Gildan Activewear Inc. (GIL: TSX and NYSE) today announced its
results for the first quarter ended March 29, 2020.
“During the first quarter, we faced unprecedented impacts
globally as the COVID-19 pandemic unfolded. This required us to
amplify our focus on what we do best and on what we can do to
support all our stakeholders as a values-driven, strong, resilient,
and well-positioned Company. I am both proud of and extend my
gratitude to our employees for their dedication and efforts during
this crisis which we will continue to move through over the coming
months. I am also equally proud that in these difficult times,
Gildan has been able to join with our partners to adapt rapidly to
be able to produce products for the health care sector and people
working in essential roles, as we all fight this global challenge,”
said Glenn J. Chamandy, President and CEO.
Despite on-track performance during the first two months of the
quarter, as global efforts to slow the transmission of COVID-19
heightened in March we started to see a significant downturn in
demand for our core products, particularly in the imprintables
channel where our products are typically used for promotional,
sporting, entertainment, and other large-gathering and cultural
events. In retail, we also saw impacts, although less severe in the
mass and online channels. Accordingly, total overall sales of $459
million in the first quarter were down 26% compared to the prior
year quarter. We reported a GAAP loss per share of $0.50 for the
first quarter compared to GAAP EPS of $0.11 in the first quarter of
2019, after reflecting total after-tax charges of approximately
$110 million, or $0.56 per share. These after-tax charges
included a $92 million ($0.47 per share) impairment charge for
goodwill and intangible assets acquired in previous business
acquisitions related to our Hosiery cash generating unit (CGU),
restructuring and acquisition-related costs of $10 million ($0.05
per share), and a charge of $8 million ($0.04 per share) related to
our stock-keeping unit (SKU) rationalization initiative. Before
reflecting these charges, adjusted diluted EPS totaled $0.06 for
the three months ended March 29, 2020, compared to $0.16 in the
first quarter last year due mainly to the decline in sales, the
impact of manufacturing and other costs related to idling of
facilities, which negatively impacted gross margin by 340 basis
points or $0.08 per share, and an increase of approximately $21
million ($0.10 per share) in the allowance for expected credit
losses to reflect heightened credit risk in the current economic
environment. These factors were partly offset on a year-over-year
basis by the impact of the trade accounts receivables impairment
charge of $24 million, or $0.12 per share, related primarily to a
distributor receivership, which occurred in the first quarter last
year.
Company actions to address COVID-19From the
onset, as the situation of the COVID-19 pandemic unfolded, our
first priority has been the health and welfare of our employees,
customers, suppliers, and other partners. In this regard, we have
taken several actions to safeguard our stakeholders while ensuring
the continuity of our business.
- Concurrent with global government mandated private sector
shutdowns, we began to close our manufacturing facilities starting
on March 17, 2020, to ensure the safety of our employees and align
our operations and inventory levels with the current demand
environment. Since mid-April, we have extended the shutdown for
almost all our manufacturing facilities. Some of our distribution
centres, where we have implemented enhanced measures to safeguard
the health, safety, and well-being of our employees, continue to be
operational at reduced capacity levels and the majority of our
office employees are working remotely from home.
- Starting in mid-April, in collaboration with various partners,
we began to produce protective personal equipment (PPE) to help
address the shortage caused by the COVID-19 pandemic. We are
currently sewing face masks for a cooperative consortium of apparel
and textile companies supplying non-medical face masks to the
health care sector. We are also producing non-medical face masks
and isolation gowns for various retailers to be distributed to
health care organizations. We are currently planning to produce
over 150 million masks and gowns to service the consortium and
retailers under this effort. To ensure the safety and well-being of
the employees working in the production of PPE, we have implemented
stringent safety protocols.
- In order to preserve cash and pre-emptively ensure that we
maintain ample liquidity to manage through the current and future
environment, we are deferring non-critical capital spend and
discretionary expenses and have drawn down funds under our
long-term bank credit facility. Further, on April 6, 2020, we took
additional cautionary measures to enhance liquidity by securing an
additional $400 million of long-term debt with members of our
existing bank syndicate. With the proceeds from the new debt
financing, as at April 27, 2020, our overall available liquidity
position was over $950 million comprised of cash on hand of over
$650 million and available lines of credit of approximately $300
million.
- Given the severity of the crisis and the uncertain economic
outlook, out of an abundance of caution, we have suspended share
repurchases and starting with the first quarter of 2020, we are
also suspending the quarterly cash dividend. The Company’s
previously declared quarterly cash dividend for the fourth quarter
of 2019 was paid on April 6, 2020. We remain committed to returning
capital to shareholders through our dividend and share repurchases
and expect to resume the programs when the environment
normalizes.
- Since March 30, 2020, the Company’s Board of Directors, the
Company's CEO, and Executive Vice Presidents have been foregoing
50% of their salaries and pay reductions ranging from 20% to 35%
are also impacting our senior staff. Further, as of March 30, 2020,
and until further notice, the majority of our salaried employees
have moved to a four-day work week.
