MONTREAL — The purchase of a sock business boosted revenues and helped Gildan Activewear Inc. to higher third-quarter profits despite restructuring charges and higher expenses.
This story first appeared in the August 14, 2008 issue of WWD. Subscribe Today.
For the three months ended July 6, the firm reported net income rose 3.1 percent to $54 million, or 44 cents a diluted share, including 2 cents a share of restructuring charges, versus $52.4 million, or 43 cents, a year earlier. Excluding restructuring charges in both years, profits were $56.3 million, or 46 cents a share, in the most recent year and $57 million, or 47 cents, in the third quarter of fiscal 2007.
Sales were up 30.6 percent to $380.8 million from $291.6 million in last year’s quarter due to a combination of higher prices, higher volume and the acquisition of the V.I. Prewett sock business, which added $43.8 million to quarterly revenue. Activewear unit selling prices were up about 6 percent and the company registered a 10.4 percent increase in unit sales for activewear and underwear.
However, growth in activewear sales was “significantly constrained” by lack of inventory as a result of lower-than-anticipated production from the company textile facility in the Dominican Republic.
Gildan registered increases in market share in activewear, T-shirts, fleece and sport shirts versus the comparable 2007 period, the company said.
Gross margin in the third quarter declined to 31.6 percent of sales from 32.4 percent in the third quarter of 2007. Higher cotton, energy, chemical and transportation costs and the impact of what it termed “production inefficiencies” in the Dominican Republic offset the positive effect of higher activewear selling prices and sourcing improvements in other areas.
Shares of Gildan dropped $2.28, or 8.2 percent, to end the New York Stock Exchange session on Wednesday at $25.45.
In addition to restructuring charges, the company said net income was hurt by higher operating expenses and provisions for a doubtful account. The restructuring charges were related to the closure of Gildan’s Canadian and U.S. manufacturing facilities and a planned consolidation of sewing operations in Haiti.
For the nine months, net income rose 38.2 percent to $123.2 million, or $1.01 a diluted share, from $89.2 million, or 73 cents, in the comparable 2007 period. Stripping out charges for restructuring and other purposes, earnings were $1.04 a diluted share versus 92 cents a year ago. Sales were up 30.4 percent to $925 million from $709.5 million.
The company stood by its full-year guidance for earnings of $1.45 to $1.50 a diluted share for the year.