Gildan Activewear Inc. (GIL: TSX and NYSE) today announced its
results for the second quarter ended June 28, 2020.
Results for the second quarter, as anticipated, reflected the
effects of the widespread government-mandated closures which began
in the latter part of March and led to a pause in economic activity
for a good part of the second quarter. Not surprisingly, our sales
in the quarter of $230 million were down 71% compared to last
year and we incurred substantial COVID-related costs and charges.
“Despite the impact of the COVID-19 pandemic, we maintained a
strong focus on our key priorities, including the health and safety
of our employees and the long term positioning of our business”
said Glenn J. Chamandy, President and CEO of Gildan Activewear.
“Against the challenging backdrop of the pandemic and the difficult
but necessary actions we have taken, we have accelerated efforts
under our Back to Basics strategy to further simplify our product
portfolios, remove complexity and cost from our business, better
support our customers and drive long term market share growth.”
While results for the second quarter were significantly impacted
by the COVID-19 pandemic, we were encouraged by certain signs of
recovery, particularly as point of sales (POS) trends during the
quarter performed better than we expected across all channels. By
the end of the second quarter, essentially all imprintables
distributor customer warehouses and the majority of retailer brick
and mortar store locations had re-opened in the U.S., although many
with reduced operating hours. POS related to certain categories in
the US imprintables channel, including fleece and fashion basics,
started to turn positive in the month of June. In international
markets, although POS were down on a year-over year basis, demand
declines decelerated with POS in Europe and Latin America
performing better than anticipated for the quarter. In the retail
channel, while sales were down meaningfully overall, certain
categories held up better during the quarter and total sales of our
men's underwear products were up 23.5% compared to last year,
reflecting strong sell-through and market share gains. We also saw
good performance in activewear in certain retailers. While the
majority of our manufacturing operations remained closed for the
quarter, sell-through of our products were serviced from our
inventories and from our customers' inventories, particularly in
the imprintables channel, where we saw a significant drawdown of
inventories in the channel during the quarter. Finally, in line
with improving demand, we have started to resume production at
various operating levels across the majority of our facilities.
Despite these improving demand trends and the restart of our
production facilities, uncertainty remains with respect to the
impact of the virus and the pace at which global economies will
recover. Consequently, during the second quarter we took a number
of actions to drive market share in this environment, further
reduce our cost base, and strengthen our level of financial
flexibility. We believe these actions will position us well as we
continue to manage through the impact of the pandemic as we head
towards 2021 and for longer term growth in 2022. Specifically, the
major COVID-related impacts on earnings in the quarter and the key
actions which we have taken guided by our Back to Basics strategy
are highlighted below:
COVID-related impacts and Back to Basics
initiatives
- We continued to manage and align our operations and inventory
levels with the demand environment and kept the majority of our
production facilities idle or operating at low levels of capacity
during the second quarter. Consequently, approximately $86 million
of manufacturing labour and overhead costs were expensed as period
costs in the quarter. These cash and non-cash costs would have
normally been absorbed into inventory if our facilities had been
running at normal levels.
- In order to further lower our cost structure, we reduced our
overall manufacturing workforce by an additional 6,000 employees,
adjusting to the current demand environment. We also reduced our
SG&A workforce by approximately 380 employees and announced the
closure of a smaller specialty yarn-spinning operation in the U.S.
during the quarter. We recorded restructuring charges of $29
million in the quarter primarily related to these cost reduction
actions which we currently expect will generate $46 million of cost
reduction savings on an annual go forward basis.
- Due to lower projected production requirements for 2020, we
unwound excess commodity derivative hedge positions and marked to
market excess cotton commitments with merchants resulting in a
total charge of $24.6 million reflected in cost of sales.
- We incurred inventory charges of approximately $56 million in
total related to imprintables and retail inventory in the quarter.
$14 million was due to the decline in the net realizable value of
certain retail end-of-line products due to the current market
environment. $26 million was related to our imprintables SKU
rationalization initiative and $16 million was related to retail
product-line inventory management as part of our Back to Basics
strategy.
- In June, in order to drive market share in the imprintables
channel, the Company announced and implemented certain promotional
programs in the US providing discounts to distributors based on
their June sell-through of our products to screenprinters. We
subsequently announced the extension of these promotional
incentives through July and August, and consequently, we recorded a
sales discount accrual that reduced sales in the quarter by $24.6
million for the expected discounts to be earned by distributors on
the future sell-through of their inventory held at the end of the
second quarter.
- Finally, in June, we negotiated a 12-month covenant amendment
to our existing credit agreements providing increased financial
flexibility through the first quarter of 2021 as the Company
continues to navigate through this global pandemic. During the
covenant relief period, our leverage covenant will exclude the
financial results for the second quarter of 2020 from the ratio
calculation. For the purpose of the net leverage ratio covenant,
last twelve months (LTM) EBITDA will be based on the last three
quarters (excluding the second quarter of 2020) preceding the date
at which the ratio is calculated converted to an annualized four
quarter number. Further, the net leverage ratio covenant has been
increased to various maximum levels ranging from 3.5 to 4.5 for
each quarter within the covenant relief period and 3.5 thereafter.
Additional information on the covenant amendment can be found in
our MD&A and financial statements for the three and six months
ended June 28, 2020.
Overall as a result of these actions and COVID-19-related
impacts, we reported a GAAP loss of $1.26 per share and an adjusted
loss of $0.99 per share in the second quarter. The GAAP loss
reflects the impact of the decline in revenue combined with the
impact of the total $224 million of charges, including $131 million
of COVID-19-related charges and $93 million in accelerated Back to
Basics initiatives. Despite this large loss, due to the combination
of tight working capital and capex management we generated $177
million of free cash flow in the quarter. Net debt at the end of
June totaled $987 million and our available liquidity increased to
approximately $1.2 billion.
