Gildan Activewear Announces Fourth Quarter and Full Year Earnings Significantly Above Company's Previous Guidance
December 02 2004 - 5:31AM
PR Newswire (US)
Gildan Activewear Announces Fourth Quarter and Full Year Earnings
Significantly Above Company's Previous Guidance - Fourth Quarter
EPS Before Special Items Up by 43.8% from Fiscal 2003 - Company
Initiates Sales and EPS Guidance for Fiscal 2005 - MONTREAL, Dec. 2
/PRNewswire-FirstCall/ -- Gildan Activewear Inc. (NYSE: GIL; TSX:
GIL.A) today announced its results for its fourth fiscal quarter
and fiscal year ended October 3, 2004, and provided sales and
earnings guidance for fiscal 2005. The Company also announced the
adoption of a shareholder rights plan. Fourth Quarter Sales and
Earnings --------------------------------- The Company reported
record net earnings of U.S. $16.8 million or U.S. $0.56 per diluted
share for the fourth quarter, up 18.3% and 16.7% from U.S. $14.2
million or U.S. $0.48 per diluted share a year ago. The results for
the fourth quarter of fiscal 2004 included a special charge of U.S.
$0.11 per share to reflect the cost of the Company's contractual
commitments to H. Greg Chamandy, who resigned in August as Chairman
of the Board, Chairman of the Executive Committee and Co-Chief
Executive Officer. Excluding this special charge as well as the
impact of adjustments relating to the change to U.S. functional
currency, which continue to impact depreciation expense, diluted
EPS for the fourth quarter amounted to U.S. $0.69, up 43.8% from
last year. The Company had previously provided guidance for the
quarter on this basis of U.S. $0.55-U.S. $0.60 per share. Compared
to last year, the higher fourth quarter net earnings primarily
reflected higher unit sales and more favourable pricing, as well as
continuing manufacturing efficiencies. These factors were partially
offset by increased cotton costs, higher SG&A and depreciation
expenses, and a charge of approximately U.S. $0.07 per diluted
share arising from the closure in September of the El Progreso
sewing plant in Honduras. "We are delighted to have delivered such
a strong financial performance in the fourth quarter," commented
Glenn J. Chamandy, President and Chief Executive Officer. "We have
significantly exceeded our expectations and achieved exceptional
earnings growth over solid prior year comparatives. Market
conditions continue to be favourable, and we believe we have
excellent momentum going into fiscal 2005." Sales in the quarter
were U.S. $145.6 million, up 33.3% from U.S. $109.2 million in the
fourth quarter of fiscal 2003. The higher sales were due to a 20.4%
increase in unit shipments combined with higher selling prices and
more favourable product-mix. The S.T.A.R.S. market and market share
data for the U.S. wholesale distributor market for the third
quarter of calendar 2004 excludes sales by three large distributors
who have discontinued their participation in the report and the
value of the report is therefore diminished compared to prior
years. With this caveat, the table below summarizes the S.T.A.R.S.
data for the quarter ended September 30, 2004, after adjusting the
prior period comparatives to exclude sales through distributors no
longer participating in the S.T.A.R.S. report: > Gildan has now
added another significant distributor to its U.S. distributor
network, in addition to the distributor announced in August. The
addition of the two new distributors is expected to result in
further significant increases in Gildan's market share in the U.S.
wholesale distributor channel. Gildan's unit shipments in Europe
increased by 39.2% over the fourth quarter last year. Shipments in
Canada were slightly higher than last year. Gross margins in the
fourth quarter were 30.9%, compared with 30.4% in the fourth
quarter of fiscal 2003. The impact of higher selling prices and
more favourable product-mix, together with continuing manufacturing
efficiencies, more than offset the effect of higher cotton costs
and the impact of the El Progreso closure costs. Excluding the
impact of the El Progreso closure, gross margins in the fourth
quarter of fiscal 2004 were 31.9%. A recovery of income taxes was
recorded in the fourth quarter, as the special charge for the
Company's contractual obligations to H. Greg Chamandy resulted in a
recovery of income taxes from prior quarters in the Canadian
operations. Excluding the impact of the special charge, the tax
rate for the quarter was 5.5%, compared to 7.6% in the fourth
quarter last year. Full Year Earnings ------------------ Net
earnings for fiscal 2004 were a record U.S. $60.3 million or U.S.
