Gildan Activewear reported record net earnings of U.S. $26.2 million or U.S. $0.88 per diluted share for the third quarter, up 20.2% and 20.5% from U.S. $21.8 million or U.S. $0.73 per diluted share a year ago. Sales in the quarter were U.S. $168.4 million, up 17.4% from U.S. $143.4 million in the third quarter of fiscal 2003. updated its sales and earnings outlook for the balance of the fiscal year.
With effect from the beginning of the 2004 fiscal year, the Company has adopted the U.S. dollar as both its functional and financial reporting currency. The third quarter of fiscal 2003 included an extra week of sales and earnings, due to the Company's floating year-end.
The results for the third quarter of fiscal 2004 included charges of $0.03 per share which were incurred primarily for asset disposals and write- downs arising primarily from the sale of surplus equipment in the Canadian yarn-spinning and textile operations. Excluding these charges as well as the impact of adjustments relating to the change to U.S. functional currency, which continue to impact depreciation expense, diluted EPS for the third quarter amounted to U.S. $0.93, up 27.4% from last year. The Company had previously provided guidance for the quarter of U.S. $0.80-U.S. $0.85 per share.
Compared to last year, the higher third quarter net earnings reflected higher unit sales, further manufacturing efficiencies and more favourable pricing. These factors were partially offset by increased cotton costs, higher SG&A costs primarily due to the Company's sales growth and higher depreciation expense mainly as a result of the Company's capital investment program. SG&A and depreciation were also impacted by the special charges for asset disposals and write-downs recorded in the third quarter of fiscal 2004.
Sales in the quarter were U.S. $168.4 million, up 17.4% from U.S. $143.4 million in the third quarter of fiscal 2003. The higher sales were due to a 13.5% increase in unit shipments combined with higher selling prices. The higher unit sales reflected continuing strong overall industry demand growth in the U.S. wholesale distributor channel, together with continuing market share penetration in all target market segments. The significant year- over-year sales increase was achieved in spite of the fewer number of weeks in the third quarter of fiscal 2004 compared to the prior year.
Three of the Company's main distributors have now discontinued their participation in the S.T.A.R.S. report by ACNielsen Market Decisions, which is the basis for market and market share data provided by the Company for the U.S. wholesale distributor channel. As a result, the S.T.A.R.S. market share data for the third quarter of fiscal 2004 excludes the effect of sales through these customers and the value of the report is diminished compared to prior years. The Company will continue to monitor the value of presenting data from the S.T.A.R.S. report. With this caveat, based on the S.T.A.R.S. data, Gildan's share in the T-shirt segment of the U.S. wholesale distributor market increased to 29.6% from 28.0% in the third quarter of fiscal 2003. During the third quarter, Gildan's share of the sport shirt segment increased to 23.0% from 19.5% in the corresponding quarter of last year. Gildan's share of the fleece category was 16.4% in the third quarter, up from 12.1% in the third quarter a year ago.
The table below summarizes the unit sales growth for the calendar quarter ended June 30, 2004 compared to the quarter ended June 30, 2003 for Gildan and for the industry overall through the U.S. wholesale distributor channel, as reported by S.T.A.R.S. after adjusting the prior period comparatives to exclude sales through distributors no longer participating in the S.T.A.R.S. report:
Gildan Industry
Unit growth Unit growth
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T-shirts 35.9% 14.3%
Sport shirts 19.6% 3.4%
Fleece 53.9% 13.8%
Gildan is pleased to announce that it is also adding a major new distributor, which will begin to carry Gildan's product-lines in the fourth quarter of fiscal 2004, and is expected to contribute significantly to the Company's year-over-year sales growth in fiscal 2005.
Gildan's unit shipments in Europe increased by 43.7% over the third quarter last year, and shipments in Canada were up by 32.6%. Selling prices in the Canadian market continued to be negatively impacted as a result of the lower landed selling prices for U.S. competitors in the Canadian market, due to the decline in the relative value of the U.S. dollar.
Gross margins in the third quarter were 30.3%, compared with 30.7% in the third quarter of fiscal 2003. The favourable impact on percentage gross margins of the continuing manufacturing efficiencies and more favourable selling prices was offset by the effect of higher cotton costs.
