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April 01, 2024

Production Shift to Bangladesh in Board Candidates’ Plan to Up Gildan Earnings

The proposal is part of a five-pillared vision from a slate of eight business leaders that some Gildan shareholders want to replace current directors, all as a corporate battle rages on.

By  Christopher Ruvo

Top 40 supplier Gildan’s (asi/56842) stock price was hovering around $37 per share on Monday, April 1.

Eight business leaders who are aiming to take seats on the publicly traded apparel manufacturer’s board of directors put forward a five-pillared plan this week that they say, if executed correctly, could increase the share price to more than $100 within five years.

The board candidates would achieve that, in part, through initiatives that include taking on more debt to fund growth and increasing market share in the fashion-basics category by lowering unit costs. The plan says the fashion basics gain can be achieved by relocating production of such basics from Honduras to Bangladesh, where the Montreal-headquartered vertically integrated clothing maker already has a factory.

“We believe Gildan can reduce fashion-basics unit costs substantially by shifting capacity to Bangladesh due to lower labor and energy costs, as well as manufacturing efficiencies,” according to the plan, which asserts stock price could climb to $60 per share by the end of 2025 if its vision is implemented properly.

The plan from the aspiring board directors is a new development in the ongoing titanic corporate battle for control of Gildan that’s ensued since the current board fired company co-founder/former CEO Glenn Chamandy in December.

Browning West, a Los Angeles-based investment firm that holds about 5% of Gildan’s outstanding shares, is leading a charge to replace eight current board directors with the slate of candidates that produced the value growth plan debuted this week. Chamandy would be one of the new directors under Browning West’s plan.

Shareholders are scheduled to have a chance to vote on the proposed new directors at Gildan’s May 28 annual shareholder’s meeting. If elected, those professionals are expected to fire current CEO Vince Tyra, Chamandy’s replacement, and reinstall Chamandy in the CEO’s chair. Browning West says shareholders with about 35% of Gildan’s stock have already expressed support for the board overthrow and return of Chamandy.

Complicating matters is the fact that the current board is entertaining offers from bidders interested in buying Gildan and possibly taking it private – that is to say, off the public market. Interested buyers reportedly include Sycamore Partners, a private equity firm that’s parent company of Top 40 distributor Staples Promotional Products (asi/120601).

“There can be no assurance any transaction will result from these discussions” with potential buyers, the current board has said. “Gildan will continue to provide updates as appropriate.”

Debt Increase & Other Highlights From the Board Candidates’ Plan

Gildan currently has production facilities in Honduras and Bangladesh.

According to the plan from the Browning West-backed board candidates, labor-cost inflation in Central America has increased the cost structure for fashion basics due to their higher labor content. Moving fashion-basics production to Bangladesh would lower costs and thus ultimately help the apparel maker gain market share, the plan maintains.

With fashion-basics production going to Bangladesh, the board candidates would use capacity at Gildan’s Honduras plant to step up production of fleece products. The idea? Capture more market share in the growing fleece niche.

“Gildan’s unique technology advantages and spare fleece capacity support further market share gains,” the plan states.

“We believe Gildan has historically underutilized its balance sheet and that shareholder returns can be enhanced by increasing leverage moderately.” Gildan board candidates on taking on more debt.

The board candidates also think that Gildan can leverage what was descried as its low-cost and large-scale manufacturing operations to grab market share in in the private-label apparel vertical by bringing aboard new programs focused on activewear, underwear and socks. Gildan has experience in private-label partnerships with companies including Walmart, Fanatics and Nike.

“In a world of increasing complexity and competition for large/global apparel brands to deliver shareholder value through sustainable and profitable growth, the demand for world-class private-label apparel manufacturing partners will continue to increase,” said Michener Chandlee, a Gildan board candidate, current chief financial officer of WHOOP and former CFO of Fanatics Commerce. “Gildan’s unmatched scale and four decades of experience allow for meaningful cost and execution advantages well into the future, which makes me optimistic about Gildan’s revenue growth potential in this category.”

The candidates also propose adding debt, in part to help fund share buybacks. The plan calls for operating at debt levels between 1.5 times to 2.5 times earnings before interest, taxes, depreciation and amortization. At the end of 2023, net debt was 1.5 times EBITDA.

“There can be no assurance any transaction will result from these discussions.” Gildan’s current Board of Directors on the possibility of the company being sold.

“We believe Gildan has historically underutilized its balance sheet and that shareholder returns can be enhanced by increasing leverage moderately,” the candidates’ plan reads. “Gildan can enter a cash-harvesting phase after a period of substantial investment. A substantial portion of capital expenditures will be utilized for growth, which is adequate for building Phase 2 of Gildan’s Bangladesh facility, under our plan.”

The board candidates also want to roll out an “aspirational compensation plan tied to value creation” for Gildan’s approximately 43,000 employees. The plan would target medium-term aspirational earnings targets customized to the company’s particular opportunities.

ASI Media contacted a Gildan spokesperson for comment on the plan but had not received a response as of this writing. The board previously said that Chamandy needed to go because he had become a disengaged, ineffective executive lacking in the vision and acumen to lead the form to its next phase of organic growth. They also said he wanted to make risky acquisitions.

Browning West and its supporters have accused the board of negligence in the appointment of Tyra. He is an experienced executive with a background that includes private equity and serving as CEO of Broder Bros., which has since evolved into Top 40 supplier alphabroder (asi/34063). Still, detractors accuse Tyra of having a history of value destruction; the current board maintains the opposite.

Based on estimated 2022 North American promo product revenue of $762.2 million, Gildan ranked fifth on Counselor’s most recent list of the largest suppliers in the industry. In February, Gildan reported that total global full-year sales across all its business divisions – more than just promo – fell 1.4% year over year in 2023 to about $3.19 billion.