Gildan Activewear Inc. reported fourth quarter net earnings of $40.9 million and diluted EPS of 34 cents, after recording a restructuring charge in the quarter of $4.9 million after-tax or 4 cents per share, which was primarily related to the previously announced restructuring of the company's Canadian, Mexican and manufacturing facilities. Before reflecting the restructuring charge, adjusted net earnings and adjusted diluted EPS for the fourth quarter of fiscal 2007 amounted to $45.8 million or 38 cents, up respectively 24.5% and 26.7% from adjusted net earnings of $36.8 million and adjusted diluted EPS of 30 cents in the fourth quarter of fiscal 2006. The growth in EPS compared to last year was due to higher gross margins for activewear, continuing growth in activewear unit sales volumes and the impact of income tax recoveries, partially offset by lower activewear selling prices, higher raw material costs and higher selling, general and administrative and depreciation expenses. The impact of the Kentucky Derby Hosiery acquisition was a penny accretive to EPS in the fourth quarter, as the negative impact of consuming high-cost inventories manufactured by external contractors was more than offset by the favourable impact of recognizing the tax benefit of Kentucky Derby Hosiery losses for the full fiscal year.


Sales in the fourth quarter amounted to $254.9 million, up 8.4% from $235.2 million in the fourth quarter of last year. The increase in sales revenues was due to an 8.9% increase in unit sales volumes for activewear and a 15.7% increase in unit sales volumes for socks, partially offset by a 1.4% reduction in unit selling prices for activewear compared to last year.

 

The growth in activewear unit sales was primarily due to continuing market share penetration in all product categories in the U.S. distributor channel. Growth in overall industry shipments from U.S. distributors to screenprinters in the September quarter was 2.4% . The table below summarizes the S.T.A.R.S. data for market shares and industry growth in the U.S. distributor channel for the quarter ended September 30, 2007.
 
Gildan                Gildan                        Gildan       Industry

Market Share    Market Share                   Unit Growth    Unit Growth

Q4 2007              Q4 2006                   Q4 2007 vs.    Q4 2007 vs.

                                                   Q4 2006        Q4 2006

————————————————————————-

48.2 %                  42.7 %   All products         16.1%           2.4 %


49.1 %                  44.0 %       T-shirts         15.4%           3.1 %


45.5 %                  31.0 %         Fleece         44.7%          (2.9)%


35.7 %                  33.3 %   Sport shirts          2.1%          (5.3)%

 

Growth in the screenprint channel in international markets in the fourth quarter continued to be strong. Unit shipments in Europe increased by 20.9% compared with the fourth quarter of fiscal 2006.


Gross margins in the fourth quarter of fiscal 2007 were 32.2%, compared with 30.6% in the fourth quarter of fiscal 2006. Higher gross margins for activewear were partially offset by lower gross margins for socks. The increase in gross margins for activewear compared to last year was primarily due to further manufacturing efficiencies, partially offset by lower selling prices and higher cotton costs. The lower gross margins for socks, compared to the fourth quarter of last year, reflected the consumption of high-cost inventories from outside contractors which were used to support major new retail programs during the transition of manufacturing to Gildan's new sock factory in Honduras. Virtually all of the basic men's and boy's products for these sock programs, as well as certain basic mass-market programs supplied by Prewett, are now being manufactured at Gildan's new sock facility in Honduras.


Selling, general and administrative expenses in the fourth quarter were $27.9 million, or 10.9% of sales, compared to $23.6 million, or 10.1% of sales, in the fourth quarter of last year. The increase in selling, general and administrative expenses was primarily due to higher distribution costs and increased administration and information technology costs to support the company's continuing growth. The increase of $1.2 million in depreciation and amortization expenses was due to the company's continuing investments in capacity expansion.

The company recorded a tax recovery of $4.6 million in the fourth quarter which included the recognition of an income tax benefit of $3.1 million relating to the fiscal 2007 full year operating loss incurred by Kentucky Derby Hosiery. The tax benefit of operating losses may be recognized if there is sufficient assurance that losses will be utilized against expected future profits within the permitted time-frame. The company also recognized tax benefits in the amount of $1.9 million relating to a prior taxation year which became statute-barred during fiscal 2007.


