Gildan Activewear Inc. reported record second quarter net earnings of $20.4 million, or $0.69 per diluted share, up respectively 24.4% and 23.2% from $16.4 million or $0.56 per diluted share in the second quarter of fiscal 2002. Results included a special charge of $1.1 million after-tax, or $0.04 per diluted share, for the closure of the Company’s Montreal sewing facility, which had been previously announced on March 27, 2003. Before reflecting the special charge, net earnings for the second quarter of fiscal 2003 amounted to $21.5 million, or $0.73 per share, up respectively 31.1% and 30.4% from last year. Analyst expectations for the quarter, before the special charge, ranged from EPS of $0.68 per diluted share to $0.72 per diluted share.
In U.S. dollars, net earnings before the special charge amounted to U.S. $14.1 million, or U.S. $0.48 per diluted share, up respectively 36.9% and 37.1% from the second quarter of fiscal 2002.
The higher net earnings compared to last year were due to increased unit sales, higher gross margins, and lower interest expense, reflecting the impact on net indebtedness of the significant free cash flow generated by the Company
during the second half 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 were a second quarter record of $173.1 million, up 10.5% from $156.7 million in the second quarter of fiscal 2002. The higher sales were due to a 21.4% increase in unit shipments partially offset by lower selling
prices. The higher unit sales reflected 4.8% growth in overall industry shipments of T-shirts in the U.S. wholesale distributor market combined with continuing market share increases achieved by Gildan in all product
categories, compared with the second quarter of last year. In spite of capacity constraints, the Company maintained its strong market leadership position in the overall T-shirt category, with a share of 29.1%, versus 28.9%
a year ago. Gildan continued to achieve significant penetration in the sport shirt segment. Although overall industry shipments in the sport shirt segment through the U.S. distributor channel declined by 9.5%, Gildan’s unit shipments in this category grew by 28.3% compared with the second quarter of fiscal 2002, and the Company’s market share increased to 18.4% from 12.7%. Gildan’s share in the fleece category increased to 10.7%, compared with 9.2% a year ago, while industry demand in this segment remained essentially flat compared with last year. All U.S. market and market share data is based on the S.T.A.R.S. Report produced by ACNielsen Market Decisions.
Gross margins were 29.6% in the second quarter, compared with 26.5% in
the second quarter of fiscal 2002. Before taking account of the special charge
for the closure of the Montreal sewing plant, gross margins in the second
quarter of fiscal 2003 were 30.5%. The increase in gross margins was due to
the impact of the Company’s new low-cost integrated textile manufacturing
facility at Rio Nance, Honduras, together with lower cotton costs and lower
yarn conversion costs due to the recent investments in acquiring and upgrading
two Canadian vertically-integrated yarn-spinning operations. These cost
reductions were partially offset by lower selling prices, as the Company
continued to pursue its strategy of using its manufacturing efficiencies to
lower selling prices and drive increased market share, as well as the net
impact of currency fluctuations.
Selling, general and administrative expenses for the second quarter were
$20.6 million, or 11.9% of sales, compared with $15.7 million, or 10.0% of
sales, in the second quarter of last year. The increase in selling, general
and administrative expenses in the second quarter of fiscal 2003 was due to
the timing of accruing the provision for the results-based management
incentive program compared to the previous year, together with the impact of
higher insurance premiums and costs incurred for organizational restructuring.
Net earnings for the first six months of fiscal 2003 were a record
$26.3 million, or $0.89 per diluted share, compared with $19.2 million, or
$0.66 per diluted share in the first six months of last year. Before the
special charge for the sewing plant closure, net earnings for the first six
months were $27.4 million, or $0.93 per diluted share, up respectively
$8.2 million and 40.9% from the first six months of fiscal 2002.
In U.S. dollars, net earnings for the first six months before the special
charge amounted to U.S. $17.8 million, or U.S. $0.61 per diluted share, up
respectively 48.3% and 48.8% from the first six months of fiscal 2002.
The Company continues to be comfortable with its previously announced EPS
range for the full 2003 fiscal year of $2.70 – $2.80 per share, after
reflecting the impact of the special charge for the sewing plant closure. The
Company may reassess this guidance if the value of the U.S. dollar continues
to decline from present levels.
The Company used $25.8 million of its surplus cash reserves in the second
quarter to finance a seasonal increase in receivables and its ongoing capital
expenditure program. Days sales outstanding in trade receivables were 46 days,
compared with 55 days at the end of the second quarter a year ago. Capital
expenditures in the second quarter amounted to $14.5 million, primarily for
the Rio Nance project and completion of the modernization of the Long Sault,
Ontario yarn-spinning facility. Due to the success of the Rio Nance facility,
it is now being further expanded to increase its maximum production capacity
and to allow for a higher proportion of colours than originally planned.
Consequently, it is anticipated that capital expenditures for the full year
will be in the range of $60 million.
The Company ended the second quarter with surplus cash reserves of $33.6
million and, based on its revised capital expenditure plans, anticipates that
cash at the end of the 2003 fiscal year will amount to approximately $80 – $90
million.
H. Greg Chamandy, Gildan’s Chairman and Chief Executive Officer,
commented that “we are pleased to have added another strong quarter to our
track-record of achieving or exceeding our targets for EPS growth, and to have
maintained our positive momentum in our target customer markets. Also, we
continue to be excited about the progress of our major manufacturing
investments, in particular the ramp-up of our Rio Nance integrated textile
facility, which will allow us to significantly further drive down our cost
structure and position us to achieve our sales and EPS growth objectives
beyond 2003.”
As of April 30, 2003 there were 23,230,890 Class A subordinate shares and
6,094,000 Class B multiple voting shares issued and outstanding along with
1,095,787 options outstanding.
Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except per share data)
Three months ended Six months ended
March 30, March 31, March 30, March 31,
2003 2002 2003 2002
___________ __________ __________ ___________
(unaudited)(unaudited)(unaudited)(unaudited)
Sales $ 173,053 $ 156,679 $ 275,328 $ 245,014
Cost of sales 121,820 115,085 194,061 179,533
_____________________ _______________________
Gross margin 51,233 41,594 81,267 65,481
Selling, general and
administrative expenses 20,646 15,733 36,511 28,849
_____________________ _______________________
Earnings before interest,
income taxes,
depreciation and
amortization (EBITDA) 30,587 25,861 44,756 36,632
Depreciation and
amortization 5,658 4,076 11,157 8,092
Interest expense 2,613 3,512 4,886 7,144
_____________________ _______________________
Earnings before income
taxes 22,316 18,273 28,713 21,396
Income taxes 1,875 1,862 2,457 2,193
_____________________ _______________________
Net earnings $ 20,441 $ 16,411 $ 26,256 $ 19,203
