Ms. Sophie Argiriou reports
GILDAN ACTIVEWEAR REPORTS STRONG FIRST QUARTER RESULTS AND REAFFIRMS FULL YEAR GUIDANCE FOR 2017
Gildan Activewear Inc. today released its results for the first quarter ended April 2, 2017, and reconfirmed its full-year guidance for 2017.
All amounts are in U.S. dollars, except where otherwise indicated.
Highlights:
- Generally accepted accounting principle diluted earnings per share (EPS) of 36 cents and adjusted diluted EPS of 39 cents, up 39 per cent over last year and a record for the first quarter;
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Sales of $665-million, up 12 per cent compared with the first quarter of 2016;
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Operating margins and adjusted operating margins up 220 and 200 basis points, respectively;
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Strong year-over-year increase in free cash flow generation;
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Gildan men's underwear market share of 11.2 per cent at the end of March;
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Company reaffirms full-year 2017 financial guidance.
The company's first quarter performance reflected a strong start to the year with both operating segments tracking well against the company's financial expectations for the year. The company achieved 12.2-per-cent net sales growth in the quarter, driven by acquisitions and organic growth. Sales growth and operating margin expansion in the quarter translated to strong adjusted diluted EPS growth of 39 per cent compared with last year. Free cash flow in the first quarter was up significantly over last year due to strong working capital management and lower capital expenditures. Increased market share in men's underwear in the retail channel and continued growth in the faster-growing product categories of printwear reflected continued progress with the company's strategic initiatives, despite mixed market conditions.
Consolidated results
The company's consolidated net sales of $665.4-million in the first quarter ended April 2, 2017, grew 12.2 per cent compared with the first quarter in 2016, reflecting sales increases of 13.6 per cent in the printwear segment and 9.2 per cent in branded apparel. The increase in consolidated net sales was mainly due to the impact of the 2016 acquisitions of Alstyle and Peds, as well as the American Apparel acquisition which closed during the first quarter of 2017, and organic growth driven by higher net selling prices and favourable product mix. These positive factors were partially offset by unfavourable foreign exchange and the planned exit of private-label programs in branded apparel.
Consolidated gross margin in the first quarter of 2017 was 28.4 per cent, up 200 basis points compared with the same period last year primarily due to the positive net impact of net selling prices, manufacturing and raw material costs, partially offset by unfavourable foreign exchange. Selling, general and administrative (SG&A) expenses as a percentage of sales of 13.4 per cent were flat year over year. Adjusted operating margins of 15 per cent were up 200 basis points compared with 13 per cent in the same period last year, reflecting consolidated gross margin expansion and SG&A leverage in branded apparel, partly offset by the SG&A margin impact of acquisitions in printwear.
Net earnings totalled $83.5-million, or 36 cents per share on a diluted basis for the three months ended April 2, 2017, compared with net earnings of $63.2-million, or 26 cents per share on a diluted basis for the three months ended April 3, 2016. Excluding after-tax restructuring and acquisition-related costs of $6.6-million in the quarter and $5.8-million in the same quarter last year, Gildan reported adjusted net earnings of $90.1-million, or 39 cents per share on a diluted basis for the first quarter of 2017, up from $69-million, or 28 cents per share on a diluted basis in the prior-year quarter. The increase in adjusted net earnings in the quarter was mainly driven by sales growth and higher operating margins, partially offset by higher income taxes compared with the same quarter last year. Adjusted EPS growth also reflected the benefit of share repurchases.
Gildan generated free cash flow of $41.3-million in the first quarter of 2017, compared with a use of $58.4-million of free cash in the same quarter last year. The approximate $100-million improvement in free cash flow in the quarter was due to higher earnings, strong working capital management and lower capital expenditures. Capital expenditures of $24.8-million in the first quarter of 2017 were primarily for investments in textile capacity, including the development of Rio Nance 6 and textile capacity expansion in Bangladesh, as well as investments in garment dyeing and distribution. During the first quarter of 2017, the company repurchased approximately 3.5 million common shares under its normal course issuer bid, which it renewed effective as of Feb. 27, 2017, at a total cost of $89.3-million. Gildan ended the quarter with net debt of $713-million and a leverage ratio of 1.3 times net debt to adjusted EBITDA.
Segmented operating results
Net sales for the printwear segment for the first quarter of 2017 amounted to $445.6-million, up 13.6 per cent from $392.1-million in the first quarter last year. The increase in printwear net sales was mainly due to sales of $39.5-million from the Alstyle and American Apparel acquisitions, higher net selling prices, and favourable product mix, partly offset by unfavourable foreign exchange impacts.
Printwear segment operating income for the three months ended April 2, 2017, totalled $105.9-million, up 24.3 per cent compared with $85.2-million for the same period last year. Operating margins for printwear were 23.8 per cent, up 210 basis points over the prior-year quarter due primarily to the favourable net impact of net selling prices, manufacturing and raw material costs, partly offset by unfavourable foreign exchange impacts and SG&A expenses from the Alstyle acquisition.
Net sales for the branded apparel segment in the quarter were $219.7-million, up 9.2 per cent from $201.2-million in the first quarter of 2016. The increase in branded apparel sales was primarily due to sales of $20.9-million from the Peds acquisition and organic sales growth, which was partially offset by the impact from the planned exit of certain private-label programs.
