GIL = New Best Idea Long. Monster Competitive Moat. Asymmetric Upside. 2-Year Double.
At face value, this is a boring company. It makes shirts. That's kind of it. But for many reasons I think it is one of the most exciting stories in retail -- one that will add $800mm (30%) revenue in 2-years, and will take EPS from $1.90 to $3.00 -- with the consensus at $2.22. Huge beat in store here, which will play out over a multi-quarter time line. Base case multiple is 15x, or a $45 stock vs today at $28. But realistically, if and when our numbers prove right, we’ll be looking at a name that is growing earnings at a 25% CAGR, which supports a multiple beginning with a 2. There’s your double over an 18-24 month period with solid downside support.
If you don't know GIL, it has perhaps the best competitive moat of any company in the retail supply chain. It produces apparel at a lower cost than any of the 20,000 apparel companies in the world. Trying to compete with GIL would be like the equivalent of waking up one day and deciding to compete against Nike selling basketball shoes (where it has 95% market share over $160). Can you get a VC to fund you to go against UnderArmour? Yes. Ralph Lauren? Probably. Brands are doing that today. But no lender in its right mind would give any company the capital to try to beat GIL at its own game. It might be a boring game, but GIL will win 9 times out of 10, it's facing accelerating growth and margin trajectory, and is perfectly positioned for #retail5.0.
Let me elaborate on the #retail5.0 comment. As prices become increasingly transparent on commodity goods, retailers either need to be the low cost seller, or offer up some form of value proposition in the form of an exclusive brand or private label. When it comes to basics, no one comes close to GIL on price. Not HBI, not Fruit of the Loom, and not even Li & Fung. If Amazon wants to accelerate Amazon Essentials in underwear and t-shirts (which it does), then the answer is GIL unless it wants to be the higher cost seller -- which ain't AMZN's strategy. WMT is changing over to this private label strategy now, and is quite vocal about it -- just not openly discussing who will source the business. We think it will be GIL.
And to be clear, even with the new capacity GIL has coming on line, it still can't serve all of its demand, which takes both spot and contract prices up -- a theme we expect to come out of the next conference call.
The stock is down 15% since the end of January, and yet fundamentals are getting better on the margin. It has recently invested in new capacity that has temporarily lowered RNOA, and is beginning to backfill demand in both its screen printing business (where it has 70% share of t-shirts, for example), as well as in its branded business in US mass channels (displacing HBI along the way). That accelerates growth, lifts margins, and leverages fixed assets.
Thursday, July 19th at 10:00am EDT
Confirmation Number: 13681345
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