Gildan Activewear Inc. (GIL: TSX and NYSE) today announced results
for the second quarter ended July 3, 2022.
“We are pleased with our record sales and earnings for the
quarter, underpinned by the Gildan sustainable growth strategy,
including our focus on innovation and ESG,” said Glenn J. Chamandy,
Gildan President and CEO. “Furthermore, our first half performance
points to the tight control we currently have over our supply chain
and cost structure, which puts us in a good position to support our
customers' demand as we move through the remainder of the
year.”
During the second quarter, we generated sales of $896 million,
up 20% over the prior year. We maintained strong gross margin and
SG&A performance, delivering operating margin of 19.4%, and
adjusted operating margin of 19.6% in a continued environment of
inflationary cost pressure, down only 30 basis points over last
year. We delivered record GAAP diluted EPS of $0.85 and adjusted
diluted EPS of $0.86, up 15% and 27%, respectively, compared to the
second quarter of 2021. Cash generated from operating activities in
the quarter totaled $210 million and after capex investments of
approximately $50 million, we delivered $159 million of free cash
flow. Consistent with our capital allocation priorities, we
continued to be active on our share buyback program, repurchasing
approximately 3.6 million shares in the quarter. With our current
program now coming to expiry in early August, our Board of
Directors approved the implementation of a new normal course issuer
bid (NCIB) program to repurchase 5% of the Company’s issued and
outstanding common shares over the next twelve months. We ended the
quarter with a total debt position of $922 million, while net debt1
increased slightly to $848 million, bringing our net debt leverage
ratio1 to 1.1, at the low end of the Company's target range.
Q2 2022 Operating Results Sales for the second
quarter ending July 3, 2022, of $896 million, were up 20% over
the prior year, consisting of activewear sales of $758 million, up
27% and sales in the hosiery and underwear category of $138
million, down 8% over the prior year. The activewear sales increase
was due to higher net selling prices, which reflected base price
increases and lower promotional discounting this year, as well as
favorable product-mix, and higher activewear shipments in North
America. These positive factors were partly offset by lower
international shipments due to demand weakness in Asia. In the
hosiery and underwear category, the sales decline was driven by
lower unit sales due to softening demand in retail, as well as the
impact of the non-recurrence of stimulus payments that positively
impacted demand for these categories in the prior year.
During the second quarter, we generated gross and adjusted gross
profit1 of $265 million, compared to gross profit of $241 million
and adjusted gross profit of $228 million in the prior year
quarter. The improvement in gross and adjusted gross profit was
mainly driven by the strong growth in net sales. Gross and adjusted
gross margin1 of 29.6% in the quarter were down 260 basis points
and 90 basis points, respectively, compared to last year. The
decline in gross margin on a GAAP basis included the impact of the
non-recurrence of net insurance gains of approximately $13 million
(or 175 basis points) which benefited gross margin last year.
Excluding this impact, the gross margin and adjusted gross margin
decline reflected the impact of higher fiber costs, as well as
inflationary pressures on other manufacturing costs which more than
offset the benefit of higher net selling prices and favourable
product mix.
SG&A expenses for the second quarter of $88 million were up
approximately $8 million compared to $80 million last year
primarily due to the impact of cost inflation and higher
volume-driven distribution expenses. SG&A expenses as a
percentage of net sales improved 80 basis points to 9.9% compared
to 10.7% last year, due to the benefit of sales leverage and
SG&A cost management, which more than offset inflationary cost
pressures.
We generated operating income of $174 million, or 19.4% of sales
in the quarter and adjusted operating income1 of $176 million, or
19.6% of sales compared to operating income of $160 million, or
21.4% of sales, and $149 million, or 19.9% of sales, on an adjusted
basis last year. The increase in operating and adjusted operating
income was due to higher sales, partly offset by lower operating
margins. After reflecting net financial expenses and income taxes
which were up $3 million in total over the prior year, we reported
net earnings of $158 million and $160 million on an adjusted
basis1, up 8% and 18%, respectively, compared to last year. Diluted
EPS for the quarter totaled $0.85 and adjusted diluted EPS was
$0.86, up 15% and 27%, respectively, compared to diluted EPS of
$0.74 and adjusted diluted EPS of $0.68 in the second quarter last
year. The increase in diluted and adjusted diluted EPS also
included the benefit of a lower outstanding share base due to share
repurchases made under the Company's NCIB programs.
Our cash from operating activities in the second quarter totaled
$210 million and we generated free cash flow of $159 million
compared to $208 million last year. The decrease in free cash flow
reflected planned increases in capital expenditures and inventory,
including the impact of inflation on unit costs, as well as the
non-recurrence of an $18 million net cash benefit from
insurance proceeds received in the second quarter last year, which
offset higher operating earnings. The increase in capital
expenditures relates to planned capacity expansion in Central
America, the Caribbean and Bangladesh. The Company ended the second
quarter of 2022 with total debt of $922 million and net debt of
$848 million, and a leverage ratio of 1.1 times net debt to
trailing twelve months adjusted EBITDA1.
Year-to-date Operating ResultsNet sales for the
six months ended July 3, 2022, were $1,670 million, up 25%
over the same period last year, reflecting an increase of 32% in
activewear sales, partly offset by a decline of 4% in the hosiery
and underwear category. The year-over-year increase in activewear
sales where we generated sales of $1,425 million was primarily
driven by higher net selling prices, favourable product-mix and
higher unit sales volumes. Activewear volume growth reflected the
continued recovery in demand from COVID-19 and our ability to
better service demand this year due to stronger inventory levels as
compared to the prior year, which were impacted by the hurricanes
in Central America that occurred towards the end of 2020. The
decline in the hosiery and underwear category where we generated
sales of $245 million in the first half of 2022 reflected the
impact of lower unit sales volumes due to weaker demand in
retail.
