- Gross Margins of 24.4% and EPS of U.S. $0.32 Before Income Tax
Recoveries and Restructuring Charges
- Free Cash Flow of U.S. $78.5 million
- Completion of Canada Revenue Agency Audit for 2004-2006
Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL) today announced its
financial results for the third quarter of its 2009 fiscal year.
The Company also announced that the Canada Revenue Agency (CRA) had
completed its audit of the Company's tax returns for the audit
period 2004-2006, with no significant adjustments to the returns as
filed. The CRA has continued to accept Gildan's transfer pricing
methodology for the years subject to audit. Gildan had previously
announced the final settlement of the CRA audit for the period
2000-2003.
Sales and Earnings
Gildan reported net earnings of U.S. $41.5 million and diluted
EPS of U.S. $0.34 for its third fiscal quarter ended July 5, 2009,
compared with net earnings of U.S. $54.5 million and diluted EPS of
U.S. $0.45 in the third quarter of fiscal 2008. Results in both
years included after-tax restructuring charges, amounting to U.S.
$3.4 million and U.S. $2.3 million respectively. Restructuring
charges in the third quarter of fiscal 2009 related primarily to
the previously announced consolidation of sock finishing
operations. Net earnings before restructuring charges in the third
quarter of fiscal 2009 amounted to U.S. $44.9 million or U.S. $0.37
per diluted share, compared to U.S. $56.8 million or U.S. $0.47 per
share a year ago. The reduction in net earnings and EPS before
restructuring charges was primarily due to lower unit sales
volumes, as a result of weak economic conditions, and lower gross
margins, primarily as a result of unfavourable product-mix and
lower activewear net selling prices, partially offset by lower
SG&A and financial expenses, and the impact of income tax
recoveries. EPS in the third quarter of fiscal 2009 included a U.S.
$0.05 per share benefit of income tax recoveries related to prior
fiscal years. Before the impact of income tax recoveries, adjusted
EPS in the third fiscal quarter was U.S. $0.32 per share.
The third quarter of Gildan's current fiscal year included one
week fewer than the third quarter of fiscal 2008. The third quarter
of fiscal 2008 included an extra week in order to align the
Company's 52-week reporting cycle with the calendar year.
Net sales in the third quarter of fiscal 2009 amounted to U.S.
$307.8 million, down 19.2% from U.S. $380.8 million in the third
quarter of last year. Sales of activewear and underwear were U.S.
$258.1 million, down 15.6% from U.S. $305.9 million last year, and
sales of socks were U.S. $49.7 million, down 33.6% from U.S. $74.9
million in the third quarter of fiscal 2008.
The decrease in sales of activewear and underwear was due to
more unfavourable product-mix, primarily as a result of a lower
proportion of sales of higher-valued fleece and long-sleeve
T-shirts, a 2.6% decline in net selling prices for activewear, due
to increased promotional activity compared to last year, the impact
of the stronger U.S. dollar on Canadian and international sales,
and a 3.5% decline in unit sales volumes.
The reduction in unit sales volumes compared to last year was
primarily due to a 16.6% decline in overall industry shipments to
screenprinters in the U.S. wholesale distributor channel, as well
as the non-recurrence of the extra week of sales included in the
third quarter of fiscal 2008. These factors were largely offset by
increased market share, replenishment of distributor inventories,
and increased shipments to international markets and imprinted
private label customers.
The table below summarizes data from the S.T.A.R.S. report
produced by ACNielsen Market Decisions, which tracks unit volume
shipments from U.S. wholesale distributors to U.S. screenprinters,
for the calendar quarter ended June 30, 2009:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Three months ended
June 30, June 30,
2009 vs. 2008 2009 2008
-------------------------------------------------------------------------
Unit Growth Market Share
-------------------------------------------------------------------------
Gildan Industry Gildan
-------------------------------------------------------------------------
All products (9.6)% (16.6)% 55.7% 51.9%
T-shirts (9.3)% (16.2)% 56.4% 52.6%
Fleece (13.1)% (15.0)% 52.7% 51.7%
Sport shirts (18.6)% (26.6)% 38.1% 34.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Overall inventories in the U.S. wholesale distributor channel at
June 30, 2009 were down by 13.2% compared with a year ago, and
Gildan's share of distributor inventories was 49.5%, compared with
its market share of 55.7% in the third quarter as shown above.