Q1 2020 operating results Sales for the first
quarter of 2020 of $459.1 million were down 26.4% compared to the
prior year quarter, comprised of activewear sales of $372.6 million
and sales in the hosiery and underwear category of $86.5 million,
down 24.5% and 33.7%, respectively, over the prior year quarter.
While the Company was anticipating an overall decrease in net sales
for the first quarter, sales volume declines were meaningfully
higher than previously anticipated due to the significant downturn
in demand which unfolded in March as a result of the COVID-19
pandemic. Lower sales volumes were partly offset by favourable
product-mix in the hosiery and underwear category and slightly
higher net selling prices. The decrease in activewear sales
reflected double-digit volume declines of imprintables in North
America and in international markets, the impact of a sales return
allowance of $6 million for anticipated product returns for
discontinued SKUs, and lower activewear product sales in retail, as
retailers increasingly closed stores during the quarter due to the
COVID-19 pandemic. Similarly, sales in the hosiery and underwear
category were also negatively impacted by retail store closures and
declining store traffic trends as consumers adopted social
distancing measures. The decline in sock sales also included the
impact of our exit of a mass sock program and the non-recurrence of
sock shipments related to the initial roll-out of a new private
brand sock program in the first quarter of 2019. Underwear
sales were down in the quarter due to the current challenging
demand environment and the year-over-year impact of fully exiting a
branded underwear program in the mass channel at the end of the
first quarter of 2019, partly offset by an increase in sales of
private brand men's underwear in mass.
Our reported gross margin for the first quarter was 23.2%, down
from 25.8% in the first quarter last year. Excluding the impact of
an $8.0 million charge related to our SKU rationalization
initiative as part of our Back to Basics strategy, our adjusted
gross margin1 was 24.6%, down 120 basis points over the prior year
quarter. The decrease in gross margin was mainly due to labour and
overhead costs, which were expensed as period costs in the quarter
while production facilities were idled, as well as other costs
incurred as a result of the COVID-19 pandemic, which together
negatively impacted gross margin by 340 basis points and more than
offset the benefit of cost savings from the Company’s manufacturing
optimization initiatives, favourable product-mix, lower promotional
discounting, and lower raw material costs compared to the first
quarter of 2019.
SG&A expenses for the first quarter of 2020 totaled $73.9
million, down $19.1 million compared to SG&A expenses of $93.0
million in the same quarter last year due mainly to lower variable
compensation costs, lower volume-related distribution costs, and
cost containment efforts. Given the significantly lower sales base
in the first quarter of 2020 compared to the same period last year,
SG&A expenses as a percentage of sales were 16.1% in the
quarter compared to 14.9% of sales in the prior year quarter.
Although we did not incur any customer-specific write-offs of
trade accounts receivable during the quarter, the impairment of
trade accounts receivable of $20.8 million was mainly due to an
increase in the estimate for our allowance of expected credit
losses, in light of heightened credit risk in the current economic
environment. Further, due to the adverse impact of the COVID-19
pandemic on global economic activity and market capitalization of
companies worldwide, including its impact on the Company’s business
and share price, we recorded an impairment charge for our Hosiery
CGU of $94.0 million in the first quarter of fiscal 2020, relating
to goodwill and intangible assets acquired in previous sock and
hosiery business acquisitions. Finally, restructuring and
acquisition-related costs of $10.2 million in the first
quarter of 2020 primarily related to the closure and relocation of
our Mexican operations, costs related to the exit of ship-to-the
piece activities and other manufacturing optimization activities
initiated in 2019.
Consequently, after reflecting these charges, we incurred an
operating loss of $92.3 million compared to operating income of
$32.7 million in the first quarter of 2019. After excluding
restructuring and acquisition-related costs, charges related to the
discontinued product SKU's, and the impairment for goodwill and
intangibles assets, adjusted operating income1 in the quarter
totaled $19.9 million, down $23.4 million from $43.3 million in the
first quarter of 2019. The decline reflected the lower sales base
and lower gross margin, including approximately $16 million in
manufacturing idling and other COVID-19-related costs.
We reported a net loss of $99.3 million, or $0.50 per share on a
diluted basis, for the three months ended March 29, 2020,
compared to net earnings of $22.7 million, or $0.11 per share
on a diluted basis, for the same period last year due to the
operating loss incurred in the quarter. Excluding the impact of
after-tax restructuring and acquisition-related costs, as well as
the SKU rationalization, and goodwill and intangible assets
impairment charges, adjusted net earnings1 in the quarter totaled
$11.2 million, or $0.06 per share on a diluted basis, compared to
adjusted net earnings of $32.8 million, or $0.16 per share on a
diluted basis, in the first quarter last year. The decline in
adjusted diluted EPS was mainly due to the decline in sales and
adjusted operating margin1.
