Gildan Activewear, Inc. (GIL)

GIL 
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Industry: Consumer Non-Durables
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Gildan Activewear (GIL)

Q4 2012 Earnings Call

November 29, 2012 8:30 am ET

Executives

Sophie Argiriou - Director of Investor Communications

Laurence G. Sellyn - Chief Financial & Administrative Officer and Executive Vice President

Glenn J. Chamandy - Chief Executive Officer, President and Director

Analysts

Martin Landry - GMP Securities L.P., Research Division

Anthony Zicha - Scotiabank Global Banking and Markets, Research Division

Chris Li - BofA Merrill Lynch, Research Division

Tal Woolley - RBC Capital Markets, LLC, Research Division

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Susan K. Anderson - Citigroup Inc, Research Division

David J. Glick - The Buckingham Research Group Incorporated

Stephen MacLeod - BMO Capital Markets Canada

Mark Petrie - CIBC World Markets Inc., Research Division

Vishal Shreedhar - National Bank Financial, Inc., Research Division

Presentation

Operator

Welcome to the Fourth Quarter 2012 Gildan Activewear Earnings Conference Call. My name is Christine, and I will be your operator for today's conference. [Operator Instructions] Please note, today's conference is being recorded.

I will now turn the call over to Sophie Argiriou, Director, Investor Communications. You may begin.

Sophie Argiriou

Thank you, Christine. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued our press release announcing our earnings results for the fourth quarter and fiscal 2012. During the week of December 3, we will be filing our shareholder report containing management's discussion and analysis and our 2012 audited consolidated financial statements with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. These documents will also be made available on our website at www.gildan.com.

I'm joined here today by Glenn Chamandy, our President and Chief Executive Officer; and Laurence Sellyn, our Executive Vice President and Chief Financial & Administrative Officer.

Before Laurence takes you through the results and our business outlook, I would like to remind everyone that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve unknown and known risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

We refer you to the company's filings with the U.S. Securities and Exchange Commission and Canadian securities regulatory authorities that may affect the company's future results.

I would now like to turn the call over to Laurence.

Laurence G. Sellyn

Good morning. This morning, we announced our fourth quarter results, which were a record for any fiscal quarter, and initiated our guidance for fiscal 2013 with projected EPS of $2.60 to $2.70 per share. Our earnings were mirrored by strong free cash flows, and we were pleased to announce a 20% increase in our quarterly dividend, which we raised to $0.09 per share.

In addition, we announced 2 positive strategic developments in the business. Firstly, we announced that we have obtained important new branded retail programs, which will phase in during fiscal 2013 and provide greatly enhanced national exposure and visibility for the Gildan brand. Our fiscal 2013 EPS guidance includes a $15 million increase in advertising expenses in order to further strengthen the equity of the Gildan brand and the Gold Toe portfolio of brands.

The second strategic initiative is a major investment in vertical yarn-spinning in the U.S. This investment is intended to support the company's planned sales growth in the coming years and reflects our business model to always support our growth with capital investments and global low-cost production and superior product technology. We believe that these investments in our brands and in our vertically integrated manufacturing will further solidify the foundation for the company's continuing long-term growth.

Adjusted EPS for the fourth quarter was $0.78 per share, up 81.4% from $0.43 in the fourth quarter of last year. The increase in EPS was due to lower cotton costs, which are continuing to decline from the peak of the cotton bubble, which impacted our margins in the fourth quarter of last year and the first half of the current year; together with increased Printwear unit sales volumes in both the U.S. and international markets; more favorable product mix in Branded Apparel due to the company's strategy to replace private label retail programs with higher-volume branded programs; more favorable selling prices for Branded Apparel; and the accretive impact of the acquisition of Anvil.

These positive factors were partially offset by lower selling prices mainly due to the reduction in Printwear selling prices implemented in the first quarter of fiscal 2012; unfavorable Printwear product mix; manufacturing inefficiencies, which include the impact of inflation in labor and electricity costs; a $0.02 per share charge for the labeling issue discussed in our press release in October; and higher income taxes due to the improved results for Branded Apparel compared to last year.

Market conditions in the U.S. printwear industry continued to be relatively stable throughout the fourth quarter, resulting in relatively low promotional discounting. In addition, while we no longer have the CREST data for other manufacturers, inventories of Gildan brand in the U.S. distributor channel at the end of the quarter were lower than at the end of fiscal 2011 and in good balance in relation to demand.

We have introduced our guidance for fiscal 2013 with projected EPS of $2.60 to $2.70 per share and projected sales revenues of approximately $2.1 billion. Our guidance reflects the continuation of the strong recovery in earnings in the fourth quarter of fiscal 2012. The projected growth in earnings in fiscal 2013 compared to the current year is based on the assumptions of lower cotton costs, which are assumed to continue to decline during the course of fiscal 2013; together with higher unit sales volumes or favorable product mix in Branded Apparel and Printwear and increased manufacturing efficiencies, mainly due to the impact of Rio Nance V and the biomass project; and further cost synergies from implementing our acquisition integration plans.

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