Gildan Activewear Inc. (GIL: TSX and NYSE) today announced results
for the third quarter ended October 1, 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.
During the third quarter, the Company delivered net sales of
$870 million, up 2% over the prior year’s sales of $850 million, as
we moved past the impact of strong prior year comparative periods
tied to post-pandemic replenishment. We also delivered solid
adjusted operating margin1 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 strong for the quarter totaling $305
million, and we generated $265 million of free cash flow1 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.
This program, which was recently renewed, authorizes the repurchase
of up to 5% of the Company's outstanding common shares. We ended
the third quarter with net debt1 of $1,018 million and a leverage
ratio1 of 1.6 times net debt to trailing twelve months adjusted
EBITDA1 well within our targeted debt levels.
Q3 2023 Operating Results
Net sales for the third quarter came in at $870 million, up 2%
over the prior year, consisting of Activewear sales of
$744 million and sales in the Hosiery and underwear category
of $126 million.
For Activewear, while POS was positive on a year-over-year
basis, sales for this category were essentially flat during the
quarter. 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.
We saw increasing momentum in the Hosiery and underwear category
in the quarter with sales up 16% versus the prior year. This
increase was mainly driven by sales volume growth, reflecting the
expansion of our private label offering and the roll-out of new
underwear programs in the mass retail channel, as well as strength
in hosiery. Despite industry-wide weak replenishment for men's
underwear and socks year-over-year, we continue to achieve solid
performance in this category.
We generated gross profit of $239 million, or 27.5% of sales in
the third quarter, down $13 million and 220 basis points
respectively, versus the prior year. The lower gross margin was
primarily driven by higher raw materials and manufacturing input
costs as well as slightly lower net selling prices. As expected, we
saw a sequential improvement of 170 basis points to our gross
margin in the third quarter as pressure stemming from the
flow-through of peak cotton costs in the first half of the fiscal
year abated.
SG&A expenses of $82 million were flat year over year, and
as a percentage of sales, SG&A was down 20 basis points to
9.5%, primarily reflecting the benefit of sales leverage.
For the third quarter, we generated operating income of $155
million, or 17.8% of sales and adjusted operating income1 of $157
million, or 18.1% of sales, down respectively 270 and 190 basis
points compared to the prior year, reflecting the lower gross
margin and adjusted gross margin1.
After reflecting net financial expenses of $21 million, up $11
million over the prior year due to higher interest rates and
average net borrowing levels, and the positive benefit of a lower
outstanding share base, we reported GAAP diluted EPS and adjusted
diluted EPS for the quarter of $0.73, and $0.74, respectively, both
down from $0.84 in the prior year.
Cash flows from operating activities in the third quarter
totaled $305 million versus $66 million in the prior year, mainly
due to significantly lower working capital requirements. After
accounting for capital expenditures totaling $43 million in the
third quarter, down from $75 million in prior year, we generated
$265 million of free cash flow, compared to the use of $7 million
of free cash flow in the prior year period. Capital expenditures
have moderated as we near completion of phase 1 of our new
manufacturing complex in Bangladesh, with the first facility
currently ramping up its operations as planned. At the end of the
third quarter of 2023, net debt stood at $1,018 million with a
leverage ratio of 1.6 times net debt to trailing twelve months
adjusted EBITDA well within targeted debt levels.
Year-to-date Operating Results
Net sales for the nine months ended October 1, 2023, were
$2,413 million, down 4% over the same period last year, reflecting
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. International sales of $172 million
were down 14% versus the prior year period. The strong performance
in the Hosiery and underwear category, with sales of $389 million
in the first nine months of 2023, was driven by both underwear and
sock volume growth. We are benefiting from the expansion and the
roll-out of retail programs in the mass channel for these products,
following a period of inventory adjustments at retailers.
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 fiber costs and
higher manufacturing input costs, both of which were anticipated.
These factors were partly offset by higher net selling prices.
SG&A expenses for the first nine months of 2023 of $242
million were $11 million below prior year levels. SG&A expenses
as a percentage of net sales were 10.0%, in line with prior year,
as sales deleverage was offset by the benefit of lower expenses
including lower variable compensation as well as a trade accounts
receivable recovery.
