Naked Brand Group vs. Gildan Activewear: Which Intimate Apparel Stock is a Better Buy?

NYSE: GIL | Gildan Activewear, Inc. Class A Sub. Vot.  News, Ratings, and Charts

GIL – The increased demand for visually appealing products in various designs and categories, as well as rising awareness regarding comfort, hygiene and style, have been key factors in driving the growth of the intimate apparel market globally. In fact, the popularity of intimate wear has led consumers to rely on popular intimate apparel players such as Naked Brand Group (NAKD) and Gildan Activewear (GIL). We think their growing brand recognition and solid business models should help drive their sales in the near term. But let’s find out which of these stocks is a better buy now.

Naked Brand Group Limited (NAKD) and Gildan Activewear Inc. (GIL) are two popular designers and sellers of intimate apparel and activewear products in the United States, Canada and internationally. Based in Double Bay, Australia, NAKD offers its products under the 74-year-old Frederick’s of Hollywood brand. It sells its products through an online channel www.fredericks.com. Headquartered in Montreal, Canada, GIL offers intimate and hosiery products under the Gildan and Gildan Platinum, Secret and Secret Silky, Silver Toe, and other brands.

The global intimate apparel market is estimated to grow at an 8.1% CAGR from 2018 – 2025. The  increasing popularity of customized, comfortable and luxurious intimate wear, with consumers focusing more on style than pricing, has fueled the growth of the intimate apparel industry. In fact, changes in lifestyle and buying patterns have encouraged consumers to seek products of prominent intimate apparel market players like NAKD and GIL to meet their needs. Since these companies are strengthening their business models and diversifying their product portfolios, we believe they are well-positioned to see sustained demand in the coming months.

GIL has gained 156.6% over the past year, while NAKD has lost 8.8% over the same period. In terms of past month performance, GIL is the clear winner with 3.2% gains versus NAKD’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

At the close of its last fiscal quarter, NAKD’s trailing-12-month total revenue was $80.04 million, while its trailing-12-month gross profit was $33.89 million. However, the company reported a negative EBITDA of $51.17 million for the last quarter. Also,  NAKD generated a $9.67 million operating loss and a net loss of $68.35 million.

In the first quarter ended April 4, 2021, GIL’s net sales increased 28.4% year-over-year to $589.6 million, driven by an increase in sales in the hosiery and underwear category. Its gross margin rose 880 basis points from its  year-ago value to 32%. Furthermore,  the company’s operating income was  $113.8 million versus a $92.3 million operating loss in the prior-year quarter. Also, GIL’s net income for the first quarter was $98.5 million, compared to a $99.3 million net loss  for the same quarter of 2020.

Past Financial Performance

GIL’s total assets declined at a 0.1%CAGR  over the past three years. In comparison, NAKD’s total assets increased at an annualized rate of 22% over this period.

Profitability      

GIL’s trailing-12-month revenue is significantly higher than NAKD’s But NAKD is more profitable, with a 42.3% gross profit margin versus GIL’s 15.2%.

However, GIL’s 8.9% and 30.7% respective EBITDA and levered free cash flow margins compare favorably with NAKD’s 0.2% and negative 15.4% margins. Also, GIL’s $645.06 million in cash from operations compares favorably with NAKD’s $7.92 million in negative cash from operations. .

Valuation

In terms of trailing-12-month EV/Sales, NAKD is currently trading at 7.76x, 113.2% higher than GIL, which is currently trading at 3.64x. But GIL’s  5.21x trailing-12-month Price/Book is 20.9% higher than NAKD’s 4.31x.

POWR Ratings

GIL has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, NAKD has an overall D rating, which translates to Sell. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

In terms of Growth Grade, GIL has a B, which is consistent with its higher growth prospects. NAKD’s Growth grade is C.

Also, in terms of Sentiment Grade, GIL has an A, given that analysts expect its EPS to increase 1,155.6% year-over-year in the current quarter. In comparison, NAKD has a Sentiment Grade of D.

Of the 34 stocks in the A-rated Athletics & Recreation industry, GIL is ranked #23. NAKD is ranked #63 of 72 stocks in the C-rated Consumer Goods industry.

Beyond what we’ve highlighted, our POWR Ratings system has also rated both GIL and NAKD for Momentum, Quality, Stability and Value. Get all GIL ratings here. Also, click here to see the additional POWR Ratings for NAKD.

The Winner

Although NAKD is rapidly developing its e-commerce platform by focusing exclusively on its Frederick’s of Hollywood online business, the company has been losing money due to store closures and brand selloffs. Its weak financial performance and poor profitability are the consequences. In contrast, GIL has been driving strong double-digit growth across all channels in its imprinted activewear and intimate segments. So, we think GIL is a much more lucrative investment compared to NAKD.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Athletics & Recreation industry. And click here to see the top-rated stocks in the Consumer Goods industry.


GIL shares were unchanged in premarket trading Tuesday. Year-to-date, GIL has gained 29.10%, versus a 13.25% rise in the benchmark S&P 500 index during the same period.


About the Author: Imon Ghosh


Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...


More Resources for the Stocks in this Article

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