Citing strong growth in activewear unit sales and lower promotional activity in U.S. distribution channels, Gildan Activewear posted strong sales and earnings growth for the fiscal third quarter ended July 4.
Net income jumped 55.9% to $64.7 million, or 53 cents per diluted share, for the quarter as gross margins expanded 270 basis points and SG&A improved 170 basis points to just 10.1% of sales for the period. Net sales for the quarter amounted to $395.3 million, up 28.4% from $307.8 million in the 2009 third quarter. GIL attributes the growth to a strong recovery of market conditions in the U.S.
On a segmented basis, sales of activewear and underwear were $351.3 million, up 36.1% from $258.1 million last year, and sales of socks were $44.0 million, down 11.5% from Q2 last year. Gildan attributed the miss in socks to short-term servicing issues such as reliance on third party contractors during the start up of the new Charleston, SC retail distribution center combined with a $2.5 million impact of lower pricing due to a shift to more basic sock product mix, which was said to be in line with the company’s high volume manufacturing model.
Despite supply chain inefficiencies due to the earthquake in Haiti, gross margins in the third quarter were 27.1%, compared to 24.4% in the third quarter of fiscal 2009, attributable to more favorable activewear net selling prices, as well as lower cotton costs.
Inventories were down 4.6% to $324.0 million at quarter-end.
In terms of outlook, Gildan is currently expecting full-year revenues of $1.3 billion, up approximately 25% from fiscal 2009 and in line with the company’s second quarter projection. Full-year gross margin guidance projected at approximately 27.5%, up slightly from previous expectations. The total negative impact in fiscal 2010 of lost sales opportunities and supply chain inefficiencies due to the Haiti earthquake is estimated at approximately $19 million, or 16 cents per share, which Gildan maintains is recoverable under the company's insurance policies.