A solid print for GIL, the absolute results aren’t stellar, but the rate of change and performance vs expectations look great. EPS headline was 3x the street at 30 cents, revenue came in 13% above the street. YY sales growth at -19% was drastically better than the 71% decline last Q, and sales were over 2x in 3Q vs 2Q. Demand appears to be continuing to improve as NA imprintables POS has trended to -10% in October vs the -21% revenue trend for GIL in the third quarter overall. Management indicated that inventory levels for the inventory likely troughed around the end of 3Q, which is further bullish for revs as we see some re-stocking alongside improving end demand. On a category basis, ring-spun fashion basics are doing well and sales are up YY, same with fleece. Demand is coming from different channels than normal, currently screen printers serving retail and online channels are doing very well, live events/corporate driven demand still lagging. Still, it shows that the printed t-shirt still has relevance and utility with the consumer and as long as that remains the status quo GIL will be a defendable business to own long term as the low cost producer and share winner.
The only knock we have this Q is management doing a bit too much guiding without guiding. Meaning despite not giving guidance numbers, in the Q/A the CFO gave a target for 4Q utilization (85%) and stated (highlighting what was hinted at last Q) that the long term margin target is likely pushed out. The latter perhaps keeps street numbers lower, but in a time of such uncertainty, when you aren’t officially guiding we think management should shy away from such specifics in the outlook commentary.
With the demand improvements utilization was up to 75%, and was signaled to be further improving to about 85% in October. That means margins getting better each Q. So the rate of change on demand, higher utilization, and savings from SKU rationalization and cost cuts should mean earnings revisions upward for the next few quarters and stock upside for the foreseeable future. It’s probably at least another 6-9 months before people need to start again believing in the tail call of fashion basics share gains, retail private label wins, and international growth leveraging new international manufacturing assets. That is still a TAIL call we believe in. We’re 20% ahead of the street for 2021, 40% ahead in 2022, and think you have $3.00+ in earnings power over a TAIL duration when all categories recover from the Covid hit. That’s good for a $45 stock, or a 2-bagger from here.
