Gildan CEO Puts Money Where Mouth Is

By Will Ashworth | August 29, 2012 AAA
An amazing piece of news came across the wire August 29. Gildan Activewear (NYSE:GIL) announced that CEO Glenn Chamandy initiated a 10b5-1 share disposition plan that will see Chamandy sell 2.75 million shares over the course of two years beginning any time after December 17. This type of plan isn't unusual; what is rare is most of these shares were purchased on the open market with Chamandy's own money. It's rare for a CEO to put his money where his mouth is; existing shareholders are lucky to have such a committed leader. If you've never considered Gildan stock, it's time you did. Here's why.

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Highlights of Chamandy's Purchases

A total of 1 million shares were purchased in December 2008 at an average price of $10.62. In February 2009, Chamandy picked up the pace, buying 1.6 million shares at an average price of $7.15. Overall, in the span of three months, the CEO was able to acquire $22.1 million in stock at an average price of $8.48 a share. Chamandy is sitting on an unrealized profit of $57.8 million as of the August 29 closing price of $30.70. That's a 262% return compared to 60% for the S&P 500 in the same 44-month period. By doubling down in February 2009, Chamandy has made himself even wealthier. How can you begrudge a man who walks the walk? You can't.

SEE: When Insiders Buy, Should Investors Join Them?

Downside of Purchases

The only negative about the CEO's purchases is that the company didn't follow suit. Despite a drop in operating income in fiscal 2009 (September year-end), it still finished the year with $132.2 million in free cash flow so it had plenty of cash to buy back shares. On the other hand, it had just finished making a $126 million purchase of Prewett & Sons, an Alabama sock maker, in fiscal 2008, and would go on to acquire Gold Toe Moretz in fiscal 2011 for $350 million in cash. With a debt capitalization ratio of just 19%, it's hanging on to its cash in order to finance appropriate acquisitions as they come along. In that respect it's hard to fault them. Besides, it's never been a big buyer of its own stock so it's understandable that Chamandy and the board sat on their hands.

The two best examples of publicly traded companies competing with Gildan are Hanesbrands (NYSE:HBI) and American Apparel (AMEX:APP). A third would be Fruit of the Loom, but it's part of Berkshire Hathaway (NYSE:BRK.A, BRK.B) and not easily comparable. Since Sara Lee veteran Richard Noll became CEO in April 2006, the leader's acquired 100,000 shares for about $1.4 million. That seems like a lot until you realize that he owns almost 2.6 million shares, most acquired at no cost as stock grants over the years. Then there's Dov Charney, the mercurial founder of American Apparel, who's gone through hell the past few years trying to keep his company afloat. Have a look at Charney's situation and you'll see that a significant portion of his 45.8 million shares have been purchased on the open market; his most recent buy 105,000 shares at 77 cents apiece. You might not agree with his philosophy of life but he definitely has put his money where his mouth is, and although it's debatable how this story turns out, you have to give him credit for stepping up to the bar.

The Bottom Line

It's no coincidence that both Glenn Chamandy and Dov Charney have been big buyers of their company stock. They both founded their respective businesses and have an emotional attachment that a hired gun, even one who's spent 20 years in the organization, could ever have. The moral of the story: founder-led businesses often make great investments.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

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