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Gildan Activewear Announces Results For Third Calendar Quarter Of 2015 And Updates Full Year Guidance

The following excerpt is from the company's SEC filing.

– Adjusted Diluted EPS of U.S. $0.52 for the Third Quarter, As Previously Projected –

– Strong Unit Sales Volume Growth in U.S. and International Printwear Markets –

– Branded Apparel Sales Growth Constrained by Continued Low Retailer Inventory Replenishment and Weak Back-To-School –

– Operating Margin Increases in Both Segments Due to Lower Manufacturing and Raw Material Costs –

– Slight Reduction in Projected Strong Fourth Quarter EPS Due to More Unfavourable Printwear Product-Mix and Cautious Outlook for Retail –

– In-Store Gildan® Branded Product Placement in New Major U.S. Mass Retail Customer –

– Gildan Activewear Inc. (GIL: TSX and NYSE) today announced its results for the three months ended October 4, 2015, and updated its sales and earnings guidance for calendar year 2015. Adjusted diluted EPS for the third calendar quarter was in-line with the Company’s previous guidance. Results for the fourth calendar quarter are expected to be significantly in excess of earnings in the fourth calendar quarter of any previous year, as the Company benefits from manufacturing cost reductions from its capital expenditure programs and lower cotton costs, combined with continuing top-line growth in sales revenues in both operating segments.

Consolidated Results for the Three Months Ended October 4, 2015 (Third Calendar Quarter of 2015)

Gildan today reported net earnings of U.S. $123.1 million or U.S. $0.50 per share on a diluted basis for the three months ended October 4, 2015, on consolidated net sales of U.S. $674.5 million. This compares with net earnings of U.S. $122.7 million or U.S. $0.50 per share on a diluted basis, on consolidated sales of U.S. $666.0 million for the three months ended October 5, 2014. Before reflecting restructuring and acquisition-related costs of approximately U.S. $3.3 million after-tax in the quarter relating primarily to the integration of acquisitions, Gildan reported adjusted net earnings of U.S. $126.4 million or U.S. $0.52 per share on a diluted basis for the three months ended October 4, 2015, up 2.9% and 4% respectively compared with adjusted net earnings of U.S. $122.8 million or U.S. $0.50 per share on a diluted basis for the same period last year.

Gildan resumed a trajectory of EPS growth in the third calendar quarter of 2015, after three quarters in which results were negatively impacted by the misalignment in the timing of lower Printwear selling prices and the benefit of lower manufacturing and cotton costs. The improved earnings performance in the third quarter reflected unit sales volume growth and operating margin expansion. Consolidated operating profit margins of 19.2% in the quarter were up 130 basis points compared to the same quarter last year reflecting the return to historical operating margin levels for Printwear and a significant increase in Branded Apparel operating margins compared to last year, when results were negatively affected by transitional manufacturing costs due to the ramp-up of new retail programs. During the quarter, the Company benefited from lower manufacturing costs due to savings from its investments in yarn-spinning and other capital projects, lower cotton and purchased input costs, and the non-recurrence of the transitional manufacturing costs which were incurred in 2014. Overall, higher unit sales volumes and lower manufacturing costs in the quarter more than offset lower net selling prices and unfavourable product-mix for Printwear, due to the later timing of fleece shipments, and increases in selling, general and administrative (SG&A), financial and income tax expenses.

Consolidated net sales in the quarter were below the Company’s guidance for net sales of close to U.S. $700 million, mainly as a result of lower than anticipated Branded Apparel sales which were impacted by continuing lower than anticipated inventory replenishment by a U.S. major retail customer and weaker than anticipated demand during the back-to-school period. Adjusted diluted EPS for the third calendar quarter of 2015 were within the Company’s guidance range of adjusted diluted EPS of U.S. $0.51 – U.S. $0.53, which it provided on July 31, 2015, as the impact of lower than anticipated Branded Apparel sales was offset mainly by higher than projected net selling prices and more favourable product-mix for Printwear for the quarter compared to the Company’s previous projection.

During the three months ended October 4, 2015, the Company generated U.S. $149.2 million of free cash flow after financing capital expenditures of U.S. $42.2 million. Capital investments were primarily for new yarn-spinning facilities in the U.S., textile projects in Rio Nance and the expansion of the Company’s printwear distribution centre in Eden, NC. The Company ended the quarter with cash and cash equivalents of U.S. $47.1 million and outstanding bank indebtedness of U.S. $462.0 million.

