Gildan Activewear (GIL)
Q1 2012 Earnings Call
February 08, 2012 5:00 pm ET
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
Martin Landry - GMP Securities L.P., Research Division
Nicole B. Shevins - Goldman Sachs Group Inc., Research Division
Anthony Zicha - Scotiabank Global Banking and Market, Research Division
Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division
Andrew Burns - D.A. Davidson & Co., Research Division
Mark Petrie - CIBC World Markets Inc., Research Division
Tal Woolley - RBC Capital Markets, LLC, Research Division
Vishal Shreedhar - National Bank Financial, Inc., Research Division
Susan Anderson - Citigroup Inc, Research Division
Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division
David J. Glick - Buckingham Research Group, Inc.
Chris Li - BofA Merrill Lynch, Research Division
Previous Statements by GIL
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I would now like to turn the call over to your host for today, Ms. Sophie Argiriou, Director of Investor Communications. Please go ahead.
Thanks, Pamela. Good afternoon, everyone, and thank you for joining us. Earlier, we issued our press release announcing our earnings results for the first quarter of fiscal 2012 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 Authority and the U.S. Securities Commission, and are also available on our website at www.gildan.com.
Joining me on the call are Glenn Chamandy, our President and Chief Executive Officer; and Laurence Sellyn, our Executive Vice President and Chief Financial and Administrative Officer. Laurence will be providing you with a brief overview of our first 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.
Laurence G. Sellyn
Good afternoon. This afternoon, we reported our results for our first fiscal quarter, which were in line with our guidance provided in December. We also reconfirmed our sales and EPS guidance for the full 2012 fiscal year, and initiated guidance for the upcoming second quarter of the fiscal year.
This was our first quarter for which we have provided segmented business unit reporting. We are now managing our screenprint and retail divisions as separate operating divisions with decentralized accountability for operating income and return capital. The 2 segments will be reported as Printwear and Branded Apparel instead of screenprint and retail. In addition, this is our first quarter of financial reporting under International Financial Reporting Standards instead of Canadian GAAP.
This evening's press release includes quarterly and annual sales and operating income for fiscal 2011 by operating segment. Also, we have made available on our website our fiscal 2001 quarterly and full year results under IFRS. There are no material adjustments to our fiscal 2011 financial statements due to the changeover to IFRS. The only adjustment to highlight is that the transaction cost for the acquisition of Gold Toe Moretz, which were incurred in fiscal 2011, are reported as a charge against earnings under IFRS and not capitalized as goodwill, which was the accounting treatment last year under Canadian GAAP.
Our net loss for the first quarter was $0.38 per share compared with our December forecast of approximately $0.40 per share. Net selling prices for Printwear were slightly higher than projected in December, due to lower-than-projected promotional discounting in the month of December. The loss in the first quarter compared to adjusted net earnings of $0.30 per share in the first quarter of fiscal 2011. The first quarter loss was due to the following factors: Number one, we continued to consume inventories during the first quarter, which had been previously manufactured with peak cost cotton. Our average cotton cost during the first quarter was slightly more than double our cost of cotton in the first quarter of last year. The higher cotton cost in the quarter, compared to the first quarter of fiscal 2011, negatively impacted EPS by close to $0.45 a share.
The second factor was the selling prices in Printwear were reduced during the first quarter to align with current cotton futures, initially through short-term promotions and eventually through a formal reduction in gross selling prices, which was announced in early December. Selling prices in the Branded Apparel division, which have remained largely unchanged during the course of fiscal 2011, were increased at the end of the fiscal year in order to reflect current cotton future costs.
In anticipation of the above selling price reductions in Printwear, U.S. wholesale distributors delayed replenishment of their inventories and supply demand from screenprinters by defeating inventory levels. Distributors were able to operate with lower inventories in the first quarter, as the first quarter is the lowest seasonal quarter for Printwear sales. This destocking of distributor inventories resulted in close to a 40% reduction in Gildan's unit sales in the first quarter and was significantly more impactful than the 3.9% decline in screenprinter demand compared to the first quarter of last year.