Gildan Activewear Inc. (GIL: TSX and NYSE) today announced its
results for the third quarter ended September 27, 2020.
Results for the third quarter reflected a strong improvement
from the second quarter, despite ongoing COVID-19 impacts. We
generated sales of $602 million, up sequentially from $230 million
in the second quarter this year and returned to a profit with GAAP
diluted EPS of $0.28 and adjusted diluted EPS of $0.30. Cash flow
was strong with the Company generating free cash flow of $137
million in the quarter, with free cash flow generation over the
last two quarters now totaling over $300 million. From a sales
perspective, point of sales (POS) levels in the imprintables
channel, although down on a year-over-year basis, remained
relatively stable through the third quarter, while sales to
retailers were up year-over-year. Increased capacity utilization
and improved product-mix in the third quarter led to a significant
sequential improvement in gross margin, which totaled 22.5%.
Further, our strong focus on cost control translated to SG&A
expenses totaling 10.2% of third quarter sales, with expenses down
22% on a year-over-year basis.
“We were pleased with the recovery of our sales and earnings
during the third quarter. Retail sales performance was driven by
momentum in underwear, and while the lack of large events continues
to impact imprintable channels we are nonetheless seeing areas of
opportunity” said Gildan President and CEO, Glenn J. Chamandy.
“Further, we continue to be pleased with the results we are seeing
from our “Back to Basics” strategy as we continue to place a strong
focus on meeting our customers' needs and growing market share
through simplification of our product portfolios, removal of cost
and complexity from our business and fully leveraging our world
class, sustainably-focused, vertically-integrated manufacturing
platform.”
Q3 2020 operating results Sales for the third
quarter of 2020 of $602 million declined 18.6% compared to last
year and were comprised of activewear sales of $456 million,
down 26.3% from the prior year, and strong sales growth in the
hosiery and underwear category, where we generated
$146 million of sales, up 21.2% compared to the third quarter
of 2019. The decline in activewear sales was primarily driven by
lower unit sales volumes, unfavourable product-mix, and higher
promotional discounting in the imprintables channel. Imprintables
sales volumes were down 21% in North America and 25% in our
international markets, reflecting the ongoing impact from the
COVID-19 pandemic. Despite the sales volume decline, we were
encouraged to see that overall POS trends in our imprintables
channels remained relatively stable through the third quarter, on
average down year-over-year approximately 15% to 20% in North
America and approximately 25% in international markets, largely in
line with the POS levels we saw in these markets as we exited the
second quarter this year. Although we did see distributor
destocking in the quarter, the level of destocking was
significantly lower than the second quarter. On the retail side,
activewear sales were down slightly compared to last year. The
21.2% increase in the hosiery and underwear sales category was
driven by strong momentum from our private and Gildan® branded
underwear products which continued to gain share and doubled in
sales in the quarter. Although hosiery sales in the quarter
improved sequentially, sales were slightly down compared to the
prior year.
Gross margin in the quarter was 22.5%, reflecting a strong
improvement from the gross loss incurred in the second quarter
related to significant COVID-19 impacts and Back to Basics charges.
Compared to the third quarter last year, gross margin was down 490
basis points mainly due to a 280-basis point unfavourable
product-mix impact, an approximate $15 million or 250-basis point
impact on gross margin related to lower manufacturing capacity
utilization costs, as well as lower net selling prices due to the
continuation of higher promotional imprintables discounting in the
quarter. These factors more than offset the benefit of
manufacturing cost efficiencies stemming from our Back to Basics
initiatives and lower raw material costs compared to the prior
year. Although product-mix was unfavourable in the quarter, the
impact on gross margin was far less than the 600-basis point impact
we saw in the second quarter and we expect the negative impact from
product-mix to reverse as our sales continue to normalize.
SG&A expenses for the third quarter of $61.5 million, or
10.2% of sales were down $17.5 million compared to SG&A
expenses of $79.0 million, or 10.7% of sales for the same quarter
last year. The year-over-year reduction reflected lower
compensation and lower volume-driven distribution expenses and the
benefit of continued cost savings stemming from our Back to Basics
initiatives.