Q2 2020 operating results Sales for the second
quarter ended June 28, 2020 of $229.7 million declined 71.3%
compared to last year, primarily driven by sales volume declines as
a result of the meaningful demand downturn in the quarter, the
impact of significant distributor inventory destocking in
imprintables, unfavourable product-mix, and higher promotional
discounting in imprintables. Activewear sales in the second quarter
totaled $131.6 million, down 80.2% compared to the second quarter
of 2019. The decline stemmed primarily from lower sales volumes of
imprintables which were down 75% in North America and approximately
55% internationally. In addition to the negative POS, we saw high
levels of de-stocking by distributors as they serviced demand and
managed working capital needs by drawing down their inventory
levels. Consequently, inventories in the distributor channel at the
end of the quarter were and continue to be meaningfully lower than
last year. Sales in activewear also reflected the impact of higher
promotional discounting in the quarter, including the sales
discount accrual of $24.6 million related to the imprintables
promotional incentives based on the ongoing sell-through of our
products from distributors to screenprinters. In the current
environment, we believe there is an opportunity to leverage our
cost base and financial position to drive further market share
penetration through promoting in the imprintables channel.
Activewear sales volumes in retail were also down due to the
widespread closure of retail stores, most notably impacting our
business with department stores, national chains, sports specialty
retailers and global lifestyle brand customers, partly offset by
better sell-through in the craft, mass and online channels. Sales
in the hosiery and underwear category of $98.1 million were down
27.9% in the quarter compared to last year. The decrease in sales
in the hosiery and underwear category was also tied to retail store
closures during the quarter which impacted our sock business. Our
sales performance in underwear was strong in the quarter, up 23.5%
over the prior year, reflecting double digit growth in private
brand underwear and underwear products sold on-line, despite a
decline in overall industry demand in this category according to
data from NPD Retail tracking Service.
Gross profit was negative in the quarter due primarily to
COVID-19 and Back to Basics related impacts. We reported a gross
loss of $148.5 million, or $122.5 million on an adjusted basis1
after adding back the impact of the $26.0 million charge related to
our SKU rationalization initiative under our Back to Basics
strategy. The gross profit performance compared to last year was
primarily due to the decline in sales, including the sales discount
accrual of $24.6 million in the quarter, manufacturing idling
costs, inventory provisions, and the impact of unwinding excess
derivative hedges and cotton commitments.
SG&A expenses for the second quarter of 2020 totaled $64.9
million, down $27.1 million compared to SG&A expenses of $92.0
million in the same quarter last year, due mainly to lower
compensation, lower volume-driven distribution costs, and cost
containment efforts.
Impairment of trade accounts receivable in the second quarter of
2020 was a recovery of $6.3 million as strong collections in the
quarter, which were better than anticipated, led to a reduction in
accounts receivable trade balances. Restructuring and
acquisition-related costs for the second quarter were $29.0
million. These costs related primarily to actions taken to
right-size and manage our manufacturing and SG&A cost base more
efficiently in the context of the current environment and a gradual
economic recovery.
The operating loss for the second quarter of 2020 totaled $236.1
million. Before reflecting restructuring and acquisition-related
costs and the charges related to our imprintables SKU
rationalization initiative, on an adjusted basis1, the operating
loss for the quarter was $181.1 million. Further, net financial
expenses in the quarter of $16.1 million were up $5.5 million over
the prior year, mainly due to fees related to the covenant
amendment and higher average borrowing levels. Consequently, we
reported a net loss of $249.7 million, or $1.26 per share on a
diluted basis, for the three months ended June 28, 2020 and an
adjusted net loss of $196.6 million, or $0.99 per share on a
diluted basis.
Despite this loss, we generated $177.1 million of free cash flow
in the second quarter of 2020, compared to $26.0 million of free
cash flow in the second quarter last year by tightly managing
working capital and suspending non-critical capital expenditures,
which more than offset the earnings loss in the quarter. We had
strong collections in the quarter, drew down our inventory levels
to service sales while manufacturing facilities remained idle and
spent $5.2 million in maintenance capital expenditures. As a
result, the Company ended the second quarter of 2020 with net debt1
of $987.3 million and liquidity of approximately $1.2 billion.
Year-to-date operating results Net
sales for the six months ended June 28, 2020 of $688.8 million were
down 51.7% over the same period last year, reflecting declines of
56.5% in activewear sales and 30.7% in the hosiery and underwear
category. The decrease in activewear sales where we generated sales
of $504.2 million was primarily due to lower unit sales severely
hampered by the downturn in demand as a result of the COVID-19
pandemic combined with the impact of distributor inventory
de-stocking in imprintables, unfavourable product-mix and the
impact of pricing action taken in imprintables during the second
quarter. Similarly, sales in the hosiery and underwear category
where we generated sales of $184.6 million on a year-to-date basis,
also reflected widespread retail store closures starting during the
latter part of March of 2020 and extending through most of the
second quarter. The decline in this sales category was due to lower
sock sales, which also included the impact of the exit of a sock
program in the mass channel, partly offset by higher underwear
sales. The year-to-date increase in underwear sales was driven by
higher sales of private brand men's underwear, partly offset by the
COVID-19 impacted demand environment and the exit of a branded
underwear program in the mass channel in 2019.
We reported a gross loss for the first half of the year of $41.9
million and $7.9 million on an adjusted basis due to the impact of
the pandemic. The significant decline over the prior year period
was mainly due to lower unit sales volumes, unabsorbed fixed
manufacturing costs while capacity was idle, inventory provisions,
as well as the impact of exiting excess commodity derivative hedges
and cotton commitments, all of which were triggered by the
pandemic. The year-to-date gross loss also reflected unfavourable
product-mix and higher promotional discounting in the imprintables
channel, partly offset by a stronger mix of products sold in
retail.
SG&A expenses of $138.9 million for the six months ended
June 28, 2020 were down $46.1 million as a result of lower
compensation, volume-driven distribution costs, and cost
containment efforts. Impairment of trade accounts receivable
totaled $14.5 million down from $24.8 million last year, primarily
due to the non-recurrence of a loss related to a distributor
receivership situation which occurred last year, partly offset by
an increase in the estimate for our allowance of expected credit
losses due to the current economic environment. Restructuring and
acquisition-related costs of $39.2 million for the first six months
of 2020 primarily related to Back to Basics initiatives, including
consolidation of manufacturing operations and other manufacturing
optimization initiatives.
