Gildan Activewear nearly doubled fiscal fourth quarter profits as the company benefited from a $746,000 tax write-down, but the top line was crippled by continued softness from activewear and underwear  resulting from “promotional discounting” and currency changes, among other factors.

Net sales for the Canadian clothing manufacturer slipped 7.1% to $301.7 million in U.S. dollars for the three-month period ended Oct. 4 from $324.7 million in the year-ago period.  Sales of activewear and underwear were $240.8 million, down 4.8% from $253.0 million last year.  Along with discounted selling prices and the negative impact of a stronger U.S. dollar, management said in a conference call with analysts that the activewear and underwear segments were also affected by lower per-unit selling prices and a 1.3% dip in unit sales that was a result of a decline in overall industry unit shipments by U.S. wholesale distributors to screen printers, as well as inventory reductions by U.S. wholesale distributors.

Sales of socks fell 15.1% to $60.9 million from $71.7 in the year-ago period. Management attributed weakness in the sock business to inventory shifts and the discontinuation of sock programs that the company said did not fit Gildan’s business model. However, management noted that the impact of these factors was largely offset by double-digit increases in the sell-through to consumers of continuing programs with major mass-retailer customers.

Net earnings for Gildan were $42.4 million, or 35 cents per diluted share, for the fiscal fourth quarter, compared to earnings of $21.8 million, or 18 cents per diluted share, in the year-ago period.  Fourth quarter earnings reflected  a charge of $8.9 million, or 7 cents per diluted share, that came as a result of a distributor inventory devaluation discount. Earnings also reflected an income tax charge of $26.9 million, or 22 cents per share.

SG&A decreased to $34.1 million from $36.7 million due to improved management of distribution expenses as well as the impact of the lower-valued Canadian dollar  on corporate administrative expenses.
Including the impact of the devaluation discount, gross margins for Gildan were down 110 basis points to 25.7% as compared to 26.8% last year. Management said margins benefited from “increased manufacturing efficiencies,” including lower cotton and energy costs, and a more favorable activewear product mix.

Inventories in the fourth quarter were reduced by $37.7 million and the company ended the fiscal year with inventories of $301.9 million compared with $316.2 million at the end of fiscal 2008.

Regarding outlook, Gildan said it expects net sales in fiscal 2010 to be “slightly in excess” of $1.2 billion, up about 17% from 2009. Gross margins are expected to be up 26% for the year.