Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL) today announced its
financial results for the first quarter of its 2011 fiscal year,
and also updated its outlook for the full fiscal year, including
further discussion of the impact of increases in the cost of cotton
on projected gross margins, industry pricing and industry demand.
First Quarter Sales and Earnings
Net earnings for the first fiscal quarter ended January 2, 2011
were U.S. $35.9 million or U.S. $0.29 per share on a diluted basis,
including a restructuring charge of U.S. $0.01 per share related to
the consolidation of U.S. distribution activities announced on
December 10, 2009. Excluding the restructuring charge, adjusted net
earnings for the first quarter were U.S. $36.6 million or U.S.
$0.30 per share, up 25.3% and 25.0% respectively from adjusted net
earnings of U.S. $29.2 million or U.S. $0.24 per share in the first
quarter of fiscal 2010. Both net earnings and earnings per share in
the first quarter of fiscal 2011 were a record for the first
quarter of a fiscal year, which is seasonally the lowest quarter in
the fiscal year for sales of T-shirts.
The growth in net earnings compared to last year was due to
strong growth in sales revenues for activewear. The positive impact
of significantly higher unit sales, which were achieved in spite of
low activewear finished goods inventories throughout the first
quarter, and higher net selling prices for activewear compared to
the first quarter of fiscal 2010 was partially offset by higher
cotton costs and start-up inefficiencies in distribution and
manufacturing. Start-up inefficiencies in the new retail
distribution centre in Charleston, S.C. continued to negatively
impact the Company's ability to service sales demand for socks in
the peak Christmas holiday season and also resulted in
significantly increased distribution expenses in the first quarter.
Start-up inefficiencies also resulted in higher manufacturing costs
for socks during the first quarter.
Net sales in the first quarter amounted to U.S. $331.3 million,
up 50.3% from U.S. $220.4 million in the first quarter of fiscal
2010. The Company had previously forecast that first quarter sales
would exceed U.S. $300 million. Sales of activewear and underwear
amounted to U.S. $270.1 million, up 76.7% from fiscal 2010, and
sales of socks were U.S. $61.2 million, down 9.3% from last
year.
The growth in sales of activewear and underwear compared to the
first quarter of fiscal 2010 was due to a 66.5% increase in unit
volume shipments and an 11.9% increase in average net selling
prices for activewear, partially offset by unfavourable activewear
product-mix. The increase in unit volumes was attributable to
inventory replenishment by U.S. wholesale distributors during the
quarter, 7.9% growth in overall industry demand in the U.S.
distributor channel during the quarter, strong growth in
international and other screenprint markets and increased shipments
of underwear and activewear to mass-market retailers. These
positive factors were partially offset by a decline in Gildan's
market share in the U.S. wholesale distributor channel, as the
Company was unable to fully service demand for its brand due to
continuing low finished goods inventory levels and capacity
constraints. Gildan's share of inventories in the U.S. distributor
channel was 52.4% on December 31, 2010, compared with its market
share of 60.2% for the first fiscal quarter.
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,
2010.
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Three months ended Three months ended
December 31, December 31,
2010 vs. 2009 2010 2009
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Unit Growth Market Share
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Gildan Industry Gildan
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All products 5.8% 7.9% 60.2% 61.3%
T-shirts 4.6% 8.5% 60.4% 62.7%
Fleece 12.0% 4.8% 60.7% 56.8%
Sport shirts 28.4% 1.8% 50.9% 40.3%
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ACNielsen has decided to discontinue the S.T.A.R.S. report with
effect from the end of the 2010 calendar year, and Gildan will now
subscribe to the CREST report produced by Capstone Research Inc. to
track industry growth and market share in the U.S. distributor
channel.
The decline in sales of socks compared to the first quarter of
last year was due to continuing difficulty in servicing industry
demand from the new U.S. distribution centre, which significantly
impacted sales during the peak Christmas holiday selling season in
December, and lower selling prices including the impact of a
lower-valued more basic product-mix.
Gross margins in the first quarter were 24.7% compared with
29.8% in the first quarter of last year, and were in line with the
Company's forecast of approximately 25% provided on December 2,
2010. The decline in gross margins compared to last year was due to
higher cotton, energy and other purchased input costs, start-up
manufacturing inefficiencies which significantly impacted gross
margins for socks and underwear, increased sewing overtime costs to
maximize production of activewear and unfavourable activewear
product-mix. These factors more than offset the positive impact of
significantly higher net selling prices for activewear.
