First Quarter Results
Net earnings were U.S. $41.7 million or U.S. 34 cents per share on a diluted basis for the first fiscal quarter ended December 29, 2013, compared with net earnings of U.S. $35.3 million or U.S. 29 cents per share for the first quarter of fiscal 2013. Before reflecting restructuring and acquisition-related costs in both years, adjusted net earnings for the first quarter of fiscal 2014 were U.S. $43.3 million or U.S. 35 cents per share, up 10.7 percent and 9.4 percent, respectively compared to adjusted net earnings of U.S. $39.1 million or U.S. 32 cents per share in the first quarter of the previous year.
The growth in earnings and EPS in the first quarter compared to last year was primarily due to growth in sales revenues in both of the Company's operating segments, partially offset by higher selling, general and administrative expenses. Net sales in the first quarter amounted to U.S. $451.4 million, up 7.3 percent from U.S. $420.8 million in the first quarter of fiscal 2013. The Company had projected net sales for the quarter of approximately U.S. $450 million.
Net sales for the Printwear segment amounted to U.S. $261.8 million, up 7.4 percent from U.S. $243.7 million in the first quarter of fiscal 2013. Unit sales volumes increased by 5.9 percent from the first quarter of last year, including a 31.2 percent increase in international sales volumes. The positive impact on net sales of higher unit sales volumes and more favourable activewear product-mix was partially offset by lower net selling prices compared to the first quarter of last year. The increase in Printwear sales volumes was realized in spite of increased seasonal destocking by wholesale distributors. Distributor inventory levels at the end of the first quarter continued to be in good balance relative to projected industry demand.
Net sales for Branded Apparel were U.S. $189.6 million, up 7.1 percent from U.S. $177.0 million in the first quarter of last year. The growth in sales for the Branded Apparel segment was primarily due to continuing strong consumer demand for Gildan(R) branded underwear and continuing market penetration by Gold Toe(R) brand socks. The growth in sales of branded programs was partially offset by the impact of lower sales of private label programs and lower sales to global lifestyle brands. Overall retail market conditions continued to be weak in the holiday season.
Consolidated gross margins in the first quarter were 26.4 percent compared to 26.8 percent in the first quarter of last year. The impact of lower Printwear net selling prices was partially offset by more favourable Printwear product-mix and slightly lower cotton costs.
SG&A expenses in the first quarter were U.S. $72.8 million, compared with U.S. $69.4 million in the first quarter of last year. The increase in SG&A expenses continued to reflect increased marketing and advertising expenses. As a percentage of sales, SG&A expenses declined to 16.1 percent from 16.5 percent a year ago.
Results for the first quarter of fiscal 2014 were also impacted by lower financial expenses and higher income taxes. The effective income tax rate in the first quarter, excluding the impact of restructuring and acquisition-related costs, was approximately 5.7 percent compared with 4.4 percent in the first quarter of fiscal 2013. The increase in the income tax rate was primarily due to the improved operating income for Branded Apparel.
In the first quarter, the Printwear segment reported operating income of U.S. $48.3 million, up 5.2 percent from U.S. $45.9 million in the first quarter of fiscal 2013. The Branded Apparel segment reported quarterly operating income of U.S. $21.9 million, up 11.7 percent from U.S. $19.6 million in the first quarter of fiscal 2013. The improved results for both operating segments were due to the growth in sales revenues in the first quarter and increased volume leverage on SG&A expenses in Branded Apparel.
During the first quarter of fiscal 2014, the Company utilized free cash flow of U.S. $68.5 million to finance the seasonal increase in inventories to service anticipated demand and capital expenditures of U.S. $58.1 million. The Company ended the first quarter with cash and cash equivalents of U.S. $79.1 million and outstanding bank indebtedness of U.S. $64.0 million.
Outlook
The Company has re-iterated its guidance for the full fiscal year which it initiated on November 21, 2013. The main elements of the Company's financial guidance for fiscal 2014 continue to be:
- Consolidated net sales revenues of approximately U.S. $2.35 billion
- Sales revenues for Printwear slightly in excess of U.S. $1.5 billion
- Sales revenues for Branded Apparel in excess of U.S. $825 million
- Adjusted EPS in the range of U.S. $3.00-$3.10, up 11.5 percent-15.2 percent compared to fiscal 2013
- Capital expenditures of U.S. $300-$350 million primarily for yarn-spinning, as well as expenditures for the continuing ramp-up of Rio Nance I, the initial investment in a new textile manufacturing facility, the reconfiguration and upgrading of the equipment at the former Anvil manufacturing facility in Honduras, a new sewing facility in the Dominican Republic, further investments in energy saving projects, and the new distribution centre in Honduras
- Free cash flow of U.S. $50-$100 million
The Company is assuming higher cotton costs than previously projected in the second half of the fiscal year, due to the recent rise in cotton futures prices, as well as further inflationary cost increases. However, these factors are forecast to be offset by slightly higher net selling prices. The Company's guidance continues to assume no material change in the current economic environment, including the continuation of current soft retail market conditions.
The Company continues to expect that the selection of the site for its new large-scale textile facility in Central America will be finalized before the end of the second fiscal quarter. The new ring-spun yarn-spinning facility being constructed in Salisbury, N.C. is expected to begin its production ramp-up in the second fiscal quarter.
The Company is also today initiating its guidance for the second fiscal quarter. Adjusted EPS for the second quarter is projected at U.S. $0.61-$0.64, up 3.4 percent-8.5 percent from the second quarter of last year, on projected net sales revenues in excess of U.S. $550 million, up in excess of 5 percent from last year. Cotton costs in the second quarter will be comparable to the first quarter but higher than the second quarter of fiscal 2013. Gross margins in the second and third quarters are also expected to be negatively impacted by short-term costs being incurred to further improve the efficiency and product capabilities of certain manufacturing operations. The projected results for the second fiscal quarter are in line with the Company's full year guidance provided in November of 2013. The Company's full year guidance assumes that quarterly EPS will increase sequentially in successive quarters during the balance of the fiscal year.
Declaration of Quarterly Dividend
The Board of Directors has declared a cash dividend of U.S. $0.108 per share, payable on March 17, 2014 to shareholders of record on February 20, 2014. This dividend is an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.
Disclosure of Outstanding Share Data
As of January 31, 2014, there were 121,955,968 common shares issued and outstanding along with 1,199,216 stock options and 722,319 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a pre-determined option price. Each Treasury RSU entitles the holder to receive one common share from treasury at the end of the vesting period, without any monetary consideration being paid to the Company. However, the vesting of at least 50% of each Treasury RSU grant is contingent on the achievement of performance conditions that are primarily based on the Company's average return on assets performance for the period as compared to the S&P/TSX Capped Consumer Discretionary Index, excluding income trusts, or as determined by the Board of Directors.
Gildan is a leading supplier of quality branded basic family apparel, including T-shirts, fleece, sport shirts, socks and underwear. The Company sells its products under a diversified portfolio of company-owned brands, including the Gildan(R), Gold Toe(R) and Anvil(R) brands and brand extensions, as well as under licensing arrangements for the Under Armour(R), Mossy Oak(R) and New Balance(R) brands. The Company distributes its products in printwear markets in the U.S. and Canada, where Gildan(R) is the industry-leading brand, and the Company is increasing its penetration in international printwear markets. The Company is also one of the largest suppliers of branded athletic, casual and dress socks for a broad spectrum of retailers in the U.S. The Company is also developing Gildan(R) as a consumer brand for underwear and activewear.
By press release
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