Why Gildan Activewear Stock Tumbled by 11% This Week
Key Points
It accused company management of acting improperly.
One of its major allegations was that Gildan is channel stuffing.
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A short-seller made no bones about the flaws it sees in Gildan Activewear's (NYSE: GIL) business. That investor published a scathing report about the company's performance and conduct on Tuesday, setting a very bearish tone for the remainder of the short trading week.
Ultimately, according to data compiled by S&P Global Market Intelligence, Gildan's stock traded down by 11% as a result.
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Short-tempered
That firm, Jehoshaphat Research, disclosed on Tuesday that it holds a 4% short position in Gildan's total float. In a 60-page document, the firm laid out in great detail its argument that the apparel conglomerate's equity was set for a fall.
Image source: Getty Images.
Headlining its report "Stuffing all the channel some of the time," Jehoshaphat was highly critical in its assessment. The company began its analysis by writing that "Gildan got addicted to a growth narrative, and like many addicts, it has done unsavory things to feed its addiction. This episode will most likely end the same way previous such episodes at this company have ended."
In other words, negatively.
Jehoshaphat made numerous accusations throughout the document, including the aforementioned channel stuffing (i.e., selling more into distribution channels than current demand can support to inflate growth numbers). Other allegations include intimations of tax malfeasance and accounting irregularities.
Gildan responded quickly to the report, issuing a terse press release stating it "is confident that its current disclosure provides its investors with accurate and comprehensive information regarding Gildan, including with respect to its financial information and governance practices."
It added that it didn't intend to provide further comment at that time.
Food for thought
Such claims are troubling, and judging by the very detailed and apparently comprehensive analysis, potentially believable. While some recent developments at Gildan have been encouraging -- such as its opportunistic acquisition of storied Hanesbrands late last year -- the allegations would give me serious pause before considering buying the stock.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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