Selling, general and administrative expenses in the first
quarter were U.S. $41.6 million, or 12.6% of sales, compared to
U.S. $34.0 million, or 15.4% of sales, in the first quarter of
fiscal 2010. The increase in selling, general and administrative
expenses was largely due to start-up inefficiencies in the new
retail distribution centre and higher volume-driven distribution
expenses in the Company's wholesale distribution centre in Eden,
N.C.
First Quarter Cash Flow
The Company used cash of U.S. $25.1 million in the first quarter
to finance a seasonal build-up of activewear inventories and its
ongoing major capital expenditure program. The main capital
expenditure projects in the first quarter were the ramp-up of the
Rio Nance IV sock factory and the expansion and automation of the
U.S. wholesale distribution centre. The initial quarterly dividend
of U.S. $0.075 per share for the first fiscal quarter will be paid
on March 18, 2011 to shareholders of record on February 23, 2011.
The Company has not yet repurchased any of its shares under its
Normal Course Issuer Bid announced on December 2, 2010.
Outlook
The Company is projecting net sales revenues slightly in excess
of U.S. $1.6 billion, gross margins of approximately 25% and
selling, general and administrative expenses of approximately 10.5%
of sales for the full 2011 fiscal year. Compared to the assumptions
in the Company's previous outlook provided in December 2010, the
benefit of recent further selling price increases is currently
forecast to be fully offset by the impact of higher than previously
projected cotton cost increases in the second half of the fiscal
year, as well as by lower than previously projected unit sales
volumes and reduced manufacturing and distribution efficiencies.
Selling price increases averaging approximately 7% were announced
in early January in the screenprint market and selling price
increases have also been agreed with retail customers. If cotton
prices do not correct significantly from current levels, the
Company will seek further selling price increases in the second
half of the year, which are not reflected in its sales and margin
assumptions. The revised outlook assumes that cotton costs for
consumption in fiscal 2011 average slightly in excess of U.S. $1.10
per pound compared to the Company's prior projection of U.S. $1.00
per pound, based on covering the balance of cotton requirements for
the second half of the year at approximately current cotton prices.
The Company has not yet covered a large proportion of its cotton
requirements for consumption in the fourth quarter. The Company's
outlook assumes approximately 3% growth in overall U.S. screenprint
industry demand for the balance of the fiscal year. The Company has
slightly reduced sales volumes in the second half of the fiscal
year, compared to its prior forecast, in order to provide for the
possible negative impact of increases in selling prices on industry
demand, although the price elasticity of demand in its markets is
difficult to predict.
Total capital expenditures for capacity expansion and major cost
reduction projects in fiscal 2011 are still projected to be in
excess of U.S. $150 million, and the Company has begun the
construction of its new textile facility at Rio Nance. The Company
also continues to plan increases in activewear finished goods
inventories including significantly higher unit costs due to the
higher cost of cotton and other purchased cost inputs.
For the second quarter of fiscal 2011, the Company is currently
projecting net sales revenues of approximately U.S. $375 million,
up approximately 15% from the second quarter of fiscal 2010, and
gross margins of close to 27%, compared to 27.8% in the second
quarter of fiscal 2010.
Disclosure of Outstanding Share Data
As of January 31, 2011, there were 121,511,560 common shares
issued and outstanding along with 1,212,341 stock options and
744,903 dilutive restricted share units ("Treasury RSUs")
outstanding. Each stock option entitles the holder to purchase one
common share at the end of the vesting period at a pre-determined
option price. Each Treasury RSU entitles the holder to receive one
common share from treasury at the end of the vesting period,
without any monetary consideration being paid to the Company.
However, the vesting of at least 50% of the Treasury RSU grant is
based on the Company's average return on assets performance for the
period as compared to the TSX Consumer Discretionary Index,
excluding income trusts, or as determined by the Board of
Directors.
