[Management View]
Gildan Activewear reported record-setting Q3 results, showcasing its sustainable growth strategy. Key metrics include a 5.4% increase in Activewear sales and adjusted operating margins of 23.2%, leading to record adjusted diluted EPS of $1, up 17.6% YoY. Strategic priorities focus on scaling manufacturing, optimizing costs, and integrating HanesBrands to drive $200 million in synergies.

[Outlook]
Management narrowed adjusted diluted EPS guidance for FY2025 to $3.45-$3.51, reflecting a 15%-17% YoY increase. Operating margin guidance was raised to a 70 basis point improvement, driven by manufacturing efficiencies. CapEx is expected to be approximately 4% of sales, and free cash flow guidance was revised to $400 million due to higher working capital needs and acquisition costs. The company plans further expansion in Bangladesh and Central America while leveraging its vertically integrated manufacturing network.

[Financial Performance]
Q3 sales reached $911 million, up 2.2% YoY, driven by favorable product mix and pricing. Gross margin improved by 250 basis points to 33.7%, supported by lower manufacturing costs and pricing adjustments. SG&A expenses increased due to higher variable compensation and IT-related costs. Free cash flow for Q3 was $200 million, aligning with internal expectations.

[Q&A Highlights]
Question 1: Can you elaborate on the weakness in the underwear business and point-of-sale trends?
Answer: The innerwear business faced delays in floor sets by a major retailer, tighter inventory management, and ongoing product resets. Retailers are cautious due to tariff impacts embedded in inventory costs. Growth in innerwear is expected to return in Q4. Point-of-sale trends are stable, with strong performance in Comfort Colors, fleece, and new activewear programs.

Question 2: Why was free cash flow guidance revised lower despite reduced CapEx?
Answer: The revision reflects HanesBrands transaction costs and timing of working capital investments. Tariff-related costs embedded in inventory also impacted working capital. Management expects working capital as a percentage of sales to normalize at 37%-38% by 2026.

Question 3: What factors contributed to the operating margin improvement, and is similar growth achievable next year?
Answer: Margin improvement was driven by foundational cost controls, including manufacturing efficiencies in Bangladesh and Central America, yarn optimization, and pricing adjustments. These elements are sustainable and expected to support margin expansion into 2026.

Question 4: How is the fleece business performing, and what opportunities arise from tariffs?
Answer: Fleece sales are meeting expectations, with the season just beginning. Tariffs have prompted companies to reconsider supply chains, creating opportunities for Gildan to expand in high-tariff categories like 100% polyester. The company is leveraging its Rio Nance facility and product innovation to capture market share.

Question 5: Can you clarify the wholesale market trends and gross margin drivers?
Answer: The wholesale market remains down low single digits YoY but stable compared to Q2. Gross margin improvement was primarily driven by lower manufacturing costs, with pricing adjustments playing a secondary role.

Question 6: What is the capacity expansion potential in Bangladesh, and how do tariffs impact cost structure?
Answer: Bangladesh operations can expand capacity by 50% within existing facilities, with optionality for a second facility. Despite tariffs, Bangladesh maintains a 25% cost advantage over Central America. Manufacturing efficiencies offset tariff costs, supporting long-term margin targets.

[Sentiment Analysis]
Analysts expressed cautious optimism, focusing on the company's ability to navigate market challenges and leverage manufacturing efficiencies. Management maintained a confident tone, emphasizing strategic execution and long-term growth potential.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | YoY Change |
|-------------------------|-----------------|-----------------|------------------|
| Sales | $911M | $891M | +2.2% |
| Gross Margin | 33.7% | 31.2% | +250 bps |
| Adjusted Operating Margin | 23.2% | 22.4% | +80 bps |
| Adjusted Diluted EPS | $1.00 | $0.85 | +17.6% |
| Free Cash Flow | $200M | $189M | +5.8% |

[Risks and Concerns]
1. Retail inventory management and delays in floor sets continue to impact innerwear sales.
2. Tariff-related costs embedded in inventory pose challenges to working capital.
3. Wholesale market remains down YoY, with limited visibility on recovery.
4. Integration risks associated with the HanesBrands acquisition could affect cost synergies and operational execution.

[Final Takeaway]
Gildan Activewear delivered strong Q3 results, driven by strategic manufacturing efficiencies and product innovation. While the wholesale market remains challenging, the company is well-positioned to capitalize on growth opportunities through its vertically integrated network and planned expansion in Bangladesh and Central America. The HanesBrands acquisition represents a pivotal moment, with management confident in achieving long-term margin targets and shareholder value. Investors should monitor integration progress and market conditions as Gildan navigates FY2025 and beyond.