GIL - Gildan Activewear Inc

[KCLarkin]

Wanted to bump this up

 

~450-500mn in FCF

Good Roic

Buying back shares upto 5%

Historically good capital allocation

Vertically integrated low cost producer

Revenue growth in low to mid single digits

 

Cotton prices maybe a headwind

 

I think this is cheap relative to the market. It’s a good company. Am i missing anything?

 

No, I think that's a good summary. There are a couple of interesting trends which might be creating this opportunity.

- Mass retailers (Walmart) are shifting shelf space from branded products to private label, especially for socks

- Printwear market is growing faster than expected due to e-commerce (GIL highlighted Vistaprint as a driver of this growth)

 

Importantly, branded socks are a small part of Gildan's business and the products that are getting hurt are low margin. The printwear business is Gildan's core profit center so the positive outweighs the negative. I can't really explain the significant drop since Q4 earnings. Presumably, the market expects that private label trends will intensify. But the branded business is only 16% of Gildan's operating profit, so the impact will be limited.

 

You can buy an above average company for a significant discount to the S&P 500.

[Viking]

Gildan, for the past couple of years, invested quite heavily in acquisitions to grow their retail branded business. It looks to me like they have decided retail branded will not be a growth engine for the company. Integrating the retail and printwear business is an interesting decision and hopefully it works out. Growing out their online selling/distribution capabilities looks like a solid long term decision. Fortunately their printwear business is doing very well, and this business drives most of their profits. Their acquisitions the past few years in printwear look very good.

 

I like the fact that they are not taking on a bunch of debt to buy back stock. They also are due to make another large acquisition. Solid company, focussed on the long term, and very shareholder friendly. And the shares are very volatile.

[KCLarkin]

Gildan, for the past couple of years, invested quite heavily in acquisitions to grow their retail branded business. It looks to me like they have decided retail branded will not be a growth engine for the company. Integrating the retail and printwear business is an interesting decision and hopefully it works out. Growing out their online selling/distribution capabilities looks like a solid long term decision. Fortunately their printwear business is doing very well, and this business drives most of their profits. Their acquisitions the past few years in printwear look very good.

 

Yes, this is really the key dynamic. The "growth" products are facing macro headwinds. And the "legacy" products have tailwinds. Overall, that is very positive for the company. But I can understand why the uncertainty has caused investors to step back.

[tripleoptician]

Just starting to look more into this.

Quick question:

 

Is the majority of US sales done from products manufactured in the US?

Or is there some short term NAFTA risk here as well?

 

 

 

 

[KCLarkin]

Just starting to look more into this.

Quick question:

 

Is the majority of US sales done from products manufactured in the US?

Or is there some short term NAFTA risk here as well?

 

Neither. Most of the products are manufactured in Honduras. They do have a facility in Mexico but could easily shift capacity if required. However, it is unlikely that apparel will be a key target of NAFTA renegotiations or tariffs. Essentially 100% of basic apparel and printwear is manufactured offshore.

 

A much bigger risk would be political instability in Honduras.

[gjangal]

Thank you for your inputs Viking and Kc.

 

I suspect most of their cost savings initiative will end up being passed to large retailers in the privately label space. Reasonably big customers with the largest being 13-15%.

 

Their products i think are also fast moving with a lot of wear and tear like socks, underwear and activewear. The velocity of sales for their products should be higher. It’s just a guess. It should be reflected in inventory turnover but i haven’t checked that

 

Their cash conversion cycle is a negative at 170 days, this is probably the fact that hey are dealing with large retailers

[KCLarkin]

Thank you for your inputs Viking and Kc.

 

I suspect most of their cost savings initiative will end up being passed to large retailers in the privately label space. Reasonably big customers with the largest being 13-15%.