$2.02 per diluted share, up respectively 13.3% and 12.8% from
fiscal 2003 when the Company generated net earnings of U.S. $53.2
million or U.S. $1.79 per diluted share. Before the special charge
for the Company's contractual obligations to H. Greg Chamandy and
the adjustments due to the change to U.S. functional currency, net
earnings for fiscal 2004 were U.S. $68.5 million, or U.S. $2.30 per
share, up respectively 28.8% and 28.5% from fiscal 2003. Return on
equity in fiscal 2004 was 21.0%, including the impact of the
special charge as well as the impact of the functional currency
adjustments on both net earnings and shareholders' equity. Before
these items, return on equity was 25.5%. Fiscal 2004 Cash Flow
--------------------- In the fourth fiscal quarter, the Company
generated U.S. $22.9 million of free cash flow, defined as cash
flow from operating activities less cash used in investing
activities. For the full year, free cash flow amounted to U.S. $5.1
million, after net capital expenditures (capital expenditures net
of asset disposals) of U.S. $53.7 million. Net capital expenditures
were lower than previously indicated due to timing and slight
delays in major capital projects. The Company ended the fiscal year
with cash and cash equivalents of U.S. $60.7 million, and with
substantial unused debt capacity, including its Cdn $150 million
revolving bank credit facility. Fiscal 2005 Estimates
--------------------- The Company expects to achieve diluted EPS of
approximately U.S. $2.60 in fiscal 2005, on sales of approximately
U.S. $620 million. This guidance reflects unit sales growth of
approximately 20% and the assumption of sequentially lower unit
selling prices in the second half of the fiscal year, reflecting
the possible flow-through of lower cotton prices. The Company has
not previously provided sales and earnings guidance for fiscal
2005. For the first fiscal quarter of fiscal 2005, the Company
expects to generate diluted EPS in the range of U.S. $0.20-$0.25
per share, up from U.S. $0.17 per share from the first quarter of
fiscal 2004 before the impact on last year's earnings of the
functional currency adjustment arising from the revaluation of
opening inventories. The Company noted that the combined impact of
the two new U.S. distributors is expected to account for the
majority of its projected sales growth in fiscal 2005. Further
upside in unit sales growth in fiscal 2005 will be limited by
capacity constraints. However, the ramp-up of the new textile
facilities in the Dominican Republic and Nicaragua is expected to
significantly increase production capacity in fiscal 2006, as the
Company continues to implement the next phase of its strategic
business plan. The Company expects that cash flow from operating
activities in fiscal 2005 will be approximately equivalent to cash
requirements for capital expenditures, which are estimated to be in
the range of U.S. $85-$90 million for the year. The Company intends
to use a portion of its surplus cash reserves in June of 2005 to
meet the scheduled second principal repayment of its Senior Notes,
amounting to U.S. $17.5 million. Shareholder Rights Plan
----------------------- Gildan also announced that its Board of
Directors has approved a shareholder rights plan, which takes
effect immediately. The objectives of the plan are to provide the
Board and shareholders with adequate time to assess any unsolicited
take-over bid for the Company, and where appropriate, give the
Board sufficient time to pursue other alternatives for maximizing
shareholder value. Pursuant to the plan, those bids which meet
certain requirements will not trigger the rights issued under the
plan, and will be considered "permitted bids". In order to qualify
as a "permitted bid", a bid must be made by way of a formal
take-over bid circular delivered to all shareholders. Also, it must
remain open for a minimum of 60 days, and must meet various other
conditions set out in the plan. One right has been issued with
respect to each outstanding Class A Subordinate Voting Share of
Gildan (the only class of voting shares outstanding) at the close
of business yesterday. The rights will become exercisable only on
the eighth trading day after a person or entity, including any
related party, acquires or announces its intention to acquire
shares for a total ownership of 20% or more of Gildan's outstanding
shares, without complying with the "permitted bid" provisions of
the plan or without approval of Gildan's Board of Directors. Should
such a scenario occur, each right would, upon exercise, entitle a
holder, other than the acquiring person or entity and any related
party, to purchase treasury shares of Gildan at a 50% discount to
the market price of such shares at the time when the rights become
exercisable. The plan comes into effect immediately and has been
conditionally approved by the Toronto Stock Exchange. It will be
submitted for ratification by shareholders at Gildan's Annual and
Special Meeting of Shareholders to be held on February 2, 2005. The
plan will be in effect for three years, with one renewal option,
subject to shareholder approval. The Board of Directors may under
certain conditions redeem all rights under the plan, or waive its
application to specific acquisition offers, where the Board of
Directors concludes that the plan has served its purpose. The plan
has not been adopted in response to any specific proposal to
acquire control of Gildan, nor is Gildan aware of any such
intention. Gildan has been advised that its plan, which is a new
generation plan similar to shareholder rights plans adopted by
other Canadian companies, is consistent with Canadian corporate
practices and addresses institutional investor guidelines. Shares
Issued and Outstanding ----------------------------- As of November
30, 2004 there were 29,699,903 Class A Subordinate Voting Shares
issued and outstanding along with 571,323 options outstanding.
