Gildan Activear Inc. reported net sales for the second quarter ended April 3 were $383.2 million, up 17.3 percent from $326.8 million in the year-ago period and well above forecasted sales of $375 million.
Net earnings for the quarter were $61.4 million, or 50 cents per diluted share, including a restructuring charge of 3 cents per share related to the consolidation of U.S. distribution activities and the closure of the Company’s remaining U.S. sock manufacturing operations. Net income in the year-ago period was $49.8 million, or 40 cents per diluted share.
Excluding the restructuring charge, adjusted net earnings for fiscal Q2 were $64.3 million, or 53 cents per diluted share, up 29.1 percent, respectively, from adjusted net earnings of $49.8 million or 41 cents per share in the second quarter of fiscal 2010. Both net earnings and earnings per share in the second quarter of fiscal 2011 were a record for the second quarter of a fiscal year for Gildan. Management attributed earnings growth to higher net selling prices of activewear and growth in activewear unit sales volume along with the impact of more favorable income taxes. Those factors were partially offset by higher cotton costs, lower sales of socks, inefficiencies relating to the ramp-up of new manufacturing and distribution facilities, and a $3.7 million loss on the disposal of the companys corporate aircraft, which has been replaced.
By business segment, sales of the companys activewear and underwear were up 25.3 percent to $342.4 million, due primarily to a 19 percent increase in average selling net prices for activewear and a 6.1 percent increase in unit volume shipments.
The companys socks business was down 23.9 percent to $40.8 million, a decline that was attributed to lower sales volumes as a result of the timing of retailer inventory replenishment and the discontinuation of certain uneconomic programs in the third quarter of 2010 combined with a lower-valued, more basic mix of product.
Gross margins in the quarter were 28.1 percent compared with 27.8 percent in the second quarter of last year due to higher activewear selling prices, offset by higher cotton, energy and other purchased input costs, start-up manufacturing inefficiencies which impacted gross margins for socks and underwear, and more unfavorable activewear product-mix.
Looking ahead, Gildan projects full-year sales revenues of approximately $1.8 billion and gross margins of approximately 25.5 percent. The increase in projected sales revenues and gross margins from preliminary estimates is due to the acquisition of Gold Toe Moretz and the further selling price increase in the screenprint market. The increased gross margin projection also reflects the assumption that cotton costs for the full fiscal year average approximately U.S. $1.15 per pound.
EPS before restructuring and other charges for the third quarter of fiscal 2011 are projected to be approximately 70 per diluted share, up approximately 30 percent from the third quarter of fiscal 2010, on projected net sales revenues of close to $550 million.
Gross margins in the third quarter are assumed to be in the range of 26 percent – 26.5 percent and selling, general and administrative expenses are projected to be approximately 10.5 percent of sales.