 

Their products i think are also fast moving with a lot of wear and tear like socks, underwear and activewear. The velocity of sales for their products should be higher. It’s just a guess. It should be reflected in inventory turnover but i haven’t checked that

 

Their cash conversion cycle is a negative at 170 days, this is probably the fact that hey are dealing with large retailers

 

It should be stressed that retail is perhaps 36% of sales. Most of their revenue is from "printwear". These are "blanks" sold through distributors to printers. If you go to a charity run, you will see many custom t-shirts. Most likely, these will be Gildan products.

[longlake95]

Comments by the CFO at recent Stifel conference. GIL seems positive on private label, with 2 private label programs launching this year.

 

https://sgbonline.com/vertical-integration-has-gildan-well-positioned-for-private-label-launch/

 

 

[KCLarkin]

Gildan down 6% on BofA downgrade. Concerns about political stability in Nicaragua (where 3 of Gildan's sewing factories are located):

https://www.benzinga.com/analyst-ratings/analyst-color/18/07/12064503/bofa-double-downgrades-gildan-on-nicaraguan-unrest

 

 

[Viking]

Thanks for posting. I was wondering why the shares were trading down so much today.

[LanceSanity]

Up over 20% today on earnings beat: https://seekingalpha.com/news/3377521-gildan-activewear-plus-14-percent-earnings-beat . Anyone else get lucky and bought during the price drop last week?

[longlake95]

I did add to GIL last week, on weakness, due to the Nicaragua situation. Just lucky they printed a solid quarter. I guess it was more of a relief rally after HBI getting crushed this week. I still worry about the socks and underwear segment of the business. I wonder how much the private label brands will pressure the branded undies of HBI, GIL and Fruit of the Loom?

[longlake95]

Add to GIL again today, that's after a trim in the spring. I think the market is spooked that GIL's customers are de-stocking. Maybe the market is right...who knows...but the market whacked GIL with a 1.8B lower valuation on a 60M earnings cut. Even with a generous capitalization factor, it seems overdone. I followed GIL for a long-time and watch them go through many "issues", cotton priced spikes, political unrest in Honduras, print wear earning surprises to the downside, BAT fears, private label threats. They seem to forge ahead taking the occasional bruising. Management doesn't manage Q to Q, they have guided several times for high single digit sales growth and low double digit EPS growth. Their low cost position seems intact and improving - with more capacity in Bangladesh coming online. Not sure how to think about the private label business yet as it's still fairly new - time will tell. But there something like 5B of private label business out there for them to take a share of.

 

With a 6% normalized FCF yield, good management and growth still available, i'm happy to continue to be an owner even if business conditions worsen from here for a few quarters.

 

 

 

[glorysk87]

Been watching, but haven't gotten involved. The magnitude of the revision to expectations is a little concerning. Only thing I can think of that would have impacted them to that degree so quickly is the loss of a large customer. And if that's the case, then it has larger (more negative) implications on the state of the business. I think waiting for clarity is likely the prudent move here.

[JayGatsby]

Anyone still following this? I'm mainly interested in Hanesbrands, but figured I'd keep it simple with less threads.

 

Hanes feels less exposed than Gildan given Gildan's reliance on the blank t-shirt market (camps, events, etc). At face value it would seem that people would likely keep wearing underwear through the crisis, but curious if anyone has a different take? I know Hanes has circulated in short circles in the past.

[KCLarkin]

Anyone still following this? I'm mainly interested in Hanesbrands, but figured I'd keep it simple with less threads.

 

Hanes feels less exposed than Gildan given Gildan's reliance on the blank t-shirt market (camps, events, etc). At face value it would seem that people would likely keep wearing underwear through the crisis, but curious if anyone has a different take? I know Hanes has circulated in short circles in the past.

 

Following this closely. Luckily sold most of my position near the peak. I have a few shares left from 2009/2010.

 

The best thing is that Gildan is very exposed. If it survives, without major dilution, it will be a multi-bagger. The problem is it could take two years (assuming vaccine) for imprintables market to recover. Large events will probably be one of the last parts of the economy to recover.

