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February 22, 2019

Gildan Activewear hails “strong” Q4, meets FY targets

Canadian apparel maker Gildan Activewear has hailed a "strong finish" to a year which saw it navigate unanticipated weather impacts and supply chain disruptions, as both earnings and revenue rose in the fourth quarter.

By Beth Wright

Canadian apparel maker Gildan Activewear has hailed a “strong finish” to a year that saw it navigate unanticipated weather impacts and supply chain disruptions, as both earnings and revenue rose in the fourth quarter.

Net earnings totalled US$59.6m for the three months ended 30 December, compared with $54.9m in the prior year period. The Montreal, Canada-based company said it incurred $21.7m of restructuring and acquisition-related costs in the fourth quarter, primarily related to its organisational realignment and the consolidation of textile and sock manufacturing, warehouse distribution, and garment dyeing operations.

With respect to textile manufacturing, Gildan said it made the decision during the period to close its AKH textile facility in Honduras, which was acquired as part of the Anvil acquisition in 2012 and was operating in leased premises outside of its large manufacturing complex in Rio Nance.

The company transitioned production – that was largely for fashion basics products – into its new Rio Nance 6 textile facility, in which it has recently invested as part of a bid to boost production. In addition, Gildan also began the consolidation of its sock operations in the period, integrating the majority of its sock production in Honduras into its Rio Nance 4 facility, with its Rio Nance 3 facility now largely focusing on garment dyeing operations.

Gildan noted adjusted net earnings of $88.9m were up 31.5% from $67.6m in the fourth quarter last year.

Gross margin, meanwhile, was down 80 basis points to 26.3% compared to the prior year quarter. The decrease was mainly due to higher raw material and other input costs, activewear growth ramp-up costs, and the flow through of the balance of the costs related to supply chain disruptions incurred earlier in the year. 

Net sales in the period totalled $742.7m, a 13.6% rise on the $653.7m reported last year. The increase was driven by a 22.3% increase in activewear sales, partly offset by a 7.9% sales decline in the hosiery and underwear category, which was anticipated.

Gildan said the increase in the activewear category, which generated $569m in net sales, was mainly due to higher unit sales volumes, a better product-mix driven primarily by higher fleece shipments, and higher net selling prices. Activewear volume growth reflected higher shipments of imprintable products in North America and a 29% increase in international shipments, as well as higher sales to global lifestyle brands and retailers.

Sales in the hosiery and underwear category, meanwhile, totalled $173m, as anticipated, down $15m from the fourth quarter last year.

For the full year, net earnings were $350.8m, down from $362.3m in 2017, with Gildan incurring $34.2m of restructuring and acquisition-related costs for the full year. 

The retailer had initially projected restructuring and acquisition-related costs for 2018 to be in the range of $15-$20m but noted the higher than expected charges were largely associated with the consolidation of textile manufacturing and sock production capacity, as well as the closure of an additional distribution facility in North Carolina, which were not assumed in its initial guidance.

Adjusted net earnings for 2018 were $393.1m. 

Net sales for the period, meanwhile, totalled $2.91bn, up 5.7% over last year and in line with guidance. 

Looking ahead, Gildan’s guidance for 2019 sees GAAP diluted EPS growth of 17% and adjusted diluted EPS growth of 10% over 2018, at the midpoint of the company’s guidance range, on projected sales growth in the mid-single-digit range.

“We ended 2018 on a strong finish, meeting our full-year financial targets after successfully navigating through unanticipated weather impacts and supply chain disruptions during the year, and executing well on our organisational consolidation initiatives,” the company said. 

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