The Company consumed $235.0 million of free cash flow1 in the
first quarter of 2020, compared to $127.8 million of free cash flow
consumed in the first quarter last year. The free cash flow decline
was mainly due to the decrease in earnings in the quarter and the
build-up of working capital, including higher inventory levels due
to planned inventory build in the first quarter. During the first
quarter of 2020, capital expenditures were $25.6 million primarily
for expenditures related to textile manufacturing and yarn-spinning
operations.
During the first two months of 2020, we repurchased 843,038
shares under our 2019 normal course issuer bid (NCIB) share buyback
program at a total cost of $23.2 million. In order to preserve cash
and proactively strengthen the Company's liquidity position, we
have suspended share repurchases under our new 2020 NCIB program
until further notice. In addition, we are announcing today, the
suspension of our quarterly dividend, starting with the first
quarter of 2020. The Company ended the first quarter of 2020 with
net debt1 of $1,133.2 million and a leverage ratio1 of
2.2 times net debt to trailing twelve months adjusted EBITDA1.
Subsequent to the end of the first quarter, on April 6, 2020, we
secured an additional $400 million of long-term debt with members
of our bank syndicate positioning us as at
April 27, 2020, with over $950 million of liquidity.
Given the significant impact of the pandemic and the resulting
negative near-term economic outlook, we believe we have acted
quickly to enhance our financial flexibility and strengthen our
positioning to navigate through this unprecedented environment.
Outlook Due to the unprecedented nature and
uncertainty related to the impacts of COVID-19, the Company
withdrew its guidance for 2020 on March 23, 2020. The demand
deterioration that we started to see in March has increased through
the month of April with POS levels in the North American
imprintables channel down approximately 75%. Sell-through trends in
retail, including with global lifestyle brand customers, have also
deteriorated, with overall retailer POS for our products in April
down approximately 45%. Based on this situation and the expectation
that COVID-19 social distancing measures and related economic
impacts will have a significant impact on demand during the
quarter, we are planning for a significant decline in point of sale
(POS) and shipments for the second quarter of 2020. Accordingly,
this sales outlook combined with the impact of fixed cost
absorption, while our manufacturing facilities remain idle, will
likely result in a significant earnings loss in the second quarter
of 2020.
Nonetheless, despite this challenging near term situation and
uncertain outlook related to the duration of the ongoing impacts
from the pandemic, we believe we are well-positioned to deal with
this environment for an extended period. In addition to our strong
liquidity position, we have good inventory levels to service our
customers in both retail and imprintables. We have extended the
shutdown of our manufacturing operations until further notice and
we will continue to assess the need and timing to resume
manufacturing operations, while following government mandated
restrictions, in relation to evolving demand trends and inventory
levels. We have taken steps to reduce our monthly fixed costs and
expect to further lower our expenses as we move forward and adjust
to a weak demand outlook which could extend through the remainder
of the year.
Overall, during this pandemic, we have acted swiftly to protect
the health and well-being of our people and to ensure the
continuity and long-term positioning of our business. This follows
initiatives that we have been implementing over the last two years
under our Back to Basics strategy to simplify and lower our cost
structure. We have a history of successfully navigating through
challenging environments and we are confident that our strong
business model, financial position, resilience, and our capability
to adapt to changing environments, will continue to position us
well for long-term success when we emerge from this global
crisis.
Disclosure of outstanding share dataAs at
April 24, 2020, there were 198,203,663 common shares issued
and outstanding along with 2,219,128 stock options and 115,500
dilutive restricted share units (Treasury RSUs) outstanding. Each
stock option entitles the holder to purchase one common share at
the end of the vesting period at a pre-determined option price.
Each Treasury RSU entitles the holder to receive one common share
from treasury at the end of the vesting period, without any
monetary consideration being paid to the Company.
Conference call informationGildan Activewear
Inc. will hold a conference call to discuss the Company's first
quarter 2020 results today at 5:00 PM ET. A live audio webcast
of the conference call, as well as a replay, will be available on
its corporate site or on the following
link: https://gildancorp.com/en/investors/events-and-presentations/.
The conference call can be accessed by dialing (877) 282-2924
(Canada & U.S.) or (470) 495-9480 (international) and entering
passcode 4587007#. A replay will be available for 7 days starting
at 8:00 PM ET by dialing (855) 859-2056 (Canada & U.S.) or
(404) 537-3406 (international) and entering the same passcode.
NotesThis release should be read in conjunction
with Gildan’s Management’s Discussion and Analysis and its
unaudited condensed interim consolidated financial statements as at
and for the three months ended March 29, 2020 available on Gildan's
corporate website, which will be filed by Gildan with the Canadian
securities regulatory authorities and with the U.S. Securities and
Exchange Commission.
Certain minor rounding variances may exist between the unaudited
condensed interim consolidated financial statements and the table
summaries contained in this press release.
