Gildan Activewear reported fourth-quarter earnings came in slightly above guidance but its sales missed plan due to “retailer inventory reductions.”

VF Corp. and Hanesbrands are also among the vendors reporting that weak-replenishment orders due to retailers’ efforts to manage inventories impacted top-line growth.

At Gildan, the caution by retailers particularly impacted its Branded Apparel segment, which saw sales reach $262.1 million in the quarter, up 1.2 percent. An approximately $20 million benefit from its Peds acquisition, combined with positive point-of-sales growth during the quarter, more than offset the impact of “weak store traffic trends and a weak holiday period, which drove retailers to limit replenishment and manage down inventory levels during the fourth quarter,” said Rhod Harries, EVP and CFO, on a conference call with analysts.

He did note that Gildan was able to grow its market share for the Gildan brand “in a tough retail market” during the quarter. While point-of-sales for men’s socks and men’s underwear for the total market were down in the quarter, Gildan unit POS in these categories was up. A continued standout is men’s underwear, which delivered strong double-digit unit POS growth.

Unit market share in men’s underwear for the Gildan brand was 9.2 percent for the December quarter, up 210 basis points compared to the December quarter last year. In January, market share in men’s underwear reached 10.9 percent, reflecting ongoing marketing efforts, new features, reformatted package sizes and expanded distribution.

In men’s socks, where the Gildan brand holds the number one position, market share for the quarter was 22.1 percent, up 220 basis points compared to the December quarter last year.

Operating income in Branded Apparel declined 22.6 percent to $24 million in the quarter. Branded Apparel operating margins for the quarter were 9.1 percent, down from 12 percent in the same quarter last year. The margin decline was primarily due to re-timed marketing and advertising expenses and SG&A deleveraging resulting from lower organic sales impacted by retailer inventory de-stocking, partly offset by lower raw material and other input costs.

In its other segment, Printwear sales for the quarter jumped 14.4 percent to $325.8 million. The increase was mainly due to the $30 million sales contribution from its Alstyle acquisition and organic unit sales volume growth, driven by strong double-digit volume growth in international printwear markets and higher sales of fashion basics. These positive factors were partly offset by lower net selling prices and the impact of unfavorable foreign currency exchange on international sales.

Operating income in Printwear grew 9.2 percent to $68.6 million. Operating margins were 21 percent, down 100 basis points over the prior year, due primarily to lower 2016 net selling prices, unfavorable foreign currency exchange and the short-term dilutive impact on operating margins from the acquisition of Alstyle. These factors offset lower raw material and other input costs.

Companywide, sales in the quarter rose 8.1 percent to $587.9 million.

Consolidated gross margin in the quarter was 26.7 percent, in line with the same period last year, as the benefits from lower raw material and other input costs were largely offset by lower net selling prices.

SG&A expenses as a percentage of sales of 14.8 percent in the quarter were up from 13.4 in the prior-year quarter, due primarily to higher marketing and advertising expenses as well as SG&A deleveraging in Branded Apparel due to lower organic sales.

Operating profits were down slightly. Operating margins and adjusted operating margins in the latest quarter were both 11.9 percent compared to 13 percent and 13.2 percent, respectively, in the same period last year.

With the aid of a tax credit, net earnings rose 9.9 percent in the quarter to $74.3 million, or 32 cents a share. Adjusted to exclude non-recurring costs largely tied to a number of acquisitions, income rose 8.1 percent to $74.5 million, or 32 cents, above its guidance between 29 and 31 cents.

For the full year, net earnings increased slightly to $346.6 million, or $1.47 a share, from $346.1 million, or $1.42, a year ago. On an adjusted basis, profits grew to $356.3 million, or $1.51 a share, from $355.4 million, or $1.46. Revenues inched up 0.6 percent to $2.57 billion.

For 2017, Gildan expects to achieve adjusted EPS in the range of $1.60 to $1.70, which at the midpoint of the guidance range represents growth of 9 percent over 2016 on projected high-single-digit consolidated net sales growth. Printwear and Branded Apparel sales in 2017 are each expected to increase in the high single-digit range.

Photo courtesy Gildan