EUR 850.00 For Business Accounts Only

Morningstar | GIL Updated Forecasts and Estimates from 03 May 2019

We believe Gildan lacks a moat. We think its branded business (one third of sales) has fallen victim to intense competition. While Gildan has been able to carve out approximately 10% market share for its branded underwear and T-shirts, the more established Hanes and Fruit of the Loom continue to dominate the innerwear aisles at Walmart and Target. These two retailers reportedly account for more than 60% of U.S. underwear sales. We estimate operating margins for Gildan’s branded business are less than 10% versus more than 20% underwear operating margins at narrow-moat Hanesbrands. Gildan has purchased a few notable brands, including Gold Toe (socks) and American Apparel (cheap fashion/printwear). It has invested about $500 million in acquisitions since 2014. In early 2018, Gildan announced it would no longer report branded apparel as a separate business segment. The company claims it made the change because the line between retail and printwear is increasingly blurry. An alternative explanation is Gildan wants to distract from market share losses to private-label brands. Gildan suffered a $121 million drop in hosiery and underwear sales in 2018 versus 2017 due in part to private-label expansion in socks. There is some potential in Gildan’s newly acquired brands, but it is largely unproven. While American Apparel, acquired out of bankruptcy, is well known, it has likely been degraded after its high-profile collapse.We attribute Gildan’s success in printwear to its cost-efficient production model. It has approximately 80% market share in printwear basics. Recent acquisitions have made it a stronger player in fashion basics. Further, we think Gildan's printwear benefits from its strong supply chain. Most of its clothing is manufactured in company-owned factories in low-wage, developing countries. Gildan, unlike rivals, owns its own yarn-spinning factories in the United States and has invested more than $400 million in these facilities since 2000. Average annual capital expenditures were more than 10% of its revenue during 2013-15. While we believe this investment has lowered costs, we do not believe a permanent cost advantage has been created.