In addition to the impact of one week less of sales in the third
quarter of fiscal 2009, the reduction in sock sales in the
mass-retailer channel was due to the discontinuance of sock
product-lines in fiscal 2008, combined with the timing impact of
year-over-year fluctuations in retailer inventory levels including
the impact in the current year of the changeover to new retailer
private label brands. Sales of Gildan products by major retail
customers to consumers continue to perform well, in the context of
the market, and in particular the Company is pleased with the
strong initial performance of new private label sock brands.
The Company is progressing well in its discussions with mass
retailers to secure new retail programs, and continues to expect
new retail programs to enhance its sales growth in fiscal 2010
compared to fiscal 2009.
Gross margins in the third quarter were 24.4%, compared to 26.6%
last year and 15.8% in the second quarter of the current fiscal
year. The reduction in gross margins compared to last year was
primarily due to lower net selling prices for activewear, the
negative impact of currency fluctuations, more unfavourable
product-mix and higher cotton costs. These factors were partially
offset by lower manufacturing and energy costs, which favourably
impacted gross margins in the third quarter by approximately 450
basis points, in spite of manufacturing downtime taken in the third
quarter to balance activewear inventories with projected sales
demand.
Gross margin trends improved on a monthly basis during the third
quarter. Gross margins are expected to improve slightly in the
fourth quarter compared to the third quarter, as more favourable
product-mix and lower manufacturing, energy and cotton costs
compared to the third quarter are expected to more than offset the
impact of assumed increased promotional selling price activity.
Selling, general and administrative expenses, were U.S. $36.2
million in the third quarter, or 11.8% of sales, compared to U.S.
$39.8 million, or 10.5% of sales, in the third quarter a year ago.
The decrease in SG&A expenses was primarily due to reduced
distribution costs, the impact of the lower-valued Canadian dollar
on corporate administrative expenses, and the non-recurrence of an
accounts receivable provision recorded in the prior year, partially
offset by the timing of variable compensation expense and higher
professional and legal fees.
An income tax recovery of U.S. $5.8 million in the third quarter
primarily reflected a U.S. $5.6 million recovery to recognize
previously unrecorded tax benefits from prior years. Excluding the
impact of the tax recoveries and the tax benefit relating to
restructuring charges, the effective income tax rates for the third
quarter and the first nine months of fiscal 2009 were 2% and 3%
respectively, compared with 5.8% and 6.7% for the corresponding
periods of fiscal 2008. The reduction in the effective income tax
rate compared with last year reflects a lower proportion of profits
earned in higher tax-rate jurisdictions.
Year-to-date Sales and Earnings
Net sales for the nine months ended July 5, 2009 were U.S.
$736.6 million, down U.S. $188.4 million or 20.4% compared to the
same period last year. The decrease in net sales was due to a 13.3%
decline in activewear unit volumes, unfavourable activewear
product-mix, a U.S. $39.2 million decrease in sock sales primarily
due to the elimination of unprofitable sock product-lines during
fiscal 2008, and the negative impact of the stronger U.S. dollar on
Canadian and international activewear sales. The lower unit sales
volumes for activewear were primarily due to the decline in overall
industry unit shipments by U.S. wholesale distributors to
screenprinters and inventory reductions by U.S. wholesale
distributors, which more than offset Gildan's market share gains in
the U.S. screenprint channel during the nine months ended July 5,
2009.
Net earnings for the first nine months were U.S. $52.9 million,
or U.S. $0.44 per share on a diluted basis, compared with net
earnings of U.S. $124.5 million or U.S. $1.02 per share for the
same period last year. Before restructuring charges in both years,
net earnings for the first nine months of fiscal 2009 were U.S.
$57.4 million, or U.S. $0.47 per share, compared to U.S. $128.4
million, or U.S. $1.06 per share, for the same period last year.
The reduction in net earnings and EPS in the first nine months of
fiscal 2009 was due to significantly lower activewear unit sales
volumes and gross margins, partially offset by lower SG&A and
financial expenses and the impact of the income tax recoveries in
the third quarter.
