On Thursday, November 21, 2013, Montreal-based Gildan Activewear Inc. announced its results for its fourth fiscal quarter and full fiscal year ended September 29, 2013. Adjusted net earnings of U.S. $0.83 per share were a record for the fourth quarter of a fiscal year and at the high end of the guidance range, which the company had provided on August 1, 2013. The company also provided initial guidance for fiscal 2014 adjusted EPS of U.S. $3.00-$3.10, on projected sales revenues of approximately U.S. $2.35 billion, and is projecting capital expenditures of U.S. $300-$350 million in fiscal 2014. The company was pleased to announce a 20 percent increase in the amount of its quarterly dividend.
Fourth Quarter Results
Net earnings were U.S. $96.8 million or U.S. $0.79 per share on a diluted basis for the fourth fiscal quarter ended September 29, 2013, compared with net earnings of U.S. $89.0 million or U.S. $0.73 per share for the fourth quarter of fiscal 2012. Net earnings for the fourth quarter of fiscal 2013 included a U.S. $4.7 million after-tax charge for the cost of unwinding interest rate swaps, which was discussed in previous quarterly press releases, and U.S. $0.5 million after-tax restructuring and acquisition-related costs. Net earnings for the fourth quarter of fiscal 2012 included after-tax restructuring and acquisition-related costs amounting to U.S. $5.9 million. Before reflecting these items in both years, adjusted net earnings for the fourth quarter of fiscal 2013 were U.S. $102.0 million or U.S. $0.83 per share, up 7.5 percent and 6.4 percent respectively compared to adjusted net earnings of U.S. $94.9 million or U.S. $0.78 per share in the fourth quarter of the previous year.
The growth in earnings and EPS in the fourth quarter compared to last year was due to strong growth in sales revenues in both the company’s operating segments and lower cotton costs, partially offset by higher selling, general and administrative expenses and higher income taxes. Adjusted net earnings before income taxes in the quarter increased by 12.2 percent compared to the fourth quarter of fiscal 2012.
Net sales in the fourth quarter amounted to U.S. $626.2 million, up 11.5 percent from U.S. $561.7 million in the fourth quarter of fiscal 2012. The company had projected that net sales for the quarter would be in excess of U.S. $600 million.
Net sales for the printwear segment amounted to U.S. $423.9 million, up 12.5 percent from U.S. $376.8 million in the fourth quarter of fiscal 2012. Unit sales volumes increased by 18.7 percent from the fourth quarter of last year due to increased shipments in the U.S. printwear market, the non-recurrence of inventory destocking which occurred in the U.S. distributor channel in the fourth quarter of fiscal 2012 and a 37 percent increase in international sales volumes. The positive impact on net sales of higher unit sales volumes was partially offset by lower net selling prices compared to the fourth quarter of last year.
Net sales for branded apparel were U.S. $202.2 million, up 9.4 percent from U.S. $184.8 million in the fourth quarter of last year. The growth in sales for the branded apparel segment was due to the impact of new Gildan branded underwear and activewear programs for retail customers, as well as higher sock sales compared to the fourth quarter of last year, partially offset by the company’s strategy to exit certain retailer private label programs.
The company was pleased with the continuing strong consumer demand and resulting retailer sales of its national branded underwear program. The company has also continued to achieve placement of new Gildan and Gold Toe branded programs, including the introduction of its premium Gildan Platinum brand and the Gold Toe G brand at department stores and a major national retail chain. In addition, the company is pleased to announce that it has obtained the worldwide license for the Mossy Oak brand for activewear, underwear and socks.
Consolidated gross margins in the fourth quarter were 28.3 percent, compared to 28.5 percent in the fourth quarter of last year. The positive impact of lower-cost cotton and increased supply chain and manufacturing efficiencies was offset by the impact of lower net selling prices for printwear.
SG&A expenses in the fourth quarter were U.S. $69.7 million, compared with U.S. $64.1 million in the fourth quarter of last year. The increase in SG&A expenses continued to reflect increased marketing and advertising expenses and increased variable performance-driven compensation expenses. As a percentage of sales, SG&A expenses declined slightly to 11.1 percent from 11.4 percent a year ago.
The effective income tax rate in the fourth quarter was approximately 3 percent compared with an income tax recovery in the fourth quarter of fiscal 2012. The increase in the income tax rate was primarily due to the improved operating income for branded apparel.
In the fourth quarter, the printwear segment reported operating income of U.S. $112.0 million, up 11.2 percent compared to U.S. $100.7 million in the fourth quarter of fiscal 2012. The more favorable results for the printwear segment were primarily due to the unit sales volume growth and the lower cost of cotton, partially offset by lower net selling prices. The branded apparel segment reported quarterly operating income of U.S. $18.1 million, up 19.7 percent compared with U.S. $15.1 million in the fourth quarter of fiscal 2012. The improved results for branded apparel were due to lower cotton costs, sales volume growth and a higher-valued branded product-mix.
During the fourth quarter of fiscal 2013, the company generated free cash flow of U.S. $111.5 million, after capital expenditures of U.S. $74.3 million, which was utilized to repay the remaining amount of the company’s bank indebtedness and pay the quarterly dividend. The company ended the fourth quarter of the fiscal year with no outstanding indebtedness and U.S. $97.4 million of cash and cash equivalents.
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