Gildan Activewear Inc. increased its second-quarter profits at a nearly double-digit pace despite higher cotton costs that drove down its gross margin.
The Montreal-based knitwear and underwear firm also said that it will build a new textile facility in the province of Guanacaste in northwestern Costa Rica, close to its sewing plants in Nicaragua and positioned to allow for duty- and quota-free access to the major markets it serves in the U.S.
In the quarter ended March 30, net income expanded 9.5 percent to $79.2 million, or 64 cents a diluted share, from profits of $72.3 million, or 59 cents, in the year-ago quarter.
Revenues rose 4.9 percent, to $548.8 million from $523 million, as printwear sales were up 2.9 percent to $378.5 million and branded apparel expanded 9.9 percent to $170.3 million.
The firm fell just short of analysts’ consensus estimates for revenues of $555.2 million while beating earnings per share estimates of 63 cents.
Gross margin dropped to 27.9 percent of sales from 28.9 percent in the second quarter of 2013 “as the impact of higher cotton costs compared to last year was only partially passed through into higher net selling prices in printwear, and selling prices for branded apparel were not increased,” the company said.
In a conference call to discuss the results, Glenn Chamandy, president and chief executive officer, said the company would have more details on its Costa Rica textile facility when it reports third-quarter results in August. “The plan is for us to start construction in 2014 and then obviously bring the facility on sometime in 2016,” he said.
“We need to bring incremental capacity on prior to Costa Rica.... We need to have installed capacity in 2015 to support our growth for 2016 on the momentum we have,” he added.
Gildan said in September that it would spend more than $200 million this year and in 2015 for the construction and ramp-up of two new yarn-spinning facilities in the southern U.S. in addition to a ring-spun yarn-manufacturing facility in Salisbury, N.C., and the modernization of open-end spinning facilities in Clarkton, N.C., and Cedartown, Ga.
Gildan expects capital expenditures this year to total between $300 million and $350 million, with about half dedicated to the new yarn-spinning capacity, according to Laurence Sellyn, chief financial and administrative officer. The firm is also investing in several of its existing facilities in Central America.
Sellyn will retire from Gildan at the end of the year after more than 15 years as cfo. The company expects his successor to be appointed prior to his departure.
In the first six months of the year, Gildan’s net income increased 12.4 percent, to $120.9 million, or 98 cents a diluted share, while revenues grew 6 percent to $1 billion.
The company maintained its guidance for full-year adjusted EPS of between $3 and $3.10 a diluted share but raised revenue expectations to about $1.55 billion, up from $1.5 billion previously projected.
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