Business Strategy and Outlook| David Swartz |
In our opinion, Gildan Activewear lacks a moat, which has put it in a difficult position as it navigates disruption from the coronavirus and inflation. 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. Gildan, though, no longer reports branded apparel as a separate business segment and recorded an impairment to goodwill related to its hosiery in 2020. The firm acknowledges it has suffered market share losses to private-label brands, especially in socks, and its total yearly hosiery and underwear sales declined 21% between 2017 and 2021. We think there is a possibility that Gildan may end some of its hosiery programs to concentrate on its private-label business.