Gildan Activewear Inc. said Monday it has started to see a “meaningful deceleration in demand” in its imprintables channel due to measures that governments, companies and people are taking to limit the spread of COVID-19.
In addition, Gilden has not yet seen as significant a deceleration of demand for its products in all the retail channels it serves, but “we expect the multitude of recently announced temporary store closures and social distancing measures being recommended by governments and health protection agencies will also continue to slow retail demand,” said the manufacturer basic apparel such as activewear, underwear, socks, hosiery and legwear products.
On March 17, the government of Honduras mandated a seven-day closure of all private enterprises operating in the country. That has now been extended to March 29.
“Governments of some of the other countries in which we operate are also issuing similar directives to combat the spread of COVID-19,” Gildan said. “Accordingly, given the impact of all these factors, the company announced today that it is temporarily suspending production at all of its manufacturing facilities until mid-April. This will allow us to respect government recommendations and align production and inventory levels with current demand requirements.”
The company, which markets such brands as Gildan, American Apparel, Comfort Colors, GoldToe and Peds, said all other areas of the business, including distribution centers, will remain open for the time being with good inventory availability levels to service customers. Gildan plans to operate with appropriate measures in place to protect employees, including remote working arrangements for many office staff.
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At the end of the fourth quarter of 2019, Gildan had a net debt to adjusted EBITDA leverage ratio of 1.6 times. As a precautionary measure on March 17, the company elected to draw down on the remaining available portion of its revolving long-term bank credit facility, “positioning us with close to $600 million of liquidity,” it said.
“Accordingly, we have a high degree of financial flexibility as we move forward to deal with COVID-19 challenges given our fixed cost structure and focus on expense, capex and working capital management, as well as our balance sheet and access to liquidity,” Gildan said.
Also, like many others in the textile and apparel sector, Gildan is withdrawing its first quarter and full year 2020 financial guidance issued on Feb. 20, which did not include the impact of COVID-19 disruptions. The company expects to provide a further update when it releases its first-quarter 2020 earnings results.
For year ended Dec. 29, Gildan saw sales fall 2.9 percent to $2.82 billion, which the company said was in line with guidance of a low-single-digit sales decline. This reflected activewear sales of $2.26 billion, down 2.6 percent over last year, and sales in the hosiery and underwear category of $562 million, off 3 percent compared to 2018.
Net earnings for the year declined 25.9 percent to $259.8 million, due to lower operating income and higher financial expenses, partly offset by lower income taxes.
“Gildan is working diligently across all areas of our business to safeguard our people and the continuity of our business, while maintaining support to all our customers,” the company said.
“We have been able to successfully navigate through difficult times over the years and adapt to changing environments, which gives us confidence that our strong business model, financial position and resilience will continue to position us well for long-term success as we emerge from the COVID-19 crisis,” it added.