Skip to main content

Market Overview

Gildan Activewear Reports First Quarter 2019 Results, Reaffirms Full Year Sales and Adjusted EPS Guidance, and Announces Plans for Major Capacity Expansion

  • Q1 2019 sales of $624 million, GAAP diluted EPS of $0.11, and adjusted diluted EPS1 of $0.16 at top end of guidance range
  • Company announces land purchase in Bangladesh for approximately $45 million as part of major South-east Asian capacity expansion initiative to support international growth
  • Company reaffirms sales and adjusted diluted EPS guidance for 2019

1 Please refer to "Definition and reconciliation of non-GAAP financial measures" in this press release.


(all amounts are in U.S. dollars except where otherwise indicated)

Gildan Activewear Inc. (GIL: TSX and NYSE) today announced its results for the first quarter ended March 31, 2019 and updated its full year guidance. The Company also announced the completion of the purchase of a sizable land parcel in Bangladesh as part of its new capacity expansion initiative to develop large-scale vertically-integrated manufacturing in South-east Asia to support expected sales growth.

Results for the first quarter were in line with expectations, setting the Company on track to deliver on its full year sales and EPS targets for 2019. GAAP diluted EPS for the first quarter totaled $0.11, and consistent with the Company's guidance as updated on March 26, 2019, adjusted diluted EPS of $0.16 came in at the high end of the Company's guidance range of $0.14 to $0.16.  As expected, earnings were down for the quarter versus last year due to anticipated factors, including the impact on sales from lower levels of distributor restocking and higher raw material and other input cost pressures. 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, as previously announced on March 26, 2019. Net sales were down 3.6% 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.

During the quarter, we continued to execute on supply chain initiatives aimed at driving increased operational efficiency across our 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. We also continued with efforts to reduce SG&A as we work towards achieving a 2020 target of lowering SG&A as a percentage of sales to 12% or better. Finally, on April 9, 2019, we completed the purchase of land in Bangladesh which is intended to be used to expand our global textile and sewing operations. Our 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 twenty-four months, the Company plans to construct and develop the first textile facility at the complex. Initial production at the facility is expected to start in the latter part of 2021. The Company believes the build out of a large-scale manufacturing hub in South-east Asia will significantly enhance its positioning to service international markets and support other key sales growth drivers.

Operating results
During the first quarter, we generated sales of $623.9 million, down 3.6% compared to the prior year quarter reflecting declines of 4.1% in activewear and 1.8% in the hosiery and underwear category.  As expected, the decline in activewear, where we generated $493.6 million in sales for the quarter, was primarily due to lower levels of distributor restocking of imprintables compared to the level of restocking that occurred in the first quarter last year in advance of the price increase implemented in March 2018. These factors were partly offset by double digit growth in fleece shipments, which drove more favourable product-mix, and the impact of higher net selling prices. The slight sales decline in the hosiery and underwear category, where we saw $130.4 million in overall sales, was mainly attributable to lower Gildan® branded socks and underwear sales in the mass retail channel, which was largely offset by higher socks sales of licensed and global lifestyle brands compared to last year as well as the benefit of earlier than anticipated shipments of a new private label men's underwear program in the mass channel, for which initial shipments began towards the end of the first quarter.

Gross margin in the first quarter of 2019 of 25.8% was down 140 basis points over the same period last year. The decrease in gross margin compared to the prior year quarter, which was expected, was primarily due to higher raw material and other input costs, including inflationary pressures, and unfavourable foreign exchange, partly offset by the benefit of higher net selling prices and more favourable product-mix.

SG&A expenses for the first quarter of 2019 of $93.0 million were at the same level as in the prior year quarter. As a percentage of sales, SG&A expenses were 14.9%, or 60 basis points higher than the prior year quarter, primarily reflecting the lower level of sales in the quarter compared to last year.

During the first quarter of 2019, the Company recorded an impairment of trade accounts receivable of $24.4 million, of which $21.7 million related to the wind down of operations of Heritage Sportswear which is under receivership, as announced on March 26, 2019, and $2.5 million related to the bankruptcy of Payless ShoeSource. Consequently, operating income of $32.7 million and adjusted operating income1 of $43.3 million were down $43.6 million and $39.4 million, respectively, compared to the same period last year, reflecting the lower sales base, inflationary cost pressures on gross profit, and the trade receivable impairment charge.

Net earnings for the three months ended March 31, 2019 amounted to $22.7 million, or $0.11 per share on a diluted basis, compared with net earnings of $67.9 million, or $0.31 per share on a diluted basis, for the same period last year. Excluding the impact of after-tax restructuring and acquisition-related costs in both years, Gildan reported adjusted net earnings1 of $32.8 million, or $0.16 per share on a diluted basis, down from $74.6 million, or $0.34 per share on a diluted basis in the first quarter of 2018 mainly due to the decline in operating income and higher net financial expenses. The earnings decline on a per share basis was partly offset by the benefit of a lower share count compared to the prior year.

The Company consumed $127.8 million of free cash flow1 in the first quarter of 2019 compared to $40.0 million of free cash flow consumed in the first quarter last year mainly as a result of lower earnings in the quarter, as anticipated, and higher working capital requirements, including planned inventory build.  During the first quarter of 2019, capital expenditures totaling $22.8 million related primarily to investments in textile capacity expansion, including the ramp up of our new Rio Nance 6 facility, and related sewing expansion, as well as investments in information technology. During the first quarter of 2019, the Company repurchased 876,459 common shares at a total cost of approximately $31.0 million pursuant to its normal course issuer bid (NCIB) programs. The Company ended the first quarter of 2019 with net debt1 of $891.5 million and a net debt leverage ratio1 of 1.6 times net debt to trailing twelve months adjusted EBITDA1, in line with the Company's target leverage.

