TSX Commentary

Gildan Activewear (GIL) – $22.47 – Q1 in Line, Retail Advances; Raising Target to $26
Sector Perform, Above Average Risk, Price Target: $26.00 (prev. $24.00)
GIL reported Q1/F10 earnings in line with RBC CM’s estimate. RBC CM is raising its target price to $26. GIL revealed that its significant retail men’s underwear program is with Wal-Mart under the Starter brand, to be rolled out to all US stores in Q2 F10. GIL notes further programs are under discussion in activewear and for back-to-school 2010. GIL also has a boys underwear program at Target under the Cherokee brand. Management sees retail gross margins achieving similar levels as wholesale eventually, but noted initial start-up and training costs in new programs. Q1 saw significant volume increase of 80% YoY in int’l deliveries and these represented 25% of all screenprint sales in Q1 (~$35M), driving much of the quarter’s unit volume increase.
Management commented int’l could grow to same unit potential as US wholesale market for GIL currently. Int’l is a relatively new market for GIL given it now has capacity to cater to it vs. in prior years. RBC CM sees int’l as driving up capacity utilization for GIL in F10. GIL’s US screenprint market share grew to 61% (and 64% in Jan F10) from 57% in Q4. RBC CM’s new F10/F11 EPS estimates are $1.43/$1.64, up from $1.39/$1.59. RBC CM states that any pricing increase in wholesale channel in F10 could further increase our estimates.