Gildan Q1 Earnings in Line, Reiterates Outlook - Analyst Blog

Gildan Activewear Inc. 's ( GIL ) first-quarter fiscal 2014 adjusted earnings increased 9.4% year over year to 35 cents per share and came in line with the company's previously provided guidance and the Zacks Consensus Estimate. This marked record first quarter earnings for the company in any fiscal year, given its usual trend of reporting lowest T-shirt sales in the first quarter.

The year-over-year improvement in earnings came on the back of strong sales recorded at both its business segments, partly offset by increased selling, general and administrative (SG&A) expenses.

Including the impact of restructuring charges and expenses related to acquisitions, earnings per share came in at 34 cents, up 17.3% from the previous-year quarter.

Delving Deeper

Net sales of this activewear retailer climbed 7.3% to $451.4 million, marginally exceeding the company's previous forecast of $450.0 million for first-quarter fiscal 2014. However, it fell short of the Zacks Consensus Estimate of $453.0 million.

Gildan's gross profit witnessed an increase of 5.9% to $119.2 million whereas gross margin contracted 80 basis points (bps) to 26.4%, reflecting the effect of lower selling prices at the company's Printwear segment, partly compensated by cheaper cotton prices coupled with better product mix.

The company's operating profit advanced 17.2% to $44.4 million with margins expanding 80 bps. Owing to higher marketing and advertising costs, Gildan reported a 4.9% rise in SG&A to $72.8 million. However, SG&A as a percentage of sales dipped to 16.1% from 16.5% last year.

Segmental Information

Sales at the company's Printwear segment improved 7.4% to $261.8 million, reflecting an increase in both, international and unit sales volumes. Although seasonal destocking by wholesale distributors was on a rise, inventories remained at decent levels, augmenting volumes.

At the Branded Apparel segment, sales rose 7.1% to $189.6 million, primarily driven by increased customer demand for Gildan® brand's undergarments and Gold Toe® brand's socks, partly offset by lower sales at global lifestyle brands and at its private labels.

Financial Details

Gildan ended the quarter with cash and cash equivalents of $79.1 million. Its long-term debt stood at $64.0 million. Further, to sponsor the occasional rise in inventories in order to meet anticipated consumer demand, the company used its free cash flow worth $68.5 million. Finally, the company incurred $58.1 million as capital expenditure in the first quarter of fiscal 2014.

Going Forward

The Canada-based company re-affirmed its previously provided guidance for fiscal 2014 in which it envisions adjusted earnings to lie in a band of $3.00-$3.10 per share, which is up 11.5%-15.2%, compared to fiscal 2013. The Zacks Consensus Estimate for fiscal 2014 stands at $3.08, lying within the company's currently predicted band.

Also, the re-affirmed guidance forecasts net sales to be $2.35 million, Printwear sales to be $1.5 million and Branded Apparel sales to be $825 million, for fiscal 2014.

The company plans to incur capital expenditures of $300-$350 million during the year, mainly for yarn-spinning, making upgrades to its existing facilities, continuing to invest in its new manufacturing facility and other energy saving projects. Moreover, it plans to generate free cash flow of $50-$100 million during fiscal 2014.

For the second quarter of fiscal 2014, the company envisions earnings to range from $0.61-$0.64 per share, up 3.4%-8.5% year over year, given that sales exceeds $550.0 million in the quarter. The forecasts made by the company are in sync with its full-year guidance, which projects earnings per share to rise sequentially in the following quarters throughout fiscal 2014.

Gross margins are anticipated to be pressurized in the second and third quarters. Also, in the second quarter, Gildan expects to ramp up production at its new ring-spun yarn-spinning construction at Salisbury, N.C.

Finally, the company assumes cotton prices to be higher in the second half of fiscal 2014, compared to its previous prediction of prices staying at par with fiscal 2013 level, along with inflationary pressures in the environment. On the contrary, the company is positive about its selling prices and expects the current economic conditions to prevail in fiscal 2014.

Dividend Information

Management announced a cash dividend of 10.8 cents per share to stockholders of record on Feb 20, 2014, payable on Mar 17, 2014.

Other Stocks to Consider

Gildan currently holds a Zacks Rank #2 (Buy). Other stocks in the apparel-shoe space include Christopher & Banks Corporation ( CBK ), Foot Locker, Inc. ( FL ) and Finish Line Inc. ( FINL ). While Christopher & Banks holds a Zacks Rank #1 (Strong Buy), Foot Locker and Finish Line carry a Zacks Rank #2 (Buy).

CHRISTOPHER&BNK (CBK): Free Stock Analysis Report

FINISH LINE-CLA (FINL): Free Stock Analysis Report

FOOT LOCKER INC (FL): Free Stock Analysis Report

GILDAN ACTVWEAR (GIL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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