We generated operating income of $466 million, or 19.3% of
sales, which included the benefit of a $77 million net insurance
gain and a $25 million gain from the sale and leaseback of one of
our U.S. distribution facilities, partly offset by higher
restructuring costs of $35 million, compared to operating income of
$511 million, or 20.3% of sales in the first nine months of last
year. Excluding these items, adjusted operating income was $398
million, or 16.5% of sales, down $105 million, or 350 basis points
year over year, mainly reflecting lower sales and gross margin
pressure in the first nine months as noted above.
After reflecting increased net financial expenses of $58 million
due to higher interest rates and average net borrowing levels, and
the positive benefit of a lower outstanding share base, we reported
GAAP diluted EPS and adjusted diluted EPS for the first nine months
of $2.14 and $1.82 respectively, both down from GAAP diluted EPS
and adjusted diluted EPS of $2.46, in the prior year. GAAP net
earnings included the after-tax impact of the net gains and
restructuring charges described above.
Outlook Under our GSG strategy, we remain
committed to driving market share gains in key categories through
the roll-out of new retail programs and the continued leveraging of
our industry-leading vertically integrated manufacturing platform
including the start-up of our 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.
Accordingly, we have adjusted our Fiscal 2023 guidance as
follows:
Fiscal 2023 guidance provided on August 3,
2023 |
Update |
Revenues for the full year flat to down low single digits |
At the lower end of the range provided |
Full year adjusted operating margin slightly below the low end of
our current 18% to 20% annual target range |
Maintained |
Adjusted diluted EPS in the range of $2.55 to $2.65, including the
impact of assumed share repurchases of 5% of the outstanding public
float in 2023 |
At the lower end of the range provided |
Capex maintained at the lower end of our 6% to 8% of annual sales
target range |
Maintained |
Strong full year free cash flow generation above $425 million |
Maintained |
The above outlook assumes no meaningful deterioration from
current market conditions including the pricing and inflationary
environment, and reflects the assumptions noted above. Further, it
reflects our expectations as of November 2, 2023 and is subject to
significant risks and business uncertainties, including those
factors described under “Forward-Looking Statements” in this press
release and in our annual MD&A for the year ended January 1,
2023. The board may modify, extend or terminate current or future
share repurchase programs at any time.
New Board Member Appointment
Today Gildan announced the appointment of Sharon
Driscoll to the Company’s Board of Directors, bringing the
Company’s Board to eleven members. She will serve on the Board’s
Audit and Finance Committee and Compensation and Human Resources
Committee. “Sharon is an accomplished business leader and her 15
plus years of C-suite experience across finance and strategy in
publicly traded and privately held retail and distribution
environments make her an ideal addition to our Board,” said
Gildan’s Board Chairman, Donald C. Berg. “We welcome Sharon and
look forward to her insights.”
Ms. Driscoll is a corporate director and currently
serves on the Board of Directors of Empire Company Limited (TSX)
and Imperial Oil Limited (TSX and NYSE). Until her retirement in
September 2023, Ms. Driscoll held executive positions at RB Global
Inc. (TSX and NYSE), including Chief Financial Officer, Co-Chief
Executive Officer and Advisor to the Chief Executive Officer.
Previously, she held other senior executive positions including
Chief Financial Officer at Katz Group Canada Limited, Chief
Financial Officer at Sears Canada Inc., and executive finance
leadership roles at Loblaw Companies Limited. Ms. Driscoll is a
Chartered Professional Accountant and holds a Bachelor of Commerce
(Honours) degree from Queen’s University.
Declaration of Quarterly DividendThe Board of
Directors has declared a cash dividend of $0.186 per share, payable
on December 18, 2023 to shareholders of record as of November 22,
2023. This dividend is an “eligible dividend” for the purposes of
the Income Tax Act (Canada) and any other applicable provincial
legislation pertaining to eligible dividends.
Normal Course Issuer Bid During the third
quarter, the Company completed share repurchases under its NCIB
ending August 8, 2023 and following the renewal of the Company's
NCIB, effective August 9, 2023, the Company continued to repurchase
shares. A total of 2,659,400 common shares were repurchased for
cancellation during the third quarter at a total cost of
approximately $80 million.
Gildan’s management and the Board of Directors believe the
repurchase of common shares represents an appropriate use of
Gildan’s financial resources and that share repurchases under the
NCIB will not preclude Gildan from continuing to pursue organic
growth and complementary acquisitions.
