Made in Canada (not really)
Gildan Activewear Inc. - TSX/NYSE: GIL
I want to apologize to my Canadian readers for writing about so many American companies. Unfortunately, Canadian companies don’t disclose their compensation changes until their proxy is released. Fortunately, it’s proxy season!
“Shit-show” is how I would sum up the corporate governance developments at Gildan Activewear over the past year and a half. To make a long story short, the previous board randomly fired Gildan’s Founder/CEO, Glenn Chamandy, and replaced him with someone objectively incompetent. Not surprisingly, many large shareholders were caught off guard given that Chamandy had an impeccable record of compounding value at 19.7% per annum, totaling nearly 99x since the IPO.
Following his firing, a shareholder group led by Browning West and Chamandy joined forces and ran a successful proxy contest in May 2024, which resulted in Chamandy being reinstated as CEO, and the incumbent board being fired.
As I followed along with the proxy contest in 2024, one of Browning’s campaign items stood out to me. It specifically rested upon implementing an incentive plan to reach a share price of US$100 by December 2028. This was significant because during the time of the campaign, Gildan stock traded at US$35.
On March 18, 2025, Gildan finally released their proxy which provided some details on this new incentive plan. They call it the “Special Aspirational Incentive Plan (AIP)”, and it was approved and adopted by the board on December 12, 2024.
Below are the headline goals for the PSUs:
The share price targets must be met before December 11, 2028, with a fifth-year extension period ending on December 11, 2029, subject to payout adjustments.
In cases where share price hurdles are not met by the end of the four-year period, plan participants can benefit from an extension year (the fifth year). There’s a lot of detail pertaining to the extension year, but at a high level, the max payout is reduced by 10-15% if it runs into the 5th year.
There is no payout prior to the end of the fourth year even if the share price hurdles are achieved prior to that.
The payout is capped at 50% of the award value at the end of the fourth year, with the remaining amount paid out, if any, at the end of the fifth year
The PSUs were given to Chamandy, senior executive officers, as well as ~200 leaders across the organization, in all business segments and countries where Gildan operates.
The amount of PSUs specifically given to the named executive officers are outlined in the far right column below:
While the fair value of the awards are estimated using accounting conventions, I find it easier to do a payout scenario analysis. Let’s take Ward (President, Sales, Marketing, and Distribution) and Chamandy (CEO) as examples:
If the minimum price hurdle of US$75 is met:
Ward receives US$0.8MM
Chamandy receives US$4.4MM
If the maximum price hurdle of US$100 is met:
Ward receives US$11.1MM
Chamandy receives US$59.9MM
In a normal year, Ward and Chamandy take home ~US$2.7MM and ~US$10MM, respectively, which includes salary, STIP, options, LTIP, etc. Per the proxy, Ward and Chamandy also own 245K and 1.4MM shares, respectively, of stock, unvested RSUs, and unvested PSUs. This special PSU is quite significant at the high end in terms of dollar amount, as well as number of shares for both executives.
The key question is: should we bet alongside them?
We have some clues based on the slides from the 2024 Browning proxy contest playbook.
The revenue growth estimate results in a ~6% CAGR during the performance period.
Revenues grew 2.3% in F2024, and overall revenue growth has been quite tepid post-pandemic.
I consider the 6% CAGR a bit too optimistic, and would expect a more normalized 2-3% CAGR.
The adjusted operating margin is assumed to increase to 22.4%, mostly due to cost improvements, a reversal of cotton price headwinds, and a shift in product mix.
Historical adjusted operating margins at Gildan have been: 0.9% in F2020, 20.2% in F2021, 19.7% in F2022, 17.3% in F2023, and 21.3% in F2024.
This margin goal seems quite achievable, especially when one considers their new low-cost Bangladesh production facility.
The shares outstanding are assumed to decrease to 113MM, as a result of an aggressive buyback program.
This variable is completely in the board’s control, and also happens to be the largest contributor in the EPS bridge above. As of F2024, there are currently 163.1MM shares outstanding, which was a 7.4% reduction relative to F2023.
One of the new board members is the Co-Founder of Browning himself, Peter Lee. I expect Browning to advocate that all excess cash flow be diverted towards share buybacks.
F2024 diluted EPS was $3.00 (after adding back legal fees and severance pertaining to the proxy contest)
Today, Gildan trades at US$45 per share and has leverage of ~1.9x Net Debt/EBITDA. Due to the recent sell-off related to tariff uncertainty, investors are able to purchase this quality company at 15x LTM earnings.
The entirety of Gildan is heavily incentivized to achieve those share price goals. Time to get long too.