We generated operating income of $68.8 million in the third
quarter of 2020 down from $117.9 million last year. Before
reflecting restructuring and acquisition-related costs in both
years, on an adjusted basis1, operating income for the quarter was
$73.5 million compared to $122.3 million last year, reflecting the
impact of lower sales and gross margin, partly offset by the
reduction in SG&A expenses. Net financial expenses of $11.4
million were up $1.5 million over the prior year, mainly due to
fees incurred in connection with the amendments made to our
long-term debt facilities. Consequently, we reported net earnings
of $56.4 million, or $0.28 per share on a diluted basis, for the
three months ended September 27, 2020 and adjusted net
earnings1 of $59.2 million, or $0.30 per share on a diluted basis,
compared to net earnings of $104.9 million, or $0.51 per diluted
share, and adjusted net earnings of $108.4 million, or $0.53 per
diluted share, respectively, in the third quarter last year.
The Company generated strong free cash flow in the quarter
totaling $137 million, up from $87.3 million in the third quarter
last year. The improvement in free cash flow was driven by tightly
managing working capital, including inventories, as well as capital
expenditures. The Company spent $14.1 million in capital
expenditures in the quarter, down from $40.2 million last year,
primarily for maintenance purposes. At the end of the third
quarter, the Company's net debt1 stood at $850.4 million and its
liquidity position at approximately $1.3 billion.
Year-to-date operating
results Net sales for the nine months
ended September 27, 2020 of $1,291.1 million were down 40.4%
over the same period last year, reflecting declines of 46.0% in
activewear sales and 14.6% in the hosiery and underwear category.
The decrease in activewear sales where we generated sales of $960.5
million was primarily due to lower unit sales due to the downturn
in demand as a result of the COVID-19 pandemic combined with the
impact of distributor inventory destocking in imprintables,
unfavourable product-mix, and the impact of pricing action taken in
the U.S. imprintables channel. Sales in the hosiery and underwear
category of $330.6 million on a year-to-date basis also
reflected the COVID-related impact on demand in retail channels of
distribution, specifically lower demand in socks, as well as the
impact of the exit of a sock program in the mass channel, partly
offset by a 50% increase in private brand men's underwear
sales.
We generated gross profit of $93.6 million and $127.6 million on
an adjusted basis1, for the first nine months of 2020 compared to
gross profit and adjusted gross profit1 of $586.2 million for the
same period last year. The significant year-over-year decline was
mainly due to lower unit sales volumes, unabsorbed fixed
manufacturing costs while capacity was idle, inventory provisions,
as well as the impact of exiting excess commodity derivative hedges
and cotton commitments, most of which were triggered by the
COVID-19 pandemic. The gross profit decline also reflected
unfavourable product-mix and higher promotional discounting in the
imprintables channel.
SG&A expenses of $200.4 million for the nine months ended
September 27, 2020 were down $63.6 million over the same
period in the prior year as a result of lower compensation and
volume-driven distribution costs, and cost containment efforts.
Impairment of trade accounts receivable totaled $15.0 million down
from $26.3 million last year, primarily due to the non-recurrence
of a loss related to a distributor receivership situation which
occurred last year, partly offset by an increase in the estimate
for our allowance of expected credit losses due to the impact of
the pandemic on the current economic environment. Restructuring and
acquisition-related costs of $43.9 million for the first nine
months of 2020 primarily related to Back to Basics initiatives,
including consolidation of manufacturing operations and other
manufacturing optimization initiatives.
Consequently, after reflecting these charges and the first
quarter goodwill impairment charge of $94.0 million related to our
hosiery cash generating unit (CGU), we incurred an operating loss
of $259.7 million for the first nine months of 2020 compared to
operating income of $264.7 million in the same period last year.
Excluding restructuring and acquisition-related costs, charges
related to rationalized imprintables product SKUs, and the
impairment for goodwill and intangible assets, the year-to-date
adjusted operating loss1 totaled $87.8 million compared to adjusted
operating income1 of $296.0 million last year. The decline
reflected the lower sales base and the negative operating margin
which led to a reported net loss for the first nine months of 2020
of $292.6 million, or $1.48 per share on a diluted basis, and an
adjusted loss of $126.2 million, or $0.64 per diluted share.