For the first half of 2022, we generated gross profit of $505
million, or 30.3% of sales compared to gross profit of $429
million, or 32.1% of sales for the same period last year. On an
adjusted basis, gross profit totaled $504 million, or 30.2% of
sales compared to adjusted gross profit of $412 million, or 30.8%
of sales in the first six months of 2021. The increase in gross and
adjusted gross profit was primarily driven by higher sales, partly
offset by gross and adjusted gross margin declines of 180 and 60
basis points, respectively, compared to the same period last year.
The decline in gross and adjusted gross margin was primarily due to
higher fiber and other manufacturing costs and the impact of the
non-recurrence of a one-time cotton subsidy received in the first
quarter last year which benefited the prior year’s year-to-date
margins by $18 million or 130 basis points. The unfavourable impact
of these factors was offset by the benefit of higher net selling
prices and favourable product-mix. In addition, the decline in
gross margin on a GAAP basis compared to the same period last year
also reflected the impact of the non-recurrence of net insurance
gains of approximately $19 million or 140 basis points.
SG&A expenses in the first six months of 2022 totaled $169
million, or 10.1% of sales, up $16 million from $153 million, or
11.5% of sales, in the same period last year. The increase in
SG&A expenses was primarily due to higher volume-driven
distribution expenses and the impact of inflation on overall costs.
As a percentage of sales, the 140 basis point improvement in
SG&A expenses reflected the benefit of sales leverage and our
continued focus on cost management which more than offset
inflationary cost pressures.
On a year-to-date basis, we generated operating income of $336
million up from $273 million, and on an adjusted basis $334 million
up from $259 million last year driven primarily by the 25%
year-to-date increase in sales. Operating margin of 20.1% for the
first half of the year was down 40 basis points over last year.
Adjusted operating margin of 20.0% improved 60 basis points from
19.4% in the first half of 2021 reflecting the benefit of SG&A
leverage, partly offset by the lower adjusted gross margin due to
inflationary cost pressures. As a result, we reported net earnings
and adjusted net earnings1 for the first half of 2022 of $305
million and $304 million, up 24% and 32%, respectively, compared to
last year. Diluted and adjusted diluted EPS for the first half of
the year totaled $1.62, up 32% and 40%, respectively compared to
diluted EPS of $1.23 and adjusted diluted EPS of $1.16 last year,
the increases of which also reflected the benefit of share
repurchases made under the Company's NCIB programs.
Outlook As we move into the second half of the
year, while we have seen some slowing, we believe the recovery of
large events and travel and tourism remains a tailwind to demand,
which is supported by the feedback we are getting from our major
imprintables distributors. Also, while we are seeing a softening
retail environment, for Gildan this is primarily impacting national
account customer sales of activewear, hosiery and underwear
products, which represents a smaller part of our overall business.
As such, given our record first half performance and the ongoing
benefits of our Back to Basics strategy, combined with our shift to
the GSG strategy, we remain positive as we move forward and
confident about our ability to deliver on our three-year objectives
announced earlier this year.
Environmental, Social and Governance (ESG)“On
June 29, 2022, we were pleased to be recognized as one of Canada’s
best 50 corporate citizens by Corporate Knights,” said Glenn J.
Chamandy, Gildan President and CEO. “Reinforcing our continued
leadership in ESG, which is an integral part of our GSG strategy,
this distinction highlights once again our Company’s strong focus
and efforts to support and drive towards a more fair and
sustainable future.”
Declaration of Quarterly DividendThe Board of
Directors has declared a cash dividend of $0.169 per share, payable
on September 19, 2022 to shareholders of record as of August 25,
2022. This dividend is an “eligible dividend” for the purposes of
the Income Tax Act (Canada) and any other applicable provincial
legislation pertaining to eligible dividends.
Renewal of Normal Course Issuer Bid Gildan
received approval from the Toronto Stock Exchange (TSX) to renew
its NCIB commencing on August 9, 2022, to purchase for cancellation
up to 9,132,337 common shares, representing approximately 5% of
Gildan’s issued and outstanding common shares. As of July 31, 2022,
Gildan had 182,646,744 common shares issued and outstanding.
Gildan is authorized to make purchases under the NCIB until
August 8, 2023, in accordance with the requirements of the TSX.
Purchases will be made by means of open market transactions on both
the TSX and the New York Stock Exchange (NYSE), or alternative
Canadian trading systems, if eligible, or by such other means as
may be permitted by securities regulatory authorities, including
pre-arranged crosses, exempt offers, private agreements under an
issuer bid exemption order issued by securities regulatory
authorities and block purchases of common shares. The average daily
trading volume of common shares on the TSX (ADTV) for the six-month
period ended July 31, 2022, was 583,078. Consequently, and in
accordance with the requirements of the TSX, Gildan may purchase,
in addition to purchases made on other exchanges including the
NYSE, up to a maximum of 145,769 common shares daily through the
facilities of the TSX, which represents 25% of the ADTV for the
most recently completed six calendar months.
The price to be paid by Gildan for any common shares will be the
market price at the time of the acquisition, plus brokerage fees,
and purchases made under an issuer bid exemption order will be at a
discount to the prevailing market price in accordance with the
terms of the order. The actual number of common shares purchased
under the NCIB and the timing of such purchases will be at Gildan's
discretion and shall be subject to the limitations set out in the
TSX Company Manual.