Operating income for the branded apparel segment of $18.6-million in the three months ended April 2, 2017, increased approximately 24.8 per cent compared with $14.9-million in the same quarter last year. Branded apparel operating margins of 8.4 per cent improved 100 basis points over the same quarter last year, primarily attributable to the favourable net impact of net selling prices, manufacturing and raw material costs, as well as the benefit of volume leverage on SG&A expenses.
Outlook
The company reaffirmed its full-year 2017 financial guidance, which it initiated on Feb. 23, 2017, of adjusted diluted EPS in the range of $1.60 to $1.70 on expected consolidated net sales growth in the high-single-digit range. Printwear and branded apparel net sales in 2017 are each expected to increase in the high single-digit range, driven by organic growth and the projected aggregate impact of approximately $160-million to $185-million from the acquisitions of Alstyle, Peds and American Apparel. The company continues to expect earnings growth in 2017 to be weighted in the first half of the year as higher raw material costs are projected in the second half of the year. The company is also reconfirming its expectations for adjusted EBITDA for 2017 of $555-million to $585-million and free cash flow in excess of $400-million, after projected capital expenditures of approximately $125-million for the year.
Declaration of quarterly dividend
The board of directors has declared a cash dividend of 9.35 U.S. per share, payable on June 12, 2017, to shareholders of record on May 18, 2017. This dividend is an eligible dividend for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.
Normal course issuer bid
On Feb. 23, 2017, the company announced the renewal of a normal course issuer bid, beginning on Feb. 27, 2017, and expiring Feb. 26, 2018, to purchase for cancellation up to 11,512,267 common shares, representing approximately 5 per cent of the company's issued and outstanding common shares as of Feb. 17, 2017.
During the three months ended April 2, 2017, the company repurchased for cancellation a total of approximately 3.5 million common shares at a total cost of $89.3-million. Additionally, the company repurchased approximately 1.9 million common shares during the remainder of the month of April at a total cost of $50.7-million.
Disclosure of outstanding share data
As at April 28, 2017, there were 225,119,793 common shares issued and outstanding, along with 2,532,019 stock options and 249,893 dilutive restricted share units (treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a predetermined option price. Each treasury RSU entitles the holder to receive one common share from treasury at the end of the vesting period, without any monetary consideration being paid to the company. However, the vesting of at least 50 per cent of each treasury RSU grant is contingent on the achievement of performance conditions that are primarily based on the company's average return on assets performance for the period as compared with the S&P/TSX Capped Consumer Discretionary Index, excluding income trusts, or as determined by the board of directors.
Conference call information
Gildan Activewear will hold a conference call to discuss first quarter 2017 results and its business outlook today at 5 p.m. ET. A live audio webcast of the conference call will be available on Gildan's corporate website. To access the conference call, dial toll-free 800-447-0521 (Canada and the United States) or 847-413-3238 (international) and enter passcode 44748364, followed by the pound symbol. A replay will be available for 30 days starting at 7:30 p.m. ET by dialling toll-free 888-843-7419 (Canada and the U.S.) or 630-652-3042 (international) and entering the same passcode, or by audio webcast on-line.
Notes
This release should be read in conjunction with Gildan's management's discussion and analysis, and its unaudited condensed interim consolidated financial statements as at and for the three months ended April 2, 2017, available on the company's website, which will be filed by Gildan with the Canadian securities regulatory authorities and with the U.S. Securities and Exchange Commission.
Certain minor rounding variances may exist between the condensed interim consolidated financial statements and the attached tables
CONSOLIDATED FINANCIAL DATA
(in millions of U.S. dollars, except per-share amounts or where otherwise indicated)
Three months ended
April 2, 2017 April 3, 2016
Net sales $665.4 $593.3
Gross profit 188.7 156.4
SG&A expenses 89.2 79.2
Restructuring and acquisition-related costs 6.6 6.8
Operating income 93.0 70.3
Adjusted operating income 99.6 77.1
Adjusted EBITDA 138.7 111.8
Financial expenses 4.7 4.9
Income tax expense 4.7 2.2
Net earnings 83.5 63.2
Adjusted net earnings 90.1 69.0
Basic EPS 0.36 0.26
Diluted EPS 0.36 0.26
Adjusted diluted EPS 0.39 0.28
Gross margin 28.4% 26.4%
SG&A expenses as a percentage of sales 13.4% 13.4%
Operating margin 14.0% 11.8%
Adjusted operating margin 15.0% 13.0%
Cash flows from (used in) operating activities 65.9 (20.5)
Free cash flow 41.3 (58.4)
As at
April 2, 2017 Jan. 1, 2017
Inventories 948.2 954.9
Trade accounts receivable 357.9 277.7
Net indebtedness 713.0 561.8
SEGMENTED FINANCIAL DATA
(in millions of U.S. dollars, except per-share amounts or where otherwise indicated)
Three months ended
April 2, 2017 April 3, 2016
Segmented net sales
Printwear $445.6 392.1
Branded apparel 219.7 201.2
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Total net sales 665.3 593.3
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Segment operating income
Printwear 105.9 85.2
Branded apparel 18.6 14.9
Total segment operating income 124.5 100.1
Amortization of intangible assets, excluding software (5.0) (4.4)
Corporate expenses (19.9) (18.6)
Restructuring and acquisition-related costs (6.6) (6.8)
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Total operating income 93.0 70.3
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About Gildan Activewear Inc.
Gildan is a leading manufacturer and marketer of quality branded basic family apparel, including T-shirts, fleece, sport shirts, underwear, socks, hosiery and shapewear.
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