Supplemental Financial
Data |
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL DATA (UNAUDITED) |
|
|
|
|
(in $ millions, except per share amounts or otherwise
indicated) |
Q1 2020 |
|
|
Q1 2019 |
|
|
Variation (%) |
|
|
Net sales |
459.1 |
|
|
623.9 |
|
|
(26.4)% |
|
|
Gross profit |
106.5 |
|
|
160.7 |
|
|
(33.7)% |
|
|
Adjusted gross profit(1) |
114.5 |
|
|
160.7 |
|
|
(28.7)% |
|
|
SG&A expenses |
73.9 |
|
|
93.0 |
|
|
(20.5)% |
|
|
Impairment of trade accounts
receivable |
20.8 |
|
|
24.4 |
|
|
(14.8)% |
|
|
Restructuring and
acquisition-related costs |
10.2 |
|
|
10.6 |
|
|
(3.8)% |
|
|
Impairment of goodwill and
intangible assets |
94.0 |
|
|
— |
|
|
n.m. |
|
|
Operating income (loss) |
(92.3 |
) |
|
32.7 |
|
|
n.m. |
|
|
Adjusted operating
income(1) |
19.9 |
|
|
43.3 |
|
|
(54.0)% |
|
|
Adjusted EBITDA(1) |
50.2 |
|
|
83.4 |
|
|
(39.8)% |
|
|
Financial expenses |
7.9 |
|
|
9.1 |
|
|
(13.2)% |
|
|
Income tax (recovery)
expense |
(0.9 |
) |
|
0.9 |
|
|
n.m. |
|
|
Net earnings (loss) |
(99.3 |
) |
|
22.7 |
|
|
n.m. |
|
|
Adjusted net earnings(1) |
11.2 |
|
|
32.8 |
|
|
(65.9)% |
|
|
|
|
|
|
|
|
|
|
Basic EPS |
(0.50 |
) |
|
0.11 |
|
|
n.m. |
|
|
Diluted EPS |
(0.50 |
) |
|
0.11 |
|
|
n.m. |
|
|
Adjusted diluted EPS(1) |
0.06 |
|
|
0.16 |
|
|
(62.5)% |
|
|
|
|
|
|
|
|
|
|
Gross margin |
23.2 % |
|
|
25.8 % |
|
|
(2.6) pp |
|
|
Adjusted gross margin(1) |
24.6 % |
|
|
25.8 % |
|
|
(1.2) pp |
|
|
SG&A expenses as a
percentage of sales |
16.1 % |
|
|
14.9 % |
|
|
1.2 pp |
|
|
Operating margin |
(20.1)% |
|
|
5.2 % |
|
|
(25.3) pp |
|
|
Adjusted operating
margin(1) |
4.3 % |
|
|
6.9 % |
|
|
(2.6) pp |
|
|
|
|
|
|
Cash flows used in operating
activities |
(209.4 |
) |
|
(105.2 |
) |
|
99.0% |
|
|
Capital expenditures |
25.6 |
|
|
22.8 |
|
|
12.3% |
|
|
Free
cash flow(1) |
(235.0 |
) |
|
(127.8 |
) |
|
83.9% |
|
|
n.m. = not
meaningful |
As at |
Mar 29, 2020 |
Dec 29, 2019 |
Inventories |
1,188.2 |
1,052.1 |
Trade accounts receivable |
344.6 |
320.9 |
Net indebtedness(1) |
1,133.2 |
862.4 |
Net debt leverage
ratio(1) |
2.2 |
1.6 |
(1) Please
refer to "Definition and reconciliation of non-GAAP financial
measures" in this press release. |
DISAGGREGATION OF REVENUE
Net sales by major product group were as follows: |
(in $ millions, or otherwise indicated) |
Q1 2020 |
Q1 2019 |
Variation (%) |
Activewear |
372.6 |
493.6 |
(24.5)% |
Hosiery and underwear |
86.5 |
130.4 |
(33.7)% |
|
459.1 |
624.0 |
(26.4)% |
Net sales were derived from customers located in the following
geographic areas: |
(in $ millions, or otherwise indicated) |
Q1 2020 |
Q1 2019 |
Variation (%) |
United States |
389.3 |
530.8 |
(26.7)% |
Canada |
16.3 |
25.8 |
(36.8)% |
International |
53.4 |
67.3 |
(20.7)% |
|
459.0 |
623.9 |
(26.4)% |
Definition and reconciliation of non-GAAP financial
measuresThis press release includes references to certain
non-GAAP financial measures as described below. These non-GAAP
measures do not have any standardized meanings prescribed by
International Financial Reporting Standards (IFRS) and are
therefore unlikely to be comparable to similar measures presented
by other companies. Accordingly, they should not be considered in
isolation. The terms and definitions of the non-GAAP measures used
in this press release and a reconciliation of each non-GAAP measure
to the most directly comparable IFRS measure are provided below.