Under its current NCIB that commenced on August 9, 2021, and
will end on August 8, 2022, Gildan is authorized to repurchase for
cancellation up to 19,477,744 common shares, representing
approximately 10% of Gildan’s public float as at July 31, 2021. Of
this amount, Gildan purchased a total of 16,172,241 common shares
at a weighted average price of $36.48. Common shares were purchased
through the facilities of the TSX and the NYSE, and through
alternative Canadian trading systems.
Gildan will enter into an automatic securities purchase plan
(ASPP) with a designated broker in relation to the NCIB on or about
the commencement date of the NCIB. The ASPP will allow for the
purchase of common shares under the NCIB, subject to certain
trading parameters, at times when Gildan ordinarily would not be
permitted to purchase its common shares due to applicable
regulatory restrictions or self-imposed trading black-out periods.
Outside of the pre-determined black-out periods, common shares may
be purchased under the NCIB based on the discretion of the
Company’s management, in compliance with TSX rules and applicable
securities laws.
Gildan’s management and the Board of Directors believe the
repurchase of common shares represents an appropriate use of
Gildan’s financial resources and that share repurchases under the
NCIB will not preclude Gildan from continuing to pursue organic
growth and complementary acquisitions.
Disclosure of Outstanding Share DataAs at
July 29, 2022, there were 182,746,744 common shares issued and
outstanding along with 3,181,527 stock options and 49,702 dilutive
restricted share units (Treasury RSUs) outstanding. Each stock
option entitles the holder to purchase one common share at the end
of the vesting period at a predetermined exercise price. Each
Treasury RSU entitles the holder to receive one common share from
treasury at the end of the vesting period, without any monetary
consideration being paid to the Company.
Conference Call Information
Gildan Activewear Inc. will hold a conference call to discuss
the Company's second quarter 2022 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 may be accessed by dialing (800) 715-9871 (Canada
& U.S.) or (646) 307-1963 (international) and entering passcode
9879499. A replay of the conference call will be available for 7
days starting at 12:30 PM ET on Thursday, August 4, 2022, by
dialing (800) 770-2030 (Canada & U.S.) or (609) 800-9909
(international) and entering the same passcode.
This release should be read in conjunction with Gildan’s
Management’s Discussion and Analysis and its unaudited condensed
interim consolidated financial statements as at and for the three
and six months ended July 3, 2022, which will be filed by Gildan
with the Canadian securities regulatory authorities and with the
U.S. Securities and Exchange Commission and which will be available
on Gildan’s corporate website.
Certain minor rounding variances may exist between the condensed
consolidated financial statements and the table summaries contained
in this press release.
Supplemental Financial Data
CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(in $ millions, except per share amounts or otherwise
indicated) |
Q2 2022 |
Q2 2021 |
Variation (%) |
|
YTD 2022 |
YTD 2021 |
Variation (%) |
Net sales |
895.6 |
|
747.2 |
|
19.9 |
% |
|
1,670.5 |
|
1,336.7 |
|
25.0 |
% |
Gross profit |
265.0 |
|
240.8 |
|
10.0 |
% |
|
505.4 |
|
429.3 |
|
17.7 |
% |
Adjusted gross profit(1) |
265.0 |
|
228.1 |
|
16.2 |
% |
|
504.1 |
|
411.5 |
|
22.5 |
% |
SG&A expenses |
88.4 |
|
79.7 |
|
10.9 |
% |
|
168.9 |
|
153.1 |
|
10.3 |
% |
Impairment (Reversal of
impairment) of trade accounts receivable |
1.1 |
|
(0.2 |
) |
n.m. |
|
1.5 |
|
(0.3 |
) |
n.m. |
Restructuring and
acquisition-related costs (recovery) |
1.6 |
|
1.6 |
|
n.m. |
|
(1.2 |
) |
3.1 |
|
n.m. |
Operating income |
174.0 |
|
159.7 |
|
9.0 |
% |
|
336.2 |
|
273.5 |
|
22.9 |
% |
Adjusted operating
income(1) |
175.6 |
|
148.6 |
|
18.2 |
% |
|
333.7 |
|
258.8 |
|
28.9 |
% |
Adjusted EBITDA(1) |
207.9 |
|
184.4 |
|
12.7 |
% |
|
399.4 |
|
330.2 |
|
21.0 |
% |
Financial expenses |
7.4 |
|
6.5 |
|
13.8 |
% |
|
14.4 |
|
17.3 |
|
(16.8 |
)% |
Income tax expense |
8.4 |
|
6.7 |
|
25.4 |
% |
|
17.2 |
|
11.1 |
|
55.0 |
% |
Net earnings |
158.2 |
|
146.4 |
|
8.1 |
% |
|
304.6 |
|
245.0 |
|
24.3 |
% |
Adjusted net earnings (1) |
159.8 |
|
135.3 |
|
18.1 |
% |
|
304.1 |
|
230.3 |
|
32.0 |
% |
Basic EPS |
0.85 |
|
0.74 |
