The Canadian supplier of blank t-shirts, sport shirts and fleece, with offices in Barbados and manufacturing in Latin America, will now be using the U.S. dollar as its functional and reporting currency. The company also indicated that it will build additional margin by going after the U.S. mass retail channel in a shift from its historically wholesale-only business.

For the fourth quarter ended October 5, 2003, Gildan Activewear reported net earnings of C$19.8 million, or 66 Canadian cents per diluted share, compared with C$19.6 million, with EPS flat to 2003.

Sales were C$150.8 million, down 5.7% from C$159.9 in Q4 LY, reflecting “lower selling prices” that and the impact of the weaker U.S. dollar. In U.S. dollars, sales increased 7.1%. Unit prices were down approximately 8.0%, but unit sales were up 10.1%.

GIL said the overall t-shirt market grew by 10.4% in the fiscal fourth quarter and the company grew market share to 29.6% from 28%, a 160 basis point gain. The company said they increased share in the sport shirt category 570 basis points to 20.7% versus just 15% in the year-ago period. Gildan also saw a nice jump in fleece share, growing 520 basis points to 16.9% from 11.7% in fourth quarter 2002.
Unit shipments to Europe increased by 11.1% compared with the fourth quarter of last year.

Net earnings for the full year were up 16.2% to C$77.3 million or C$2.60 per diluted share from C$66.5 million or C$2.26 per diluted share. The weaker U.S. dollar impacted earnings by approximately 65 Canadian cents per diluted share. The company said the annual EPS growth rate would have been in excess of 40% without the effects of the exchange rate.

Full year sales finished up 4.9% in Canadian currency to C$630.1 million versus C$600.7 million in fiscal ‘02.
In its continuing efforts to maintain and build margins, Gildan has purchased an 18 million square foot tract of land in the Dominican Republic to construct a state-of-the-art knitting, bleaching and cutting facility.

The facility will supply sewing facilities in Dominican Republic and Haiti. Gildan plans to complete construction of the new facility in the next year and ramp up to full capacity in 24 to 30 months and is expected to cost US $60 million through 2005.

GIL’s Canadian textile capacity will be reduced to “focus on low volume and more specialized products.

The company’s five-year plan calls for the extension of the Gildan brand into the retail channel of business that they say is five times larger than their current wholesale business. They tag it at $34 billion, not including Canada and Europe. The company said they will focus on “mass merchandisers” and “price clubs” and will leverage low-cost manufacturing capabilities to secure business.

Sales, marketing, and customer service for the new retail group will be based in Barbados and distributed trough a third-party logistics company.

The move to the U.S. dollar will commence with the current fiscal first quarter and will result in a one-time currency gain of US$23 million from a required upward valuation of inventories at the end of the fiscal year.
The re-valuation will result in lower gross margins in the first half of 2004 that will impact Q1 EPS by 6 U.S. cents and by 4 U.S. cents in Q2.

GIL is projected that unit sales over the next five years is expected to grow over 50% to 35 million dozen units.
The company will be raising prices on January 1 by approximately 5.0% to offset higher cotton costs going forward. Cotton prices have come down of late, but the vertical guys buy raw goods six months in advance.

GIL is projecting fiscal 2004 EPS to grow in the 25.7% to 28.5% range to US$2.25 to US$2.30 per share excluding the effect of the asset re-valuation which is expected to reduce EPS by 16 U.S. cents per share.


>>> If they can keep prices up for the whole year, we could see better margins here — and at Russell — for the second half of next year…