Benefiting from manufacturing cost reductions and lower cotton costs, combined with continuing top-line growth, Gildan Activewear Inc. on Thursday reported net earnings rose 2.9 percent to $126.4 million, or 52 cents a share, for the three months ended Oct. 4.
The earnings reflect restructuring and acquisition-related costs of about $3.3 million after-tax in the quarter relating primarily to the integration of acquisitions.
Consolidated net sales in the third quarter were below the company’s guidance of $700 million, mainly as a result of lower-than-anticipated Branded Apparel sales that were impacted by continuing lower than anticipated inventory replenishment by a U.S. major retail customer and weaker-than-anticipated demand during the back-to-school period. Adjusted diluted earnings per share for the quarter were within the firm’s guidance range.
The Branded Apparel sales drop was offset mainly by higher-than-projected net selling prices and more favorable product mix for Printwear, Gildan said.
During the period, the company generated $149.2 million of free cash flow after financing capital expenditures of $42.2 million. Capital investments were primarily for new yarn-spinning facilities in the U.S., textile projects in Rio Nance, Honduras, and the expansion of the company’s printwear distribution center in Eden, N.C.
Gildan said the improved earnings performance in the third quarter reflected unit sales volume growth and operating margin expansion.
During the quarter, the company said it benefited from lower manufacturing costs due to savings from its investments in yarn-spinning and other capital projects, and lower cotton and purchased input costs. Overall, higher unit sales volumes and lower manufacturing costs in the quarter more than offset lower net selling prices and unfavourable product-mix for Printwear, due to the later timing of fleece shipments, and increases in selling, general and administrative, financial and income tax expenses.
Net sales for the Printwear segment for the three months rose 1.1 percent to $440.5 million from $435.8 million in the prior year’s quarter.
Unit sales volume growth in the U.S. reflected the benefit of the pricing actions taken in December and continued penetration in the high-valued, higher growth fashion basics and performance segments of the U.S. printwear market, including the impact of the acquisition of Comfort Colors, which continued to perform strongly.
Sales in Europe recovered in the third quarter and the company continued to achieve strong growth in the Asia-Pacific region.
Net sales for the Branded Apparel segment were up 1.7 percent to $234 million from $230.2 million in the same quarter of last year. The increase in Branded Apparel sales reflected a 30 percent gain in Gildan branded programs, including the impact of converting private label programs and increased sales of licensed and global lifestyle brands.
Market share for Gildan branded men’s underwear remained in excess of 7 percent for the month of September, according to the NPD Group’s Retail Tracking Service. Market share for Gildan branded men’s socks in that month was 14 percent.
In the nine months, consolidated net sales increased 6.1 percent to $2 billion from $1.9 billion in the same period last year, reflecting an increase of 10.5 percent in Branded Apparel segment sales and 4 percent sales growth in Printwear segment sales.
Net earnings for the first nine months were down 12 percent to $278.5 million, or $1.14 per share, from $317.9 million, or $1.29 per share for the same period of the prior year.
The Montreal-based activewear specialist said results for the fourth quarter are expected to be significantly in excess of earnings in the like period of any previous year.
The company is projecting adjusted diluted EPS of 28 cents to 30 cents for the December quarter, on projected sales revenues in excess of $500 million, compared with an adjusted net loss of 15 cents a share on sales revenues of $390.6 million in the year-ago quarter. Projected net earnings for the fourth quarter are expected to be a record 60 percent increase compared to the previous record in the fourth quarter of 2013.
The projected results reflect expected continued unit volume growth in both operating segments, including the impact of new retail program shipments in Branded Apparel and the impact of the acquisition of Comfort Colors.
During the latter part of the third quarter, the Company began shipments of Gildan branded socks and underwear programs to a new major U.S. mass retailer and remains on track to have Gildan branded underwear products in 18,000 retail doors by the end of the holiday season and to achieve further expansion in its market share for underwear as it enters the new calendar year, including the impact of new programs obtained with new retailers.
The projected sales and earnings momentum in the fourth quarter is expected to position the company for continued earnings growth in 2016 as it expects to achieve continuing volume growth and further manufacturing cost reductions, combined with lower cotton costs.
The ramp-up of the its yarn-spinning facilities is on plan and the company continues to expect to achieve its projected three-year target of $100 million in annual cost savings by the end of 2017.