Gildan Activewear, Inc. said net sales for the first quarter ended April 2 were in line with expectations at $703 million, down 9 percent, versus prior-year quarter sales. In activewear, Gildan generated sales of $588 million, down 12 percent compared to the year-ago period which benefited from distributor inventory replenishment following the pandemic and a tight manufacturing environment in 2021.

During the first quarter, year-over-year POS trends at North American distributors came in line with expectations, showing sequential quarterly improvement, but were down compared to last year. Further, while international sales in the quarter were down 17 percent versus the prior-year quarter, the company is continuing to maintain a positive outlook regarding the recovery of international markets for the full year, supported by positive POS in the quarter.

Gildan said it observed notable strength in the hosiery and underwear category for the quarter with sales totaling $115 million, up 7 percent over the prior-year quarter, mainly driven by sock volume growth. While industry demand for men’s underwear remained down year-over-year, POS trends improved sequentially, and the company said it was pleased with its share gains in men’s underwear in the mass retail channel. Additionally, the company said that while retail customers remain cautious on replenishment across all product categories, it was encouraged by improving inventory levels at the retailers in the first quarter reflecting what it believes is an improving demand environment for its products.

“We are pleased with our top-line results having met our sales expectations for the quarter,” said Glenn J. Chamandy, Gildan’s president and CEO. “Moreover, even though the economic environment remains uncertain, we remain comfortable with our full-year outlook given our strong competitive position, which we are reinforcing with the Gildan Sustainable Growth (GSG) strategy, and POS trends across our business coming in line with our expectations during the first quarter”.

Gildan generated a gross margin of 26.7 percent of sales and adjusted gross margin1 of 26.2 percent, down year-over-year by 430 basis points and 470 basis points, respectively. This was said to be mainly a result of the flow-through impact on the cost of sales of peak fiber costs and higher manufacturing input costs, both of which were anticipated, and due to unfavorable mix. These factors were partly offset by higher net selling prices.

SG&A expenses for the first quarter of $82 million were largely in line with prior-year quarter levels and SG&A expenses as a percentage of net sales were 11.6 percent compared to 10.5 percent last year, primarily due to sales deleverage.

The company generated an operating income of $128 million, or 18.2 percent of sales, which included the benefit of the $25 million gain from the sale and leaseback of one of its U.S. distribution facilities, compared to an operating income of $162 million, or 20.9 percent of sales in the first quarter last year. Excluding this gain, adjusted operating income was $103 million, or 14.6 percent of sales, compared to $158 million, or 20.4 percent of sales in the first quarter last year. The 2023 Q1 result was said to come in slightly below expectations largely due to the unfavorable mix impact of lower fleece shipments to distributors during the quarter. The decline in GAAP and adjusted operating margin reflected the gross margin pressure in the quarter. However, with fleece POS at distributors being strong in the quarter, this mix impact is expected to reverse through the year.

Gildan ended the quarter with GAAP diluted EPS of 54 cents a share and adjusted diluted EPS of 45 cents a share, down from 77 cents and 76 cents a share, respectively, in the prior-year quarter.

Cash flows used in operating activities in the first quarter totaled $179 million compared to $51 million used in the prior-year quarter, mainly due to higher working capital investments and lower net earnings. After accounting for higher capital expenditures of $74 million and net proceeds of $51 million from the property sale and leaseback, the company consumed approximately $202 million of free cash flow in the first quarter, compared to $86 million consumed in the first quarter of 2022. Capital expenditures during the quarter reflected investments in a new manufacturing complex in Bangladesh, with full year capital expenditures expected to come in at the lower end of the company’s range of 6 percent to 8 percent of annual sales.

The company ended the first quarter of 2023 with net debt of $1.15 billion and a leverage ratio of 1.6 times net debt to trailing twelve months adjusted EBITDA1 in line with its leverage framework

Gildan reconfirmed its full-year outlook as follows:

  • Revenue growth for the full year to be in the low single-digit range;
  • Full-year adjusted operating margin within its 18 percent to 20 percent annual target range;
  • CAPEX to come in at the lower end of its previously stated 6 percent to 8 percent range;
  • Strong free cash flow generation as the year progresses; and
  • Adjusted diluted EPS in line with 2022, which assumes the continuation of share repurchases aligned with its capital allocation targets of purchasing approximately 5 percent of the outstanding public float in 2023.

The above outlook assumes no meaningful deterioration from current market conditions including the pricing and inflationary environment, and reflects the assumptions noted above.

Photo courtesy Gildan