Current market environmentDue to the
unprecedented nature and uncertainty related to the impacts of the
COVID-19 pandemic, we withdrew our guidance for 2020 on March 23,
2020. While we are not providing a financial outlook at this time,
the following reflects what we are currently seeing in the market
environment.
POS trends in our imprintables channels have further improved
more recently, with average POS for the month of October down in
the 10% range in the U.S. market and down on average between 20%
and 25% in international markets compared to last year. In retail
we have seen continued sales growth for most of our products thus
far in the quarter. While this start to the fourth quarter is
encouraging, we nonetheless remain cautious given the ongoing
trajectory of the COVID-19 pandemic, as well as the uncertain
outlook for the global economy and the overall impact this may have
on the demand for our products. Finally, while we have made and
continue to make good progress in the execution and acceleration of
our Back to Basics strategy, in the fourth quarter we will be
completing a strategic retail product review, as previously
communicated. To the extent that our review leads to a decision to
rationalize any part of our retail product offering, a related
inventory charge could be incurred in the fourth quarter which we
do not expect would exceed $25 million.
Environmental, Social and Governance (ESG)On
October 14, 2020, Gildan was recognized among the top global
performers in sustainability achieving a high standing in The Wall
Street Journal’s inaugural ranking of the Top 100 Most Sustainably
Managed Companies in the world. "We are proud of this recognition
as the only North American apparel company and second among only
three apparel companies globally included in this list," said Glenn
J. Chamandy, Gildan's President and CEO. "This is a testament to
our unique business model of owning and operating our manufacturing
facilities and reflects the strong commitment and continued
progress we have made in the area of Environmental, Social and
Governance practices over many years."
Disclosure of outstanding share dataAs at
October 23, 2020, there were 198,307,308 common shares issued
and outstanding along with 2,219,128 stock options and 48,836
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 third
quarter 2020 results today at 8:30 AM 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
9069854#. A replay will be available for 7 days starting at 11:30
AM 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 and nine months ended September 27, 2020, 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 unaudited
condensed interim consolidated financial statements and the table
summaries contained in this press release.
Supplemental Financial Data |
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|
CONSOLIDATED FINANCIAL DATA (UNAUDITED) |
|
|
|
|
|
|
|
|
(in $ millions, except per share amounts or otherwise
indicated) |
Q3 2020 |
|
|
Q3 2019 |
|
|
Variation (%) |
|
YTD 2020 |
|
|
YTD 2019 |
|
|
Variation (%) |
Net sales |
602.3 |
|
|
739.7 |
|
|
(18.6 |
) |
% |
|
1,291.1 |
|
|
2,165.2 |
|
|
(40.4 |
) |
% |
Gross profit |
135.5 |
|
|
202.7 |
|
|
(33.2 |
) |
% |
|
93.6 |
|
|
586.2 |
|
|
(84.0 |
) |
% |
Adjusted gross profit(1) |
135.5 |
|
|
202.7 |
|
|
(33.2 |
) |
% |
|
127.6 |
|
|
586.2 |
|
|
(78.2 |
) |
% |
SG&A expenses |
61.5 |
|
|
79.0 |
|
|
(22.2 |
) |
% |
|
200.4 |
|
|
264.0 |
|
|
(24.1 |
) |
% |
Impairment of trade accounts
receivable |
