Author Topic: GIL - Gildan Activewear Inc  (Read 4050 times)

longlake95

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Re: GIL - Gildan Activewear Inc
« Reply #10 on: January 13, 2017, 10:16:14 AM »
Just updating my file on GIL. How do you guys think about GIL's value. I thinks it's worth around $30-32USD, that's based on 8% REV growth, 19% operating margins and 11% cost of capital. That assumes their favourable tax rate doesn't change too much or Trump doesn't impose hefty import duties. GIL still isn't super-cheap.

LL
« Last Edit: January 13, 2017, 10:18:53 AM by longlake95 »

KCLarkin

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Re: GIL - Gildan Activewear Inc
« Reply #11 on: March 13, 2017, 12:34:00 PM »
I am buying. Earnings are likely to grow significantly for the first time in a couple of years. The company continues to steal market share. They are exceptional capital allocators. They are the low-cost producer.

Current sentiment continues to be negative, due to Trump's protectionist policies and the BAT. Also, the market has rotated into domestic-oriented names that will benefit from corporate tax cuts. Also, key Gildan customers such as department stores are losing market share.

I think the BAT fears are overstated. It is almost impossible to imagine significant amounts of apparel manufacturing returning to the U.S.A. So all competitors would be equally taxed. Gildan sells a basic T-shirt for $1.50, so a small tax increase is unlikely to impact demand. Plus, the strong dollar largely offsets the tax impact.

This is not as cheap as 2009 or 2011 but offers excellent value relative to the market.

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Edit:
One of my favourite things about Gildan: Meryl Witmer, the Berkshire director, seems to be a permabull on Gildan. Gildan absolutely killed Fruit of the Loom, a Berkshire subsidiary, in the printwear market:
http://www.beyondproxy.com/how-to-avoid-value-traps/
« Last Edit: March 13, 2017, 12:46:08 PM by KCLarkin »

KJP

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Re: GIL - Gildan Activewear Inc
« Reply #12 on: March 13, 2017, 03:27:11 PM »
I am buying. Earnings are likely to grow significantly for the first time in a couple of years. The company continues to steal market share. They are exceptional capital allocators. They are the low-cost producer.

Current sentiment continues to be negative, due to Trump's protectionist policies and the BAT. Also, the market has rotated into domestic-oriented names that will benefit from corporate tax cuts. Also, key Gildan customers such as department stores are losing market share.

I think the BAT fears are overstated. It is almost impossible to imagine significant amounts of apparel manufacturing returning to the U.S.A. So all competitors would be equally taxed. Gildan sells a basic T-shirt for $1.50, so a small tax increase is unlikely to impact demand. Plus, the strong dollar largely offsets the tax impact.

This is not as cheap as 2009 or 2011 but offers excellent value relative to the market.

--
Edit:
One of my favourite things about Gildan: Meryl Witmer, the Berkshire director, seems to be a permabull on Gildan. Gildan absolutely killed Fruit of the Loom, a Berkshire subsidiary, in the printwear market:
http://www.beyondproxy.com/how-to-avoid-value-traps/

If you like Gildan, you may be interested in Texhong Textiles.  It's not as vertically integrated as Gildan, but appears to have significant economies of scale in yarns.

Viking

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Re: GIL - Gildan Activewear Inc
« Reply #13 on: March 13, 2017, 04:59:23 PM »
A likely headwind for Gildan will be their retail business; traditional department stores are really struggling. I think Gildan has been hoping their retail division will be their future growth driver so this is disappointing.

Any US border tax will also likely be a short term negative. Given they manufacture the yarn in the US Gildan is likely very well positioned (perhaps the tax is lower). However, prices would go up for consumers and this never a good thing in the short run.

The company looks to be hitting the ball out of the part in its printwear business (the much larger business). The aquisitions made the past few years in this segment look to have widened the companies moat.

Long term there is much to like about this company. 

Homestead31

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Re: GIL - Gildan Activewear Inc
« Reply #14 on: March 24, 2017, 11:07:25 AM »
I am doing some work here, and would appreciate any thoughts from the crowd.

I understand Gildan's competitive advantages as they stand now (ie low cost producer / have invested more in plant than competitors) and obviously results have been impressive, but at the same time, I feel like this business isn't THAT much different than the original Berkshire Hathaway at the time that Buffett bought it. 

Why is this not a race to the bottom?  Is there a reason to think that Gildan has cemented their position and that HBI or Fruit of the Loom will not have an equipment upgrade cycle in the near future that allows them to undercut and/or produce better products than Gildan?

or is the thought that one doesn't have to worry about Fruit of the Loom b/c Buffett has better uses for his capital and learned his lesson on textiles many decades ago?

and that the marketplace is much more rational than it was 50 years ago b/c there are only a few major players who are not interested in running each other into the ground?  this doesn't seem like solid footing as there could always be a new scale player that pops up over night in (insert country w/ low labor cost here)

anyway - all thoughts are appreciated.  there is alot to like here, but at the end of the day i can't shake the feeling that its just a crappy industry.

thanks in advance

KCLarkin

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Re: GIL - Gildan Activewear Inc
« Reply #15 on: March 24, 2017, 02:58:24 PM »
Why is this not a race to the bottom?  Is there a reason to think that Gildan has cemented their position and that HBI or Fruit of the Loom will not have an equipment upgrade cycle in the near future that allows them to undercut and/or produce better products than Gildan?

Morningstar rates Gildan "no moat" and your concerns are certainly justified.

On the other hand, Gildan has 70% market share in the printwear market. That clearly wouldn't be possible if Gildan was truly "no moat". As one example, the printers who buy Gildan products are reluctant to switch. Not only does Gildan have a strong brand but different "blanks" react differently to different printing processes. If company B offers you a $0.05 off your blank you would still be reluctant to switch. I don't think Fruit is a worrisome competitor. If Buffett wanted to double-down on this industry, he would have done it earlier when Fruit had the strongest brand.

So it would likely be a foreign competitor, say a manufacture who has scale in China and decides to dump product in the U.S.

But I've learned to be comfortable investing in companies whose moats are not obvious. Equity investment is risk capital. There are always risks. Gildan is the hunter not the hunted, so I think comparisons with BH are wrong. If Gildan stops gaining market share, then I think you should be concerned.

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I will say that the scenario of a "scale player" popping up overnight is not likely. Just look at the history of Gildan. It was a slow methodical process. A bigger short-term concern would be a trade war, cotton shortage, or coup.

Viking

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Re: GIL - Gildan Activewear Inc
« Reply #16 on: March 24, 2017, 05:27:22 PM »
The key to Gildan in the near term is its printwear business. Gildan has made a couple of nice aquisitions in printwear the past couple of years that position it very well, with American Apparel being the latest. Printwear provides the profits that Gildan is using to try and grow out its retail business.

I do have questions about how successful Gildan will be in retail. Gold Toe looks like a solid retail aquisition. After than I am not so sure (yet). The company's past success is really driven by printwear.

Hanes Brands has a mountain of debt and they pay a large dividend; their model is to acquire growth (and fund it with more debt). They have had no interest in spending to be the low cost provider. And It is too late for them to do so now. The company would need to devote all earnings the next couple of years to upgrading manufacturing and this is not in the DNA of this company or the current group of shareholders (who like the growth through acquisition/debt strategy). Earnings are used to pay interest on debt, pay dividend, buy back shares and to purchase more companies (at very high multiples).