Gildan Activewear Inc. (GIL: TSX and NYSE) today announced results
for the second quarter ended July 2, 2023.
“We are pleased with our top line performance which came in
ahead of our expectations for the quarter, up against a strong
comparative period,” said Glenn J. Chamandy, Gildan’s President and
CEO. “Further, in a challenging macro environment, we are driving
market share gains given our strong competitive position and
continued execution on our GSG strategy.”
During the second quarter, we generated net sales of $840
million, driven by better-than-expected sales volume in activewear
which offset weaker-than-expected product mix in this category. Our
operating margin came in at 21.7% and reflected a net insurance
gain of $74 million, partly offset by restructuring charges of $30
million. Excluding these items, our adjusted operating margin1 of
16.5% was slightly above our expectations. Consequently, we ended
the quarter with GAAP diluted EPS of $0.87 and adjusted diluted
EPS1 of $0.63. In line with our capital allocation priorities and
our commitment to return capital to shareholders, we continued to
be active on our share buyback program during the quarter,
repurchasing approximately 2.6 million shares at a cost of $78
million. With our current program now approaching expiry in August,
our Board of Directors approved the implementation of a renewal of
our normal course issuer bid (NCIB) program to repurchase up to 5%
of the Company's issued and outstanding common shares over the next
twelve months. The Company ended the second quarter of 2023 with
net debt1 of $1,170 million and a leverage ratio1 of 1.8 times net
debt to trailing twelve months adjusted EBITDA1 within our targeted
debt levels.
Q2 2023 Operating Results Net sales for the
second quarter were above our expectations at $840 million but
reflected a 6% decline over a record quarter last year. In
activewear, we generated sales of $692 million, down 9% compared to
the same period last year which had benefited from distributor
inventory replenishment, following destocking which occurred during
the pandemic and a tight manufacturing environment in 2021. During
the second quarter, our year-over-year POS trend for the activewear
category was positive driven by performance in North America.
International markets were more challenging than we expected, with
sales in the quarter down 2% versus the prior year with POS trends
softening sequentially. We saw increasing momentum in the hosiery
and underwear category in the quarter with sales totaling $149
million, up 8% year-over-year. This increase was mainly driven by
underwear sales volume growth, reflecting the expansion of our
private label offering and the roll-out of new programs in the mass
retail channel. Further, while industry demand for men's underwear
remained down year-over-year, we were pleased to see POS trends
improve sequentially.
We generated gross profit of $217 million, or 25.8% of sales in
the second quarter, down $48 million over the prior year, primarily
driven by higher year-over-year fiber costs, as expected, as well
as unfavorable product mix, which together more than offset the
year-over-year benefit of higher net selling prices during the
quarter.
SG&A expenses of $78 million, or 9.3% of sales, were down
$11 million, or 13%, compared to last year due to lower variable
compensation expenses and our continued cost containment efforts,
which more than offset the impact of cost inflation. This
represents a year-over-year improvement of 70 basis points despite
the impact of sales deleverage.
For the second quarter operating income of $183 million, or
21.7% of sales, included a net insurance gain of $74 million
related to the two hurricanes which impacted the Company’s
operations in Central America in 2020, partly offset by
restructuring charges of $30 million which included the closure of
a sewing facility in Honduras. This compared to operating income of
$174 million, or 19.4% of sales, in the prior year. Excluding these
items, our adjusted operating income1 of $139 million, or 16.5% of
sales, which came in slightly better than expected, was down $37
million, or 310 basis points, compared to the prior year,
reflecting lower sales and lower adjusted gross margin1, partly
offset by lower SG&A expenses.
After reflecting net financial expenses of $21 million, up $13
million over the prior year due to higher interest rates and
average net borrowing levels, and the positive benefit of a lower
outstanding share base, we reported GAAP diluted EPS and adjusted
diluted EPS for the quarter of $0.87, and $0.63, respectively, up
from $0.85 and down from $0.86, in the prior year. GAAP net
earnings for the quarter included the after-tax impact of the net
insurance gain and restructuring charges as described above.
Cash flows from operating activities in the second quarter
totaled $182 million which includes the net positive effect from
the insurance gain mentioned above. This compares to $210 million
in the prior year, mainly due to higher working capital
requirements and lower net earnings. After accounting for capital
expenditures totaling $56 million, we generated $126 million of
free cash flow in the second quarter, compared to $159 million in
the second quarter of 2022, mainly due to lower operating earnings.
Capital expenditures during the quarter included investments in our
new manufacturing complex in Bangladesh. At the end of the second
quarter of 2023, net debt stood at $1,170 million with a leverage
ratio of 1.8 times net debt to trailing twelve months adjusted
EBITDA within targeted debt levels.
