Gildan sustains second loss in history with US$46.1 million shortfall in first quarter

MONTREAL - Apparel manufacturer Gildan Activewear Inc. lost US$46.1-million 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, which reports in U.S. dollars, slightly beat that guidance, issuing results after markets closed that showed it lost 38 cents per share for the period ended Jan. 1.

Revenues fell 8.3 per cent to $303.8 million.

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

Gildan (TSX:GIL) had been expected to post an adjusted loss of 39 cents per share on $300 million of revenues, 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," Sellyn said.

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

Those were partially 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 — US$45.5 million — was in September 2001.

The most recent quarter marked the first time results were reported as two operating segments — printwear and branded apparel.

The printwear business supplies activewear, fleece and sport shirts to the screenprint market. The branded apparel business supplies socks, underwear and activewear to retail customers.

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

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

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

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

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

Printwear sales are expected to reach US$1.3 billion with branded apparel reaching US$600 million.

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

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

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

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

Gildan became the world's largest sock producer with the US$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 US$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.

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.

On the Toronto Stock Exchange, Gildan's shares closed up 5.28 per cent, or $1.11, at C$22.15 in Wednesday trading.