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Enter Symbol
or Name
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CA



Gildan Activewear Inc
Symbol GIL
Shares Issued 219,414,970
Close 2017-11-01 C$ 37.72
Market Cap C$ 8,276,332,668
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Gildan Activewear earns $116.1M (U.S.) in Q3 2017

2017-11-02 12:20 ET - News Release

Ms. Sophie Argiriou reports

GILDAN ACTIVEWEAR REPORTS THIRD QUARTER RESULTS AND INCREASES FULL YEAR ADJUSTED EPS GUIDANCE

Gildan Activewear Inc. has released its results for the third quarter ended Oct. 1, 2017, updated its full year guidance for 2017 and has increased the common share allotment of its current normal course issuer bid (NCIB) program (all amounts are in U.S. dollars).

The company generated strong earnings per share growth during the third quarter, with earnings per share of 52 cents and adjusted EPS of 53 cents, up 6 per cent compared with the prior year. Stronger than expected adjusted EPS was due to more favourable product mix in printwear, earnings contribution from the impact of the American Apparel transaction and lower income taxes, partly offset by lower than expected branded apparel sales, reflecting the continuation of a challenging retail market. With stronger adjusted EPS year to date, the company increased its full year guidance range for adjusted EPS to $1.70 to $1.72, which at the midpoint of the range represents projected growth of 13 per cent compared with last year. During the quarter, the company continued to make good progress with the American Apparel integration, including the continued ramp-up of production and the successful launch of the American Apparel consumer e-commerce platform. From a free cash flow perspective, Gildan continued to deliver strong free cash flow with approximately $150-million generated in the third quarter, bringing the total cumulative free cash flow year to date in excess of $350-million. As a result of increased profitability and stronger working capital management, the company now expects its free cash flow for the full year to be in excess of $450-million, compared with its previous guidance of in excess of $425-million.

Consolidated results

Consolidated net sales of $716.4-million in the third quarter ended Oct. 1, 2017, were essentially flat compared with the prior year as printwear sales growth of 4.1 per cent was offset by a 6.9-per-cent decline in branded apparel sales compared with the third quarter of last year.

Consolidated gross margin in the third quarter came in at a strong 31.0 per cent, reflecting a 60-basis-point increase over the same period last year. The increase was mainly due to higher net selling prices and favourable product mix in printwear, partly offset by unfavourable product mix in branded apparel, and higher raw material and other input costs compared with the third quarter of 2016 as the company had forecasted.

Consolidated SG&A (selling, general and administrative) expenses as a percentage of sales were 13.2 per cent in the third quarter compared with 12.1 per cent in the same quarter last year, primarily due to the impact of the American Apparel acquisition. The company generated a strong adjusted operating margin for the quarter of 17.8 per cent, slightly down from 18.3 per cent in the prior year quarter.

Net earnings for the three months ended Oct. 1, 2017, amounted to $116.1-million, or 52 cents per share on a diluted basis, compared with net earnings of $114.4-million, or 49 cents per share on a diluted basis, for the same period last year. Excluding the impact of after-tax restructuring and acquisition-related costs of $2.5-million in the quarter and $2.0-million in the prior year quarter, Gildan reported adjusted net earnings of $118.6-million, or 53 cents per share on a diluted basis, for the third quarter of 2017, up from $116.4-million, or 50 cents per share on a diluted basis, in the same quarter last year. The 6.0-per-cent increase in adjusted diluted EPS in the quarter was mainly driven by a higher gross margin, lower income taxes and the benefit of share repurchases, partly offset by higher SG&A expenses due in part to the American Apparel acquisition.

Gildan generated strong free cash flow of $149.9-million in the third quarter bringing total free cash flow for the first nine months of 2017 to $353.3-million, up $96.8-million from $256.5-million in the same period last year. The increase was driven by higher earnings, working capital improvements and lower capital expenditures compared with the first nine months of 2016. Capital expenditures of $18.7-million in the quarter and $61.2-million for the first nine months of the year were primarily for investments in textile capacity, distribution and garment dyeing expansion. Pursuant to its NCIB program, the company repurchased 3,872,980 common shares at a total cost of $119.3-million during the third quarter and 9,829,852 common shares at a total cost of $276.6-million during the first nine months of the year. The company ended the third quarter with net debt of $657.8-million and a leverage ratio of 1.1 times net debt to trailing 12-month adjusted EBITDA.

Segmented operating results

Printwear net sales for the third quarter of 2017 were $480.7-million, up $18.8-million, or 4.1 per cent over the same period last year. The increase reflected a sales contribution of $15.4-million from the acquisition of American Apparel, continued strong growth in fashion and performance basics which contributed to favourable product mix, double-digit unit sales volume growth in international markets and higher net selling prices, partly offset by lower sales of basics.