Consequently, after reflecting these charges and the first
quarter goodwill impairment charge of $94.0 million related to our
hosiery cash generating unit (CGU), we incurred an operating loss
of $328.4 million for the first six months of 2020 compared to
operating income of $146.8 million in same period last year.
Excluding restructuring and acquisition-related costs, charges
related to rationalized imprintables product SKUs and the
impairment for goodwill and intangible assets, the year-to-date
adjusted operating loss1 totaled $161.2 million compared to
adjusted operating income1 of $173.7 million last year. The decline
reflected the lower sales base and the negative operating margin
which led to a reported net loss for the first half of 2020 of
$349.0 million, or $1.76 per share on a diluted basis, and an
adjusted loss of $185.4 million, or $0.93 per share.
Current market environment As previously
announced, due to the unprecedented nature and uncertainty related
to the impacts of COVID-19, the Company withdrew its guidance for
2020 on March 23, 2020. While the Company is not providing full
year 2020 guidance at this time, the following reflects what we are
currently seeing in the market
environment.
Since April, POS in the US imprintables channel started to
improve sequentially on a monthly basis, with average POS for the
second quarter down approximately 50% year-over-year and ending the
quarter down in the 20% range, which was better than expected. As
we moved into July, POS for imprintables in the U.S. further
improved early in the month but has retracted back to the down 15%
to 20% range. Separately, we also started to see sell-through
trends in retail improve in the latter part of the second quarter
as government restrictions eased and retail stores began
re-opening. We have seen further retail POS improvement in July and
we are encouraged by our retail sales thus far in the third
quarter, which are tracking slightly ahead of prior year levels.
POS in the mass and on-line channels continue to perform in the
strong double-digit range driving this improvement, while POS
within certain mid-tier retailers such as department stores,
national chains and sports specialty are still down in the 20% to
30% range compared to prior year levels.
While the signs of recovery are encouraging, the trajectory of
the pandemic remains uncertain given recent increases in COVID-19
cases in various regions and renewed focus on social distancing
measures. Despite this uncertainty, however, we believe we have
taken timely and important actions to put in place the necessary
financial and operating flexibility to allow us to navigate through
this environment and to emerge from the pandemic in a strong
overall competitive position.
Disclosure of outstanding share dataAs at
July 24, 2020, there were 198,224,646 common shares issued and
outstanding along with 2,219,128 stock options and 115,500 dilutive
restricted share units (Treasury RSUs) outstanding. Each stock
option entitles the holder to purchase one common share at the end
of the vesting period at a pre-determined option price. Each
Treasury RSU entitles the holder to receive one common share from
treasury at the end of the vesting period, without any monetary
consideration being paid to the Company.
Conference call informationGildan Activewear
Inc. will hold a conference call to discuss the Company's second
quarter 2020 results today at 8:30 AM ET. A live audio webcast
of the conference call, as well as a replay, will be available on
its corporate site or on the following link:
https://gildancorp.com/en/investors/events-and-presentations/. The
conference call can be accessed by dialing (877) 282-2924 (Canada
& U.S.) or (470) 495-9480 (international) and entering passcode
5179253#. A replay will be available for 7 days starting at 11:30
AM ET by dialing (855) 859-2056 (Canada & U.S.) or
(404) 537-3406 (international) and entering the same
passcode.
NotesThis release should be read in conjunction
with Gildan’s Management’s Discussion and Analysis and its
unaudited condensed interim consolidated financial statements as at
and for the three and six months ended June 28, 2020, which
will be filed by Gildan with the Canadian securities regulatory
authorities and with the U.S. Securities and Exchange Commission
and which will be available on Gildan’s corporate website.
Certain minor rounding variances may exist between the unaudited
condensed interim consolidated financial statements and the table
summaries contained in this press release.
Supplemental Financial Data |
|
