Gildan Activewear Inc. (GIL) Cash Flow Statement

The OCF/NI ratio of -6.90 in 2026Q2 is distorted by a net loss that appears driven by one-time items, while operating cash flow remained robust. Excluding the loss, cash conversion appears healthy, with D&A of $57.9M and a working capital inflow of $41.8M contributing to the positive cash flow. Investors should monitor whether these charges recur, as they could signal ongoing earnings quality issues.

The FCF margin of 20.5% in 2026Q2 is strong, but the negative FCF in Q1 highlights the business's heavy reliance on working capital timing. Over the trailing year, cumulative FCF appears positive, but the quarterly volatility suggests that annual FCF is a more reliable indicator of cash generation. The recent revenue surge may be driving higher working capital needs, which could pressure FCF if growth moderates.

CapEx/Rev of 1.3% in 2026Q2 is notably low, suggesting that Gildan is not investing heavily in new capacity despite revenue growth. This may indicate that existing facilities have sufficient capacity to support current demand, or that management is prioritizing cash returns over growth investments. The low capital intensity supports strong FCF conversion, but investors should watch for any step-up in capex if growth persists.

The large negative working capital in Q1 likely reflects inventory build-up ahead of peak selling season, while Q2 shows a modest release. This pattern is typical for apparel manufacturers, but the magnitude of the swings suggests that Gildan's cash flow is highly sensitive to distributor ordering patterns. The recent revenue surge may be accompanied by inventory accumulation, which could tie up cash if demand softens.

The dramatic reduction in buybacks may reflect management's caution following the proxy contest and board turnover, or a need to preserve cash for debt reduction. Dividends have been consistent, indicating a commitment to returning cash, but the pause in buybacks could signal a strategic pivot. Investors should monitor whether buybacks resume once governance stabilizes.

The positive cumulative divergence suggests that earnings are backed by cash, with D&A and working capital management contributing to higher cash flow. However, the recent net losses in 2026Q1 and Q2 may be distorting the trend, and the cumulative gap could narrow if losses persist. This pattern supports the view that Gildan's earnings quality is solid, but the recent charges warrant scrutiny.