Montréal, Wednesday, February 1, 2006 Gildan Activewear Inc. (GIL; TSX and NYSE) today announced its financial results for its fiscal quarter ended January 1, 2006, and updated its earnings guidance for the full 2006 fiscal year. First Quarter Sales and Earnings
Gildan reported first quarter net earnings of U.S. $16.2 million and diluted E.P.S. of U.S. $0.27, up 92.9% from net earnings of U.S. $8.4 million, or U.S. $0.14 per share, in the first quarter of fiscal 2005. E.P.S. was in excess of the Company's guidance of at least U.S. $0.23 per share, which it had provided on December 1, 2005, and was a record for the first quarter of a fiscal year.
Compared to the first quarter a year ago, the increase in net earnings and E.P.S. was due to continuing strong growth in unit sales volumes and higher gross margins, partially offset by higher selling, general and administrative and depreciation expenses.
Sales in the first quarter, which is seasonally the lowest quarter in the fiscal year for the T-shirt business, amounted to U.S. $120.3 million, up 10.4% from U.S. $109.0 million in the first quarter of last year. The increase in sales revenues primarily reflected a 14.8% increase in unit sales volumes, partially offset by the impact of a lower-valued product-mix. Net selling prices were marginally higher than last year.
The increased unit sales reflected continuing market share penetration in all product categories, based on the S.T.A.R.S. report. The value of the S.T.A.R.S. report continues to be reduced by the non-participation of the Company's largest distributor. The table below summarizes the S.T.A.R.S. data for the calendar quarter ended December 31, 2005.
Gross margins in the first quarter were 35.7%, versus 29.7% in the first quarter of 2005. The significant increase in gross margins was due to more favourable manufacturing efficiencies and the lower cost of cotton, as well as slightly higher selling prices. These factors were partially offset by the impact of product-mix and increased energy and transportation costs.
Selling, general and administrative expenses in the first quarter were U.S. $18.1 million, or 15.0% of sales, compared to U.S. $16.3 million, or 15.0% of sales, in the first quarter of last year. The increase in selling, general and administrative expenses was due to higher volume-related distribution expenses, a severance charge, the impact of the stronger Canadian dollar, and the continuing development of the organization to support the Company's ongoing growth strategy. The increase of U.S. $1.5 million in depreciation expense was due to the Company's major ongoing investments in capacity expansion, in particular the new Dominican Republic facility.
Due to the more favourable than anticipated results for the first fiscal quarter, the Company has increased its E.P.S. guidance for the full 2006 fiscal year to approximately U.S. $1.90 per share, compared with its prior guidance of approximately U.S. $1.85 per share. The revised full year guidance reflects a projected increase of 22.6% in E.P.S. compared with U.S. $1.55 per share in fiscal 2005, before taking account of the U.S. $0.12 per share special charge last year for the closure and relocation of the Company's Canadian yarn-spinning facilities.
The Company's current full year guidance continues to assume a 1.5% decrease in average selling prices for the balance of the fiscal year, compared to both the first quarter of fiscal 2006 and compared to last year, as well as sequentially higher cotton costs for the balance of fiscal 2006. Although selling prices in the first quarter were higher than anticipated, there has been promotional activity in the month of January and the Company does not yet have sufficient visibility to project whether market conditions will support the continuation of more favourable pricing. Based on the assumption of lower selling prices, Gildan expects that diluted E.P.S. in the second quarter of fiscal 2006 will be approximately U.S. $0.45 per share, or approximately 20% higher than the second quarter a year ago, prior to the yarn-spinning charge.
During the first quarter, the Company generated U.S. $19.6 million of free cash flow, after utilizing U.S. $44.0 million to finance its seasonal build-up of inventories for the peak selling season, and financing capital expenditures of U.S. $12.4 million. [Free cash flow is defined as cash flow from operating activities less cash flow from investing activities.] Capital expenditures are now expected to total approximately U.S. $90 million for the full fiscal year, compared to the Company's previous estimate of approximately U.S. $105 million. The reduction in capital expenditures reflects the elimination of certain non-expansion capital spending projects, together with the later timing of some equipment purchases for the new Rio Nance activewear facility currently under construction. The Company continues to be pleased with the progress of its major capacity expansion projects in the Dominican Republic and Honduras. In addition, Gildan is continuing to evaluate potential acquisition opportunities in the sock industry.
Disclosure of Outstanding Share Data
As of January 31, 2006 there were 60,038,324 common shares issued and outstanding along with 487,015 stock options and 343,500 restricted share units outstanding. Each stock option and restricted share unit entitles the holder to either purchase or receive one common share at the end of the vesting period.
Gildan Activewear is a vertically-integrated marketer and manufacturer of premium quality branded basic apparel. The Company manufactures premium quality basic T-shirts, sport shirts and sweatshirts for sale in the wholesale imprinted sportswear market. The Company sells its products as blanks, which are ultimately decorated by screenprinters with designs and logos for sale to consumers. Gildan has announced plans to sell its products into the mass-market retail channel, in addition to the screenprint market. In conjunction with this strategy, Gildan is expanding its product-line to include underwear and athletic socks.
Certain statements included in this press release may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the Company's filings with the U.S. Securities and Exchange Commission and Canadian securities regulatory authorities for a discussion of the various factors that may affect the Company's future results.
This release includes reference to certain Non-GAAP Financial Measures such as net earnings and earnings per share before the special charge, and free cash flow. The Company uses and presents certain Non-GAAP Financial Measures because it believes such measures provide meaningful information on the Company's performance and operating results. However, investors should know that such Non-GAAP Financial Measures have no standardized meaning as prescribed by GAAP and may not be comparable to similar measures presented by other companies. Accordingly, they should not be considered in isolation.
Information for shareholders
Gildan Activewear Inc. will hold a conference call to discuss these results today at 5:00 PM Eastern Time. The conference call can be accessed by dialing 800-261-3417 (Canada & U.S.) or 617-614-3673 (international) and entering passcode 31092714, or by live sound web cast on Gildan's Internet site ("Investor Relations" section) at the following address: www.gildan.com. If you are unable to participate in the conference call, a replay will be available starting that same day at 7:00 PM EST by dialing 888-286-8010 (Canada & U.S.) or 617-801-6888 (international) and entering passcode 13886577, until February 8, 2006 at midnight, or by sound web cast on Gildan's web site for 30 days.
Laurence G. Sellyn, Executive Vice-President,
Chief Financial and Administrative Officer
Tel: (514) 343-8805