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL DATA (UNAUDITED) |
|
|
|
|
|
|
|
|
(in $ millions, except per share amounts or otherwise
indicated) |
Q2 2020 |
|
Q2 2019 |
|
Variation (%) |
|
|
YTD 2020 |
|
YTD 2019 |
|
Variation (%) |
|
Net sales |
229.7 |
|
801.6 |
|
(71.3 |
)% |
|
688.8 |
|
1,425.6 |
|
(51.7 |
)% |
Gross profit (loss) |
(148.5 |
) |
222.8 |
|
n.m. |
|
|
(41.9 |
) |
383.5 |
|
n.m. |
|
Adjusted gross profit
(loss)(1) |
(122.5 |
) |
222.8 |
|
n.m. |
|
|
(7.9 |
) |
383.5 |
|
n.m. |
|
SG&A expenses |
64.9 |
|
92.0 |
|
(29.5 |
)% |
|
138.9 |
|
185.0 |
|
(24.9 |
)% |
Impairment (reversal of
impairment) of trade accounts receivable |
(6.3 |
) |
0.4 |
|
n.m. |
|
|
14.5 |
|
24.8 |
|
(41.5 |
)% |
Restructuring and
acquisition-related costs |
29.0 |
|
16.3 |
|
77.9 |
% |
|
39.2 |
|
26.9 |
|
45.7 |
% |
Impairment of goodwill and
intangible assets |
— |
|
— |
|
n.m. |
|
|
94.0 |
|
— |
|
n.m. |
|
Operating income (loss) |
(236.1 |
) |
114.1 |
|
n.m. |
|
|
(328.4 |
) |
146.8 |
|
n.m. |
|
Adjusted operating income
(loss)(1) |
(181.1 |
) |
130.4 |
|
n.m. |
|
|
(161.2 |
) |
173.7 |
|
n.m. |
|
Adjusted EBITDA(1) |
(137.2 |
) |
174.5 |
|
n.m. |
|
|
(87.0 |
) |
257.8 |
|
n.m. |
|
Financial expenses |
16.1 |
|
10.6 |
|
51.9 |
% |
|
24.0 |
|
19.7 |
|
21.8 |
% |
Income tax (recovery)
expense |
(2.5 |
) |
3.8 |
|
n.m. |
|
|
(3.4 |
) |
4.7 |
|
n.m. |
|
Net earnings (loss) |
(249.7 |
) |
99.7 |
|
n.m. |
|
|
(349.0 |
) |
122.4 |
|
n.m. |
|
Adjusted net earnings
(loss)(1) |
(196.6 |
) |
115.0 |
|
n.m. |
|
|
(185.4 |
) |
147.8 |
|
n.m. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
(1.26 |
) |
0.49 |
|
n.m. |
|
|
(1.76 |
) |
0.59 |
|
n.m. |
|
Diluted EPS |
(1.26 |
) |
0.49 |
|
n.m. |
|
|
(1.76 |
) |
0.59 |
|
n.m. |
|
Adjusted diluted EPS(1) |
(0.99 |
) |
0.56 |
|
n.m. |
|
|
(0.93 |
) |
0.72 |
|
n.m. |
|
|
|
|
|
|
|
|
|
Gross margin |
(64.6 |
)% |
27.8 |
% |
(92.4) pp |
|
|
(6.1 |
)% |
26.9 |
% |
(33.0) pp |
|
Adjusted gross margin(1) |
(52.2 |
)% |
27.8 |
% |
(80.0) pp |
|
|
(1.1 |
)% |
26.9 |
% |
(28.0) pp |
|
SG&A expenses as a
percentage of sales |
28.3 |
% |
11.5 |
% |
16.8 pp |
|
|
20.2 |
% |
13.0 |
% |
7.2 pp |
|
Operating margin |
(102.8 |
)% |
14.2 |
% |
(117.0) pp |
|
|
(47.7 |
)% |
10.3 |
% |
(58.0) pp |
|
Adjusted operating
margin(1) |
(77.2 |
)% |
16.3 |
% |
(93.5) pp |
|
|
(23.0 |
)% |
12.2 |
% |
(35.2) pp |
|
|
|
|
|
|
|
|
|
Cash flows from (used in)
operating activities |
181.8 |
|
79.5 |
|
128.7 |
% |
|
(27.6 |
) |
(25.7 |
) |
n.m. |
|
Capital expenditures |
5.2 |
|
55.9 |
|
(90.7 |
)% |
|
30.8 |
|
78.8 |
|
(60.9 |
)% |
Free
cash flow(1) |
177.1 |
|
26.0 |
|
581.2 |
% |
|
(57.9 |
) |
(101.8 |
) |
n.m. |
|
n.m. = not meaningful
As at |
Jun 28, 2020 |
|
Dec 29, 2019 |
|
Inventories |
1,032.7 |
|
1,052.1 |
|
Trade accounts receivable |
158.6 |
|
320.9 |
|
Net indebtedness(1) |
987.3 |
|
862.4 |
|
Net debt leverage
ratio(2) |
4.9 |
|
1.6 |
|
(1) Please
refer to "Definition and reconciliation of non-GAAP financial
measures" in this press release. |
(2) The Company's
net debt to EBITDA ratio for purposes of its loan and note
agreements was 2.0 at June 28, 2020. |
Supplemental
Information COVID-related Impacts and Back to
Basics Initiatives for the three months ended June 28,
2020 |
|
|
(in $ millions) |
Back to Basics Initiatives |
|
COVID-relatedcosts/charges |
|
The following costs and charges are Included in the line items
below: |
|
|
Net
sales |
|
|
Pricing action |
24.6 |
|
— |
|
Cost of
sales |
|
|
Manufacturing idling costs |
— |
|
85.9 |
|
Unwinding excess commodity derivative hedges and cotton
commitments |
— |
|
24.6 |
|
Imprintable SKU rationalization(1) |
26.0 |
|
— |
|
Retail inventory product-line management |
16.0 |
|
— |
|
Other retail inventory charges |
— |
|
14.0 |
|
Closure of specialty yarn spinning facility |
0.8 |
|
— |
|
Other |
1.0 |
|
2.8 |
|
Selling, general and
administrative expenses (SG&A) |
|
|
Right-sizing of SG&A |
— |
|
2.6 |
|
Other |
— |
|
1.0 |
|
Impairment (reversal
of impairment) of trade accounts receivable |
— |
|
(6.3 |
) |
Restructuring and
acquisition-related costs |
|
|
Closure of specialty yarn spinning facility(1) |
21.9 |
|
— |
|
Right-sizing of SG&A(1) |
— |
|
2.1 |
|
Other(1) |
5.0 |
|
— |
|
Financial expenses,
net |
— |
|
3.9 |
|
Income tax recovery on
restructuring and acquisition-related costs(1) |
(1.9 |
) |
— |
|
|
93.4 |
|
130.6 |
|
(1)
Excluded from adjusted net earnings of which $27.1 relates to after
tax restructuring and acquisition-related costs and $26.0 million
relates to charge for imprintables SKU rationalization initiative.