Cash Flows and Financial Position
Cash flows from operating activities less cash flows from
investing activities resulted in free cash flow generation of U.S.
$78.5 million in the third quarter.
Inventories at the end of the third quarter were reduced by U.S.
$40.4 million compared to the end of the second quarter, but were
U.S. $48.8 million higher than at the end of the third quarter of
fiscal 2008, when inventory levels were affected by production
constraints. Further manufacturing downtime will be scheduled as
required prior to the year-end in order to continue to control
activewear inventories, based on the outlook for end-use demand and
the level of replenishment of distributor inventories.
Trade accounts receivables were reduced to 41 days of sales
outstanding at the end of the third quarter, compared to 51 days at
the end of the third quarter a year ago and 45 days at the end of
second fiscal quarter. The Company continues to be comfortable with
its receivables collections and trade credit exposures.
The Company ended the third quarter of fiscal 2009 with net
indebtedness of U.S. $18.5 million, and continues to have
significant financing capacity and flexibility under its revolving
bank credit facility, which matures in 2013. Capital expenditures
for fiscal 2009 are currently projected to be approximately U.S.
$60-$70 million, in line with the Company's projection at the end
of the second quarter.
The Company continues to expect to have no debt outstanding
under its bank credit facility at the fiscal year-end.
Disclosure of Outstanding Share Data
As of July 31, 2009, there were 120,956,937 common shares issued
and outstanding along with 1,015,578 stock options and 757,806
dilutive restricted share units ("Treasury RSUs") outstanding. Each
stock option entitles the holder to purchase one common share at
the end of the vesting period at a pre-determined option price.
Each Treasury RSU entitles the holder to receive one common share
from treasury at the end of the vesting period, without any
monetary consideration being paid to the Company. However, the
vesting of 50% of the Treasury RSU grant is dependent upon the
financial performance of the Company, relative to a benchmark group
of Canadian publicly-listed companies.
Financial Highlights
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in US$ millions, except
per share amounts or Q3 2008 YTD 2008
otherwise indicated) Q3 2009 Recast(i) YTD 2009 Recast(i)
-------------------------------------------------------------------------
Net sales 307.8 380.8 736.6 925.0
Gross profit 75.1 101.3 152.7 251.4
Selling, general and
administrative
expenses (SG&A) 36.2 39.8 100.6 106.1
Operating income 34.5 59.2 46.6 141.4
EBITDA (1) 58.1 79.0 99.1 186.3
Net earnings and
comprehensive income 41.5 54.5 52.9 124.5
Adjusted net
earnings (2) 44.9 56.8 57.4 128.4
-------------------------------------------------------------------------
Diluted EPS 0.34 0.45 0.44 1.02
Adjusted diluted
EPS - (2) 0.37 0.47 0.47 1.06
-------------------------------------------------------------------------
Gross margin 24.4% 26.6% 20.7% 27.2%
SG&A as a percentage
of sales 11.8% 10.5% 13.7% 11.5%
Operating margin 11.2% 15.6% 6.3% 15.3%
-------------------------------------------------------------------------
Cash flows from
operations 80.6 40.7 47.1 168.4
Free cash flow (3) 78.5 21.5 19.4 92.2
-------------------------------------------------------------------------
July 5, October 5, July 6,
As at 2009 2008 2008
-------------------------------------------------------------------------
Inventories 339.6 316.2 290.8
Accounts receivable 194.1 222.2 254.5
Net indebtedness (4) 18.5 40.6 95.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Reflects the impact of the changes in accounting policy as described in
Note 3 to the unaudited interim consolidated financial statements
(1), (2), (3), (4): Please refer to Non-GAAP Financial Measures on page 7
of this press release.
Information for Shareholders
This release should be read in conjunction with Gildan's 2009
Third Quarter MD&A dated August 12, 2009 and its interim
consolidated financial statements for the three and nine months
ended July 5, 2009 (available at
http://gildan.com/corporate/IR/quarterlyReports.cfm) which is
incorporated by reference in this release, filed by Gildan with the
Canadian securities regulatory authorities and with the U.S.
Securities and Exchange Commission.
