While sales and earnings were down in the first quarter, Gildan Activewear said its overall business is strong and production capacity is expanding.
In a Nutshell: Gildan Activewear announced completion of a sizeable land purchase in Bangladesh for approximately $45 million as part of major Asian capacity expansion initiative to develop large-scale vertically integrated manufacturing in the region to support expected sales growth.
The development of a large multi-plant manufacturing complex is expected to include two large textile facilities and related sewing operations. Once fully operational, the complex is expected to have a capacity to service more than $500 million in sales. Initial production at the facility is expected to start in late 2021. Gildan said the build out of a large-scale manufacturing hub in the region will significantly enhance its positioning to service international markets and support other key sales.
While sales were down for the quarter, Gildan said they were better than the company’s guidance thanks to stronger than anticipated sales of fleece products and an earlier start of initial shipments of its new private label men’s underwear program, which will be available to consumers in the second quarter.
Earnings were down for the quarter versus last year due to anticipated factors, including the impact on sales from lower levels of distributor restocking and higher raw material and other input cost pressures.
Sales: Net sales for the first quarter ended March 31 were down 3.6 percent to $623.9 million compared to the prior-year period, reflecting declines of 4.1 percent in activewear and 1.8 percent in the hosiery and underwear category. These were partly offset by double-digit growth in fleece shipments, which were driven by a more favorable product-mix and higher net selling prices.
A dip in the hosiery and underwear category, which posted sales of $130.4 million, was mainly attributable to lower Gildan branded socks and underwear sales in the mass retail channel, which was largely offset by higher socks sales in licensed and global lifestyle brands, as well as the benefit of earlier than anticipated shipments of a new private label men’s underwear program in the mass channel.
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Earnings: Net earnings for the three months fell 67 percent to $22.7 million from $67.9 million for the same period last year. Excluding the impact of after-tax restructuring and acquisition-related costs in both years, Gildan reported adjusted net earnings of $32.8 million, down from $74.6 million in the first quarter of 2018.
Gross margin in the first quarter was 25.8 percent, down 140 basis points over the same period last year. The decrease was attributed to higher raw material and other input costs, including inflationary pressures and unfavorable foreign exchange, somewhat countered by higher net selling prices and a more favorable product mix.
During the quarter, capital expenditures were $22.8 million related primarily to investments in textile capacity expansion, including the ramp up of the company’s new Rio Nance 6 facility in Honduras and related sewing expansion, as well as investments in information technology.
CEO’s Take: Speaking on a conference call with analysts, Glenn Chamandy, president and CEO, said of the Bangladesh manufacturing investment: “It’s a low-cost country to operate. There is very good energy availability, well-educated and good labor for us…There’s ample supply of ring-spun yarn, which is mainly in the markets outside United States…Having this capacity in…Bangladesh will allow us have a lot of flexibility. It gives us the flexibility to drive international sales. It gives us the flexibility to move some of the production from our existing Central America [facilities].”
Commenting on business overall, Chamandy said, “All of our businesses are growing. Our online sales were up significantly this year. We’re planning for a 40 percent-plus increase in online sales; international’s double-digits; fashion basics is growing double-digits; American Apparel double-digits… And the one area where we are actually seeing some negative downturn is in our basic business really.”