Dagi Giyim Is Buying Back Its Own Stock — Before It Clears the Interest Test

Dagi Giyim, a Turkish apparel maker, has been steadily buying back its own shares since November 2025. As of September 7, the company has repurchased 15.5 million shares — 3.88% of its total capital — at an average price between TRY 9.46 and TRY 10.25 per share. Management says the market price does not reflect the company's real performance.

The statement deserves a closer look. The underlying business is showing genuine signs of operational improvement. But the company is still losing money, and the drag is a specific, measurable one: interest expense on a growing debt load. Before the buyback can be evaluated as value creation or waste, the reader needs to understand what that interest bill does to Dagi's economics every quarter.

Operating income is turning positive. Net income is not.

Dagi Giyim produces and retails underwear, loungewear, and casual apparel for men, women, and children across Turkey and several international markets. The company runs retail stores in cities from Istanbul to Gaziantep, operates wholesale channels, and sells online. It's a business with 724 employees and an 8,000-square-meter production facility.

The operating story in 2026 has two halves. In the first quarter, revenue grew to TRY 740.57 million from TRY 631.76 million a year earlier. Gross margins held at roughly 58%. But the company still posted a net loss of TRY 80.04 million.

The second quarter tells a sharper story. Revenue jumped to TRY 1.07 billion, up 35% year over year, with a gross margin of 55.6%. More importantly, operating income — the profit generated by the core business before interest and taxes — flipped to positive TRY 106 million. In the same quarter a year earlier, operating income was negative TRY 61 million. That swing from negative to positive is the kind of inflection management wants you to notice.

But then interest expense hits. Net interest costs in recent quarters have ranged from TRY 97 million to TRY 148 million. Against a Q2 operating profit of TRY 106 million, that more than wipes out the gain. The result: a net loss of TRY 34.8 million for Q2 2026. Positive at the top of the income statement, negative at the bottom.

This is not an accounting quirk. It is the direct consequence of balance sheet decisions made over the past few years.

The debt that sits between the business and the shareholder

At the end of fiscal year 2025, Dagi Giyim's total debt stood at TRY 1.65 billion, more than doubled from TRY 788 million at the end of 2022. Total assets grew alongside, to TRY 4.24 billion, but the debt-to-equity ratio tells the heavier story: with total equity at TRY 1.67 billion, debt is essentially equal to shareholder equity. The company also carries TRY 390 million in capital lease obligations.

The debt is expensive. Turkey's central bank kept its key interest rate at 37% through June 2026, holding steady for three consecutive meetings. Annual inflation was running at 31.5% in August. In this environment, every new lira of corporate borrowing costs significantly more than domestic purchasing power loses over the same period, but the margin between borrowing costs and inflation is still wide enough to drain operating profits.

Here is the financial relationship the reader should hold in mind: Dagi Giyim must generate roughly TRY 100 million or more in quarterly operating income just to approach breakeven at the net level. In Q2 2026, it did generate that — TRY 106 million — and still lost money because interest ran through the entire amount. In Q1, with operating losses of TRY 26 million, the net loss was TRY 80 million. The gap between operating income and net income is the interest bill, and it is large enough to dominate the bottom line.

What the buyback actually costs

The buyback program, authorized in November 2025, has a ceiling of 35 million shares and a funding limit of TRY 300 million. As of mid-September, about 15.5 million shares have been repurchased. At the average prices management disclosed, the company has spent somewhere in the range of TRY 145 million to TRY 160 million of the TRY 300 million it authorized.

Management states the buybacks will not materially affect the company's financial position or operating results. That assessment deserves scrutiny. The company generated free cash flow of TRY 128 million in Q2 2026, up sharply from negative levels in Q1. Full-year 2025 free cash flow was TRY 141 million. So there is operational cash generation to work with. But the buyback is coming from cash that the company also needs to service TRY 1.65 billion in debt and fund operations in a high-inflation environment where working capital requirements expand with every price increase.

There is also the question of what happens to the treasury shares. In some jurisdictions, repurchased shares are retired, permanently increasing earnings per share for the remaining holders. In Turkey, treasury shares can be held indefinitely, reissued later, or eventually cancelled. Until the shares are cancelled, the repurchase is essentially cash out the door with no permanent structural benefit to remaining shareholders.

Is the stock actually undervalued?

That is the claim driving the buyback. The stock has traded between TRY 5.36 and TRY 11.75 over the past year. On September 7, it closed around TRY 10.23, giving the company a market capitalization of approximately TRY 3.73 billion against total equity of TRY 1.67 billion — roughly 2.2 times book value. The price-to-book ratio of 2.2 is neither deeply discounted nor outrageously expensive. The price-to-sales ratio sits around 1.0 on trailing revenue. There is no price-to-earnings multiple at all, because the company is not earning positive net income.

These multiples are hard to interpret in isolation for a company that is operating in a positive direction while still losing money at the net level. The stock is not selling for less than its balance sheet is worth, and there is no dividend yield to anchor value. The "undervalued" claim rests entirely on forward expectations — that the operating turnaround seen in Q2 will sustain, that interest costs will eventually come down as Turkey's inflation falls, and that the company will clear from operating profitability into net profitability.

That is a reasonable expectation, not a certainty. The operating improvement is real. Gross margins of 55-58% on growing revenue show the core business has pricing power and scale. But the debt overhang means the reader should think of Dagi's path forward as a sequence, not a single event: first operating profitability, then sufficient operating surplus to cover interest, then free cash flow that can be deployed toward debt reduction, dividends, or buybacks without weakening the balance sheet.

Dagi Giyim is attempting to compress that sequence. The buyback is being executed while the company is still at step one.

The real question

The financial test here is straightforward. Can Dagi Giyim's operating business consistently generate more than its quarterly interest bill? Q2 2026 showed it can — barely. Whether that repeats through seasonal weakness, Turkish economic volatility, or further rate hikes is what separates a temporarily distressed business from a genuinely turning one.

If the answer is yes, then buying shares at TRY 9 to TRY 10 while the market discounts a company that is inching toward profitability could well have been a rational allocation of capital. The remaining shareholders would benefit from a permanently smaller share count on an improving earnings trajectory.

If the answer is no — if interest continues to consume every operating dollar, if the debt load requires refinancing at still-high rates, or if revenue growth stalls — then the buyback represents cash that would have been better used to reduce leverage. In that scenario, management is reducing share count on a company that may need every lira of cash to weather a prolonged period of margin pressure.

The reader's job is not to guess which path Dagi takes. It is to understand that the company has not yet proven it can earn more than it borrows, and that the buyback's merit depends entirely on whether it eventually does.