Gildan Activewear, Inc. (GIL)

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

Q2 2013 Earnings Call

May 02, 2013 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 - Founder, Chief Executive Officer, President and Director

Analysts

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

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

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

Taposh Bari - Goldman Sachs Group Inc., Research Division

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

Brian Morrison - TD Securities Equity Research

David J. Glick - The Buckingham Research Group Incorporated

Chase Bethel - Desjardins Securities Inc., Research Division

Stephen MacLeod - BMO Capital Markets Canada

Tal Woolley - RBC Capital Markets, LLC, Research Division

Mark Petrie - CIBC World Markets Inc., Research Division

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

Anthony Zicha - Scotiabank Global Banking and Markets, Research Division

Chris Li - BofA Merrill Lynch, Research Division

Presentation

Operator

Welcome to the Q2 2013 Gildan Activewear Earnings Conference Call. My name is Christine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Sophie Argiriou, Director of 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 second quarter of fiscal 2013 and our interim shareholder report containing management's discussion and analysis and consolidated financial statement. These documents are available on our website at www.gildan.com, and will be filed with the Canadian Securities Regulatory Authorities and the U.S. Securities Commission.

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.

Laurence will first take you through our second quarter performance and provide an update on our business outlook. After which, a Q&A session will follow.

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 in the U.S. Securities and Exchange Commission and Canadian Securities Regulatory Authorities that may affect the company's future results.

I will now turn the call over to Laurence.

Laurence G. Sellyn

Good morning. We were pleased today to report record results for the second quarter of the fiscal year, which were ahead of expectations. These results were achieved in weak industry conditions in both operating segments.

We also provided strong sales and EPS guidance for our June quarter and now feel comfortable to narrow our EPS guidance range for the full fiscal year to $2.65 to $2.70, compared to our prior range of $2.60 to $2.70, in spite of the impact of higher than previously anticipated cotton costs for the second half of the year.

Adjusted EPS for the second quarter was $0.59 per share, compared to our previous guidance range of $0.54 to $0.57, and $0.23 per share in the second quarter of last year.

Consolidated gross margins for the second quarter were approximately 29%, compared with approximately 18% in the second quarter of last year. The main factors impacting the results for the second quarter, compared to the second quarter of last year were as follows.

Firstly, the significant reduction in cotton costs compared to the second quarter of fiscal 2012. Cotton costs in the second quarter were approximately $0.85 per pound, compared with approximately $1.60 per pound in the second quarter of fiscal 2012.

Secondly, the impact of lower Printwear net selling prices, including the approximate $5 million impact of a distributor inventory devaluation discount in the second quarter.

It should be noted that the majority of the benefit of the reduction in the price of cotton, from peak cotton prices, had already been passed through in advance to Printwear customers in the reduction of Printwear selling prices in the first quarter of 2012, even though we continue to consume high-cost cotton in cost of sales.

We believe that selling prices are currently in good alignment with cotton prices. The third factor was a 4% increase in unit sales volumes in the U.S. Printwear market, primarily due to the acquisition of Anvil. This increase was achieved in spite of the impact of lower industry demand for T-shirts than last year, which is being attributed within the industry largely to the unseasonably cooler weather.

In addition, Printwear sales volumes were negatively impacted by lower seasonal inventory replenishment than last year, due to the high level of restocking in the second quarter of fiscal 2012, following the normally high level of inventory de-stocking in the first quarter of 2012.

Inventories of our brands in the channel were in good balance at the end of the second quarter and were at approximately the same level as the year ago.

A decision was made in the quarter to focus the Anvil brand on contemporary ring-spun products and discontinue products which do not fit with this brand positioning. Results for the second quarter include a charge of $0.02 per share for the discontinuation of certain Anvil product lines.

The mix factors that we achieved, close to 20% growth in sales volumes and international markets, compared to the second quarter of last year. Results for Branded Apparel continue to improve, due to a higher volume mix of Gildan and Gold Toe products, and the volume impact of the acquisition of Anvil.

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