Driven by strong activewear performance, Gildan’s sales hit a record for the fourth quarter of $784 million, up 14 percent over 2020.
In a Nutshell: Gildan Activewear Inc., in reporting results for the fourth quarter and year on Wednesday, provided its three-year financial outlook. Under its “Sustainable Growth plan” and based on the assumption of a continued global recovery, the company projects net sales growth at a compound annual rate in the range of 7 percent to 10 percent and annual adjusted operating margin in the range of 18 percent to 20 percent.
Capital expenditures as a percentage of sales of 6 percent to 8 percent are expected over the next three years to support long-term growth and vertical integration.
Gildan, with a portfolio of company-owned sportswear brands that includes Gildan, American Apparel, Comfort Colors, Goldtoe and Peds, as well as the licensed Under Armour socks line, owns and operates vertically integrated, large-scale manufacturing facilities primarily located in North and Central America, the Caribbean and Bangladesh.
Gildan generated free cash flow in the quarter totaling $116 million, which together with strong free cash flow generation throughout the year enabled the company to deliver a record level of $594 million in 2021, up from $358 million last year. The increase was driven by strong earnings, improved working capital management and the timing of insurance collections related to the 2020 hurricanes.
After taking into account the acquisition of Frontier Yarns, which was completed in the quarter, Gildan ended fiscal 2021 with a net debt position of $530 million.
Sales: Sales hit a record for the fourth quarter ended Jan. 2 of $784 million, up 14 percent over the prior year, consisting of activewear sales of $627 million, up 17 percent, and sales of $157 million in the hosiery and underwear category, up 3 percent compared to the prior-year period.
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The overall sales increase was largely driven by higher activewear sales volumes and net selling prices, partly offset by weaker product-mix related to the year-over-year timing of fleece sales. The growth in activewear sales volumes reflected the combination of higher point of sales (POS) and to a lesser extent the impact of some distributor restocking in the North American imprintables channel, although inventory levels in the North American imprintables channel continue to remain well below pre-pandemic levels.
For the year, Gildan delivered record net sales of $2.92 billion, up 48 percent from the prior year, reflecting increases of 58 percent in activewear and 16 percent in the hosiery and underwear category compared to 2020.
Earnings: Net earnings in the quarter increased to $174 million, or 89 cents per diluted share, and adjusted net earnings rose to $149 million, or 76 cents per diluted share, compared to net earnings of $67 million, or 34 cents per diluted share, and adjusted net earnings of $90 million, or 45 cents per diluted share, respectively, in the fourth quarter of 2020.
Gross profit grew 48 percent to $229 million in the quarter, while adjusted gross profit rose 35 percent to $240 million over the prior year, driven by sales growth and strong margin performance. Gross margin of 29.2 percent in the quarter was up 670 basis points over 2020.
The strong improvement over 2020 was primarily due to higher net selling prices and manufacturing efficiencies stemming from Gildan’s Back to Basics initiatives, which more than offset inflationary pressures on raw material and other manufacturing costs, as well as unfavorable product-mix compared to the same quarter in 2020.
Operating income in the quarter jumped to $177 million, or 22.6 percent of sales from $79 million, or 11.4 percent of sales, a year earlier.
For the year, net earnings were $607 million, or $3.07 per share on a diluted basis, and adjusted net earnings were $538 million, or $2.72 per diluted share. This compared to a net loss of $225 million, or $1.14 per diluted share, and an adjusted net loss of $36 million, or $0.18 per diluted share, in 2020.
CEO’s Take: Glenn J. Chamandy, president and CEO, said: “I am extremely proud of our team’s performance in 2021 which allowed us to capitalize on improving demand and deliver meaningful benefits from our Back to Basics strategy. We ended the year with a strong finish, growing above pre-pandemic levels and setting record results to build on.”
“As we look to 2022 and beyond, we are building on our Back to Basics principles and heightening our focus towards the next phase of our journey with our ‘Gildan Sustainable Growth’ plan centered on three key pillars: Enabling growth through capacity expansion, innovation and ESG,” Chamanday added. “By leveraging our competitive advantage as a low-cost vertically integrated manufacturer and executing on projected capacity expansion plans, delivering superior quality, value-driven and innovative products to our customers, and leveraging our strong ESG standing, we are confident that we can drive strong organic revenue growth, profitability and effective asset utilization to deliver strong shareholder value and make meaningful advancements on our ESG priorities.”