Gildan Activewear Inc. expects to book a loss in the first quarter after deciding to cut prices in its printwear business to boost demand.
The Montreal-based low-cost manufacturer of sportswear, underwear, T-shirts and socks also plans to ramp up its advertising spending as it expands its branded apparel segment in the retail channel.
Gildan on Thursday also posted fourth-quarter profit below its July guidance due to softer-than-expected sales in branded apparel. Earnings in the fourth quarter rose to $122.7-million (U.S.) or $1 per share from $96.8-million or 79 cents in the year-earlier period. Revenue was up 6.4 per cent to $666-million.
Gildan had forecast earnings per share (EPS) of $1.06 to $1.09 and revenue of more than $700-million in the fourth quarter. The analysts' consensus estimate was $1.07 EPS.
The move to "significantly lower base prices" for wholesale distributors and establish a streamlined discount structure will make it easier for distributors to plan their business and will also help stimulate demand, Gildan said. The shift will also help strengthen Gildan's dominant position in the market, chief executive officer Glenn Chamandy said on a conference call for analysts.
Continued cost-reduction efforts at the company's facilities in the Caribbean and Central America as well as lower cotton prices will offset the price cuts, Gildan said. But the short-term impact is an anticipated loss of 30 cents per share in the next quarter.
"We believe that the actions announced by Gildan this morning surprised not only the Street but also some of its distributors," Desjardins Securities analyst Chase Bethel said in a research note Thursday.
Mr. Chamandy said Gildan plans to increase its advertising spend by up to $15-million through 2015as part of a strategy to win greater market share for its branded apparel.
"The good news is that we continue to take market share," he said on the call.
"We're going to see significant shelf space gains as we go through 2015."
Rivals were very aggressive in pricing during a tough back-to-school season "but we still grew market share," said Mr. Chamandy.
"We can afford to be more price aggressive" thanks to sustained investment in new technology and yarn-spinning facilities.
Gildan makes blank T-shirts and other apparel that are then imprinted or embroidered with logos, slogans and designs by screenprinters. Its branded apparel line includes Gold Toe socks and Secret and Silks pantyhose.
Gildan also said on Thursday it is changing its year-end to December from September starting in 2015.
And it raised its dividend to 13 cents per share from 10.8 cents.