Gildan sees declines in activewear unit volumes
Gildan Activewear Inc. announced its financial results for the third quarter of its 2009 fiscal year. The Company also announced
that the Canada Revenue Agency (CRA) had completed its audit of the Company's tax returns for the audit period 2004-2006, with no significant adjustments to the returns as filed. The CRA has continued to accept Gildan's transfer pricing methodology for the years subject to audit. Gildan had previously announced the final settlement of the CRA audit for the period 2000-2003.
Sales and Earnings
Gildan reported net earnings of U.S. $41.5 million and diluted EPS of U.S. $0.34 for its third fiscal quarter ended July 5, 2009, compared with net earnings of U.S. $54.5 million and diluted EPS of U.S. $0.45 in the third quarter of fiscal 2008. Results in both years included after-tax restructuring charges, amounting to U.S. $3.4 million and U.S. $2.3 million respectively. Restructuring charges in the third quarter of fiscal 2009 related primarily to the previously announced consolidation of sock finishing operations. Net earnings before restructuring charges in the third quarter of fiscal 2009 amounted to U.S. $44.9 million or U.S. $0.37 per diluted share, compared to U.S. $56.8 million or U.S. $0.47 per share a year ago.
The reduction in net earnings and EPS before restructuring charges was primarily due to lower unit sales volumes, as a result of weak economic conditions, and lower gross margins, primarily as a result of unfavourable product-mix and lower activewear net selling prices, partially offset by lower SG&A and financial expenses, and the impact of income tax recoveries. EPS in the third quarter of fiscal 2009 included a U.S. $0.05 per share benefit of income tax recoveries related to prior fiscal years. Before the impact of income tax recoveries, adjusted EPS in the third fiscal quarter was U.S. $0.32 per share.
The third quarter of Gildan's current fiscal year included one week fewer than the third quarter of fiscal 2008. The third quarter of fiscal 2008 included an extra week in order to align the Company's 52-week reporting cycle with the calendar year.
Net sales in the third quarter of fiscal 2009 amounted to U.S. $307.8 million, down 19.2% from U.S. $380.8 million in the third quarter of last year. Sales of activewear and underwear were U.S. $258.1 million, down 15.6% from U.S. $305.9 million last year, and sales of socks were U.S. $49.7 million, down 33.6% from U.S. $74.9 million in the third quarter of fiscal 2008.
The decrease in sales of activewear and underwear was due to more unfavourable product-mix, primarily as a result of a lower proportion of sales of higher-valued fleece and long-sleeve T-shirts, a 2.6% decline in net selling prices for activewear, due to increased promotional activity compared to last year, the impact of the stronger U.S. dollar on Canadian and international sales, and a 3.5% decline in unit sales volumes.
The reduction in unit sales volumes compared to last year was primarily due to a 16.6% decline in overall industry shipments to screenprinters in the U.S. wholesale distributor channel, as well as the non-recurrence of the extra week of sales included in the third quarter of fiscal 2008. These factors were largely offset by increased market share, replenishment of distributor inventories, and increased shipments to international markets and imprinted private label customers.
Gildan Activewear Inc