Net earnings for the first nine months of fiscal 2004 were $43.4 million or U.S. $1.46 per diluted share, up 11.6% and 11.5% from the first nine months of fiscal 2003 when the Company generated net earnings of U.S. $38.9 million or U.S. $1.31 per diluted share. Before the adjustments due to the change to U.S. functional currency, net earnings for the first nine months of fiscal 2004 were U.S. $48.0 million, or U.S. $1.61 per share, up 23.4% and 22.9% respectively from the first nine months of fiscal 2003.
The Company now expects to be at the top end of its previously indicated range of U.S. $0.55-U.S. $0.60 for diluted EPS in the fourth quarter of fiscal 2004 before functional currency adjustments and the estimated charge of U.S. $0.10 per diluted share to meet the cost of the Company's contractual obligations to H. Greg Chamandy. The Company announced in a separate press release this morning that H. Greg Chamandy was stepping down from his roles as Co-Chief Executive Officer, Chairman of the Board and Chairman of the Executive Committee.
Due to the stronger than projected third quarter results, and its outlook for the fourth quarter, the Company is projecting EPS for the full fiscal year of approximately U.S. $2.20 per diluted share before functional currency adjustments and the fourth quarter charge in respect of H. Greg Chamandy. Diluted EPS after the adjustment for functional currency and the special charge in the fourth quarter is expected to be approximately U.S. $1.95 per share.
In the third fiscal quarter, the Company generated U.S. $34.7 million of free cash flow, defined as cash flow from operating activities less cash used in investing activities. Operating earnings and the impact of the reduction of inventories during the third quarter significantly exceeded cash requirements for seasonal accounts receivable and for capital expenditures. The Company used U.S. $19.0 million of its free cash flow for repayment of long-term debt, including U.S. $17.5 million for the first scheduled installment of its senior note repayment on June 10, 2004. The Company ended the quarter with cash and cash equivalents of U.S. $37.1 million.
The Company also announced that, subsequent to the end of the third quarter, it had purchased land and buildings in Nicaragua for approximately U.S. $5.0 million, and that it intends to immediately begin construction of a major facility on this site for the production of fleece, in order to support the Company's anticipated growth in this product-line in both the wholesale and retail channels. The total capital cost of the project, including the land and buildings, is estimated at approximately U.S. $60 million. The Company is also continuing to develop its new manufacturing hub in the Dominican Republic and Haiti, and construction of its first textile facility in the Dominican Republic is progressing well.
Net capital expenditures for the full 2004 fiscal year are now anticipated to be in the range of U.S. $65 million-U.S. $70 million, due to the additional cost of the Nicaragua property and initial work at this location, partially offset by the proceeds from the sale of surplus equipment from the Company's Canadian operations.
As of July 31, 2004, there were 29,629,904 Class A subordinate shares issued and outstanding along with 673,085 options outstanding.
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Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of U.S. dollars, except per share data)
Three months ended Nine months ended
July 4, July 6, July 4, July 6,
------ ------ ------ ------
2004 2003 2004 2003
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Sales $ 168,429 $ 143,361 $ 387,757 $ 321,976
Cost of sales 117,443 99,388 278,134 225,334
---------------------- ----------------------
Gross profit 50,986 43,973 109,623 96,642
Selling, general and
administrative expenses 15,629 13,280 42,177 36,892
---------------------- ----------------------
Earnings before interest,
income taxes, depreciation
and amortization 35,357 30,693 67,446 59,750
Depreciation and
amortization 5,517 4,109 15,698 11,309
Interest expense 1,626 1,733 4,970 4,891
---------------------- ----------------------
Earnings before income
taxes 28,214 24,851 46,778 43,550
Income taxes 1,986 3,021 3,345 4,618
---------------------- ----------------------
Net earnings $ 26,228 $ 21,830 $ 43,433 $ 38,932
---------------------- ----------------------
---------------------- ----------------------
Basic EPS $ 0.89 $ 0.74 $ 1.47 $ 1.33
Diluted EPS $ 0.88 $ 0.73 $ 1.46 $ 1.31
Weighted average number
of shares outstanding
(in thousands)
Basic 29,628 29,373 29,576 29,165
Diluted 29,859 29,768 29,839 29,700