0.5 |
|
|
1.5 |
|
|
(66.7 |
) |
% |
|
15.0 |
|
|
26.3 |
|
|
(43.0 |
) |
% |
Restructuring and
acquisition-related costs |
4.7 |
|
|
4.4 |
|
|
6.8 |
|
% |
|
43.9 |
|
|
31.3 |
|
|
40.3 |
|
% |
Impairment of goodwill and
intangible assets |
— |
|
|
— |
|
|
— |
|
|
|
94.0 |
|
|
— |
|
|
— |
|
|
Operating income (loss) |
68.8 |
|
|
117.9 |
|
|
(41.6 |
) |
% |
|
(259.7 |
) |
|
264.7 |
|
|
n.m. |
Adjusted operating income
(loss)(1) |
73.5 |
|
|
122.3 |
|
|
(39.9 |
) |
% |
|
(87.8 |
) |
|
296.0 |
|
|
n.m. |
Adjusted EBITDA(1) |
106.9 |
|
|
162.0 |
|
|
(34.0 |
) |
% |
|
19.9 |
|
|
419.8 |
|
|
(95.3 |
) |
% |
Financial expenses |
11.4 |
|
|
9.9 |
|
|
15.2 |
|
% |
|
35.4 |
|
|
29.6 |
|
|
19.6 |
|
% |
Income tax expense
(recovery) |
1.0 |
|
|
3.1 |
|
|
(67.7 |
) |
% |
|
(2.4 |
) |
|
7.8 |
|
|
n.m. |
Net earnings (loss) |
56.4 |
|
|
104.9 |
|
|
(46.2 |
) |
% |
|
(292.6 |
) |
|
227.3 |
|
|
n.m. |
Adjusted net earnings
(loss)(1) |
59.2 |
|
|
108.4 |
|
|
(45.4 |
) |
% |
|
(126.2 |
) |
|
256.2 |
|
|
n.m. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
0.28 |
|
|
0.51 |
|
|
(45.1 |
) |
% |
|
(1.48 |
) |
|
1.11 |
|
|
n.m. |
Diluted EPS |
0.28 |
|
|
0.51 |
|
|
(45.1 |
) |
% |
|
(1.48 |
) |
|
1.11 |
|
|
n.m. |
Adjusted diluted EPS(1) |
0.30 |
|
|
0.53 |
|
|
(43.4 |
) |
% |
|
(0.64 |
) |
|
1.25 |
|
|
n.m. |
|
|
|
|
|
|
|
|
Gross margin |
22.5 |
|
% |
27.4 |
|
% |
(4.9) pp |
|
7.2 |
|
% |
27.1 |
|
% |
(19.9) pp |
Adjusted gross margin(1) |
22.5 |
|
% |
27.4 |
|
% |
(4.9) pp |
|
9.8 |
|
% |
27.1 |
|
% |
(17.3) pp |
SG&A expenses as a
percentage of sales |
10.2 |
|
% |
10.7 |
|
% |
(0.5) pp |
|
15.5 |
|
% |
12.2 |
|
% |
3.3 pp |
Operating margin |
11.4 |
|
% |
15.9 |
|
% |
(4.5) pp |
|
(20.1 |
) |
% |
12.2 |
|
% |
(32.3) pp |
Adjusted operating margin(1) |
12.2 |
|
% |
16.5 |
|
% |
(4.3) pp |
|
(6.7 |
) |
% |
13.7 |
|
% |
(20.4) pp |
|
|
|
|
|
|
|
|
Cash flows from operating
activities |
151.0 |
|
|
124.3 |
|
|
21.5 |
|
% |
|
123.4 |
|
|
98.6 |
|
|
25.2 |
|
% |
Capital expenditures |
(14.1 |
) |
|
(40.2 |
) |
|
(64.9 |
) |
% |
|
(44.9 |
) |
|
(118.9 |
) |
|
(62.2 |
) |
% |
Free
cash flow(1) |
137.2 |
|
|
87.3 |
|
|
57.2 |
|
% |
|
79.3 |
|
|
(14.5 |
) |
|
n.m. |
n.m. = not meaningful
As at |
Sep 27, 2020 |
Dec 29, 2019 |
Inventories |
938.6 |
1,052.1 |
Trade accounts receivable |
210.2 |
320.9 |
Net indebtedness(1) |
850.4 |
862.4 |
Net
debt leverage ratio(2) |
5.7 |
1.6 |
(1) Please refer
to "Definition and reconciliation of non-GAAP financial measures"
in this press release. |
(2) The Company's
net debt to EBITDA ratio for purposes of its loan and note
agreements was 2.0 at September 27, 2020. |
DISAGGREGATION OF REVENUE
Net sales by major product group were as follows:
(in $ millions, or otherwise indicated) |
Q3 2020 |
Q3 2019 |
Variation (%) |
|
YTD 2020 |
YTD 2019 |
Variation (%) |
Activewear |
456.3 |
619.2 |
(26.3 |
) |
% |
|
960.5 |
1,778.3 |
(46.0 |
) |
% |
Hosiery
and underwear |
146.0 |
120.5 |
21.2 |
|
% |
|
330.6 |
386.9 |
(14.6 |
) |
% |
|
602.3 |
739.7 |
(18.6 |
) |
% |
|
1,291.1 |
2,165.2 |
(40.4 |
) |
% |
Net sales were derived from customers located in the following
geographic areas:
(in $ millions, or otherwise indicated) |
Q3 2020 |
Q3 2019 |
Variation (%) |
|
YTD 2020 |
YTD 2019 |
Variation (%) |
United States |
517.1 |
632.5 |
(18.2 |
) |
% |
|
1,092.2 |
1,847.2 |
(40.9 |
) |
% |
Canada |
25.4 |
27.1 |
(6.3 |
) |
% |
|
50.3 |
80.2 |
(37.3 |
) |
% |
International |
59.8 |
80.0 |
(25.3 |
) |
% |
|
148.6 |
237.8 |
(37.5 |
) |
% |
|
602.3 |