Gildan Activewear Inc. will hold a conference call to discuss
these results today at 8:30 AM EDT. The conference call can be
accessed by dialing 800-261-3417 (Canada & U.S.) or
617-614-3673 (international) and entering passcode 41809019, or by
live sound webcast on Gildan's Internet site ("Investor Relations"
section) at the following address:
http://gildan.com/corporate/IR/webcastPresentations.cfm. If you are
unable to participate in the conference call, a replay will be
available starting that same day at 11:30 AM EDT by dialing
888-286-8010 (Canada & U.S.) or 617-801-6888 (international)
and entering passcode 86204863, until August 20, 2009 at midnight,
or by sound web cast on Gildan's Internet site for 30 days.
Profile
Gildan is a vertically-integrated marketer and manufacturer of
quality branded basic apparel. The Company is the leading supplier
of activewear for the screenprint channel in the U.S. and Canada.
It is also a leading supplier to this market in Europe, and is
establishing a growing presence in Mexico and the Asia-Pacific
region. The Company sells T-shirts, sport shirts and fleece in
large quantities to wholesale distributors as undecorated "blanks",
which are subsequently decorated by screenprinters with designs and
logos. Consumers ultimately purchase the Company's products, with
the Gildan label, in venues such as sports, entertainment and
corporate events, and travel and tourism destinations. The
Company's products are also utilized for work uniforms and other
end-uses to convey individual, group and team identity. The Company
is also a leading supplier of private label and Gildan branded
socks primarily sold to mass-market retailers. In addition, Gildan
has an objective to become a significant supplier of men's and
boys' underwear and undecorated activewear products to mass-market
retailers in North America.
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. 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 and Uncertainties" section and the risks
described under the section "Financial Risk Management" of the 2008
Annual MD&A, as subsequently updated in our first, second and
third quarter 2009 interim MD&A, 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 this press release.
Forward-looking information is inherently uncertain and 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: general economic
conditions such as commodity prices, currency exchange rates,
interest rates and other factors over which we have no control; the
impact of economic and business conditions, industry trends and
other external, political and social factors in the countries in
which we operate, including the current political instability in
Honduras; the intensity of competitive activity; changes in
environmental, tax, trade, employment, consumer product safety and
other laws and regulations, including effects of the recently
enacted United States Consumer Products Safety Act; our ability to
implement our strategies and plans; our ability to complete and
successfully integrate acquisitions; our reliance on a small number
of significant customers; changes in consumer preferences, customer
demand for our products and our ability to maintain customer
relationships and grow our business; the fact that our customers do
not commit to minimum quantity purchases; the seasonality of our
business; our ability to attract and retain key personnel; our
reliance on computerized information systems; changes in accounting
policies and estimates; and disruption to manufacturing and
distribution activities due to labour disruptions, political
instability, bad weather, natural disasters and other unforeseen
adverse events.
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 have on the Company's business. For
example, they do not include the effect of business dispositions,
acquisitions, other business transactions, asset writedowns 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.
We believe that the expectations represented by our
forward-looking statements are reasonable, yet there can be no
assurance that such expectations 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 fiscal 2009 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.
Non-GAAP Financial Measures
This release includes reference to certain non-GAAP financial
measures such as EBITDA, adjusted net earnings, adjusted diluted
EPS, free cash flow and net indebtedness. These non-GAAP measures
do not have any standardized meanings prescribed by Canadian GAAP
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 GAAP measure are
provided below.
(1) EBITDA
EBITDA is calculated as earnings before interest, taxes and
depreciation and amortization and excludes the impact of
restructuring and other charges, as well as the non-controlling
interest in consolidated joint venture. The Company uses EBITDA,
among other measures, to assess the operating performance of our
business. We also believe 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. We exclude depreciation and amortization
expenses, which are non-cash in nature and can vary significantly
depending upon accounting methods or non-operating factors such as
historical cost. Excluding these items does not imply they are
necessarily non-recurring.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Q3 2008 YTD 2008
(in US$ millions) Q3 2009 Recast(i) YTD 2009 Recast(i)
-------------------------------------------------------------------------
Net earnings 41.5 54.5 52.9 124.5
Restructuring and
other charges 4.4 2.3 5.5 3.9
Depreciation and
amortization 16.3 14.9 48.4 41.9
Variation in
depreciation
included in
inventories 1.2 2.5 (4.3) 0.4
Interest, net 0.2 1.2 1.6 6.1
Income taxes (5.8) 3.4 (5.0) 9.1
Non-controlling
interest of
consolidated joint
venture 0.3 0.2 - 0.4
-------------------------------------------------------------------------
EBITDA 58.1 79.0 99.1 186.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Reflects the impact of the change in accounting policy as described in
Note 3 to the unaudited interim consolidated financial statements.