|
14.9 |
% |
|
1.63 |
|
1.23 |
|
32.5 |
% |
Diluted EPS |
0.85 |
|
0.74 |
|
14.9 |
% |
|
1.62 |
|
1.23 |
|
31.7 |
% |
Adjusted diluted EPS(1) |
0.86 |
|
0.68 |
|
26.5 |
% |
|
1.62 |
|
1.16 |
|
39.7 |
% |
Gross margin(2) |
29.6 |
% |
32.2 |
% |
(2.6) pp |
|
30.3 |
% |
32.1 |
% |
(1.8) pp |
Adjusted gross margin(1) |
29.6 |
% |
30.5 |
% |
(0.9) pp |
|
30.2 |
% |
30.8 |
% |
(0.6) pp |
SG&A expenses as a
percentage of sales(3) |
9.9 |
% |
10.7 |
% |
(0.8) pp |
|
10.1 |
% |
11.5 |
% |
(1.4) pp |
Operating margin(4) |
19.4 |
% |
21.4 |
% |
(2.0) pp |
|
20.1 |
% |
20.5 |
% |
(0.4) pp |
Adjusted operating
margin(1) |
19.6 |
% |
19.9 |
% |
(0.3) pp |
|
20.0 |
% |
19.4 |
% |
0.6 pp |
Cash flows from operating activities |
209.7 |
|
200.3 |
|
4.7 |
% |
|
158.3 |
|
220.9 |
|
(28.3 |
)% |
Capital expenditures |
(50.2 |
) |
(30.2 |
) |
66.2 |
% |
|
(84.2 |
) |
(43.2 |
) |
94.9 |
% |
Free
cash flow(1) |
159.4 |
|
208.3 |
|
(23.5 |
)% |
|
74.0 |
|
245.9 |
|
(69.9 |
)% |
As at (in $ millions, or otherwise indicated) |
Jul 3,2022 |
Jan 2,2022 |
Inventories |
971.0 |
774.4 |
Trade accounts receivable |
460.8 |
330.0 |
Net debt(1) |
847.9 |
529.9 |
Net
debt leverage ratio(1) |
1.1 |
0.7 |
(1) This is a non-GAAP financial measure or ratio. Please refer
to "Non-GAAP Financial Measures" in this press release.(2) Gross
margin is defined as gross profit divided by net sales. (3)
SG&A as a percentage of sales is defined as SG&A divided by
net sales.(4) Operating margin is defined as operating income
divided by net sales.n.m. = not meaningful
DISAGGREGATION OF REVENUE
Net sales by major product group were as follows:
(in $ millions, or otherwise indicated) |
Q2 2022 |
Q2 2021 |
Variation (%) |
|
YTD 2022 |
YTD 2021 |
Variation (%) |
Activewear |
757.8 |
597.1 |
26.9 |
% |
|
1,425.1 |
1,081.7 |
31.7 |
% |
Hosiery
and underwear |
137.8 |
150.0 |
(8.1 |
)% |
|
245.4 |
255.0 |
(3.8 |
)% |
|
895.6 |
747.1 |
19.9 |
% |
|
1,670.5 |
1,336.7 |
25.0 |
% |
Net sales were derived from customers located in the following
geographic areas:
(in $ millions, or otherwise indicated) |
Q2 2022 |
Q2 2021 |
Variation (%) |
|
YTD 2022 |
YTD 2021 |
Variation (%) |
United States |
796.1 |
641.3 |
24.1 |
% |
|
1,477.9 |
1,148.1 |
28.7 |
% |
Canada |
31.4 |
25.1 |
25.1 |
% |
|
61.6 |
47.7 |
29.1 |
% |
International |
68.1 |
80.7 |
(15.6 |
)% |
|
131.0 |
140.9 |
(7.0 |
)% |
|
895.6 |
747.1 |
19.9 |
% |
|
1,670.5 |
1,336.7 |
25.0 |
% |
Non-GAAP financial measures and related
ratios
This press release includes references to certain non-GAAP
financial measures, as well as non-GAAP ratios as described below.
These non-GAAP measures do not have any standardized meanings
prescribed by International Financial Reporting Standards (IFRS)
and are therefore unlikely to be comparable to similar measures
presented by other companies. Accordingly, they should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. The terms and
definitions of the non-GAAP measures used in this press release and
a reconciliation of each non-GAAP measure to the most directly
comparable IFRS measure are provided below.
Certain adjustments to non-GAAP measures
As noted above certain of our non-GAAP financial measures and
ratios exclude the variation caused by certain adjustments
that affect the comparability of the Company's financial results
and could potentially distort the analysis of trends in its
business performance. Adjustments which impact more than one
non-GAAP financial measure and ratio are explained below:
Restructuring and acquisition-related costs
(recovery)Restructuring and acquisition-related costs are comprised
of costs directly related to significant exit activities, including
the closure of business locations or the relocation of business
activities, significant changes in management structure, as well as
transaction, exit, and integration costs incurred pursuant to
business acquisitions. Restructuring and acquisition-related costs
is included as an adjustment in arriving at adjusted operating
income, adjusted operating margin, adjusted net earnings, adjusted
diluted EPS, and adjusted EBITDA. For the three and six months
ended July 3, 2022 restructuring and acquisition-related costs were
$1.6 million and a recovery of $1.2 million (2021 - $1.6 million
and $3.1 million in costs). Refer to subsection 5.4.5 entitled
“Restructuring and acquisition-related costs (recovery)” in our
interim MD&A for a detailed discussion of these costs and
recoveries.
