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Bull of the Day: Gildan Activewear Inc. (GIL)

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Gildan Activewear Inc. (GIL - Free Report) is an apparel company focused on the basics, from t-shirts to socks. Gildan built its brand by operating behind the scenes through wholesalers, screen printers, and beyond. The company is in the midst of a big comeback year and its long-term outlook is strong.

Name On the Tag

Gildan is not a flashy household brand name in retail and many people might not even notice when they buy GIL apparel. The company is essentially a wholesaler of everyday basic apparel that is most often branded by some other entity. If one were to look in their closet at any vacation destination T-shirt, school sweatshirt, or company polo, there is a good chance many of them are made by Gildan.

Gildan operates in North America, Europe, AsiaPacific, and Latin America, through a diverse portfolio of company-owned brands, including its namesake, American Apparel, Comfort Colors, GoldToe, Secret Silky, and many others. Its products include sweatshirts/fleece, T-shirts & tanks, socks, activewear, underwear, and most other very basic wardrobe staples.

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The company operates in the background and therefore is not as susceptible to the traditionally quickly changing fashion world that sees brands go from cool to out-of-style sometimes overnight. Gildan customers include screen printers or embellishers, wholesale distributors, traditional and e-commerce retailers, and “global lifestyle brand companies.”

Recent Performance and Growth Outlook

Gildan has steadily grown its revenue for decades, with some of its only slip ups coming amid massive global economic hardships. The pandemic hit the firm practically hard, with revenue down 30% last year. But the clothing maker has already bounced back in a big way and it topped our Q3 earnings and revenue estimates in early November.

Gildan is also expanding its operations amid international supply chain disruptions. This includes Monday’s announcement that it bought Frontier Yarns, which it already works with, to help boost its capacity. The company noted that “approximately” 40% of Frontier's production in 2021 was dedicated to yarn sold to Gildan for textile manufacturing in Central America and the Caribbean.

Gildan’s new acquisition helps it continue to internalize its yarn production as part of its “global vertically integrated supply chain.” Looking ahead, Gildan executives believe the firm can gain market share amid rising inflation in the U.S. and elsewhere. “Our current pricing levels remain only modestly above 2019 pre-pandemic levels, providing us with strong flexibility to manage inflationary pressure as we go forward,” Gildan’s Rhodri Harries said on its early November earnings call.

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Gildan reported record quarterly results in Q3. Since then, its FY21 and FY22 consensus EPS estimates have climbed 12% and 11%, respectively. Plus, GIL has topped our earnings estimates by an average of 85% in the trailing four quarters, including a 40% beat in Q3.

Looking ahead, Zacks estimates call for Gildan to swing from an adjusted loss of -$0.18 a share last year all the way to +$2.38 a share, with FY22 set to jump another 10% to $2.60 per share. Meanwhile, its revenue is projected to soar 44% to $2.85 billion to help it come in just above its 2019 total. Gildan is then projected to follow that up with another 8% growth in 2022, which would see it return to previous pre-pandemic expansion rates.

Other Fundamentals

Gildan reinstated its stock buyback program in August and its strong free cash flow helped it reduce its debt last quarter. The company also pays a dividend, and its Textile – Apparel industry lands in the top 10% of over 250 Zacks industries at the moment. Plus, seven of the nine brokerage recommendations Zacks has for GIL are “Strong Buys” or “Buys.”

GIL shares have easily outperformed its highly ranked industry over the last year, up 48% vs. 17%. The stock broke new records in early November after it climbed above where it was in the summer of 2019. Gildan has slipped since then and is currently trading roughly 10% beneath its Zacks consensus price target, which could provide a more enticing entry point.

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The recent fall has taken it from overbought RSI levels of well above 70 to under neutral at 46. Gildan’s pullback helped make its valuation levels even more attractive. The stock is currently trading at a discount to its highly-ranked industry and right near its own year-long lows at 15.8X forward 12-month earnings. This also marks a 30% discount to its own highs and has pushed it underneath where it was throughout much of 2019.

Bottom Line

Gildan’s bottom-line positivity helps the stock land a Zacks Rank #1 (Strong Buy) at the moment, alongside its “B” grade for Growth in our Style Scores system. Despite the recent pullback, GIL shares still trade above their 50-day moving average. The stock appears worth considering as a long-term play within retail because of its ability to keep growing by sticking to the basics and helping fuel global clothing expansion in a more under-the-radar fashion.  


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