Gildan products displayed at their annual general meeting in Montreal on January 31, 2008.Christinne Muschi/The Globe and Mail
Let this be a lesson to anyone with a heavy resource focus in their portfolio: There is big money to be made in Canadian retail.
Gildan Activewear Inc. manufactures clothes and markets them under its own brands, as well as making clothes under license for brands like Under Armour and New Balance. The company doesn't garner much press, especially compared with Lululemon Athletica Inc. despite having a bigger market value. But lately, Gildan's stock has become more than worthy of everyone's attention.
In the past year the company's shares are up 51 per cent – more than many energy names – and they've climbed almost consistently higher since the end of 2011.
After such a wild ride, there are legitimate questions as to whether it will peter out, but Gildan is trying its best to prevent that from happening. Management has already outlined some ambitious goals, one of which is to expand its range of consumer brands. To help on this front, Gildan shelled out $110-million Thursday to buy Montreal's Doris Inc., whose pantyhose brands include Secret and Silks.
The purchase not only enhances Gildan's branded products, but also expands its smaller footprint in women's basic apparel, according to Desjardins Securities analyst Chase Bethel, who added that the acquisition should help the company cross-sell its existing Gildan activewear and Gold Toe socks brands to Doris customers.
This probably won't be the last time we hear of Gildan putting its cash to use in the next little while, either. In March the company made it clear that all of the bank debt it tacked on to finance its acquisitions of Gold Toe and fashionable activewear brand Anvil had been fully repaid, and management said it expected to generate $200-million of free cash flow in the second half of the year.
Even if there isn't another deal in development, Gildan has already laid out plans that will likely require some spending, particularly its initiative to roll out quality sport shirts and performance t-shirts to offer more of an athletic look. Management is also looking to expand its international sales, which currently comprise only seven per cent of the total.
On top of these initiatives, Gildan might also get a little bit lucky on its cost structure. Canada is close to passing a free-trade agreement with Honduras, where a lot of the company's clothing is manufactured. Should it go through, the agreement would cut the 16 to 18 per cent duties imposed on imports from Honduras.
Tim Kiladze