Year-to-date Operating ResultsNet sales for the
first half ended July 2, 2023 were $1,543 million, down 8%
over the prior year sales. In activewear, we generated sales of
$1,280 million, down $146 million or 10% compared to the same
period last year which benefited from distributor inventory
replenishment following the pandemic and a tight manufacturing
environment in 2021. Year-over-year POS trends for the activewear
category showed progressive improvement from the first to the
second quarter. While our activewear sales volume was better than
expected in the first half, we saw the macro environment impact our
activewear product mix unfavorably as we moved through the first
half. International sales of $118 million were down 10% versus the
prior year period. In the hosiery and underwear category, we
observed notable strength with sales totaling $264 million, up $18
million over the prior year, or 7%, driven by both underwear and
sock volume growth. We are benefiting from the expansion and the
roll-out of mass retail programs for these products, following a
period of inventory adjustments at retailers.
We generated gross profit of $404 million in the first half,
down $101 million over the prior year, driven by the decline in
sales and lower gross margins. Gross margin of 26.2% was down by
410 basis points year-over year. This is mainly a result of the
flow-through impact on our cost of sales of peak fiber costs and
higher manufacturing input costs, both of which were anticipated,
in addition to unfavourable product mix. These factors were partly
offset by higher net selling prices.
SG&A expenses for the first half of 2023 of $160 million
were $11 million below prior year levels and SG&A expenses as a
percentage of net sales were 10.4% compared to 10.2% last year,
primarily due to sales deleverage partly offset by the benefit of
lower expenses including lower variable compensation.
We generated operating income of $311 million, or 20.1% of
sales, which included the benefit of a $77 million net insurance
gain and a $25 million gain from the sale and leaseback of one of
our U.S. distribution facilities, partly offset by higher
restructuring costs of $33 million, compared to operating income of
$336 million, or 20.1% of sales in the first half of last year.
Excluding these items, adjusted operating income was $241 million,
or 15.6% of sales, down $93 million, or 440 basis points over the
prior year, mainly reflecting lower sales and gross margin pressure
in the first half as noted above.
After reflecting increased net financial expenses of $38 million
due to higher interest rates and average net borrowing levels,
higher GAAP income taxes tied to the adjustments above, and the
positive benefit of a lower outstanding share base, we reported
GAAP diluted EPS and adjusted diluted EPS for the first half of
$1.41 and $1.08 respectively, both down from GAAP diluted EPS and
adjusted diluted EPS of $1.62, in the prior year. GAAP net earnings
included the after-tax impact of the net gains and restructuring
charges described above.
Outlook We believe that our vertically
integrated model, our competitive cost structure, leadership in
pricing, product availability, and strength in sustainability are
enabling us to grow our market share in key product categories and
outperform our peers. Further, with strong comparative periods now
behind us, we continue to expect our revenues to grow in the second
half of the year supported by the planned roll-out of incremental
retail programs. That being said, and despite continued market
share gains, we are seeing current market conditions unfavourably
impact activewear product mix, both in North American and
International markets, as customers focus on lower-priced products.
Combined with near-term uncertainty related to the
macro-environment, we believe it is prudent to temper our previous
FY 2023 expectations for revenue growth and operating margins.
Accordingly, for FY 2023, we are updating our outlook as
follows:
- Revenues for the
full year flat to down low single digits, compared to our previous
expectations of a low single digit year-over-year increase;
- Full year adjusted operating margin
slightly below the low end of our current 18% to 20% annual target
range;
- Adjusted diluted EPS in the range of
$2.55 to $2.65, including the impact of assumed share repurchases
of 5% of the outstanding public float in 2023. Our previous
guidance called for EPS to be in line with record FY 2022 adjusted
diluted EPS of $3.11;
- Capex maintained at the lower end of
our 6% to 8% target range;
- Strong full year free cash flow
generation above $425 million.
The above outlook assumes no meaningful deterioration from
current market conditions including the pricing and inflationary
environment, and reflects the assumptions noted above. Further, it
reflects our expectations as of August 3, 2023 and is subject to
significant risks and business uncertainties, including those
factors described under “Forward-Looking Statements” in this press
release and in our annual MD&A for the year ended January 1,
2023. The board may modify, extend or terminate current or future
share repurchase programs at any time.
ESG“On June 28, 2023, we were pleased to be
recognized again as one of Canada’s best 50 corporate citizens by
Corporate Knights,” said Glenn J. Chamandy, Gildan President and
CEO. “Reinforcing our continued leadership in ESG, which is an
integral part of our GSG strategy, this distinction highlights once
again our Company’s strong focus and efforts to support and drive
towards a more fair and sustainable future.”
During the quarter, we achieved another significant milestone in
the advancement of our Next Generation ESG strategy when the
Science Based Targets initiative (SBTi) validated Gildan’s 2030
near-term emissions targets for Scopes 1, 2 and 3. Gildan has
committed to reducing absolute Scope 1 and 2 greenhouse gas
emissions by 30% by 2030 from a 2018 base year2 Gildan has also
committed to reducing its absolute Scope 3 emissions by 13.5% by
2030 from a 2019 base year.