Net insurance gainsFor the three and six months ended July 3,
2022, net insurance gains of nil and $0.3 million (2021 - $12.7
million and $18.9 million), related to the two hurricanes which
impacted the Company’s operations in Central America in November
2020. The net insurance gains reflected costs of $3.6 million and
$8.0 million (2021 - $15.4 million and $39.7 million) (mainly
attributable to equipment repairs, salary and benefits continuation
for idle employees, and other costs and charges), which were more
than offset by related accrued insurance recoveries of $3.6 million
and $8.3 million (2021 - $28.1 million and $58.6 million)
during the three and six months ended July 3, 2022. The insurance
gains primarily relate to accrued insurance recoveries at
replacement cost value for damaged equipment in excess of the
write-off of the net book value of property plant and equipment, as
well as the recognition of insurance recoveries for business
interruption, when applicable. Net insurance gains are included as
an adjustment in arriving at adjusted gross profit and adjusted
gross margin, adjusted operating income, adjusted operating margin,
adjusted net earnings, adjusted diluted EPS, and adjusted
EBITDA.
Impact of strategic product line initiativesIn the fourth
quarter of fiscal 2019, the Company launched a strategic initiative
to significantly reduce its imprintables product line SKU count. In
the fourth quarter of fiscal 2020 the Company expanded this
strategic initiative to include a significant reduction in its
retail product line SKU count. The objectives of this strategic
initiative include exiting all ship to-the-piece activities,
discontinuing overlapping and less productive styles and SKUs
between brands, simplifying the Company's product portfolio and
reducing complexity in its manufacturing and warehouse distribution
activities. The impact of this initiative has included inventory
write-downs to reduce the carrying value of discontinued SKUs to
liquidation values, sales return allowances for product returns
related to discontinued SKUs, and in Q4 2021, the write-down of
production equipment and other assets relating to discontinued
SKUs. The impact of strategic product line initiatives is included
as an adjustment in arriving at adjusted gross profit and adjusted
gross margin, adjusted operating income, adjusted operating margin,
adjusted net earnings, adjusted diluted EPS, and adjusted
EBITDA.
The gains and charges related to this initiative were as
follows:
- For the three and six months ended
July 3, 2022, nil and $1.0 million of recoveries included in cost
of sales.
- For the three and six months ended July 4, 2021, nil and $1.2
million of charges included in cost of sales.
Adjusted net earnings and adjusted diluted EPSAdjusted net
earnings are calculated as net earnings before restructuring and
acquisition-related costs, impairment of goodwill and intangible
assets (and reversal of impairments on intangible assets), net
insurance gains, the discontinuance of PPE SKUs, the impact of the
Company's strategic product line initiatives, and income tax
expense or recovery relating to these items. Adjusted net earnings
also excludes income taxes related to the re-assessment of the
probability of realization of previously recognized or
de-recognized deferred income tax assets, and income taxes relating
to the revaluation of deferred income tax assets and liabilities as
a result of statutory income tax rate changes in the countries in
which we operate. Adjusted diluted EPS is calculated as adjusted
net earnings divided by the diluted weighted average number of
common shares outstanding. The Company uses adjusted net earnings
and adjusted diluted EPS to measure its net earnings performance
from one period to the next, and in making decisions regarding the
ongoing operations of its business, without the variation caused by
the impacts of the items described above. The Company excludes
these items because they affect the comparability of its net
earnings and diluted EPS and could potentially distort the analysis
of net earnings trends in its business performance. The Company
believes adjusted net earnings and adjusted diluted EPS are useful
to investors because they help identify underlying trends in our
business that could otherwise be masked by certain expenses,
write-offs, charges, income or recoveries that can vary from period
to period. Excluding these items does not imply they are
necessarily non-recurring. These measures do not have any
standardized meanings prescribed by IFRS and are therefore unlikely
to be comparable to similar measures presented by other
companies.
(in $ millions, except per share amounts) |
Q2 2022 |
Q2 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Net earnings |
158.2 |
146.4 |
|
|
304.6 |
|
245.0 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related costs (recovery) |
1.6 |
1.6 |
|
|
(1.2 |
) |
3.1 |
|
Impact of strategic product line initiatives |
— |
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
(12.7 |
) |
|
(0.3 |
) |
(19.0 |
) |
Income tax expense relating to the above-noted adjustments |
— |
— |
|
|
2.0 |
|
— |
|
Adjusted net earnings |
159.8 |
135.3 |
|
|
304.1 |
|
230.3 |
|
Basic EPS |
0.85 |
0.74 |
|
|
1.63 |
|
1.23 |
|
Diluted EPS |
0.85 |
0.74 |
|
|
1.62 |
|
1.23 |
|
Adjusted diluted EPS(1) |
0.86 |
0.68 |
|
|
1.62 |
|
1.16 |
|
(1) This is a non-GAAP ratio. It is calculated
as adjusted net earnings divided by the diluted weighted average
number of common shares outstanding.
Adjusted gross profit and adjusted gross
marginAdjusted gross profit is calculated as gross profit excluding
the impact of net insurance gains, the discontinuance of PPE SKUs,
and the impact of the Company's strategic product line initiatives.
The Company uses adjusted gross profit and adjusted gross margin to
measure its performance at the gross margin level from one period
to the next, without the variation caused by the impacts of the
items described above. The Company excludes these items because
they affect the comparability of its financial results and could
potentially distort the analysis of trends in its business
performance. Excluding these items does not imply they are
necessarily non-recurring. The Company believes adjusted gross
profit and adjusted gross margin are useful to management and
investors because they help identify underlying trends in our
business in how efficiently the Company uses labor and materials
for manufacturing goods to our customers, that could otherwise be
masked by the impact of our strategic product line initiatives and
net insurance gains that can vary from period to period. These
measures do not have any standardized meanings prescribed by IFRS
and are therefore unlikely to be comparable to similar measures
presented by other companies.