Disclosure of Outstanding Share DataAs at
October 31, 2023, there were 172,199,799 common shares issued
and outstanding along with 2,286,334 stock options and 77,302
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 predetermined exercise 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
will hold a conference call to discuss the Company's third quarter
2023 results today at 8:30 AM ET. A live audio webcast of
the conference call, as well as a replay, will be accessible on the
investors section of Gildan’s corporate website at the following
link:
https://gildancorp.com/en/investors/events-and-presentations/. The
conference call may be accessed by dialing (800) 715-9871 (Canada
& U.S.) or (646) 307-1963 (international) and entering passcode
6495687#. A replay of the conference call will be available for 7
days starting at 1:00 PM ET, by dialing (800) 770-2030 (Canada
& U.S.) or (609) 800-9909 (international) and entering the same
passcode.
This 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 nine months ended October 1, 2023, 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 condensed
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) |
Q3 2023 |
|
Q3 2022 |
|
Variation (%) |
|
YTD 2023 |
|
YTD 2022 |
|
Variation (%) |
Net sales |
869.9 |
|
850.0 |
|
2.3 |
% |
|
2,413.2 |
|
2,520.5 |
|
(4.3 |
)% |
Gross profit |
239.2 |
|
252.2 |
|
(5.2 |
)% |
|
643.5 |
|
757.6 |
|
(15.1 |
)% |
Adjusted gross profit(1) |
239.2 |
|
252.2 |
|
(5.2 |
)% |
|
640.4 |
|
756.3 |
|
(15.3 |
)% |
SG&A expenses(5) |
82.2 |
|
82.2 |
|
n.m. |
|
|
242.1 |
|
252.7 |
|
(4.2 |
)% |
Gain on sale and
leaseback |
— |
|
— |
|
n.m. |
|
|
(25.0 |
) |
— |
|
n.m. |
|
Net insurance gains |
— |
|
— |
|
n.m. |
|
|
(74.2 |
) |
— |
|
n.m. |
|
Restructuring and
acquisition-related costs (recovery) |
2.0 |
|
(4.6 |
) |
n.m. |
|
|
34.9 |
|
(5.8 |
) |
n.m. |
|
Operating income |
155.0 |
|
174.6 |
|
(11.2 |
)% |
|
465.7 |
|
510.8 |
|
(8.8 |
)% |
Adjusted operating
income(1) |
157.0 |
|
170.0 |
|
(7.6 |
)% |
|
398.3 |
|
503.7 |
|
(20.9 |
)% |
Adjusted EBITDA(1) |
188.3 |
|
201.0 |
|
(6.3 |
)% |
|
489.2 |
|
600.5 |
|
(18.5 |
)% |
Financial expenses |
20.7 |
|
9.3 |
|
122.6 |
% |
|
58.4 |
|
23.7 |
|
146.4 |
% |
Income tax expense |
6.9 |
|
12.2 |
|
(43.4 |
)% |
|
27.0 |
|
29.4 |
|
(8.2 |
)% |
Net earnings |
127.4 |
|
153.0 |
|
(16.7 |
)% |
|
380.3 |
|
457.6 |
|
(16.9 |
)% |
Adjusted net earnings(1) |
129.4 |
|
153.4 |
|
(15.6 |
)% |
|
323.4 |
|
457.5 |
|
(29.3 |
)% |
Basic EPS |
0.73 |
|
0.84 |
|
(13.1 |
)% |
|
2.14 |
|
2.47 |
|
(13.4 |
)% |
Diluted EPS |
0.73 |
|
0.84 |
|
(13.1 |
)% |
|
2.14 |
|
2.46 |
|
(13.0 |
)% |
Adjusted diluted EPS(1) |
0.74 |
|
0.84 |
|
(11.9 |
)% |
|
1.82 |
|
2.46 |
|
(26.0 |
)% |
Gross margin(2) |
27.5 |
% |
29.7 |
% |
(2.2 |
) pp |
|
26.7 |
% |
30.1 |
% |
(3.4 |
) pp |
Adjusted gross margin(1) |
27.5 |
% |
29.7 |
% |
(2.2 |
) pp |
|
26.5 |
% |
30.0 |
% |
(3.5 |
) pp |
SG&A expenses as a
percentage of sales(3) |
9.5 |
% |
9.7 |
% |
(0.2 |
) pp |
|
10.0 |
% |
10.0 |
% |
— |
|
Operating margin(4) |
17.8 |
% |
20.5 |
% |
(2.7 |
) pp |
|
19.3 |
% |
20.3 |
% |
(1.0 |
) pp |
Adjusted operating
margin(1) |
18.1 |
% |
20.0 |
% |
(1.9 |
) pp |
|
16.5 |
% |
20.0 |
% |
(3.5 |
) pp |
Cash flows from (used in) operating activities |
305.1 |
|
65.8 |
|
n.m. |
|
|
307.5 |
|
224.1 |
|
37.2 |
% |
Capital expenditures |
(42.6 |
) |
(74.5 |
) |
(42.8 |
)% |
|
(172.4 |
) |
(164.1 |
) |
5.1 |
% |
Free
cash flow(1) |
264.6 |
