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We dubbed Gildan’s Q3 results a ‘gong show,’ which puts this mornings’ results in the category of a hot mess. It’s actually more about next year’s outlook than the quarter here. GIL isn’t likely to be the only victim, we expect other ‘cotton plays’ HBI and CRI to also see pressure as the ability to maintain selling prices to retailers comes under question.

GIL is guiding F12 down over 40% below consensus estimates next year to $1.30 from $2.26E – so much for looking cheap. With Q1 expected to come in at an EPS loss ($0.40), the company is effectively guiding Q2-Q4 13% below expectations as well.

Here are a couple other notable callouts out the press release ahead of the call:

  • “the combination of weak end-use demand and distributor destocking is projected to result in an approximate 40% decline in Gildan's unit sales volumes in the screenprint market in the first quarter.”
  • “Gildan announced yesterday that it is reducing gross selling prices in the U.S. wholesale distributor channel effective December 5, 2011, and applying the benefit of this price reduction to existing distributor inventories.”
  • "Short-term promotional discounting began to increase at the end of the fourth quarter, and has continued to increase in the first quarter of fiscal 2012.”
  • “Gildan announced yesterday that it is reducing gross selling prices in the U.S. wholesale distributor channel effective December 5, 2011, and applying the benefit of this price reduction to existing distributor inventories.”

Some specifics on projections:

  • “Selling price increases which were recently implemented in the retail market did not reflect the full pass-through of high-cost cotton. Therefore, while gross margins for retail products are continuing to be adversely affected in the first half of fiscal 2012 by the high cost of cotton, it is not currently expected that Gildan's selling prices to retailers will decline when the Company benefits from lower cotton costs in the second half of the fiscal year.”

Hedgeye Retail: Bad now, could be even worse later if prices come down as we expect, this is NOT a conservative assumption.

 

GIL: A Hot Mess - GIL S

 

Casey Flavin

Director