Gildan Activewear Inc. was showing no signs of rebounding on Thursday afternoon, following a sharp selloff at the start of trading after the company released its fiscal fourth quarter results. On the surface, the clothing manufacturer hit all the right notes: Its record-high profit topped analysts' expectations, its market share is expanding and it announced a dividend and a share buyback program.
So what's not to love? Profit margins. Gildan estimates that gross margins will decline to 25 per cent in fiscal 2011, from 27.7 per cent in 2010. The drop is because price increases on its cotton products won't fully offset surging cotton prices.
Indeed, Gildan's management actually sounded quite lacklustre about 2011 in general. While they floated the possibility that earnings could rise 20 cents (U.S.) a share over 2010, to an implied $1.83 a share, that forecast was actually below the $1.96 expected by analysts.
So far, though, analysts are staying calm. According to Bloomberg, the two analysts who have updated their reports on the company since its earnings release have maintained their previous recommendations. Both BMO Nesbitt Burns and Canaccord Genuity have "buy" recommendations on the stock.