By Eric Smith
Speaking at Stifel’s 2018 Cross Sector Insight Conference in Boston, MA, on Monday morning, Gildan Activewear Inc. CFO Rhodri Harries said the company’s strategic advantages will bolster the launch of two private label lines later this year.
“Because of our size, our scale and our strength in particular categories such as activewear and underwear, we see very good opportunities to drive the top line going forward … in private label,” he said. “You’ve got to pick the right programs with the right partners; it’s got to be the right size and right complexities and it’s got have all the right attributes to drive strong long-term returns that allow you and your customers to win. We feel very good about private label programs going forward.”
Harries and his colleagues at Gildan feel good about the private label launch for a host of reasons, many of which he outlined during the Monday presentation to investors that was moderated by Stifel’s Jim Duffy.
Harries said Gildan’s vertically integrated manufacturing and distribution capabilities can help the $2.8 billion company effectively compete on price with private label, and that Gildan is well-positioned to drive the types of margins that shareholders are looking for.
Specifically, Gildan boasts a robust manufacturing process that has benefited from significant investments in technology as well as the talent needed to manage the production systems and supply chain complexities.
“We feel good about these systems and it really does separate us from our peers,” Harries said.
Gildan had been capacity constrained, but the company, which is starting up a new textile plant in Honduras, now has capacity to add $1 billion in sales with very limited investment going forward, Harries said. “That gives us great flexibility as we drive the business forward.”
After the presentation, Duffy sent out a note to investors that read, in part, “Gildan believes activewear and underwear private label programs can generate attractive returns and support top-line growth. The Gildan presentation supports our positive outlook on the business. The company spoke optimistically of the ability to offset commodity cost pressures with printwear pricing, realize opportunities in the higher value fashion basics business, leverage Amazon growth and improve costs structure in the legacy branded business.”
Harries touched on other topics during the 35-minute presentation, including mergers and acquisitions.
Gildan has made 11 acquisitions in last 11 years, including purchasing American Apparel last year, and is always keeping an eye out for other assets to add to the company’s portfolio.
“When we look at acquisitions we’re always looking for targets that can help build out our capabilities,” Harries said. “We’re looking at companies that have good brands, products, access to distribution, good manufacturing and always looking at people.”
He also said Gildan is in a good position—because of the private label launch coupled with strength in both printwear and branded products and balanced channel strategy—to win customers even as shopping habits, especially among millennials, change.
“We feel good about our ability to win and drive our business in a world where the consumer is deciding how they want to buy,” Harries said.
When Gildan announced first-quarter results last month, the company reported that income and revenue tumbled in the first quarter ended April 1, but both were within management expectations and the company reaffirmed full-year guidance issued on Feb. 22.
Gildan’s Q1 net income of $67.9 million, or 31 cents per share, was down 18.7 percent from the first quarter of 2017. Excluding the impact of after-tax restructuring and acquisition-related costs of $6.7 million in the quarter and $6.6 million in the prior year quarter, Gildan reported adjusted net earnings of $74.6 million, or 34 cents per share, down from $90.1 million, or 39 cents per share, in the same quarter last year.
Gildan reported first-quarter sales of $647.3 million, down 2.7 percent compared to the same period a year ago, reflecting a 3.2 percent increase in activewear sales and a 20.4 percent decline in the hosiery and underwear category.
Gildan reaffirmed the company’s full-year 2018 financial guidance of adjusted diluted EPS in the range of $1.80 to $1.90 on projected net sales growth in the low-to-mid-single-digit range, adjusted EBITDA in the range of $595 to $620 million and projected free cash flow of approximately $400 million for the year.
On Monday, Harries said the company is optimistic about balanced, organic growth across categories.
“We feel very good about our ability to drive growth in both business—on the printwear side and also on retail,” he said.
Photo courtesy Gildan