(in $ millions, or otherwise indicated) |
Q2 2022 |
|
Q2 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Gross profit |
265.0 |
|
240.8 |
|
|
505.4 |
|
429.3 |
|
Adjustments for: |
|
|
|
|
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
|
(12.7 |
) |
|
(0.3 |
) |
(19.0 |
) |
Adjusted gross profit |
265.0 |
|
228.1 |
|
|
504.1 |
|
411.5 |
|
Gross margin |
29.6 |
% |
32.2 |
% |
|
30.3 |
% |
32.1 |
% |
Adjusted gross margin(1) |
29.6 |
% |
30.5 |
% |
|
30.2 |
% |
30.8 |
% |
(1) This is a non-GAAP ratio. It is calculated
as adjusted gross profit divided by net sales excluding the sales
return allowance for anticipated product returns related to
discontinued SKUs. Net sales excluding the sales return allowance
for anticipated product returns related to discontinued SKUs is a
non-GAAP measure used in the denominator of the adjusted margin
ratios to reverse the full effect of the SKU rationalization
adjustments. The sales return allowance was nil for both
periods.
Adjusted operating income and adjusted operating marginAdjusted
operating income is calculated as operating income before
restructuring and acquisition-related costs. Adjusted operating
income also excludes impairment of goodwill and intangible assets,
net insurance gains, the discontinuance of PPE SKUs, and the impact
of the Company's strategic product line initiatives. Adjusted
operating margin is calculated as adjusted operating income divided
by net sales, excluding the sales return allowance for anticipated
product returns related to discontinued SKUs. Management uses
adjusted operating income and adjusted operating margin to measure
its performance at the operating income level as we believe it
provides a better indication of our operating performance and
facilitates the comparison across reporting periods, without the
variation caused by the impacts of the items described above. The
Company excludes these items because they affect the comparability
of its financial results and could potentially distort the analysis
of trends in its operating income and operating margin performance.
The Company believes adjusted operating income and adjusted
operating margin are useful to investors because they help identify
underlying trends in our business in how efficiently the Company
generates profit from its primary operations that could otherwise
be masked by the impact of restructuring and acquisition-related
costs, our strategic product line initiatives and net insurance
gains that can vary from period to period. Excluding these items
does not imply they are necessarily non-recurring. These measures
do not have any standardized meanings prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented
by other companies.
(in $ millions, or otherwise indicated) |
Q2 2022 |
|
Q2 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Operating income |
174.0 |
|
159.7 |
|
|
336.2 |
|
273.5 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related costs (recovery) |
1.6 |
|
1.6 |
|
|
(1.2 |
) |
3.1 |
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
|
(12.7 |
) |
|
(0.3 |
) |
(19.0 |
) |
Adjusted operating income |
175.6 |
|
148.6 |
|
|
333.7 |
|
258.8 |
|
Operating margin |
19.4 |
% |
21.4 |
% |
|
20.1 |
% |
20.5 |
% |
Adjusted operating margin(1) |
19.6 |
% |
19.9 |
% |
|
20.0 |
% |
19.4 |
% |
(1) This is a non-GAAP ratio. It is calculated
as adjusted operating income divided by net sales excluding the
sales return allowance for anticipated product returns related to
discontinued SKUs. Net sales excluding the sales return allowance
for anticipated product returns related to discontinued SKUs is a
non-GAAP measure used in the denominator of the adjusted margin
ratios to reverse the full effect of the SKU rationalization
adjustments. The sales return allowance was nil for both
periods.
Adjusted EBITDAAdjusted EBITDA is calculated as
earnings before financial expenses net, income taxes, and
depreciation and amortization, and excludes the impact of
restructuring and acquisition-related costs. Adjusted EBITDA also
excludes impairment of goodwill and intangible assets and reversal
of impairments on intangible assets, net insurance gains, the
discontinuance of PPE SKUs, and the impact of the Company's
strategic product line initiative. Management uses adjusted
EBITDA, among other measures, to facilitate a comparison of the
profitability of its business on a consistent basis from
period-to-period and to provide a more complete understanding of
factors and trends affecting our business. The Company also
believes this measure is commonly used by investors and analysts to
assess profitability and the cost structure of companies within the
industry, as well as measure a company’s ability to service debt
and to meet other payment obligations, or as a common valuation
measurement. The Company excludes depreciation and amortization
expenses, which are non-cash in nature and can vary significantly
depending upon accounting methods or non-operating factors.
