Description

Gildan, founded in 1984 by current CEO Glenn Chamandy and his brother Greg Chamandy, is a leading low-cost, vertically integrated manufacturer of wholesale blank everyday basic apparel, including t-shirts, underwear, fleece, and socks. The company is headquartered in Montreal, Canada.

Gildan Overview

Gildan is the global leader in wholesale blank apparel (e.g. the mass production of plain garments such as t-shirts, sweatshirts, and more). These blank pieces are purchased in bulk and then customized through printing for various end markets. 

The primary buyers of these products range from corporations needing branded merchandise to event organizers, sports teams, and academic institutions. Gildan also extends its wholesale offerings to include private-label socks and underwear, providing products for major retailers like Walmart.

Gildan employs a dual-channel strategy comprising distributors and retailers. Distributors account for roughly 75% of Gildan's business, with the largest partners being SanMar, AlphaBroder, and S&S Activewear. These distributors typically sell to screen printers and designers who serve a variety of end markets, such as the aforementioned corporates, entertainment, tourism, schools, and sports teams. 

The remaining 25% of Gildan's business comes from direct wholesale to retailers, such as Nike and Walmart. This channel also encompasses Gildan's hosiery and underwear products.

Business Background

Gildan Activewear Inc. has its origins in Harley Inc., a children's apparel manufacturing company founded by Joseph Chamandy, the grandfather of Glenn Chamandy. Located in Montreal, Canada, Harley produced activewear, apparel, and sleepwear. After inheriting the business in 1984, Glenn and his brother Greg invested $380,000 of their own savings to acquire Gildan Textiles, marking the beginning of their strategic expansion and vertical integration across the apparel value chain.

In 1987, Gildan advanced its vertical integration by acquiring a dyeing facility in Valleyfield, Canada, which allowed the company to control all aspects of its manufacturing process beyond yarn spinning. A decade later, in 1997, Glenn Chamandy expanded operations to Central America, opening a vertically integrated offshore sewing plant in San Pedro Sula, Honduras. This move was aimed at lowering variable manufacturing costs.

Gildan went public in 1998, using the proceeds to further integrate its manufacturing processes and reduce per-unit costs. At the time of its IPO, the company generated $148 million in revenue and $18 million in operating income, with shares priced at 60 cents each (split adjusted). 

Fast forward 26 years from its IPO, Gildan’s revenues increased at a compounded annual growth rate of 12.9% to $3.2 billion, and operating income grew at a 14.6% CAGR to $553 million. The company has delivered a total shareholder return of 100x, or approximately 20% per annum.

The key driver of Gildan’s success has been its ability to reduce the per-unit cost of blank/imprintable t-shirts by 50% since its IPO.  

This cost reduction, averaging about 2.5% per year, enabled Gildan to win on price versus competitors that were not focused on driving down the per-unit manufacturing costs.  Consequently, Gildan has substantially increased its market share of blank t-shirts in NA, growing from a high single-digit percentage share to approximately 80% market share.

Industry Overview

The imprintable/blank apparel market is a ~$12 billion industry in North America – composed of open-end basic t-shirts, ring-spun fashion t-shirts, fleece apparel, and private label retail programs. 

One of the key characteristics of the blank apparel industry is its low fashion risk. Unlike the traditional apparel industry, where new styles and trends are constantly introduced, the blank apparel market relies on timeless, versatile products that can be customized and imprinted with designs, logos, or messages. As a result, new SKUs are rarely introduced into the market, minimizing the risk of inventory obsolescence and unsold merchandise. 

T-Shirt Market

The t-shirt market alone is valued at around $4 billion. It is divided into two main segments:

• Open-End Basic T-Shirts: This segment represents about $2 billion of the market. Open-end t-shirts dominate in terms of volume, making up approximately two-thirds of the total t-shirt market (1 billion units annually). The market for open-end basic t-shirts grows at a rate of about 2-3% annually.

  • Gildan has ~80% market share in the open-end basic market.

  • Competitors: Delta Apparel, Hanes, Fruit of the Loom.

• Ring-Spun Fashion T-Shirts: Also valued at around $2 billion, this segment accounts for one-third of the t-shirt market (500 million units annually), but commands higher average selling prices (ASPs). The market for ring-spun fashion t-shirts is growing at a rate of  about 10% annually.

  • Gildan has ~30% market share in the ring-spun fashion market.

  • Competitors: Bella+Canvas, Next Level. 

Fleece Apparel Market

The fleece apparel market, which includes items like sweatshirts and hoodies, is also valued at approximately $5 billion. This market has been experiencing robust growth, with an annual growth rate of around 8% over the past few years.

• Gildan has ~15% market share in the fleece market.

• Competitors: Hanes, Fruit of the Loom.