The Company is now projecting 2019 GAAP diluted EPS of $1.75 to $1.85 and adjusted diluted EPS of $1.90 to $2.00, on projected sales growth in the mid-single-digit range. Sales and adjusted diluted EPS guidance is unchanged since the Company's update on March 26, 2019. The GAAP EPS range compares to our previous guidance of $1.80 to $1.90, which reflected previously projected restructuring and acquisition-related costs of approximately $20 million. After refining and incorporating estimates related to further manufacturing integration, including the consolidation of Canadian sheer hosiery manufacturing within the Company's global supply chain and additional sales and marketing initiatives to drive further operational efficiencies across the organization, the Company is now projecting restructuring and acquisition-related costs to be in the range of $30 million. With the completion of the land acquisition in Bangladesh for approximately $45 million in cash, the Company has updated its capital expenditure projection to be approximately $175 million compared to its previous guidance of $125 million.  Consequently, free cash flow generation for 2019 is now expected to be in the range of $300 to $350 million compared to $350 to $400 million previously. Adjusted EBITDA is now projected to be in excess of $605 million after reflecting the trade receivable charge in the quarter, compared to in excess of $630 million previously.

Declaration of quarterly dividend
The Board of Directors has declared a cash dividend of $0.134 per share, payable on June 10, 2019 to shareholders of record on May 16, 2019. This dividend is an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.

Disclosure of outstanding share data
As at April 26, 2019, there were 206,190,492 common shares issued and outstanding along with 2,347,051 stock options and 105,969 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a pre-determined option price. Each Treasury RSU entitles the holder to receive one common share from treasury at the end of the vesting period, without any monetary consideration being paid to the Company.

Conference call information
Gildan Activewear Inc. will hold a conference call to discuss first quarter 2019 results and its business outlook today at 5:00 PM ET. A live audio webcast of the conference call, as well as a replay, will be available on its corporate site or on the following link: The conference call can be accessed by dialing (800) 447-0521 (Canada & U.S.) or (847) 413-3238 (international) and entering passcode 48515821#. A replay will be available for 30 days starting at 7:30 PM ET by dialing (888) 843-7419 (Canada & U.S.) or (630) 652-3042 (international) and entering the same passcode.

This release should be read in conjunction with Gildan's Management's Discussion and Analysis and its unaudited condensed interim consolidated financial statements as at and for the three months ended March 31, 2019 available on Gildan's corporate website, which will be filed by Gildan with the Canadian securities regulatory authorities and with the U.S. Securities and Exchange Commission.

Certain minor rounding variances may exist between the unaudited condensed interim consolidated financial statements and the table summaries contained in this press release.

Supplemental Financial Data      
(in U.S.$ millions, except per share amounts or otherwise indicated) Q1 2019 Q1 2018 Variation (%)  
Net sales 623.9   647.3   (3.6 )%
Gross profit 160.7   175.8   (8.6 )%
SG&A expenses 93.0   92.9   0.1 %
Impairment of trade accounts receivable 24.4   0.2   n.m.  
Restructuring and acquisition-related costs 10.6   6.4   65.6 %
Operating income 32.7   76.3   (57.1 )%
Adjusted operating income(1) 43.3   82.7   (47.6 )%
Adjusted EBITDA(1) 83.4   124.1   (32.8 )%
Financial expenses 9.1   5.2   75.0 %
Income tax expense 0.9   3.2   (71.9 )%
Net earnings 22.7   67.9   (66.6 )%
Adjusted net earnings(1) 32.8   74.6   (56.0 )%
Basic EPS 0.11   0.31   (64.5 )%
Diluted EPS 0.11   0.31   (64.5 )%
Adjusted diluted EPS(1) 0.16   0.34   (52.9 )%
Gross margin 25.8 % 27.2 % (1.4 ) pp
SG&A expenses as a percentage of sales 14.9 % 14.3 % 0.6  pp
Operating margin 5.2 % 11.8 % (6.6 ) pp
Adjusted operating margin(1) 6.9 % 12.8 % (5.9 ) pp
Cash flows used in operating activities (105.2 ) (17.6 ) n.m.  
Capital expenditures 22.8   22.4   1.8 %
Free cash flow(1) (127.8 ) (40.0 ) n.m.  
n.m. = not meaningful

As at Mar 31,
Dec 30,
Inventories 1,008.3 940.0
Trade accounts receivable 394.4 317.2
Net indebtedness(1) 891.5 622.3
Net debt leverage ratio(1) 1.6 1.0
(1) Please refer to "Definition and reconciliation of non-GAAP financial measures" in this press release.


Net sales by major product group were as follows:

(in U.S.$ millions, or otherwise indicated) Q1 2019 Q1 2018 Variation (%)
Activewear 493.6 514.5 (4.1 )%
Hosiery and underwear 130.4 132.8 (1.8 )%
  624.0 647.3 (3.6 )%

Net sales were derived from customers located in the following geographic areas:

(in U.S.$ millions, or otherwise indicated) Q1 2019 Q1 2018 Variation (%)
United States 530.8 555.8 (4.5 )%
Canada 25.8 25.4 1.6 %
International 67.3 66.0 2.0 %
View Comments and Join the Discussion!
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at