Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL) -
- Adjusted EPS of U.S. $0.24 vs. U.S. $0.04 in Q1 2009
- Growth in Sales Revenues of 20% Compared to Q1 2009
- Market Share of 61.3% in U.S. Wholesale Distributor
Channel
- Consolidated Gross Margins of 29.8%
- Free Cash Flow of U.S. $43 million in Quarter
- Continuing Positive Development of Retail Business
- Full Year Outlook Reconfirmed
Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL) today announced its
financial results for the first quarter of its 2010 fiscal year and
also reconfirmed its sales and gross margin assumptions which it
had previously provided in its outlook for the full fiscal
year.
First Quarter Sales and Earnings
Gildan reported net earnings of U.S. $28.0 million and diluted
EPS of U.S. $0.23 for its first fiscal quarter ended January 3,
2010, after reflecting a restructuring charge of U.S. $0.01 per
share related to the consolidation of its U.S. distribution
activities announced on December 10, 2009. Net earnings were U.S.
$4.4 million or U.S. $0.04 per share in the first quarter of fiscal
2009. Before reflecting restructuring charges in both fiscal years,
adjusted net earnings amounted to U.S. $29.2 million or U.S. $0.24
per share in the first quarter of fiscal 2010, compared to U.S.
$5.3 million or U.S. $0.04 per share in the first quarter of fiscal
2009. The significant increase in net earnings and EPS in the first
quarter compared to last year was due to strong growth in
activewear unit sales volumes, more favourable manufacturing,
cotton and energy costs, and more favourable activewear
product-mix, partially offset by lower activewear selling prices.
EPS for the first quarter was slightly higher than the Company's
internal forecast as the impact of lower than anticipated
promotional activity in the U.S. wholesale distributor channel and
more favourable product-mix more than offset the impact of the
timing of replenishment of the U.S. wholesale distributor channel,
which is benefitting activewear shipments early in the second
quarter of the fiscal year.
Net sales in the first quarter of fiscal 2010 amounted to U.S.
$220.4 million, up 19.8% from U.S. $184.0 million in the first
quarter of last year. Sales of activewear and underwear were U.S.
$152.9 million, up 32.0% from U.S. $115.8 million last year, and
sales of socks were U.S. $67.5 million, compared to U.S. $68.2
million last year. The first quarter is seasonally the lowest
quarter in the fiscal year for Gildan's activewear sales.
The strong recovery in sales of activewear and underwear
compared to fiscal 2009 primarily reflected a 31.5% increase in
activewear unit sales volumes, due to higher market share in the
U.S. wholesale distributor channel, lower seasonal inventory
destocking by distributors than in the first quarter of fiscal
2009, and increased penetration of international and other
screenprint markets. These positive factors, together with more
favourable activewear product-mix, were partially offset by an 8.9%
decline in overall industry unit shipments from U.S. distributors
to U.S. screenprinters, and an approximate 3.5% reduction in net
selling prices for activewear, compared to the first quarter of
fiscal 2009.
The table below summarizes the data from the S.T.A.R.S. report
produced by ACNielsen Market Decisions, which tracks unit volume
shipments of activewear from U.S. wholesale distributors to U.S.
screenprinters, for the calendar quarter ended December 31,
2009.
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Three months ended Three months ended
December 31, December 31,
2009 vs. 2008 2009 2008
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Unit Growth Market Share
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Gildan Industry Gildan
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All products 5.0% (8.9)% 61.3% 53.3%
T-shirts 5.5% (8.9)% 62.7% 54.2%
Fleece 1.7% (7.2)% 56.8% 51.9%
Sport shirts (0.1)% (12.5)% 40.3% 35.4%
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Overall inventories in the U.S. distributor channel at December
31, 2009 were down by 15.5% compared with a year ago. Gildan's
share of distributor inventories was 49.8%, compared with its
market share of 61.3% in the first quarter as shown above.
Preliminary S.T.A.R.S. data for the month of January 2010 indicates
that overall industry shipments declined by 1.5% compared to
January 2009, and that Gildan's market share for all product
categories combined was 64.3%, compared with 61.3% for the December
quarter.
Sales of socks in the first quarter were essentially flat
compared to a year ago in spite of the negative sales impact of the
discontinuance of unprofitable sock programs and the elimination of
baby apparel and layette programs under licensed brands, which had
been included in the Kentucky Derby Hosiery acquisition and did not
fit with Gildan's business model. The impact of eliminating these
programs was essentially offset by the performance of continuing
sock programs, including new mass retailer private label sock
brands introduced during fiscal 2009.
Consolidated gross margins in the first quarter were 29.8%,
compared to 21.1% in the first quarter of fiscal 2009. The increase
in gross margins compared to last year was due to significant gains
in manufacturing efficiencies, lower cotton and energy costs and
more favourable activewear product-mix, partially offset by lower
net selling prices for activewear, as well as the impact of
additional inventory provisions.
