Gildan Activewear is closing its Long Sault, Ontario and Montreal, Quebec yarn-spinning facilities. The majority of the equipment will be transferred to a new leased yarn-spinning facility in Clarkton, North Carolina, which will be operated by the company’s joint-venture with Frontier Spinning Mills.
The two Canadian facilities employed roughly 285 people and are expected to close by the end of March 2005. Gildan chose to move the facility because, under U.S. trade law, goods using Canadian yarn and off-shore manufacturing are not given duty-free status. With this new NC facility, Gildan will not only attain this duty-free status, but the company will also realize annual cost-savings benefits of roughly 13 cents per share. The company will incur a one-time charge of $7.8 million, or 26 cents per share, related to the closure.
Gildans first fiscal quarter of 2005 proved to be quite successful, even though historically this is the slowest quarter of the year for the company. Sales jumped 39.8% to $109.0 million due to improved selling prices, a 27.5% increase in unit sales volumes, and a higher-valued product-mix.
Gildans gross margins improved by 270 basis points, but this improvement was partially offset by a 40 basis point increase in SG&A expense caused by “further additions to our organizational structure to manage our growth,” currency exchange issues, and consulting fees. Gildan still expects full-year SG&A to be in-line with their budget.
This all added up to record earnings for Gildan, with the company exceeding the high-end of its guidance by three cents per share. Previously, Gildan expected diluted EPS to be in the 20 to 25 cents-per-share range, and the company reported Q1 EPS of 28 cents.
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.