739.6 |
(18.6 |
) |
% |
|
1,291.1 |
2,165.2 |
(40.4 |
) |
% |
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
imprintables 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 and second quarters 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) |
Q3 2020 |
|
Q3 2019 |
|
YTD 2020 |
|
YTD 2019 |
|
Net earnings (loss) |
56.4 |
|
104.9 |
|
(292.6 |
) |
227.3 |
|
Adjustments for: |
|
|
|
|
Restructuring and acquisition-related costs |
4.7 |
|
4.4 |
|
43.9 |
|
31.3 |
|
Impairment of goodwill and intangible assets |
— |
|
— |
|
94.0 |
|
— |
|
Impact of strategic product line initiative(1) |
— |
|
— |
|
34.0 |
|
— |
|
Income tax recovery relating to the above noted adjustments |
(1.9 |
) |
(0.9 |
) |
(5.5 |
) |
(2.4 |
) |
Adjusted net earnings (loss) |
59.2 |
|
108.4 |
|
(126.2 |
) |
256.2 |
|
Basic EPS |
0.28 |
|
0.51 |
|
(1.48 |
) |
1.11 |
|
Diluted EPS |
0.28 |
|
0.51 |
|
(1.48 |
) |
1.11 |
|
Adjusted diluted EPS |
0.30 |
|
0.53 |
|
(0.64 |
) |
1.25 |
|
(1) For the nine months ended September 27,
2020, includes $29.2 million of inventory write-downs included in
cost of sales and the $4.8 million gross profit impact of a sales
return allowance for anticipated product returns related to
discontinued SKUs (which reduced net sales by $11.2 million and
cost of sales by $6.4 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 imprintables 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 and second quarters 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) |
Q3 2020 |
|
Q3 2019 |
|
YTD 2020 |
|
YTD 2019 |
|
Gross profit |
135.5 |
|
202.7 |
|
93.6 |
|
586.2 |
|
Adjustments for: |
|
|
|
|
Impact of strategic product line initiative(1) |
— |
|
— |
|
34.0 |
|
— |
|
Adjusted gross profit |
135.5 |
|
202.7 |
|
127.6 |
|
586.2 |
|
Gross margin |
22.5 |
% |
27.4 |
% |
7.2 |
% |
27.1 |
% |
Adjusted gross margin(2) |
22.5 |
% |
27.4 |
% |
9.8 |
% |
27.1 |
% |
(1) For the nine months ended September 27, 2020, includes $29.2
million of inventory write-downs included in cost of sales and the
$4.8 million gross profit impact of a sales return allowance for
anticipated product returns related to discontinued SKUs (which
reduced net sales by $11.2 million and cost of sales by $6.4
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 imprintables 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 and second quarters 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) |
Q3 2020 |
|
Q3 2019 |
|
|
YTD 2020 |
|
|
YTD 2019 |
|
Operating income (loss) |
68.8 |
|
117.9 |
|
|
(259.7 |
) |
|
264.7 |
|
Adjustment for: |
|
|
|
|
|
|
|
|
|
|
Restructuring and acquisition-related costs |
4.7 |
|
4.4 |
|
|
43.9 |
|
|
31.3 |
|
Impairment of goodwill and intangible assets |
— |
|
— |
|
|
94.0 |
|
|
— |
|
Impact of strategic product initiative(1) |
— |
|
— |
|
|
34.0 |
|
|
— |
|
Adjusted operating income (loss) |
73.5 |
|
122.3 |
|
|
(87.8 |
) |
|
296.0 |
|
Operating margin |
11.4 |
% |
15.9 |
% |
|
(20.1 |
) |
% |
12.2 |
% |
Adjusted operating margin(2) |
12.2 |
% |
16.5 |
% |
|
(6.7 |
) |
% |
13.7 |
% |
(1) For the nine months ended September 27,
2020, includes $29.2 million of inventory write-downs included in
cost of sales and the $4.8 million gross profit impact of a sales
return allowance for anticipated product returns related to
discontinued SKUs (which reduced net sales by $11.2 million and
cost of sales by $6.4 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 imprintables 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 and second quarters 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) |