Certain minor rounding variances exist between the financial statements and
this summary.
(2) Adjusted net earnings and adjusted diluted EPS
Adjusted net earnings and adjusted diluted earnings are
calculated as net earnings and earnings per share excluding
restructuring and other charges, as discussed in Note 8 to the
unaudited interim consolidated financial statements. The Company
uses and presents these non-GAAP measures to assess its operating
performance from one period to the next without the variation
caused by restructuring and other charges that could potentially
distort the analysis of trends in our business performance.
Excluding these items does not imply they are necessarily
non-recurring.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in US$ millions,
except per share Q3 2008 YTD 2008
amounts) Q3 2009 Recast(i) YTD 2009 Recast(i)
-------------------------------------------------------------------------
Net earnings and
comprehensive income 41.5 54.5 52.9 124.5
Adjustments for:
Restructuring and
other charges 4.4 2.3 5.5 3.9
Income tax recovery
on restructuring
and other charges (1.0) - (1.0) -
-------------------------------------------------------------------------
Adjusted net
earnings 44.9 56.8 57.4 128.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic EPS(ii) 0.34 0.45 0.44 1.03
Diluted EPS(ii) 0.34 0.45 0.44 1.02
Adjusted diluted
EPS(ii) 0.37 0.47 0.47 1.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Reflects the impact of the change in accounting policy as described in
Note 3 to the unaudited interim consolidated financial statements.
(ii) Quarterly EPS may not add to year-to-date EPS due to rounding
Certain minor rounding variances exist between the financial statements and
this summary.
(3) Free cash flow
Free cash flow is defined as cash from operating activities
including net changes in non-cash working capital balances, less
cash flow used in investing activities excluding business
acquisitions. We consider free cash flow to be an important
indicator of the financial strength and performance of our
business, because it shows how much cash is available after capital
expenditures to repay debt and to reinvest in our business. We
believe this measure is commonly used by investors and analysts
when valuing a business and its underlying assets.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in US$ millions) Q3 2009 Q3 2008 YTD 2009 YTD 2008
-------------------------------------------------------------------------
Cash flows from
operating
activities 80.6 40.7 47.1 168.4
Cash flows used in
investing activities (2.1) (19.2) (25.7) (213.0)
Adjustments for:
Business
acquisitions - - - 126.8
Restricted cash
(received) paid
related to
acquisition - - (2.0) 10.0
-------------------------------------------------------------------------
Free cash flow 78.5 21.5 19.4 92.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain minor rounding variances exist between the financial statements and
this summary.
(4) Net indebtedness
We consider total indebtedness and net indebtedness to be
important indicators of the financial leverage of the Company.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in US$ millions) Q3 2009 Q4 2008 Q3 2008
-------------------------------------------------------------------------
Current portion of long-term debt 2.8 3.6 3.8
Long-term debt 90.2 49.4 104.7
-------------------------------------------------------------------------
Total indebtedness 93.0 53.0 108.5
Cash and cash equivalents (74.5) (12.4) (13.2)
-------------------------------------------------------------------------
Net indebtedness 18.5 40.6 95.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain minor rounding variances exist between the financial statements and
this summary.
Contacts: Investor Relations Laurence G. Sellyn Executive
Vice-President, Chief Financial and Administrative Officer
514-343-8805 lsellyn@gildan.com Sophie Argiriou Director, Investor
Communications 514-343-8815 sargiriou@gildan.com Benoit Leroux
Director, Corporate Development 514-343-8898 bleroux@gildan.com
Media Relations Genevieve Gosselin Director, Corporate
Communications 514-343-8814 ggosselin@gildan.com
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