GILDAN ACTIVEWEAR INC.
TSX : GIL
NYSE : GIL

August 03, 2005 06:00 ET

Gildan Activewear Announces Record Quarterly Sales and Earnings and Reconfirms Recent Upward Revision of Full Year Guidance

MONTREAL, QUEBEC--(CCNMatthews - Aug. 3, 2005) -



- Third Quarter E.P.S. up 29.5% over Strong Prior Year Comparative
- Company Announces Capacity Expansion Plans for Fiscal 2006 to
Pursue Growth Strategy and Enter Athletic Sock Market


Gildan Activewear Inc. (TSX:GIL)(NYSE:GIL) today announced its financial results for the third quarter and nine months ended July 3, 2005. The Company also reconfirmed its recently increased earnings guidance for the balance of the fiscal year, and announced its capital expenditure and capacity expansion plans for fiscal 2006.

Third Quarter Sales and Earnings

Gildan reported third quarter net earnings of U.S. $34.1 million or U.S. $0.57 per share, up respectively 30.2% and 29.5% from the third quarter of last year. Gildan had announced on July 12, 2005 that it expected E.P.S. for the third quarter to be at least 10% above the top end of its previous guidance for the third quarter, which had called for E.P.S. of approximately U.S. $0.50 per share. Gildan's third quarter results were a record for the Company for any fiscal quarter.

Compared to last year, the increase in third quarter net earnings was driven by continuing strong growth in unit volume sales, more favourable product-mix and lower costs of cotton. These positive factors were partially offset by lower selling prices, increased costs for transportation, and higher selling, general and administrative expenses.

Sales in the third quarter amounted to U.S. $198.9 million, up 18.1% from the third quarter a year ago, reflecting a 15.3% increase in unit shipments and more favourable product-mix, partially offset by lower selling prices. The Company continued to achieve strong market share increases in all product categories, in spite of capacity constraints which restricted its ability to maximize sales growth in the quarter.

The value of the S.T.A.R.S. market growth and market share data for the U.S. wholesale distribution market continues to be reduced by non-participation by major distributors. With this caveat, the table below summarizes the S.T.A.R.S. data for the quarter ended June 30, 2005. In calculating year-over-year growth rates, S.T.A.R.S. has adjusted prior period comparatives to exclude sales through distributors no longer participating in the S.T.A.R.S. report.



Gildan Gildan Gildan Industry
Market Share Market Share Unit Growth Unit Growth
Q3 2005 Q3 2004 Q3 2005 vs Q3 2005 vs
Q3 2004 Q3 2004
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36.2% 29.6% T-shirts 27.8% 3.8%
32.4% 23.0% Sport shirts 39.2% (3.1)%
25.3% 16.4% Fleece 101.3% 29.4%


Gross margins in the third quarter were 31.6%, compared with 30.3% in the third quarter of last year. The increase in gross margins was due to more favourable product-mix and lower cotton costs, partially offset by the impact of higher transportation costs.

Selling, general and administration expenses were U.S. $19.1 million, or 9.6% of sales, compared with U.S. $15.6 million, or 9.3% of sales, in the third quarter of fiscal 2004. The higher SG&A expenses reflected higher distribution expenses, provision for higher performance-related compensation expenses, and the stronger Canadian dollar, in addition to the continuing development of the organization to support the Company's ongoing growth strategy. The cost of operating the Company's U.S. distribution center was negatively impacted in the third quarter by the start-up of a new warehouse management system to increase distribution capacity. Although the new system was implemented quickly and successfully, it resulted in additional costs during the start-up phase.

Nine Months Earnings

Net earnings for the first nine months of fiscal 2005 were U.S. $64.6 million, or U.S. $1.08 per share, before the special charge recorded in the second quarter for the closure and relocation of the Canadian yarn-spinning facilities. These results were up 38.3% and 38.5% respectively from net earnings of U.S. $46.7 million or U.S. $0.78 per share in the first nine months of last year, after adjusting last year's earnings for the negative impact of the functional currency change on cost of sales as a result of revaluing opening inventories which were consumed in the first half of fiscal 2004. Net earnings and E.P.S. for the first nine months of fiscal 2005 were U.S. $56.8 million and U.S. $0.95 per share after the special charge, compared with net earnings and E.P.S. as reported of U.S. $43.4 million and U.S. $0.73 per share in the first nine months of fiscal 2004.

Earnings Outlook

On July 12, 2005, the Company increased its E.P.S. guidance for the full 2005 fiscal year from approximately U.S. $1.40 per share to approximately U.S. $1.50 per share before the special charge for the closure and relocation of the Canadian yarn-spinning operations, and approximately U.S. $1.37 per share after the charge. The Company continues to be comfortable with its revised guidance. The Company is projecting E.P.S. of approximately U.S. $0.42 per share for the fourth quarter, up approximately 23.5% from U.S. $0.34 per share in the fourth quarter of fiscal 2004, before the special charge in the fourth quarter of last year to reflect the Company's contractual obligations to H. Greg Chamandy.