Private Label Market

The private label apparel market, which includes items like socks and underwear, is valued at approximately $3 billion.  This market grows ~3-5% as retailers push new private label programs to capture more consumer wallet share and to compete against Amazon’s robust private label offerings.

• Gildan has ~4% market share in the private label market.

• Competitors Hanes, Fruit of the Loom.

International

Beyond the ~$12 billion addressable market in North America, the International market is sized at ~$3.5 billion and is expected to grow ~2-3% per annum. Gildan has ~6% market share internationally and competes with many more manufacturers in this marketplace.  This market is non core to Gildan today but can be a significant opportunity in the future. 

Thesis Point #1: Gildan will win the ring-spun market

I believe Gildan is positioned to accelerate growth and share gains in the ring-spun t-shirt market and can ultimately achieve the same market share level it has achieved in open-end t-shirts. 

For context, in the 1990s, Fruit of the Loom and Hanes had ~70% of the open-end basic market.

As Gildan began ramping units into its vertically integrated manufacturing footprint — and continually lowering its per-unit manufacturing costs — they eventually beat Fruit of the Loom and Hanes. Today, Gildan is positioned to replicate the exact same playbook that allowed them soak up significant market share from these non-vertically integrated competitors.

There are two main reasons why I believe Gildan is poised to take share from Bella+Canvas and Next Level:

1. New State-of-the-Art Facility in Bangladesh:

• Gildan has invested approximately $500 million to build a state-of-the-art ring-spun facility in Bangladesh, which is expected to generate $1 billion in additional sales capacity.

• This investment will significantly lower Gildan's per-unit costs for ring-spun products, allowing the company to widen the price gap with competitors Bella+Canvas and Next Level.

2. Competitors' Challenges:

• Bella+Canvas:

  • Bella+Canvas has faced operational difficulties, including the closure of a cutting facility in Alabama and challenging distribution shifts from California to Nevada.

  • The company has also combined its financial operations with its successful retail yoga brand, Alo, diverting focus from its blank apparel segment.

• Next Level:

  • Next Level is experiencing severe financial distress, with S&P downgrading its debt in August of 2023 due to a ~50% decline in EBITDA.

  • A distributor customer of Next Level described the company as "at the edge of a cliff," indicating significant operational and financial challenges.

Gildan's new state-of-the-art facility in Bangladesh will likely exacerbate the struggles of competitors Bella+Canvas and Next Level. This facility will significantly enhance Gildan's cost advantage in producing ring-spun fashion shirts, potentially pushing these rivals out of the market. While Bella+Canvas may remain operational on a reduced scale, focusing more on its Alo brand, Next Level's future appears dire due to its financial distress.

The Bangladesh facility will enable Gildan to offer ring-spun fashion shirts at less than $3 per unit versus its competitors at greater than $4 per unit — while also keeping its quality at par with competition.  

Unlike, open-end basic t-shirts, for which manufacturing is mostly completely automated (10% labor component), ring-spun t-shirts require three times more labor.  Further, the ring-spun process is highly energy intensive (roughly three times more than open-end products). There are two reasons for this: 

1. Complex Spinning Process: The ring-spinning process involves continuously twisting and thinning fibers to create stronger yarn, requiring more time and precision. This is in contrast to open-end spinning, where fibers are fed into a high-speed rotor and twisted together to form yarn.

2. Additional Refining Steps: The ring-spun process includes extra steps like combing the yarn to remove impurities, further increasing labor and energy consumption. Open-end spinning skips these refining steps, making it less labor-intensive.

Thus, the new Bangladesh facility offers significant cost advantages, with labor costs being a quarter and energy costs half of those in Central America, where Gildan's existing ring-spun facilities are currently located. 

Although importing from Bangladesh introduces a 16.5% duty on Gildan’s ring-spun products, the overall cost benefits per unit are greater than tarriff costs, which will allow Gildan to lower its ring-spun t-shirt ASP. 

Currently, Gildan produces fashion shirts at approximately 70% of competitors' price points while earning significantly higher margins. The new Bangladesh facility will further enhance this cost advantage, positioning Gildan to significantly increase its market share in the ring-spun fashion market. 

Additionally, no competitor has the capital required to duplicate the manufacturing footprint that Gildan has developed in Bangladesh. In fact, given Bangladesh is one of the most densely populated countries in the world, industrial land costs are comparable to those in Manhattan.

I estimate that Gildan can generate an incremental ~$500–$750 million of sales in the ring-spun segment over the next few years as it executes on the opportunity to lower pricing and soak up market share. 

Thesis Point #2: Gildan will win the fleece market

I believe Gildan is positioned to accelerate growth and share gains in the fleece market and can ultimately achieve the same market share level it has achieved in open-end t-shirts. 

Gildan's strategic acquisition of Frontier Yarns in 2022 for approximately $168 million, positions it for success. This acquisition granted Gildan control over 90% of the U.S. supply of MVS (Murata Vortex Spinning) yarn, a critical component in fleece apparel production.

