Gildan Activewear Q1 net sales decline but earnings up 17 percent

Gildan Activewear has said that its first quarter performance was in line with the management expectations. The company achieved strong earnings growth of 17 percent in the quarter, despite lower sales, and drove an adjusted operating margin expansion in excess of 300 basis points. While reconfirming its guidance for 2016, the company also announced that it had entered into a definitive agreement to acquire Alstyle Apparel.

Consolidated net sales amounted to 593.3 million dollars, down 6.7 percent compared to the first calendar quarter of 2015, reflecting sales decreases of 9.1 percent in the Printwear segment and 1.8 percent in Branded Apparel.

Detailed review of the first quarter

The company attributed decline in consolidated sales 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, the company said, net sales were negatively affected by an approximate seven million dollars impact resulting from foreign currency exchange due to a stronger US dollar.

Gildan generated consolidated gross margins of 26.4 percent 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. Net earnings totaled 63.2 million dollars or 0.26 dollar per share on a diluted basis for the three months ended April 3, 2016, compared with 56 million dollars or 0.23 dollar per share for the same period, ended April 5, 2015.

First quarter segmented operating results

Net sales for the Printwear segment amounted to 392.1 million dollars, down from 431.3 million dollars in the same quarter last year. Operating income in Printwear totalled 85.2 million dollars, up 1.4percent from the same period last year. Operating margins for Printwear were 21.7 percent, up 220 basis points compared to the same quarter in 2015.

Net sales for the Branded Apparel segment in the quarter were 201.2 million dollars, down slightly from 204.9 million dollars 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 unfavourable mix in the quarter.

Operating income in Branded Apparel increased to 14.9 million dollars compared to 2.2 million dollars in the same quarter last year. Branded Apparel operating margins increased to 7.4 percent, up 630 basis points from the first calendar quarter of 2015.

Reaffirms outlook for the full year

For full year 2016, the company continues to project adjusted diluted EPS to be in the range of 1.50 dollars - 1.60 dollars on projected consolidated net sales in excess of 2.6 billion dollars, comprised of Printwear sales in excess of 1.6 billion dollars and Branded Apparel sales in excess of 1 billion dollars. The company's guidance does not reflect the acquisition of Alstyle, which is expected to close before the end of June.

The Board of Directors has also declared a cash dividend of 0.078 dollar per share, payable on June 13, 2016 to shareholders of record on May 19, 2016.