Gildan Activewear shares fall after company cuts guidance

Shares of Gildan Activewear Inc. fell to a 52-week low Tuesday after the Canadian sportswear maker cut its guidance below expectations because of production shortfalls that are affecting sales growth.

The company lowered both second-quarter and full-year estimates below expectations.

Shares fell $10.99, or 30.6 percent, to close at $24.93 Tuesday, after earlier reaching a 52-week low of $23.75. The stock had traded between $28.82 and $46.47 during the past 52 weeks.

The cut is primarily due to lower-than-expected sales growth, resulting from production inefficiencies at a Dominican Republic textile factory and a write-down of inventories of discontinued product lines, Gildan said.

Sara O'Brien, an RBC Capital Markets analyst, said the guidance is disappointing but the company's long-term growth potential remains.

She said while the Dominican plant has been hurt by management turnover, complications from the introduction of new technology and neglected machine maintenance, Gildan has appointed its Honduran leadership to oversee the operation and hopes the issues will be solved by the end of the year.

Products sourced from Honduras and the U.S. will be unaffected by the Dominican issues, O'Brien said.

She also said it was a positive that weaker sales are due to internal operation issues, which can be fixed, and now lower demand.

"Today's sell-off equals a compelling entry point," O'Brien wrote. "We expect Gildan shares will trade below $30 today and view this hit to share price as a solid entry point to this long-term growth story.

She kept her "Outperform" rating on the stock but lowered her target price by $10 to $36.