Amid the fiery saga over who should lead Gildan Activewear (PPAI 250187, Platinum), which is open to a sale, the Montreal-headquartered apparel company has reported that its net earnings dropped about 20% year over year in the first quarter of 2024.

The firm reported Q1 net sales of $696 million dollars, down 1% over the prior year, which was “driven by lower net selling prices and unfavorable mix,” according to its earnings report on May 1. In the hosiery and underwear category, sales were down 10% over the prior year due to an “unfavorable mix, the phase out of the Under Armour business and broader market weakness in the underwear category.”

On a positive note, activewear sales and international sales were up 1% in Q1, respectively.

  • The company credited “higher shipments and seasonal replenishment at distributors” for growth in the activewear division, which includes sales to the promotional products market.

“Our solid first quarter performance highlights the strength of our business model and our strong focus on executing on our priorities,” says Vince Tyra, president and CEO of Gildan. “The quarter included several bright spots, including continued market momentum in ring spun and fleece products. I’m pleased with our competitive positioning and our execution, which drove significant year-over-year improvement in our key financial metrics. Our key focus strategic priorities are clear and we’re off to a good start to the year.”

Costly Battle

Gildan reported spending $20 million on “advisory fees on shareholder matters, costs related to assessing external interests in acquiring the company, adjustments to CEO separation costs as well as special retention awards.”

  • If those expenses are excluded, the company said, then Gildan’s adjusted quarterly net earnings are $99.2 million, up 22% from the first quarter of 2023.

The company has been engulfed in messy leadership drama throughout Q1 since ousting co-founder Glenn J. Chamandy as CEO in December after the board of directors lost confidence in him.

Activist fund Browning West, which holds about 5% of Gildan’s outstanding shares, responded by suing the company and its board, accusing both parties of disregarding the rights of shareholders by “pursuing a strategy of entrenchment, obfuscation and disparagement of dissenting shareholders, improperly placing their own personal interests ahead of the interests of the company and its shareholders,” according to a press release from Browing West.

The lawsuit alleges that Gildan and its board have:

  • Leaked corporate documents to journalists and shared this confidential information with a third-party “governance expert” hired by the board, while refusing to share those same documents and information with shareholders.
  • Launched public attacks on Browning West and imposed costs associated with defending “meritless litigation” in an attempt to deter and silence shareholders from raising their concerns publicly.
  • Signed a “support agreement,” which includes board representation rights for a shareholder who has a conflict of interest due to a significant ownership stake in one of Gildan’s largest customers.
  • “Falsely accused” Browning West of collaborating “improperly” with Chamandy while he was CEO of Gildan.

In the lawsuit, Browning West fears that Gildan will try to delay the annual meeting scheduled for May 28, where the former plans to offer a slate of candidates to replace eight members of the board and reinstate Chamandy.

Chamandy, who claims he was “terminated without cause,” previously told Fashion Network that “shareholders should decide the future if they’re not happy with the CEO. The process was flawed, and they didn’t really have a very good plan.”

Gildan’s board has also been accused of failing to perform its due diligence before naming apparel industry veteran Tyra as Chamandy’s successor. Tyra allegedly had an affair with an employee who reported directly to him while he was CEO of alphabroder more than two decades ago – and who now holds a senior leadership position at Gildan, The New York Post reported.

  • An anonymous source close to Gildan denied that the relationship was an affair, claiming that, at the time, Tyra was separated, and the employee was divorced, The Post 
  • The source added that there’s no policy preventing someone from being hired because they had a consensual relationship with a current Gildan employee more than 20 years ago.

Gildan’s Criticism Of Chamandy

In January, the Gildan board issued an open letter to shareholders, “setting the record straight” regarding the motivation behind terminating Chamandy.

  • In this open letter, the board called Chamandy “disengaged,” “unstructured” and having “no credible long-term strategy and no vision for the future.”
  • It also accused him of being focused on outside personal pursuits – including the development of a golf resort in Barbados – and said retaining Chamandy would have “jeopardized the future of Gildan and destroyed shareholder value.”

To bolster its case, the Gildan board has submitted details in support of its decision and sought a third-party assessment of its governance.

  • Gildan’s board has released a timeline, beginning with a 2021 succession plan, that reportedly shows that Chamandy, despite the plan, had “no intention of leaving.”
  • The board retained Dr. Richard W. Leblanc, a Canadian expert on corporate governance and accountability, to produce a report analyzing its succession-planning process.

Will Gildan Be Sold?

In March, Gildan confirmed that an offer was made to acquire the company.

  • Gildan’s statement characterizes the offer as “a confidential non-binding expression of interest” to acquire the company.
  • The board also confirmed that it is considering this offer as well as other potential offers.

This development has been decried by Browning West, which argues that the Gildan board “cannot be trusted” to oversee a potential sale of the company.

However, Gildan’s board has been careful to use language to avoid claiming any specific action will be taken, noting that its forward-looking statements were “inherently uncertain.” It has established a committee of independent directors “to review and consider the merits of the proposal.”

Speaking to Reuters, Gildan Spokesperson Simon Beauchemin, says, “The special committee determined that it was consistent with its fiduciary duties and in the best interests of Gildan to contact other potential bidders with a view to maximizing the value of any potential transaction.”

Gildan has approached RBC Capital Markets and Goldman Sachs Group to identify additional bidders, reports The Globe And Mail

  • Beauchemin says that the special committee, working with the company’s financial advisors, have been in contact with potential buyers and that interest has been shown in a possible friendly takeover of Gildan.

While Gildan’s statements have called the original acquisition offer “confidential,” media reports have claimed that Sycamore Partners, a private equity firm and parent company of PPAI 100 No. 3 distributor Staples Promotional Products, is exploring a bid for Gildan.