Market Overview

Earnings Analysis: Gildan Activewear

Gildan Activewear (NYSE: GIL) reports preliminary financial results for the year ended 2012-09-30.

Gildan Activewear Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Gildan Activewear Inc.'s analysis versus peers uses the following peer-set: VF Corp. (VFC), Michael Kors Holdings Ltd. (KORS), Under Armour Inc. Cl A (UA), Abercrombie & Fitch Co. Cl A (ANF), Hanesbrands Inc.(HBI) and Warnaco Group Inc. (WRC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2012-09-30 2011-09-30 2010-09-30 2009-09-30 2008-09-30
Revenues 1,948.3 1,726.0 1,311.5 1,038.3 1,249.7
Revenue Growth % 12.9 31.6 26.3 (16.9) 29.6
Net Income 148.5 239.9 198.2 95.3 144.6
Net Income Growth % (38.1) 21.0 108.0 (34.1) 11.2
Net Margin % 7.6 13.9 15.1 9.2 11.6
ROE % 10.8 19.7 19.6 11.1 19.6
ROA % 7.8 14.9 16.5 8.7 14.6

Valuation Drivers

Gildan Activewear Inc.'s current Price/Book of 3.0 is about median in its peer group. The market expects GIL-US to grow earnings about as fast as the median of its chosen peers (PE of 29.3 compared to peer median of 35.4) but not to expect much improvement in its below peer median rates of return (ROE of 10.8% compared to the peer median ROE of 16.2%).

The company's asset efficiency (asset turns of 1.0x) and net profit margins of 7.6% are both median for its peer group. GIL-US's net margin is its lowest relative to the last five years and compares to a high of 15.1% in 2010.

Economic Moat

Changes in the company's annual top line and earnings (12.9% and -38.1% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

GIL-US's current return on assets is around peer median (7.8% vs. peer median 7.8%). This contrasts with its higher than peer median return on assets over the past five years (12.5% vs. peer median 8.9%), suggesting that the company's relative operating performance has declined.

The company's comparatively low gross margins of 25.2% versus peer median of 48.0% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, GIL-US's pre-tax margin of 7.3% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.

Growth & Investment Strategy

While GIL-US's revenues have grown faster than the peer median (23.3% vs. 7.4% respectively for the past three years), the market gives the stock an about peer median PE ratio of 29.3. This suggests that the market has some questions about the company's long-term strategy.

GIL-US's annualized rate of change in capital of 20.6% over the past three years is higher than its peer median of 7.8%. This investment has generated an above peer median return on capital of 15.7% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

GIL-US's net income margin for the last twelve months is around the peer median (7.6% vs. peer median of 6.4%). This average margin combined with a level of accruals that is around peer median (3.7% vs. peer median of 3.7%) suggests there possibly isn't too much accrual movement flowing into the company's reported earnings.

GIL-US's accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Gildan Activewear Inc.
Graph of Revenues Trend for Gildan Activewear Inc.
Graph of Net Margin Trend for Gildan Activewear Inc.
Graph of Net Margin Trend for Gildan Activewear Inc.
Graph of Accruals Trend (% revenues, Quarterly) for Gildan Activewear Inc.
Graph of Accruals Trend (% revenues, Annual or TTM) for Gildan Activewear Inc.

Company Profile

Gildan Activewear, Inc. is a vertically integrated marketer and manufacturer of quality branded basic apparel and also produces hosiery for the retail market. It sells T-shirts, sport shirts and fleece in large quantities to wholesale distributors as undecorated blanks which are subsequently decorated by screen printers with designs and logos. Gildan's Wholesale division is the leading supplier of activewear for the screen-print market in the United States, Canada, and Europe. Its products are also utilized for work uniforms and other end-uses to convey individual, group and team identity. It Retail division supplies private label and Gildan branded socks primarily sold to mass-market retailers. The company was founded Glenn J. Chamandy & H. Greg Chamandy on May 8, 1984 and is headquartered in Montreal, Canada.

Disclaimer

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