Gildan Activewear significantly reduced ts full-year guidance after citing weaker than expected imprintable demand in North America and ongoing softness in international imprintable markets.
Gildan Activewear expects to report GAAP diluted EPS for the third quarter ended September 29, 2019 of approximately 51 cents a share and adjusted diluted EPS of approximately 53 cents, both down 7 percent over the third quarter of 2018. Sales for the third quarter are expected to be approximately $740 million, down 2 percent over the same quarter last year, reflecting estimated activewear sales of $620 million and sales of $120 million in the hosiery and underwear category.
The company’s previous guidance provided on August 1, 2019 called for adjusted diluted EPS growth to be flat in the third quarter, on projected sales growth in the mid-single-digit range over the third quarter last year.
During the third quarter of 2019, Gildan Activewear said it experienced significantly weaker than expected demand for imprintables in North America and ongoing softness in international imprintable markets. Specifically in the U.S. imprintables channel, where the company was expecting low-single-digit growth in distributor point-of-sales (POS), actual POS during the third quarter was down high-single-digits compared to last year. Further, in international imprintable markets where the company was forecasting growth, continued softness in Europe and China resulted in lower international sales for the quarter compared to last year. While overall imprintable sales were weaker than expected, overall retail sales were essentially in line with the company’s expectations.
Consequently, the company is revising its 2019 guidance to reflect the approximate $50 million sales shortfall in the third quarter and is assuming the current demand weakness for imprintables both in North America and internationally will persist through the fourth quarter. In addition, given the current downturn in demand, the company is now projecting significantly lower year-end distributor inventory levels than previously projected. The company estimates that lower demand expectations than previously projected will reduce the company’s sales projection for the fourth quarter by approximately $70 million and anticipates distributor inventory destocking will negatively impact sales by approximately $100 million.
Consequently, the company is now expecting full year 2019 sales to be down low-single-digits compared to 2018. GAAP diluted EPS is projected to be $1.50 to $1.55 and adjusted diluted EPS is now expected to be in the range of $1.65 to $1.70. GAAP diluted EPS reflects currently estimated after-tax restructuring and acquisition-related costs for 2019 of approximately $30 million, as previously communicated.
The company’s previous guidance called for mid-single-digit sales growth for 2019, GAAP diluted EPS of $1.80 to $1.85 and adjusted diluted EPS of $1.95 to $2.00. Adjusted EBITDA for the full year is now expected to be in the range of $545 to $555 million, compared to previous guidance of in excess of $615 million. The company is now projecting free cash flow for 2019 of $200 to $250 million compared to its previous guidance of $300 to $350 million.
Photo courtesy Gildan Activewear