Mr. Glenn Chamandy reports

GILDAN ACTIVEWEAR REPORTS RESULTS FOR THE FIRST QUARTER OF 2023 AND RECONFIRMS ITS FULL YEAR OUTLOOK

Gildan Activewear Inc. has released results for the first quarter ended April 2, 2023. (All amounts are in U.S. dollars except where otherwise indicated.)

"We are pleased with our top-line results having met our sales expectations for the quarter," said Glenn J. Chamandy, Gildan's president and chief executive officer. "Moreover, even though the economic environment remains uncertain, we remain comfortable with our full-year outlook given our strong competitive position, which we are reinforcing with the Gildan sustainable growth (GSG) strategy, and POS trends across our business coming in line with our expectations during the first quarter."

During the first quarter, Gildan generated net sales of $703-million, down $72-million or 9 per cent year over year, reflecting anticipated headwinds tied to the current demand environment and to strong comparative periods in the first half of 2022. Our operating margin came in at 18.2 per cent, including a $25-million gain from the sale and leaseback of one of our U.S. distribution facilities. Excluding this gain, our adjusted operating margin of 14.6 per cent came in slightly below our expectations largely due to the unfavourable mix impact of lower fleece shipments to distributors during the quarter. However, with fleece POS at distributors being strong in the quarter, this mix impact is expected to reverse as we move through the year. Consequently, we ended the quarter with generally accepted accounting principle diluted earnings per share of 54 cents and adjusted diluted EPS of 45 cents. Finally, in line with capital allocation priorities and a commitment to return capital to shareholders, it continued to be active on its share buyback program during the quarter, repurchasing one million shares at a cost of $32-million.

Q1 2023 operating results

Net sales for the first quarter ended April 2, 2023, were in line with expectations at $703-million, down $72-million, or 9 per cent, over the prior-year sales. In activewear, it generated sales of $588-million, down $80-million or 12 per cent, compared with the same period last year, which benefited from distributor inventory replenishment following the pandemic and a tight manufacturing environment in 2021. During the first quarter, year-over-year POS trends at North American distributors came in line with expectations, showing sequential quarterly improvement, but were down compared with last year. Further, while international sales in the quarter were down 17 per cent versus the prior year, Gildan is continuing to maintain a positive outlook regarding the recovery of international markets for the full year, supported by positive POS in the quarter. It observed notable strength in the hosiery and underwear category for the quarter with sales totalling $115-million, up $8-million or 7 per cent, over the prior-year quarter, mainly driven by sock volume growth. While industry demand for men's underwear remained down year over year, POS trends improved sequentially, and it was pleased with its share gains in men's underwear in the mass retail channel. Additionally, while its retail customers remain cautious on replenishment across all product categories, it was encouraged by improving inventory levels at the retailers in the first quarter, reflecting what it believea is an improving demand environment for its products.

It generated gross profit of $188-million in the quarter and adjusted gross profit of $184-million, down respectively $53-million and $55-million over the prior year, driven by the decline in sales and lower gross margins. Gross margin of 26.7 per cent and adjusted gross margin of 26.2 per cent were down year over year by 430 basis points and 470 basis points, respectively. This is mainly a result of the flow-through impact on its cost of sales of peak fibre costs and higher manufacturing input costs, both of which were anticipated, and due to unfavourable mix. These factors were partly offset by higher net selling prices.

Selling, general and administrative expenses for the first quarter of $82-million were largely in line with prior-year levels, and SG&A expenses as a percentage of net sales were 11.6 per cent compared with 10.5 per cent last year, primarily due to sales deleverage.

The company generated operating income of $128-million, or 18.2 per cent of sales, which included the benefit of the $25-million gain from the sale and leaseback of one of its U.S. distribution facilities, compared with operating income of $162-million, or 20.9 per cent of sales in the first quarter last year. Excluding this gain, adjusted operating income was $103-million, or 14.6 per cent of sales, compared with $158-million, or 20.4 per cent of sales, in the first quarter last year. The decline in GAAP and adjusted operating margin reflected the gross margin pressure in the quarter as noted above and the impact of SG&A sales deleverage.

After reflecting increased net financial expenses of $17-million due to higher interest rates and average net borrowing levels, higher GAAP income taxes tied to the sale and leaseback gain, and the positive benefit of a lower outstanding share base, it reported GAAP and adjusted diluted EPS for the quarter of 54 cents and 45 cents, respectively, down from 77 cents and 76 cents in the prior year. GAAP net earnings for the quarter included a $16-million sale and leaseback after tax gain.

