Q4 net earnings fall due to high-cost cotton, Gildan
Gildan Activewear Inc. announced its results for the fourth quarter of fiscal 2011 as well as for the full fiscal year, which were in line with its prior earnings guidance. The Company also initiated its sales and earnings guidance for fiscal 2012.
The Company is projecting a loss in the first quarter of fiscal 2012, followed by an anticipated gradual strengthening in results in the balance of the fiscal year, as the Company finishes consuming inventories produced with high-cost cotton and achieves projected manufacturing efficiencies. Due to the loss in the first quarter, full year adjusted EPS in fiscal 2012 is currently projected to be approximately U.S. $1.30, compared to adjusted EPS of U.S. $2.01 in fiscal 2011.
Fourth Quarter Sales and Earnings
Net earnings for the fourth fiscal quarter ended October 2, 2011 were U.S. $48.5 million or U.S. $0.40 per share on a diluted basis, down respectively 14.6% and 14.9% from U.S. $56.8 million or U.S. $0.47 per share in the fourth quarter of fiscal 2010.
Results for the fourth quarter include restructuring charges totalling U.S. $2.3 million after-tax or U.S. $0.02 per share, to write down the carrying value of facilities held for sale and to recognize additional pension costs for the former Gold Toe Moretz pension plan, which the Company intends to terminate in 2012. Before the restructuring charges in both years, adjusted net earnings were U.S. $50.8 million or U.S. $0.42 per share, down respectively 12.9% and 12.5% from U.S. $58.3 million or U.S. $0.48 per share.
The decline in adjusted net earnings and EPS in the fourth quarter compared to last year was due to the significant increase in the cost of cotton, which was not fully recovered in higher net selling prices, lower unit sales volumes for activewear and the non-recurrence of insurance proceeds and a cotton subsidy received in the fourth quarter of last year. These negative factors were partially offset by the positive impact of income tax recoveries in the fourth quarter of fiscal 2011, more favourable activewear product-mix, lower SG&A expenses and the earnings accretion from the acquisition of Gold Toe Moretz.
Adjusted EPS slightly exceeded the Company's guidance for the quarter of approximately U.S. $0.40 provided on August 4, 2011. Compared to its August guidance, the unfavourable impact of weaker demand and increased promotional discounting in the wholesale distributor channel, lower inventory replenishment by mass-market retailers and lower than forecast sock manufacturing efficiencies was more than offset by the later than anticipated timing of destocking of inventories by wholesale distributors, which is now occurring in the first quarter of fiscal 2012, and the benefit of income tax recoveries.
Net sales in the fourth quarter amounted to U.S. $481.8 million, up 30.6% from U.S. $368.9 million in the fourth quarter of fiscal 2010. The Company had forecast in August that sales in the fourth quarter would be slightly below U.S. $500 million. Sales of activewear and underwear amounted to U.S. $368.9 million, up 20.0% from fiscal 2010, and sales of socks were U.S. $112.9 million, up 83.6% from U.S. $61.5 million a year ago.