Gildan Q1 Sales Reflect Drop In Demand Due To Pandemic
Gildan Activewear Inc. (PPAI 250187, S13) is reporting first-quarter sales of $459 million, a 26-percent decrease compared to the same quarter last year. The quarter ended March 29. The Montreal, Quebec-based supplier reports sales in the first two months of the quarter were on track but the impact of COVID-19 caused sales in the third month to fall.
Gildan notes that the COVID-19 downturn was especially felt in its imprintables channel, where products are typically used for promotions, sports, entertainment, and other large gatherings and cultural events. In retail, it also saw impacts, although less severe in the mass and online channels.
“During the first quarter, we faced unprecedented impacts globally as the COVID-19 pandemic unfolded,” says Glenn J. Chamandy, president and CEO. “This required us to amplify our focus on what we do best and on what we can do to support all our stakeholders as a value-driven, strong, resilient and well-positioned company. I am both proud of and extend my gratitude to our employees for their dedication and efforts during this crisis, which we will continue to move through over the coming months. I am also equally proud that in these difficult times, Gildan has been able to join with our partners to adapt rapidly to be able to produce products for the health-care sector and people working in essential roles as we all fight this global challenge.”
The first quarter’s $459.1 million in sales were comprised of $372.6 million in activewear sales and $86.7 million in sales in the hosiery and underwear category, down 24.5 percent and 33.7 percent, respectively, year over year. While Gildan anticipated an overall decrease in net sales for the first quarter, sales volume declines were meaningfully higher than expected due to the significant downturn in demand, which unfolded as a result of the pandemic. Lower sales volumes were partly offset by a favorable product mix in the hosiery and underwear category and slightly higher net-selling prices. The decrease in activewear sales reflected double-digit volume declines of imprintables in North America and across international markets. The decrease also showed the impact of a sales return allowance of $6 million for anticipated product returns for discontinued SKUs and lower activewear product sales in retail, as retailers increasingly closed stores during the quarter due to the pandemic. Similarly, sales in the hosiery and underwear category were also negatively impacted by retail store closures and declining in-store traffic as consumers adhered to social distancing measures.
The company has taken several steps to address the coronavirus pandemic in regard to safeguarding its stakeholders and ensuring the continuity of its business. Concurrent with global government-mandated private sector shutdowns, Gildan began closing its manufacturing facilities starting on March 17 to ensure the safety of employees and align operations and inventory levels with the current demand environment. Since mid-April, it has extended the shutdown for almost all of its manufacturing facilities, while some of distribution centers, which have enhanced measures to safeguard the health, safety and well-being of employees, continue to operate at reduced capacity levels, and the majority of office employees are working remotely from home. Since March 30, the company’s board of directors, CEO and executive vice presidents have been foregoing 50 percent of their salaries, and pay reductions ranging from 20 percent to 35 percent are also impacting senior staff. And until further notice, most salaried employees have moved to a four-day work week.
In order to preserve cash and pre-emptively ensure that it maintains ample liquidity to manage through the current and future environment, the company is deferring non-critical capital spending and discretionary expenses and has drawn down funds under its long-term bank credit facility. Furthermore, on April 6, it took additional cautionary measures to enhance liquidity by securing an additional $400 million of long-term debt with members of its existing bank syndicate. With the proceeds from the new debt financing, as of April 27, Gildan’s overall available liquidity position exceeded $950 million, comprised of cash on hand of over $650 million and available lines of credit of approximately $300 million. Also, given the severity of the crisis and the uncertain economic outlook, out of an abundance of caution it has suspended share repurchases, and starting with the first quarter of 2020, it is also suspending the quarterly cash dividend.
Starting in mid-April, in collaboration with various partners, Gildan began producing protective personal equipment (PPE) to help address the shortage caused by the COVID-19 pandemic. It is currently sewing face masks for a cooperative consortium of apparel and textile companies supplying non-medical face masks to the health-care sector. The company is also producing non-medical face masks and isolation gowns for various retailers to be distributed to health-care organizations. It is currently planning to produce over 150 million masks and gowns to service the consortium and retailers under this effort.
Due to the unprecedented nature and uncertainty related to the impact of COVID-19, GIldan withdrew its guidance for 2020 on March 23. The demand deterioration that it started to see in March has increased through the month of April with point-of-sale (POS) levels in the North American imprintables channel down approximately 75 percent. Sell-through trends in retail, including with global lifestyle brand customers, have also deteriorated, with overall retailer POS for the company’s products in April down approximately 45 percent. Based on this situation and the expectation that COVID-19 social distancing measures and related economic impacts will have a significant impact on demand during the quarter, it is planning for a significant decline in POS and shipments for the second quarter of 2020, which will likely result in a significant earnings loss in the second quarter of 2020.
Nonetheless, despite this challenging near-term situation and uncertain outlook related to the duration of the ongoing impacts from the pandemic, the company says that it believes it is well-positioned to deal with this environment for an extended period. In addition to its liquidity position, it reports good inventory levels to service customers in both retail and imprintables.