The non-GAAP measures are presented on a consistent basis for all
periods presented in this press release, except as otherwise
discussed below.
Adjusted net earnings and adjusted diluted EPSAdjusted net
earnings are calculated as net earnings before restructuring and
acquisition-related costs, income taxes relating to restructuring
and acquisition-related actions, income taxes related to the
re-assessment of the probability of realization of previously
recognized or de-recognized deferred income tax assets, and income
taxes relating to the revaluation of deferred income tax assets and
liabilities as a result of statutory income tax rate changes in the
countries in which we operate. For fiscal 2020, adjusted net
earnings also excludes impairment of goodwill and intangible
assets, as well as the impact of adjustments related to the
Company’s decision in the fourth quarter of fiscal 2019 to
implement a strategic initiative to significantly reduce its
imprintable product line stock-keeping unit (SKU) count, by exiting
all ship to-the-piece activities and discontinuing overlapping and
less productive styles and SKUs between brands. This initiative is
aimed at simplifying the Company's product portfolio and reducing
complexity in its manufacturing and warehouse distribution
activities. The impact of this strategic initiative includes
inventory write-downs and a sales return allowance for anticipated
product returns related to discontinued SKUs, including write-downs
and sales return allowances that were recognized in the Company’s
financial statements in the fourth quarter of fiscal 2019 and in
the first quarter of fiscal 2020. Adjusted diluted EPS is
calculated as adjusted net earnings divided by the diluted weighted
average number of common shares outstanding. The Company uses
adjusted net earnings and adjusted diluted EPS to measure its
performance from one period to the next, without the variation
caused by the impacts of the items described above. The Company
excludes these items because they affect the comparability of its
financial results and could potentially distort the analysis of
trends in its business performance. Excluding these items does not
imply they are necessarily non-recurring.
(in $ millions, except per share amounts) |
Q1 2020 |
Q1 2019 |
Net earnings (loss) |
(99.3) |
22.7 |
Adjustments for: |
|
|
Restructuring and acquisition-related costs |
10.2 |
10.6 |
Impairment of goodwill and intangible assets |
94.0 |
— |
Impact of strategic product line initiative(1) |
8.0 |
— |
Income tax recovery relating to the above noted adjustments |
(1.7) |
(0.5) |
Adjusted net earnings |
11.2 |
32.8 |
Basic EPS |
(0.50) |
0.11 |
Diluted EPS |
(0.50) |
0.11 |
Adjusted diluted EPS |
0.06 |
0.16 |
(1) Includes $5.2
million of inventory write-downs included in cost of sales and the
$2.8 million gross profit impact of a sales return allowance for
anticipated product returns related to discontinued SKUs (which
reduced net sales by $6.2 million and cost of sales by $3.4
million). |
Adjusted gross profit and adjusted gross marginAdjusted gross
profit is calculated as gross profit excluding the impact of
adjustments related the Company’s decision in the fourth quarter of
fiscal 2019 to implement a strategic initiative to significantly
reduce its imprintable product line stock-keeping unit (SKU) count,
by exiting all ship to-the-piece activities and discontinuing
overlapping and less productive styles and SKUs between brands.
This initiative is aimed at simplifying the Company's product
portfolio and reducing complexity in its manufacturing and
warehouse distribution activities. The impact of this strategic
initiative includes inventory write-downs and a sales return
allowance for anticipated product returns related to discontinued
SKUs, including write-downs and sales return allowances recognized
in the fourth quarter of fiscal 2019 and in the first quarter of
fiscal 2020. Adjusted gross margin is calculated as adjusted gross
profit divided by net sales excluding the sales return allowance
for anticipated product returns related to discontinued SKUs. The
Company uses adjusted gross profit and adjusted gross margin to
measure its performance from one period to the next, without the
variation caused by the impacts of the items described above. The
Company excludes these items because they affect the comparability
of its financial results and could potentially distort the analysis
of trends in its business performance. Excluding these items does
not imply they are necessarily non-recurring.
(in $ millions, or otherwise indicated) |
Q1 2020 |
Q1 2019 |
Gross profit |
106.5 |
160.7 |
Adjustments for: |
|
|
Impact of strategic product line initiative(1) |
8.0 |
— |
Adjusted gross profit |
114.5 |
160.7 |
Gross margin |
23.2 % |
25.8% |
Adjusted gross margin(2) |
24.6 % |
25.8% |
(1) Includes $5.2
million of inventory write-downs included in cost of sales and the
$2.8 million gross profit impact of a sales return allowance for
anticipated product returns related to discontinued SKUs (which
reduced net sales by $6.2 million and cost of sales by $3.4
million). |
(2) Calculated as
adjusted gross profit divided by net sales excluding the sales
return allowance for anticipated product returns related to
discontinued SKUs. |
Adjusted operating income and adjusted operating
marginAdjusted operating income is calculated as operating income
before restructuring and acquisition-related costs. For fiscal
2020, adjusted operating income also excludes impairment of
goodwill and intangible assets, as well as the impact of
adjustments related to the Company’s decision in the fourth quarter
of fiscal 2019 to implement a strategic initiative to significantly
reduce its imprintable product line stock-keeping unit (SKU) count,
by exiting all ship to-the-piece activities and discontinuing
overlapping and less productive styles and SKUs between brands.
