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Gildan Plunges Most Since 2008 As ‘Cash Machine’ Unit Slumps

Sandrine Rastello

(Bloomberg) -- Customized T-shirts appear to be the first thing to go in times of economic uncertainty.

Shares of apparel giant Gildan Activewear Inc. plunged by a third Friday after the company pared its guidance for revenue and profit due to a slowdown in its print-wear business. The unit sells basic clothing to wholesalers who slap logos on them for sports teams or events.

The Montreal-based company said Thursday it faced an unexpected decline in the U.S. and a slowdown in Europe and in China, just months after describing the Asian economy as “on fire.” Its newer retail business, which includes its own-brand underwear, was in line with expectations.

Given Gildan’s scale, the sharp slowdown in U.S. print-wear sales in the third quarter is most likely an industry-wide phenomenon, Keith Howlett, an analyst at Desjardins Capital Markets, wrote in a note to investors, calling the unit Gildan’s “cash machine.” He cut his rating to sell from buy.

“The printwear channel is reliant on demand from the promotional products channel, and it is possible that economic anxiety has caused some companies to reduce discretionary spending,” Howlett said.

Shares fell as much as 34% in New York to $23.45, the biggest intra-day drop in almost 11 years. The profit warning led several analysts to reduce their ratings and price targets on the stock.

Gildan has built a global production chain ranging from yarn-spinning to clothes-stitching, which has enabled the company to lower costs and compete with Hanesbrands Inc. and Berkshire Hathaway Inc.’s Fruit of the Loom.

Here’s what other analysts wrote:

Bank of America Merrill Lynch, Heather Balsky, downgraded to Underperform from Buy

“End demand from corporate customers has been especially weak, potentially tied to a slowing economy. The BofAML macro team expects continued U.S. economic deceleration, which does not bode well for future demand in our view.”

Still, Gildan has meaningful opportunity to grow its private label business and Balsky anticipates additional product announcements in the near term.

CIBC, Mark Petrie, reduced price target to $30 from $40

“Gildan has had material guidance revisions over the years, so this move will bring up bad memories. Though we are surprised at this cut -- particularly the magnitude -- we do not believe this reflects challenges as dire as in the past.”

“That being said, de-stocking issues can linger, and we have limited visibility overall, so it is difficult to have conviction in the pace and shape of a recovery.”

RBC, Sabahat Khan, cut price target to $30 from $36

“In addition to a weak economic backdrop, we believe that the decrease in the price of cotton is exacerbating the inventory destocking issue.”

“We believe that distributors are likely reducing inventory levels in the hopes/anticipation of lower prices from suppliers.“

(Updates with share price in sixth paragraph)

To contact the reporter on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe, Steven Frank

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