing complex in Bangladesh is another critical technological and operational differentiator. This facility is now fully ramped up and performing as expected. Once fully optimized, it is projected to achieve a 25% reduction in cost relative to Gildan's Central American operations for fashion basics. This cost advantage, combined with the strategic use of U.S. cotton in Bangladesh to mitigate tariff impacts, provides a significant competitive edge. Gildan also leverages its flexible supply chain to shift production and mitigate tariff exposure, ensuring that products destined for international markets or those utilizing U.S. content are produced in the most cost-effective locations.

Financial Fortitude Amidst Flux

Gildan's financial performance reflects the effectiveness of its strategic initiatives, even amidst a challenging macroeconomic environment. For the second quarter of 2025, the company reported record sales of $919 million, a 6.5% increase year-over-year. This growth was primarily fueled by a strong 12% surge in Activewear sales, reaching $822 million, partly benefiting from orders placed ahead of announced pricing actions. This robust top-line performance translated into record adjusted diluted EPS of $0.97 per share, a substantial 31% increase from the prior year, underscoring Gildan's focus on profitable growth.

Profitability metrics demonstrate consistent improvement. The gross margin expanded by 110 basis points to 31.5% in Q2 2025, driven by lower raw material costs, reduced manufacturing expenses, and favorable pricing. Adjusted operating income reached $209 million, representing a healthy 22.7% of net sales. While adjusted SG&A expenses were $81 million, or 8.8% of sales, the company continues to manage costs effectively, with the Barbados jobs credit contributing $12 million in Q2 2025.

Looking at the broader picture, full-year 2024 revenues reached approximately $3.3 billion, with adjusted operating margins of 21.3% and adjusted diluted EPS growth of 17%, closing the year at $3.00 per share. Operating cash flow for the first half of 2025 was $46 million, reflecting higher working capital investments, though the second quarter alone generated $154 million in free cash flow.

Gildan maintains a strong balance sheet, ending the first half of 2025 with net debt of approximately $1.85 billion and a leverage ratio of 2.2x net debt to trailing 12 months adjusted EBITDA, well within its target range of 1.5x to 2.5x. The company's commitment to shareholder returns is evident, with $206 million returned in the first half of 2025 through share repurchases and dividends, and a 10% increase in its dividend for 2025.

Strategic Expansion and Competitive Realignment

Gildan's strategic trajectory is profoundly shaped by its proactive approach to the evolving competitive landscape. The most significant recent development is the definitive merger agreement to acquire HanesBrands Inc. for an enterprise value of approximately $4.4 billion. This transformative acquisition is poised to create a global basic apparel leader, significantly enhancing Gildan's scale, market reach, and competitive power.

Even prior to this acquisition, Gildan was strategically capitalizing on a weakening competitive environment. Competitors like Delta (DLA) have exited the market, and Fruit of the Loom has divested its printwear brand, creating opportunities for Gildan to gain market share. Gildan's strong competitive positioning, supported by its vertically integrated model and cost advantages, allows it to absorb business from these departing players. The company's multi-tier brand strategy, encompassing Gildan, Comfort Colors, American Apparel, and new offerings like AllPro (performance-based products) and the Champion brand (licensed for the printwear channel), ensures broad market penetration and caters to diverse consumer preferences. The Champion brand is expected to become a $100 million business over three years.

Gildan's growth is not solely reliant on market share capture from competitors; new programs are a substantial driver. Approximately three-quarters of the expected sales growth for 2025 is anticipated to come from these new initiatives, including large fleece programs with national account customers and expanded shelf space in the Innerwear segment. This provides strong visibility into future revenue streams. The company is also incrementally adding approximately 10% more capacity within its existing Central American facilities throughout 2025, anticipating further opportunities from the fluid tariff situation and potential nearshoring trends.

Outlook and the Path Ahead

Gildan's management remains confident in its ability to deliver on its Gildan Sustainable Growth (GSG) strategy, reaffirming its full-year 2025 guidance. The company projects mid-single-digit revenue growth for the full year, with adjusted operating margin expected to increase by approximately 50 basis points. Adjusted diluted EPS is guided to be in the range of $3.40 to $3.56, representing an increase of approximately 13% to 19% year-over-year. Free cash flow is anticipated to exceed $450 million, and CapEx is expected to be around 5% of sales.

This outlook is underpinned by several key assumptions: the continued impact of tariffs and Gildan's mitigation initiatives, sustained growth in key product categories driven by innovation, the favorable impact of new program launches and market share gains, and ongoing benefits from the Barbados jobs credit. The adjusted effective tax rate for 2025 is expected to remain similar to 2024 levels. For the third quarter of 2025, net sales are expected to be up low single digits year-over-year, reflecting a timing shift of orders, with adjusted operating margin in the same range as Q2 2025.

Looking further out, Gildan has laid out ambitious three-year objectives for the 2025-2027 period, targeting mid-single-digit net sales growth and mid-teen adjusted diluted EPS growth. The company has sufficient capacity installed to support these targets, with plans to begin developing the second phase of its Bangladesh facility towards the end of 2025, an investment included within its long-term CapEx guidance. This strategic foresight ensures that Gildan is well-positioned for sustained growth beyond the immediate horizon.

Confronting Headwinds: Risks and Mitigation

Despite a strong strategic position, Gildan operates within a fluid macroeconomic backdrop that presents several risks. The market has been soft for the last 24 months, and while showing signs of sequential improvement, the full-year 2025 market assumption remains conservative, projecting a flat to low single-digit decline. International markets, particularly Europe and Asia, have experienced moderated demand and persistent softness, impacting sales in Q1 and Q2 2025. Corporate promotional activity also remains weak.

Tariffs represent a significant and evolving challenge. Glenn Chamandy noted that tariffs can range from 20% to 40% depending on the origin of products and components, creating uncertainty for many customers. However, Gildan's vertically integrated model and significant U.S. cotton and yarn content provide a structural advantage, as tariffs do not apply to the value of U.S. content in imported products. The company has implemented selective pricing actions to mitigate tariff impacts and leverages its operational flexibility to shift production, such as utilizing U.S. cotton in Bangladesh to offset tariffs. Gildan's ability to operate in complex environments, as demonstrated by its long-standing presence in Bangladesh and Haiti, further underscores its resilience. While the potential for new tariffs on Central American products remains uncertain, Gildan's management believes its cost structure and market positioning would allow it to remain competitive.

Conclusion

Gildan Activewear Inc. stands at a pivotal juncture, poised to redefine its leadership in the global basic apparel market. The strategic acquisition of HanesBrands Inc. (HBI), coupled with its deeply entrenched vertically integrated manufacturing model and relentless pursuit of innovation, forms a compelling investment thesis. Gildan's technological advancements, from Soft Cotton Technology enhancing product appeal to Plasma Print improving printability and the cost-efficient Bangladesh facility, are not merely incremental improvements but foundational elements that solidify its competitive moat.

The company's consistent financial performance, marked by record sales and EPS growth in Q2 2025, underscores its operational discipline and ability to generate strong cash flows. With a clear outlook for mid-single-digit revenue growth and mid-teen EPS growth through 2027, largely driven by new programs and market share gains, Gildan is demonstrating a robust trajectory. While macroeconomic uncertainties and tariff dynamics present ongoing challenges, Gildan's proactive mitigation strategies, structural cost advantages, and disciplined capital allocation position it favorably to consolidate its market leadership and deliver sustained long-term shareholder value. The integration of HanesBrands is expected to amplify these strengths, creating an even more formidable and resilient enterprise.