This initiative is aimed at simplifying the Company's product
portfolio and reducing complexity in its manufacturing and
warehouse distribution activities. The impact of this strategic
initiative includes inventory write-downs and a sales return
allowance for anticipated product returns related to discontinued
SKUs, including write-downs and sales return allowances recognized
in the fourth quarter of fiscal 2019 and in the first quarter of
fiscal 2020. Adjusted operating margin is calculated as adjusted
operating income divided by net sales excluding the sales return
allowance for anticipated product returns related to discontinued
SKUs. Management uses adjusted operating income and adjusted
operating margin to measure its performance from one period to the
next, without the variation caused by the impacts of the items
described above. The Company excludes these items because they
affect the comparability of its financial results and could
potentially distort the analysis of trends in its business
performance. Excluding these items does not imply they are
necessarily non-recurring.
(in $ millions, or otherwise indicated) |
Q1 2020 |
Q1 2019 |
Operating income (loss) |
(92.3) |
32.7 |
Adjustment for: |
|
|
Restructuring and acquisition-related costs |
10.2 |
10.6 |
Impairment of goodwill and intangible assets |
94.0 |
— |
Impact of strategic product initiative(1) |
8.0 |
— |
Adjusted operating income |
19.9 |
43.3 |
|
|
|
Operating margin |
(20.1)% |
5.2 % |
Adjusted operating margin(2) |
4.3 % |
6.9 % |
(1) Includes $5.2
million of inventory write-downs included in cost of sales and the
$2.8 million gross profit impact of a sales return allowance for
anticipated product returns related to discontinued SKUs (which
reduced net sales by $6.2 million and cost of sales by $3.4
million). |
(2) Calculated as
adjusted operating income divided by net sales excluding the sales
return allowance for anticipated product returns related to
discontinued SKUs. |
Adjusted EBITDAAdjusted EBITDA is calculated as
earnings before financial expenses, income taxes, and depreciation
and amortization, and excludes the impact of restructuring and
acquisition-related costs. For fiscal 2020, adjusted EBITDA also
excludes impairment of goodwill and intangible assets, as well as
the impact of adjustments related to the Company’s decision in the
fourth quarter of fiscal 2019 to implement a strategic initiative
to significantly reduce its imprintable product line stock-keeping
unit (SKU) count, by exiting all ship to-the-piece activities and
discontinuing overlapping and less productive styles and SKUs
between brands. This initiative is aimed at simplifying the
Company's product portfolio and reducing complexity in its
manufacturing and warehouse distribution activities. The impact of
this strategic initiative includes inventory write-downs and a
sales return allowance for anticipated product returns related to
discontinued SKUs, including write-downs and sales return
allowances recognized in the fourth quarter of fiscal 2019 and in
the first quarter of fiscal 2020. The Company uses adjusted EBITDA,
among other measures, to assess the operating performance of its
business. The Company also believes this measure is commonly used
by investors and analysts to measure a company’s ability to service
debt and to meet other payment obligations, or as a common
valuation measurement. The Company excludes depreciation and
amortization expenses, which are non-cash in nature and can vary
significantly depending upon accounting methods or non-operating
factors. Excluding these items does not imply they are necessarily
non-recurring.
(in $ millions) |
Q1 2020 |
Q1 2019 |
Net earnings (loss) |
(99.3) |
22.7 |
Restructuring and
acquisition-related costs |
10.2 |
10.6 |
Impairment of
goodwill and intangible assets |
94.0 |
— |
Impact of
strategic product line initiative(1) |
8.0 |
— |
Depreciation and
amortization |
30.3 |
40.1 |
Financial
expenses, net |
7.9 |
9.1 |
Income tax
(recovery) expense |
(0.9) |
0.9 |
Adjusted EBITDA |
50.2 |
83.4 |
(1) Includes $5.2 million of inventory write-downs included in cost
of sales and the $2.8 million gross profit impact of a sales return
allowance for anticipated product returns related to discontinued
SKUs (which reduced net sales by $6.2 million and cost of sales by
$3.4 million). |
Free cash flow Free cash flow is defined as
cash from operating activities, less cash flow used in investing
activities excluding business acquisitions. The Company considers
free cash flow to be an important indicator of the financial
strength and liquidity of its business, and it is a key metric
which indicates how much cash is available after capital
expenditures to repay debt, to pursue business acquisitions, and/or
to redistribute to its shareholders. The Company believes this
measure is commonly used by investors and analysts when valuing a
business and its underlying assets.
