Gildan Activewear Inc. reported net earnings of $8.4 million, or 28 cents per share, on a diluted basis, for the fiscal first quarter ended January 2, compared with $2.9 million or 10 cents per share in the first quarter of fiscal 2004.
After adjusting prior year results for the impact on cost of sales of revaluing opening inventories, due to the adoption of the U.S. dollar as the Company’s functional currency with effect from October 6, 2003, net earnings in the first quarter of fiscal 2004 were $5.0 million or U.S. 17 cents per share. The year-over-year increase in net earnings and diluted E.P.S. was 68.0% and 64.7% respectively.
The Company had provided E.P.S. guidance of U.S. 20 cents to 25 cents for the first quarter of fiscal 2005.
Compared to last year, the increase in first quarter net earnings was driven by continuing growth in unit sales volumes, higher selling prices and more favourable product-mix, together with the continuing ramp-up of the Rio Nance textile facility. These positive factors were partially offset by higher SG&A expenses, increased costs for cotton, energy and transportation and the impact of lower capacity utilization on the efficiency of Gildan’s Canadian yarn-spinning operations.
“We are pleased to have again delivered sales and earnings performance in excess of expectations,” commented Glenn J. Chamandy, President and Chief Executive Officer. “Industry conditions continue to be strong, and the Gildan brand continues to have excellent momentum in all of our served markets.”
Sales in the first quarter were $109.0 million, representing an increase of 39.8% over the first quarter of fiscal 2004. The significant growth in sales revenues was due to improved selling prices, a 27.5% increase in unit sales volumes, and a higher-valued product-mix within the T-shirt category.
The S.T.A.R.S. market and market share data for the U.S. wholesale distributor market for the fourth quarter of calendar 2004 excludes sales by three large distributors who have discontinued their participation in the report and the value of the report is therefore reduced compared to prior years. With this caveat, the table below summarizes the S.T.A.R.S. data for the quarter ended December 31, 2004. In calculating year-over-year growth rates, S.T.A.R.S. has adjusted prior period comparatives to exclude sales through distributors no longer participating in the S.T.A.R.S. report. Although prior year market share data have not been restated on a comparable basis by S.T.A.R.S., this information has been extrapolated from the information provided in the S.T.A.R.S. report.
Gildan Industry
Gildan Gildan Unit growth Unit growth
Market Share Market Share Q1 2005 vs Q1 2005 vs
Q1 2004 Q1 2005 Q1 2004 Q1 2004
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26.9 % 30.2 % T-shirts 13.5 % 1.1 %
20.9 % 24.6 % Sport shirts 18.6 % 0.8 %
13.5% 18.6 % Fleece 56.2 % 12.9 %
During the first quarter of fiscal 2005, Gildan also experienced strong growth with non-S.T.A.R.S. distributors.
Gross margins in the first quarter were 29.7%, compared with 27.1% in the first quarter of fiscal 2004. Before the impact of the functional currency adjustment on cost of sales in the first quarter of last year, comparative gross margins were 29.8%. The positive gross margin impact of higher selling prices and more favourable product-mix was offset by higher cotton, energy and transportation costs and higher costs for the Canadian yarn-spinning operations.
Selling, general and administrative expenses were U.S. $16.3 million, or 15.0% of sales, up 43.0% from U.S. $11.4 million, or 14.6% of sales in the first quarter of last year. In addition to reflecting the continuing development of the organization to manage the Company’s growth and expansion plans, SG&A expenses increased due to the strengthening of the Canadian dollar, the timing of professional and consulting fees and increased volume- related selling and distribution costs. As a percentage of sales, SG&A is higher in the first quarter as this is seasonally the lowest sales quarter in the fiscal year.
The Company reduced its cash position by U.S. $8.3 million during the quarter, after financing U.S. $22.1 million of capital expenditures and its seasonal build-up of inventories for the peak summer selling season. Inventories increased by U.S. $25.8 million during the first quarter. Capital expenditures were primarily incurred for the new textile facility which the Company is constructing in the Dominican Republic, and the expansion of the Company’s U.S. distribution centre to prepare for entry into the retail channel. The Company ended the first quarter with cash and cash equivalents of U.S. $52.4 million.
The Company is maintaining its full year diluted E.P.S. guidance of approximately U.S. $2.60 per share, before a special charge for the closure of its Canadian yarn-spinning facilities. The Company has issued a separate Press Release, concurrent with this earnings release, in which it announces the closure of its Canadian yarn-spinning facilities, and the relocation of the majority of its yarn-spinning assets to a new joint venture facility in the U.S. The resulting special charge, estimated at approximately U.S. $7.8 million after-tax or $0.26 per diluted share, will be reflected in the second quarter of fiscal 2005. After taking account of this charge, full year diluted E.P.S. is estimated at approximately U.S. $2.34. As previously indicated, the Company’s full year earnings guidance reflects unit sales growth of approximately 20% over fiscal 2004, which will fully utilize the Company’s available production capacity, and also assumes sequentially lower unit selling prices in the second half of the fiscal year, reflecting the possible flow-through of lower cotton prices. On this basis, full year sales are projected at approximately U.S. $640 million, up approximately 20% from U.S. $533 million in fiscal 2004.
The Company indicated that it expected to achieve diluted E.P.S. of U.S. $0.60 – U.S. $0.65 in the second quarter of fiscal 2005 before the special charge, up 15% – 25% from the second quarter of fiscal 2004, after increasing the prior year comparative results as reported to reflect the functional currency adjustment impacting cost of sales in the second quarter of last year. Diluted E.P.S. in the second quarter of fiscal 2005 are projected at U.S. $0.34 – U.S. $0.39, after the special charge for the closure of the yarn-spinning facilities.
Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of U.S. dollars, except per share data)
Three months ended
January 2, January 4,
2005 2004
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(unaudited) (unaudited)
Sales $ 108,957 $ 77,959
Cost of sales 76,577 56,859
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Gross profit 32,380 21,100
Selling, general and administrative expenses 16,327 11,397
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Earnings before interest, income taxes,
depreciation and amortization 16,053 9,703
Depreciation and amortization 5,880 4,932
Interest expense 1,201 1,589
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Earnings before income taxes 8,972 3,182
Income taxes 585 310
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Net earnings $ 8,387 $ 2,872
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Basic EPS $ 0.28 $ 0.10
Diluted EPS $ 0.28 $ 0.10
