Gildan Activewear Inc. (GIL: TSX and NYSE) today announced results
for the third quarter ended October 2, 2022.
“The strength of our activewear business, driven by North
American imprintables sales, together with the benefits from our
vertically-integrated manufacturing model, allowed us to deliver
another strong quarter” said Glenn J. Chamandy, Gildan’s President
and CEO. “These results are a testament to the progress we are
making under the Gildan Sustainable Growth strategy, which we
remain fully focused on as we continue to drive to deliver on our
three-year targets.”
We generated record third quarter sales of $850 million, up 6%
year-over-year, as activewear sales to North American imprintable
distributors held up well in the quarter, driven by higher net
selling prices and sales volumes. We also delivered strong gross
margin performance of 29.7% in the quarter, despite inflationary
cost pressures, and SG&A came in better than anticipated at
9.3% of sales, resulting in operating and adjusted operating
margins of 20.5% and 20.0%, respectively, at the high end of our
target range. With record sales and strong margin performance in
the quarter, GAAP and adjusted diluted EPS totaled $0.84, with
adjusted diluted EPS up 5% over the prior year. After funding
higher working capital requirements, primarily related to higher
inventories, we generated cash flows from operating activities in
the quarter of $66 million which were used to fund higher capital
expenditures, resulting in approximately $7 million of free cash
flow1 consumed in the quarter. During the third quarter, we
repurchased approximately 3.2 million shares under our normal
course issuer bid (NCIB) programs. We ended the quarter with net
debt1 of $944 million, bringing our net debt leverage ratio1 to
1.2, at the lower end of the Company's target range.
Q3 2022 Operating Results Net sales for the
third quarter ended October 2, 2022, were $850 million, up
from $802 million in the third quarter last year and consisted of
activewear sales of $742 million, up 13%, and sales in the hosiery
and underwear category of $108 million, down 26% over the prior
year. The increase in activewear sales was due to higher net
selling prices, partly offset by lower sales volumes, as increased
unit sales to North American distributors were more than offset by
lower unit sales volumes of activewear stemming from demand
weakness in retail and international markets. In the hosiery and
underwear category, the sales decline compared to last year was
driven by weak demand in retail and the impact of retailers
managing their inventory levels.
We generated gross and adjusted gross profit1 of $252 million in
the quarter, down $30 million from gross profit of $282 million
last year. After adjusting for the benefit of a net insurance gain
of approximately $30 million recorded in the third quarter of 2021,
adjusted gross profit was flat year over year, as the sales growth
in the quarter was offset by lower gross and adjusted gross margin1
compared to last year. Although we have been able to sustain strong
margin performance, gross and adjusted gross margins of 29.7% in
the quarter were down 540 basis points and 170 basis points,
respectively, compared to last year. The decline in gross margin on
a GAAP basis included the impact of the non-recurrence of a net
insurance gain which benefited gross margin last year by close to
375 basis points. Excluding this impact, the gross margin and
adjusted gross margin decline reflected the impact of higher raw
material and other manufacturing costs, offset in part by higher
net selling prices and favourable product mix.
SG&A expenses for the third quarter totaled $79 million,
down slightly from $81 million in the same quarter last year, as
lower variable compensation expenses and our cost containment
efforts more than offset the impact of cost inflation and higher
selling expenses. SG&A expenses as a percentage of net sales
improved 80 basis points to 9.3% compared to 10.1% last year, as
the benefit of lower variable compensation costs and sales leverage
more than offset the impact of cost inflation.
