Big takeaway from this GIL print is that Branded Apparel (the HBI threat) is missing management’s expectations and is being restructured. So…the very business that went from 0% share to 12% and too 3-4 points from HBI over four years is ‘missing long term plan.’ That’s the same business that went from a 1100 door test at WMT to a full 4655 store rollout. Never bet against GIL. Even when it fails, it wins. What happens to Hanes when GIL really starts to succeed by its’ own standards?
Key Callouts
- Weakness in branded apparel was in socks. Lost share to private label at mass merchants and department stores, national chains, and sport specialty.
- This is something we have seen ourselves in stores as WMT added Athletic Works as the private label for socks replacing Starter which was manufactured by Gildan. It’s not something that HBI benefited from, fyi.
- Sock sales were down more than expected and will continue to decline in 2018. Also HBI bearish.
- Gildan’s men’s underwear sales grew 35% in Q4. The unit share increased 160bps. Next year men’s underwear “will be up quite a bit.” Management did not appear to consider the 35% ‘quite a bit’. In other words, men’s underwear sales for GIL should accelerate vs 4Q levels next year.
- Gildan’s activewear sales were strong in the craft channel. For the record, I have never heard a softgoods CEO say this in my life.
- Gildan’s inventory levels are tight due to some unplanned downtime at its plants. So it is in full production mode right now.
- Gildan is expanding or updating nearly all of its factories next year to increase production and improve their capabilities. Note…unlike HBI which shrinks factory base to push margins, GIL leads with factory builds, and reverse engineers (ie stuffs) product into the channel.
- Gildan sees the boundaries falling between its retail brands and its screen print brands. Gildan saw inventory produced for screen print being sold online directly to consumers. As such it’s consolidating divisions.
- Gildan experienced production interruptions during the Honduras elections (end of Nov.) which raised COGS in Q4 and will continue to have a small impact in the 1H of 2018.
- Expects higher raw material costs in the 1H due to cotton, but expects to offset that in the 2H with price increases. Prices were increased in Dec. If there’s any bullish point for HBI, that was it…BUT keep in mind that…
- …GIL will see no material change in tax rate for 2018. Canadian company. The competitive tax gap between HBI and GIL just went negative against HBI by about 1,000bps. GIL will use this on offense.