By acquiring the only scaled MVS yarn producer in the region, Gildan has secured several competitive advantages:

• Exclusive Supply Control: Gildan can now dedicate Frontier's facilities exclusively to producing yarn for its own branded fleece products. Previously, 60% of Frontier's production was allocated to Gildan's fleece competitors — who are now effectively boxed out of the market.

• Vertical Integration and Cost Efficiency: Staying true to its strategy of vertical integration, Gildan can now vertically integrate the entire fleece manufacturing process, from yarn production to finished garments. This vertical integration will allow Gildan to significantly reduce production costs and achieve economies of scale.

• Operational Synergies and Tariff Benefits: Gildan is transferring its ring-spun production lines to Bangladesh, freeing up capacity to repurpose these lines for fleece production in Honduras. This will allow the company to benefit from the "yarn forward" rule, which provides tariff advantages for products made from yarn produced in the U.S., further enhancing Gildan's cost competitiveness.

As Gildan ramps its fleece production by leveraging the acquired yarn supply, I believe that the company will be able to push its way down the cost curve and lower its fleece ASPs. 

This cost advantage will enable Gildan to aggressively pursue market share gains in the fleece apparel market, potentially replicating its success in the open-end t-shirt segment.

No competitor in the fleece market currently possesses the combination of vertical integration, operational synergies, and cost advantages that Gildan has secured through the strategic acquisition of Frontier Yarns.  As a result, I believe that over the coming years, Gildan has the opportunity to add an incremental ~$1 billion of fleece sales as the fleece end-market continues to grow and the company executes on its market share opportunity. 

“The Gildan acquisition of Frontier … I mean, it was an unbelievably bright move. And several of their competitors had yarn contracts, and they finished out those yarn contracts and cut their competitors off. They have a significant advantage with that piece to grow some of that commodity product. - Expert Network Call (Gildan Customer)

Thesis Point #3: Gildan’s new board of directors will promote shareholder-friendly capital allocation and aggressive strategy implementation. 

A key part of the investment opportunity in shares of Gildan is the recent comprehensive overhaul of the company's board of directors in May 2024. This transformation followed a five-month public proxy battle with Browning West, a long-term activist shareholder. The successful campaign led to a substantial shift in Gildan's capital allocation strategy, positioning the company for enhanced growth and value creation.

In May 2024, the two leading proxy advisory firms, ISS and Glass Lewis, recommended that Gildan shareholders vote for Browning West's full slate of eight director nominees. This endorsement was crucial in the lead-up to Gildan's annual meeting.  On May 28, shareholders decisively voted in favor of Browning West's nominees, resulting in the ousting of the incumbent board and the reinstatement of Chamandy as CEO.

The complete refresh of the board of directors led to the appointment of a highly talented team, set to drive the company's new strategic direction:

During the proxy campaign, Browning West outlined a five-pillar operating plan that includes:

1. Gaining Market Share in Fashion Basics Category by Lowering Unit Costs

2. Gaining Market Share in High Growth Fleece Category

3. Gaining Share in Private Label Apparel by Targeting New Program Wins

4. Enhancing Capital Allocation and Capital Structure

5. Introducing Aspirational Compensation Plan Tied to Value Creation

Valuation

At the current share price of $39, I estimate Gildan is trading at under 10 times its 2025 EPS, which is far too low for a dominant business with high returns on invested capital and long runway for reinvestment. 

As the company capitalizes on market share opportunities in ring-spun and fleece products and returns excess cash to shareholders through share repurchases, I estimate that Gildan can grow EPS from approximately $4 in 2025 to between $6.50 and $7.20 by 2029.

Moreover, this projection does not account for the significant potential to expand the private label and international business units, which I view as additional growth drivers that could substantially enhance these EPS estimates. 

Applying a 16x EPS multiple, consistent with Gildan’s 10-year historical average, shares could be valued between $104 and $115 in 2029, translating to an IRR of ~24%.

Importantly, this projection closely aligns with the company's plan to increase EPS to over $6 by 2028, driven by strategic priorities such as disciplined capital allocation, targeted market expansion, and margin enhancement.

Risks

Political, Social, and Economic Instability: Gildan operates facilities in countries that have historically experienced political, social, and economic instability. Additionally, some of these regions are prone to natural disasters such as hurricanes, floods, earthquakes, and pandemics, which could disrupt operations and supply chains.

Market Shifts in T-Shirt Preferences: In the U.S., there has been a shift in market preference from open-end t-shirts to ring-spun t-shirts. While volumes for open-end t-shirts have grown 2-3% historically, there is a risk that they could begin to decline. Gildan may struggle to offset the decreasing volumes of open-end t-shirts with increasing volumes of ring-spun t-shirts, potentially leading to operational deleverage and reduced profitability.

Catalyst

Buybacks 

Inflection in EPS