Gildan reported fourth quarter net earnings of $29.2 million and diluted E.P.S. of 48 cents, up respectively 73.6% and 71.4% from the fourth quarter of last year. Earnings in the fourth quarter of fiscal 2005 included an after-tax gain of $0.8 million or one cents per share from the sale of equipment pursuant to the closure of the Company's Canadian yarn-spinning facilities in the second quarter of the year. Excluding this gain in fiscal 2005, and a charge in the fourth quarter of fiscal 2004 to satisfy contractual obligations to H. Greg Chamandy, net earnings and diluted E.P.S. increased respectively by 42.0% and 42.4% over the fourth quarter of last year. The increase in fourth quarter net earnings and diluted E.P.S. was primarily attributable to continuing strong growth in unit volume sales and lower costs of cotton, partially offset by higher selling, general and administrative expenses, including some non-recurring items as outlined below, and slightly reduced selling prices.
Sales in the fourth quarter amounted to $180.7 million, up 24.1% from the fourth quarter a year ago, reflecting a 25.2% increase in unit shipments. The growth in unit sales volumes reflected continuing market share penetration in all categories, based on the S.T.A.R.S. report. The value of the S.T.A.R.S. market growth and market share data for the U.S. wholesale distribution market continues to be reduced by non-participation of a major distributor. With this caveat, the table below summarizes the S.T.A.R.S. data for the quarter ended September 30, 2005. In calculating year-over-year growth rates, S.T.A.R.S. has adjusted prior period comparatives to exclude sales through the distributor no longer participating in the S.T.A.R.S. report.
Gildan Gildan Gildan Industry
Market Share Market Share Unit Growth Unit Growth
Q4 2005 Q4 2004 Q4 2005 Q4 2005
vs. vs.
Q4 2004 Q4 2004
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35.9% 30.1% T-shirts 27.2% 6.9%
Sport
31.7% 23.3% shirts 38.9% 1.3%
25.8% 17.3% Fleece 58.3% 8.7%
Gross margins in the fourth quarter were 32.3%, compared with 30.9% in the fourth quarter of last year. Gross margins in the fourth quarter of last year included the 1.0% negative impact of closure costs for the El Progreso sewing plant in Honduras. The increase in gross margins was primarily due to lower cotton costs, partially offset by the slight reduction in selling prices. Manufacturing efficiencies and non-recurrence of the prior year El Progreso closure charge were offset by higher energy and transportation costs, start-up inefficiencies in the Dominican Republic facility and an increase in reserves for statutory benefits for Honduran employees.
Selling, general and administration expenses were U.S. $21.2 million, or 11.7% of sales, compared with U.S. $20.7 million, or 14.2% of sales, in the fourth quarter of fiscal 2004. Expenses in the fourth quarter of last year included the U.S. $4.6 million charge in relation to the departure of H. Greg Chamandy. Excluding this item, the increase in SG&A expenses reflected severance costs, an adjustment to the reserve for doubtful accounts, higher distribution expenses, and the impact of the stronger Canadian dollar.
Net earnings and diluted E.P.S. for fiscal 2005 were U.S. $86.0 million or U.S. $1.43 per share, compared with net earnings and diluted E.P.S. of U.S. $60.3 million or U.S. $1.01 per share in fiscal 2004. Before the special charge for the closure and relocation of the Canadian yarn-spinning facilities, net earnings for fiscal 2005 were U.S. $93.1 million or U.S. $1.55 per share, compared to the Company's most recent guidance of approximately U.S. $1.50 per share. These results were up 39.5% and 38.4% respectively from net earnings of U.S. $66.7 million or U.S. $1.12 per share in fiscal 2004, after adjusting last year's earnings for the U.S. $3.3 million after-tax impact of the functional currency change on cost of sales as a result of revaluing opening inventories, and the after-tax impact of the charge for the contractual obligations to H. Greg Chamandy.
On September 19, 2005, the Company provided E.P.S. guidance of approximately U.S. $1.85 per share for fiscal 2006, which represents an increase of 19.4% over U.S. $1.55 per share in fiscal 2005. This guidance assumes an increase in unit sales volumes of approximately 20% and a 1.5% decrease in average selling prices, to reflect the pass-through of manufacturing cost reductions. The Company expects that diluted E.P.S. in the first quarter of fiscal 2006 will be at least U.S. $0.23 per share, which represents an increase of at least 64% from the first quarter of fiscal 2005. Although selling prices in the first quarter of the fiscal year are currently higher than anticipated, the Company does not yet have visibility to project whether market conditions will support the continuation of more favourable than anticipated pricing.
During the fourth quarter, the Company generated U.S. $30.8 million of free cash flow, and free cash flow for the 2005 fiscal year was U.S. $9.4 million. (Free cash flow is defined as cash flow from operating activities less cash flow from investing activities.) Capital expenditures in the fourth quarter amounted to U.S. $19.4 million, including the balance of the investment in a new yarn-spinning facility by Gildan's joint venture with Frontier Spinning Mills, Inc., which is consolidated in Gildan's financial statements. The Company ended the fiscal year with cash and cash equivalents of U.S. $69.8 million.
Gildan continues to project capital expenditures of approximately U.S. $105 million in fiscal 2006, which it expects to fully finance out of its internally-generated cash flow from operating activities. In addition to completing the ramp-up and further expansion of the Company's new textile facility in the Dominican Republic, the Company is constructing two new facilities at its Rio Nance site in Honduras, one for the manufacture of its existing products, and one for production of athletic socks.
Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of U.S. dollars, except per share data)
Three months ended Twelve months ended
October 2, October 3, October 2, October 3,
2005 2004 2005 2004
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(unaudited) (unaudited) (audited) (audited)
Sales $180,672 $145,611 $653,851 $533,368
Cost of sales 122,261 100,562 450,570 378,696
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Gross profit 58,411 45,049 203,281 154,672
Selling, general and
administrative
expenses 21,150 20,721 74,896 62,898
Special charge
(note 2) (1,160) - 10,726 -
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Earnings before the
undernoted items 38,421 24,328 117,659 91,774
Depreciation and
amortization 7,202 6,577 25,615 22,275
Interest expense 924 1,200 4,615 6,170
Earnings of
non-controlling
interest (153) - 34 -
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Earnings before
income taxes 30,448 16,551 87,395 63,329
Income tax expense
(recovery) (note 3) 1,251 (267) 1,352 3,078
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Net earnings $29,197 $16,818 $86,043 $60,251
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Basic EPS $0.49 $0.28 $1.44 $1.02
Diluted EPS $0.48 $0.28 $1.43 $1.01
Weighted average
number of shares
outstanding
(in thousands)
Basic 59,924 59,270 59,691 59,182
Diluted 60,414 59,651 60,135 59,671
