Gildan Activewear Inc. said it expects its earnings for the year to now come in at the high end of its guidance range after reporting strong margin improvement drove healthy second-quarter earnings.

In the second quarter ended July 2, net profits grew climbed 13.7 percent to $107.7 million, or 48 cents a share. Excluding the impact of after-tax restructuring and acquisition-related costs of $2.8 million in the quarter and $1.7 million in the prior year quarter, adjusted earnings grew 14.6% to $110.5 million, or 49 cents per share. Wall Street’s consensus estimate had been 48 cents.

Recent acquisitions included Peds in August 2016, Alstyle in May 2016, American Apparel in February 2017 and an Australian based activewear distributor in April 2017. The company’s other brands include Gildan, Gold Toe, Anvil, Comfort Colors, Secret, Silks, Kushyfoot, Secret Silky and Therapy Plus brands. It also holds the U.S. sock license for Under Armour and makes number of Mossy Oak apparel items under a global license.

Consolidated sales increased 3.8 percent to $715.4 million, reflecting increases of 1.9 percent in the Printwear segment and 8.1 percent in Branded Apparel. The sales increase was driven by acquisitions and higher net selling prices, which was partly offset by lower unit sales volumes of fleece and the impact of unfavorable foreign exchange.

Gross margin was 29.8 percent, up 240 basis points compared to the same period last year. The increase was mainly due to the favorable net impact of net selling prices and manufacturing and raw material costs compared to the same quarter last year, partly offset by the impact of unfavorable foreign exchange. SG&A expenses were 12.5 percent of sales, up 40 basis points due to the impact of acquisitions. Adjusted operating margins for the quarter totaled 17.3 percent, up 200 basis points.

In the Printwear segment, sales were $480.1 million, up 1.9 percent. The incremental sales contribution of approximately $29 million from acquisitions combined with strong double-digit organic unit sales increases in fashion basics, higher net selling prices and increased shipments in international markets were partly offset by lower unit sales volumes of fleece and the impact of unfavorable foreign exchange.

Printwear segment operating income totaled $122.1 million, up 10.0 percent. Operating margins were 25.4 percent, up 190 basis points due primarily to the favorable net impact of net selling prices and manufacturing and raw material costs, partly offset by foreign exchange impacts and SG&A expenses from acquisitions.

In the Branded Apparel segment, sales climbed 8.1 percent to 235.3 million, driven primarily by the approximate $17 million sales contribution of the Peds acquisition and strong growth in men’s underwear. Those gains offset lower global lifestyle and Gold Toe branded sock sales reflecting weakness in department stores and national chains.

Branded Apparel’s operating income jumped 52 percent to $26.0 million. Branded Apparel operating margins of 11.0 percent increased 320 basis points over the same quarter last year. The significant improvement in operating margins was primarily attributable to reduced manufacturing and raw material costs compared to the prior year quarter, and lower SG&A expenses as a percentage of Branded Apparel sales, partly offset by unfavorable product-mix.

For the full year, Gildan now expects adjusted diluted EPS to come in at the high end of its $1.60-$1.70 range. Consolidated and segmented net sales growth are still expected to expand in the high-single-digit range.

The company updated its full year financial guidance for 2017, which it initiated in February this year. Given the company’s performance in the first half of the year, adjusted diluted EPS is now expected to be at the high end of the $1.60-$1.70 range, on projected consolidated and segmented net sales growth which remains in the high-single-digit range. The updated guidance reflects the strong earnings growth during the first half of 2017. Earnings in the second half of the year will reflect the anniversary of the Alstyle and Peds acquisitions and headwinds from higher raw material costs.

The Canadian-based company also now anticipates adjusted EBITDA at the high-end of its previous guidance range of $555-$585 million. Capital expenditures for the year are currently projected to come in at approximately $100 million compared to the company’s initial expectation of $125 million and total free cash flow is expected to be in excess of $425 million, up from in excess of $400 million.

Photo courtesy Gildan Activewear