Declaration of Quarterly DividendThe Board of
Directors has declared a cash dividend of $0.186 per share, payable
on September 18, 2023 to shareholders of record as of August 24,
2023. This dividend is an “eligible dividend” for the purposes of
the Income Tax Act (Canada) and any other applicable provincial
legislation pertaining to eligible dividends.
Renewal of Normal Course Issuer BidGildan
received approval from the Toronto Stock Exchange (TSX) to renew
its NCIB commencing on August 9, 2023, to purchase for cancellation
up to 8,778,638 common shares, representing approximately 5% of
Gildan’s issued and outstanding common shares. As of July 31, 2023,
Gildan had 175,572,760 common shares issued and outstanding.
Gildan is authorized to make purchases under the NCIB until
August 8, 2024, in accordance with the requirements of the TSX.
Purchases will be made by means of open market transactions on both
the TSX and the New York Stock Exchange (NYSE), or alternative
Canadian trading systems, if eligible, or by such other means as
may be permitted by securities regulatory authorities, including
pre-arranged crosses, exempt offers, private agreements under an
issuer bid exemption order issued by securities regulatory
authorities and block purchases of common shares. The average daily
trading volume of common shares on the TSX (ADTV) for the six-month
period ended July 31, 2023, was 370,447. Consequently, and in
accordance with the requirements of the TSX, Gildan may purchase,
in addition to purchases made on other exchanges including the
NYSE, up to a maximum of 92,611 common shares daily through the
facilities of the TSX, which represents 25% of the ADTV for the
most recently completed six calendar months.
The price to be paid by Gildan for any common shares will be the
market price at the time of the acquisition, plus brokerage fees,
and purchases made under an issuer bid exemption order will be at a
discount to the prevailing market price in accordance with the
terms of the order. The actual number of common shares purchased
under the NCIB and the timing of such purchases will be at Gildan's
discretion and shall be subject to the limitations set out in the
TSX Company Manual.
Under its current NCIB that commenced on August 9, 2022, and
will end on August 8, 2023, Gildan is authorized to repurchase for
cancellation up to 9,132,337 common shares, representing
approximately 5% of Gildan’s issued and outstanding common shares
as at July 31, 2022. Of this amount, Gildan purchased a total of
7,492,700 common shares at a weighted average price of $31.00.
Common shares were purchased through the facilities of the TSX and
the NYSE, and through alternative Canadian trading systems.
Gildan will enter into an automatic securities purchase plan
(ASPP) with a designated broker in relation to the NCIB on or about
the commencement date of the NCIB. The ASPP will allow for the
purchase of common shares under the NCIB, subject to certain
trading parameters, at times when Gildan ordinarily would not be
permitted to purchase its common shares due to applicable
regulatory restrictions or self-imposed trading black-out periods.
Outside of the predetermined black-out periods, common shares may
be purchased under the NCIB based on the discretion of the
Company’s management, in compliance with TSX rules and applicable
securities laws.
Gildan’s management and the Board of Directors believe the
repurchase of common shares represents an appropriate use of
Gildan’s financial resources and that share repurchases under the
NCIB will not preclude Gildan from continuing to pursue organic
growth and complementary acquisitions.
Disclosure of Outstanding Share DataAs at
July 28, 2023, there were 175,692,760 common shares issued and
outstanding along with 2,516,773 stock options and 76,799 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 predetermined exercise 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 second
quarter 2023 results today at 8:30 AM ET. A live audio
webcast of the conference call, as well as a replay, will be
accessible on the investors section of Gildan’s corporate website
at the following link:
https://gildancorp.com/en/investors/events-and-presentations/. The
conference call may be accessed by dialing (800) 715-9871 (Canada
& U.S.) or (646) 307-1963 (international) and entering passcode
9038229#. A replay of the conference call will be available for 7
days starting at 1:00 PM ET, by dialing (800) 770-2030 (Canada
& U.S.) or (609) 800-9909 (international) and entering the same
passcode.
This 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
and six months ended July 2, 2023, which will be filed by Gildan
with the Canadian securities regulatory authorities and with the
U.S. Securities and Exchange Commission and which will be available
on Gildan’s corporate website.
