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» Gildan Activewear Q2 2010 Earnings Call Transcript
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Before we begin the call, I would like to remind everyone that certain statements included in this conference call may constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995.Such forward-looking statements involve unknown and known risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company’s filings with the US Securities and Exchange Commission and Canadian securities regulatory authorities that may affect the company’s future results. I will now turn the call over to Laurence. Laurence Sellyn Good morning. Today, we are pleased to announce another strong quarter. EPS was a record for the fiscal quarter at $0.54 per share, up 45.9% from last year and up 68.8% after adjusting last year’s results to exclude the $0.05 impact in the third quarter last year of a prior year income tax recovery. Net sales revenues of $395 million were also a record for the fiscal quarter and up 28.4% compared to the third quarter of fiscal 2009. Our record quarterly results reflected the strong recovery in market conditions in the US screenprint market with overall industry demand increasing by 10.5% compared to third quarter of last year. Gildan’s market share was 63.9%, up from 55.7% in the third quarter of fiscal 2009, in spite of further depleting activewear finished goods inventory levels. Due to our low level of inventories, we ended the quarter with a significant backlog of open orders. Our share of distributor inventories at the end of the third quarter was 52.5%, compared with our market share of 63.9%. Overall inventories in the distributor channel as reported by S.T.A.R.S. continue to be down compared to the end of the third quarter of last year, in spite of the growth in end-use demand. The tight supply demand balance in the industry combined with inflation in cotton, spun yarn and other purchase cost inputs such as polyester, chemicals and dye stuff, resulted in low promotional discounting.
Net selling prices in the channel increased by close to 2% compared to the third quarter of last year in spite of the reduction in list selling prices, which took effect at the beginning of the fiscal year.In addition, a selling price increase averaging approximately 3% was implemented on July the 5th 2010, although we are not applying the increase to backorders placed before the effective date of the price increase. Some of the growth in shipments from distributors to screenprinters at the end of the third quarter was likely due to anticipation of the July selling price increase. Preliminary S.T.A.R.S data for July shows a 2.8% increase in industry demand for T-shirts. Sales growth in our international and other screenprint markets, including non-retailer private label continue to be very strong with unit sales growth of approximately 60% compared to the third quarter of fiscal 2009. Unit shipments of underwear and activewear for retailers more than doubled in the third quarter, compared to a year ago. The growth in activewear and underwear sales was partially offset by lower sales of socks, primarily due to short-term servicing issues due to increased reliance on third-party contractors during the ramp up of Rio Nance IV and the initial ramp up of a new Charleston retail distribution center, combined with the approximately $2.5 million impact of lower pricing due to our shift towards a more basic sock product mix, which fits with our high volume basic manufacturing model. In spite of the lower year-over-year socks sales in the third quarter, we continue to be satisfied with the sell-through performance of our major continuing sock programs. July has been a strong month for sock programs produced by Gildan, with sales growth of approximately 15% compared to last year. Read the rest of this transcript for free on seekingalpha.com