Cheap cotton boosts Gildan’s Q3 net earnings

ANALYSIS_Canadian family fashion staples retailer Gildan Activewear has reported results for its third fiscal quarter ended 30 June. As both the company and market have highlighted, its net earnings were substantially enhanced by lower

cotton prices.  Gildan Activewear Inc. has posted earnings earlier in August, with a noticeable 47 percent increase in third quarter earnings. The group that owns Gold Toe and Anvil brands has seen its earnings coming as high as 115.8 million dollars or 94 cents a share for the last three months.

However, on the downside, net sales in the third quarter were slightly below the company’s expectations of approximately 630 million dollars, reaching 614.3 million dollars. This was, nevertheless, a 2.3 percent above the net sales noted for the same period last year.

According to the company, the growth in the net earnings was due to lower cotton costs, higher unit sales volumes, more favourable branded product-mix in Branded Apparel, increased supply chain and manufacturing efficiencies, and lower financial expenses, partially offset by lower net selling prices for Printwear.

Gildan Activewear is continuing to implement all of the capital expenditure projects for capacity expansion, new product technology and manufacturing cost reductions which it has previously announced. In the same vein, the company is planning to accomplish significant investments in vertical integration in yarn-spinning, further biomass projects and the expansion of distribution capacity.

Gildan owes better earnings to cheap cotton

The company achieved consolidated gross margins of 31.5 percent in the third quarter, compared to 23.9 percent of last year. This growth, according to the company, reflected the impact of lower-cost cotton, increased supply chain and manufacturing efficiencies.

Earnings at Canadian Gildan Activewear were a record for a fiscal quarter, and were at the top end of the guidance range, as pointed out by analysis team at Zacks. Net earnings came at 115.8 million dollars for the third fiscal quarter, nearly doubling the 78.6 million dollars net earnings the company registered for the same period a year ago.

Although the company is primarily focused on the development of its Gildan and Gold Toe brands, it has also secured important new programmes for fiscal 2014 as a supply chain partner for global athletic and lifestyle brands. Additionally, it announced that it was planning to purchase the New Buffalo Shirt Factory Inc. for 7 million dollars in order to expand operations.

The company is currently analysing options for the further expansion of vertically-integrated textile production capacity, in order to support its planned sales growth. The company is projecting full year capital expenditures in fiscal 2013 of approximately 175 million dollars, compared to its prior forecast of approximately 200 million dollars. Free cash flow for fiscal 2013 is projected to be somewhere near 225 million dollars.

Currently, GIL holds a Zacks Rank #2 (Buy) and has expected earnings growth of 11.67 percent. It has a P/E (F1) of 17.20.