Please refer to "Definition and reconciliation of non-GAAP
financial measures'' in this press release. |
DISAGGREGATION OF REVENUE
Net sales by major product group were as follows:
(in $ millions, or otherwise indicated) |
Q2 2020 |
|
Q2 2019 |
|
Variation (%) |
|
|
YTD 2020 |
|
YTD 2019 |
|
Variation (%) |
|
Activewear |
131.6 |
|
665.6 |
|
(80.2 |
)% |
|
504.2 |
|
1,159.2 |
|
(56.5 |
)% |
Hosiery and underwear |
98.1 |
|
136.0 |
|
(27.9 |
)% |
|
184.6 |
|
266.4 |
|
(30.7 |
)% |
|
229.7 |
|
801.6 |
|
(71.3 |
)% |
|
688.8 |
|
1,425.6 |
|
(51.7 |
)% |
|
|
|
|
|
|
|
|
Net sales were derived from customers located in the following
geographic areas:
(in $ millions, or otherwise indicated) |
Q2 2020 |
|
Q2 2019 |
|
Variation (%) |
|
|
YTD 2020 |
|
YTD 2019 |
|
Variation (%) |
|
United States |
185.7 |
|
683.9 |
|
(72.8 |
)% |
|
575.1 |
|
1,214.7 |
|
(52.7 |
)% |
Canada |
8.6 |
|
27.3 |
|
(68.5 |
)% |
|
24.9 |
|
53.1 |
|
(53.1 |
)% |
International |
35.4 |
|
90.5 |
|
(60.9 |
)% |
|
88.8 |
|
157.8 |
|
(43.7 |
)% |
|
229.7 |
|
801.7 |
|
(71.3 |
)% |
|
688.8 |
|
1,425.6 |
|
(51.7 |
)% |
Definition and reconciliation of non-GAAP financial
measuresThis press release includes references to certain
non-GAAP financial measures as described below. These non-GAAP
measures do not have any standardized meanings prescribed by
International Financial Reporting Standards (IFRS) and are
therefore unlikely to be comparable to similar measures presented
by other companies. Accordingly, they should not be considered in
isolation. The terms and definitions of the non-GAAP measures used
in this press release and a reconciliation of each non-GAAP measure
to the most directly comparable IFRS measure are provided below.
The non-GAAP measures are presented on a consistent basis for all
periods presented in this press release, except as otherwise
discussed below.
Adjusted net earnings and adjusted diluted EPSAdjusted net
earnings are calculated as net earnings before restructuring and
acquisition-related costs, income taxes relating to restructuring
and acquisition-related actions, income taxes related to the
re-assessment of the probability of realization of previously
recognized or de-recognized deferred income tax assets, and income
taxes relating to the revaluation of deferred income tax assets and
liabilities as a result of statutory income tax rate changes in the
countries in which we operate. For fiscal 2020, adjusted net
earnings also excludes impairment of goodwill and intangible
assets, as well as the impact of adjustments related to the
Company’s decision in the fourth quarter of fiscal 2019 to
implement a strategic initiative to significantly reduce its
imprintables product line stock-keeping unit (SKU) count, by
exiting all ship to-the-piece activities and discontinuing
overlapping and less productive styles and SKUs between brands.
This initiative is aimed at simplifying the Company's product
portfolio and reducing complexity in its manufacturing and
warehouse distribution activities. The impact of this strategic
initiative includes inventory write-downs and a sales return
allowance for anticipated product returns related to discontinued
SKUs, including write-downs and sales return allowances that were
recognized in the Company’s financial statements in the fourth
quarter of fiscal 2019 and in the first six months of fiscal 2020.
Adjusted diluted EPS is calculated as adjusted net earnings divided
by the diluted weighted average number of common shares
outstanding. The Company uses adjusted net earnings and adjusted
diluted EPS to measure its performance from one period to the next,
without the variation caused by the impacts of the items described
above. The Company excludes these items because they affect the
comparability of its financial results and could potentially
distort the analysis of trends in its business performance.
Excluding these items does not imply they are necessarily
non-recurring.
(in $ millions, except per share amounts) |
Q2 2020 |
|
Q2 2019 |
|
|
YTD 2020 |
|
YTD 2019 |
|
Net earnings (loss) |
(249.7 |
) |
99.7 |
|
|
(349.0 |
) |
122.4 |
|
Adjustments for: |
|
|
|
|
|
|
|
Restructuring and acquisition-related costs |
29.0 |
|
16.3 |
|
|
39.2 |
|
26.9 |
|
Impairment of goodwill and intangible assets |
— |
|
— |
|
|
94.0 |
|
— |
|
Impact of strategic product line initiative(1) |
26.0 |
|
— |
|
|
34.0 |
|
— |
|
Income tax recovery relating to the above noted adjustments |
(1.9 |
) |
(1.0 |
) |
|
(3.6 |
) |
(1.5 |
) |
Adjusted net earnings (loss) |
(196.6 |
) |
115.0 |
|
|
(185.4 |
) |
147.8 |
|
Basic EPS |
(1.26 |
) |
0.49 |
|
|
(1.76 |
) |
0.59 |
|
Diluted EPS |
(1.26 |
) |
0.49 |
|
|
(1.76 |
) |
0.59 |
|
Adjusted diluted EPS |
(0.99 |
) |
0.56 |
|
|
(0.93 |
) |
0.72 |
|
(1) For the three
months ended June 28, 2020, includes $24.0 million of inventory
write-downs included in cost of sales and the $2.0 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$5.0 million and cost of sales by $3.0 million). For the six months
ended June 28, 2020, includes $29.2 million of inventory
write-downs included in cost of sales and the $4.8 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$11.2 million and cost of sales by $6.4 million). |
Adjusted gross profit and adjusted gross marginAdjusted gross
profit is calculated as gross profit excluding the impact of
adjustments related the Company’s decision in the fourth quarter of
fiscal 2019 to implement a strategic initiative to significantly
reduce its imprintables product line stock-keeping unit (SKU)
count, by exiting all ship to-the-piece activities and
discontinuing overlapping and less productive styles and SKUs
between brands. This initiative is aimed at simplifying the
Company's product portfolio and reducing complexity in its
manufacturing and warehouse distribution activities. The impact of
this strategic initiative includes inventory write-downs and a
sales return allowance for anticipated product returns related to
discontinued SKUs, including write-downs and sales return
allowances recognized in the fourth quarter of fiscal 2019 and in
the first six months of fiscal 2020. Adjusted gross margin is
calculated as adjusted gross profit divided by net sales excluding
the sales return allowance for anticipated product returns related
to discontinued SKUs. The Company uses adjusted gross profit and
adjusted gross margin to measure its performance from one period to
the next, without the variation caused by the impacts of the items
described above. The Company excludes these items because they
affect the comparability of its financial results and could
potentially distort the analysis of trends in its business
performance. Excluding these items does not imply they are
necessarily non-recurring.