Printwear segment operating income for the three months ended Oct. 1, 2017, totalled $127.5-million, up 3.3 per cent compared with $123.4-million for the same period last year. Printwear operating margin for the quarter was 26.5 per cent, effectively in line with the third quarter last year. The benefit of higher net selling prices and favourable product mix mitigated the unfavourable impact of higher raw material and other input costs, as well as the impact of higher SG&A expenses primarily due to the acquisition of American Apparel.

Net sales for the branded apparel segment in the quarter were $235.7-million, down $17.4-million, or 6.9 per cent compared with the third quarter of 2016, mainly due to weakness in the sock category, particularly in department stores and national chains, as well as the sporting goods channel, combined with the unfavourable impact from the transition to a new sock program at a mass retailer. Lower sock sales in the quarter were partly offset by higher sales of Gildan branded men's underwear compared with the third quarter of 2016 and strong performance of activewear.

For the three months ended Oct. 1, 2017, branded apparel generated operating income of $25.3-million compared with $29.5-million in the same quarter last year. Branded apparel operating margin of 10.7 per cent was down from 11.7 per cent in the same quarter last year, primarily as a result of unfavourable product mix due to lower sales of higher-margin sock products.

Year-to-date sales and earnings

Consolidated net sales of $2,097.1-million in the first nine months of 2017 were up $99.9-million, or 5.0 per cent, compared with the same period last year, reflecting sales increases of 6.1 per cent in the printwear segment and 2.8 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 and the American Apparel acquisition which closed during the first quarter of 2017, as well as higher net selling prices, increased unit sales volumes of printwear fashion and performance products, and favourable product mix. These positive factors were partly offset by lower unit sales volumes of printwear basics and branded apparel, particularly lower sock sales, as well as the planned exit of private label programs and the impact of unfavourable foreign exchange.

Gross margin for the nine months ended Oct. 1, 2017, of 29.8 per cent was up 160 basis points compared with the same period last year, driven by higher gross margins in both operating segments. The increase was mainly due to the positive net impact of net selling prices and manufacturing and raw material costs compared with the same period in the prior year. SG&A expenses as a percentage of sales for the first nine months of 2017 were 13.0 per cent, up from 12.5 per cent of sales in the same period last year, mainly due to the impact of acquisitions and other expenses, including higher receivable provisions. Consolidated adjusted operating margins in the first nine months of 2017 totalled 16.7 per cent, up 100 basis points over the same period last year.

Net earnings for the first nine months of 2017 were $307.4-million, or $1.36 per share on a diluted basis, up from net earnings of $272.3-million, or $1.15 per share on a diluted basis, for the same period last year. Before reflecting after-tax restructuring and acquisition-related costs in both years, adjusted net earnings were $319.3-million, or $1.41 per share on a diluted basis, in the first nine months of 2017, up 13.3 per cent and 18.5 per cent, respectively, compared with adjusted net earnings of $281.8-million, or $1.19 per share on a diluted basis, in the same period last year. The increase in adjusted net earnings was mainly due to the improvement in operating margins, the impact of acquisitions and lower income taxes, partly offset by higher financial expenses. EPS and adjusted EPS growth also reflected the benefit of share repurchases.

Outlook

After reflecting third quarter earnings per share results and more tempered sales expectations for branded apparel in the current retail environment, the company updated its guidance for the full year. Consolidated net sales growth for the full year is now projected to be in the mid- to high-single-digit range compared with the company's previous estimate of high-single-digit net sales growth. The company continues to expect strong full year printwear net sales growth in the high-single-digit range, while it is now projecting branded apparel net sales growth in the low-single-digit range versus its previous projection of high-single- digit growth, given current retail market conditions. Due to stronger adjusted EPS to date, the company is now projecting adjusted diluted EPS for the full year to be in the range of $1.70 to $1.72, up 13 per cent at the midpoint of the range compared with adjusted EPS of $1.51 in the prior year. This compares with the company's previous guidance expecting adjusted diluted EPS to be at the high end of $1.60 to $1.70. The company also updated its expectation for adjusted EBITDA for 2017 to be in the range of $580-million to $590-million, up from its prior estimate of adjusted EBITDA at the high end of the $555-million to $585-million guidance range. Full year capital expenditures continue to be projected to be approximately $100-million. Finally, as a result of stronger than previously anticipated profitability and working capital improvements, the company is now projecting free cash flow in excess of $450-million for the year compared with its previous estimate of in excess of $425-million.

