- Prachi Singh |
Gildan Activewear Inc. reported a sales growth of 11.2 percent in the fourth quarter, driven primarily by 27.6 percent or 22.5 percent organic sales growth in printwear in the quarter, excluding the impact of the American Apparel acquisition early in 2017. Gildan also announced the implementation of an organizational realignment and related executive management changes, 20 percent increase in the amount of its quarterly dividend and the renewal of its normal course issuer bid to repurchase up to 5 percent of its issued and outstanding common shares.
For the year ended December 31, 2017, sales totalled 2.75 billion dollars, up 6.4 percent compared to last year. Adjusted operating margins of 15.4 percent for the full year, was up 60 basis points over last year, diluted EPS of 1.61 dollars and adjusted diluted EPS of 1.72 dollars, rose 14 percent, while adjusted EBITDA of 586.1 million dollars for the year was in line with the company's guidance range of 580-590 million dollars.
Review of Gildan’s fourth quarter
Consolidated net sales of 653.7 million dollars for the fourth quarter of 2017 increased 11.2 percent compared to the corresponding quarter in 2016 and reflected a sales increase of 27.6 percent in the printwear segment, including the impact of the acquisition of American Apparel, partly offset by a decline of 9.2 percent in branded apparel.
Consolidated gross margin in the fourth quarter increased 40 basis points to 27.1 percent. Consolidated operating margin and adjusted operating margin in the fourth quarter were 9.5 percent and 11.2 percent, respectively, down from consolidated operating margin and adjusted operating margin of 11.9 percent in the fourth quarter of 2016. Net earnings for the quarter were 54.9 million dollars or 0.25 dollar per share on a diluted basis for the three months ended December 31, 2017, compared with net earnings of 74.3 million dollars or 0.32 dollar per share for the three months ended January 1, 2017.
Excluding after-tax restructuring and acquisition-related costs of 12.7 million dollars in the fourth quarter and 0.2 million dollars in the same quarter last year, Gildan reported adjusted net earnings of 67.6 million dollars or 0.31 dollar per share on a diluted basis for the fourth quarter of 2017, down from 74.5 million dollars or 0.32 dollar per share in the prior year quarter.
The printwear business delivered strong double-digit sales growth in the fourth quarter of 2017 which contributed to a 10.4 percent increase in printwear sales for the full year. Excluding the impact of the American Apparel acquisition, sales in the quarter increased 22.5 percent organically.
Net sales for the branded apparel segment in the quarter were 238.1 million dollars, down 9.2 percent from 262.1 million dollars in the fourth quarter of 2016, which Gildan said were mainly due to lower unit sales volumes of socks and activewear, unfavourable product mix driven by a lower proportion of sales of higher-priced socks and activewear, and the impact of the planned exit of certain private label programs, partly offset by increased underwear sales and higher net selling prices.
Highlights of full year consolidated results
The company said, consolidated net sales growth for 2017 was in line with the company’s guidance provided on November 2, 2017, as higher than anticipated unit sales volumes of printwear products in the fourth quarter offset lower than expected unit sales volumes in branded apparel. Printwear net sales of 1,822 million were up 170.9 million dollars due to an incremental sales contribution of approximately 94 million dollars from the combined acquisitions of Alstyle and American Apparel. Excluding the impact of acquisitions, organic sales growth for printwear was approximately 5 percent.
Branded apparel net sales of 928.8 million dollars were below the company's projection of low single-digit growth and slightly down from 934 million dollars in the prior year mainly due to lower sock sales and the impact from the planned exit of private label programs.
Net earnings for 2017 were 362.3 million dollars or 1.61 dollars per share on a diluted basis compared to 346.6 million dollars or 1.47 dollars per diluted share for the same period of the prior year. Before reflecting after-tax restructuring and acquisition-related costs in both years, adjusted net earnings were 386.9 million dollars or 1.72 dollars per share, up 8.6 percent and 13.9 percent, respectively.
Gildan consolidates organisational structure, reveals FY18 outlook
Effective January 1, 2018, the company added that Gildan consolidated its organizational structure and implemented executive leadership changes to better leverage its go-to-market strategy across its brand portfolio and to drive greater operational efficiency across the organization. The company combined its printwear and branded apparel businesses into one consolidated divisional operating structure centralizing marketing, merchandising, sales, distribution, and administrative functions. The combined organization will be led by Michael R. Hoffman, President, sales, marketing and distribution, who previously served as president, printwear.
In its guidance for 2018, Gildan is projecting adjusted diluted EPS in the range of 1.80 dollars to 1.90 dollars, which at the mid-point of the guidance range represents growth of approximately 7.5 percent over 2017, on projected net sales growth in the low to mid-single-digit range. Adjusted EBITDA is expected to be in the range of 595 to 620 million dollars.
Net sales growth in 2018 assumes unit volume growth of imprintables in North America and double-digit volume growth in international markets, favourable product mix due to projected continued strong growth of fashion and performance basics from our American Apparel, Anvil, and Comfort Colors brands, as well as from new product introductions, including the Gildan Hammer line within the Gildan fashion basics collection. American Apparel, which was acquired February 8, 2017 is expected to contribute net sales of approximately 100 million dollars in 2018, up from approximately 50 million dollars in 2017.
Adjusted EPS in the first quarter of 2018 is expected to be lower than the record level achieved in the first quarter last year. Sales are also projected to be down slightly year over year as the company works through temporary product availability constraints resulting from production interruptions, which occurred as a result of the election in Honduras.
For 2018, the company is projecting capital expenditures of approximately 125 million dollars primarily for the continued development of the Rio Nance 6 facility in Honduras, investments in existing textile facilities and distribution capabilities, as well as sewing capacity expansion to align to increases in textile capacity.
The company added that its board approved a 20 percent increase in the amount of the current quarterly dividend and has declared a cash dividend of 0.112 dollar per share, payable on April 2, 2018 to shareholders of record on March 8, 2018.