Gildan didn’t exactly knock the cover off the ball in 2Q, but it was definitely a thesis validator for us. The company came in a penny ahead of the Street due to slightly better revs and GM. International was weaker than I’d have liked (offset by stronger US), but that rebounded thus far in 3Q and should return to +dd in 2H. Everything else was in line – except for the guide. The company guided to a flat 3Q on +msd top line, and then a meaningful acceleration in 4Q – all in likely coming in at the higher end of the range for the year. Remember $30mm of revenue representing 2% growth was missing in Q3 of last year due to storms shutting in orders at the DC, which made the guide perplexing initially. But it turns out that GIL is rationing capacity to update plants for demand expected to drive 4Q and 2020+. Also, my sense is that the company wants to keep expectations grounded as it hosts its analyst meeting in Honduras a week after the 3Q print. It wants to come out all guns blazing and from a position of strength. Most importantly, in 4Q we should see an acceleration in top line to a mid-teens rate – on top of a 13.6% rate last 4Q. That sets the stage for meaningful acceleration into 2020, where the consensus numbers should prove low by 15-20%. This is when our thesis takes off. Importantly, Gildan said it has received confirmation from Walmart that the George private label underwear products that it supplies will receive additional shelf space in Q4. Walmart initially tested various sized displays of George, and our strong sense is that the larger displays outperformed – hence the 4Q expansion. The early momentum for the private label program is a good sign, because there is a much larger amount of shelf space within Walmart currently made by competitors (HBI bearish). And this does not include the new business win at Walmex, where GIL won space in five of the six countries it operates in, nor does it include share gain in fashion basics. Ultimately, GIL is teeing up for a big acceleration in top line in 4Q, which should sustain into 2020 and 2021, more than tripling the EPS growth rate we’ve seen over the past five years. This will likely include more private label contract wins that have yet to be announced – both in the US and Int’l. For our full thesis and our roadmap to a $60 stock, see our latest BlackBook. CLICK HERE
