Apparel manufacturer Gildan Activewear has posted increased sales for the third quarter of 2023.
“Our competitive position remains very strong in a challenging environment driven by our industry-leading vertically integrated manufacturing platform. We delivered third quarter performance which came in overall in line with our expectations. We resumed our sales growth trajectory and delivered operating margin within our target range,” said Glenn J. Chamandy, Gildan’s president and CEO.
The company reported net sales of $870 million for the third quarter, up 2% over the prior year’s sales of $850 million. It had an operating margin of 17.8%, with an adjusted operating margin of 18.1%. “Consequently, GAAP diluted EPS came in at $0.73 and adjusted diluted EPS1 at $0.74, both down as anticipated from $0.84 in the third quarter last year.”
Cash flows from operating activities were $305 million for the quarter, and Gildan generated $265 million of free cash flow after capital expenditures of $43 million.
“This positioned the company well to continue to execute on its capital allocation priorities during the quarter and we repurchased 2.7 million shares at a cost of $80 million under our normal course issuer bid (NCIB) program.” During the quarter, $113 million in capital was returned to shareholders through dividends and share repurchases.
“We ended the third quarter with net debt of $1,018 million and a leverage ratio of 1.6 times net debt to trailing twelve months adjusted EBITDA, well within our targeted debt levels.”
Net sales for the third quarter came in at $870 million, of which $744 million was activewear sales, with $126 million for the hosiery and underwear category.
“For activewear, while POS was positive on a year-over-year basis, sales for this category were essentially flat during the quarter,” said the company.
“We benefited from the favourable impact of fleece shipments which were driven by strong sell-through and seasonal replenishment, though as anticipated, the trade-down within this activewear category persisted this quarter. This benefit was offset by lower volume in certain other activewear categories and slightly lower net selling prices. International markets remained particularly challenging, performing well below our expectations, with sales down 23% during the quarter versus the prior year as a result of lower demand and price pressures across all markets.”
Net sales for the nine months ending 1 October 2023 were $2,413 million, down 4% over the same period the previous year. This reflected a decrease of 7% in activewear sales, partly offset by an increase of 10% in the hosiery and underwear category.
“The decline in activewear sales was primarily due to lower sales volumes compared to the prior year which benefited from distributor inventory replenishment following the pandemic, as well as the unfavourable impact of product mix stemming from current macro-economic conditions. Year-over-year POS trends for the activewear category showed progressive improvement from the first to the second quarter and into the third quarter.”
The company continued: “We generated gross profit of $644 million in the first nine months, down $114 million versus the prior year, driven by the decline in sales and lower gross margins. Gross margin of 26.7% was down by 340 basis points over this period, mainly a result of the flow-through impact on our cost of sales of peak fibre costs and higher manufacturing input costs, both of which were anticipated. These factors were partly offset by higher net selling prices.”
Gildan said it is committed to driving market share gains in key categories through the roll-out of new retail programs and the continued leveraging of its vertically integrated manufacturing platform, including the start-up of its new manufacturing complex in Bangladesh.
“Our third quarter unfolded largely as expected and we continue to expect our revenues to grow in the fourth quarter against an easier comparative in the prior year. This said, we now expect full year revenues and earnings per share to be at the lower end of the previously provided range, reflecting softer demand trends in certain markets stemming from the macro environment.”