We generated operating income of $175 million, or 20.5% of sales
in the quarter and adjusted operating income1 of $170 million, or
20.0% of sales, compared to operating income of $201 million, or
25.1% of sales, and adjusted operating income of $172 million, or
21.5% of sales in the third quarter last year. The decrease in GAAP
and adjusted operating income was primarily due to lower operating
margins, which more than offset the growth in sales. On a GAAP
basis, the operating income decline also reflected the
non-recurrence of the approximate $30 million net insurance gain
recognized in the third quarter last year. After reflecting
increased net financial expenses due to higher interest rates and
average borrowing levels and higher GAAP income taxes, as well as
the benefit of a lower outstanding share base, we reported GAAP and
adjusted diluted EPS for the quarter of $0.84, down from GAAP
diluted EPS of $0.95, but up 5% on an adjusted basis compared to
$0.80 in the third quarter of 2021.
Our cash flows from operating activities in the third quarter
totaled $66 million and after higher capital expenditures compared
to the third quarter last year, we consumed approximately $7
million of free cash flow in the quarter. This compared to free
cash flow of $232 million generated in the third quarter of 2021.
The decrease in free cash flow reflected higher inventory levels
including the impact of higher unit costs, planned increases in
capital expenditures which are tracking in line with our target
range of 6% to 8% of annual sales and the impact of the
non-recurrence of the approximate $30 million net cash benefit from
insurance proceeds received in the third quarter last year. The
increase in capital expenditures primarily relate to capacity
projects, including expenditures for the construction of our new
large-scale vertically-integrated textile and sewing facility in
Bangladesh which is currently underway. The Company ended the third
quarter of 2022 with net debt of $944 million and a leverage ratio
of 1.2 times net debt to trailing twelve months adjusted
EBITDA1.
Year-to-date Operating ResultsNet sales for the
nine months ended October 2, 2022, were $2,520 million, up 18%
over the same period last year, reflecting an increase of 25% in
activewear sales, partly offset by a decline of 12% in the hosiery
and underwear category. The year-over-year increase in activewear
sales where we generated sales of $2,167 million was primarily
driven by higher net selling prices, higher unit sales volumes and
favourable product-mix. Activewear volume growth reflected the
meaningful recovery in demand from COVID-19, particularly in the
first half of the year, 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 in
2020 and yarn labour shortages. The decline in the hosiery and
underwear category, where we generated sales of $353 million in the
first nine months of 2022, primarily reflected the impact of lower
unit sales volumes due to weaker demand in retail and the continued
impact of tight inventory management at the retailer level.
For the first nine months of 2022, we generated gross profit of
$758 million, or 30.1% of sales compared to gross profit of $711
million, or 33.3% of sales for the same period last year. On an
adjusted basis, gross profit totaled $756 million, or 30.0% of
sales compared to adjusted gross profit of $663 million, or 31.0%
of sales in the same period last year. The $47 million and $93
million increase in gross and adjusted gross profit, respectively,
was primarily driven by the 18% growth in sales, partly offset by
gross and adjusted gross margin declines of 320 and 100 basis
points, respectively, compared to the same period last year. Lower
gross and adjusted gross margins were primarily the result of
higher raw material and other manufacturing costs and the impact of
the non-recurrence of an $18 million (or 85 basis points) one-time
USDA cotton subsidy in connection to its Pandemic Assistance for
Cotton Users program which was recorded in the first quarter of
2021. The unfavourable impact of these factors was partly offset by
the benefit of higher net selling prices and product-mix. The
year-over-year decline in gross margin on a GAAP basis also
reflected the impact of the non-recurrence of net insurance gains
of approximately $49 million or 230 basis points recognized in the
first nine months of last year.
SG&A expenses in the first nine months of 2022 totaled $248
million, or 9.9% of sales, up $14 million from $234 million, or
10.9% of sales, in the same period last year. The increase in
SG&A expenses was primarily due to higher selling expenses and
the impact of inflation on overall costs, partially offset by lower
variable compensation expenses and the benefit of our cost
containment measures. As a percentage of sales, the 100 basis point
improvement in SG&A expenses primarily reflected the benefit of
sales leverage.
