Gildan Activewear activist investor Browning West has a five-pronged strategy to make Gildan great again, and it includes moving basics from Honduras to Bangladesh.
The investor said its plan can deliver a share price of more than $60 by the end of 2025 and more than $100 for Gildan shareholders within the next five years. Gildan’s current share price is in the $37 range. Browning West said its plan can grow revenue by $1.1 billion from 2023’s $3.2 billion to an estimated $4.27 billion in 2028, as well as increase operating margin from 17.3 percent in 2023 to an estimated 22.4 percent in 2028.
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The pillars in the strategy include gaining market share in fashion basics by lowering unit costs, growing market share in the high growth fleece category, increasing market share in private label apparel through new programs, enhancing capital allocation and capital structure, and introducing an aspirational compensation plan tied to value creation. Browning West disclosed its operating strategy to garner support from investors to vote for its slate of eight board nominees at Gildan’s annual meeting of shareholders on May 28.
At the heart of the plan is Gildan’s vertically integrated operation, which Browning West said provides a cost strategy that has a proven track record of value creation.
The investor said that labor cost inflation in Central America has increased the cost structure for fashion basics. It suggests moving the fashion basics production, which has a higher labor content, to Bangladesh, where both energy and labor costs are lower. Other manufacturing efficiencies to be had by such a move is due to vertical integration that includes lower yarn and fabric costs, helped by the ability to scale production.
The activist credits cofounder and former CEO Glenn Chamandy with creating Gildan’s “highly dominant position” within the “basics” category, and he did that through the firm’s low-cost vertical operation. Gildan’s vertically integrated operation includes yarn spinning, weaving, dyeing, cutting, sewing and owned energy production/water treatment. In contrast, other competitors are not vertically integrated and rely on partially-outsourced partners.
By Browning West estimates, that model allowed Gildan to lower the 1998 price of a dozen blank T-shirts by 50 percent by 2023. It also noted that Gildan’s wholesale customers value three purchase factors: availability, price, and quality and consistency. Because marketing is not a factor with wholesale customers, Browning West said its strategy would de-emphasize marketing spend.
“Glenn’s strategic investment in lower cost capacity in Bangladesh positions Gildan to reap significant share gains in fashion basics which may mimic its historical market share gains in the basics category, driven by strong performance in American Apparel, Comfort Colors, and Gildan brands,” Browning West said in an investor presentation.
The activist also expects fleece to become a high-growth category, mostly due to casualization trends across North America. It is projecting 8 percent annual growth in the sector to $4.7 billion in 2024, $5 billion in 2025, $5.4 billion in 2026 and $5.9 billion in 2027. Browning West noted that Chamandy’s acquisition of Frontier gives Gildan the technological advantage to product MVS yarn, allowing Gildan to produce “superior products with minimal pilling.” And with the production of fashion basics moving to Bangladesh, there’s now available capacity in Honduras to focus on fleece production.
Browning West estimated Gildan’s wholesale revenue opportunity in private label could rise from $2 billion in 2023 to $3.2 billion. Current partners include Walmart, Nike, Target, Costco, and Amazon. And with shifts in production and new private label programs, Browning West said Gildan capital structure can support a return to shareholders that includes dividends and share buybacks over the next five years.
The investor also described Gildan’s current incentive plan as “complicated,” as well as being benchmarked to companies that have different end markets than Gildan and with marketing-centric B2C business models. Browning West said Gildan can do better for its 43,000 employees, adding that providing equity ownership leads to sustained value creation that lasts long after plan targets are achieved.
But the crux of the plan has a heavy reliance on Chamandy. It was Gildan’s dismissal of Chamandy that began the activist fight to restructure the manufacturer’s board in order to reinstate Chamandy.
In a statement within the Browning West investor presentation, Chamandy said: “I am looking forward to returning as CEO and confident in this operating plan. Under the right leadership, I believe that Gildan has significant potential to grow revenue and earnings per share and can deliver strong returns for shareholders.”
Gildan executives did not respond to a request for comment by press time.
Current Gildan CEO Vince Tyra said in February during a company earnings conference call that the Honduras facility provides Gildan with “long-term opportunities” and that the Bangladesh investment gives the firm the ability to expand in “Europe and international.” Tyra also noted the opportunity for growth with ring spun and fleece.
However, while UBS softlines analyst Jay Sole noted Gildan’s low-cost manufacturing advantage will allow it to take share from competitors, one major concern he had was the paucity of information in Gildan’s fourth-quarter report on potential opportunities. Another looming question was who would lead the company, given the existing proxy fight. And he said he didn’t know—given the uncertainties—whether Gildan could raise its Fiscal Year 2024 guidance over the course of the year.
Gildan said last month that it received a nonbinding expression of interest in acquiring the firm, after which it put itself up for sale. While the company said it has received multiple expressions of interest in a “friendly” transaction, the T-shirts and underwear manufacturer said there wasn’t any guarantee that the talks would result in a transaction.
Meanwhile, Browning West has the support of eight other investors—Turtle Creek Asset Management, Jarislowsky Fraser Ltd., Cooke & Bieler LP, Pzena Investment Management, LLC, Janus Henderson, Anson Funds Management LP and Anson Advisors Inc., Oakcliff Capital and Cardinal Capital Management—and together they control 35 percent of Gildan’s outstanding shares.
It was also Browning West who noted that the rumored per-share offer price from a potential buyer was $42. If its plan could get the per-share price to over $60 by the end of 2025, then the $42 bid for Gildan could be considered too low and would represent an undervaluation of the company.
Browning West’s slate of nominees include the investor’s cofounder Pete Lee, Chamandy, United Rentals chair and former CEO Michael Kneeland, Nike’s former chief risk officer and current Whoop CFO Michener Chandlee, Canadian National Railway Co. executive vice president and CFO Ghislain Houle, Alimenation Couche-Tard Inc. human resources and corporate committee chair Mélanie Kau, Walmart’s former senior vice president Karen Stuckey, and Rona CFO and former Dollarama CFO J.P. Towner.