|
(7.4 |
) |
n.m. |
|
|
188.4 |
|
66.7 |
|
n.m. |
|
As at (in $ millions, or otherwise indicated) |
Oct 1,2023 |
Jan 1,2023 |
Inventories |
1,138.2 |
1,225.9 |
Trade accounts receivable |
449.4 |
248.8 |
Net debt(1) |
1,018.1 |
873.6 |
Net
debt leverage ratio(1) |
1.6 |
1.1 |
(1) This is a non-GAAP financial measure or ratio. Please refer
to "Non-GAAP Financial Measures" in this press release.(2) Gross
margin is defined as gross profit divided by net sales. (3)
SG&A as a percentage of sales is defined as SG&A divided by
net sales.(4) Operating margin is defined as operating income
divided by net sales.(5) The Company recasted comparative figures
to conform to the current period's presentation by grouping
(Reversal of impairment) impairment of trade accounts receivable in
SG&A expenses.n.m. = not meaningfulDISAGGREGATION OF
REVENUE
Net sales by major product group were as follows:
(in $ millions, or otherwise indicated) |
Q3 2023 |
Q3 2022 |
Variation (%) |
|
YTD 2023 |
YTD 2022 |
Variation (%) |
Activewear |
744.4 |
742.0 |
0.3 |
% |
|
2,024.0 |
2,167.1 |
(6.6 |
)% |
Hosiery
and underwear |
125.5 |
108.0 |
16.2 |
% |
|
389.2 |
353.4 |
10.1 |
% |
|
869.9 |
850.0 |
2.3 |
% |
|
2,413.2 |
2,520.5 |
(4.3 |
)% |
Net sales were derived from customers located in the following
geographic areas:
(in $ millions, or otherwise indicated) |
Q3 2023 |
Q3 2022 |
Variation (%) |
|
YTD 2023 |
YTD 2022 |
Variation (%) |
United States |
787.7 |
742.3 |
6.1 |
% |
|
2,158.7 |
2,220.2 |
(2.8 |
)% |
Canada |
28.9 |
38.2 |
(24.3 |
)% |
|
82.7 |
99.8 |
(17.1 |
)% |
International |
53.3 |
69.5 |
(23.3 |
)% |
|
171.8 |
200.5 |
(14.3 |
)% |
|
869.9 |
850.0 |
2.3 |
% |
|
2,413.2 |
2,520.5 |
(4.3 |
)% |
Non-GAAP financial measures and related
ratiosThis press release includes references to certain
non-GAAP financial measures, as well as non-GAAP ratios 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 or as a
substitute for measures of performance prepared in accordance with
IFRS. 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.
Certain adjustments to non-GAAP measuresAs
noted above certain of our non-GAAP financial measures and ratios
exclude the variation caused by certain adjustments that affect the
comparability of the Company's financial results and could
potentially distort the analysis of trends in its business
performance. Adjustments which impact more than one non-GAAP
financial measure and ratio are explained below:
Restructuring and acquisition-related costs (recovery)
Restructuring and acquisition-related costs are comprised of costs
directly related to significant exit activities, including the
closure and sale of business locations or the relocation of
business activities, significant changes in management structure,
as well as transaction, exit, and integration costs incurred
pursuant to business acquisitions. Restructuring and
acquisition-related costs is included as an adjustment in arriving
at adjusted operating income, adjusted operating margin, adjusted
net earnings, adjusted diluted EPS, and adjusted EBITDA. For the
three and nine months ended October 1, 2023 restructuring and
acquisition-related costs of $2.0 million and $34.9 million (2022 -
$4.6 million (recovery) and $5.8 million (recovery)),
respectively, were recognized. Refer to subsection 5.4.6 entitled
“Restructuring and acquisition-related costs (recovery)” in our
interim MD&A for a detailed discussion of these costs and
recoveries.