(in $ millions) |
Q1 2020 |
Q1 2019 |
Cash flows used in operating activities |
(209.4) |
(105.2) |
Cash flows used in investing
activities |
(25.6) |
(23.9) |
Adjustment for: |
|
|
Business acquisitions |
— |
1.3 |
Free cash flow |
(235.0) |
(127.8) |
Total indebtedness and net indebtednessTotal
indebtedness is defined as the total bank indebtedness, long-term
debt (including any current portion), and lease obligations
(including any current portion), and net indebtedness is calculated
as total indebtedness net of cash and cash equivalents. The Company
considers total indebtedness and net indebtedness to be important
indicators of the financial leverage of the Company.
(in $ millions) |
Mar 29, 2020 |
Dec 29, 2019 |
Long-term debt and total bank indebtedness |
1,550.0 |
845.0 |
Lease obligations |
88.3 |
81.5 |
Total indebtedness |
1,638.3 |
926.5 |
Cash and cash equivalents |
(505.1) |
(64.1) |
Net indebtedness |
1,133.2 |
862.4 |
Net debt leverage ratio The net debt leverage
ratio is defined as the ratio of net indebtedness to pro-forma
adjusted EBITDA for the trailing twelve months. The pro-forma
adjusted EBITDA for the trailing twelve months reflects business
acquisitions made during the period as if they had occurred at the
beginning of the trailing twelve month period. The Company has set
a target net debt leverage ratio of one to two times pro-forma
adjusted EBITDA. The Company uses, and believes that certain
investors and analysts use the net debt leverage ratio to measure
the financial leverage of the Company.
(in $ millions, or otherwise indicated) |
Mar 29,2020 |
Dec 29,2019 |
Adjusted EBITDA for the trailing twelve months |
514.9 |
548.1 |
Adjustment for: |
|
|
Business acquisitions |
— |
— |
Pro-forma adjusted EBITDA for the trailing twelve months |
514.9 |
548.1 |
Net indebtedness |
1,133.2 |
862.4 |
Net
debt leverage ratio |
2.2 |
1.6 |
Caution concerning forward-looking statements
Certain statements included in this press release constitute
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and Canadian securities
legislation and regulations, and are subject to important risks,
uncertainties, and assumptions. This forward-looking information
includes, amongst others, information with respect to our
objectives and the strategies to achieve these objectives, as well
as information with respect to our beliefs, plans, expectations,
anticipations, estimates, and intentions, including, without
limitation, our expectation with regards to net sales, POS levels,
gross margin, SG&A expenses, restructuring and
acquisition-related costs, operating margin, adjusted operating
margin, adjusted EBITDA, diluted earnings per share, adjusted
diluted earnings per share, income tax rate, free cash flow and
liquidity, capital expenditures, capacity expansion plans,
dividends, and share buybacks. Forward-looking statements generally
can be identified by the use of conditional or forward-looking
terminology such as “may”, “will”, “expect”, “intend”, “estimate”,
“project”, “assume”, “anticipate”, “plan”, “foresee”, “believe”, or
“continue”, or the negatives of these terms or variations of them
or similar terminology. We refer you to the Company’s filings with
the Canadian securities regulatory authorities and the U.S.
Securities and Exchange Commission, as well as the risks described
under the “Financial risk management”, “Critical accounting
estimates and judgments”, and “Risks and uncertainties” sections of
the Company’s Management’s Discussion and Analysis for the three
months ended March 29, 2020 and for the fiscal year ended December
29, 2019 for a discussion of the various factors that may affect
the Company’s future results. Material factors and assumptions that
were applied in drawing a conclusion or making a forecast or
projection are also set out throughout such documents and this
press release.
