CANADA: Cotton costs weigh on Gildan’s stellar Q1
- Q1 earnings up 23% to US$35.9m
- Sales surge 50.3% to $331.3m
- Higher cotton costs may force H2 price rises
T-shirt and underwear maker Gildan Activewear Inc has got off to a record start to its latest financial year, with first-quarter sales up 50.3% in what is traditionally its lowest quarter.
But the Montreal-based company warned the impact of higher cotton costs may force it to raise selling prices again in the second half of the year.
For the quarter, Gildan earned US$35.9m or $0.29 per share in the three months to 2 January, up 23% from $29.2m or $0.24 per share a year earlier.
Strong activewear sales and higher selling prices were partially offset by higher cotton costs and start-up inefficiencies in manufacturing and at its new retail distribution centre in Charleston, South Carolina.
Quarterly sales jumped to $331.3m from $220.4m. Sales of activewear and underwear surged 76.7% to $270.1m thanks to inventory replenishment by US wholesale distributors, but sales of socks fell 9.3% to $61.2m.
Gross margins fell to 24.7% in the quarter from 29.8% a year ago, due to higher cotton, energy and other purchased input costs, start-up manufacturing inefficiencies, and increased sewing overtime costs.
Looking ahead, Gildan expects sales in excess of $1.6bn for the full 2011 fiscal year, but believes recent rises in selling prices is likely to fully offset by “higher than previously projected” cotton costs.
It has calculated cotton costs for consumption in the year at just above $1.10 per pound – but admits it has not yet covered a large proportion of its cotton requirements for consumption in the fourth quarter.
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