On a year-to-date basis, we generated operating income of $511
million or 20.3% of sales, up from $475 million or 22.2% of sales
in the same period last year. On an adjusted basis, we generated
operating income1 of $504 million, which translated to a
year-to-date operating margin of 20.0% compared to $431 million and
20.2%, respectively, last year. The increase in operating and
adjusted operating income for the first nine months of 2022 was
driven primarily by the 18% year-to-date increase in sales, partly
offset by lower operating margins. The year-to-date 190 basis-point
decline in operating margin and slight decrease of 20 basis points
on an adjusted basis largely reflected lower gross margins which
offset the benefit of SG&A leverage. As a result, our GAAP and
adjusted net earnings1 for the first nine months of 2022 came in at
$458 million, up 6% and 17%, respectively, compared to last year.
Year-to-date GAAP and adjusted diluted EPS totaled $2.46, up 13%
and 26%, respectively compared to diluted EPS of $2.18 and adjusted
diluted EPS of $1.96 last year, the increases of which also
reflected the benefit of share repurchases made under the Company's
NCIB programs.
Outlook We believe our business and the actions
we have taken continue to position us well to navigate through any
near-term challenges related to the current environment.
Importantly, our large North American business geared toward
imprintables channels continues to benefit from demand driven by
travel, tourism and large events and is expected to remain
relatively stable. On the other hand, where we are seeing continued
weakness is with our national account or retail-related customers,
which represents a smaller part of our business. Further, in
international markets we are also continuing to see ongoing
softness in demand. On the cost side, although the impact of higher
raw material costs will become more pronounced in the fourth
quarter, we remain focused on delivering on our operating
profitability target range of 18% to 20%. More importantly, our
proven operational excellence in both good and tough environments
as well as the progress we continue to make on the key pillars of
our sustainable growth strategy, gives us confidence in our ability
to deliver on our three-year growth targets outlined in February of
this year.
Declaration of Quarterly DividendThe Board of
Directors has declared a cash dividend of $0.169 per share, payable
on December 19, 2022 to shareholders of record as of November 23,
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 During the
third quarter, the Company completed share repurchases under its
NCIB ending August 8, 2022 and following the renewal of the
Company's NCIB, effective August 9, 2022, the Company continued to
repurchase shares. A total of 3,200,000 common shares were
repurchased for cancellation during the third quarter at a total
cost of approximately $96 million.
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
October 28, 2022, there were 179,561,295 common shares issued
and outstanding along with 3,181,527 stock options and 66,657
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 InformationGildan Activewear
Inc. will hold a conference call to discuss the Company's third
quarter 2022 results today at 8:30 AM ET. A live audio webcast