Financial Highlights
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(in US$ millions, except per share
amounts or otherwise indicated) Q1 2011 Q1 2010
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(unaudited) (unaudited)
Net sales 331.3 220.4
Gross profit 81.9 65.7
Selling, general and administrative
expenses (SG&A) 41.6 34.0
Operating income 39.6 30.2
EBITDA (1) 53.7 44.4
Net earnings 35.9 28.0
Adjusted net earnings (2) 36.6 29.2
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Diluted EPS 0.29 0.23
Adjusted diluted EPS (2) 0.30 0.24
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Gross margin 24.7% 29.8%
SG&A as a percentage of sales 12.6% 15.4%
Operating margin 12.0% 13.7%
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Cash flows from operations 14.8 73.9
Free cash flow (3) (25.1) 42.5
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January 2, October 3, January 3,
As at 2011 2010 2010
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(unaudited) (audited) (unaudited)
Inventories 366.5 332.5 345.0
Accounts receivable 138.8 145.7 77.7
Cash in excess of total
indebtedness (4) 234.9 258.4 137.9
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(1), (2), (3), (4): Please refer to Non-GAAP Financial Measures in this
press release.
Certain minor rounding variances exist between the financial statements
and this summary.
Information for Shareholders
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 83714272, or by
live audio 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 44395388, until February 15, 2011 at
midnight, or by audio webcast on Gildan's Internet site for 30
days.
This release should be read in conjunction with Gildan's 2011
First Quarter Management's Discussion and Analysis ("MD&A")
dated February 8, 2011 and its interim unaudited consolidated
financial statements for the three months ended January 2, 2011
(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.
Profile
Gildan is a vertically-integrated marketer and manufacturer of
quality branded basic apparel. Gildan is the leading brand in the
screenprint market in the U.S. and Canada and is also establishing
a growing presence in Europe, Mexico and the Asia-Pacific region.
The Company sells T-shirts, sport shirts and fleece as undecorated
"blanks", which are subsequently decorated by screenprinters with
designs and logos. Gildan is also a leading supplier of socks sold
to mass-market and other retailers in North America, and is
increasingly becoming a significant supplier of underwear and
undecorated activewear products to this market as well. With over
28,000 employees worldwide, Gildan owns and operates highly
efficient, large-scale, environmentally and socially responsible
facilities in Central America and the Caribbean Basin and has begun
development of a manufacturing hub in Bangladesh to support its
planned growth in Asia and Europe. More information on the Company
can be found on Gildan's website at www.gildan.com.
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 unit volume growth,
sales revenue, cost reductions and efficiencies, gross margins,
selling, general and administrative expenses, capital expenditures
and the impact of non-recurring items. 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" in our most
recent Management's Discussion and Analysis for a discussion of the
various factors that may affect the Company's future results.
Material factors and assumptions that were applied in drawing a
conclusion or making a forecast or projection are also set out
throughout 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 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 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,
pandemics 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 local labour laws or
international labour standards, 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/or
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, 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 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 2011 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. 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.
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(in U.S.$ millions) Q1 2011 Q1 2010
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Net earnings 35.9 28.0
Restructuring and other charges 0.7 1.6
Depreciation and amortization 17.8 16.0
Variation of depreciation included in
inventories (2.1) (2.6)
Interest, net 0.1 -
Income taxes 1.2 1.2
Non-controlling interest of consolidated joint
venture 0.1 0.2
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EBITDA 53.7 44.4
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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 are
calculated as net earnings and earnings per share excluding
restructuring and other charges. 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 2011 Q1 2010
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Net earnings 35.9 28.0
Adjustments for:
Restructuring and other charges 0.7 1.6
Income tax recovery on restructuring and other
charges - (0.4)
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Adjusted net earnings 36.6 29.2
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Basic EPS 0.30 0.23
Diluted EPS 0.29 0.23
Adjusted diluted EPS 0.30 0.24
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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 2011 Q1 2010
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Cash flows from operating activities 14.8 73.9
Cash flows used in investing activities (39.9) (31.4)
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Free cash flow (25.1) 42.5
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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
We consider total indebtedness and cash in excess of total
indebtedness to be important indicators of the financial leverage
of the Company.
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(in U.S.$ millions) Q1 2011 Q4 2010 Q1 2010
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Current portion of long-term debt - - (2.0)
Long-term debt - - (1.2)
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Total indebtedness - - (3.2)
Cash and cash equivalents 234.9 258.4 141.1
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Cash in excess of total indebtedness 234.9 258.4 137.9
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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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