(in $ millions, or otherwise indicated) |
Q2 2020 |
|
Q2 2019 |
|
|
YTD 2020 |
|
YTD 2019 |
|
Gross profit (loss) |
(148.5 |
) |
222.8 |
|
|
(41.9 |
) |
383.5 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
Impact of strategic
product line initiative(1) |
26.0 |
|
— |
|
|
34.0 |
|
— |
|
Adjusted gross profit (loss) |
(122.5 |
) |
222.8 |
|
|
(7.9 |
) |
383.5 |
|
Gross margin |
(64.6 |
)% |
27.8 |
% |
|
(6.1 |
)% |
26.9 |
% |
Adjusted gross margin(2) |
(52.2 |
)% |
27.8 |
% |
|
(1.1 |
)% |
26.9 |
% |
(1) For the three
months ended June 28, 2020, includes $24.0 million of inventory
write-downs included in cost of sales and the $2.0 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$5.0 million and cost of sales by $3.0 million). For the six months
ended June 28, 2020, includes $29.2 million of inventory
write-downs included in cost of sales and the $4.8 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$11.2 million and cost of sales by $6.4 million).(2) Calculated as
adjusted gross profit divided by net sales excluding the sales
return allowance for anticipated product returns related to
discontinued SKUs. |
Adjusted operating income and adjusted operating
marginAdjusted operating income is calculated as operating income
before restructuring and acquisition-related costs. For fiscal
2020, adjusted operating income also excludes impairment of
goodwill and intangible assets, as well as the impact of
adjustments related to the Company’s decision in the fourth quarter
of fiscal 2019 to implement a strategic initiative to significantly
reduce its imprintables product line stock-keeping unit (SKU)
count, by exiting all ship to-the-piece activities and
discontinuing overlapping and less productive styles and SKUs
between brands. This initiative is aimed at simplifying the
Company's product portfolio and reducing complexity in its
manufacturing and warehouse distribution activities. The impact of
this strategic initiative includes inventory write-downs and a
sales return allowance for anticipated product returns related to
discontinued SKUs, including write-downs and sales return
allowances recognized in the fourth quarter of fiscal 2019 and in
the first six months of fiscal 2020. Adjusted operating margin is
calculated as adjusted operating income divided by net sales
excluding the sales return allowance for anticipated product
returns related to discontinued SKUs. Management uses adjusted
operating income and adjusted operating margin to measure its
performance from one period to the next, without the variation
caused by the impacts of the items described above. The Company
excludes these items because they affect the comparability of its
financial results and could potentially distort the analysis of
trends in its business performance. Excluding these items does not
imply they are necessarily non-recurring.
(in $ millions, or otherwise indicated) |
Q2 2020 |
|
Q2 2019 |
|
|
YTD 2020 |
|
YTD 2019 |
|
Operating income (loss) |
(236.1 |
) |
114.1 |
|
|
(328.4 |
) |
146.8 |
|
Adjustment for: |
|
|
|
|
|
|
|
Restructuring and acquisition-related costs |
29.0 |
|
16.3 |
|
|
39.2 |
|
26.9 |
|
Impairment of goodwill and intangible assets |
— |
|
— |
|
|
94.0 |
|
— |
|
Impact of strategic product initiative(1) |
26.0 |
|
— |
|
|
34.0 |
|
— |
|
Adjusted operating income (loss) |
(181.1 |
) |
130.4 |
|
|
(161.2 |
) |
173.7 |
|
|
|
|
|
|
|
|
|
|
Operating margin |
(102.8 |
)% |
14.2 |
% |
|
(47.7 |
)% |
10.3 |
% |
Adjusted operating margin(2) |
(77.2 |
)% |
16.3 |
% |
|
(23.0 |
)% |
12.2 |
% |
(1) For the three
months ended June 28, 2020, includes $24.0 million of inventory
write-downs included in cost of sales and the $2.0 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$5.0 million and cost of sales by $3.0 million). For the six months
ended June 28, 2020, includes $29.2 million of inventory
write-downs included in cost of sales and the $4.8 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$11.2 million and cost of sales by $6.4 million).(2) Calculated as
adjusted operating income divided by net sales excluding the sales
return allowance for anticipated product returns related to
discontinued SKUs. |
Adjusted EBITDAAdjusted EBITDA is calculated as
earnings before financial expenses, income taxes, and depreciation
and amortization, and excludes the impact of restructuring and
acquisition-related costs. For fiscal 2020, adjusted EBITDA also
excludes impairment of goodwill and intangible assets, as well as
the impact of adjustments related to the Company’s decision in the
fourth quarter of fiscal 2019 to implement a strategic initiative
to significantly reduce its imprintables product line stock-keeping
unit (SKU) count, by exiting all ship to-the-piece activities and
discontinuing overlapping and less productive styles and SKUs
between brands. This initiative is aimed at simplifying the
Company's product portfolio and reducing complexity in its
manufacturing and warehouse distribution activities. The impact of
this strategic initiative includes inventory write-downs and a
sales return allowance for anticipated product returns related to
discontinued SKUs, including write-downs and sales return
allowances recognized in the fourth quarter of fiscal 2019 and in
the first six months of fiscal 2020. The Company uses adjusted
EBITDA, among other measures, to assess the operating performance
of its business. The Company also believes this measure is commonly
used by investors and analysts to measure a company’s ability to
service debt and to meet other payment obligations, or as a common
valuation measurement. The Company excludes depreciation and
amortization expenses, which are non-cash in nature and can vary
significantly depending upon accounting methods or non-operating
factors. Excluding these items does not imply they are necessarily
non-recurring.
