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Gildan’s Activewear Unit Scores in Quarter as American Apparel on $100M Path

While hosiery and underwear sales are being hurt by retailers’ private labels moves, Gildan’s activewear business is seeing strong growth.

In a Nutshell: Gildan Activewear Inc. reported record second quarter sales and adjusted diluted earnings per share (EPS) ahead of its expectations, which it said sets the company on the path to achieve the higher end of its full year guidance range for sales and adjusted diluted EPS. Gildan said strong sales momentum in key growth areas such as fashion basics and international markets, continued during the second quarter.

The Montreal-based company said adjusted diluted EPS for the quarter was up 6.1%, largely in line with sales growth, despite higher manufacturing and supply chain costs. This was partially offset by a 50 basis point improvement in selling, general and administrative (SG&A) expenses as a percentage of sales that resulted from cost reductions from the company’s recent organizational consolidation, which Gildan said is progressing well.

Sales: Net sales for the second quarter ended July 1 were up 6.8% to $764.2 million compared to the prior year, driven by a 17.3% increase in activewear sales. The activewear gain was propelled by high volume in imprintable products, as well as sales increases to global lifestyle brand customers and retailers.

Gildan said the increase in activewear sales also reflected higher net selling prices, including the impact of foreign exchange, and a favorable product-mix, with double digit growth in fleece shipments. International sales for the unit in the period grew 35.2%, with growth momentum across all markets.

American Apparel sales are now expected to reach close to $100 million by the end of the year. The hosiery and underwear category declined 23.8% during the quarter, mainly due to unit volume decline in socks at mass retailers, which are shifting emphasis toward their own private label brands, and lower licensed and Gold Toe brand sales.

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Earnings: Net earnings for the three months rose 1.2% to $109 million compared with net earnings of $107.7 million for the same period last year. Operating income of $121 million and adjusted operating income of $124 million were flat compared to the same period last year. Gross margin in the second quarter was 28.3%, a 150 basis point decrease year over year. The decline was attributed to higher raw material and other input costs and additional manufacturing expenses resulting from disruptions within the company’s supply chain in Central America. The negative impact of these factors outweighed the benefit of higher net selling prices, including foreign exchange, and the positive impact of a better product mix, Unifi said.

CEO’s Take: Glenn Chamandy, on a conference call with analysts, said acquisitions and expanded production capacity have helped the company boost sales, with shipments outside of North America up 35 percent.

“We’re well positioned,” Chamandy said. “It reflects in terms of the growth that we have this year and we see that continuing through 2019.”

Adding to that, he said, “Our higher costs are mainly attributed to establishing and building capacity. We’ve increased our fleece capacity more than 50 percent.”

On activewear growth, Chamandy credited acquisitions such as American Apparel and Anvil, as well as investments yarn spinning. He said, “We’re reaping the benefits of our positioning and our fashion basics have grown in all a categories. We also saw 100 percent growth in e-commerce in the category.”

Commenting on political and civil unrest in Nicaragua, he said Gildan hasn’t had any disruption in production, but has had to reroute some shipments. The company has enough diversification in its supply chain, he said, that Gildan is confident there’ll be no impact if the situation in Nicaragua doesn’t improve.