Mr. Glenn Chamandy reports

GILDAN ACTIVEWEAR REPORTS RESULTS FOR THE THIRD QUARTER OF 2023 AND UPDATES ITS FISCAL 2023 GUIDANCE

Gildan Activewear Inc. has released results for the third quarter ended Oct. 1, 2023. All amounts are in U.S. dollars except where otherwise indicated.

"Our competitive position remains very strong in a challenging environment driven by our industry-leading vertically integrated manufacturing platform. We delivered third quarter performance which came in over all in line with our expectations. We resumed our sales growth trajectory and delivered operating margin within our target range," said Glenn J. Chamandy, Gildan's president and chief executive officer.

During the third quarter, the company delivered net sales of $870-million, up 2 per cent over the prior year's sales of $850-million, as it moved past the impact of strong prior-year comparative periods tied to postpandemic replenishment. Gildan also delivered solid adjusted operating margin of 18.1 per cent. Consequently, GAAP (generally accepted accounting principles) diluted EPS (earnings per share) came in at 73 cents and adjusted diluted EPS at 74 cents, both down as anticipated from 84 cents in the third quarter last year. Cash flows from operating activities were strong for the quarter totalling $305-million, and Gildan generated $265-million of free cash flow after capital expenditures of $43-million. This positioned the company well to continue to execute on its capital allocation priorities during the quarter and it repurchased 2.7 million shares at a cost of $80-million under its normal course issuer bid (NCIB) program. This program, which was recently renewed, authorizes the repurchase of up to 5 per cent of the company's outstanding common shares. The company ended the third quarter with net debt of $1,018-million and a leverage ratio of 1.6 times net debt to trailing 12 months adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), well within its targeted debt levels.

Q3 2023 operating results

Net sales for the third quarter came in at $870-million, up 2 per cent over the prior year, consisting of activewear sales of $744-million and sales in the hosiery and underwear category of $126-million.

For activewear, while point of sale was positive on a year-over-year basis, sales for this category were essentially flat during the quarter. Gildan benefited from the favourable impact of fleece shipments which were driven by strong sell-through and seasonal replenishment, though as anticipated, the trade-down within this activewear category persisted this quarter. This benefit was offset by lower volume in certain other activewear categories and slightly lower net selling prices. International markets remained particularly challenging, performing well below the company's expectations, with sales down 23 per cent during the quarter versus the prior year as a result of lower demand and price pressures across all markets.

Gildan saw increasing momentum in the hosiery and underwear category in the quarter with sales up 16 per cent versus the prior year. This increase was mainly driven by sales volume growth, reflecting the expansion of Gildan's private-label offering and the rollout of new underwear programs in the mass retail channel, as well as strength in hosiery. Despite industry-wide weak replenishment for men's underwear and socks year-over-year, the company continues to achieve solid performance in this category.

Gildan generated gross profit of $239-million, or 27.5 per cent of sales in the third quarter, down $13-million and 220 basis points, respectively, versus the prior year. The lower gross margin was primarily driven by higher raw materials and manufacturing input costs as well as slightly lower net selling prices. As expected, the company saw a sequential improvement of 170 basis points to its gross margin in the third quarter as pressure stemming from the flow-through of peak cotton costs in the first half of the fiscal year abated.

SG&A (selling, general and administrative) expenses of $82-million were flat year-over-year, and as a percentage of sales, SG&A was down 20 basis points to 9.5 per cent, primarily reflecting the benefit of sales leverage.

For the third quarter, Gildan generated operating income of $155-million, or 17.8 per cent of sales, and adjusted operating income of $157-million, or 18.1 per cent of sales, down, respectively, 270 and 190 basis points compared with the prior year, reflecting the lower gross margin and adjusted gross margin.

After reflecting net financial expenses of $21-million, up $11-million over the prior year due to higher interest rates and average net borrowing levels, and the positive benefit of a lower outstanding share base, Gildan reported GAAP diluted EPS and adjusted diluted EPS for the quarter of 73 cents and 74 cents, respectively, both down from 84 cents in the prior year.

Cash flows from operating activities in the third quarter totalled $305-million versus $66-million in the prior year, mainly due to significantly lower working capital requirements. After accounting for capital expenditures totalling $43-million in the third quarter, down from $75-million in prior year, Gildan generated $265-million of free cash flow, compared with the use of $7-million of free cash flow in the prior-year period. Capital expenditures have moderated as the company nears completion of phase 1 of its new manufacturing complex in Bangladesh, with the first facility currently ramping up its operations as planned. At the end of the third quarter of 2023, net debt stood at $1,018-million with a leverage ratio of 1.6 times net debt to trailing 12 months adjusted EBITDA, well within targeted debt levels.

Year-to-date operating results

Net sales for the nine months ended Oct. 1, 2023, were $2,413-million, down 4 per cent over the same period last year, reflecting a decrease of 7 per cent in activewear sales, partly offset by an increase of 10 per cent in the hosiery and underwear category. The decline in activewear sales was primarily due to lower sales volumes compared with the prior year which benefited from distributor inventory replenishment following the pandemic, as well as the unfavourable impact of product mix stemming from current macroeconomic conditions. Year-over-year POS trends for the activewear category showed progressive improvement from the first to the second quarter and into the third quarter. International sales of $172-million were down 14 per cent versus the prior-year period. The strong performance in the hosiery and underwear category, with sales of $389-million in the first nine months of 2023, was driven by both underwear and sock volume growth. Gildan is benefiting from the expansion and the rollout of retail programs in the mass channel for these products, following a period of inventory adjustments at retailers.

