Gildan reports Q1 results in line with prior guidance
Gildan Activewear Inc announced its financial results for the first quarter of its 2012 fiscal year, and also reconfirmed its prior sales and earnings guidance for the full fiscal year. In the first quarter, the Company began to manage and report its business as two operating segments, which serve different markets and customers. The Printwear business supplies activewear, fleece and sport shirts to the screenprint market.
Gildan reported a net loss of U.S. $46.1 million or U.S. $0.38 per share on a diluted basis for its first fiscal quarter ended January 1, 2012, compared with net earnings of U.S. $35.9 million or U.S. $0.29 per share in the first quarter of fiscal 2011. The Company had projected a loss of approximately U.S. $0.40 per share for the first quarter, when it initiated its fiscal 2012 sales and earnings guidance on December 1, 2011. Net selling prices for Printwear were more favourable than projected, due to lower than projected promotional discounting in the U.S. wholesale distributor channel in the month of December.
The decline in the Company's results compared to last year was due to the impact of higher cotton costs, inventory destocking by U.S. wholesale distributors, the impact of a special distributor inventory devaluation discount in the quarter and the cost of the manufacturing shutdown in December in order to manage inventory levels. These unfavourable variances compared to last year were partially offset by the benefit of selling price increases to U.S. retail customers which were primarily implemented in the fourth quarter of fiscal 2011, improved sock manufacturing efficiencies and the accretive impact of the acquisition of Gold Toe Moretz.
Net sales in the first quarter amounted to U.S. $303.8 million, down 8.3% from U.S. $331.2 million in the first quarter of fiscal 2011. The Company had forecast first quarter sales of approximately U.S. $300 million. Sales for Printwear amounted to U.S. $147.2 million, down 41.1% from fiscal 2011, and sales to retailers were U.S. $156.6 million, up 92.7% from the first quarter of last year.
The decline in sales in the Printwear segment compared to the first quarter of fiscal 2011 was primarily due to inventory destocking by U.S. wholesale distributors in anticipation of selling price reductions, which were announced by Gildan with effect from December 5, 2011. In addition, industry demand from U.S. screenprinters, as reported in the CREST report, declined by 3.9% compared to the first quarter of last year.
However, the impact of the lower industry demand in the U.S. screenprint channel was not material and was more than offset by an increase in Gildan's market share to 61.4%, compared to 57.2% in the first quarter of fiscal 2011. The first quarter of the fiscal year is traditionally the lowest sales quarter in the printwear industry due to low seasonal demand for T-shirts. Net selling prices for Printwear were slightly higher than the first quarter of fiscal 2011, before taking account of the special distributor inventory devaluation discount.