Excluding these items does not imply they are necessarily
non-recurring. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions) |
Q2 2022 |
Q2 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Net earnings |
158.2 |
146.4 |
|
|
304.6 |
|
245.0 |
|
Restructuring and
acquisition-related costs (recovery) |
1.6 |
1.6 |
|
|
(1.2 |
) |
3.1 |
|
Impact of strategic product
line initiative |
— |
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
(12.7 |
) |
|
(0.3 |
) |
(19.0 |
) |
Depreciation and
amortization |
32.3 |
35.9 |
|
|
65.7 |
|
71.5 |
|
Financial expenses, net |
7.4 |
6.5 |
|
|
14.4 |
|
17.3 |
|
Income
tax expense |
8.4 |
6.7 |
|
|
17.2 |
|
11.1 |
|
Adjusted EBITDA |
207.9 |
184.4 |
|
|
399.4 |
|
330.2 |
|
Free cash flow Free 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 used by management in managing
capital as it indicates how much cash is available after capital
expenditures to repay debt, to pursue business acquisitions, and/or
to redistribute to its shareholders. Management believes that free
cash flow also provides investors with an important perspective on
the cash available to us to service debt, fund acquisitions, and
pay dividends. In addition, free cash flow is commonly used by
investors and analysts when valuing a business and its underlying
assets. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions) |
Q2 2022 |
|
Q2 2021 |
|
YTD 2022 |
|
YTD 2021 |
Cash flows from operating activities |
209.7 |
|
200.3 |
|
158.3 |
|
220.9 |
Cash flows (used in) from
investing activities |
(50.3 |
) |
8.0 |
|
(84.3 |
) |
25.0 |
Adjustment for: |
|
|
|
|
|
Business acquisitions |
— |
|
— |
|
— |
|
— |
Free cash flow |
159.4 |
|
208.3 |
|
74.0 |
|
245.9 |
Total debt and net debtTotal debt is defined as the
total bank indebtedness, long-term debt (including any current
portion), and lease obligations (including any current portion),
and net debt is calculated as total debt net of cash and cash
equivalents. The Company considers total debt and net debt to be
important indicators for management and investors to assess the
financial position and liquidity of the Company, and measure its
financial leverage. These measures do not have any standardized
meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
(in $ millions) |
Jul 3, 2022 |
|
Jan 2, 2022 |
|
Long-term debt |
815.0 |
|
600.0 |
|
Bank indebtedness |
— |
|
— |
|
Lease
obligations |
106.6 |
|
109.1 |
|
Total debt |
921.6 |
|
709.1 |
|
Cash
and cash equivalents |
(73.7 |
) |
(179.2 |
) |
Net debt |
847.9 |
|
529.9 |
|
Net debt leverage ratio The net debt leverage ratio is defined
as the ratio of net debt to pro-forma adjusted EBITDA for the
trailing twelve months, all of which are non-GAAP measures. The
pro-forma adjusted EBITDA for the trailing twelve months reflects
business acquisitions made during the period, as if they had
occurred at the beginning of the trailing twelve month period. The
Company has set a fiscal year-end net debt leverage target ratio of
one to two times pro-forma adjusted EBITDA for the trailing twelve
months. The net debt leverage ratio serves to evaluate the
Company's financial leverage and is used by management in its
decisions on the Company's capital structure, including financing
strategy. The Company believes that certain investors and analysts
use the net debt leverage ratio to measure the financial leverage
of the Company, including our ability to pay off our incurred debt.
The Company's net debt leverage ratio differs from the net debt to
EBITDA ratio that is a covenant in our loan and note agreements due
primarily to adjustments in the latter related to lease accounting,
and therefore the Company believes it is a useful additional
measure. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, or otherwise indicated) |
Jul 3, 2022 |
Jan 2, 2022 |
Adjusted EBITDA for the trailing twelve months |
796.1 |
726.8 |
Adjustment for: |
|
|
Business acquisitions |
2.0 |
22.8 |
Pro-forma adjusted EBITDA for the trailing twelve months |
798.1 |
749.6 |
Net debt |
847.9 |
529.9 |
Net
debt leverage ratio(1) |
1.1 |
0.7 |
(1) The Company's total net debt to EBITDA ratio for purposes of
its loan and note agreements was 1.2 at July 3, 2022.
Working capitalWorking capital is a non-GAAP financial measure
and is defined as current assets less current liabilities.
Management believes that working capital, in addition to other
conventional financial measures prepared in accordance with IFRS,
provides information that is helpful to understand the financial
condition of the Company. The objective of using working capital is
to present readers with a view of the Company from management’s
perspective by interpreting the material trends and activities that
affect the short-term liquidity and financial position of the
Company, including its ability to discharge its short-term
liabilities as they come due. This measure is not necessarily
comparable to similarly titled measures used by other public
companies.
(in $ millions) |
Jul 3, 2022 |
|
Jan 2, 2022 |
|
Cash and cash equivalents |
73.7 |
|
179.2 |
|
Trade accounts receivable |
460.8 |
|
330.0 |
|
Inventories |
971.0 |
|
774.4 |
|
Prepaid expenses, deposits and
other current assets |
129.1 |
|
163.7 |
|
Accounts payable and accrued
liabilities |
(504.7 |
) |
(440.4 |
) |
Income taxes payable |
(5.8 |
) |
(7.9 |
) |
Current portion of lease
obligations |
(14.6 |
) |
(15.3 |
) |
Working capital |
1,109.5 |
|
983.7 |
|
Caution Concerning Forward-Looking
Statements
Certain statements included in this press release constitute
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and Canadian securities
legislation and regulations and are subject to important risks,
uncertainties, and assumptions. This forward-looking information
includes, amongst others, information with respect to our
objectives and the strategies to achieve these objectives, as well
as information with respect to our beliefs, plans, expectations,
anticipations, estimates, and intentions, including, without
limitation, our expectation with regards to net sales, gross
margin, SG&A expenses, restructuring and acquisition-related
costs, operating margin, adjusted operating margin, adjusted
EBITDA, diluted earnings per share, adjusted diluted earnings per
share, income tax rate, free cash flow, return on adjusted average
net assets, net debt to adjusted EBITDA leverage ratios, capital
return and capital investments or expenditures, including our
three-year financial outlook referenced in this press release under
the section “Outlook”. Forward-looking statements generally can be
identified by the use of conditional or forward-looking terminology
such as “may”, “will”, “expect”, “intend”, “estimate”, “project”,
“assume”, “anticipate”, “plan”, “foresee”, “believe”, or
“continue”, or the negatives of these terms or variations of them
or similar terminology. We refer you to the Company’s filings with
the Canadian securities regulatory authorities and the U.S.
