Gildan Activewear Inc. reported net earnings of $19.8 million, or $0.66 per diluted share, in the fourth fiscal quarter ended October 5, 2003, compared with $19.6 million or $0.66 per diluted share in the fourth quarter of fiscal 2002. The Company's most recent fiscal 2003 guidance had
reflected a range of $0.61-$0.66 for diluted EPS for the fourth quarter.
All figures are stated in Canadian dollars unless indicated otherwise.
Compared to last year, the fourth quarter results reflected increased unit sales and higher gross margins, together with lower interest expense and a further reduction in the Company's effective tax rate. The positive impact of these factors was offset by lower selling prices and the weaker U.S. dollar, as well as higher depreciation as a result of the Company's recent
major capital investment projects.
The negative impact of the lower U.S. dollar on the Canadian dollar EPS for the quarter is estimated at approximately $0.15 per share. In U.S. dollars, net earnings for the fourth quarter amounted to U.S. $14.2 million, or U.S. $0.48 per diluted share, up
respectively 11.8% and 11.6% from the fourth quarter of fiscal 2002.
The Company also announced that it had adopted the U.S. dollar as both its financial reporting and functional currency with effect from the beginning of its 2004 fiscal year.
Sales in the quarter were $150.8 million, down 5.7% from $159.9 million in the fourth quarter of fiscal 2002. The lower sales were due to lower selling prices and the significant decline in the value of the U.S. dollar,
largely offset by a 10.1% increase in unit shipments. The higher unit sales reflected 10.4% growth in overall industry shipments of T-shirts in the U.S. wholesale distributor market combined with continuing market share increases achieved by Gildan, compared with the fourth quarter of last year.
Gildan maintained its market leadership position in the overall T-shirt category, with a share of 29.6% versus 28.0% in the fourth quarter 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 12.6%, the Company's market share increased to 20.7% from 15.0% in the fourth quarter of fiscal 2002. Gildan's unit shipments in this category grew by 24.5% compared with the fourth quarter of last year.
Gildan's share in the fleece category also increased significantly in the fourth quarter to 16.9%, compared with 11.7% a year ago, as the Company expanded its offering of fleece products. Industry demand in this segment increased by 11.8% versus the fourth quarter of 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. Unit shipments to Europe increased by 11.1% compared with the fourth quarter of last year.
Gross margins were 30.4% in the fourth quarter, compared with 28.1% in the fourth quarter of fiscal 2002. The increase in gross margins was primarily due to the significant impact of the Company's recent capital investments, in particular its new low-cost integrated textile manufacturing facility at Rio Nance, Honduras. The resulting reductions in manufacturing and transportation
costs, combined with the impact of more favourable product-mix and lower raw material costs, were largely offset by lower selling prices.
The lower tax rate in the quarter compared with the fourth quarter of
2002 reflected the higher growth of sales to the U.S. and Europe compared with
Canada, combined with a higher proportion of production from Honduras as the
Company continued to ramp up the Rio Nance facility towards full capacity.
Net earnings for the full year ended October 5, 2003 were a record
$77.3 million or $2.60 per diluted share, up respectively 16.2% and 15.0% from
$66.5 million or $2.26 per diluted share. The impact of the weaker U.S. dollar
on full year earnings in fiscal 2003 compared with fiscal 2002 is estimated at
approximately $0.65 per diluted share. In U.S. dollars, net earnings for
fiscal 2003 were $53.2 million, or U.S. $1.79 per diluted share, up
respectively 25.5% and 23.4% from fiscal 2002. Fiscal 2003 comprised of
53 weeks instead of the normal 52 weeks for a fiscal year due to the Company's
floating year-end date. The extra week was included in the third quarter of
fiscal 2003.
