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A Growth Strategy for Gildan Activewear
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Logic Summary
Audience : Board of Directors
Assumptions : Formal; friendly; action bias primary decision maker; limited knowledge- need reminding likely will agree
Goal : Decision to go ahead with 3 point programme
Background • Gildan is a leading supplier of low-cost, quality branded basic family
apparel• Gildan has grown at a CAGR of 19% in the last 10 years• Gildan has three sources of long-term sustainable competitive
differentiated advantage (LTSCDA)• Low-cost position of high quality apparel products• A highly integrated and effective global supply network• A strong management team focused on creating value for the
customer
Complications: • Gildan has saturated its key wholesale distribution market with a 70%
market share.• Gildan’s branded apparel is still developing and is currently weaker than
its competitors.
Question : How will Gildan sustain its growth in the next 5 years?
2
Gildan must take 3 steps to drive future growth
1. Increase penetration of printwear segment in Europe and Asia-Pacific
• Gildan currently has limited penetration in Europe and Asia-Pacific printwear markets
• Printwear in Asia-Pacific and Europe is expected to grow at a faster rate than the U.S.
• Gildan can leverage its cost advantage in producing printwear to achieve international market leader position
2. Expand licensing agreements with other brands and build Gildan’s own brand to grow its branded apparel segment in the U.S.
• Gildan has significant room to grow in US branded apparel as it currently only has a 6% market share
• Gildan is well-positioned to build its own brand as it can leverage its existing core strengths of cost, quality and distribution
• Increased sales volumes achieved through expanding brand licenses and Gildan’s own brand will result in economies of scale and higher profit margins
3. Invest in fabric R&D to develop a differentiated next generation of Gildan active wear products
• Gildan’s vertically integrated manufacturing capabilities allow it flexibility to incorporate textile innovations
• Active wear segment is a growing market that Gildan should penetrate to ensure its long-term, sustainable growth
• As innovative materials are valued in active wear, Gildan’s cost advantage allow it to uniquely position an innovative product line-up within this market
Executive Summary
Background: Gildan is a leading supplier of low-cost, quality branded basic family apparel. Its competitive advantage stems from its low cost, high quality products, integrated supply chain, and strong management team. It has grown at a CAGR of 19% for the last 10 years.
Complication: Gildan has captured 70% of the US wholesale distribution market for printwear segment with little room for further growth and its branded apparel is weaker than its competitors.
Question: How can Gildan sustain its growth in the next 5 years ?
Recommendation: In order for Gildan to sustain its growth in the next 5 years, it must
1. Increase penetration of printwear segment in Europe and Asia-Pacific.
2. Expand licensing agreements with other brands and build its own brand.
3. Invest in fabric R&D to develop a differentiated next generation of products.
Gildan is a leading supplier of low-cost quality basic apparel
• Gildan has two core business segments: (1) Branded Apparel with a diversified portfolio of company-owned and licensed brands and (2) Printwear
• It is one of the largest suppliers of branded athletic, casual and dress socks for a broad spectrum of retailers in the U.S.
• It has 70% market share in the wholesale T-shirt category in the U.S.
BACKGROUND
-
500
1,000
1,500
2,000
2,500
2009
2010
2011
2012
2013
E
$mill
ions
Fiscal Year
Revenue
-
50
100
150
200
250
300
350
400
2009
2010
2011
2012
2013
E
$mill
ions
Fiscal Year
Earnings Before Interest & Taxes (EBIT)
Gildan has consistently grown its revenues and profits
+12% / year+19% / year
Source: RBC Capital Markets Research – Gildan Activeweat Inc - July 28, 2013
BACKGROUND
Gildan’s stock has returned 19% CAGR over the past 10 years compared to 5.5% for the TSX
Source: Bloomberg
BACKGROUND
Gildan has three sources of long-term sustainable competitive differentiated advantage (LTSCDA)
Operational excellence to produce low cost high quality apparel products
A highly effective and integrated global supply network
A strong management team focused on creating value for the customer
LTSCDA
• High gross margins achieved through owned and operated vertically-integrated manufacturing facilities
• Substantial CAPEX into modernizing and refurbishing existing and newly acquired manufacturing facilities to achieve cost efficiency
Lean vertically integrated manufacturing facilities improve cost efficiency
Hig
h m
anu
fact
uri
ng
ef
fici
ency
Lo
w p
rod
uctio
n co
st
Economic returns
Operational excellence to produce low cost high quality apparel products - LTSCDA 1
LTSCDA
• Installation of biomass facilities for steam generation to lower energy costs and reduce reliance on high-cost fossil fuels