Declaration of quarterly dividend

The board of directors has declared a cash dividend of 9.35 cents per share, payable on Dec. 11, 2017, to shareholders of record on Nov. 16, 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

The company announced today that it has received approval from the Toronto Stock Exchange (TSX) to amend its current normal course issuer bid program (NCIB) in order to increase the maximum number of common shares that may be repurchased from 11,512,267 common shares, or 5 per cent of the company's issued and outstanding common shares as at Feb. 17, 2017 (the reference date for the NCIB), to 16,117,175 common shares, representing approximately 7.2 per cent of the public float (or 7 per cent of the company's issued and outstanding common shares) as at Feb. 17, 2017. No other terms of the NCIB have been amended.

The NCIB, which began Feb. 27, 2017, and will end no later than Feb. 26, 2018, is conducted by means of open market transactions on both the TSX and the New York Stock Exchange (NYSE), or alternative trading systems, if eligible, or by such other means as the TSX, the NYSE or a securities regulatory authority may permit, including prearranged crosses or by private agreements under an issuer bid exemption order issued by securities regulatory authorities in Canada.

Under the TSX rules, any daily repurchases on the TSX are limited to a maximum of 131,732 common shares, which represent 25 per cent of the average daily trading volume on the TSX for the six months ended Jan. 31, 2017. In addition, Gildan may make, once per week, a block purchase of common shares not directly or indirectly owned by insiders of Gildan, in accordance with TSX rules. All shares purchased pursuant to the NCIB are cancelled.

The automatic share purchase plan (the ASPP) entered into with a designated broker on March 24, 2017, also remains unchanged. The ASPP allows for the purchase of common shares under the NCIB at times when the company would ordinarily not be permitted to purchase its common shares due to regulatory restrictions or self-imposed trading blackout periods. Outside of the predetermined blackout periods, common shares may be purchased under the NCIB based on the discretion of the company's management, in compliance with TSX rules and applicable securities laws.

During the period from Feb. 27, 2017, to Oct. 31, 2017, Gildan purchased a total of 11,203,252 common shares, representing 4.95 per cent of the company's public float and 4.87 per cent of the company's issued and outstanding common shares as at Feb. 17, 2017, of which a total of 877,000 common shares were repurchased by way of private agreements with arm's-length third party sellers.

Gildan's management and the board of directors believe the repurchase of the common shares represents an appropriate use of Gildan's financial resources and that share repurchases under the NCIB will not preclude Gildan from continuing to pursue complementary acquisitions.

Disclosure of outstanding share data

As at Oct. 31, 2017, there were 219,414,970 common shares issued and outstanding along with 2,468,871 stock options and 114,466 dilutive restricted share units 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 third quarter 2017 results and its business outlook today at 8:30 a.m. ET. A live audio webcast of the conference call, as well as a replay, will be available on its corporate website. The conference call can be accessed by dialling 800-447-0521 (Canada and United States) or 847-413-3238 (international) and entering passcode 45755305 followed by the pound key. A replay will be available for 30 days starting at 11 a.m. ET by dialling 888-843-7419 (Canada and U.S.) or 630-652-3042 (international) and entering the same passcode.

                                  CONSOLIDATED FINANCIAL DATA (UNAUDITED)
                                      (in millions, except per share)

                                                          Three months ended               Nine months ended
                                                Oct. 1, 2017    Oct. 2, 2016    Oct. 1, 2017    Oct. 2, 2016

Net sales                                             $716.4          $715.0        $2,097.1        $1,997.2
Gross profit                                           222.2           217.4           624.2           562.8
SGA expenses                                            94.8            86.8           273.4           249.6
Restructuring and acquisition-related costs              2.5             2.0            11.9            11.5
Operating income                                       124.9           128.6           339.0           301.7
Adjusted operating income                              127.4           130.6           350.9           313.2
Adjusted EBITDA                                        167.7           164.3           472.1           421.1
Financial expenses                                       6.0             6.0            18.3            13.8
Income tax expense                                       2.7             8.3            13.3            15.5
Net earnings                                           116.1           114.4           307.4           272.3
Adjusted net earnings                                  118.6           116.4           319.3           281.8
Basic EPS                                               0.52            0.49            1.36            1.15
Diluted EPS                                             0.52            0.49            1.36            1.15
Adjusted diluted EPS                                    0.53            0.50            1.41            1.19
Gross margin                                            31.0            30.4            29.8            28.2
SGA expenses as a percentage of sales                   13.2            12.1            13.0            12.5
Operating margin                                        17.4            18.0            16.2            15.1
Adjusted operating margin                               17.8            18.3            16.7            15.7
Cash flows from operating activities                   168.5           225.8           414.2           367.3
Free cash flow                                         149.9           184.9           353.3           256.5

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