The Company has historically measured and presented its financial
statements in Canadian dollars. The Company has determined that it will adopt
the U.S. dollar as both its financial reporting as well as its functional
currency, with effect from the beginning of its 2004 fiscal year. By adopting the U.S. dollar as its functional currency, both
Canadian and U.S. GAAP require that all opening assets and liabilities are
translated into U.S. dollars at the exchange rate prevailing at the time of
giving effect to the change in functional currency. Using the October 6, 2003
exchange rate, the translated value of opening inventories and fixed assets is
approximately U.S. $23 million higher than the amount that would have resulted
from the application of exchange rates prevailing at the dates these assets
were manufactured or acquired. Accordingly, a one-time currency gain of U.S.
$23 million resulting from the upward revaluation of inventories and fixed
assets has been reflected directly in the balance sheet as part of a separate
component of shareholders' equity. The increase in these opening asset values
will have a corresponding offsetting negative impact on future earnings as
opening inventories are consumed and fixed assets are depreciated. The upward
revaluation of opening inventories will result in lower gross margins in the
first half of fiscal 2004 only, as opening inventories are consumed in cost of
sales, with an adverse effect on EPS in the first and second fiscal quarters
of U.S. $0.06 and U.S. $0.04 respectively. Also, the significant increase in
values for opening fixed assets in U.S. dollars will result in higher annual
depreciation expense on an ongoing basis. In fiscal 2004, depreciation will be
increased by U.S. $1.8 million after tax, or U.S. $0.06 per share. The
combined impact of these factors will be to reduce EPS in fiscal 2004 by
approximately U.S. $0.16 per share.
The Company is projecting a diluted EPS range of U.S. $2.25 – $2.30 for
fiscal 2004, up 25.7% – 28.5% from fiscal 2003, before taking account the
estimated U.S. $0.16 per share impact as a result of revaluing inventories and
fixed assets. After reflecting the accounting changes resulting from the
transition to U.S. functional currency, the Company expects to report diluted
EPS for fiscal 2004 of U.S. $2.10 – $2.15, up 17.3% – 20.1% from fiscal 2003.
These projections assume a 15% increase in unit sales volumes as well as a
slight increase in selling prices in fiscal 2004 over fiscal 2003, to reflect
partial pass-through of significantly higher cotton costs.
In the fourth quarter, the Company generated $23.7 million of free cash
flow, defined as cash flows from operating activities less cash used in
investing activities. Free cash flow for the full fiscal year amounted to
$31.5 million, after taking account of capital expenditures for the full year
of $58.6 million. The Company ended the fiscal year with surplus cash reserves
of $92.9 million.
As of November 30, 2003 there were 23,427,335 Class A subordinate shares
and 6,094,000 Class B multiple voting shares issued and outstanding along with
837,309 options outstanding.
Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except per share data)
Three months ended Twelve months ended
October 5, September October 5, September
2003 29, 2002 2003 29, 2002
___________ ___________ ___________ ___________
(unaudited) (unaudited) (audited) (audited)
Sales $150,764 $159,921 $630,139 $600,660
Cost of sales 104,865 115,011 440,294 431,996
_______________________ _______________________
Gross profit 45,899 44,910 189,845 168,664
Selling, general
and administrative
expenses 15,817 15,506 71,153 63,926
_______________________ _______________________
Earnings before
interest, income taxes,
depreciation and
amortization (EBITDA) 30,082 29,404 118,692 104,738
Depreciation and
amortization 6,587 4,896 23,615 17,592
Interest expense 2,106 2,964 9,463 13,342
_______________________ _______________________
Earnings before
income taxes 21,389 21,544 85,614 73,804
Income taxes 1,625 1,982 8,342 7,312
_______________________ _______________________
Net earnings $19,764 $19,562 $77,272 $66,492
_______________________ _______________________
_______________________ _______________________
Basic EPS
Canadian $ $0.67 $0.68 $2.64 $2.33
US $ (1) $0.48 $0.44 $1.82 $1.49
Diluted EPS
Canadian $ $0.66 $0.66 $2.60 $2.26
US $ (1) $0.48 $0.43 $1.79 $1.45
