Canadian apparel manufacturer Gildan Activewear Inc. (GIL, GIL.TO) announced Thursday morning that profit for the fourth quarter nearly halved from last year, hurt by restructuring and income tax charges, despite a 27.4% sales growth. Adjusted earnings per share grew from last year, but missed analysts' expectations by two cents. The company also provided its initial earnings forecast for the first quarter of fiscal 2009 and for the full year, sharply below analysts' consensus.
Unlike many other apparel markets, the screenprint activewear market, which Gildan serves, is characterized by low fashion risk, since trends or fads generally do not drive basic garment styles. Gildan manufactures basic apparel like T-shirts, sport shirts and sweatshirts. Activewear is either branded or private label.
Fourth Quarter Results
The Montreal, Canada-based supplier of activewear reported net earnings and comprehensive income of US$21.42 million or US$0.18 per share for the fourth quarter, lower than US$40.87 million or US$0.34 per share in the prior-year quarter.
Results for the latest quarter include US$1.0 million or US$0.01 per share of restructuring and other charges, after tax effect, related the closure of Canadian and U.S. manufacturing facilities, while the year-ago quarter included US$4.9 million or US$0.04 per share of the same charges.
Excluding the charges, adjusted net earnings dropped to US$22.4 million or US$0.19 per share from US$45.8 million or US$0.38 per share in the year-ago quarter.
Further, results for the latest quarter included US$26.9 million or US$0.22 per share of one-time income tax charge resulting from the settlement of the Canada revenue agency audit.
Excluding the impact of the income tax charge, adjusted net earnings in the latest fourth quarter were US$49.3 million or US$0.41 per share.
On average, thirteen analysts polled by First Call/Thomson Financial expected earnings of $0.43 per share for the fourth quarter. Analysts' estimates typically exclude special items.
According to the company, the change in adjusted earnings was primarily due to higher activewear selling prices, higher unit sales volumes, increased manufacturing efficiencies as well as the accretive impact of acquisition, which were partially offset by higher cotton and energy costs, more unfavorable activewear product-mix, higher selling, general and administrative and depreciation expenses, and the non-recurrence of a prior-year income tax benefits.
Sales for the quarter increased 27.4% to US$324.72 million from US$254.86 million in the same quarter last year. Nine Wall Street analysts had a consensus revenue estimate of $341.36 million for the quarter.
Sales growth was driven by the accretive impact of the V.I. Prewett & Son, Inc. acquisition, a near 10.2% increase in activewear unit selling prices and an 8.5% increase in unit sales volumes for activewear and underwear.
The company has been steadily increasing its market share in all three categories of activewear -- T-Shirts, Sport shirts and Fleece, thanks to low-cost production made possible through superior cost control measures. Gildan's main competitors include privately held Fruit of the Loom, Hanes and publicly held apparel retailer V.F. Corp. (VFC).
The Greensboro, North Carolina-based VF Corp. in mid-October reported higher earnings for the third quarter, driven by a 6% revenue growth. The company also lifted its quarterly cash dividend. Further, citing lower consumer confidence and spending in several markets around the world, the company cut its earnings and revenue growth outlook for the fourth quarter and fiscal 2008.
Other Metrics
Gross profit for the quarter was $104.16 million, up from $82.13 million in the year-ago quarter, while gross margin percentage was almost flat with the year-ago quarter at 32.1%. Higher activewear selling prices and favorable manufacturing efficiencies from the consolidation of textile facilities was offset by higher cotton and energy costs, unfavorable product-mix and higher sales of lower margin U.S. manufactured socks from Prewett.
Selling, general and administrative expenses increased to $39.14 million from $27.90 million in the prior-year quarter, due to higher acquisition related and corporate infrastructure costs as well as higher distribution and transportation expenses. Expenses also contained a US$1.5 million provision for non-collection of accounts receivable.
The Company recorded an income tax expense of US$25.3 million in the fourth quarter, compared to an income tax recovery of US$4.6 million in the prior-year quarter.
The company ended the fourth quarter with cash and cash equivalents of $12.36 million, compared to $9.25 million at end of the prior-year quarter.
Fiscal 2008 Highlights
For the full-year 2008, net earnings totaled US$144.6 million or US$1.19 per share, higher than US$130.0 million or US$1.07 per share reported in fiscal 2007.
Before the impact of restructuring and other charges, net earnings fell to US$149.5 million or US$1.23 per share from US$157.3 million or US$1.29 per share in the prior-year period.
Excluding the impact of the income tax charge in fiscal 2008, adjusted net earnings were US$176.4 million or US$1.45 per share.
Analysts expected the company to report earnings of $1.46 per share for the full-year 2008.
Sales for the full-year 2008 climbed 29.6% to US$1.25 billion from US$0.96 billion posted last year. The Street was looking for full-year 2008 revenues of 1.27 billion.
Outlook
Looking ahead to the first quarter of fiscal 2009, the company noted that demand in the U.S. screenprint channel during the first two months has been very weak as consumer and corporate spending was curtailed due to the economic downturn. The first quarter is also seasonally the lowest sales quarter of the fiscal year.
However, the company expects to report adjusted earnings in a range of breakeven to US$0.05 per share in the first quarter. This is compared to the year-ago first quarter adjusted earnings of US$0.23 per share. Analysts are looking for first quarter earnings of $0.25 per share.
The Company also provided earnings guidance for fiscal 2009, assuming the continuation of the current negative market conditions, which are significantly impacting its results in the first quarter of fiscal 2009.
For fiscal 2009, Gildan anticipates adjusted earnings in a broad range of US$1.10 to US$1.30 per share. Wall Street analysts currently expect the company to report full-year 2009 earnings of $1.86 per share.
The company sees total capital expenditures in fiscal 2009 of about US$115 million, sharply lower than its previous estimate of about US$160 million.
The Company believes that the current business conditions in fiscal 2009 is uniquely challenging and that the economic upheaval in the industry will create opportunities for the company to build further on its leadership position in the U.S. screenprint channel, as well as to continue expanding its presence in international markets and the U.S. mass-market retail channel.
Stock Quote
GIL closed Wednesday's regular trading session at $14.17, down $0.15 on a volume of 1.52 million shares, higher than the three-month average volume of 1.20 million shares. In the past 52-week period, the stock has been trading in a broad range of $12.95 to $42.74.
On the Toronto Stock Exchange, GIL.TO closed Wednesday's regular trading session at C$17.75, down C$0.25 on a volume of 0.57 million shares.
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