Gildan foresees strong profit growth into 2015 despite higher cotton costs


MONTREAL – Gildan Activewear expects strong profit growth into the 2015 fiscal year despite higher cotton costs and a continuing soft retail market.

The Montreal-based apparel maker said Wednesday that it still expects adjusted earnings will increase by up to 15 per cent and sales will surpass US$2.3 billion this year after reporting a strong start to the fiscal year.

The company says it will add $100 million in new branded apparel business this year as it rolls out its platinum Gildan brand of socks and underwear, gains more shelf space at retail and benefits from the resurgence of Gold Toe as the leading retail sock brand.

“Our momentum is accelerating and we think that as we move into 2015 not only are we going to benefit from the spillover from 2014, but we will have greater opportunities with all the momentum we developed over the last two years,” CEO Glenn Chamandy said in a conference call Wednesday afternoon after releasing the company’s first-quarter results.

Profits grew 18.1 per cent to a record of US$41.7 million, according to results released after markets closed.

The company, which reports in U.S. dollars, said it earned 34 cents per share for the period ended Dec. 29, up from 29 cents per share a year ago, marking its sixth consecutive quarter of earnings growth.

Before restructuring and acquisition-related costs, the company earned US$43.3 million in adjusted profits or 35 cents per share, at the high end of its prior guidance and slightly above analyst forecasts. That compared to $39.1 million or 32 cents per share in the first quarter of 2013.

Revenues grew 7.3 per cent to US$451.4 million in the seasonally low sales period for T-shirts, from $420.8 million a year ago,

Gildan (TSX:GIL) was expected to report 34 cents per share in adjusted profits on $450.6 million of revenues according to analysts polled by Thomson Reuters.

The company attributed the earnings growth to improved sales in its printwear and branded apparel segments, partially offset by higher selling, general and administrative expenses.

Its effective tax rate, including the impact of restructuring and acquisition costs, was 5.7 per cent, up from 4.4 per cent a year earlier.

“The sales growth for branded apparel was achieved in an overall macroeconomic environment of continuing weak retail sales demand and careful management of inventory replenishment by retailers,” added chief financial and administrative officer Laurence Sellyn.

Gildan maintained its earnings guidance for the full year and said it expects to earn 61 to 64 cents per share in adjusted profits in the second quarter, up 3.4 to 8.5 per cent, on more than $550 million of sales.

The company is now assuming higher cotton prices in the second half of the year based on cotton futures and inflationary pressure, partially offset by slightly higher net selling prices.

“We expect to end the year with strong momentum in sales and earnings,” he told analysts. “Gross margins and EPS are expected to increase sequentially in successive fiscal quarters during the balance of the current fiscal.”

Gildan plans to self-finance $300 million to $350 million in capital expenditures for investments such as yarn-spinning, the continuing ramp up of its Rio Nance I complex in Honduras and initial investments in a new textile manufacturing facility in Central America that should be finalized before the end of the second quarter.

Analyst Derek Dley of Canaccord Genuity said the new facility likely in Nicaragua or Costa Rica should add 60 to 90 cents per share in earnings once fully ramped up.

Gildan is a leading supplier of apparel, including T-shirts, fleece, sport shirts, socks and underwear. It sells products under the Gildan, Gold Toe and Anvil brands, and has licensing arrangements with Armour, Mossy Oak and New Balance brands. Its manufacturing facilities in Central America, the Caribbean and Bangladesh employ more than 34,000 workers.

On the Toronto Stock Exchange, Gildan’s shares closed at C$58.23, up 58 cents or one per cent, in Wednesday trading.

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