Selling, general and administrative expenses in the first
quarter were U.S. $34.0 million, compared to U.S. $33.5 million in
the first quarter of fiscal 2009. The slight increase in SG&A
expenses from last year was due to the impact of the higher-valued
Canadian dollar on corporate administrative expenses and higher
performance-driven variable compensation expenses, partially offset
by the non-recurrence of provisions for doubtful receivable
accounts recorded in the first quarter of fiscal 2009 as well as
lower legal and professional fees. As a percentage of sales,
SG&A expenses declined to 15.4%, compared with 18.2% a year
ago.
Cash Flows and Financial Position
The Company generated free cash flow of U.S. $42.5 million in
the first quarter. Accounts receivable were reduced by U.S. $81.9
million compared with October 4, 2009 and the Company continues to
be comfortable with its accounts receivable collections and credit
exposures. Inventory levels were increased by U.S. $43.1 million
during the quarter, in order to build finished goods inventories of
activewear to capitalize on demand during the peak summer selling
season for T-shirts. The Company invested U.S. $34.0 million in
capital expenditures, primarily for its new retail distribution
centre and office building in Charleston, S.C. and for the ramp-up
of the Rio Nance IV sock factory in Honduras. The Company also paid
approximately U.S. $13 million for the provincial component of its
income tax settlement with the Canada Revenue Agency. This payment
had been fully provided for in the fourth quarter of fiscal 2008.
At the end of the first quarter, the Company had cash and cash
equivalents of U.S. $141.1 million, and its U.S. $400 million bank
credit facility was unutilized.
Development of Retail Programs
The Company has begun to ship a new underwear program for
Walmart, under the Starter brand, as well as further new Starter
programs for socks. In addition, the Company is beginning shipment
of the other new underwear and sock programs for national retailers
which it announced in December. The Company has significant
opportunities to build on these programs, and is in active
discussions with mass-retailers for further retail programs, in
line with its strategy to be a major full-line supplier of socks,
underwear and activewear for mass-retailers.
Outlook
The Company reconfirmed the outlook and sales and margin
assumptions for the full fiscal year, which it had provided on
December 10, 2009. The Company continues to project full year sales
revenues in excess of U.S. $1.2 billion, up approximately 17%
compared with fiscal 2009, and gross margins for the full year of
approximately 26%. Gross margins in the second half of the fiscal
year are assumed to be negatively impacted by higher cotton costs,
which have not been assumed to be passed through into higher
selling prices. The Company has continued to base its outlook on
the assumption of continuing weak economic conditions, resulting in
no growth in overall industry demand being projected for the
balance of the fiscal year. Based on preliminary S.T.A.R.S. data
for the month of January 2010, overall industry demand in the U.S.
wholesale distributor channel appears to be stabilizing.
The Company has increased its capital expenditure forecast for
fiscal 2010 to approximately U.S. $145 million, compared to U.S.
$130 million projected in December. The increase in projected
capital expenditures is due to the acceleration of planned sewing
capacity expansion projects required to support the Company's
projected sales growth, further capacity expansion and additional
knitting machines at the new Rio Nance IV sock facility, and
additional investment in the biomass project in Honduras, which is
expected to result in further incremental cost savings.
Disclosure of Outstanding Share Data
As of January 31, 2010, there were 121,039,631 common shares
issued and outstanding along with 1,462,901 stock options and
903,714 dilutive restricted share units ("Treasury RSUs")
outstanding. Each stock option entitles the holder to purchase one
common share at the end of the vesting period at a pre-determined
option price. Each Treasury RSU entitles the holder to receive one
common share from treasury at the end of the vesting period,
without any monetary consideration being paid to the Company.
However, at least 50% of Treasury RSU grants are subject to the
attainment of performance objectives set by the Board of
Directors.
Financial Highlights
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(in US$ millions, except per share
amounts or otherwise indicated) Q1 2010 Q1 2009
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(unaudited) (unaudited)
Net sales 220.4 184.0
Gross profit 65.7 38.9
Selling, general and administrative expenses (SG&A) 34.0 33.5
Operating income 30.2 4.5
EBITDA (1) 44.4 17.6
Net earnings 28.0 4.4
Adjusted net earnings (2) 29.2 5.3
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Diluted EPS 0.23 0.04
Adjusted diluted EPS (2) 0.24 0.04
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Gross margin 29.8% 21.1%
SG&A as a percentage of sales 15.4% 18.2%
Operating margin 13.7% 2.4%
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Cash flows from operating activities 73.9 15.9
Free cash flow (3) 42.5 2.9
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January 3, October 4, January 4,
As at 2010 2009 2009
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(unaudited) (unaudited) (unaudited)
Inventories 345.0 301.9 386.4
Trade accounts receivable 77.7 159.6 84.2
Cash in excess of total indebtedness
(Net indebtedness)(4) 137.9 95.3 (36.8)
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(1), (2), (3), (4): Please refer to Non-GAAP Financial Measures of this
press release.