There were no Class B Multiple Voting Shares outstanding and
shareholders will be asked to approve the elimination of this class
of shares at the Company's Annual and Special Meeting of
Shareholders on February 2, 2005. Shareholders will also be asked
at the Meeting to create a new class of shares, namely Common
Shares, and to subsequently convert each of the issued and
outstanding Class A Subordinate Voting Shares into one Common
share. Profile ------- Gildan Activewear is a vertically-integrated
manufacturer and marketer of premium quality branded basic
activewear for sale principally in the wholesale imprinted
activewear segment of the Canadian, U.S., European and other
international markets. The Company manufactures and sells premium
quality 100% cotton and 50% cotton/50% polyester T-shirts, placket
collar sport shirts and sweatshirts in a variety of weights, sizes,
colours and styles. The Company sells its products as blanks, which
are ultimately decorated with designs and logos for sale to
consumers. Gildan employs more than 7,400 full-time employees.
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. Information
for shareholders ---------------------------- Gildan Activewear
Inc. will hold a conference call to discuss these results today at
10:00 AM Eastern Time. Interested parties can join the call by
dialing 800-261-3417 (Canada & U.S.) or 617-614-3673
(international) and entering passcode 39968661. The conference call
can also be accessed via live webcast at http://www.gildan.com/
("Investor Relations" section). If you are unable to participate in
the conference call, a replay will be available starting that same
day at 12:00 PM EST by dialing 888-286-8010 (Canada & U.S.) or
617-801-6888 (international) and entering passcode 92411097, until
December 9, 2004 at midnight, or by sound web cast on Gildan's web
site for 30 days. > Gildan Activewear Inc - Notes to interim
consolidated financial statements For complete notes to the interim
consolidated financial statements please refer to filings with the
various securities regulatory authorities. 1. Change in Functional
Currency: As a result of a significant portion of its revenues,
expenses, assets and liabilities being denominated in U.S. dollars
and the increasing international expansion of its sales and
manufacturing operations, the Company adopted the U.S dollar as its
functional and reporting currency effective October 6, 2003, the
beginning of its 2004 fiscal year. All opening assets and
liabilities were translated into U.S. dollars using the exchange
rate in effect on October 6, 2003. For comparative purposes,
historical financial statements and notes thereto up to and
including October 5, 2003 have been restated into U.S dollars in
accordance with generally accepted accounting principles. The
change in the functional currency resulted in a positive currency
translation adjustment of $26.2 million as at October 5, 2003,
which is reflected as a separate component of shareholders' equity.
2. Special Charge: In August 2004 the Company announced that H.
Greg Chamandy had stepped down from his role as co-Chief Executive
Officer, Chairman of the Board and Chairman of the Executive
Committee of the Company, in order to pursue other business
interests, therefore the Company incurred a charge of $3.2 million,
net of taxes, to satisfy the Company's contractual commitments to
H. Greg Chamandy in the three month period ended October 3, 2004.
3. Floating year-end: Fiscal 2003 comprised of 53 weeks instead of
the normal 52 weeks for a fiscal year. The inclusion of the extra
week is required in every sixth fiscal year due to the Company's
floating year-end date. It was included in the third quarter of
fiscal 2003 since it is seasonally the largest sales quarter in the
year. DATASOURCE: GILDAN ACTIVEWEAR INC. CONTACT: Laurence G.
Sellyn, Executive Vice-President, Finance and Chief Financial
Officer, (514) 343-8805,
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