Impact of strategic product line initiativesIn the fourth
quarter of fiscal 2019, the Company launched a strategic initiative
to significantly reduce its imprintables product line SKU count. In
the fourth quarter of fiscal 2020 the Company expanded this
strategic initiative to include a significant reduction in its
retail product line SKU count. The objectives of this strategic
initiative included exiting all ship to-the-piece activities,
discontinuing overlapping and less productive styles and SKUs
between brands, simplifying the Company's product portfolio and
reducing complexity in its manufacturing and warehouse distribution
activities. The impact of this initiative included inventory
write-downs to reduce the carrying value of discontinued SKUs to
liquidation values, sales return allowances for product returns
related to discontinued SKUs, and the write-down of production
equipment relating to discontinued SKUs. The impact of strategic
product line initiatives is included as an adjustment in arriving
at adjusted gross profit and adjusted gross margin, adjusted
operating income, adjusted operating margin, adjusted net earnings,
adjusted diluted EPS, and adjusted EBITDA. The gains related to
this initiative were as follows:
- For the three and nine months ended October 1, 2023, recoveries
were nil.
- For the three and nine months ended October 2, 2022, nil and $1
million of recoveries, respectively, were included in cost of
sales.
Net insurance gainsFor the three and nine months
ended October 1, 2023, net insurance gains were nil and $77.3
million (2022 - nil and $0.3 million), respectively, related to the
two hurricanes which impacted the Company’s operations in Central
America in November 2020. Net insurance gains relate to the
recognition of insurance recoveries for business interruption
losses and insurance recoveries for damaged equipment. Insurance
gains relating to recoveries for business interruption losses for
the three and nine months ended October 1, 2023 were nil and $74.2
million (2022 - nil), respectively, are recorded in insurance
gains, and included as an adjustment in arriving at adjusted
operating income, adjusted operating margin, adjusted net earnings,
adjusted diluted EPS, and adjusted EBITDA. Net insurance gains and
losses relating to recoveries for damaged equipment for the three
and nine months ended October 1, 2023, were nil and $3.1 million
(gain), respectively (2022 - nil and $0.3 million (gain)), are
recorded in cost of sales and included as an adjustment in arriving
at adjusted gross profit and adjusted gross margin, adjusted
operating income, adjusted operating margin, adjusted net earnings,
adjusted diluted EPS, and adjusted EBITDA.
Gain on sale and leasebackDuring the first quarter
of 2023, the Company recognized a gain of $25.0 million ($15.5
million after reflecting $9.5 million of income tax expense)
on the sale and leaseback of one of our distribution centres
located in the U.S. The impact of this gain is included as an
adjustment in arriving at adjusted operating income, adjusted
operating margin, adjusted net earnings, adjusted diluted EPS, and
adjusted EBITDA.
Adjusted net earnings and adjusted diluted
EPSAdjusted net earnings are calculated as net earnings before
restructuring and acquisition-related costs, impairment of goodwill
and intangible assets (and reversal of impairments on intangible
assets), the impact of the Company's strategic product line
initiatives, net insurance gains, gain on sale and leaseback, and
income tax expense or recovery relating to these items. Adjusted
net earnings also excludes 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. 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 net earnings
performance from one period to the next, and in making decisions
regarding the ongoing operations of its business, without the
variation caused by the impacts of the items described above. The
Company excludes these items because they affect the comparability
of its net earnings and diluted EPS and could potentially distort
the analysis of net earnings trends in its business performance.
