By Eric Smith
Emboldened by two successful private-label launches last year, Gildan Activewear Inc. will ramp up that segment of its business as soon as next quarter when the company unveils an underwear line for a high-volume customer that many analysts believe is Walmart.
Gildan CEO Glenn Chamandy on Thursday confirmed something the Canadian-based apparel maker has been planning since last fall, a “rollout of our new private-label men’s underwear program in the mass channel” in the second and third quarters of this year.
Though Gildan hasn’t confirmed that Walmart is the “mass channel” partner for this new private-label launch, reports have linked the retail giant to the deal.
A Bloomberg report from November, citing the company’s own data, said Walmart is that customer. And analyst Keith Howlett of Desjardins Securities this week wrote in a note to investors: “A large private-label men’s underwear program was secured with a major U.S. retailer—our inference is that it is Walmart—in 3Q, and is expected to positively impact 2019 results.”
What doesn’t need to be inferred or speculated or tossed around in the rumor mill is that Gildan is benefiting from and doubling down on a shift to private label.
The company last summer laid out a plan for investors that centered on the pursut of private label. As SGB Media outlined in Vertical Integration Has Gildan Well-Positioned For Private Label Launch, the company was bullish on the move to help drive revenue.
“Because of our size, our scale and our strength in particular categories such as activewear and underwear, we see very good opportunities to drive the top line going forward … in private label,” CFO Rhodri Harries said in June at Stifel’s 2018 Cross Sector Insight Conference in Boston, MA. “You’ve got to pick the right programs with the right partners; it’s got to be the right size and right complexities and it’s got have all the right attributes to drive strong long-term returns that allow you and your customers to win. We feel very good about private label programs going forward.”
Fast forward to Thursday—when Chamandy and Harries were not only detailing fourth-quarter highlights but also expectations for 2019—and Gildan made clear that it found a strategic play in today’s manufacturing marketplace.
“We’re basically taking advantage of the opportunity of the shift in the retail market into private label,” Chamandy said on Thursday morning’s earnings conference call with analysts. “We think the brick-and-mortar is going to continue to drive private label. And if you walk into the amount of mass big retailers, you’ll see that the floors have completely changed. So we don’t want to fight ‘city hall.’ We want to take advantage of that and really take and enhance our sales opportunity because it fits our criteria where it’s large-scale, big-volume type programs. But we’re continuing to look at driving our other brands as well. So we’re not giving up on that.”
While Gildan won’t give up on other brands, which include American Apparel and Gold Toe, among others, the company is clearly prioritizing private label, Chamandy said.
“We’re just getting going,” he said. “If you walk into any of these retailers today the amount of private label that is being enhanced in their stores is continuing to grow. So that’s a phenomenon that we think is still a big opportunity for us and we’re going to continue to drive it. We have new programs for this year in private label that will be a benefit to our sales. So, as far as our legacy business which is our Gildan brand and our Gold Toe, our Under Armour, these businesses are still growing outside of what we lost in underwear at Gildan.”
The company is coming into 2019 with momentum. Q4 was strong for Gildan, which reported net sales of $742.7 million, up 13.6 percent compared to Q4 2017. The period was driven by a 22.3 percent increase in activewear sales, partly offset by a 7.9 percent sales decline in the hosiery and underwear category, which was anticipated.
Net earnings totaled $59.6 million or $0.29 per share on a diluted basis for the three months ended December 30, 2018, compared with net earnings of $54.9 million or $0.25 per share for the three months ended December 31, 2017. Adjusted net earnings of $88.9 million were up 31.5 percent from $67.6 million in the fourth quarter last year.
Gildan generated adjusted diluted EPS for the fourth quarter of 43 cents, up 38.7 percent compared to last year mainly due to higher adjusted operating income and the benefit of a lower share count compared to the prior year, partly offset by higher financial and income tax expenses.
Gildan is banking on private label to help offset expected softness in the company’s activewear sales combined with other headwinds this year.
“We expect to generate higher sales by driving increased unit sales in our growth areas including fashion basics, international markets, global lifestyle brands and with our new private-label programs, particularly in underwear,” Harries said. “Offsetting some of the benefit of these factors are projected lower activewear basics and sock sales and a negative impact from foreign exchange.”
For 2019, Gildan is projecting GAAP diluted EPS growth of 17 percent and adjusted diluted EPS growth of 10 percent over 2018, at the midpoint of its guidance range, on projected sales growth in the mid-single-digit range. The company initiated guidance for 2019, calling for GAAP diluted EPS of $1.90 to $2, and adjusted diluted EPS in the range of $2 to $2.10 after excluding the impact of projected restructuring and acquisition-related costs of approximately $20 million.
Adjusted diluted EPS in the first half of the year is projected to be down compared to the first half of 2018, and higher in the second half of 2019 over the same period in the prior year. Adjusted EBITDA for 2019 is expected to be in excess of $630 million.
Gildan expects 2019 revenue to be driven by higher sales volume in key growth areas, including fashion basics, international markets, global lifestyle brands and strong underwear growth.
Photo courtesy Gildan Activewear
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
