Gildan Activewear Q4 Earnings Miss Estimates, Gross Margin Expands

Gildan Activewear Inc. GIL reported fourth-quarter 2025 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate. However, both metrics showed year-over-year growth.

GIL’s Quarterly Performance: Key Metrics and Insights

GIL delivered quarterly earnings per share (EPS) of 96 cents, lagging the Zacks Consensus Estimate of $1.31 per share. The quarterly EPS increased 15.7% year over year compared with earnings of 83 cents per share a year ago.

Gildan Activewear, Inc. Price, Consensus and EPS Surprise

Gildan Activewear, Inc. price-consensus-eps-surprise-chart | Gildan Activewear, Inc. Quote

Net sales came in at $1,078.5 million, up 31.3% year over year from $821.5 million but missed the Zacks Consensus Estimate of $1,125 million. Excluding Hanes’ $217 million contribution from Dec. 1 to 28, 2025, the organic sales growth was 4.9% for the period, highlighting continued strength in the core business.

GIL’s Margin & Cost Performance

GIL’s adjusted gross profit increased 37.3% to $347.4 million from $253 million in the prior year. The adjusted gross margin improved by 140 basis points to 32.2% from 30.8%. Margin expansion was primarily supported by strategic pricing, reduced manufacturing and raw material costs, and to a lesser extent, contributions from HanesBrands acquisition.

Adjusted SG&A expenses were $124.5 million compared with $77.9 million in the same period last year, up 59.8% year over year. The increase was due to the combination with HanesBrands, along with purchase accounting impacts, including the amortization of intangible assets with respect to the acquisition.

GIL’s adjusted operating income was $222.9 million compared with $175.1 million, an increase of 27.3% year over year. Operating margin was 20.7%, which declined 60 basis points compared with 21.3% in the prior year. The decline in operating margin primarily reflects HanesBrands’ reduced adjusted operating margin.

The adjusted EBITDA for the company rose 27.4% year over year to $265.4 million from $208.4 million in the previous year.

Deep Dive Into GIL’s Category Performance

Sales in the Activewear category rose 10.3% year over year to $787.8 million from $714.1 million, driven by HanesBrands’ contribution, favorable product mix and higher net selling prices. Strong demand from North American distributors was complemented by growth with national account customers, supported by new programs, market share gains and competitive positioning. Solid demand continued for Comfort Colors, while the company’s innovation pipeline, including new soft cotton technology and brands like Champion and ALLPRO, appears encouraging.

In the Innerwear category, including hosiery, underwear, and intimates, net sales surged 170.7% year over year to $290.6 million from $107.4 million, primarily driven by HanesBrands contribution, partly offset by slightly reduced volumes on broader market weakness.

GIL’s Geographical Performance

Gildan Activewear’s geographic performance showed strong growth across all regions. In the United States, net sales increased 33.7% year over year to $976.6 million from $730.6 million.  Sales in Canada saw a rise of 29% year over year to $34.2 million from $26.5 million in the previous-year period.

International sales rose 5.1% year over year to $67.7 million from $64.4 million, aided by gains from the acquisition, somewhat offset by soft demand across markets, particularly in the U.K.

GIL’s Financial Health Snapshot

Operating cash flow, including discontinued operations, rose 20.9% year over year to $606 million from $501 million in the prior-year period, driven mainly by lower working capital investment. Following $114 million in capital expenditures, free cash flow totaled approximately $493 million.

In 2025, the company returned $319 million for the full year through dividends and share repurchase of about 3.8 million under its NCIB program. The company also approved 10% increase in dividends for 2026.

Gildan Activewear ended 2025 with net debt of $4.42 billion and a leverage ratio of 3x net debt to trailing 12 months pro forma adjusted EBITDA.

What to Expect From GIL in the Future?

Looking ahead, for 2026, excluding the HanesBrands Australian business (HAA) and reflecting continuing operations only, the company expects revenues in the range of $6.0 billion to $6.2 billion and a full-year adjusted operating margin of approximately 20%. Capital expenditures are projected to be roughly 3% of net sales. Adjusted diluted EPS is anticipated to be in the range of $4.20 to $4.40, and free cash flow is expected to exceed $850 million.

HAA is expected to contribute approximately $675 million in net sales and 21 cents in EPS, and reflects the expiry of a HanesBrands Transition Service Agreement tied to Champion. It assumes growth from innovation, new programs and incentives, alongside temporary inventory reductions and margin-focused operating adjustments.

Guidance incorporates expected tariff impacts and mitigation actions. For the first quarter of 2026, net sales from continuing operations are expected to be approximately $1.15 billion, reflecting a temporary reduction of inventory across customer channels as manufacturing consolidation progresses. Adjusted operating margin is projected to be about 12.9%, impacted by higher SG&A, including increased amortization and depreciation from HanesBrands purchase accounting, as well as timing differences related to integration costs. The adjusted effective income tax rate is expected to be slightly higher than the full-year 2026 rate.

GIL currently carries a Zacks Rank #4 (Sell). The stock has gained 23.8% in the past three months compared with the industry’s rise of 6.3%.

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This article originally published on Zacks Investment Research (zacks.com).

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