Gildan Activewear (GIL)
Q3 2011 Earnings Call
August 04, 2011 8:30 am ET
Laurence Sellyn - Chief Financial & Administrative Officer and Executive Vice President
Glenn Chamandy - Chief Executive Officer, President and Director
Sophie Argiriou - Director of Investor Communications
Eric Tracy - FBR Capital Markets & Co.
Scott Rattee - Blackmont Capital
Jessy Hayem - TD Newcrest Capital Inc.
Nicole Shevins - Goldman Sachs Group Inc.
Kenneth Stumphauzer - Sterne Agee & Leach Inc.
Martin Landry - GMP Securities L.P.
Jim Duffy - Stifel, Nicolaus & Co., Inc.
Claude Proulx - BMO Capital Markets Canada
Tal Woolley - RBC Capital Markets, LLC
Vishal Shreedhar - National Bank Financial, Inc.
Susan Anderson - Citigroup Inc
David Glick - Buckingham Research Group, Inc.
Kenric Tyghe - Raymond James Ltd.
Previous Statements by GIL
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Thank you, Lacey. Good morning, everyone, and thank you for joining us. This morning, we issued our press release announcing our earnings results for the third quarter fiscal 2011 and our interim shareholder report containing management's discussion and analysis and consolidated financial statement. These documents will be filed with the Canadian Securities Regulatory Authority and the U.S. Securities Commission and are also available on our website at www.gildan.com.
I'm joined here this morning by Glenn Chamandy, our President and Chief Executive Officer; and Laurence Sellyn, our Executive Vice President and Chief Financial; and Laurence Sellyn, our Executive Vice President and Chief Financial and Administrative Officer. Shortly, Laurence will be providing an overview of our third quarter financial results and our business outlook, after which, we will open the call to questions.
Before we begin, 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 Authority that may affect the company’s future results.
I would now like to turn the call over to Laurence.
Good morning. We will review our record third quarter results which we reported today and then discuss current market conditions and the assumptions used for our forward-looking information.
Sales and earnings in the third quarter were the highest for any quarter in the history of the company. Sales revenues were $530 million, up 34% from last year; and EPS was $0.77 per share, up 42.6% from the third quarter of fiscal 2010.
Sales of activewear and underwear increased by 21% due to an approximate 26% increase in average net selling prices, which more than offset a 3.9% reduction in unit sales volumes. Overall, industry unit shipments from U.S. distributors to U.S. screenprinters, declined by 9% during the quarter according to the CREST report. Compared with our assumption in our May guidance, the industry demand would grow by 3%, which would have continued the pattern of recovery and demand, which began in the second quarter of fiscal 2010.
The cadence of industry demand appeared to deteriorate in successive months during the third quarter with demand in June being down by 12%. However, it should be noted that June of 2010 was a very strong month which benefited from pre-buying in advance of a selling price increase, which was announced 2 months in advance and which was not applicable to back orders, so that the true magnitude of the decline in June is overstated.
We believe that the decline in screenprint market demand in the third quarter is due to a combination of factors, including overall uncertainty about macro economic conditions, the possible impact and demand elasticity of successive selling price increases and delay in the timing of shipments from distributors to screenprinters, as screenprinters seek to benefit from declining cotton costs.
In addition, Gildan shipments in the third quarter were constrained by lack of capacity and low inventory availability, which limited our ability to fully service distributor demand and resulted in a slight decline in the market share from 62% to 61%.
Sales revenues in international and other screenprint markets in the quarter increased by approximately 45% due to higher selling prices and currency fluctuations combined with an approximate 12.5% increase in unit sales volumes, which was achieved in spite of capacity constraints.
Shipments of activewear and underwear to retailers grew by in excess of 80%. Sales of socks increased by 139%. Although the increase in sock sales was primarily due to the impact of the Gold Toe acquisition, organic sock sales also increased. Excluding the acquisition impact, unit sales volumes of socks increased by approximately 15% over the third quarter last year, and we are also continuing to successfully implement increases in selling prices in socks and other retail products.
The organic growth in unit sales volumes in socks was primarily attributable to earlier timing of back-to-school shipments and to the more efficient operations in our new retail distribution center in Charleston, South Carolina.
Consolidated gross margins in the quarter were 28.3% versus 27.1% in the third quarter last year and our guidance of 26% to 26.5% provided in May. The improvement in margins compared to the third quarter of fiscal 2010 was due to manufacturing efficiencies and the impact of Gold Toe. The impact of higher net selling prices, including the absence of promotional discounting during the quarter, offset the negative impact and percentage gross margins of the higher cost of cotton.