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Activewear Lifts Gildan Sales to $850 Million Record

Activewear sales were up 13 percent in the quarter to $742 million, thanks to higher net selling prices.

In a Nutshell: Gildan Activewear Inc., in announcing results for the third quarter, said it was able to deliver strong gross margin performance of 29.7 percent in the quarter, despite inflationary cost pressures.

Sales, general and administrative (SG&A) came in better than anticipated at 9.3 percent of sales, resulting in operating and adjusted operating margins of 20.5 percent and 20.0 percent, respectively, at the high end of the company’s target range.

After funding higher working capital requirements, primarily related to higher inventories, the company generated cash flows from operating activities in the quarter of $66 million that were used to fund higher capital expenditures, resulting in approximately $7 million of free cash flow consumed in the quarter. Gildan ended the quarter with net debt of $944 million.

SG&A expenses for the third quarter totaled $79 million, down slightly from $81 million in the same quarter last year, as lower variable compensation expenses and cost containment efforts more than offset the impact of cost inflation and higher selling expenses.

Gildan said it believes the actions it has taken continue to position the company well to navigate through any near-term challenges related to the current environment.

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“Importantly, our large North American business geared toward imprintables channels continues to benefit from demand driven by travel, tourism and large events and is expected to remain relatively stable,” Gildan said. “On the other hand, where we are seeing continued weakness is with our national account or retail-related customers, which represents a smaller part of our business. Further, in international markets we are also continuing to see ongoing softness in demand.”

On the cost side, the company said that although the impact of higher raw material costs will become more pronounced in the fourth quarter, it remains focused on delivering on its operating profitability target range of 18 percent to 20 percent.

“More importantly, our proven operational excellence in both good and tough environments, as well as the progress we continue to make on the key pillars of our sustainable growth strategy, gives us confidence in our ability to deliver on our three-year growth targets outlined in February,” Gildan added.

Sales: Sales in the third quarter ended Oct. 2 increased 6 percent year over year to a record $850 million, as activewear sales to North American imprintable distributors held well in the quarter, driven by higher net selling prices and sales volumes.

Activewear sales rose 13 percent to $742 million due to higher net selling prices, partly offset by lower sales volumes, as increased unit sales to North American distributors were more than offset by lower unit sales volumes of activewear stemming from demand weakness in retail and international markets.

Sales in the hosiery and underwear category fell 26 percent to $108 million. The sales decline compared to last year was driven by weak demand in retail and the impact of retailers managing their inventory levels.

Earnings: Net earnings for the quarter decline 18.7 percent to $153 million.

Earnings per share (EPS) fell 11.6 percent to 84 cents. Operating income was $175 million, or 20.5 percent of sales, compared to operating income of $201 million, or 25.1 percent of sales, in the third quarter last year. The decrease was primarily due to lower operating margins, which more than offset the growth in sales.

Gildan generated gross profit of $252 million in the quarter, down $30 million from last year. After adjusting for the benefit of a net insurance gain of approximately $30 million recorded in the third quarter of 2021, adjusted gross profit was flat year over year, as the sales growth in the quarter was offset by lower gross and adjusted gross margin compared to last year.

CEO’s Take: Glenn J. Chamandy, president and CEO, said: “The strength of our activewear business, driven by North American imprintables sales, together with the benefits from our vertically integrated manufacturing model, allowed us to deliver another strong quarter. These results are a testament to the progress we are making under the Gildan Sustainable Growth strategy, which we remain fully focused on as we continue to drive to deliver on our three-year targets.”