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Takeaway: GIL is likely to guide to about half of the EPS growth we expect to see in 2019. There’s your ‘buy more’ event.

I’m expecting a solid quarter from GIL on Thursday, with EPS of $0.44 -- a penny ahead of consensus and at the high-end of guidance. The absolute earnings algorithm should be killer – with the top line accelerating to 9%, leveraging to EBIT and EPS growth of 37% and 42%, respectively. In the end, it should be another validator to our ‘2-year double’ call, as the Street is underestimating both the top line and the margin associated with its recently-added capacity (See our Black Book -- GIL | 2-Year Double Call Intact).

That being said, as we highlighted last month, the quarterly trajectory in 2019 is sloppy given the transitioning business model (esp WMT inventory draw down in 1Q) – and the end result will likely be a meaningful acceleration starting in 2Q. Though GIL has never been afraid to miss a quarter, the company will almost certainly guide down 1Q on Thursday to a sub-10% EPS growth rate – without guiding to the hockey stick we’re expecting to manifest itself in the model throughout the year. For the year we’re looking for EPS growth of 22%, but are likely to see guidance for just 10-12%.

While that’s only a few pennies out of 1Q – lets respect the fact that this stock has outperformed by nearly 25% over 3-months, and if you believe that the Street’s (anemic) model is better than ours, this name appears fairly valued and under-shorted. The company is going to go out of its way to keep expectations grounded (and make us look too aggressive). I’d be aggressively buying on any muted guidance out of management – as all of our research suggests that the underlying fundamental call is firmly intact.

GIL | Buy More on a Weak Guide - GIL Quarterly Variance 2 19 2019

GIL | Buy More on a Weak Guide - GIL bullets 1 29 19