Certain minor rounding variances exist between the financial statements and
this summary.
Information for Shareholders
This release should be read in conjunction with Gildan's 2010
First Quarter Management's Discussion and Analysis ("MD&A")
dated February 9, 2010 and its interim consolidated financial
statements for the three months ended January 3, 2010 (available at
http://gildan.com/corporate/IR/quarterlyReports.cfm) which is
incorporated by reference in this release, and which will be 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 5:00 PM EST. The conference call can be
accessed by dialing 800-261-3417 (Canada & U.S.) or
617-614-3673 (international) and entering passcode 68365130, 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 8:00 PM EST by dialing
888-286-8010 (Canada & U.S.) or 617-801-6888 (international)
and entering passcode 36782235, until Tuesday, February 16, 2010 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 market 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 2009
Annual MD&A, as subsequently updated in our first quarter 2010
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
document.
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:
- our ability to implement our growth strategies and plans,
including achieving market share gains, implementing cost reduction
initiatives and completing and successfully integrating
acquisitions;
- the intensity of competitive activity and our ability to
compete effectively;
- adverse changes in general economic and financial conditions
globally or in one or more of the markets we serve;
- our reliance on a small number of significant customers;
- the fact that our customers do not commit contractually to
minimum quantity purchases;
- our ability to anticipate changes in consumer preferences and
trends;
- our ability to manage 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 and polyester
fibres;
- our dependence on key suppliers and our ability to maintain an
uninterrupted supply of raw materials;
- the impact of climate, political, social and economic risks in
the countries in which we operate;
- disruption to manufacturing and distribution activities due to
labour disruptions, political instability, bad weather, natural
disasters and other unforeseen adverse events;
- changes to international trade legislation 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;
- compliance with applicable environmental, tax, trade,
employment, health and safety, and other laws and regulations in
the jurisdictions in which we operate;
- our significant reliance on computerized information systems
for our business operations;
- changes in our relationship with our employees or changes to
domestic and foreign employment laws and regulations;
- negative publicity as a result of violation of labour laws or
unethical labour or other business practices by the Company or one
of its third-party contractors;
- our dependence on key management and our ability to attract
and retain key personnel;
- changes to and failure to comply with consumer product safety
laws and regulations;
- changes in accounting policies and estimates; and
- exposure to risks arising from financial instruments,
including credit risk, liquidity risk, foreign currency risk and
interest rate risk.
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 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 2010 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, total indebtedness, and cash in excess of
total indebtedness/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 the 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.
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(in U.S.$ millions) Q1 2010 Q1 2009
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Net earnings 28.0 4.4
Restructuring and other charges 1.6 0.9
Depreciation and amortization 16.0 15.9
Variation of depreciation included in inventories (2.6) (4.4)
Interest, net - 0.9
Income taxes 1.2 0.3
Non-controlling interest in consolidated joint venture 0.2 (0.4)
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EBITDA 44.4 17.6
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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 per share
are calculated as net earnings and diluted earnings per share
excluding restructuring and other charges net of income tax
recovery, as discussed in Note 7 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.
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(in U.S.$ millions, except per share amounts) Q1 2010 Q1 2009
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Net earnings 28.0 4.4
Adjustments for:
Restructuring and other charges 1.6 0.9
Income tax recovery on restructuring and other charges (0.4) -
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Adjusted net earnings 29.2 5.3
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Basic EPS 0.23 0.04
Diluted EPS 0.23 0.04
Adjusted diluted EPS 0.24 0.04
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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.
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(in U.S.$ millions) Q1 2010 Q1 2009
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Cash flows from operating activities 73.9 15.9
Cash flows used in investing activities (31.4) (12.1)
Adjustments for:
Restricted cash reimbursed related to business acquisition - (0.9)
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Free cash flow 42.5 2.9
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Certain minor rounding variances exist between the financial statements and
this summary.
(4) Total indebtedness and Cash in excess of total
indebtedness/Net indebtedness
We consider total indebtedness and cash in excess of total
indebtedness / (net indebtedness) to be important indicators of the
financial leverage of the Company.
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(in U.S.$ millions) Q1 2010 Q4 2009 Q1 2009
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Current portion of long-term debt (2.0) (2.8) (3.0)
Long-term debt (1.2) (1.6) (48.2)
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Total indebtedness (3.2) (4.4) (51.2)
Cash and cash equivalents 141.1 99.7 14.4
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Cash in excess of total indebtedness
(Net indebtedness) 137.9 95.3 (36.8)
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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 Media Relations:
Genevieve Gosselin Director, Corporate Communications 514-343-8814
ggosselin@gildan.com
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