Segmented Operating Results

Net sales for the Printwear segment for the three months ended October 4, 2015 amounted to U.S. $440.5 million, up U.S. $4.7 million or 1.1% from U.S. $435.8 million in the corresponding quarter of the prior year. The increase in Printwear sales was due to continued unit volume growth in the U.S. printwear market, the impact of the acquisition of Comfort Colors and unit sales volume growth of approximately 13% in international printwear markets, which more than offset lower net selling prices and unfavourable product-mix for Printwear and the negative impact of the decline of international currencies relative to the U.S. dollar. Unit sales volume growth in the U.S. reflected the benefit of the pricing actions taken in December 2014 and continued penetration in the high-valued, higher growth fashion basics and performance segments of the U.S. printwear market, including the impact of the acquisition of Comfort Colors, which continued to perform strongly. Sales in Europe recovered in the third quarter with growth momentum building throughout the quarter, and the Company continued to achieve strong growth in Asia Pacific.

Operating income in Printwear for the three months ended October 4, 2015 totalled U.S. $124.4 million, up 4.6% from U.S. $118.9 million in the same period last year. Operating margins for Printwear were 28.2%, up 90 basis points compared with 27.3% in the corresponding quarter of last year. The increase was mainly due to lower manufacturing and cotton costs, as well as the acquisition of Comfort Colors, partially offset by lower net selling prices for Printwear, unfavourable product-mix due to the timing of fleece sales compared with last year and the negative impact of the decline of international currencies relative to the U.S. dollar.

Net sales for the Branded Apparel segment were U.S. $234.0 million, up 1.7% from U.S. $230.2 million in the same quarter of last year. The increase in Branded Apparel sales reflected an increase of approximately 30% in sales of Gildan® branded programs, including the impact of converting private label programs, as well as increased sales of licensed and global lifestyle brands, which more than offset lower sales of private label and Gold Toe® branded products. Although Branded Apparel sales were up in the quarter compared to last year, continued lower inventory replenishment for Gildan® branded underwear and the weaker than anticipated back-to-school period negatively impacted Gildan’s sales. In spite of these factors, market share for Gildan® branded men’s underwear remained in excess of 7% for the month of September 2015, according to the NPD Group’s Retail Tracking Service. Market share for Gildan® branded men’s socks for the month of September was 14% and the Gildan® brand is now in the number two position in that category.

Operating income in Branded Apparel was U.S. $30.2 million in the three months ended October 4, 2015, up 34.2% compared to operating income of U.S. $22.5 million in the corresponding quarter of the prior year. Branded Apparel operating margins of 12.9% increased 310 basis points from operating margins of 9.8% in the third calendar quarter of 2014. On a sequential basis, operating margins in the third calendar quarter of 2015 were up 470 basis points compared to the second calendar quarter of this year. The continuing improvement in operating margins in the third calendar quarter of 2015 compared to the corresponding quarter of the prior year was due to lower manufacturing and cotton costs, including the non-recurrence of the transitional manufacturing costs incurred in 2014. The year-over-year improvement in operating margins was partially offset by higher SG&A expenses due mainly to higher marketing and advertising expenses.

Consolidated Net Sales and Earnings for the Nine Months Ended October 4, 2015

Consolidated net sales of U.S. $2,024.9 million in the first nine months of calendar 2015 were up 6.1% compared to U.S. $1,908.6 million in the same period last year, reflecting an increase of 10.5% in Branded Apparel segment sales and 4.0% sales growth in Printwear segment sales. The net sales increase was primarily due to unit sales volume growth in both operating segments and the impact of the acquisitions of Doris and Comfort Colors. These positive factors more than offset the reduction in Printwear net selling prices which the Company implemented in December 2014, the impact of the decline of foreign currencies relative to the U.S. dollar and the non-recurrence of the extra week included in the second calendar quarter of the prior year.

Net earnings for the first nine months of calendar 2015 were U.S. $278.5 million, or U.S. $1.14 per share on a diluted basis, compared to U.S. $317.9 million, or U.S. $1.29 per share on a diluted basis for the same period of the prior year. Before reflecting after-tax restructuring and acquisition-related costs in both years, adjusted net earnings were U.S. $286.5 million or

U.S. $1.18 per share on a diluted basis in the first nine months of 2015, down 10.1% and 8.5% respectively compared to adjusted net earnings of U.S. $318.6 million or U.S. $1.29 per share on a diluted basis in the same period last year. The decrease in net earnings was mainly due to the reduction in Printwear net selling prices which were implemented in advance of the benefit of anticipated cost reductions and lower cotton costs. This misalignment between selling prices and lower manufacturing and cotton costs, together with the consumption of high-cost opening inventories which included the impact of transitional manufacturing costs in...


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