• Innovations in manufacturing process and technology innovations to advance product performance via features such as moisture management and anti-microbial properties
Investments in technological innovations reduce costs and advance product quality
Operational excellence to produce low cost high quality apparel products - LTSCDA 1
LTSCDA
• The Gildan Quality System uses quality controls to promote best practices to improve operational efficiency at all its manufacturing plants
• Basic apparel allows flexibility to respond to changes in consumer preferences and demand and to achieve economies of scale
Gildan’s quality system and focus on basic fashion supports efficient production
LTSCDA
Operational excellence to produce low cost high quality apparel products - LTSCDA 1
Strategically-located manufacturing hubs world wide support an effective global value chain
A highly effective and integrated global supply network - LTSCDA 2
• Central America and Caribbean Basin facilities support North American sales; facilities in Bangladesh support sales in Asia and Europe
• Benefits gained from low transportation, wage, tax rate, and trade costs
LTSCDA
The global supply network supports efficient replenishment programs with short production/delivery cycle time
A highly integrated and effective global supply network - LTSCDA 2
• The Company has control over backward linkages with raw material and forward linkages into distribution and retailing to support industry leading replenish turnaround time
• Worldwide distribution channel enables Gildan to better positioned to meet the service requirements of the target markets
• Information system investments and economies of scale support Gildan’s efficient supply chain organization
Component global
networks
Production global
networks
Export global networks
Marketing global
networks
LTSCDA
Gildan has built strong relationships with global wholesale distributors, consumer brands, and retailers to create integrated supply network
A highly integrated and effective global supply network – LTSCDA 2
• Whole sale distributors in 30 countries across North America, Europe, and the Asia-Pacific region
• Leading supplier of socks in the U.S. mass-market retail channel such as Walmart, Target, Kohl’s and JC Penny
• Supply chain partner to global consumer brands
LTSCDA
Stable management team ensures leadership continuity with a high level of expertise in apparel industry
A strong management team creating value - LTSCDA 3
• Senior executives have unique talents and expertise derived from a long tenure with the Company and apparel industry
• Succession planning with a focus on promoting internally ensures leadership continuity
Glenn J ChamandyPresident & CEOFounder of Corporation 1984
Michael R. HoffmanPresident, International salesJoined company 1997Prior experience: fruit of the loom
Benito MasiExecutive Vice PresidentManufacturingJoined company 1986
Laurence G. SellynExecutive Vice-presidentJoined company 1999
Eric LehmanPresident, Retail SalesJoined company 2008Prior experience: major apparel brands supply chain
Peter IliopoulosSenior Vice-PresidentPublic and government affairsJoined company 2002
LTSCDA
Management has executed key strategic initiatives to achieve Gildan’s market leader position in U.S. printwear
A strong management team creating value - LTSCDA 3
Years
Mar
ket
shar
e (
%)
U.S. printwear market share 1998-2012
LTSCDA
Management focuses on being socially and environmentally responsible at all of its manufacturing facilities
• Implements industry-leading labour & environmental practices in all of its facilities
• First to report social and environmental results on an annual basis
• Gildan’s commitment to being socially and environmentally responsible valued by the market
A strong management team creating value - LTSCDA 3
LTSCDA
Gildan has saturated the printwear market in the U.S.
Wholesale Distributer Market Share
Gildan70%
Other brands30%
Source: Desjardins Capital Markets Research – Gildan Activeweat Inc - April 15, 2013
COMPLICATION
Gildan’s branded apparel is still developing and is currently weaker than its competitors
…
Hanes Brands Inc.
…
Gildan
COMPLICATION
In order to sustain future growth Gildan must focus on following three horizons
Time
Pro
fit Horizon 1
Protect printwear segment via
international expansion
Grow branded apparel in US market
Horizon 2Invest in R&D for
innovative products
Horizon 3
ACTION
• Gildan currently has limited penetration in Europe and Asia-Pacific printwear markets
• Printwear in Asia-Pacific and Europe is expected to grow at a faster rate than the U.S.
• Gildan can leverage its cost advantage in producing printwear to achieve international market leader position
Action 1: Increase market penetration of printwear segment in Europe and Asia-Pacific
Gildan must take 3 steps to drive future growth – Action 1
Gildan currently has limited market share in Europe & Asia-Pacific printwear segment
Gildan15%
Other brands85%
Europe printwear market share in 2013
Gildan1%
Other brands99%
Asia-Pacific printwear market share in 2013
Total market size $US 2.5B Total market size $US 3.2B
Gildan must take 3 steps to drive future growth – Action 1
ACTION
Printwear in Asia-Pacific and Europe is expected to grow at a faster rate than the U.S.
