Rising Labor Costs In Bangladesh, Central America Will Pressure Margins

Key Takeaways

• Rising labor costs, supply chain volatility, and weak pricing power threaten margins and profitability in Gildan's core commoditized apparel business.
  
• ESG pressures, management instability, and increased competition in digital and direct sales channels risk weakening growth and eroding market share.
  
• Vertically integrated operations, innovation, and sustainability focus position Gildan for resilient growth, stronger pricing, and competitive advantage despite industry consolidation and shifting market dynamics.

Catalysts

Manufactures and sells various apparel products.

• Rising labor costs and increasing volatility in global manufacturing hubs, particularly in Bangladesh and Central America, could significantly erode Gildan's low-cost sourcing advantage, compressing gross margins as wage inflation outpaces efficiency improvements and input costs remain elevated.
  
• Growing consumer demands for sustainability and ethical production threaten to outpace the company's current ESG initiatives, risking costly compliance upgrades and potential market share losses to more agile or premium competitors, which in turn would pressure revenue growth and increase capital expenditures.
  
• Intensified adoption of automation and digital retail by competitors, especially those focused on customization and direct-to-consumer sales, may marginalize Gildan's value-oriented wholesale model, stalling growth in key channels and limiting future upside for both revenue and net margins.
  
• Succession risks and potential management instability remain acute following recent leadership disputes, opening the door for operational missteps or loss of strategic direction that could negatively affect execution, introduce earnings volatility and limit long-term EPS growth.
  
• Structural limitations in pricing power within commoditized basic apparel threaten to undermine profitability during industry downturns, as Gildan may be forced into deeper discounting, resulting in potential revenue stagnation and sustained margin compression over the forecast period.

Gildan Activewear Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Gildan Activewear compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Gildan Activewear's revenue will grow by 4.7% annually over the next 3 years.
• The bearish analysts are assuming Gildan Activewear's profit margins will remain the same at 14.6% over the next 3 years.
• The bearish analysts expect earnings to reach $560.5 million (and earnings per share of $4.22) by about August 2028, up from $486.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from 17.3x today. This future PE is lower than the current PE for the US Luxury industry at 29.8x.
• Analysts expect the number of shares outstanding to decline by 3.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Gildan Activewear Future Earnings Per Share Growth

Risks

• Gildan's vertically integrated, low-cost manufacturing and flexible supply chain allow it to rapidly adjust to tariff changes and cost pressures, providing a structural advantage likely to support both revenue and operating margins in the long term.
  
• Record Activewear sales growth, persistent market share gains, and robust new product innovation pipelines suggest that revenue growth and net earnings could outperform in the coming years, even if traditional core markets soften temporarily.
  
• Ongoing consolidation in the apparel distribution landscape has tended to benefit larger, well-capitalized players like Gildan, as competitors exit or struggle, leading to improved pricing power and potentially higher net margins.
  
• Substantial investments in sustainability, innovation, and recognized ESG excellence have positioned Gildan to benefit from the secular shift toward ethically sourced and sustainable apparel, which may drive increased revenues and strengthen pricing resilience.
  
• Expansion of manufacturing capacity in both Bangladesh and Central America, together with strong capital allocation discipline (including continued share buybacks and maintenance of leverage targets), enables scalable growth, enhances earnings per share, and could support higher long-term shareholder returns.

Valuation

• The assumed bearish price target for Gildan Activewear is CA$80.08, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gildan Activewear's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$128.42, and the most bearish reporting a price target of just CA$80.08.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $560.5 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of CA$77.91, the bearish analyst price target of CA$80.08 is 2.7% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.