Certain minor rounding variances may exist between the condensed
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) |
Q2 2023 |
|
Q2 2022 |
|
Variation (%) |
|
YTD 2023 |
|
YTD 2022 |
|
Variation (%) |
Net sales |
840.4 |
|
895.6 |
|
(6.2) |
% |
|
1,543.3 |
|
1,670.5 |
|
(7.6) |
% |
Gross profit |
216.6 |
|
265.0 |
|
(18.3) |
% |
|
404.3 |
|
505.4 |
|
(20.0) |
% |
Adjusted gross profit(1) |
216.8 |
|
265.0 |
|
(18.2) |
% |
|
401.2 |
|
504.1 |
|
(20.4) |
% |
SG&A expenses(5) |
78.1 |
|
89.4 |
|
(12.6) |
% |
|
159.9 |
|
170.4 |
|
(6.2) |
% |
Gain on sale and
leaseback |
— |
|
— |
|
n.m. |
|
|
(25.0 |
) |
— |
|
n.m. |
|
Net insurance gains |
(74.2 |
) |
— |
|
n.m. |
|
|
(74.2 |
) |
— |
|
n.m. |
|
Restructuring and
acquisition-related costs (recovery) |
30.0 |
|
1.6 |
|
n.m. |
|
|
32.8 |
|
(1.2 |
) |
n.m. |
|
Operating income |
182.7 |
|
174.0 |
|
5.0 |
% |
|
310.7 |
|
336.2 |
|
(7.6) |
% |
Adjusted operating
income(1) |
138.7 |
|
175.6 |
|
(21.0) |
% |
|
241.2 |
|
333.7 |
|
(27.7) |
% |
Adjusted EBITDA(1) |
170.3 |
|
207.9 |
|
(18.1) |
% |
|
300.7 |
|
399.4 |
|
(24.7) |
% |
Financial expenses |
20.7 |
|
7.4 |
|
179.7 |
% |
|
37.7 |
|
14.4 |
|
161.8 |
% |
Income tax expense |
6.7 |
|
8.4 |
|
(20.2) |
% |
|
20.1 |
|
17.2 |
|
16.9 |
% |
Net earnings |
155.3 |
|
158.2 |
|
(1.8) |
% |
|
252.9 |
|
304.6 |
|
(17.0) |
% |
Adjusted net earnings(1) |
112.3 |
|
159.8 |
|
(29.7) |
% |
|
193.9 |
|
304.1 |
|
(36.2) |
% |
Basic EPS |
0.87 |
|
0.85 |
|
2.4 |
% |
|
1.42 |
|
1.63 |
|
(12.9) |
% |
Diluted EPS |
0.87 |
|
0.85 |
|
2.4 |
% |
|
1.41 |
|
1.62 |
|
(13.0) |
% |
Adjusted diluted EPS(1) |
0.63 |
|
0.86 |
|
(26.7) |
% |
|
1.08 |
|
1.62 |
|
(33.3) |
% |
Gross margin(2) |
25.8 |
% |
29.6 |
% |
(3.8) |
pp |
|
26.2 |
% |
30.3 |
% |
(4.1) |
pp |
Adjusted gross margin(1) |
25.8 |
% |
29.6 |
% |
(3.8) |
pp |
|
26.0 |
% |
30.2 |
% |
(4.2) |
pp |
SG&A expenses as a
percentage of sales(3) |
9.3 |
% |
10.0 |
% |
(0.7) |
pp |
|
10.4 |
% |
10.2 |
% |
0.2 |
pp |
Operating margin(4) |
21.7 |
% |
19.4 |
% |
2.3 |
pp |
|
20.1 |
% |
20.1 |
% |
— |
|
Adjusted operating
margin(1) |
16.5 |
% |
19.6 |
% |
(3.1) |
pp |
|
15.6 |
% |
20.0 |
% |
(4.4) |
pp |
Cash flows from (used in) operating activities |
181.8 |
|
209.7 |
|
(13.3) |
% |
|
2.4 |
|
158.3 |
|
(98.5) |
% |
Capital expenditures |
(56.0 |
) |
(55.6 |
) |
0.7 |
% |
|
(129.9 |
) |
(89.6 |
) |
45.0 |
% |
Free
cash flow(1) |
126.0 |
|
159.4 |
|
(21.0) |
% |
|
(76.2 |
) |
74.0 |
|
n.m. |
|
As at (in $ millions, or otherwise indicated) |
Jul 2, 2023 |
Jan 1, 2023 |
Inventories |
1,226.7 |
1,225.9 |
Trade accounts receivable |
525.2 |
248.8 |
Net debt(1) |
1,170.0 |
873.6 |
Net
debt leverage ratio(1) |
1.8 |
1.1 |
(1) This is a
non-GAAP financial measure or ratio. Please refer to "Non-GAAP
Financial Measures" in this press release. |
(2) Gross margin
is defined as gross profit divided by net sales. |
(3) SG&A as a
percentage of sales is defined as SG&A divided by net
sales. |
(4) Operating
margin is defined as operating income divided by net sales. |
(5) The Company
recasted comparative figures to conform to the current period's
presentation by grouping (Reversal of impairment) impairment of
trade accounts receivable in SG&A expenses. |
n.m. = not
meaningful |
DISAGGREGATION OF REVENUE
Net
sales by major product group were as follows: |
(in $ millions, or otherwise indicated) |
Q2 2023 |
|
Q2 2022 |
|
Variation (%) |
|
YTD 2023 |
|
YTD 2022 |
|
Variation (%) |
Activewear |
691.7 |
|
757.8 |
|
(8.7) |
% |
|
1,279.6 |
|
1,425.1 |
|
(10.2) |
% |
Hosiery
and underwear |
148.7 |
|
137.8 |
|
7.9 |
% |
|
263.7 |
|
245.4 |
|
7.5 |
% |
|
840.4 |
|
895.6 |
|
(6.2) |
% |
|
1,543.3 |
|
1,670.5 |
|
(7.6) |
% |
Net
sales were derived from customers located in the following
geographic areas: |
(in $ millions, or otherwise indicated) |
Q2 2023 |
|
Q2 2022 |
|
Variation (%) |
|
YTD 2023 |
|
YTD 2022 |
|
Variation (%) |
United States |
745.9 |
|
796.1 |
|
(6.3) |
% |
|
1,371.0 |
|
1,477.9 |
|
(7.2) |
% |
Canada |
28.1 |
|
31.4 |
|
(10.5) |
% |
|
53.8 |
|
61.6 |
|
(12.7) |
% |
International |
66.4 |
|
68.1 |
|
(2.4) |
% |
|
118.5 |
|
131.0 |
|
(9.5) |
% |
|
840.4 |
|
895.6 |
|
(6.2) |
% |
|
1,543.3 |
|
1,670.5 |
|
(7.6) |
% |
Non-GAAP financial measures and related
ratiosThis press release includes references to certain
non-GAAP financial measures, as well as non-GAAP ratios 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 or as a
substitute for measures of performance prepared in accordance with
IFRS. 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.
