Several months ago, the capital markets began to be gripped by fear. There is no doubt that this fear has (for whatever reason) now pervaded its way all the way to the end consumer. We are now seeing evidence that consumers are holding off on buying items they would normally keep buying.
Nowhere is this more evident than on last week's conference call for Gildan Activewear (GIL). Gildan sells non-fashion apparel like t-shirts, underwear and socks to mass retailers. One would expect this to be a steady business. Although their most recent quarter ended in early October, Gildan's management added some info about what they saw happen to sales after the quarter's end:
"Up until the end of September, [Gildan's] market was down 3%, so we have been in a recession...basically, we have always felt that we’re quite resistant to economic downturns, and that was reflective really in this year of 3%...In the month of October...business was actually quite normalized at probably at a clip of minus 3% through October 15...From October 15, there has been a shock of the credit system, customers watching their inventory, the customer end user watching their inventories, and just I think the whole philosophy, rethinking and people getting nervous looking at their net worth thinking, I guess shrinking. So, what has happened is that really – [Gildan's] market actually went down. In October, it was down 13%, but in the first two weeks we were actually pretty normalized, and the last two weeks we’re severely down, and that kept going through November."
Normally, one wouldn't expect large drops in demand for a company selling cheap t-shirts, socks and underwear. But clearly this is a fearful time. Gildan's stock dropped 27% following this call. The fear prevalent in the economy is creating buy situations for those (like Warren Buffett) who are bullish on the economy in the long term.
Disclosure: None
No comments:
Post a Comment