Gildan Activewear Inc.
) third quarter adjusted earnings of 95 cents per share not only
met the previously provided guidance, but also came in line with
the prior-year period figure. However, the company's quarterly
earnings came a penny below the Zacks Consensus Estimate.
Reported earnings benefited from strong sales recorded at both its
business segments, offset by increased cotton cost, increased
inflationary expenses and some production inefficiencies. Further,
results were aided by an extra week during the quarter, which was
slightly moderated due to a national holiday falling during that
Aided by double-digit rise in both its segments, net sales of this
activewear retailer surged 12.9% to $693.8 million, almost in line
with the Zacks Consensus Estimate of $694 million. However, net
sales fell short of the previous forecast of achieving $700
Despite erratic market conditions during the quarter, Gildan's top
line benefited from greater volumes at the global and North
American printwear markets, greater product prices along with a
favorable mix. Further, robust consumer demand for the company's
licensed brands and global lifestyle brands augmented sales.
Gildan is planning to enhance its underwear capacity by two-fold in
order to back its growth plans for the next fiscal year.
Margins and Costs
Gildan's gross profit marginally increased to $194.2 million from
$193.3 million in the year-ago comparable quarter whereas gross
margin contracted 350 basis points (bps) to 28%, reflecting the
effect of production inefficiencies and higher cotton costs,
partially offset by increased selling prices at the company's
Selling, general and administrative (SG&A) expenses climbed
2.7% year over year to $71.8 million while as percentage of sales
it fell 110 bps to 10.3% from 11.4% in the prior-year period. The
rise in SG&A was attributable to a hike in distribution
expenses resulting from greater volumes. However, there was partial
relief from a fall in variable compensation cost and favorable
effect of the weakening Canadian currency, on corporate head office
The company's operating income came in at $121.8 million, almost
flat compared to $121.9 million last year. However, the operating
income margin shriveled 220 bps to 17.6%.
Sales at the company's Printwear segment soared 11.6% to $483.4
million, reflecting an increase in volumes and higher selling
price. The segment's operating income increased 8.8% to $129.7
million while as a percentage of sales it contracted 70 bps to
At the Branded Apparel segment, sales advanced 16% to $210.4
million, driven by enhancements in all categories like
undergarments, activewear and socks. Higher shipments of global
lifestyle brands and solid sales at licensed brands and Gildan and
Gold Toe brands also facilitated robust sales at this segment.
The segment's operating income, however, plummeted 42.9% to $15.6
million compared with $27.3 million in the year-ago comparable
quarter. Further, operating margin contracted 760 bps to 7.4% as
the benefit from increased sales and leveraged SG&A expenses
were more than offset by higher cotton costs and manufacturing
Gildan ended the quarter with negative cash and cash equivalents
balance of $45.1 million. Its long-term debt stood at $135.0
Management announced a cash dividend of 10.8 cents per share to
stockholders of record on Aug 14, 2014, payable on Sep 8, 2014.
The Canada-based company lowered its earnings guidance for fiscal
2014, to reflect the impact of the Doris acquisition charges, the
expectation of continuing production inefficiencies and unfavorable
product mix. Management now envisions adjusted earnings to lie in a
band of $3.00 - $3.03, as against its previous forecast of $3.00 -
$3.10 per share. The Zacks Consensus Estimate for fiscal 2014
stands at $3.09, and is subject to a downward revision.
However, the company raised its net sales forecast for the fiscal
to slightly over $2.40 billion from the earlier projection of $2.40
billion. Printwear sales are expected to be a little over $1.55
billion and Branded Apparel sales to be roughly $850 million, for
Further, the company continues to project capital expenditures to
touch the higher end of the earlier guidance range of $300-$350
million during the year, mainly for yarn-spinning, making upgrades
to its existing facilities, continuing to invest in its new
manufacturing facility and other energy saving projects. Moreover,
Gildan now expects free cash flow to fall below $50 during fiscal
Concurrent to this press release, the company declared its plan to
build a new textile facility in Honduras at the Rio Nance complex,
mainly to optimize production inefficiencies at Gildan's other
For the fourth quarter of fiscal 2014, the company envisions
earnings of $1.06 - $1.09 per share, up 27.7% - 31.3% from the
year-ago quarter. The current Zacks Consensus Estimate is pegged at
$1.14 per share. Net sales for the quarter are expected to rise by
over 11.8% to more than $700 million.
Other Stocks to Consider
Gildan currently holds a Zacks Rank #2 (Buy). Other stocks in the
industry looking attractive at current levels include Hanesbrands
), Vince Holding Corp (
), with a Zacks Rank #1 (Strong Buy) and V.F. Corporation (
) with the same Zacks rank as Gildan.
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