By  on December 29, 2000

NEW YORK -- With sales and gross margins both moving ahead, Gildan Activewear registered a 60 percent increase in fourth-quarter earnings.

Additionally, the firm announced plans to expand its manufacturing capacity.

Net income for the fourth quarter jumped 62.9 percent to $11 million, or 75 cents a diluted share. This compares to $6.8 million, or 47 cents, during the year-ago quarter.

The increased earnings resulted from higher sales combined with increased gross margins, according to the company. Gross margins were 28.9 percent compared to 26.5 percent in the 1999 fourth quarter.

The Montreal-based company's sales for the period ended Oct. 1 rose 26.1 percent to $81.1 million against $64.3 million a year ago. All dollar amounts were converted from the Canadian dollar at current exchange rates.

The company said the increased sales were driven by continuing market share penetration in Canada and the U.S. in both 100 percent cotton T-shirts and the newer product lines, including polyester-blend crewnecks, fleece pants and hooded sweatshirts.

The manufacturing and distribution plan takes advantage of the changes effected by The Trade Enhancement Act of 2000 (formerly referred to as the CBI Enhancement Act). Designed to balance the trade interests of Central American and Caribbean Basin countries with those of Mexico, which benefits from NAFTA, the legislation eliminates U.S. duty on goods sewn in these countries and made from fabric wholly formed in the U.S. from American-made yarn.

The company has set up facilities in Eden, N.C., and expanded its operations in Honduras as follows:

In October the company leased a facility, at what it called "very favorable terms," and is installing equipment to ramp up production in 2001.

Gildan entered into a long-term supply agreement with a major U.S. yarn manufacturer, also located in North Carolina but not identified, to purchase cotton yarn spun in the U.S. According to the company, the deal secures for Gildan fixed conversion costs for approximately 60 percent of its cotton yarn requirements with no significant capital investment expenditure.

Products knit in North Carolina will be bleached, dyed, finished and cut in a facility currently under construction in Honduras and expected to be completed next year. The facility, which is located within Gildan's Central American regional manufacturing hub, will allow the company to leverage its existing manufacturing infrastructure.After finishing in the new plant, products knit in North Carolina will primarily be sewn in Gildan's three existing facilities in Honduras, all of which are being expanded.

To maximize the efficiency of its Canadian operations under NAFTA, the company has expanded its Canadian knitting and dyeing operations. Fabric produced there for the U.S. market will then be sewn in Mexico where Gildan recently established two additional company-owned sewing operations and signed a letter of intent to acquire its largest Mexican contractor, Makino SA.

The company recently completed a new distribution facility, also in Eden, which should be up to full speed during the next fiscal year. Once up to full operational efficiency, the company said it will have approximately three times the capacity of its existing U.S. distribution center in Miami, which will be closed Dec. 31. The first quarter of fiscal 2001 will include a $2.7 million, or 18 cent a share, one-time charge related to the facility's closing.

The company expects the new initiatives to increase overall production capacity to 30 million dozen by the end of fiscal 2003 -- more than doubling the level of approximately 14 million dozens achieved in the fiscal year just ended. And all of this is expected to be done without a significant increase in capital expenditures, which are in the range of $40 million to $50 million annually.

H. Greg Chamandy, chairman and chief executive, told WWD the company's culture makes this possible. "We grow and continue to grow our business by a very entrepreneurial culture." He said emphasis remains on a lean overhead structure with few layers of bureaucracy.

Gildan started out with its facilities geographically centered on its headquarters in Canada, but as it's grown into more regions, it's kept its operations close to each other in regional hubs controlled by lean management teams. Eden, N.C., and the company's plants in Honduras represent two of the firm's hubs.

These additions wouldn't be possible, though, without the company's continued strong results. Chamandy said those results come from a "focus on one class of business" which consists of about 45,000 end users, many of whom are screen printers.

For fiscal 2000, net income was up 125.7 percent to $35.8 million, or $2.52 a diluted share, against last year's earnings of $15.9 million. Excluding the impact of a $1.6 million aftertax charge in the 2000 third quarter for debt refinancing, net income roughly doubled.The company, which went public in 1998, plans to increase its sales 10 times over in five years, and its fiscal 2000 results brought the manufacturer about half way to its goal. Sales for the period increased 37.4 percent to $301 million from $219 million in fiscal 1999.

Gildan's stock closed up 56 cents to $38.94 in New York Stock Exchange trading Thursday. In the past year, its price has ranged from a low of $17.63 to a high of $44.81

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