Q3 2020 |
Q3 2019 |
YTD 2020 |
|
YTD 2019 |
Net earnings (loss) |
56.4 |
104.9 |
(292.6 |
) |
227.3 |
Restructuring and
acquisition-related costs |
4.7 |
4.4 |
43.9 |
|
31.3 |
Impairment of goodwill and
intangible assets |
— |
— |
94.0 |
|
— |
Impact of strategic product
line initiative(1) |
— |
— |
34.0 |
|
— |
Depreciation and
amortization |
33.4 |
39.7 |
107.6 |
|
123.8 |
Financial expenses, net |
11.4 |
9.9 |
35.4 |
|
29.6 |
Income
tax expense (recovery) |
1.0 |
3.1 |
(2.4 |
) |
7.8 |
Adjusted EBITDA |
106.9 |
162.0 |
19.9 |
|
419.8 |
(1) For the nine months ended September 27,
2020, includes $29.2 million of inventory write-downs included in
cost of sales and the $4.8 million gross profit impact of a sales
return allowance for anticipated product returns related to
discontinued SKUs (which reduced net sales by $11.2 million and
cost of sales by $6.4 million).
Free cash flowFree 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) |
Q3 2020 |
|
Q3 2019 |
|
YTD 2020 |
|
YTD 2019 |
|
Cash flows from operating
activities |
151.0 |
|
124.3 |
|
123.4 |
|
98.6 |
|
Cash flows used in investing
activities |
(13.8 |
) |
(37.0 |
) |
(44.1 |
) |
(114.4 |
) |
Adjustment for: |
|
|
|
|
Business acquisitions |
— |
|
— |
|
— |
|
1.3 |
|
Free
cash flow |
137.2 |
|
87.3 |
|
79.3 |
|
(14.5 |
) |
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) |
Sep 27, 2020 |
|
Dec 29, 2019 |
|
Long-term debt and total bank
indebtedness |
1,000.0 |
|
845.0 |
|
Lease
obligations |
83.3 |
|
81.5 |
|
Total indebtedness |
1,083.3 |
|
926.5 |
|
Cash
and cash equivalents |
(232.9 |
) |
(64.1 |
) |
Net
indebtedness |
850.4 |
|
862.4 |
|
Net debt leverage ratioThe 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 fiscal year-end target
net debt leverage ratio of one to two times pro-forma adjusted
EBITDA for the trailing twelve months. Due to the current economic
environment, the Company does not expect to be within its target
range at the end of fiscal 2020. 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) |
Sep 27, 2020 |
Dec 29, 2019 |
Adjusted EBITDA for the
trailing twelve months |
148.1 |
548.1 |
Adjustment for: |
|
|
Business acquisitions |
— |
— |
Pro-forma adjusted EBITDA for the trailing twelve months |
148.1 |
548.1 |
Net indebtedness |
850.4 |
862.4 |
Net
debt leverage ratio(1) |
5.7 |
1.6 |
(1) The Company's net debt to EBITDA ratio for purposes of its
loan and note agreements was 2.0 at September 27, 2020.
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
and nine months ended September 27, 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 general, partial, or targeted
private sector shutdowns, travel restrictions, 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 recessions 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, epidemics 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, epidemics and
pandemics, such as the COVID-19 pandemic, and other unforeseen
adverse events;
- the impacts of the COVID-19 pandemic on our business and
financial performance and consequently 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 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 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. 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) 343-8815sargiriou@gildan.com |
Media inquiries:Genevieve GosselinDirector,
Corporate Communications & Marketing(514)
343-8814ggosselin@gildan.com |
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