(in $ millions) |
Q2 2020 |
|
|
Q2 2019 |
|
|
YTD 2020 |
|
|
YTD 2019 |
|
Net earnings (loss) |
(249.7 |
) |
|
99.7 |
|
|
(349.0 |
) |
|
122.4 |
|
Restructuring and
acquisition-related costs |
29.0 |
|
|
16.3 |
|
|
39.2 |
|
|
26.9 |
|
Impairment of goodwill and
intangible assets |
— |
|
|
— |
|
|
94.0 |
|
|
— |
|
Impact of strategic product
line initiative(1) |
26.0 |
|
|
— |
|
|
34.0 |
|
|
— |
|
Depreciation and
amortization |
43.9 |
|
|
44.1 |
|
|
74.2 |
|
|
84.1 |
|
Financial expenses, net |
16.1 |
|
|
10.6 |
|
|
24.0 |
|
|
19.7 |
|
Income tax (recovery)
expense |
(2.5 |
) |
|
3.8 |
|
|
(3.4 |
) |
|
4.7 |
|
Adjusted EBITDA |
(137.2 |
) |
|
174.5 |
|
|
(87.0 |
) |
|
257.8 |
|
(1) For the three
months ended June 28, 2020, includes $24.0 million of inventory
write-downs included in cost of sales and the $2.0 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$5.0 million and cost of sales by $3.0 million). For the six months
ended June 28, 2020, includes $29.2 million of inventory
write-downs included in cost of sales and the $4.8 million gross
profit impact of a sales return allowance for anticipated product
returns related to discontinued SKUs (which reduced net sales by
$11.2 million and cost of sales by $6.4 million). |
Free cash flow Free cash flow is defined as cash from operating
activities, less cash flow used in investing activities excluding
business acquisitions. The Company considers free cash flow to be
an important indicator of the financial strength and liquidity of
its business, and it is a key metric which indicates how much cash
is available after capital expenditures to repay debt, to pursue
business acquisitions, and/or to redistribute to its shareholders.
The Company believes this measure is commonly used by investors and
analysts when valuing a business and its underlying assets.
(in $ millions) |
Q2 2020 |
|
Q2 2019 |
|
|
YTD 2020 |
|
YTD 2019 |
|
Cash flows from (used in) operating activities |
181.8 |
|
79.5 |
|
|
(27.6 |
) |
(25.7 |
) |
Cash flows used in investing
activities |
(4.7 |
) |
(53.5 |
) |
|
(30.3 |
) |
(77.4 |
) |
Adjustment for: |
|
|
|
|
|
|
|
|
|
Business acquisitions |
— |
|
— |
|
|
— |
|
1.3 |
|
Free cash flow |
177.1 |
|
26.0 |
|
|
(57.9 |
) |
(101.8 |
) |
Total indebtedness and net indebtednessTotal
indebtedness is defined as the total bank indebtedness, long-term
debt (including any current portion), and lease obligations
(including any current portion), and net indebtedness is calculated
as total indebtedness net of cash and cash equivalents. The Company
considers total indebtedness and net indebtedness to be important
indicators of the financial leverage of the Company.
(in $ millions) |
Jun 28, 2020 |
|
|
Dec 29, 2019 |
|
|
Long-term debt and total bank indebtedness |
1,367.0 |
|
|
845.0 |
|
|
Lease obligations |
86.2 |
|
|
81.5 |
|
|
Total indebtedness |
1,453.2 |
|
|
926.5 |
|
|
Cash and cash equivalents |
(465.9 |
) |
|
(64.1 |
) |
|
Net indebtedness |
987.3 |
|
|
862.4 |
|
|
Net debt leverage ratio The net debt leverage ratio
is defined as the ratio of net indebtedness to pro-forma adjusted
EBITDA for the trailing twelve months. The pro-forma adjusted
EBITDA for the trailing twelve months reflects business
acquisitions made during the period as if they had occurred at the
beginning of the trailing twelve month period. The Company has set
a fiscal year-end target net debt leverage ratio of one to two
times pro-forma adjusted EBITDA. Due to the current economic
environment, the Company does not expect to be within its target
range in fiscal 2020. The Company uses, and believes that certain
investors and analysts use, the net debt leverage ratio to measure
the financial leverage of the Company.
(in $ millions, or otherwise indicated) |
Jun 28, 2020 |
|
Dec 29, 2019 |
|
Adjusted EBITDA for the trailing twelve months |
203.2 |
|
548.1 |
|
Adjustment for: |
|
|
Business acquisitions |
— |
|
— |
|
Pro-forma adjusted EBITDA for the trailing twelve months |
203.2 |
|
548.1 |
|
Net indebtedness |
987.3 |
|
862.4 |
|
Net debt leverage
ratio(1) |
4.9 |
|
1.6 |
|
(1) The Company's net debt to EBITDA ratio for purposes of its loan
and note agreements was 2.0 at June 28, 2020. |
Caution concerning forward-looking statements
Certain statements included in this press release constitute
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and Canadian securities
legislation and regulations, and are subject to important risks,
uncertainties, and assumptions. This forward-looking information
includes, amongst others, information with respect to our
objectives and the strategies to achieve these objectives, as well
as information with respect to our beliefs, plans, expectations,
anticipations, estimates, and intentions, including, without
limitation, our expectation with regards to net sales, POS levels,
gross margin, SG&A expenses, restructuring and
acquisition-related costs, operating margin, adjusted operating
margin, adjusted EBITDA, diluted earnings per share, adjusted
diluted earnings per share, income tax rate, free cash flow and
liquidity, capital expenditures, capacity expansion plans,
dividends, and share buybacks. Forward-looking statements generally
can be identified by the use of conditional or forward-looking
terminology such as “may”, “will”, “expect”, “intend”, “estimate”,
“project”, “assume”, “anticipate”, “plan”, “foresee”, “believe”, or
“continue”, or the negatives of these terms or variations of them
or similar terminology. We refer you to the Company’s filings with
the Canadian securities regulatory authorities and the U.S.
Securities and Exchange Commission, as well as the risks described
under the “Financial risk management”, “Critical accounting
estimates and judgments”, and “Risks and uncertainties” sections of
the Company’s Management’s Discussion and Analysis for the three
and six months ended June 28, 2020 and for the fiscal year ended
December 29, 2019 for a discussion of the various factors that may
affect the Company’s future results. Material factors and
assumptions that were applied in drawing a conclusion or making a
forecast or projection are also set out throughout such documents
and this press release.