Full Year Sales and Earnings
Sales for the fiscal year ended September 30, 2007 were $964.4 million, up 24.7% compared to the same period last year. The growth in sales reflected the impact of a full year of sock sales, compared with only one quarter in fiscal 2006, and an increase of 11.3% in unit sales volumes for activewear, together with a higher-valued activewear product-mix, partially offset by a decrease in unit selling prices for activewear.

Net earnings in fiscal 2007 amounted to $130.0 million, or $1.07 per share on a diluted basis compared to net earnings of $106.8 million, or 88 cents per share, in fiscal 2006. Before the impact of restructuring and other charges, adjusted net earnings increased to $157.3 million, or $1.29 per share on a diluted basis, compared to adjusted net earnings of $126.8 million, or $1.05 per share, in fiscal 2006. The increase in adjusted net earnings and adjusted diluted EPS was due to favourable manufacturing efficiencies, growth in activewear unit sales volumes, a higher-valued product-mix for activewear and income tax recoveries, partially offset by lower unit selling prices for activewear, higher cotton costs, increased selling, general and administrative, depreciation and interest expenses, together with the dilutive impact of the Kentucky Derby Hosiery acquisition.


Fiscal 2007 Cash Flow
In fiscal 2007, cash flow from operating activities less cash flow from investing activities resulted in a net use of cash amounting to $43.5 million. The company used $36.4 million to finance accounts receivable, including an increase in seasonal receivables due to higher fleece sales in the fourth quarter, $39.3 million to finance higher inventories including a temporary build-up of sock inventories in order to service new retail sock programs during the transition to offshore manufacturing, and $134.3 million for capital expenditures, primarily for the ramp-up of the company's major textile and sock manufacturing expansion projects in Honduras. The company continues to have significant unused debt financing capacity and flexibility to invest in capital expenditures for further capacity expansion and cost reduction initiatives in excess of its current plans, as well as to pursue potential acquisition opportunities.

EPS, Capital Expenditure and Free Cash Flow Guidance for Fiscal 2008
The company has reconfirmed its previous EPS guidance for fiscal 2008 of $1.85 per share, up 43.4% from $1.29 per share, before restructuring and other charges, in fiscal 2007. Although a selling price increase in the screenprint channel is currently being successfully implemented, the company believes that it is premature to increase its fiscal 2008 EPS guidance, partially due to inflationary pressures on energy, dye and chemicals costs and also due to the overall uncertainty at this stage of the economic and market outlook for 2008. The company is projecting EPS for the first quarter of fiscal 2008 of approximately 21 cents per share, up 50.0% from 14 cents in the first quarter of fiscal 2007. Projected results for the first quarter include the impact of the consumption of high-cost sock inventories produced during fiscal 2007, as well as the consumption of textiles produced in Canada prior to the closure of the company's remaining Canadian textile facilities.


The company is now projecting capital expenditures of approximately $140 million in fiscal 2008, compared with its previous estimate of $155 million. The reduction in projected capital expenditures is primarily due to delays in the timing of a major energy cost reduction project in Honduras, combined with below budget spending for the new activewear facility currently being ramped up to full capacity in Honduras. The company is completing the ramp-up of its new sock and textile facilities in Honduras and intends to proceed with the construction of a previously announced second sock factory. The company is also evaluating the timing and geographical location for future textile capacity expansion, to support its ongoing growth initiatives in the U.S. mass-market retail and international markets.

Including a projected reduction in inventories, the company expects to generate free cash flow in fiscal 2008 in excess of $150 million, before taking account of its investment in the acquisition of V.I. Prewett & Son, Inc.


Disclosure of Outstanding Share Data
As of November 30, 2007, there were 120,426,127 common shares issued and outstanding along with 975,539 stock options and 924,000 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a pre-determined option price. Each Treasury RSU entitles the holder to receive one common share at the end of the vesting period, without any monetary consideration being paid to the company. However, the vesting of 50% of the restricted share grant is dependent upon the financial performance of the company, relative to a benchmark group of Canadian publicly-listed companies.