The Company believes adjusted net earnings and adjusted diluted EPS
are useful to investors because they help identify underlying
trends in our business that could otherwise be masked by certain
expenses, write-offs, charges, income or recoveries that can vary
from period to period. Excluding these items does not imply they
are non-recurring. These measures do not have any standardized
meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
(in $ millions, except per share amounts) |
Q3 2023 |
Q3 2022 |
|
|
YTD 2023 |
|
YTD 2022 |
|
Net earnings |
127.4 |
153.0 |
|
|
380.3 |
|
457.6 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related costs (recovery) |
2.0 |
(4.6 |
) |
|
34.9 |
|
(5.8 |
) |
Impact of strategic product line initiatives |
— |
— |
|
|
— |
|
(1.0 |
) |
Net insurance gains |
— |
— |
|
|
(77.3 |
) |
(0.3 |
) |
Gain on sale and leaseback |
— |
— |
|
|
(25.0 |
) |
— |
|
Income tax expense relating to the above-noted adjustments |
— |
5.0 |
|
|
10.5 |
|
7.0 |
|
Adjusted net earnings |
129.4 |
153.4 |
|
|
323.4 |
|
457.5 |
|
Basic EPS |
0.73 |
0.84 |
|
|
2.14 |
|
2.47 |
|
Diluted EPS |
0.73 |
0.84 |
|
|
2.14 |
|
2.46 |
|
Adjusted diluted EPS(1) |
0.74 |
0.84 |
|
|
1.82 |
|
2.46 |
|
(1) This is a non-GAAP ratio. It is calculated
as adjusted net earnings divided by the diluted weighted average
number of common shares outstanding.
Adjusted gross profit and adjusted gross marginAdjusted gross
profit is calculated as gross profit excluding the impact of the
Company's strategic product line initiatives, and net insurance
gains. The Company uses adjusted gross profit and adjusted gross
margin to measure its performance at the gross margin level 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. The Company believes adjusted gross
profit and adjusted gross margin are useful to management and
investors because they help identify underlying trends in our
business in how efficiently the Company uses labor and materials
for manufacturing goods to our customers, that could otherwise be
masked by the impact of our strategic product line initiatives and
net insurance gains that can vary from period to period. These
measures do not have any standardized meanings prescribed by IFRS
and are therefore unlikely to be comparable to similar measures
presented by other companies.
(in $ millions, or otherwise indicated) |
Q3 2023 |
|
Q3 2022 |
|
|
YTD 2023 |
|
YTD 2022 |
|
Gross profit |
239.2 |
|
252.2 |
|
|
643.5 |
|
757.6 |
|
Adjustments for: |
|
|
|
|
|
Impact of strategic product line initiatives |
— |
|
— |
|
|
— |
|
(1.0 |
) |
Net insurance losses (gains) |
— |
|
— |
|
|
(3.1 |
) |
(0.3 |
) |
Adjusted gross profit |
239.2 |
|
252.2 |
|
|
640.4 |
|
756.3 |
|
Gross margin |
27.5 |
% |
29.7 |
% |
|
26.7 |
% |
30.1 |
% |
Adjusted gross margin(1) |
27.5 |
% |
29.7 |
% |
|
26.5 |
% |
30.0 |
% |
(1) This is a non-GAAP ratio. It is calculated
as adjusted gross profit divided by net sales excluding the sales
return allowance for anticipated product returns related to
discontinued SKUs. Net sales excluding the sales return allowance
for anticipated product returns related to discontinued SKUs is a
non-GAAP measure used in the denominator of the adjusted margin
ratios to reverse the full effect of the SKU rationalization
adjustments. The sales return allowance was nil for both
periods.
Adjusted operating income and adjusted operating marginAdjusted
operating income is calculated as operating income before
restructuring and acquisition-related costs. Adjusted operating
income also excludes impairment of goodwill and intangible assets
(and reversal of impairments on intangible assets), the impact of
the Company's strategic product line initiatives, net insurance
gains, and gain on sale and leaseback. 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 at the operating income level as we believe it provides
a better indication of our operating performance and facilitates
the comparison across reporting periods, 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 operating income and operating margin performance.
