Gildan Activewear's earnings plunged 81.1% to $7.1 million, or 6 cents a share, in the second fiscal quarter ended April 5, compared to $42.1 million, or 35 cents, in the year-ago period. Sales declined 6.7% to $244.8 million from $293.8 million a year earlier.
The revenue decline reflects a 21.9% decline in activewear sales, including a 13.9% decrease in unit shipments. Increased market share penetration in the U.S. screenprint channel was more than offset by an 18.0% decline in overall industry unit shipments in the channel and the impact of the company's decision to limit its credit exposure to its largest distributor, Broder Bros. As reported, Broder Bros. is restructuring its debt and has warned of a possible bankruptcy filing if it is unable to complete its debt exchange offer.
Sales were also dragged down by an unfavorable activewear product mix, which came as a result of a lower proportion of sales of high-valued fleece and long-sleeve T-shirts, along with an abnormally high proportion of second-quality product sales, as Gildan significantly reduced inventories of such product which had been manufactured in fiscal 2008.
Sales in Canada declined 45.9% due to weak demand, distributor destocking and the decline in the value of the Canadian dollar.
Sales in international markets were negatively impacted by the decline in the value of local currencies compared to the U.S. dollar.
The company said lower earnings and margins reflected significantly lower sales volumes as a result of weak end-use demand and the timing of wholesale distributor replenishment. Gross margins fell to 15.8% from 28.8%.
The company said it continues to plan its business on the assumption that macro-economic conditions will continue to result in “very weak” activewear sales and “severe” price competition in the second half of 2009. Still, management said gross margins and sales volume are expected to improve in the second half of the fiscal year due to more favorable manufacturing efficiencies.
