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December 14, 2009
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Gildan Activewear Inc. (GIL) recently reported fiscal 2009 fourth quarter results. The company recorded earnings of $42.4 million, a growth of nearly 94% over $21.8 million posted in the year-ago period. Excluding a special income tax charge of $26.9 million, adjusted earnings in the prior year quarter was $49.7 million. Earnings per share during the quarter came in at 35 cents, edging past the Zacks Consensus Estimate by a penny.
The company reported a 7.1% decline in net sales to $301.7 million in the quarter, compared to $324.7 million in the year-ago quarter. The decline was mainly caused by a 4.8% decrease in activewear and underwear sales to $240.8 million due to lower unit selling prices and volumes as a result of sluggish economic conditions, special discounts and unfavorable currency translations. Furthermore, the company also recorded a 15.1% year-over-year reduction in socks to $60.9 million.
Gildan’s gross profit slipped 10.8% to $77.7 million, while gross margin fell by 110 basis points (bps) to 25.7%. The decline was mainly caused by a special discount to distributors and production downtime, partially offset by lower cotton and energy costs and favorable activewear product-mix. Selling, general and administrative expenses as a percentage of sales remained essentially flat at 11.3% as management’s efforts to improve efficiencies and favorable currency impact on expenses were offset by higher depreciation and increased provisions for doubtful accounts. Accordingly, operating income declined 12.5% year over year to $42.7 million, while operating margin dipped 90 bps to 14.2%.
At the end of the quarter, Gildan had cash and cash equivalents of $99.7 million, compared to $12.4 million in the year-ago quarter. During the quarter, the company deployed $88.0 million towards the repayment of long-term debt and $10.3 million towards capital expenditure.
Moving forward, Gildan anticipates a 25% growth in activewear and underwear volumes as well as about 5% hike in socks during fiscal 2010. Assuming an approximate 5% decline in selling prices and the impact of a higher proportion of underwear in the company’s product mix, net sales during the fiscal is expected to be slightly more than $1.2 billion, a growth of approximately 17% over fiscal 2009.
The Zacks Consensus Estimate for the fiscal year ending Sep 2010 is currently pegged at $1.36 per share, which has remained constant over the past 2 months. However, for the next fiscal, the Zacks Consensus Estimate, derived from 5 covering analysts, has moved down by 6 cents over the past month to $1.54 per share.
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