No-Moat Gildan Is Investing in Operations Amid Inconsistent Demand for Its Imprintables
We think Gildan Activewear GIL lacks a moat, which has put it in a difficult position as it navigates an uneven recovery from the pandemic in its core imprintables market. In its branded operations, while Gildan began a private-label men’s underwear contract with wide-moat Walmart in 2019, we believe this product has largely replaced Gildan-branded underwear and only partially offsets losses in other areas. We think narrow-moat Hanesbrands and Fruit of the Loom have stronger innerwear brands, allowing them to hold significant shelf space at Walmart, no-moat Target, and other critical retailers. Mass retailers reportedly account for more than 60% of total underwear sales in the United States. Gildan has purchased a few notable brands, including Gold Toe (socks) and American Apparel (inexpensive fashion/printwear), having invested about $500 million in acquisitions since 2014. The company, though, no longer reports branded apparel as a separate business segment and recorded an impairment to goodwill related to its hosiery in 2020. It acknowledges market share losses to private-label brands, especially in socks, and its hosiery and underwear sales accounted for only 15% of its total sales in 2022, down from 26% in 2017.
We attribute Gildan’s success in imprintables to its investments in the category and its cost-efficient production model. The firm has approximately 80% market share in printwear basics in the U.S. and acquisitions have made it a stronger player in fashion basics. We estimate its total market share in the U.S. printwear market is about 60%. We think this business line benefits from Gildan’s strong supply chain as most of its clothing is manufactured in company-owned factories in low-wage, developing countries. Moreover, Gildan, unlike rivals, owns yarn-spinning factories in the U.S. that may improve its efficiency. In 2021, it bolstered its U.S. production with the acquisition of Frontier Yarns for about $170 million. While we believe Gildan’s investments have lowered its production costs, we do not think a permanent cost advantage has been created as its processes can be replicated by competitors and cost savings may be lost to lower prices.
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