Forward-looking information is inherently uncertain and the
results or events predicted in such forward-looking information may
differ materially from actual results or events. Material factors,
which could cause actual results or events to differ materially
from a conclusion, forecast, or projection in such forward-looking
information, include, but are not limited to:
- the magnitude and length of economic disruption as a result of
the worldwide coronavirus (COVID-19) pandemic, including the scope
and duration of government mandated private sector shutdowns and
social distancing measures;
- changes in general economic and financial conditions globally
or in one or more of the markets we serve, including the severity
and duration of the economic slowdown and potential recession
following the COVID-19 pandemic;
- our ability to implement our growth strategies and plans;
- our ability to successfully integrate acquisitions and realize
expected benefits and synergies;
- the intensity of competitive activity and our ability to
compete effectively;
- our reliance on a small number of significant customers;
- the fact that our customers do not commit to minimum quantity
purchases;
- our ability to anticipate, identify, or react to changes in
consumer preferences and trends;
- our ability to manage production and inventory levels
effectively in relation to changes in customer demand;
- fluctuations and volatility in the price of raw materials used
to manufacture our products, such as cotton, polyester fibres, dyes
and other chemicals;
- our reliance on key suppliers and our ability to maintain an
uninterrupted supply of raw materials and finished goods;
- the impact of climate, political, social, and economic risks,
natural disasters, and pandemics, such as the COVID-19 pandemic, in
the countries in which we operate or sell to, or from which we
source production;
- disruption to manufacturing and distribution activities due to
such factors as operational issues, disruptions in transportation
logistic functions, labour disruptions, political or social
instability, bad weather, natural disasters, pandemics, such as the
COVID-19 pandemic, and other unforeseen adverse events;
- the impact of the COVID-19 situation on our ability to comply
with the financial covenants under our debt agreements;
- compliance with applicable trade, competition, taxation,
environmental, health and safety, product liability, employment,
patent and trademark, corporate and securities, licensing and
permits, data privacy, bankruptcy, anti-corruption and other laws
and regulations in the jurisdictions in which we operate;
- the imposition of trade remedies, or changes to duties and
tariffs, international trade legislation, bilateral and
multilateral trade agreements and trade preference programs that
the Company is currently relying on in conducting its manufacturing
operations or the application of safeguards thereunder;
- factors or circumstances that could increase our effective
income tax rate, including the outcome of any tax audits or changes
to applicable tax laws or treaties;
- changes to and failure to comply with consumer product safety
laws and regulations;
- changes in our relationship with our employees or changes to
domestic and foreign employment laws and regulations;
- negative publicity as a result of actual, alleged, or perceived
violations of labour and environmental laws or international labour
standards, or unethical labour or other business practices by the
Company or one of its third-party contractors;
- changes in third-party licensing arrangements and licensed
brands;
- our ability to protect our intellectual property rights;
- operational problems with our information systems as a result
of system failures, viruses, security and cyber security breaches,
disasters, and disruptions due to system upgrades or the
integration of systems;
- an actual or perceived breach of data security;
- our reliance on key management and our ability to attract
and/or retain key personnel;
- changes in accounting policies and estimates; and
- exposure to risks arising from financial instruments, including
credit risk on trade accounts receivables and other financial
instruments, liquidity risk, foreign currency risk, and interest
rate risk, as well as risks arising from commodity prices.
These factors may cause the Company’s actual performance and
financial results in future periods to differ materially from any
estimates or projections of future performance or results expressed
or implied by such forward-looking statements. Forward-looking
statements do not take into account the effect that transactions or
non-recurring or other special items announced or occurring after
the statements are made may have on the Company’s business. For
example, they do not include the effect of business dispositions,
acquisitions, other business transactions, asset write-downs, asset
impairment losses, or other charges announced or occurring after
forward-looking statements are made. The financial impact of such
transactions and non-recurring and other special items can be
complex and depends on the facts particular to each of them.
There can be no assurance that the expectations represented by
our forward-looking statements will prove to be correct. The
purpose of the forward-looking statements is to provide the reader
with a description of management’s expectations regarding the
Company’s future financial performance and may not be appropriate
for other purposes. Furthermore, unless otherwise stated, the
forward-looking statements contained in this press release are made
as of the date of this press release, and we do not undertake any
obligation to update publicly or to revise any of the included
forward-looking statements, whether as a result of new information,
future events, or otherwise unless required by applicable
legislation or regulation. The forward-looking statements contained
in this press release are expressly qualified by this cautionary
statement.
About GildanGildan is a leading
manufacturer of everyday basic apparel which markets its products
in North America, Europe, Asia-Pacific, and Latin America, under a
diversified portfolio of Company-owned brands, including Gildan®,
American Apparel®, Comfort Colors®, Gildan® Hammer™, Prim + Preux®,
GoldToe®, Anvil® by Gildan®, Alstyle®, Secret®, Silks®, Kushyfoot®,
Secret Silky®, Therapy Plus®, Peds® and MediPeds®, and under the
Under Armour® brand through a sock licensing agreement providing
exclusive distribution rights in the United States and Canada. Our
product offering includes activewear, underwear, socks, hosiery,
and legwear products sold to a broad range of customers, including
wholesale distributors, screenprinters or embellishers, as well as
to retailers that sell to consumers through their physical stores
and/or e-commerce platforms, and to global lifestyle brand
companies.
Gildan owns and operates vertically-integrated, large-scale
manufacturing facilities which are primarily located in Central
America, the Caribbean Basin, North America, and Bangladesh. With
approximately 51,000 employees worldwide, Gildan operates with a
strong commitment to industry-leading labour and environmental
practices throughout its supply chain in accordance with its
comprehensive Genuine Responsibility® program embedded in the
Company's long-term business strategy. More information about the
Company and its corporate citizenship practices and initiatives can
be found at www.gildancorp.com and
www.genuineresponsibility.com, respectively.
Investor inquiries:Sophie ArgiriouVice President,
Investor Communications(514)
343-8815 sargiriou@gildan.com |
Media inquiries:Genevieve GosselinDirector,
Corporate Communications & Marketing(514)
343-8814ggosselin@gildan.com |
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