of the conference call, as well as a replay, will be accessible on
the investors section of Gildan’s corporate website at 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
3908546. A replay of the conference call will be available for 7
days starting at 12:30 PM ET on Thursday, November 3, 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 nine months ended October 2, 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) |
Q3 2022 |
Q3 2021 |
Variation (%) |
|
YTD 2022 |
YTD 2021 |
Variation (%) |
Net sales |
850.0 |
|
801.6 |
|
6.0 |
% |
|
2,520.5 |
|
2,138.3 |
|
17.9 |
% |
Gross profit |
252.2 |
|
281.7 |
|
(10.5 |
)% |
|
757.6 |
|
711.0 |
|
6.6 |
% |
Adjusted gross profit(1) |
252.2 |
|
251.8 |
|
0.2 |
% |
|
756.3 |
|
663.3 |
|
14.0 |
% |
SG&A expenses |
79.4 |
|
80.6 |
|
(1.5 |
)% |
|
248.3 |
|
233.7 |
|
6.2 |
% |
Impairment (Reversal of
impairment) of trade accounts receivable |
2.8 |
|
(1.3 |
) |
n.m. |
|
4.4 |
|
(1.6 |
) |
n.m. |
Restructuring and
acquisition-related (recovery) costs |
(4.6 |
) |
1.0 |
|
n.m. |
|
(5.8 |
) |
4.0 |
|
n.m. |
Operating income |
174.6 |
|
201.3 |
|
(13.3 |
)% |
|
510.8 |
|
474.8 |
|
7.6 |
% |
Adjusted operating
income(1) |
170.0 |
|
172.4 |
|
(1.4 |
)% |
|
503.7 |
|
431.1 |
|
16.8 |
% |
Adjusted EBITDA(1) |
201.0 |
|
206.7 |
|
(2.8 |
)% |
|
600.5 |
|
537.0 |
|
11.8 |
% |
Financial expenses |
9.3 |
|
5.3 |
|
75.5 |
% |
|
23.7 |
|
22.7 |
|
4.4 |
% |
Income tax expense |
12.2 |
|
7.7 |
|
58.4 |
% |
|
29.4 |
|
18.9 |
|
55.6 |
% |
Net earnings |
153.0 |
|
188.3 |
|
(18.7 |
)% |
|
457.6 |
|
433.3 |
|
5.6 |
% |
Adjusted net earnings(1) |
153.4 |
|
159.4 |
|
(3.8 |
)% |
|
457.5 |
|
389.6 |
|
17.4 |
% |
Basic EPS |
0.84 |
|
0.95 |
|
(11.6 |
)% |
|
2.47 |
|
2.19 |
|
12.8 |
% |
Diluted EPS |
0.84 |
|
0.95 |
|
(11.6 |
)% |
|
2.46 |
|
2.18 |
|
12.8 |
% |
Adjusted diluted EPS(1) |
0.84 |
|
0.80 |
|
5.0 |
% |
|
2.46 |
|
1.96 |
|
25.5 |
% |
Gross margin(2) |
29.7 |
% |
35.1 |
% |
(5.4) pp |
|
30.1 |
% |
33.3 |
% |
(3.2) pp |
Adjusted gross margin(1) |
29.7 |
% |
31.4 |
% |
(1.7) pp |
|
30.0 |
% |
31.0 |
% |
(1.0) pp |
SG&A expenses as a
percentage of sales(3) |
9.3 |
% |
10.1 |
% |
(0.8) pp |
|
9.9 |
% |
10.9 |
% |
(1.0) pp |
Operating margin(4) |
20.5 |
% |
25.1 |
% |
(4.6) pp |
|
20.3 |
% |
22.2 |
% |
(1.9) pp |
Adjusted operating
margin(1) |
20.0 |
% |
21.5 |
% |
(1.5) pp |
|
20.0 |
% |
20.2 |
% |
(0.2) pp |
Cash flows from operating activities |
65.8 |
|
242.6 |
|
(72.9 |
)% |
|
224.1 |
|
463.5 |
|
(51.7 |
)% |
Capital expenditures |
(74.5 |
) |
(48.7 |
) |
53.0 |
% |
|
(164.1 |
) |
(91.8 |
) |
78.8 |
% |
Free
cash flow(1) |
(7.4 |
) |
232.1 |
|
n.m. |
|
66.7 |
|
478.0 |
|
(86.0 |
)% |
As at (in $ millions, or otherwise indicated) |
Oct 2,2022 |
Jan 2,2022 |
Inventories |
1,112.5 |
774.4 |
Trade accounts receivable |
431.5 |
330.0 |
Net debt(1) |
943.7 |
529.9 |
Net
debt leverage ratio(1) |
1.2 |
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) |
Q3 2022 |
Q3 2021 |
Variation (%) |
|
YTD 2022 |
YTD 2021 |
Variation (%) |
Activewear |
742.0 |
655.8 |
13.1 |
% |
|
2,167.1 |
1,737.6 |
24.7 |
% |
Hosiery
and underwear |
108.0 |
145.8 |
(25.9 |
)% |
|
353.4 |
400.8 |
(11.8 |
)% |
|
850.0 |
801.6 |
6.0 |
% |
|
2,520.5 |
2,138.4 |
17.9 |
% |
Net sales were derived from customers located in the following
