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Gildan’s Q1 Profits, Sales Drop

Bests estimates but withdraws guidance, hit by S&P downgrade.

Gildan Activewear Inc. said that lower demand caused declines in profit and sales in its first quarter.

The Montreal-based vendor reported an 84.6 percent drop in net income to $4.3 million, or 4 cents a diluted share, from $27.9 million, or 23 cents a share, a year ago. Sales in the three months ended Jan. 4 fell 26.5 percent to $184 million from $250.5 million. 

Earnings per share were on target with the company’s own guidance of breakeven to 5 cents and above the Yahoo Finance consensus estimate of 3 cents.

The company said it is suspending issuing guidance for the rest of fiscal 2009 because of the ongoing financial crisis.

“It is increasingly difficult to provide investors with reliable forecasts of end-use demand and distributor replenishments against the background of the current unprecedented economic uncertainty and volatility,” said chief financial and administrative officer Laurence Sellyn on a call with investors.

Gildan said significantly lower unit sales volumes, higher cotton and energy costs and unfavorable activewear product mix contributed to the decline in profit in the first quarter. The company attributed the sales decline to lower shipments from distributors to screen printers and distributor inventory reductions.

Despite decreased volume overall and unit declines in all three categories, Gildan said ACNielsen research indicated the company experienced increases in its market share of activewear products, T-shirts and fleece, to 53.3 percent, 54.2 percent and 51.9 percent, respectively, based on shipments to U.S. screen printers.

Units declined 4.7 percent, 3.8 percent and 7.1 percent in the three areas, while industry declines all registered in double digits.

Standard & Poor’s Equity Research downgraded the manufacturer to “sell” from “hold.” “Weakened demand, increased customer credit risk, our outlook for higher unemployment, reduced income and a difficult retail environment suggest continued sales contraction through fiscal year 2009, about 25 percent, and in first half of fiscal year 2010,” wrote retail analyst Marie Driscoll.