Gildan’s Q1 Financials Show Expected Earnings Decline, Bangladesh Expansion
Gildan Activewear Inc. (PPAI 250187) issued its financial report for first quarter 2019. The Montreal, Quebec-based supplier also announced that it had completed of the purchase of a sizable land parcel in Bangladesh as part of a new capacity expansion initiative to develop large-scale vertically-integrated manufacturing in Southeast Asia to support expected sales growth.
The company’s first quarter performance was in line with expectations, putting it on track to deliver on its full year sales and earnings per share for 2019. Earnings were down for the quarter versus last year due to several anticipated factors, including the impact on sales from lower levels of restocking and higher raw material and other input costs. In addition, the earnings decline reflected a $0.12 per share trade accounts receivable impairment charge primarily related to the wind down of the Heritage Sportswear operations which is under receivership. Gildan’s net sales were down 3.6 percent in the first quarter and were better than the company's guidance, which called for a decline in the mid to high-single-digit range, primarily due to stronger than anticipated sales of fleece products and an earlier start of initial shipments of the company's new private label men's underwear program, which will be available to consumers in the second quarter.
Gildan reported that it had moved forward with several supply chain initiatives during the quarter aimed at driving increased operational efficiency across the manufacturing base and from which cost benefits are expected to start materializing meaningfully in the fourth quarter of 2019 and benefiting gross margins in 2020.
Net earnings for the quarter amounted to $22.7 million, compared to net earnings of $67.9 million for first quarter 2018. Excluding the impact of after-tax restructuring and acquisition-related costs in both years, Gildan reported adjusted net earnings of $32.8 million, down from $74.6 million in the first quarter of 2018 mainly due to the decline in operating income and higher net financial expenses.
On April 9, Gildan completed the purchase of land in Bangladesh which is intended to be used to expand its global textile and sewing operations. The company’s plans consist of the development of a large multi-plant manufacturing complex which is currently expected to include two large textile facilities and related sewing operations. Once fully operational, this complex is expected to provide capacity to service over $500 million in sales. Over the next 24 months, Gildan plans to construct and develop the first textile facility at the complex, and initial production at the facility is expected to start in the latter part of 2021. Gildan believes establishing a large-scale manufacturing hub in Southeast Asia will significantly enhance its positioning to service international markets and support other key sales growth drivers.