May 04, 2017 - Canada
May 04, 2017 - Canada
Consolidated gross margin in the first quarter of 2017 was 28.4 per cent, up 200 basis points compared to the same period last year primarily due to the positive net impact of net selling prices, manufacturing and raw material costs, partially offset by unfavourable foreign exchange. SG&A expenses as a percentage of sales of 13.4 per cent were flat YoY. Adjusted operating margins of 15 per cent were up 200 basis points compared to 13 per cent in the same period last year reflecting consolidated gross margin expansion and SG&A leverage in branded apparel, partly offset by the SG&A margin impact of acquisitions in Printwear.
Net sales for the Printwear segment for the first quarter of 2017 amounted to $445.6 million, up 13.6 per cent from $392.1 million in the first quarter last year. The increase in Printwear net sales was mainly due to sales of $39.5 million from the Alstyle and American Apparel acquisitions, higher net selling prices, and favourable product-mix, partly offset by unfavourable foreign exchange impacts.
As for the Branded Apparel segment, its net sales in the quarter were $219.7 million, up 9.2 per cent from $201.2 million in the first quarter of 2016. The increase in Branded Apparel sales was primarily due to sales of $20.9 million from the Peds acquisition and organic sales growth, which was partially offset by the impact from the planned exit of certain private label programs.
Net earnings totalled $83.5 million, or $0.36 per share on a diluted basis for the three months ended April 2, 2017, compared with net earnings of $63.2 million, or $0.26 per share on a diluted basis for the three months ended April 3, 2016. Excluding after-tax restructuring and acquisition-related costs of $6.6 million in the quarter and $5.8 million in the same quarter last year, Gildan reported adjusted net earnings of $90.1 million, or $0.39 per share on a diluted basis for the first quarter of 2017, up from $69.0 million, or $0.28 per share on a diluted basis in the prior year quarter.
The increase in adjusted net earnings in the quarter was mainly driven by sales growth and higher operating margins, partially offset by higher income taxes compared to the same quarter last year. Adjusted EPS growth also reflected the benefit of share repurchases.
Gildan generated free cash flow of $41.3 million in the first quarter of 2017 compared to a use of $58.4 million of free cash in the same quarter last year. The approximate $100 million improvement in free cash flow in the quarter was due to higher earnings, strong working capital management, and lower capital expenditures. Capital expenditures of $24.8 million in the first quarter of 2017 were primarily for investments in textile capacity, including the development of Rio Nance 6 and textile capacity expansion in Bangladesh, as well as investments in garment dyeing and distribution.
During the first quarter of 2017, the company repurchased approximately 3.5 million common shares under its normal course issuer bid (NCIB), which it renewed effective as of February 27, 2017, at a total cost of $89.3 million. Gildan ended the quarter with net debt of $713.0 million and a leverage ratio of 1.3 times net debt to adjusted EBITDA.
Printwear and Branded Apparel net sales in 2017 are each expected to increase in the high single-digit range driven by organic growth and the projected aggregate impact of approximately $160 to $185 million from the acquisitions of Alstyle, Peds, and American Apparel. The company continues to expect earnings growth in 2017 to be weighted in the first half of the year as higher raw material costs are projected in the second half of the year. The company is also reconfirming its expectations for Adjusted EBITDA for 2017 of $555-$585 million and free cash flow in excess of $400 million, after projected capital expenditures of approximately $125 million for the year. (KD)