geographic areas:
(in $ millions, or otherwise indicated) |
Q3 2022 |
Q3 2021 |
Variation (%) |
|
YTD 2022 |
YTD 2021 |
Variation (%) |
United States |
742.3 |
685.9 |
8.2 |
% |
|
2,220.2 |
1,834.0 |
21.1 |
% |
Canada |
38.2 |
36.1 |
5.8 |
% |
|
99.8 |
83.9 |
19.0 |
% |
International |
69.5 |
79.6 |
(12.7 |
)% |
|
200.5 |
220.5 |
(9.1 |
)% |
|
850.0 |
801.6 |
6.0 |
% |
|
2,520.5 |
2,138.4 |
17.9 |
% |
Non-GAAP financial measures and related
ratiosThis 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 measuresAs
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 (recovery)
costsRestructuring and acquisition-related costs are comprised of
costs directly related to significant exit activities, including
the closure and sale 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 nine months ended October 2, 2022 restructuring and
acquisition-related recoveries of $4.6 million and $5.8 million
(2021 - $1.0 million and $4.0 million in costs) respectively were
recognized. Refer to subsection 5.4.5 entitled “Restructuring and
acquisition-related (recovery) costs” in our interim MD&A for a
detailed discussion of these costs and recoveries.
Net insurance gainsFor the three and nine months ended October
2, 2022, net insurance gains were nil and $0.3 million (2021 -
$29.9 million and $48.9 million), related to the two hurricanes
which impacted the Company’s operations in Central America in
November 2020. The net insurance gains reflected a recovery of $2.0
million and costs of $6.0 million (2021 - $11.0 million and $50.6
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
write-offs of $2.0 million and recoveries of $6.3 million
(2021 - $40.9 million and $99.5 million) during the three and nine
months ended October 2, 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 nine months ended
October 2, 2022, nil and $1.0 million of recoveries included in
cost of sales.
- For the three and nine months ended October 3, 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) |
Q3 2022 |
|
Q3 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Net earnings |
153.0 |
|
188.3 |
|
|
457.6 |
|
433.3 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related (recovery) costs |
(4.6 |
) |
1.0 |
|
|
(5.8 |
) |
4.0 |
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
|
(29.9 |
) |
|
(0.3 |
) |
(48.9 |
) |
Income tax expense relating to the above-noted adjustments |
5.0 |
|
— |
|
|
7.0 |
|
— |
|
Adjusted net earnings |
153.4 |
|
159.4 |
|
|
457.5 |
|
389.6 |
|
Basic EPS |
0.84 |
|
0.95 |
|
|
2.47 |
|
2.19 |
|
Diluted EPS |
0.84 |
|
0.95 |
|
|
2.46 |
|
2.18 |
|
Adjusted diluted EPS(1) |
0.84 |
|
0.80 |
|
|
2.46 |
|
1.96 |
|
(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) |
Q3 2022 |
|
Q3 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Gross profit |
252.2 |
|
281.7 |
|
|
757.6 |
|
711.0 |
|
Adjustments for: |
|
|
|
|
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
|
(29.9 |
) |
|
(0.3 |
) |
(48.9 |
) |
Adjusted gross profit |
252.2 |
|
251.8 |
|
|
756.3 |
|
663.3 |
|
Gross margin |
29.7 |
% |
35.1 |
% |
|
30.1 |
% |
33.3 |
% |
Adjusted gross margin(1) |
29.7 |
% |
31.4 |
% |
|
30.0 |
% |
31.0 |
% |
(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) |
Q3 2022 |
|
Q3 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Operating income |