Certain adjustments to non-GAAP measuresAs
noted above certain of our non-GAAP financial measures and ratios
exclude the variation caused by certain adjustments that affect the
comparability of the Company's financial results and could
potentially distort the analysis of trends in its business
performance. Adjustments which impact more than one non-GAAP
financial measure and ratio are explained below:
Restructuring and acquisition-related costs (recovery)
Restructuring and acquisition-related costs are comprised of costs
directly related to significant exit activities, including the
closure and sale of business locations or the relocation of
business activities, significant changes in management structure,
as well as transaction, exit, and integration costs incurred
pursuant to business acquisitions. Restructuring and
acquisition-related costs is included as an adjustment in arriving
at adjusted operating income, adjusted operating margin, adjusted
net earnings, adjusted diluted EPS, and adjusted EBITDA. For the
three and six months ended July 2, 2023 restructuring and
acquisition-related costs of $30.0 million and $32.8 million (2022
- $1.6 million and $1.2 million (recovery)),
respectively, were recognized. Refer to subsection 5.4.6 entitled
“Restructuring and acquisition-related costs (recovery)” in our
interim MD&A for a detailed discussion of these costs and
recoveries.
Impact of strategic product line initiativesIn the fourth
quarter of fiscal 2019, the Company launched a strategic initiative
to significantly reduce its imprintables product line SKU count. In
the fourth quarter of fiscal 2020 the Company expanded this
strategic initiative to include a significant reduction in its
retail product line SKU count. The objectives of this strategic
initiative included exiting all ship to-the-piece activities,
discontinuing overlapping and less productive styles and SKUs
between brands, simplifying the Company's product portfolio and
reducing complexity in its manufacturing and warehouse distribution
activities. The impact of this initiative included inventory
write-downs to reduce the carrying value of discontinued SKUs to
liquidation values, sales return allowances for product returns
related to discontinued SKUs, and the write-down of production
equipment relating to discontinued SKUs. The impact of strategic
product line initiatives is included as an adjustment in arriving
at adjusted gross profit and adjusted gross margin, adjusted
operating income, adjusted operating margin, adjusted net earnings,
adjusted diluted EPS, and adjusted EBITDA.
The gains related to this initiative were as follows:
- For the three and six months ended July 2, 2023, recoveries
were nil.
- For the three and six months ended July 3, 2022, nil and $1
million of recoveries were included in cost of sales.
Net insurance gainsFor the three and six months
ended July 2, 2023, net insurance gains were $74.0 million and
$77.3 million (2022 - nil and $0.3 million), respectively, related
to the two hurricanes which impacted the Company’s operations in
Central America in November 2020. Net insurance gains relate to the
recognition of insurance recoveries for business interruption
losses and insurance recoveries for damaged equipment. Insurance
gains relating to recoveries for business interruption losses for
the three and six months ended July 2, 2023 were $74.2 million
(2022 - nil) are recorded in insurance gains, and included as an
adjustment in arriving at adjusted operating income, adjusted
operating margin, adjusted net earnings, adjusted diluted EPS, and
adjusted EBITDA. Net insurance gains and losses relating to
recoveries for damaged equipment for the three and six months ended
July 2, 2023, were $0.2 million (loss) and $3.1 million (gain),
respectively (2022 - nil and $0.3 million (gain)), are recorded in
cost of sales and included as an adjustment in arriving at adjusted
gross profit and adjusted gross margin, adjusted operating income,
adjusted operating margin, adjusted net earnings, adjusted diluted
EPS, and adjusted EBITDA.
