November 17, 2008 - Gildan Activewear Inc. (GIL-NYSE) supplies activewear for the wholesale imprinted sportswear market in the United States and Canada, as well as in Europe. The company sells T-shirts, sport shirts, and fleece in large quantities to wholesale distributors as undecorated "blanks", which are subsequently decorated by screenprinters with designs and logos. Its products are sold at various venues, such as sports, entertainment, and corporate events, and travel and tourism destinations.

In other words, when you go to the Super Bowl this year and buy a T-shirt, it will most likely be manufactured by Gildan. The same is true for a T-shirt from a rock concert. Or your uniform at work may have been made by Gildan. The company is in many places with no brand awareness. It works behind the scenes, letting others be creative on whatever textile they want.

Sales have been strong for years, going from $654 million in 2005, then to $773.2 million, followed by $964.4 million last year. This year, analysts predict $1.27 billion, then $1.45 billion next year. Of course, those numbers will most likely be revised lower as consumers continue to decrease spending, but the direction is clear. The company is expanding market share and making more sales.

In fact, it has more than 50% of the market in 3 categories, moving to that level in the last 12 months. Its share of T-shirts, activewear products, and fleece ranged between 51.7% and 52.6% in this year's third quarter, compared to 46% last year in the same quarter. It's secret marketing weapon: low prices.

Even with lower prices than its competition, margins are holding up well. Net profit margin in 2007 was 15.7%. In 2006, it was 16.4%. This year, analysts see 13.4% and next year 14.1%. Earnings have improved every year since 2001 when they were 27 cents a share. In 2007, they were $1.29. This year, analysts forecast $1.46, and next year, they see $1.93. Again, with the latest retail sales numbers just released, these numbers will most likely be lowered as analysts revisit their assumptions.

Demand keeps Gildan expanding. It will add production facilities in Honduras with 2 new factories and additions to 3 existing plants, scheduled for completion by the end of 2009. Capital expenditures will be 50% higher in 2009, going to $160 million, most of which will be covered by free cash flow.

In fiscal third quarter (ended in June), Gildan couldn't produce enough to keep up with demand for activewear products. Sales were up 31% in the June quarter compared to the same quarter last year, thanks mostly to the purchase of a sock manufacturer late last year. Revenues also increased because of price hikes and unit volumes. Analysts see reason for good sales increases next year due to new contracts for underwear sales to large retailers, price increases and capacity expansion to meet demand.

The move to produce goods in Honduras and the Dominican Republic improved operating margins noticeably. Furthermore, the company is focusing production on higher-margined ring-spun products and fleece and diminishing its output of socks which have lower profitability. And without new purchases and lower marketing costs, operating margins should improve in 2009.

Other numbers: This quarter's earnings should be 43 cents a share, up from 38 cents. Next quarter look for 26 cents vs. 23 cents last year. Over the last 5 years, earnings grew, on average, 32.4% a year. Over the next 5, analysts predict 27.4%. Market cap is $2.55 billion with 120.5 million shares outstanding and a float of 112.7 million. Insiders own almost 3% of the stock while institutions have close to 90%. There's $13.2 million in cash in the bank and the current ratio is 3.53. Book value per share is $6.55. There is no dividend. Total debt is $108.44 million.

Gildan will suffer, along with all other apparel makers, from this tough economic environment. But it has proven it can generate strong profits year after year. By moving production overseas, costs have decreased while markets expanded. Price hikes are holding. This is a company that should do well once the economy shows life again. Worth more of an investor's time to investigate.

Company Web site: www.gildan.com

- Ted Allrich