Gildan generated gross profit of $644-million in the first nine months, down $114-million versus the prior year, driven by the decline in sales and lower gross margins. Gross margin of 26.7 per cent was down by 340 basis points over this period, 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. These factors were partly offset by higher net selling prices.

SG&A expenses for the first nine months of 2023 of $242-million were $11-million below prior-year levels. SG&A expenses as a percentage of net sales were 10 per cent, in line with prior year, as sales deleverage was offset by the benefit of lower expenses, including lower variable compensation as well as a trade accounts receivable recovery.

Gildan generated operating income of $466-million, or 19.3 per cent of sales, which included the benefit of a $77-million net insurance gain and a $25-million gain from the sale and leaseback of one of the company's U.S. distribution facilities, partly offset by higher restructuring costs of $35-million, compared with operating income of $511-million, or 20.3 per cent of sales in the first nine months of last year. Excluding these items, adjusted operating income was $398-million, or 16.5 per cent of sales, down $105-million, or 350 basis points year-over-year, mainly reflecting lower sales and gross margin pressure in the first nine months as noted above.

After reflecting increased net financial expenses of $58-million due to higher interest rates and average net borrowing levels, and the positive benefit of a lower outstanding share base, Gildan reported GAAP diluted EPS and adjusted diluted EPS for the first nine months of $2.14 and $1.82, respectively, both down from GAAP diluted EPS and adjusted diluted EPS of $2.46 in the prior year. GAAP net earnings included the after-tax impact of the net gains and restructuring charges described above.

Outlook

Under its GSG strategy, Gildan remains committed to driving market share gains in key categories through the rollout of new retail programs and the continued leveraging of its industry-leading vertically integrated manufacturing platform, including the start-up of its new manufacturing complex in Bangladesh. The company's third quarter unfolded largely as expected and it continues to expect its revenues to grow in the fourth quarter against an easier comparative in the prior year. This said, Gildan now expects full-year revenues and earnings per share to be at the lower end of the previously provided range, reflecting softer demand trends in certain markets stemming from the macro environment. Accordingly, the company has adjusted its fiscal 2023 guidance as noted herein.

The outlook herein assumes no meaningful deterioration from current market conditions, including the pricing and inflationary environment, and reflects the assumptions noted above. Further, it reflects Gildan's expectations as of Nov. 2, 2023, and is subject to significant risks and business uncertainties. The board may modify, extend or terminate current or future share repurchase programs at any time.

New board member appointment

Today Gildan announced the appointment of Sharon Driscoll to the company's board of directors, bringing the company's board to 11 members. She will serve on the board's audit and finance committee and compensation and human resources committee. "Sharon is an accomplished business leader and her 15-plus years of C-suite experience across finance and strategy in publicly traded and privately held retail and distribution environments make her an ideal addition to our board," said Gildan's board chairman, Donald C. Berg. "We welcome Sharon and look forward to her insights."

Ms. Driscoll is a corporate director and currently serves on the board of directors of Empire Company Ltd. and Imperial Oil Ltd. Until her retirement in September, 2023, Ms. Driscoll held executive positions at RB Global Inc., including chief financial officer, co-chief executive officer and adviser to the chief executive officer. Previously, she held other senior executive positions, including chief financial officer at Katz Group Canada Ltd., chief financial officer at Sears Canada Inc. nd executive finance leadership roles at Loblaw Companies Ltd. Ms. Driscoll is a chartered professional accountant and holds a bachelor of commerce (honours) degree from Queen's University.

Declaration of quarterly dividend

The board of directors has declared a cash dividend of 18.6 cents per share, payable on Dec. 18, 2023, to shareholders of record as of Nov. 22, 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 third quarter, the company completed share repurchases under its NCIB ending Aug. 8, 2023, and following the renewal of the company's NCIB, effective Aug. 9, 2023, the company continued to repurchase shares. A total of 2,659,400 common shares were repurchased for cancellation during the third quarter at a total cost of approximately $80-million.

Gildan's management and the board of directors believe 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 Oct. 31, 2023, there were 172,199,799 common shares issued and outstanding along with 2,286,334 stock options and 77,302 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 Activewear will hold a conference call to discuss the company's third quarter 2023 results today at 8:30 a.m. ET. A live audio webcast of the conference call, as well as a replay, will be accessible on the investors section of Gildan's corporate website. The conference call may be accessed by dialling 800-715-9871 (Canada and United States) or 646-307-1963 (international) and entering passcode 6495687 followed by the pound key. A replay of the conference call will be available for seven days starting at 1 p.m. ET by dialling 800-770-2030 (Canada and U.S.) 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 and nine months ended Oct. 1, 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.

About Gildan Activewear Inc.

Gildan is a leading manufacturer of everyday basic apparel. The company's product offering includes activewear, underwear and socks, sold to a broad range of customers, including wholesale distributors, screenprinters or embellishers, as well as to retailers that sell to consumers through their physical stores and/or e-commerce platforms and to global lifestyle brand companies. The company markets its products in North America, Europe, Asia Pacific and Latin America, under a diversified portfolio of company-owned brands including Gildan, American Apparel, Comfort Colors, Goldtoe and Peds, in addition to the Under Armour brand through a sock licensing agreement providing exclusive distribution rights in the United States and Canada.

We seek Safe Harbor.