Forward-looking information is inherently uncertain and the
results or events predicted in such forward-looking information may
differ materially from actual results or events. Material factors,
which could cause actual results or events to differ materially
from a conclusion, forecast, or projection in such forward-looking
information, include, but are not limited to:
- the magnitude and length of economic disruption as a result of
the worldwide coronavirus (COVID-19) pandemic, including the scope
and duration of government mandated private sector shutdowns and
social distancing measures;
- changes in general economic and financial conditions globally
or in one or more of the markets we serve, including the severity
and duration of the economic slowdown and recessions following the
COVID-19 pandemic;
- our ability to implement our growth strategies and plans;
- our ability to successfully integrate acquisitions and realize
expected benefits and synergies;
- the intensity of competitive activity and our ability to
compete effectively;
- our reliance on a small number of significant customers;
- the fact that our customers do not commit to minimum quantity
purchases;
- our ability to anticipate, identify, or react to changes in
consumer preferences and trends;
- our ability to manage production and inventory levels
effectively in relation to changes in customer demand;
- fluctuations and volatility in the price of raw materials used
to manufacture our products, such as cotton, polyester fibres, dyes
and other chemicals;
- our reliance on key suppliers and our ability to maintain an
uninterrupted supply of raw materials and finished goods;
- the impact of climate, political, social, and economic risks,
natural disasters, and pandemics, such as the COVID-19 pandemic, in
the countries in which we operate or sell to, or from which we
source production;
- disruption to manufacturing and distribution activities due to
such factors as operational issues, disruptions in transportation
logistic functions, labour disruptions, political or social
instability, bad weather, natural disasters, pandemics, such as the
COVID-19 pandemic, and other unforeseen adverse events;
- the impacts of the COVID-19 pandemic on our business and
financial performance and consequently on our ability to comply
with the financial covenants under our debt agreements;
- compliance with applicable trade, competition, taxation,
environmental, health and safety, product liability, employment,
patent and trademark, corporate and securities, licensing and
permits, data privacy, bankruptcy, anti-corruption, and other laws
and regulations in the jurisdictions in which we operate;
- the imposition of trade remedies, or changes to duties and
tariffs, international trade legislation, bilateral and
multilateral trade agreements and trade preference programs that
the Company is currently relying on in conducting its manufacturing
operations or the application of safeguards thereunder;
- factors or circumstances that could increase our effective
income tax rate, including the outcome of any tax audits or changes
to applicable tax laws or treaties;
- changes to and failure to comply with consumer product safety
laws and regulations;
- changes in our relationship with our employees or changes to
domestic and foreign employment laws and regulations;
- negative publicity as a result of actual, alleged, or perceived
violations of labour and environmental laws or international labour
standards, or unethical labour or other business practices by the
Company or one of its third-party contractors;
- changes in third-party licensing arrangements and licensed
brands;
- our ability to protect our intellectual property rights;
- operational problems with our information systems as a result
of system failures, viruses, security and cyber security breaches,
disasters, and disruptions due to system upgrades or the
integration of systems;
- an actual or perceived breach of data security;
- our reliance on key management and our ability to attract
and/or retain key personnel;
- changes in accounting policies and estimates; and
- exposure to risks arising from financial instruments, including
credit risk on trade accounts receivables and other financial
instruments, liquidity risk, foreign currency risk, and interest
rate risk, as well as risks arising from commodity prices.
These factors may cause the Company’s actual performance and
financial results in future periods to differ materially from any
estimates or projections of future performance or results expressed
or implied by such forward-looking statements. Forward-looking
statements do not take into account the effect that transactions or
non-recurring or other special items announced or occurring after
the statements are made may have on the Company’s business. For
example, they do not include the effect of business dispositions,
acquisitions, other business transactions, asset write-downs, asset
impairment losses, or other charges announced or occurring after
forward-looking statements are made. The financial impact of such
transactions and non-recurring and other special items can be
complex and depends on the facts particular to each of them.
There can be no assurance that the expectations represented by
our forward-looking statements will prove to be correct. The
purpose of the forward-looking statements is to provide the reader
with a description of management’s expectations regarding the
Company’s future financial performance and may not be appropriate
for other purposes. Furthermore, unless otherwise stated, the
forward-looking statements contained in this press release are made
as of the date of this press release, and we do not undertake any
obligation to update publicly or to revise any of the included
forward-looking statements, whether as a result of new information,
future events, or otherwise unless required by applicable
legislation or regulation. The forward-looking statements contained
in this press release are expressly qualified by this cautionary
statement.
About GildanGildan is a leading
manufacturer of everyday basic apparel which markets its products
in North America, Europe, Asia-Pacific, and Latin America, under a
diversified portfolio of Company-owned brands, including Gildan®,
American Apparel®, Comfort Colors®, Gildan® Hammer™, Prim + Preux®,
GoldToe®, Anvil® by Gildan®, Alstyle®, Secret®, Silks®, Kushyfoot®,
Secret Silky®, Therapy Plus®, Peds® and MediPeds®, and under the
Under Armour® brand through a sock licensing agreement providing
exclusive distribution rights in the United States and Canada. Our
product offering includes activewear, underwear, socks, hosiery,
and legwear products sold to a broad range of customers, including
wholesale distributors, screenprinters or embellishers, as well as
to retailers that sell to consumers through their physical stores
and/or e-commerce platforms, and to global lifestyle brand
companies.
Gildan owns and operates vertically-integrated, large-scale
manufacturing facilities which are primarily located in Central
America, the Caribbean Basin, North America, and Bangladesh. Gildan
operates with a strong commitment to industry-leading labour and
environmental practices throughout its supply chain in accordance
with its comprehensive Genuine Responsibility® program embedded in
the Company's long-term business strategy. More information about
the Company and its corporate citizenship practices and initiatives
can be found at www.gildancorp.com and
www.genuineresponsibility.com, respectively.
Investor
inquiries:Sophie ArgiriouVice President, Investor
Communications(514) 343-8815sargiriou@gildan.com |
Media
inquiries:Genevieve GosselinDirector, Corporate
Communications & Marketing(514)
343-8814ggosselin@gildan.com |
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