In a Nutshell: The Montreal company said it saw strong demand for activewear products in North America in the first quarter. While the company has seen sell-through slow down over the past few weeks tied to broader economic considerations, overall demand for activewear remains healthy.
Similarly, Gildan said it has also started to see some sell-through slowing for certain products in the hosiery and underwear category that could be related to broader economic factors, including the impact of the non-recurrence of stimulus and other support payments consumers received last year.
During the first quarter, Gildan said it consumed $86 million of free cash flow compared to $38 million of free cash flow generated in the first quarter of 2021. The decrease reflected higher working capital investments to support growth and seasonal increases, as well as increased capital expenditures primarily for capacity expansions that more than offset the benefit of higher earnings. The company said it is continuing to make good progress with capacity projects in Central America, the Caribbean and Bangladesh.
Also in the period, the company noted that it amended the terms of its existing $1 billion revolving credit facility to incorporate sustainability-linked terms that reduce or increase the related borrowing costs based on the company’s annual performance against three of its recently announced ESG targets in the areas of climate change, circularity and diversity, equity, and inclusion.
Sales: Net sales in the first quarter ended April 3 increased 31.4 percent over the prior year to $775 million.
This consisted of activewear sales of $667 million, up 38 percent over the prior year, and sales in the hosiery and underwear category of $108 million, a 3 percent year-over-year gain.
The activewear sales increase was largely driven by volume growth and net selling price increases, as well as favorable product-mix. Activewear volume growth reflected strong demand in North American markets, particularly in the distributor channel, partly offset by lower international shipments due to ongoing demand weakness in Europe and Asia. The overall increase in North American distributor activewear shipments in the quarter was due to higher sell-through driven by continued recovery of large events, travel and other end use markets.
In the hosiery and underwear category, higher sales were primarily driven by higher selling prices.
Earnings: Net earnings in the quarter increased 47.5 percent to $146 million, or 77 cents per share on a diluted basis compared to net earnings of $99 million, or 50 cents per diluted share in the first quarter last year.
Operating income was $162 million, or 20.9 percent of sales compared to operating income of $114 million, or 19.3 percent of sales, last year. The increase was due to higher sales and improved operating margins.
Gildan said record sales, together with strong operating margin expansion, translated to diluted earnings per share of 77 cents, up 54 percent compared to last year. The company generated gross profit of $240 million in the quarter, up 28 percent over the prior year, driven by the strong growth in sales.
Gross margins combined with strong SG&A performance delivered operating margin of 20.9 percent and adjusted operating margin of 20.4 percent, which was up 170 basis points versus last year. This was achieved despite the non-recurrence of a one-time COVID-related cotton subsidy that benefited gross margin in the first quarter last year by 300 basis points.
CEO’s Take: Glenn J. Chamandy, Gildan president and CEO, said: “Record results in the first quarter and a strong start to 2022 reflect the impact of Gildan’s Sustainable Growth (GSG) strategy. Our team’s clear focus on capacity driven growth, innovation and ESG, leveraging our world class, vertically integrated manufacturing platform, is putting us in a strong position to service customer demand while effectively managing inflationary cost pressures.”