Gildan Activewear Inc. reported net earnings of $5.8 million for the quarter ended December 29, 2002, or $0.20 per diluted share, up respectively 107% and 100% from $2.8 million, or $0.10 per diluted share, in the first quarter of fiscal 2002. EPS for the first quarter of fiscal 2003 exceeded the consensus of analyst estimates for the quarter by approximately $0.04 per diluted share.
The higher net earnings compared to last year were due to a 24.2% increase in unit sales, a 240 basis point increase in gross margins and lower interest expense, reflecting the impact on net indebtedness of the significant free cash flow generated by the Company since the first quarter of fiscal 2002. The positive impact of these factors was partially offset by lower selling prices, together with increased selling, general and administrative expenses and higher depreciation as a result of the Company’s recent major capital investment projects.
Sales for the first quarter were $102.3 million, up 15.9% from $88.3 million in the first quarter of last year. The higher sales were primarily due to the increased unit shipments, partially offset by lower unit selling prices. The higher unit sales reflected 8.1% growth in overall industry shipments of T-shirts in the U.S. wholesale distributor market combined with significant market share increases achieved by Gildan in all product categories, compared with the first quarter of last year. In particular, the Company continued to reinforce its market leadership position in the overall T- shirt category, where its share reached 31.4%, compared with 24.9% a year ago, and 28.0% in the fourth quarter of fiscal 2002. At the same time, inventories of Gildan T-shirts in the U.S distributor channel were reduced by 12.6% compared with the end of the first quarter of fiscal 2002. Gildan’s share in sports shirts increased to 14.7%, versus 9.3% in the first quarter of last year, and the Company’s share in fleece was 10.3%, up from 8.1% a year ago. All U.S. market and market share data is based on the S.T.A.R.S. Report produced by ACNielsen Market Decisions. Also, Gildan’s unit sales in Europe increased by 54.5% compared with the first quarter of last year.
Gross margins were 29.4% in the first quarter, compared with 27.0% in the first quarter of fiscal 2002, due to lower raw material costs and continuing manufacturing efficiency improvements, including the impact of the Company’s ongoing capital investment projects, partially offset by lower selling prices. Also, product-mix was more favourable than the first quarter of last year, mainly due to a higher proportion of coloured T-shirts compared to white.
Selling, general & administrative expenses for the first quarter were $15.9 million, or 15.5% of sales, compared with $13.1 million, or 14.8% of sales, in the first quarter of last year. For the full 2003 fiscal year, it is expected that selling, general & administrative expenses will be at a similar level to last year, as a percentage of sales. Selling, general & administrative expenses were 10.6% of sales in fiscal 2002.
Based on its results for the first quarter, and the current outlook for the balance of the fiscal year, Gildan now anticipates that diluted EPS for the full 2003 fiscal year will be in the range of $2.70 – $2.80 per share. The Company had previously forecast diluted EPS of $2.60 – $2.70 per share.
The first quarter is traditionally the lowest quarter in the Company’s annual breakdown of sales and earnings. During the first quarter, the Company re-built inventories for the peak summer T-shirt selling season and continued to ramp up capacity at its new fully-integrated textile manufacturing facility located at Rio Nance, Honduras. The Company expects to have sufficient production capacity and inventory available to be able to satisfy demand for its products in fiscal 2003 and to support its projected further sales growth in fiscal 2004. The Company indicated that it continued to be extremely pleased with the progress of the Rio Nance ramp-up and with the manufacturing cost reductions being achieved at this facility.
During the first quarter, the Company used $8.8 million of its surplus cash reserves, together with the cash flow from its operating earnings and accounts receivable collections, to finance the cash requirements for inventory re-building and the major capital expenditure projects being completed by the Company. The Company remains committed to sustaining the improvements in working capital utilization achieved in fiscal 2002. DSO in trade accounts receivable were maintained at 45 days, essentially the same level as the fiscal 2002 year end, and down significantly from 76 days at the end of the first quarter of fiscal 2002. At December 29, 2002, the Company’s balance sheet position continued to be strong. Cash and cash equivalents amounted to $61.9 million and the Company’s revolving bank credit facilities were entirely unutilized and available. Net debt to total capitalization at December 29, 2002 stood at 17%. For the full 2003 fiscal year, the Company expects to generate positive free cash flow of $25 – $35 million, as previously indicated.
H. Greg Chamandy, Gildan’s Chairman and Chief Executive Officer, commented that “we are pleased to have exceeded both our own and the market’s expectations for our first quarter results. More importantly, however, we are pleased with the way we are continuing to position ourselves and create competitive advantage for the future. We are continuing to reinforce our market share and brand leadership in the North American activewear market. Our success in the market-place is being supported by our capital investments in vertically-integrated manufacturing, which reflect our commitment to constantly reinforce our position as the low-cost producer of circular knit apparel for both the North American and European markets, against any global competition.”
Gildan Activewear Inc. Consolidated Statements of Earnings (In thousands of Canadian dollars, except per share data) Three months ended _____________________ December December 29, 2002 30, 2001 _________ __________ (un- (un- audited) audited) Sales $102,275 $ 88,335 Cost of sales 72,241 64,448 _____________________ Gross margin 30,034 23,887 Selling, general and administrative expenses 15,865 13,116 _____________________ Earnings before interest, taxes, depreciation and amortization (EBITDA) 14,169 10,771 Depreciation and amortization 5,499 4,016 Interest expense 2,273 3,632 _____________________ Earnings before income taxes 6,397 3,123 Income taxes 582 331 _____________________ Net earnings $ 5,815 $ 2,792