8%
2%
10%
5%
Annual growth rate (2013) of printwear market by geography
Gildan must take 3 steps to drive future growth – Action 1
ACTION
Gildan can leverage its cost advantage in producing printwear to achieve international market leader position
Series10
1
2
3
4
5
6
Gildan
Other leading brand
Ave
rage
pri
ce (
US
$)/u
nit
$5.00
$1.50
Comparison of Gildan’s average T-shirt price to its competitors
Gildan must take 3 steps to drive future growth – Action 1
ACTION
• Gildan has significant room to grow in US branded apparel as it currently only has a 6% market share
• Gildan is well-positioned to build its own brand as it can leverage its existing core strengths of cost, quality and distribution
• Increased sales volumes achieved through expanding brand licenses and Gildan’s own brand will result in economies of scale and higher profit margins
Action 2: Expand licensing agreements with other brands and build Gildan’s own brand to grow its branded apparel segment in the U.S.
Gildan must take 3 steps to drive future growth – Action 2
Branded apparel sales, U.S. 2013
Other brands 94%
Gildan 6%
Total market size $US 11.5B
Gildan has significant room to grow in US branded apparel as it currently only has a 6% market share
Gildan must take 3 steps to drive future growth – Action 2
ACTION
Cost Quality Distribution
The three pillars of Gildan’s advantage
Gildan is well-positioned to build its own brand as it can leverage its existing core strengths of cost, quality and distribution
Gildan must take 3 steps to drive future growth – Action 2
ACTION
2013 2014 2015 2016 2017 2018 2019 20200%
5%
10%
15%
20%
25%
30%
35%
40%
$-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
Increasing market share versus unit cost
Average unit cost
Year
Ma
rke
t S
ha
re P
erc
en
t Av
era
ge
un
it co
st ($
/item
)
Branded Market Share
Increased sales volumes achieved through expanding brand licenses and Gildan’s own brand will result in economies of scale and higher profit margins
Gildan must take 3 steps to drive future growth – Action 2
ACTION
• Gildan’s vertically integrated manufacturing capabilities allow it flexibility to incorporate textile innovations
• Active wear segment is a growing market that Gildan should penetrate to ensure its long-term, sustainable growth
• As innovative materials are valued in active wear, Gildan’s cost advantage allow it to uniquely position an innovative product line-up within this market
Action 3: Invest in fabric R&D to develop a differentiated next generation of Gildan active wear products
Gildan must take 3 steps to drive future growth – Action 3
Gildan’s vertically integrated manufacturing capabilities allow it flexibility to incorporate textile innovations
Gildan must take 3 steps to drive future growth – Action 3
ACTION
Component Networks
integrated and controllable
Cotton, wool, silk,
etc
Oil, natural gas
Yarn (Spinning)
Petro-chemicals
Fabric (weaving, knitting, finishing)
Synthetic fibers
Production Networks
Export Networks
Marketing Networks
The Apparel Global Value Chain
Active wear segment is a growing market that Gildan should penetrate to ensure its long-term, sustainable growth
Gildan must take 3 steps to drive future growth – Action 3
ACTION
2010 2011 2012190
200
210
220
230
240
250+7.5% / year
Year
Mar
ket
Siz
e ($
bn
)Performance Activewear
$US
244
B
As innovative materials are valued in active wear, Gildan’s cost advantage allow it to uniquely position an innovative product line-up within this market
Gildan must take 3 steps to drive future growth – Action 3
ACTION
Castelli Tight: $355(+) High innovation(+) High margin(-) High cost(-) Niche market
CombineGildan Activewear: $100
(+) Multiple materials(+) High innovation, margin(+) Mass market(+) Value priced
Combine
Valued
High End
MEC Tight: $35(-) Low innovation(-) Low margin(+) Low price(+) Mass market
Low End
Assumptions
•Increase in market share & annual international market growth modeled at 15% overall in next 5 years
•Branded apparel growing at 5% over the next 5 years
•A YoY growth rate of 5% for CoGS
•A constant 11x EBITDA multiple for the share price
2013 2014 2015 2016 2017 $-
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
$1,400.00
$1,600.00
EBITDA
North American Printwear
International Printwear
Branded Wear
Projected Financials ($ mm)
Year
Tota
l $
mm
Gildan share price is expected to grow at 10.5% CAGR over the next 5 years based on the recommendation assumptions