174.6 |
|
201.3 |
|
|
510.8 |
|
474.8 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related (recovery) costs |
(4.6 |
) |
1.0 |
|
|
(5.8 |
) |
4.0 |
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
|
(29.9 |
) |
|
(0.3 |
) |
(48.9 |
) |
Adjusted operating income |
170.0 |
|
172.4 |
|
|
503.7 |
|
431.1 |
|
Operating margin |
20.5 |
% |
25.1 |
% |
|
20.3 |
% |
22.2 |
% |
Adjusted operating margin(1) |
20.0 |
% |
21.5 |
% |
|
20.0 |
% |
20.2 |
% |
(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) |
Q3 2022 |
|
Q3 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
|
Net earnings |
153.0 |
|
188.3 |
|
|
457.6 |
|
433.3 |
|
Restructuring and
acquisition-related (recovery) costs |
(4.6 |
) |
1.0 |
|
|
(5.8 |
) |
4.0 |
|
Impact of strategic product
line initiative |
— |
|
— |
|
|
(1.0 |
) |
1.2 |
|
Net insurance gains |
— |
|
(29.9 |
) |
|
(0.3 |
) |
(48.9 |
) |
Depreciation and
amortization |
31.1 |
|
34.3 |
|
|
96.9 |
|
105.8 |
|
Financial expenses, net |
9.3 |
|
5.3 |
|
|
23.7 |
|
22.7 |
|
Income
tax expense |
12.2 |
|
7.7 |
|
|
29.4 |
|
18.9 |
|
Adjusted EBITDA |
201.0 |
|
206.7 |
|
|
600.5 |
|
537.0 |
|
Free cash flow Free cash flow is defined as cash from operating
activities, less cash flow used in investing activities excluding
cash flows relating to business acquisitions/dispositions. 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) |
Q3 2022 |
|
Q3 2021 |
|
|
YTD 2022 |
|
YTD 2021 |
Cash flows from operating activities |
65.8 |
|
242.6 |
|
|
224.1 |
|
463.5 |
Cash flows (used in) from
investing activities |
(45.3 |
) |
(10.5 |
) |
|
(129.5 |
) |
14.5 |
Adjustment for: |
|
|
|
|
|
Business (dispositions) acquisitions |
(27.9 |
) |
— |
|
|
(27.9 |
) |
— |
Free cash flow |
(7.4 |
) |
232.1 |
|
|
66.7 |
|
478.0 |
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) |
Oct 2, 2022 |
|
Jan 2, 2022 |
|
Long-term debt (including current portion) |
920.0 |
|
600.0 |
|
Bank indebtedness |
— |
|
— |
|
Lease
obligations (including current portion) |
92.9 |
|
109.1 |
|
Total debt |
1,012.9 |
|
709.1 |
|
Cash
and cash equivalents |
(69.2 |
) |
(179.2 |
) |
Net debt |
943.7 |
|
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) |
Oct 2, 2022 |
Jan 2, 2022 |
Adjusted EBITDA for the trailing twelve months |
790.4 |
726.8 |
Adjustment for: |
|
|
Business acquisitions |
2.0 |
22.8 |
Pro-forma adjusted EBITDA for the trailing twelve months |
792.4 |
749.6 |
Net debt |
943.7 |
529.9 |
Net
debt leverage ratio(1) |
1.2 |
0.7 |
(1) The Company's total net debt to EBITDA ratio for purposes of
its loan and note agreements was 1.4 at October 2, 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) |
Oct 2, 2022 |
|
Jan 2, 2022 |
|
|
|
|
Cash and cash equivalents |
69.2 |
|
179.2 |
|
Trade accounts receivable |
431.5 |
|
330.0 |
|
Inventories |
1,112.5 |
|
774.4 |
|
Prepaid expenses, deposits and
other current assets |
116.7 |
|
163.7 |
|
Accounts payable and accrued
liabilities |
(503.0 |
) |
(440.4 |
) |
Income taxes payable |
(4.0 |
) |
(7.9 |
) |
Current portion of lease
obligations |
(13.4 |
) |
(15.3 |
) |
Current portion of long-term
debt |
(150.0 |
) |
— |
|
Working capital |
1,059.5 |
|
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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