Gain on sale and leasebackDuring the first quarter of 2023, the
Company recognized a gain of $25.0 million ($15.5 million after
reflecting $9.5 million of income tax expense) on the sale and
leaseback of one of our distribution centres located in the U.S.
The impact of this gain is included as an adjustment in arriving at
adjusted operating income, adjusted operating margin, adjusted net
earnings, adjusted diluted EPS, and adjusted EBITDA.
Adjusted net earnings and adjusted diluted EPSAdjusted net
earnings are calculated as net earnings before restructuring and
acquisition-related costs, impairment of goodwill and intangible
assets (and reversal of impairments on intangible assets), the
impact of the Company's strategic product line initiatives, net
insurance gains, gain on sale and leaseback, and income tax expense
or recovery relating to these items. Adjusted net earnings also
excludes 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. 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 net earnings performance
from one period to the next, and in making decisions regarding the
ongoing operations of its business, without the variation caused by
the impacts of the items described above. The Company excludes
these items because they affect the comparability of its net
earnings and diluted EPS and could potentially distort the analysis
of net earnings trends in its business performance. The Company
believes adjusted net earnings and adjusted diluted EPS are useful
to investors because they help identify underlying trends in our
business that could otherwise be masked by certain expenses,
write-offs, charges, income or recoveries that can vary from period
to period. Excluding these items does not imply they are
non-recurring. These measures do not have any standardized meanings
prescribed by IFRS and are therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, except per share amounts) |
Q2 2023 |
Q2 2022 |
|
YTD 2023 |
YTD 2022 |
Net earnings |
155.3 |
|
158.2 |
|
252.9 |
|
304.6 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related costs (recovery) |
30.0 |
|
1.6 |
|
32.8 |
|
(1.2 |
) |
Impact of strategic product line initiatives |
— |
|
— |
|
— |
|
(1.0 |
) |
Net insurance gains |
(74.0 |
) |
— |
|
(77.3 |
) |
(0.3 |
) |
Gain on sale and leaseback |
— |
|
— |
|
(25.0 |
) |
— |
|
Income tax expense relating to the above-noted adjustments |
1.0 |
|
— |
|
10.5 |
|
2.0 |
|
Adjusted net earnings |
112.3 |
|
159.8 |
|
193.9 |
|
304.1 |
|
Basic EPS |
0.87 |
|
0.85 |
|
1.42 |
|
1.63 |
|
Diluted EPS |
0.87 |
|
0.85 |
|
1.41 |
|
1.62 |
|
Adjusted diluted EPS(1) |
0.63 |
|
0.86 |
|
1.08 |
|
1.62 |
|
(1) This is a
non-GAAP ratio. It is calculated as adjusted net earnings divided
by the diluted weighted average number of common shares
outstanding. |
Adjusted gross profit and adjusted gross marginAdjusted gross
profit is calculated as gross profit excluding the impact of the
Company's strategic product line initiatives, and net insurance
gains. The Company uses adjusted gross profit and adjusted gross
margin to measure its performance at the gross margin level 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. The Company believes adjusted gross
profit and adjusted gross margin are useful to management and
investors because they help identify underlying trends in our
business in how efficiently the Company uses labor and materials
for manufacturing goods to our customers, that could otherwise be
masked by the impact of our strategic product line initiatives and
net insurance gains that can vary from period to period. These
measures do not have any standardized meanings prescribed by IFRS
and are therefore unlikely to be comparable to similar measures
presented by other companies.
(in $ millions, or otherwise indicated) |
Q2 2023 |
Q2 2022 |
|
YTD 2023 |
YTD 2022 |
Gross profit |
216.6 |
|
265.0 |
|
|
404.3 |
|
505.4 |
|
Adjustments for: |
|
|
|
|
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
— |
|
(1.0 |
) |
Net insurance losses (gains) |
0.2 |
|
— |
|
|
(3.1 |
) |
(0.3 |
) |
Adjusted gross profit |
216.8 |
|
265.0 |
|
|
401.2 |
|
504.1 |
|
Gross margin |
25.8 |
% |
29.6 |
% |
|
26.2 |
% |
30.3 |
% |
Adjusted gross margin(1) |
25.8 |
% |
29.6 |
% |
|
26.0 |
% |
30.2 |
% |
(1) This is a
non-GAAP ratio. It is calculated as adjusted gross profit divided
by net sales excluding the sales return allowance for anticipated
product returns related to discontinued SKUs. Net sales excluding
the sales return allowance for anticipated product returns related
to discontinued SKUs is a non-GAAP measure used in the denominator
of the adjusted margin ratios to reverse the full effect of the SKU
rationalization adjustments. The sales return allowance was nil for
both periods. |
Adjusted operating income and adjusted operating marginAdjusted
operating income is calculated as operating income before
restructuring and acquisition-related costs. Adjusted operating
income also excludes impairment of goodwill and intangible assets
(and reversal of impairments on intangible assets), the impact of
the Company's strategic product line initiatives, net insurance
gains, and gain on sale and leaseback. 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 at the operating income level as we believe it provides
a better indication of our operating performance and facilitates
the comparison across reporting periods, 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 operating income and operating margin performance.