The Company believes adjusted operating income and adjusted
operating margin are useful to investors because they help identify
underlying trends in our business in how efficiently the Company
generates profit from its primary operations that could otherwise
be masked by the impact of the items noted above that can vary from
period to period. Excluding these items does not imply they are
non-recurring. These measures do not have any standardized meanings
prescribed by IFRS and are therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, or otherwise indicated) |
Q3 2023 |
|
Q3 2022 |
|
|
YTD 2023 |
|
YTD 2022 |
|
Operating income |
155.0 |
|
174.6 |
|
|
465.7 |
|
510.8 |
|
Adjustments for: |
|
|
|
|
|
Restructuring and acquisition-related costs (recovery) |
2.0 |
|
(4.6 |
) |
|
34.9 |
|
(5.8 |
) |
Impact of strategic product line initiatives |
— |
|
— |
|
|
— |
|
(1.0 |
) |
Net insurance gains |
— |
|
— |
|
|
(77.3 |
) |
(0.3 |
) |
Gain on sale and leaseback |
— |
|
— |
|
|
(25.0 |
) |
— |
|
Adjusted operating income |
157.0 |
|
170.0 |
|
|
398.3 |
|
503.7 |
|
Operating margin |
17.8 |
% |
20.5 |
% |
|
19.3 |
% |
20.3 |
% |
Adjusted operating margin(1) |
18.1 |
% |
20.0 |
% |
|
16.5 |
% |
20.0 |
% |
(1) This is a non-GAAP ratio. It is calculated
as adjusted operating income divided by net sales excluding the
sales return allowance for anticipated product returns related to
discontinued SKUs. Net sales, excluding the sales return allowance
for anticipated product returns related to discontinued SKUs, is a
non-GAAP measure used in the denominator of the adjusted margin
ratios to reverse the full effect of the SKU rationalization
adjustments. The sales return allowance was nil for both
periods.
Adjusted EBITDAAdjusted EBITDA is calculated as earnings before
financial expenses net, income taxes, and depreciation and
amortization, and excludes the impact of restructuring and
acquisition-related costs. Adjusted EBITDA also excludes impairment
of goodwill and intangible assets (and reversal of impairments on
intangible assets), net insurance gains, the gain on sale and
leaseback, and the impact of the Company's strategic product line
initiative. Management uses adjusted EBITDA, among other
measures, to facilitate a comparison of the profitability of its
business on a consistent basis from period-to-period and to provide
a more complete understanding of factors and trends affecting our
business. The Company also believes this measure is commonly used
by investors and analysts to assess profitability and the cost
structure of companies within the industry, as well as 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. This measure does not
have any standardized meanings prescribed by IFRS and is therefore
unlikely to be comparable to similar measures presented by other
companies.
(in $ millions) |
Q3 2023 |
Q3 2022 |
|
|
YTD 2023 |
|
YTD 2022 |
|
Net earnings |
127.4 |
153.0 |
|
|
380.3 |
|
457.6 |
|
Restructuring and
acquisition-related costs (recovery) |
2.0 |
(4.6 |
) |
|
34.9 |
|
(5.8 |
) |
Impact of strategic product
line initiatives |
— |
— |
|
|
— |
|
(1.0 |
) |
Net insurance gains |
— |
— |
|
|
(77.3 |
) |
(0.3 |
) |
Gain on sale and
leaseback |
— |
— |
|
|
(25.0 |
) |
— |
|
Depreciation and
amortization |
31.3 |
31.1 |
|
|
90.9 |
|
96.9 |
|
Financial expenses, net |
20.7 |
9.3 |
|
|
58.4 |
|
23.7 |
|
Income
tax expense |
6.9 |
12.2 |
|
|
27.0 |
|
29.4 |
|
Adjusted EBITDA |
188.3 |
201.0 |
|
|
489.2 |
|
600.5 |
|
Free cash flow Free cash flow is defined as cash from operating
activities, less cash flow used in investing activities excluding
cash flows relating to business acquisitions/dispositions. 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 used by management in managing capital as it indicates
how much cash is available after capital expenditures to repay
debt, to pursue business acquisitions, and/or to redistribute to
its shareholders. Management believes that free cash flow also
provides investors with an important perspective on the cash
available to us to service debt, fund acquisitions, and pay
dividends. In addition, free cash flow is commonly used by
investors and analysts when valuing a business and its underlying
assets. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions) |
Q3 2023 |
|
Q3 2022 |
|
|
YTD 2023 |
|
YTD 2022 |
|
Cash flows from (used in) operating activities |
305.1 |
|
65.8 |
|
|
307.5 |
|
224.1 |
|
Cash flows from (used in)
investing activities |
(40.5 |
) |
(45.3 |
) |
|
(119.1 |
) |
(129.5 |
) |
Adjustment for: |
|
|
|
|
|
Business acquisitions (dispositions) |
— |
|
(27.9 |
) |
|
— |
|
(27.9 |
) |
Free cash flow |
264.6 |
|
(7.4 |
) |
|
188.4 |
|
66.7 |
|
Total debt and net debtTotal debt is defined as the
total bank indebtedness, long-term debt (including any current
portion), and lease obligations (including any current portion),
and net debt is calculated as total debt net of cash and cash
equivalents. The Company considers total debt and net debt to be
important indicators for management and investors to assess the
financial position and liquidity of the Company, and measure its
financial leverage. These measures do not have any standardized
meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
(in $ millions) |
Oct 1, 2023 |
|
Jan 1, 2023 |
|
Long-term debt (including current portion) |
1,025.0 |
|
930.0 |
|
Bank indebtedness |
— |
|
— |
|
Lease
obligations (including current portion) |
95.6 |
|
94.0 |
|
Total debt |
1,120.6 |
|
1,024.0 |
|
Cash
and cash equivalents |
(102.5 |
) |
(150.4 |
) |
Net debt |
1,018.1 |
|
873.6 |
|
Net debt leverage ratio The net debt leverage ratio is defined
as the ratio of net debt to pro-forma adjusted EBITDA for the
trailing twelve months, all of which are non-GAAP measures. 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 net debt leverage target ratio of
one to two times pro-forma adjusted EBITDA for the trailing twelve
months. The net debt leverage ratio serves to evaluate the
Company's financial leverage and is used by management in its
decisions on the Company's capital structure, including financing
strategy. The Company believes that certain investors and analysts
use the net debt leverage ratio to measure the financial leverage
of the Company, including our ability to pay off our incurred debt.
The Company's net debt leverage ratio differs from the net debt to
EBITDA ratio that is a covenant in our loan and note agreements due
primarily to adjustments in the latter related to lease accounting,
and therefore the Company believes it is a useful additional
measure. This measure does not have any standardized meanings
prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, or otherwise indicated) |
Oct 1, 2023 |
Jan 1, 2023 |
Adjusted EBITDA for the trailing twelve months |
652.6 |
764.2 |
Adjustment for: |
|
|
Business (dispositions) acquisitions |
— |
— |
Pro-forma adjusted EBITDA for the trailing twelve months |
652.6 |
764.2 |
Net debt |
1,018.1 |
873.6 |
Net
debt leverage ratio(1) |
1.6 |
1.1 |
(1) The Company's total net debt to EBITDA ratio for purposes of
its loan and note agreements was 1.7 at October 1, 2023.
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, 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, return on adjusted average
net assets, net debt to adjusted EBITDA leverage ratios, capital
return and capital investments or expenditures, including our
financial outlook set forth in this press release under the section
“Outlook”. 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 our most
recent Management’s Discussion and Analysis 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 document 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:
- changes in general economic and financial conditions globally
or in one or more of the markets we serve, including those
resulting from the impact of the COVID-19 pandemic and the
appearance of COVID variants;
- our ability to implement our growth strategies and plans,
including our ability to bring projected capacity expansion
online;
- 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 from current levels;
- our reliance on key suppliers and our ability to maintain an
uninterrupted supply of raw materials, intermediate materials and
finished goods;
- the impact of climate, political, social, and economic risks,
natural disasters, epidemics, pandemics and endemics, 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, weather-related events, natural disasters, epidemics
and pandemics, such as the COVID-19 pandemic, and other unforeseen
adverse events;
- 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, including the implementation of
a global minimum tax rate of 15%;
- 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 human rights, 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 necessarily 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 hereof, 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, including our updated financial outlook for the 2023
fiscal year under the section "Outlook", are expressly qualified by
this cautionary statement.
About Gildan
Gildan is a leading manufacturer of everyday basic apparel. The
Company’s product offering includes activewear, underwear and
socks, 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. The Company 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®, GOLDTOE®, Peds®, in addition to the
Under Armour® brand through a sock licensing agreement providing
exclusive distribution rights in the United States and Canada.
Gildan owns and operates vertically integrated, large-scale
manufacturing facilities which are primarily located in Central
America, the Caribbean, North America, and Bangladesh. Gildan
operates with a strong commitment to industry-leading labour,
environmental and governance practices throughout its supply chain
in accordance with its comprehensive ESG program embedded in the
Company's long-term business strategy. More information about the
Company and its ESG practices and initiatives can be found at
www.gildancorp.com.
Investor
inquiries: Jessy Hayem, CFA Vice-President, Head of
Investor Relations (514) 744-8511 jhayem@gildan.com |
Media
inquiries:Genevieve GosselinDirector, Global
Communications and Corporate Marketing(514)
343-8814ggosselin@gildan.com |
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