Cash Flow and Capacity Expansion Plans

During the third quarter, the Company generated U.S. $15.9 million of free cash flow. (Free cash flow is defined as cash flow from operating activities less cash flow from investing activities.) Capital expenditures amounted to U.S. $23.6 million, including the investment in a new yarn-spinning facility by Gildan's joint venture with Frontier Spinning Mills, Inc., which is now fully consolidated in Gildan's financial statements. The Company utilized U.S. $17.5 million in the third quarter for the second scheduled principal repayment of Gildan's U.S. senior notes, and ended the quarter with cash and cash equivalents of U.S. $30.8 million.

Gildan continues to project capital expenditures of approximately U.S. $85 million for the full 2005 fiscal year. The Company expects to generate free cash flow of approximately U.S. $10 million in fiscal 2005, and to end the fiscal year with cash and cash equivalents of approximately U.S. $65 million.

Gildan also announced that it planned to spend approximately U.S. $105 million for its capital expenditure program in fiscal 2006. In addition to completing the ramp-up and expansion of the Company's new textile facility in the Dominican Republic, the Company intends to construct two new facilities at its Rio Nance site in Honduras, one for the manufacture of its existing products, and one for production of athletic socks. Gildan believes that entry into the athletic sock market represents a significant growth opportunity for the Company, which will complement its overall retail strategy and leverage its existing core competencies and low-cost offshore manufacturing expertise.

Disclosure of Outstanding Share Data

As of July 29, 2005 there were 59,877,705 common shares issued and outstanding along with 644,089 options outstanding. The number of shares and options outstanding reflects the 2-for-1 stock split which was approved by Gildan's Board of Directors on May 4, 2005, and effected early in the third quarter.

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 9,000 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.

This release includes reference to certain Non-GAAP Financial Measures such as net earnings and earnings per share before the special charge, net earnings and earnings per share before the impact of the functional currency adjustment on cost of sales, 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 10:00 AM Eastern Time. The conference call can be accessed by dialing 800-261-3417 (Canada & U.S.) or 617-614-3673 (international) and entering passcode 73386768, 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 12:00 PM EDT by dialing 888-286-8010 (Canada & U.S.) or 617-801-6888 (international) and entering passcode 41582395, until Wednesday August 10, 2005 at midnight, or by sound web cast on Gildan's Internet site for 30 days.



Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of U.S. dollars, except per share data)


Three months ended Nine months ended
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
---------------------------------------------------------------------
(unaudited)(unaudited)(unaudited)(unaudited)

Sales $198,901 $168,429 $473,179 $387,757
Cost of sales 136,091 117,443 328,309 278,134
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Gross profit 62,810 50,986 144,870 109,623

Selling, general and
administrative expenses 19,134 15,629 53,746 42,177

Special charge (note 2) - - 11,886 -
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Earnings before the
undernoted items 43,676 35,357 79,238 67,446

Depreciation and
amortization 6,043 5,517 18,413 15,698
Interest expense 1,191 1,626 3,691 4,970
Earnings of
non-controlling
interest 72 - 187 -
---------------------------------------------------------------------

Earnings before
income taxes 36,370 28,214 56,947 46,778

Income tax expense (note 3) 2,223 1,986 101 3,345
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Net earnings $34,147 $26,228 $56,846 $43,433
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Basic EPS $0.57 $0.44 $0.95 $0.73

Diluted EPS $0.57 $0.44 $0.95 $0.73

Weighted average number
of shares outstanding
(in thousands)
Basic 59,816 59,256 59,613 59,152
Diluted 60,270 59,718 60,042 59,678

See accompanying notes to interim consolidated financial statements.



Gildan Activewear Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)


Three months ended Nine months ended
July 3, July 4, July 3, July 4,
2005 2004 2005 2004
---------------------------------------------------------------------
(unaudited)(unaudited)(unaudited)(unaudited)


Cash flows from
operating activities:
Net earnings $34,147 $26,228 $56,846 $43,433
Adjustments for:
Depreciation and
amortization 6,043 5,517 18,413 15,698
Future income taxes 1,431 320 (1,943) 1,781
Loss on fixed assets 287 1,079 8,646 1,138
Other 629 (369) 1,200 (305)
---------------------------------------------------------------------
42,537 32,775 83,162 61,745

Net changes in non-cash
working capital balances:
Accounts receivable (23,863) (9,270) (26,552) (29,889)
Inventories 9,304 16,611 (14,732) (9,994)
Prepaid expenses
and deposits 325 669 (3,114) (1,010)
Accounts payable and
accrued liabilities 7,548 1,700 5,437 (2,464)
Income taxes payable 324 1,570 400 (195)
---------------------------------------------------------------------
36,175 44,055 44,601 18,193

Cash flows from
financing activities:
Increase in long-term debt 1,139 - 2,420 4,125
Repayment of
long-term debt (17,569) (19,031) (18,495) (20,655)
Contribution by
non-controlling
interest - - 2,500 -
Proceeds from
the issuance
of shares 1,310 48 4,997 1,570
---------------------------------------------------------------------
(15,120) (18,983) (8,578) (14,960)

Cash flows from
investing activities:
Purchase of fixed assets,
net of disposals (23,563) (9,221) (66,693) (35,794)
Decrease in assets
held for sale 2,599 - 2,599 -
Decrease (increase)
in other assets 676 (118) (1,933) (190)
---------------------------------------------------------------------
(20,288) (9,339) (66,027) (35,984)

Effect of exchange
rate changes on cash
and cash equivalents (26) (52) 117 505
---------------------------------------------------------------------

Net increase (decrease)
in cash and cash
equivalents
during the period 741 15,681 (29,887) (32,246)

Cash and cash equivalents,
beginning of period 30,043 21,413 60,671 69,340

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Cash and cash equivalents,
end of period $30,784 $37,094 $30,784 $37,094
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes to interim consolidated financial statements.