The Company believes adjusted operating income and adjusted
operating margin are useful to investors because they help identify
underlying trends in our business in how efficiently the Company
generates profit from its primary operations that could otherwise
be masked by the impact of the items noted above that can vary from
period to period. Excluding these items does not imply they are
non-recurring. These measures do not have any standardized meanings
prescribed by IFRS and are therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, or otherwise indicated) |
Q2 2023 |
Q2 2022 |
|
YTD 2023 |
YTD 2022 |
Operating income |
182.7 |
|
174.0 |
|
|
310.7 |
|
336.2 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related costs (recovery) |
30.0 |
|
1.6 |
|
|
32.8 |
|
(1.2 |
) |
Impact of strategic product line initiatives |
— |
|
— |
|
|
— |
|
(1.0 |
) |
Net insurance gains |
(74.0 |
) |
— |
|
|
(77.3 |
) |
(0.3 |
) |
Gain on sale and leaseback |
— |
|
— |
|
|
(25.0 |
) |
— |
|
Adjusted operating income |
138.7 |
|
175.6 |
|
|
241.2 |
|
333.7 |
|
Operating margin |
21.7 |
% |
19.4 |
% |
|
20.1 |
% |
20.1 |
% |
Adjusted operating margin(1) |
16.5 |
% |
19.6 |
% |
|
15.6 |
% |
20.0 |
% |
(1) This is a
non-GAAP ratio. It is calculated as adjusted operating income
divided by net sales excluding the sales return allowance for
anticipated product returns related to discontinued SKUs. Net
sales, excluding the sales return allowance for anticipated product
returns related to discontinued SKUs, is a non-GAAP measure used in
the denominator of the adjusted margin ratios to reverse the full
effect of the SKU rationalization adjustments. The sales return
allowance was nil for both periods. |
Adjusted EBITDAAdjusted EBITDA is calculated as earnings before
financial expenses net, income taxes, and depreciation and
amortization, and excludes the impact of restructuring and
acquisition-related costs. Adjusted EBITDA also excludes impairment
of goodwill and intangible assets (and reversal of impairments on
intangible assets), net insurance gains, the gain on sale and
leaseback, and the impact of the Company's strategic product line
initiative. Management uses adjusted EBITDA, among other
measures, to facilitate a comparison of the profitability of its
business on a consistent basis from period-to-period and to provide
a more complete understanding of factors and trends affecting our
business. The Company also believes this measure is commonly used
by investors and analysts to assess profitability and the cost
structure of companies within the industry, as well as 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. This measure does not
have any standardized meanings prescribed by IFRS and is therefore
unlikely to be comparable to similar measures presented by other
companies.
(in $ millions) |
Q2 2023 |
|
Q2 2022 |
|
YTD 2023 |
|
YTD 2022 |
|
Net earnings |
155.3 |
|
158.2 |
|
252.9 |
|
304.6 |
|
Restructuring and
acquisition-related costs (recovery) |
30.0 |
|
1.6 |
|
32.8 |
|
(1.2 |
) |
Impact of strategic product
line initiatives |
— |
|
— |
|
— |
|
(1.0 |
) |
Net insurance gains |
(74.0 |
) |
— |
|
(77.3 |
) |
(0.3 |
) |
Gain on sale and
leaseback |
— |
|
— |
|
(25.0 |
) |
— |
|
Depreciation and
amortization |
31.6 |
|
32.3 |
|
59.5 |
|
65.7 |
|
Financial expenses, net |
20.7 |
|
7.4 |
|
37.7 |
|
14.4 |
|
Income
tax expense |
6.7 |
|
8.4 |
|
20.1 |
|
17.2 |
|
Adjusted EBITDA |
170.3 |
|
207.9 |
|
300.7 |
|
399.4 |
|
Free cash flow Free cash flow is defined as cash from operating
activities, less cash flow used in investing activities excluding
cash flows relating to business acquisitions/dispositions. 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 used by management in managing capital as it indicates
how much cash is available after capital expenditures to repay
debt, to pursue business acquisitions, and/or to redistribute to
its shareholders. Management believes that free cash flow also
provides investors with an important perspective on the cash
available to us to service debt, fund acquisitions, and pay
dividends. In addition, free cash flow is commonly used by
investors and analysts when valuing a business and its underlying
assets. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions) |
Q2 2023 |
|
Q2 2022 |
|
YTD 2023 |
|
YTD 2022 |
|
Cash flows from (used in) operating activities |
181.8 |
|
209.7 |
|
2.4 |
|
158.3 |
|
Cash flows from (used in)
investing activities |
(55.8 |
) |
(50.3 |
) |
(78.6 |
) |
(84.3 |
) |
Adjustment for: |
|
|
|
|
Business (dispositions) acquisitions |
— |
|
— |
|
— |
|
— |
|
Free cash flow |
126.0 |
|
159.4 |
|
(76.2 |
) |
74.0 |
|
Total debt and net debtTotal debt is defined as
the total bank indebtedness, long-term debt (including any current
portion), and lease obligations (including any current portion),
and net debt is calculated as total debt net of cash and cash
equivalents. The Company considers total debt and net debt to be
important indicators for management and investors to assess the
financial position and liquidity of the Company, and measure its
financial leverage. These measures do not have any standardized
meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
(in $ millions) |
Jul 2, 2023 |
|
Jan 1, 2023 |
|
Long-term debt (including current portion) |
1,145.0 |
|
930.0 |
|
Bank indebtedness |
— |
|
— |
|
Lease
obligations (including current portion) |
93.6 |
|
94.0 |
|
Total debt |
1,238.6 |
|
1,024.0 |
|
Cash
and cash equivalents |
(68.6 |
) |
(150.4 |
) |
Net debt |
1,170.0 |
|
873.6 |
|
Net debt leverage ratio The net debt leverage ratio is defined
as the ratio of net debt to pro-forma adjusted EBITDA for the
trailing twelve months, all of which are non-GAAP measures. 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 fiscal year-end net debt leverage target ratio of
one to two times pro-forma adjusted EBITDA for the trailing twelve
months. The net debt leverage ratio serves to evaluate the
Company's financial leverage and is used by management in its
decisions on the Company's capital structure, including financing
strategy. The Company believes that certain investors and analysts
use the net debt leverage ratio to measure the financial leverage
of the Company, including our ability to pay off our incurred debt.
The Company's net debt leverage ratio differs from the net debt to
EBITDA ratio that is a covenant in our loan and note agreements due
primarily to adjustments in the latter related to lease accounting,
and therefore the Company believes it is a useful additional
measure. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, or otherwise indicated) |
Jul 2, 2023 |
|
Jan 1, 2023 |
|
Adjusted EBITDA for the
trailing twelve months |
665.3 |
|
764.2 |
|
Adjustment for: |
|
|
|
|
Business (dispositions) acquisitions |
— |
|
— |
|
Pro-forma adjusted EBITDA for the trailing twelve months |
665.3 |
|
764.2 |
|
Net debt |
1,170.0 |
|
873.6 |
|
Net
debt leverage ratio(1) |
1.8 |
|
1.1 |
|
(1) The Company's
total net debt to EBITDA ratio for purposes of its loan and note
agreements was 1.9 at July 2, 2023. |
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, 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, return on adjusted average
net assets, net debt to adjusted EBITDA leverage ratios, capital
return and capital investments or expenditures, including our
financial outlook set forth in this press release under the section
“Outlook”. 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 our most
recent Management’s Discussion and Analysis 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 document 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:
- changes in general economic and financial conditions globally
or in one or more of the markets we serve, including those
resulting from the impact of the COVID-19 pandemic and the
appearance of COVID variants;
- our ability to implement our growth strategies and plans,
including our ability to bring projected capacity expansion
online;
- 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 from current levels;
- our reliance on key suppliers and our ability to maintain an
uninterrupted supply of raw materials, intermediate materials and
finished goods;
- the impact of climate, political, social, and economic risks,
natural disasters, epidemics, pandemics and endemics, 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, weather-related events, natural disasters, epidemics
and pandemics, such as the COVID-19 pandemic, and other unforeseen
adverse events;
- 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, including the implementation of
a global minimum tax rate;
- 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 human rights, 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 necessarily 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 hereof, 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, including our updated financial outlook for the 2023
fiscal year under the section "Outlook", are expressly qualified by
this cautionary statement.
About Gildan
Gildan is a leading manufacturer of everyday
basic apparel. The Company’s product offering includes activewear,
underwear and socks, 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. The Company 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®, GOLDTOE®, Peds®, in addition to the
Under Armour® brand through a sock licensing agreement providing
exclusive distribution rights in the United States and Canada.
Gildan owns and operates vertically integrated, large-scale
manufacturing facilities which are primarily located in Central
America, the Caribbean, North America, and Bangladesh. Gildan
operates with a strong commitment to industry-leading labour,
environmental and governance practices throughout its supply chain
in accordance with its comprehensive ESG program embedded in the
Company's long-term business strategy. More information about the
Company and its ESG practices and initiatives can be found at
www.gildancorp.com.
Investor inquiries: Jessy Hayem, CFA
Vice-President, Head of Investor Relations (514)
744-8511jhayem@gildan.com |
Media inquiries:Genevieve GosselinDirector, Global
Communications and Corporate Marketing(514)
343-8814ggosselin@gildan.com |
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