Gildan Activewear, Inc. (GIL)

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Gildan Activewear (GIL)

Q1 2013 Earnings Call

February 06, 2013 5:00 pm ET

Executives

Sophie Argiriou - Director of Investor Communications

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

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

Analysts

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

Kenric S. Tyghe - Raymond James Ltd., Research Division

Anthony Zicha - Scotiabank Global Banking and Markets, Research Division

Brian Morrison - TD Securities Equity Research

Mark Petrie - CIBC World Markets Inc., Research Division

Tal Woolley - RBC Capital Markets, LLC, Research Division

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

Justin C. Maurer - Lord, Abbett & Co. LLC

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

Susan K. Anderson - Citigroup Inc, Research Division

David J. Glick - The Buckingham Research Group Incorporated

C. Scott Rattee - Stonecap Securities Inc., Research Division

Presentation

Operator

Welcome to the Q1 2013 Gildan Activewear Earnings Conference Call. My name is Trish, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Sophie Argiriou, Director of Investor Communications. Please go ahead.

Sophie Argiriou

Thank you, Trish. Good afternoon, everyone, and thank you for joining us. Earlier this afternoon, we issued our press release announcing our earnings results for the first quarter of fiscal 2013 and our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents will be filed with the Canadian Securities Regulatory Authorities and the U.S. Securities Commission, and are 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 afternoon. Today, we announced record results for the first quarter of the fiscal year and reconfirmed our full-year sales and earnings guidance for fiscal 2013, which we had provided at the end of November.

Our key messages are unchanged since we reported 2 months ago. The strong recovery in earnings for our core Printwear business is continuing, and we are making important progress in 2013 in implementing our strategy to position Gildan as the consumer brand for socks, activewear and underwear, as well as to capitalize on growth opportunities for the Gold Toe portfolio of brands.

Adjusted EPS in the first quarter was $0.32 per share, slightly higher than the top end of our guidance range of $0.28 to $0.31. We've reflected the projected major turnaround from the first quarter of fiscal 2012, when our results were dramatically impacted by the sudden bursting of the bubble in the price of cotton.

The company incurred a loss in the first quarter of last year, due to a unique combination of factors, including: the historically high cost of cotton; abnormally high levels of seasonal inventory destocking by wholesale distributors; a special distributor devaluation discount; and abnormally high promotional discount rate in the U.S. distributor channel, as promotional activity was largely tied to sell-through from distributors to screenprinters, which was significantly in excess of replenishment shipments into the distributor channel, and an extended holiday manufacturing shutdown in order to manage inventory levels.

At that time, we made the decision to lower printwear selling prices even though we recognize that we would continue to consume inventories produced with high-cost cotton throughout the first half of the fiscal year. We made this decision in spite of the negative impact on short-term results in order to restimulate screenprinter demand, give distributors confidence and visibility to plan their business and replenish inventories and further reinforce our position as the industry leader.

At the time, we indicated to investors that we were confident that we would return to a positive earnings trajectory in the second half of the year, as our cotton costs and cost of sales declined in line with the lower selling prices.

Results for the fourth quarter of fiscal 2012 were a record for any fiscal quarter in the company's history. And as indicated, our results for the first quarter, which we reported today, are a record for the first quarter of the fiscal year.

The first quarter is seasonally the lowest fiscal quarter in the year for sales of T-shirts. Printwear industry conditions continue to be strong during the first quarter, and our overall revenues for Printwear increased by approximately 65%, compared with the first quarter of last year, due to the recovery in screenprinter demand, increased market share, the return to a more normal level of seasonal distributor de-stocking, the impact of the Anvil acquisition and the non-recurrence of the distributor inventory devaluation in the first quarter of last year.

Operating income for Printwear was $45.9 million in the first quarter, versus a loss of $30.8 million in the first quarter of fiscal 2012.

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