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Gildan Combines Units Into One Division as Sales Grow but Earnings Fall

Looking to cut costs and improve retail efficiencies, Gildan is merging its Printwear and Branded Apparel businesses.

In a Nutshell: Gildan Activewear finished the year with strong sales in the fourth quarter but a decline in earnings, and announced the implementation of an organizational realignment and related executive management changes to better leverage its go-to-market strategy across its brand portfolio, and to drive greater operational efficiency.

The company has combined its Printwear and Branded Apparel businesses into one divisional operating structure, centralizing marketing, merchandising, sales, distribution and administrative functions. The combined organization will be led by Michael R. Hoffman as president of sales, marketing and distribution. Hoffman had been president of Printwear. Eric Lehman, previously president of Branded Apparel, announced he will leave the organization to pursue other opportunities effective June 30, following the integration of the two segments.

The combination of the two operating businesses is intended to drive a leaner and more streamlined organization that is expected to improve operational efficiencies. Any cost savings in 2018 will be reinvested in distribution and e-commerce activities.

Gildan said that American Apparel, acquired Feb. 8, 2017 is expected to contribute net sales of about $100 million in 2018, up from about $50 million in 2017.

[Read more about Gildan: Gildan’s Latest Effort Will Turn Hosiery Waste Into Apparel]

Sales: Gildan’s sales for the fourth quarter ended Dec. 31 increased 11.2% to $653.7 million from $587.9 million in the year-ago period, driven by Printwear sales that grew 27.6% to $415.6 million in the quarter and partly offset by a decline of 9.2% in Branded Apparel. For the full year, sales increased 6.4% to $2.75 billion, reflecting a 10.4% increase in Printwear segment sales, while Branded Apparel sales were slightly down from the prior year’s level.

Earnings: Net earnings fell 26.1% to $54.9 million in the quarter from net earnings of $74.3 million in the prior-year period. For the year, net earnings increased 4.5% to $362.3 million compared to $346.6 million the same period of the prior year. Consolidated gross margin in the fourth quarter increased 40 basis points to 27.1% compared to the prior-year quarter. The increase was mainly due to higher net selling prices and a favorable product mix in Printwear, partly offset by an unfavorable product mix in Branded Apparel, higher raw material costs, and the impact of additional manufacturing expenses of about $6 million resulting from temporary production interruptions related to the recent election in Honduras.

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CEO’s Take: Glen J. Chamandy, president and CEO, discussing the organizational changes on a conference call, said: “This is something that’s been developing for some time. The whole world is converging and there’s been a convergence of our printwear business with our retail business because of two things. A lot of our products today are ending up online. There’s no boundaries of entry–everything is one marketplace, so that’s one thing that’s led us to this decision.”

“Secondly, as we’ve invested heavily in the fashion segment, particularly with American Apparel, we’ve driven that strategy through our printwear division and built a very strong consumer readiness as for as our e-commerce strategy. At the end of the day, we were running with two business models almost having the same functionalities. So by aligning them and having a better market strategy, we can focus on consolidating all the efforts and develop a better, cohesive e-commerce strategy. We think this is the right thing for us to do as company. We’re going to be leaner and meaner, and take cost out of the system and we’re also going to drive more topline sales.”