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Gildan Activewear Reports First Quarter 2016 Results and Reconfirms Guidance for 2016

MONTREAL, QUEBEC, May 04, 2016 (Marketwired via COMTEX) -- (all amounts are in U.S. dollars except where otherwise indicated)

- Adjusted EPS of $0.28 for the first quarter, up 17%

- Net sales of $593 million, in line with Company expectations

- Adjusted operating margins up 310 basis points over prior year quarter

- Company announces definitive agreement for acquisition of Alstyle Apparel, LLC

MONTREAL, QUEBEC--(Marketwired - May 4, 2016) - Gildan Activewear Inc. (GIL) GIL, -1.41% today announced its results for the three months ended April 3, 2016, reconfirmed its guidance for 2016 and also announced it had entered into a definitive agreement to acquire Alstyle Apparel, LLC (Alstyle).

Gildan's performance in the first quarter of the year was in line with management expectations. Printwear sales reflected positive point of sales growth offset by the anticipated impact of lower inventory replenishment by distributors. In Branded Apparel, strong sales of Gildan® branded products were offset by the Company's decision to exit certain private label programs, and lower Gold Toe® sales reflecting weakness in the department stores and national chains channel. The Company achieved strong earnings growth, up 17% in the quarter, despite lower sales, and drove an adjusted operating margin expansion in excess of 300 basis points. The strong earnings performance was driven by manufacturing cost savings generated from Gildan's continuous investment in vertical manufacturing, including its yarn spinning initiative, together with lower raw material and other input costs. The Company is well-positioned to deliver strong sales growth in the second half of the year as it starts to benefit from increased shelf space gains and new retail programs secured for 2016. The anticipated impact from lower distributor inventory replenishment will be behind it and the impact from exiting private label programs will subside through the course of the year.

Consolidated Results

Consolidated net sales in the first quarter of 2016, amounted to $593.3 million, down 6.7% compared to the first calendar quarter of 2015, reflecting sales decreases of 9.1% in the Printwear segment and 1.8% in Branded Apparel. The decline in consolidated sales was mainly due to anticipated unfavourable impacts from lower distributor inventory replenishment, the Company's decision to exit certain non-core retailer private label programs, as well as lower Printwear net selling prices and unfavourable product-mix. In addition, net sales were negatively affected by an approximate $7 million impact resulting from foreign currency exchange due to a stronger U.S. dollar compared to the same period last year. These factors more than offset the benefit of positive sell-through of the Company's products in U.S. and international printwear markets and increased Branded Apparel sales outside of private label programs.

Gildan generated consolidated gross margins of 26.4% in the quarter, 440 basis points higher than in the first quarter last year due primarily to manufacturing cost savings, reflecting the benefit from the Company's investments in yarn spinning and other capital projects, and lower raw material and other input costs. SG&A expenses of $79.2 million in the quarter were up slightly compared to the prior year period. Adjusted operating margins in the first quarter of 2016 increased 310 basis points to 13.0% compared to the same quarter last year.

Net earnings totaled $63.2 million or $0.26 per share on a diluted basis for the three months ended April 3, 2016, compared with net earnings of $56.0 million or $0.23 per share for the three months ended April 5, 2015. Excluding after-tax restructuring and acquisition-related costs of $5.8 million in the quarter and $1.5 million in the same quarter last year, Gildan reported adjusted net earnings of $69.0 million, up from $57.5 million in the prior year quarter. Adjusted diluted EPS of $0.28 per share for the first quarter of 2016 was up 17% over the same quarter in 2015. The increase in adjusted net earnings was mainly due to the 22.6% increase in adjusted operating income, partly offset by higher financial charges.

The first quarter is typically a quarter during which cash is used to build seasonal working capital. Gildan consumed $58.4 million in free cash flow in the first quarter of 2016 compared to $108.0 million of free cash consumed in the same quarter last year. The $49.6 million improvement in free cash flow consumed was mainly due to a decrease in capital expenditures primarily as a result of lower yarn spinning investments. Capital expenditures of $38.0 million for the quarter related primarily to investments for the completion of the Company's new yarn-spinning facility in Mocksville, NC, and textile and sewing capacity expansion projects. Gildan ended the quarter with net debt of $530.5 million. During the first quarter of 2016, the Company repurchased 5.2 million shares under its NCIB which it initiated on February 26, 2016 at a total cost of $140.1 million. Gildan's net debt leverage ratio at the end of the quarter was 1.0 times adjusted EBITDA.

Segmented Operating Results

Net sales for the Printwear segment for the first quarter of 2016 amounted to $392.1 million, down from $431.3 million in the same quarter last year. The decline in Printwear sales reflected the anticipated impact of lower inventory replenishment by distributors which more than offset the impact of positive point of sales growth, lower net selling prices, combined with unfavourable product-mix due to a lower proportion of fleece sales and the negative impact of foreign exchange rates.

Operating income in Printwear for the three months ended April 3, 2016 totalled $85.2 million, up 1.4% from the same period last year. Operating margins for Printwear were 21.7%, up 220 basis points compared to the same quarter in 2015. The increase was mainly due to manufacturing cost savings and raw material and other input costs which more than offset the impact of lower volumes and net selling prices, unfavourable product-mix and the negative impact of foreign currency exchange rates.

Net sales for the Branded Apparel segment in the quarter were $201.2 million, down slightly from $204.9 million in the first calendar quarter of 2015. Growth in Gildan® branded sales was more than offset by the impact from the exit of certain private label programs, and lower Gold Toe® sales reflecting the continued weakness in the department store and national chain channels, which also contributed to unfavorable mix in the quarter.

Operating income in Branded Apparel increased to $14.9 million in the three months ended April 3, 2016, up significantly compared to $2.2 million in the same quarter last year. Branded Apparel operating margins increased to 7.4%, up 630 basis points from the first calendar quarter of 2015. The significant improvement in Branded Apparel operating margins was attributable to the benefit of manufacturing cost savings, lower raw material and other input costs, and the non-recurrence of transitional manufacturing costs in the prior year quarter.

Outlook

For full year 2016, the Company continues to project adjusted diluted EPS to be in the range of $1.50-$1.60 on projected consolidated net sales in excess of $2.6 billion, comprised of Printwear sales in excess of $1.6 billion and Branded Apparel sales in excess of $1.0 billion. The Company's guidance does not reflect the planned acquisition of Alstyle, which is expected to close before the end of June. The Company will update its guidance to include the impact of the Alstyle acquisition following the closing of the transaction. While the acquisition is expected to be slightly accretive to earnings per share in 2016, strong integration synergies are expected to flow through from this transaction in 2017 and 2018.

Declaration of quarterly dividend

The Board of Directors has declared a cash dividend of U.S. $0.078 per share, payable on June 13, 2016 to shareholders of record on May 19, 2016. This dividend is an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.

Normal course issuer bid

Pursuant to the initiation of the normal course issuer bid (NCIB) which began February 26, 2016 and expires February 25, 2017, the Company is authorized to purchase for cancellation up to 12,192,814 outstanding common shares of the Company, representing approximately 5% of the Company's issued and outstanding common shares. During the three months ended April 3, 2016, the Company had repurchased for cancellation a total of 5.2 million common shares at a total cost of $140.1 million, of which a total of 4.0 million common shares were repurchased by way of private agreements with arm's length third party sellers. Additionally, the Company repurchased 3.4 million common shares during the month of April through open market purchases.

Disclosure of outstanding share data

As at April 29, 2016, there were 235,758,952 common shares issued and outstanding along with 1,878,071 stock options and 285,951 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a pre-determined option price. Each Treasury RSU entitles the...


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