Gildan Activewear coping well with current cotton market
13 May '11
5 min read
The decline in sales of socks compared to the second quarter of last year was primarily due to lower sales volumes as a result of the timing of retailer inventory replenishment and the discontinuation of certain uneconomic programs in the third quarter of fiscal 2010, combined with a lower-valued more basic product-mix. The impact of these factors was partially offset by the implementation of recent selling price increases. Retailer sell-through of socks manufactured by Gildan was slightly lower than the second quarter of last year.
Gross margins in the second quarter were 28.1% compared with 27.8% in the second quarter of last year, and were above the Company's forecast of approximately 27% provided on February 8, 2011. The slight increase in gross margins compared to last year was due to higher activewear selling prices, offset by higher cotton, energy and other purchased input costs, start-up manufacturing inefficiencies which impacted gross margins for socks and underwear, and more unfavourable activewear product-mix. Gross margins were higher than previously forecasted due to the more favourable activewear selling prices.
Selling, general and administrative expenses in the second quarter were U.S. $47.7 million, or 12.4% of sales, compared to U.S. $38.7 million, or 11.8% of sales, in the second quarter of fiscal 2010. Excluding a U.S. $3.7 million loss on the sale of the corporate aircraft, SG&A expenses in the second quarter of fiscal 2011 were 11.5% of sales. The increase in selling, general and administrative expenses was largely due to the ramp-up of the new retail distribution centre, a year-to-date adjustment to the provision for performance-driven incentive compensation, and the impact of the higher-valued Canadian dollar on corporate administrative expenses.
Results for the second quarter included an income tax recovery of U.S. $5 million, which reflected the tax benefit of operating losses recorded in the Company's U.S. legal entities in both the first and second quarters.