 

HBI has much higher debt. Gildan is also headquartered in Montreal, which has a history of bailouts (see Bombardier and SNC). So I think GIL survives. Not sure about HBI. It is true that people will still buy underwear, but the replacement cycle can stretch pretty far.

 

For now, I am just watching.

[JayGatsby]

It is true that people will still buy underwear, but the replacement cycle can stretch pretty far.

 

For now, I am just watching.

lol, fair point. The Champion line at HBI will get hit pretty hard near term. Nobody is buying exercise clothes when gyms are closed. Medium term they might benefit from a trade down effect.

 

The debt seems fairly manageable to me. 3x EBITDA, but of course that could turn into more if they get hit hard, EBITDA  and burn cash.

 

Anecdotally, my company (entertainment center of sorts  :o) stopped buying Gildan due to quality issues. They pilled horribly. The local t-shirt guy said he'd seen quality deterioration at Gildan and had stopped recommending them. We use a company called Port & Company now, which is owned by a private company called Sanmar.

 

 

[K2SO]

Of interest:

http://www.mispricedmarkets.com/2020/03/23/portfolio-update-bought-gildan-activewear/

 

[compoundvalue]

Anyone still following this? I'm mainly interested in Hanesbrands, but figured I'd keep it simple with less threads.

 

Hanes feels less exposed than Gildan given Gildan's reliance on the blank t-shirt market (camps, events, etc). At face value it would seem that people would likely keep wearing underwear through the crisis, but curious if anyone has a different take? I know Hanes has circulated in short circles in the past.

 

Started looking at Hanesbrands today. The~5.0X EV/LTM EBITDA caught my attention. Will probably dig deeper but seems like if it survives it has multibagger potential

[longlake95]

I've owned GIL for a few years. Added recently. Painful yes. permanent loss of capital...probably not. Yes, GIL is more exposed to the print wear segment, that will be painful. I think print wear may bounce back soon that some think. I always shy'd away from HBI due to the debt - although I have not checked out the balance sheet lately. Maybe you will come away with a different point view.

[KCLarkin]

I think print wear may bounce back soon that some think.

 

Why? Once lockdowns end, social distancing will continue. A large portion of printwear is for large events. These will be the last things to normalize.

 

There is also an inventory issue. Distributors are sitting on inventory. Printers probably have inventory. Gildan has inventory. It will take awhile before this inventory is burned off enough for Gildan to restart factories.

 

However, they have a smart, adaptable management team. If a cruise line can raise debt and equity under current conditions, Gildan will surely survive.

 

[JayGatsby]

After more research, the negative of HBI is there's been long-term declines in the core US innerwear business. I haven't dug deep enough to figure out why. That's been covered up by solid gains in their Champion sportswear line. Champion seems like a brand that's well positioned for a cost-conscious consumer.

 

[Peregrine]

After more research, the negative of HBI is there's been long-term declines in the core US innerwear business. I haven't dug deep enough to figure out why. That's been covered up by solid gains in their Champion sportswear line. Champion seems like a brand that's well positioned for a cost-conscious consumer.

 

Hanes' women's intimates have been in decline for years now - partly attributed to retail store closures but also to new brands. Private label competition from large retailers have also hurt innerwear writ large but the men's underwear and socks business has been more resilient.

[jhcap]

CEO is the founder and is a big share holder which is encouraging (has a lot of skin in the game). This is getting interesting at current prices.

[Viking]

I agree that the stock looks cheap. However, they earn almost all their money from the printwear business. I also agree with KCLarkin that the printwear business is likely going to be severely hurt for a couple of quarters. The other side of their business (retail) has been a poor performer for years.

 

Perhaps their real opportunity will be as a consolidator in the printwear business, especially into a new market like Europe. Gildan has made many acquisitions over the years.

 

Perhaps i should just buy a small position and forget about it. If they execute well (Europe aquistion) the stock will likely be up 50-100% in 2-3 years. My problem is i tend to way overthink investment decisions (and most other things :-)