Gildan Activewear posts positive Q4, raises dividend by 20 percent

Announcing its financial results for the fourth quarter and full year, Gildan Activewear Inc. said strong performance in the fourth quarter reflected an increase of 16 percent in GAAP diluted EPS and an increase of 39 percent in adjusted diluted EPS, driven by sales growth of approximately 14 percent and a 230 basis point improvement in adjusted operating margin over the same quarter last year. On a full year basis, the company reported GAAP diluted EPS of 1.66 dollars, up 3 percent over the prior year, and adjusted diluted EPS of 1.86 dollars, up 8 percent on sales growth of around 6 percent, which the company said was in-line with its latest guidance for adjusted diluted EPS of 1.85 dollars to 1.87 dollars and mid-single-digit sales growth.

The company added that combined with dividends, it returned more than 460 million dollars to shareholders in 2018. Gildan has announced the seventh consecutive 20 percent increase in the amount of its quarterly dividend to 134 cents per share. The company generated a higher return on net assets (RONA) for 2018, which improved to 15.6 percent, up 70 basis points from 14.9 percent in 2017.

Review of Gildan’s fourth quarter results

Net sales for the fourth quarter ended December 30, 2018 of 742.7 million dollars were up 13.6 percent, driven by a 22.3 percent increase in activewear sales, partly offset by a 7.9 percent sales decline in the hosiery and underwear category. The activewear category generated 569 million dollars in net sales, whose volume growth reflected higher shipments of imprintable products in North America and a 29 percent increase in international shipments, as well as higher sales to global lifestyle brands and retailers.

Sales in the hosiery and underwear category totalled 173 million dollars, down 15 million dollars from the fourth quarter last year primarily due to lower Gildan sock sales in mass and lower mass retailer replenishment of Gildan underwear in the quarter.

Net earnings for the quarter totalled 59.6 million dollars or 29 cents per share on a diluted basis compared with 54.9 million dollars or 25 cents per share for the three months ended December 31, 2017. Adjusted net earnings of 88.9 million dollars were up 31.5 percent and the company generated adjusted diluted EPS of 43 cents, up 38.7 percent compared to last year mainly due to higher adjusted operating income and the benefit of a lower share count compared to the prior year, partly offset by higher financial and income tax expenses.

Highlights of Gildan’s full year performance

Net sales of 2,908.6 million dollars in 2018 were up 5.7 percent over last year, which reflected a 13.6 percent increase in activewear sales, partly offset by a 17 percent decline in the hosiery and underwear category.

Net earnings for 2018 were 350.8 million dollars, down from 362.3 million dollars in 2017. On a diluted basis, GAAP EPS totalled 1.66 dollars, up 3.1 percent from 1.61 dollars in the prior year. Adjusted net earnings were 393.1 million dollars or 1.86 dollars per diluted share, up 1.6 percent and 8.1 percent, respectively. Adjusted EBITDA for the year totalled 595.5 million dollars.

Gildan projects outlook for 2019

For 2019, the company os projecting GAAP diluted EPS growth of 17 percent and adjusted diluted EPS growth of 10 percent over 2018, at the mid-point of its guidance range, on projected sales growth in the mid-single-digit range. GAAP diluted EPS is expected to be between 1.90 dollars to 2 dollars, and adjusted diluted EPS in the range of 2 dollars to 2.10 dollars after excluding the impact of projected restructuring and acquisition-related costs of approximately 20 million dollars,

Adjusted diluted EPS in the first half of the year is projected to be down compared to the first half of 2018, and higher in the second half of 2019 over the same period in the prior year. Adjusted EBITDA for 2019 is expected to be in excess of 630 million dollars. Sales growth in 2019 is expected to be driven by higher sales volume in key growth areas, including fashion basics, international markets, global lifestyle brands, and strong underwear growth. The positive impact of these factors on sales are expected to be partly offset by anticipated lower sales of activewear basics and socks, as well as an unfavourable impact of foreign exchange.

Gildan is projecting adjusted diluted EPS of24 cents - 26 cents for the first quarter of 2019, down from adjusted EPS of 34 cents in the first quarter of 2018, as a result of high raw material and other input cost pressures and a mid to high-single-digit sales decline projected in the first quarter.



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