Key Takeaways:
Gildan Activewear shares tumbled 18% on June 16, erasing $2.15 billion after a short-seller report alleged channel stuffing and improper revenue recognition.
"The sources described some version of GIL 'asking for help' from or even 'compel[ling]' its customers to pull forward sales at quarter-ends, including by offering extreme payment terms," Jehoshaphat Research said in the June 16 report, which disclosed a short position. A former Gildan employee told the firm that "if there was a sense that we might not hit the sales numbers that we had communicated to the market, the sales team would offer incentives to the distributors to take on more weeks of supply than they normally had, or rebates at the end of the quarter, or more favorable payment terms." The report also described a practice in which Gildan provided product to distributors without requiring payment until after the customer had resold it.
The short seller alleged that Gildan had approximately $510 million in excess inventory sitting with distributors and that reported revenue growth had been inflated by aggressive inventory practices, with organic growth actually negative for years. Gildan had reported record first-quarter net sales of $1.17 billion on April 30, just weeks before the report. Shares opened sharply lower and traded down between 18% and 24% intraday before closing 18.77% lower on surging volume, one of the steepest single-day declines in the company's history.
The allegations have triggered investigations by at least two shareholder rights firms. Hagens Berman opened an inquiry into whether Gildan may have violated federal securities laws, while Levi & Korsinsky launched a separate investigation into the accuracy of the company's disclosures about distributor inventory and revenue growth. Both firms are seeking investors who suffered substantial losses to come forward. Jessy Hayem, Gildan's senior vice president of investor relations, reaffirmed full-year 2026 guidance after the report and said the company was "confident" in its current disclosure, though the stock continued to trade at depressed levels through the session.
The 18% single-day decline ranks among the largest in Gildan's history as a public company and leaves the stock vulnerable to further selling pressure if additional investigations or a potential SEC probe emerge. Gildan has consistently assured investors that its financial statements comply with applicable accounting rules governing proper revenue recognition, according to the company's prior disclosures. The SEC whistleblower program offers rewards of up to 30% of any successful recovery for individuals with non-public information about potential securities violations, which could encourage former employees to come forward.
Investors will watch for any restatement of prior financial results or a formal response from Gildan's board, as well as any further details from the ongoing shareholder investigations.
This article is for informational purposes only and does not constitute investment advice.