Securities and Exchange Commission, as well as the risks described
under the “Financial risk management”, “Critical accounting
estimates and judgments”, and “Risks and uncertainties” sections of
our most recent Management’s Discussion and Analysis for a
discussion of the various factors that may affect the Company’s
future results. Material factors and assumptions that were applied
in drawing a conclusion or making a forecast or projection are also
set out throughout such document and this press release.
Forward-looking information is inherently uncertain and the
results or events predicted in such forward-looking information may
differ materially from actual results or events. Material factors,
which could cause actual results or events to differ materially
from a conclusion, forecast, or projection in such forward-looking
information, include, but are not limited to:
- the magnitude and length of economic disruption as a result of
the worldwide coronavirus (COVID-19) pandemic and the appearance of
COVID variants, including the scope and duration of government
mandated general, partial, or targeted private sector shutdowns,
travel restrictions, social distancing measures, and the pace of
mass vaccination campaigns;
- changes in general economic and financial conditions globally
or in one or more of the markets we serve, including those
resulting from the impacts of the COVID-19 pandemic and the
appearance of COVID variants, the current high inflationary
environment and the ongoing Russia-Ukraine conflict and war;
- our ability to implement our growth strategies and plans,
including our ability to bring projected capacity expansion
online;
- our ability to successfully integrate acquisitions and realize
expected benefits and synergies;
- the intensity of competitive activity and our ability to
compete effectively;
- our reliance on a small number of significant customers;
- the fact that our customers do not commit to minimum quantity
purchases;
- our ability to anticipate, identify, or react to changes in
consumer preferences and trends;
- our ability to manage production and inventory levels
effectively in relation to changes in customer demand;
- fluctuations and volatility in the price of raw materials used
to manufacture our products, such as cotton, polyester fibers, dyes
and other chemicals from current levels;
- our reliance on key suppliers and our ability to maintain an
uninterrupted supply of raw materials, intermediate materials and
finished goods;
- the impact of climate, political, social, and economic risks,
natural disasters, epidemics, pandemics and endemics, such as the
COVID-19 pandemic, in the countries in which we operate or sell to,
or from which we source production;
- disruption to manufacturing and distribution activities due to
such factors as operational issues, disruptions in transportation
logistic functions, labour shortages or disruptions, political or
social instability, weather-related events, 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, including the implementation of
a global minimum tax rate;
- changes to and failure to comply with consumer product safety
laws and regulations;
- changes in our relationship with our employees or changes to
domestic and foreign employment laws and regulations;
- negative publicity as a result of actual, alleged, or perceived
violations of human rights, labour and environmental laws or
international labour standards, or unethical labour or other
business practices by the Company or one of its third-party
contractors;
- changes in third-party licensing arrangements and licensed
brands;
- our ability to protect our intellectual property rights;
- operational problems with our information systems as a result
of system failures, viruses, security and cyber security breaches,
disasters, and disruptions due to system upgrades or the
integration of systems;
- an actual or perceived breach of data security;
- our reliance on key management and our ability to attract
and/or retain key personnel;
- changes in accounting policies and estimates; and
- exposure to risks arising from financial instruments, including
credit risk on trade accounts receivables and other financial
instruments, liquidity risk, foreign currency risk, and interest
rate risk, as well as risks arising from commodity prices.
These factors may cause the Company’s actual performance and
financial results in future periods to differ materially from any
estimates or projections of future performance or results expressed
or implied by such forward-looking statements. Forward-looking
statements do not take into account the effect that transactions or
non-recurring or other special items announced or occurring after
the statements are made may have on the Company’s business. For
example, they do not include the effect of business dispositions,
acquisitions, other business transactions, asset write-downs, asset
impairment losses, or other charges announced or occurring after
forward-looking statements are made. The financial impact of such
transactions and non-recurring and other special items can be
complex and necessarily depends on the facts particular to each of
them.
There can be no assurance that the expectations represented by
our forward-looking statements will prove to be correct. The
purpose of the forward-looking statements is to provide the reader
with a description of management’s expectations regarding the
Company’s future financial performance and may not be appropriate
for other purposes. Furthermore, unless otherwise stated, the
forward-looking statements contained in this report are made as of
the date hereof, and we do not undertake any obligation to update
publicly or to revise any of the included forward-looking
statements, whether as a result of new information, future events,
or otherwise unless required by applicable legislation or
regulation. The forward-looking statements contained in this report
are expressly qualified by this cautionary statement.
About Gildan
Gildan 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, primarily including Gildan®, American Apparel®, Comfort
Colors®, GOLDTOE®, Peds®, and under the Under Armour® brand through
a sock licensing agreement for exclusive distribution in the United
States and Canada. The Company’s product offerings include
activewear, underwear and socks, sold to wholesale imprintables
distributors and national accounts which include large
screenprinters or embellishers, retailers and global lifestyle
brand companies.
Gildan owns and operates vertically integrated, large-scale
manufacturing facilities which are primarily located in Central
America, the Caribbean, United States, and Bangladesh. Gildan
operates with a strong commitment to industry-leading labour,
environmental and governance practices throughout its supply chain
in accordance with its comprehensive ESG program embedded in the
Company's long-term business strategy. More information about the
Company and its ESG practices and initiatives can be found at
www.gildancorp.com.
Investor inquiries:Sophie ArgiriouVice President,
Investor Communications(514) 343-8815sargiriou@gildan.com |
Media inquiries:Genevieve GosselinDirector, Global
Communications and Corporate Marketing(514)
343-8814ggosselin@gildan.com |
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