Gildan Activewear reported record profit for the third quarter ended Oct. 3, but management warned that high cotton costs could cut into margins in the year ahead. Earnings for the Montreal-based apparel manufacturer were $56.8 million, or 47 cents per diluted share, up from $42.4 million, or 35 cents per share, in the year-ago period.


Earnings included a restructuring charge of a penny per share related to the consolidation of U.S. distribution activities announced on Dec. 10, 2009.


Management attributed earnings growth to strong unit sales in the U.S. distributor channel, which was achieved despite low activewear finished good inventory levels throughout the quarter, fewer promotions, and the proceeds from an insurance claim related to lost sales and supply chain costs due to the Haiti earthquake in January.

 

Consolidated revenues for the fourth quarter were up a healthy 22.3% to $368.9 million from $301.7 million a year ago, partially driven by a 27.7% increase in sales of activewear and underwear along with an increasing presence within the U.S. screenprint market. Management said the growth in sales of activewear and underwear was due primarily to a 21.3% increase in unit volume shipments, which was the result of the aforementioned increased market share in the U.S. distributor channel as well as “strong growth” in international markets, particularly Europe. The company also reported “significantly increased shipments” of underwear and activewear to mass-market retailers.


Sales of socks were $61.5 million, up 1.0%. Unit sales volumes from socks were up about 9% from the year-ago period.


Gross margins for the quarter were up 150 basis points to 27.3% of sales from 25.7% of sales in the prior-year period, although management noted that higher cotton costs lowered margins by 380 basis points, some of which were offset by higher selling prices.


SG&A expenses were 11.4% of sales, compared to 11.3% of sales in the year-ago period. Management attributed the increase to higher-volume-driven expenses, higher performance-driven compensation expenses and the higher-valued Canadian dollar on corporate administrative expenses.
Regarding outlook, the company is projecting sales in excess of $300 million and gross margins of about approximately 24% in the first quarter of fiscal 2011, due primarily to strong demand for activewear in the US distributor channel, increased penetration in international and screenprint markets as well as for underwear and socks in the retail channel.