Canadian apparel maker Gildan Activewear has seen third-quarter profits plunge as the impact of Covid-19 continued to batter sales.
While results for the third quarter reflected a strong improvement from the second, net earnings fell 46.2% year-on-year to US$56.4m and sales were 18.6% lower at $602.3m.
Third-quarter sales were comprised of activewear sales of $456m, down 26.3% from the prior year, and strong sales growth in the hosiery and underwear category, where Gildan generated $146m of sales, up 21.2% compared to the third quarter of 2019.
The decline in activewear sales was primarily driven by lower unit sales volumes, unfavourable product-mix, and higher promotional discounting in the imprintables channel.
Imprintables sales volumes were down 21% in North America and 25% in international markets, reflecting the ongoing impact from the Covid-19 pandemic. Despite the sales volume decline, Gildan was encouraged that overall POS trends in the imprintables channels remained relatively stable through the third quarter, on average down year-over-year about 15% to 20% in North America and by 25% in international markets, largely in line with the Point of Sales (POS) levels in these markets at the end of the second quarter.
Gross margin was down 490 basis points on last year to 22.5%, mainly due to a 280-basis point unfavourable product-mix impact, an approximate 250-basis point impact on gross margin related to lower manufacturing capacity utilisation costs, as well as lower net selling prices due to the continuation of higher promotional imprintables discounting in the quarter.
“We were pleased with the recovery of our sales and earnings during the third quarter. Retail sales performance was driven by momentum in underwear, and while the lack of large events continues to impact imprintable channels we are nonetheless seeing areas of opportunity,” said Gildan president and CEO, Glenn Chamandy.
“Further, we continue to be pleased with the results we are seeing from our “Back to Basics” strategy as we continue to place a strong focus on meeting our customers’ needs and growing market share through simplification of our product portfolios, removal of cost and complexity from our business and fully leveraging our world-class, sustainably-focused, vertically-integrated manufacturing platform.”
Gildan withdrew its guidance for 2020 earlier this year due to the unprecedented nature and uncertainty related to the impacts of the Covid-19 pandemic.
While it did not provide a financial outlook, the company said cited a promising start to the fourth quarter but noted it remains cautious given the ongoing trajectory of the pandemic, as well as the uncertain outlook for the global economy and the overall impact this may have on the demand for its products.
It added it will complete a strategic retail product review in the fourth quarter, as previously noted, as part of its ongoing ‘Back to Basics’ strategy.
“To the extent that our review leads to a decision to rationalise any part of our retail product offering, a related inventory charge could be incurred in the fourth quarter which we do not expect would exceed $25m,” it said.