Cash flows used in operating activities in the first quarter totalled $179-million compared with $51-million used in the prior year, mainly due to higher working capital investments and lower net earnings. After accounting for higher capital expenditures of $74-million and net proceeds of $51-million from the property sale and leaseback, it consumed approximately $202-million of free cash flow in the first quarter, compared with $86-million consumed in the first quarter of 2022. Capital expenditures during the quarter reflected investments in its new manufacturing complex in Bangladesh, with full-year capital expenditures expected to come in at the lower end of its range of 6 per cent to 8 per cent of annual sales, as previously stated. The company ended the first quarter of 2023 with net debt of $1,154-million and a leverage ratio of 1.6 times net debt to trailing 12 months adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in line with its leverage framework.

Outlook

It is reconfirming its full-year outlook as it continues to believe it has the ability to drive top-line growth in 2023. While the economic environment remains uncertain and it is seeing continued cautiousness on inventory levels with its customer base across channels, its POS trends were in line with its expectations for the first quarter. Accordingly, given this performance, factoring in the expected rollout of new incremental retail programs and assuming continued POS recovery in international markets, it believes opportunity for growth remains once first half headwinds abate. These headwinds include difficult comparative periods driven by postpandemic inventory replenishment in 2022 and the impact of peak raw material and higher input costs in its inventories flowing through cost of sales in the first half of 2023.

Accordingly, for 2023, it reconfirms its prior outlook as follows:

• Revenue growth for the full year to be in the low-single-digit range;
• Full-year adjusted operating margin within its 18-per-cent to 20-per-cent annual target range;
• Capital expenditures to come in at the lower end of its previously stated 6-per-cent to 8-per-cent range;
• Strong free cash flow generation as it progresses through the year;
• Adjusted diluted EPS in line with 2022, which assumes the continuation of share repurchases aligned with its capital allocation targets of purchasing approximately 5 per cent of the outstanding public float in 2023.

Environmental, social and governance

Highlighting ESG developments during the quarter, Gildan is pleased to have been included on S&P Global's sustainability yearbook for the 11th consecutive year. Furthermore, Gildan received the sustainability-linked loan of the year -- Americas -- award as part of Environmental Finance's 2023 bond awards, which recognize leading environmental bond deals.

Declaration of quarterly dividend

The board of directors has declared a cash dividend of 18.6 cents per share, payable on June 19, 2023, to shareholders of record as of May 24, 2023. 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

During the first quarter, the company completed share repurchases under its normal course issuer bid program ending Aug. 8, 2023. A total of one million common shares were repurchased for cancellation during the first quarter at a total cost of approximately $32-million.

Gildan's management and the board of directors believe that the repurchase of 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 organic growth and complementary acquisitions.

Disclosure of outstanding share data

As at April 28, 2023, there were 178,247,867 common shares issued and outstanding along with 2,541,773 stock options and 73,032 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 exercise 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.

Conference call information

Gildan will hold a conference call to discuss the company's first quarter 2023 results today at 5 p.m. ET. A live audio webcast of the conference call, as well as a replay, will be available on the investors section of Gildan's corporate website. The conference call will be available by dialling 800-715-9871 (Canada and United States) or 646-307-1963 (international) and entering passcode 6392967 followed by the number sign. A replay of the conference call will be available for seven days starting at 8 p.m. ET by dialling 800-770-2030 (Canada and United States) or 609-800-9909 (international) and entering the same passcode.

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, 2023, which will be filed by Gildan with the Canadian securities regulatory authorities and with the U.S. Securities and Exchange Commission and which will be available on Gildan's corporate website.

Certain minor rounding variances may exist between the condensed consolidated financial statements and the attached table contained in this press release.

About Gildan Activewear Inc.

Gildan is a leading manufacturer of everyday basic apparel, which markets its products in North America, Europe, Asia Pacific and Latin America under a strong portfolio of company-owned brands, primarily including Gildan, American Apparel, Comfort Colors, Goldtoe, Peds and under the Under Armour brand through a sock licensing agreement for exclusive distribution in the United States and Canada. The company's product offerings include activewear, underwear and socks sold to wholesale imprintable distributors and national accounts, which include large screen printers or embellishers, retailers, and global lifestyle brand companies.

Gildan owns and operates vertically integrated, large-scale manufacturing facilities, which are primarily located in Central America, the Caribbean, the United States and Bangladesh. Gildan operates with a strong commitment to industry-leading labour, environmental and governance practices throughout its supply chain in accordance with its comprehensive ESG program embedded in the company's long-term business strategy.

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