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Gildan profit falls on lower sales, higher cotton price

The Globe and Mail

Apparel manufacturer Gildan Activewear Inc. lost $46.1-million (U.S.) in its fiscal first quarter, just the second such loss since it began as a publicly traded company in 1998.

The Montreal-based concern had telegraphed in December that it expected to lose about 40 cents per share, largely because of fluctuating cotton prices.

But Gildan slightly beat that guidance, issuing results after markets closed that showed it lost 38 cents per share for the period ended Jan. 1.

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Revenue fell 8.3 per cent to $303.8-million.

The quarterly loss compared with a profit of $35.9-million, or 29 cents per share, on $331-million of revenue in the year-ago period.

Gildan had been expected to post an adjusted loss of 39 cents per share on $300-million of revenue, according to analysts polled by Thomson Reuters.

"The first quarter loss was due to [the fact that]we continued to consume inventories during the first quarter which had been previously manufactured with peak-cost cotton," chief financial officer Laurence Sellyn said during a conference call.

The higher cotton costs cut EPS by 45 cents in the quarter.

"Our average cotton cost during quarter was slightly more than double our cost of cotton in the first quarter of last year," Mr. Sellyn said.

Other factors included inventory destocking by U.S. wholesale distributors and a manufacturing shutdown in December to manage inventory levels.

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Those were partly offset by price increases charged to U.S. retail customers beginning in the fourth quarter and the acquisition of Gold Toe Moretz, which was announced last April.

The last time the company posted a quarterly loss – $45.5-million – was in September, 2001.

The most recent quarter marked the first time results were reported as two operating segments – print wear and branded apparel.

The print wear business supplies active wear, fleece and sport shirts to the screen print market. The branded apparel business supplies socks, underwear and active wear to retail customers.

Print wear had an operating loss of $30.8-million on $147.2-million of sales. That compared with a $62.8-million profit on $156.6-million of sales last year.

Its share of the screen print market increased to 61.4 per cent from 57.2 per cent a year ago.

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International sales revenues included in the print wear business segment increased by more than 30 per cent from the year-ago period.

The branded apparel segment earned $2.4-million on $156.6-million of sales, compared with a $6.7-million loss on $81.3-million of sales a year earlier.

Gildan confirmed its prior guidance in December of $1.30 per share profit on $1.9-billion of revenues in fiscal 2012.

Print wear sales are expected to reach $1.3-billion with branded apparel reaching $600-million.

It also projected adjusted earnings of 20 cents per share on nearly $500-million of revenue in the second quarter.

Anthony Zicha of Scotia Capital has previously said he expected "significant margin expansion" through the remainder or the fiscal year.

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Rival Fruit of the Loom is aggressively cutting prices while Hanes has put price cuts on hold.

Mr. Zicha said he expects increased revenue in 2012 as buyers replenish inventories amid improved corporate promotional spending.

Gildan became the world's largest sock producer with the $350-million acquisition of Gold Toe Moretz Holdings Corp.

The deal increased Gildan's U.S. retail market share in socks to about 40 per cent from 28 per cent.

Construction of a massive new plant in Honduras could lift those sales to $2.5-billion, perhaps within three years.

The company's growth strategy involves expanding U.S. distributor business to capitalize on the recovery, as well as international growth and retail opportunities.

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Headquartered in Montreal, Gildan is a leading manufacturer or T-shifts, sport shirts and fleece. It also supplies socks and underwear sold in retail stores.

It has about 29,000 employees worldwide, primarily at its manufacturing facilities in Central America, the Caribbean and Bangladesh.

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