Key Takeaways:
Bleichmar Fonti & Auld LLP is investigating Gildan Activewear Inc. for securities fraud after the stock plunged 18.75% on channel stuffing allegations.
"Gildan has been stuffing the channel to make revenues look like they're growing," Jehoshaphat Research said in a June 16 report titled "Stuffing All of the Channel Some of the Time?" The short seller alleged the pulling-forward of sales had been cannibalizing future demand and inflating the company's growth trajectory.
The stock fell $11.62 to $50.35 on June 16 from a $61.97 close the prior session, erasing about $1.3 billion in market capitalization. The investigation centers on whether Gildan misled investors about the sustainability of its revenue, which management had attributed to "share gains in key growth categories" and "strong market response to products introduced."
Gildan, an apparel manufacturer that sells T-shirts, fleece, underwear and socks primarily to wholesalers, screen printers and retailers, faces potential securities class action claims. The Jehoshaphat report was based on interviews with former employees, customers and distributors, according to the short seller.
Bleichmar Fonti & Auld, a plaintiff-side securities firm that recently recovered over $900 million from Tesla Inc.'s board and $420 million from Teva Pharmaceutical Industries Ltd., is leading the investigation. The firm is seeking investors who lost money on Gildan shares and is offering representation on a contingency fee basis.
The probe adds legal overhang to a stock already reeling from the allegations. Investors will watch for any financial restatement or regulatory inquiry, with the next catalyst being Gildan's formal response and potential shareholder lawsuit filings.
This article is for informational purposes only and does not constitute investment advice.