Gildan Activewear Inc.
Consolidated Balance Sheets
(in thousands of U.S. dollars)

July 3, October 3, July 4,
2005 2004 2004
---------------------------------------------------------------------
(unaudited) (audited) (unaudited)

Current assets:
Cash and cash equivalents $30,784 $60,671 $37,094
Accounts receivable 112,354 85,317 94,342
Inventories 131,803 116,615 113,497
Prepaid expenses and deposits 6,426 3,243 4,694
Future income taxes 9,943 8,149 4,558
---------------------------------------------------------------------
291,310 273,995 254,185

Fixed assets 249,984 211,693 199,825
Assets held for sale 5,426 - -
Other assets 4,928 3,127 3,321
---------------------------------------------------------------------

Total assets $551,648 $488,815 $457,331
---------------------------------------------------------------------
---------------------------------------------------------------------

Current liabilities:
Accounts payable and
accrued liabilities $81,425 $74,607 $64,606
Income taxes payable 2,400 1,966 3,753
Current portion of long-term debt 19,724 18,610 18,601
---------------------------------------------------------------------
103,549 95,183 86,960

Long-term debt 24,159 37,979 38,430
Future income taxes 28,373 28,058 22,436
Non-controlling interest 5,548 - -

Shareholders' equity:
Share capital 83,167 78,170 77,060
Contributed surplus 1,262 681 519
Retained earnings 279,342 222,496 205,678
Cumulative translation adjustment 26,248 26,248 26,248
---------------------------------------------------------------------
390,019 327,595 309,505
---------------------------------------------------------------------

Total liabilities and
shareholders' equity $551,648 $488,815 $457,331
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---------------------------------------------------------------------

See accompanying notes to interim consolidated financial statements.

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. The July 3, 2005 unaudited consolidated financial statements
include the consolidation of Cedartown Manufacturing LLC
("Cedartown"), the Company's 50% owned joint-venture with Frontier
Spinning Mills, Inc. Prior to fiscal 2005, the Company accounted
for its investment in Cedartown using the proportionate
consolidation method. The consolidation of Cedartown at October
4, 2004, the beginning of Gildan's 2005 fiscal year, increased
total assets by $7.9 million and total liabilities by $5.0
million, while creating a non-controlling interest of $2.9
million. Under generally accepted accounting principles, the
application of either the consolidation or the proportionate
consolidation method of accounting for equity interests results in
the same net earnings inclusion, and accordingly the Company's net
earnings was not be affected by this change.

2. During the second quarter of fiscal 2005, the Company closed its
two Canadian yarn-spinning operations. A major portion of the
equipment was transferred to a new yarn-spinning facility in
Clarkton, North Carolina, which is operated by the Company's
joint-venture with Frontier Spinning Mills, Inc. For the nine
months ended July 3, 2005 the Company reported closure costs of
$7.8 million after tax, or $0.13 per share, which consist mainly
of a writedown to their estimated fair value of assets held for
sale, as well as severance costs.

3. The income tax expense of $0.1 million for the nine months ended
July 3, 2005 included the income tax recovery arising from the
special charge of the closure of the Canadian yarn-spinning
operations in the second quarter of fiscal 2005. Excluding the
impact of the tax recovery due to the closure costs, the tax
provision for nine months ended July 3, 2005, was $4.2 million,
resulting in a tax rate of 6.1%, compared to a tax rate of 7.2%
for the same period last year.

4. Adjusted net earnings and adjusted diluted E.P.S.

Nine months ended Nine months ended
July 3, 2005 July 4, 2004
Net earnings as reported $56,846 $43,433
Adjustment 7,801 3,251
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Adjusted net earnings $64,647 $46,684

Diluted E.P.S. as reported $0.95 $0.73
Adjustment 0.13 0.05
---------------------------------------------------------------------
Adjusted diluted E.P.S $1.08 $0.78

The adjustment for fiscal 2005 relates to the closure of the Canadian
yarn-spinning operations in the second quarter of fiscal 2005, as
described in note 2 above. The adjustment for fiscal 2004 relates to
the impact of the functional currency change on cost of sales as a
result of revaluing opening inventories which were consumed in the
first half of fiscal 2004.

5. Certain comparative figures have been reclassified in order to
conform to the current year's presentation.


Contact Information

  • Gildan Activewear Inc.
    Laurence G. Sellyn, Executive Vice-President,
    Finance and Chief Financial Officer
    (514) 343-8805
    lsellyn@gildan.com