Zacks_Analysts' Blog : Gildan's Q1 Tops View - Analyst Blog

Gildan Activewear Inc. (GIL) reported fiscal 2010 first-quarter results after the closing bell on Tuesday. The company’s earnings surged to $28.0 million from $4.4 million posted in the year-ago period. Excluding certain special items, earnings per share came in at 24 cents, beating the Zacks Consensus Estimate by 2 cents.

Gildan has a good record of surpassing the Zacks Consensus Estimate in the recent past, evident from an earnings beat in 3 of 4 previous quarters with an average positive surprise of 7.6%, or 2 cents. Analysts, on average, are moderately positive on the company’s earnings for the fiscal 2010 second quarter, sending the Zacks Consensus Estimate up a penny over the past 2 months to 33 cents per share.

The Montreal-based company reported strong growth of 19.8% in fiscal first-quarter net sales to $220.4 million, compared to $184.0 million in the year-ago period. The growth was mainly driven by a 32.0% increase in activewear and underwear sales to $152.9 million due to higher volumes, increased market share in the U.S. wholesale distributor channel and lower inventory destocking by distributors. However, the top-line growth was partially offset by a 1.0% year-over-year decline in sales from socks to $67.5 million.

Gildan’s gross profit expanded by 68.9% to $65.7 million, while gross margin grew by 870 basis points (bps) to 29.8%. The expansion was primarily the result of management efforts to drive manufacturing efficiencies coupled with lower cotton and energy costs and more favorable activewear product-mix.

Selling, general and administrative expenses remained essentially flat at $33.5 million as unfavorable currency translations and higher compensation expense was offset by non-recurrence of provisions for doubtful accounts and lower legal and professional fees. Accordingly, operating income surged to $30.2 million from $4.5 million recorded in the year-ago period.

At the end of the quarter, Gildan had cash and cash equivalents of $141.1 million, compared to $14.4 million in the year-ago period. During the quarter, the company generated free cash flow of $42.5 million and deployed $34.0 million towards capital expenditure.

Moving forward, Gildan reiterated revenue guidance of more than $1.2 billion and gross margin of 26% during fiscal 2010. The company also stated that it now expects capital expenditure of $145 million in the fiscal, compared to earlier prediction of $130 million.

The Zacks Consensus Estimate for the fiscal year ending Sept 2010 is currently pegged at $1.40 per share, which moved up a penny over the past week as 1 of 14 covering analysts raised expectations. However, the most accurate estimate is bearish at $1.36 per share.