Gildan Activewear announced that it expects its earnings for the fourth quarter and for the full 2003 fiscal year to be lower than previously forecasted.
Gildan is forecasting full year diluted EPS in the range of C$2.55 – C$2.60, up 13% – 15% from fiscal 2002. The Company's previous outlook for the current year had reflected guidance towards the high end of the range of $2.70 – $2.80 for diluted EPS. All EPS data for fiscal 2003 include the special charge reflected in the second quarter for closure of the Montreal sewing facility.
In U.S. dollars, the revised fiscal 2003 guidance represents a 20% – 23% increase over fiscal 2002.
Unit sales from U.S. distributors to screenprinters have continued to be strong in July and August, according to the S.T.A.R.S. report issued by ACNielsen Market Decisions. Market growth in T-shirts was 21.7% in July and preliminary data for August shows growth of 4.5%. However, this growth is not translating into a corresponding rate of inventory replenishment at the distributor level, due primarily to timing issues, and is resulting in lower than projected unit sales for Gildan into the distributor channel.
The Company expects to end the fourth quarter with inventories in the distributor channel at a similar level to last year, in spite of the strong overall market growth and Gildan's continuing market share penetration.
Gildan's market share has continued to increase in all product categories in the first two months of the fourth quarter. Market share in T-shirts in the U.S. distributor channel exceeded 30% in both July and August. Market share in sport shirts averaged 21.0% for the two months, and the Company is now achieving significant penetration in the fleece segment, with a share of 13.4% in July, and 20.9% in August based on the preliminary data.
In addition to the timing impact of lower unit volumes, EPS for the quarter will be negatively impacted by lower than forecast gross margins due to a lower-value product mix and more promotional activity. Selling, general and administrative expenses will be lower than forecast due to lower volume- related expenses and a reduction in variable compensation. The Company believes that the lower than forecast results for the fourth quarter largely reflect short-term timing issues and that its continuing positive market share momentum and the cost reductions from its recent capital investments position it well to sustain strong EPS growth in fiscal 2004.
The Company still expects to achieve 15% EPS growth in fiscal 2004 over its prior guidance range of $2.70 – $2.80 for the current financial year.
H. Gregory Chamandy, Chairman and Chief Executive Officer of Gildan Activewear, commented: “After seven successive quarters of exceeding our earnings projections, it is disappointing to have to lower our guidance for the fourth quarter of fiscal 2003 because of short term factors. However, our overall results for the year still reflect 13% to 15% EPS growth over our record performance in fiscal 2002, despite the impact of the weaker U.S. dollar. Our manufacturing cost reductions and our continuing market share penetration have more than offset the negative impact of the weaker U.S. exchange rate, and provide us with the confidence that we will achieve our stated EPS growth and strategic objectives in 2004 and beyond.”
