• Q4 earnings surged 34% to US$56.8m
  • Revenues climbed 23% to $369m
  • Expects Q1 gross margins to fall to 25% from 29.8%

T-shirt and underwear maker Gildan Activewear Inc has booked a 34% hike in fourth quarter earnings, but warned that higher cotton costs in the year ahead are likely to eat into margins.

Earnings in the three months to 3 October surged to US$56.8m or $0.47 a share, up from $42.4m or $0.35 a share, last year.

Growth was helped by strong unit sales at US distributors, fewer promotions, and the proceeds from an insurance claim. These partially offset the impact of lost sales and additional supply chain costs due to the Haiti earthquake in January 2010.

Revenues climbed 23% to $369m, from $301.7m a year ago, driven by a 28% rise in activewear and underwear sales and increasing penetration of the US screenprint market.

Gross margin was 27.3 per cent, a rise from 25.7%. Higher year-on-year cotton costs lowered gross margins by 380 basis points, of which 150 basis points was recovered through higher selling prices.

For the full year, earnings more than doubled to $198.2m or $1.63 per share, up from $95.3m or $0.79 per share, the year before. Net sales rose 26.3% to $1.3bn, up from $1.034 bn.

In its outlook, Gildan said it expects first quarter sales to be around 40% higher than the year before at $300m. But even though the company has already contracted all of its first-half and some of its full-year cotton needs, it expects gross margins to fall to 25% from 29.8% a year earlier as a result of higher cotton and other input costs.

It also plans to invest more than $150m in fiscal 2011 to expand its activewear and underwear capacity in Honduras, the Dominican Republic and Bangladesh and ramp-up of its second sock manufacturing facility in Honduras.