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The Globe and Mail

Gildan places hopes on higher ad spending

Glenn Chamandy, CEO of Gildan.

Andre Pichette/The Globe and Mail

Gildan Activewear Inc. is expecting a record start to the year, with hopes that higher advertising spending for big-time events such as the recent Super Bowl will translate into a strong performance for the company through to 2014.

The Montreal-based activewear supplier plans to double its advertising and marketing budget this year to $30-million (U.S.) and has hired a New York agency to guide its strategy.

"We're committed to spending and developing our brand to be a major consumer brand in the United States of family apparel over the next couple years," chief executive officer Glenn Chamandy said Wednesday during a conference call to discuss its first-quarter results.

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The company recently spent about $4-million for one Super Bowl ad in the U.S. and two in Canada. It plans to support AAA baseball and other events, while also heavily promoting its products during the next back-to-school period.

In results released after markets closed, the clothing manufacturer slightly beat expectations as it earned a record $35.3-million profit, reversing last year's large loss.

Gildan earned 29 cents per diluted share for the period ended Nov. 29. That compared to a net loss of $46.1-million, or 38 cents per share, in the prior year.

Adjusting for restructuring and acquisition-related costs, it earned $39.1-million, or 32 cents per share. Sales surged 38.5 per cent in the quarter to $420.6-million.

Gildan was expected to earn 30 cents per share in adjusted profits on $397.9-million of sales, according to analysts polled by Thomson Reuters.

Mr. Chamandy said the company has seen its Gildan-branded apparel dramatically increase sales in the past two years and expects sales to add about $100-million per year.

He said the advertising is designed to support sales at national and regional retailers.

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"The industry is upbeat so we think we're on a good trajectory to have a good year."

The company had projected last quarter that adjusted net earnings in the first quarter would range between 28 to 31 cents per share.

Printwear segment sales grew 65.6 per cent to $243.7-million, while branded apparel sales were up 13 per cent to $177-million. Printwear operating earnings were $45.9-million while $19.6-million was realized from branded apparel.

It said the results were better because of lower than forecast promotional discounting in the printwear segment, partially offset by hurricane repair costs at its Dominican Republic textile facility.

"The strong recovery in earnings for our core printwear business is continuing and we are making important progress in 2013 in implementing our strategy to position Gildan as a consumer brand for socks, activewear and underwear," said Laurence Sellyn, chief financial and operating officer.

Last year's loss was due to historically high cotton costs, inventory destocking by wholesale distributors, promotional discounting and an extended holiday manufacturing shutdown.

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Gildan said its sales surged in part because of demand for Gildan-branded products and the impact of its Anvil acquisition.

In addition to expanding some of its low-cost manufacturing facilities in Central America, Gildan has decided to consolidate the production of its performance shirts to Anvil's facility in Honduras.

The move won't dramatically increase production but should enhance efficiencies of making these higher-margin products.

Gross margins were 26.8 per cent in the first quarter, compared to 2.1 per cent a year ago. The changes resulted from lower-cost cotton, improved industry conditions for printwear and a more favourable product mix for branded apparel, partially offset by lower printwear selling prices.

Gildan said it expects net sales revenues for the year will slightly exceed its previous guidance of about $2.1-billion on $1.4-billion of sales for printwear and $700-million for branded apparel. The impact of higher sales is projected to be offset by higher cotton and manufacturing costs. Adjusted EPS is still forecast to range between $2.60 and $2.70 per share.

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