Gildan Activewear, Inc. (GIL)

GIL 
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Gildan Activewear, Inc. (GIL)

F1Q 2014 Earnings Conference Call

February 05, 2014 05:00 PM ET

Executives

Sophie Argiriou, Vice President of Investor Communications

Glenn Chamandy - President and CEO

Laurence Sellyn - EVP and Chief Financial & Administrative Officer

Analysts

Anthony Zicha - Scotiabank

Martin Landry - GMP Securities

Stephen MacLeod - BMO Capital Markets

Chad Sutherland - Goldman Sachs

Kenric Tyghe - Raymond James

Andrew Burns - D.A. Davidson

Mark Petrie - CIBC

Chase Bethel - Desjardins Securities

Molly Iarocci - Stifel Nicolaus

David Glick - Buckingham Research

Derek Dley - Canaccord Genuity

Brian Morrison - TD Securities

Sabahat Khan - RBC Capital Markets

Presentation

Operator

Welcome to the Q1 2014 Gildan Activewear Earnings Conference Call. My name is Bectiva and I will be your operator for today’s call. (Operator Instructions). Please note that this conference is being recorded. I would now turn the call over to Sophie Argiriou, Vice President of Investor Communications. Sophie, you may begin.

Sophie Argiriou

Thank you, Bectiva. 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 2014 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.

With me on the call, I’m joined by Glenn Chamandy, our President and Chief Executive Officer; and Laurence Sellyn, our Executive Vice President and Chief Financial & Administrative Officer.

Our call today will begin with Laurence taking you through our first quarter performance and our business outlook for the fiscal year after which, a Q&A session will follow. Before we begin, please note 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.

And with that, I'll turn the call over to Laurence.

Laurence Sellyn

Good afternoon. This afternoon, we announced our results for the first quarter of fiscal 2014, which were at the top end of our guidance range. Adjusted EPS of $0.35 per share were a record for the first quarter of a fiscal year, which is seasonally the lowest sales quarter in the fiscal year for T-shirts. Q1 was the sixth successive quarter of record quarterly sales and earnings.

We also reiterated our prior guidance for sales, earnings, capital expenditures and cash flow for the full fiscal year and introduced our guidance for the second fiscal quarter.

Compared to a strong first quarter of fiscal 2013, adjusted EPS were up by 9.4%. The growth in EPS was primarily driven by growth in sales revenues of 7.3% Net sales for Printwear increased by 7.4% due to a 5.9% increase in unit sales volumes and more favorable product mix, partially offset by lower net selling pricing and higher seasonal distributor inventory destocking compared to the first quarter of last year.

Inventory for the U.S. distributor channel at the end of the first quarter were in good balance in relation to anticipated sales demand from screenprinters. International Printwear sales volumes which we have identified as an important growth opportunity for the company grew by more than 30%. Operating income for Printwear in the first quarter was $48.3 million. Operating margins were 18.4% compared with 18.8% in the first quarter of last year.

Net sales for Branded Apparel increased by 7.1% compared to the first quarter of last year. The growth in Branded Apparel sales was driven by continuing strong consumer demand for Gildan branded underwear and continuing market share penetration by Gold Toe branded socks. Sales of Gildan branded programs more than doubled from Q1 2013 as consumers quickly embraced the strong value proposition of our branded products and we continue to support our brand with advertising.

Sales of Gold Toe branded programs were up by approximately 15% as a result of our investments in marketing and advertising to reenergize the Gold Toe brand and leverage the brand and brand expansions into other product categories. The strong growth in Gildan and Gold Toe branded programs was partially offset by lower private label sales mainly due to the exit from a private label underwear program and lower sales to global lifestyle brands as we transition to new long-term programs with major customers.

The sales growth for Branded Apparel was achieved in an overall macro environment of continuing weak retail sales demand and careful management of inventory with replenishment by retailers. Operating income for Branded Apparel was $21.9 million up 11.7% from last year. Operating margins were 11.6% compared with 11.1% in the first quarter of last year.

The impact in our consolidated results for Q1, our prior sales revenues was partially offset by increased SG&A expenses and higher income taxes. SG&A expenses increased to $72.8 million from $69.4 million last year due primarily to higher expenses for then marketing and advertising.

SG&A expenses declined as a percentage of sales due to increased sales volume leverage on SG&A expenses in Branded Apparel. Excluding the impact of restructuring and acquisition related costs, the consolidated income tax rate increased to 5.7% from 4.4% in the first quarter of last year, primarily due to the improved operating income for Branded Apparel.

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