Key Takeaways:
Gildan Activewear Inc. shares tumbled 18.75% on June 16 after Jehoshaphat Research published a report accusing the apparel maker of inflating revenue through channel stuffing, triggering securities fraud investigations from multiple law firms.
The stock closed at $50.35, down $11.62 from the prior session's $61.97 close, after touching an intraday low of $46.56. Trading volume surged as the short seller's report, titled "Stuffing All of the Channel Some of the Time?," alleged Gildan "has been stuffing the channel to make revenues look like they're growing" and that the practice has been "cannibalizing future demand and inflating the overall growth trajectory of this business."
Jehoshaphat's allegations, based on interviews with former employees, customers and distributors, also said the company "transfers almost half its receivables off-balance sheet," obscuring the extent of the problem. The report estimated distributors could be holding about $510 million in excess inventory.
Bleichmar Fonti & Auld LLP and the Law Offices of Frank R. Cruz both announced investigations into whether Gildan misled investors about its financial results. The company had attributed strong sales to "share gains in key growth categories" and "strong market response to products introduced which featured key innovations."
Gildan's own first-quarter results showed wholesale sales fell 11.9% from a year earlier, which management blamed on temporary sell-in weakness as customers reduced inventory. The company maintained its full-year 2026 outlook for revenue of $6.0 billion to $6.2 billion and adjusted diluted earnings per share of $4.20 to $4.40, with free cash flow projected above $850 million.
The first quarter burned about $310 million in free cash flow, and net debt stood at $4.87 billion, pushing leverage to 3.3 times net debt to pro forma adjusted EBITDA. TD Cowen analyst Brian Morrison maintained a Buy rating and $80 price target, citing the HanesBrands integration and potential long-term EPS growth.
The decline puts Gildan shares near 11 times the company's own 2026 adjusted EPS target, a valuation that looks cheap if management's outlook holds but carries elevated risk after the allegations. Investors will focus on the second-quarter report, expected around July 30, for updates on channel inventory levels, cash flow and progress on HanesBrands integration synergies.
This article is for informational purposes only and does not constitute investment advice.
