Gildan Activewear's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Gildan Activewear (GIL)

Q2 2012 Earnings Call

May 03, 2012 8:30 am ET

Executives

Sophie Argiriou - Director of Investor Communications

Laurence G. Sellyn - Chief Financial & Administrative Officer and Executive Vice President

Glenn J. Chamandy - Chief Executive Officer, President and Director

Analysts

Martin Landry - GMP Securities L.P., Research Division

Tal Woolley - RBC Capital Markets, LLC, Research Division

Kenric S. Tyghe - Raymond James Ltd., Research Division

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Mark Petrie - CIBC World Markets Inc., Research Division

Susan Anderson - Citigroup Inc, Research Division

David J. Glick - The Buckingham Research Group Incorporated

Pat Naccarato

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

C. Scott Rattee - Stonecap Securities Inc., Research Division

Anthony Zicha - Scotiabank Global Banking and Market, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2012 Gildan Activewear Earnings Conference Call. My name is Valerie, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Sophie Argiriou, Director of Investment Communications. Please proceed.

Sophie Argiriou

Thank you, Valerie. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our earnings results for the second quarter of fiscal 2012. Concurrently, we issued a press release to announce the acquisition of Anvil Holdings. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents are available on our website at www.gildan.com and will be filed with the Canadian Securities Regulatory Authority and the U.S. Securities Commission.

On the call with me today, I'm joined by Glenn Chamandy, our President and Chief Executive Officer; and Laurence Sellyn, our Executive Vice President and Chief Financial and Administrative Officer. Laurence will first be providing an overview of our second quarter financial results and our business outlook. After which, Glenn and Laurence will be taking your questions.

Before we begin, I will remind everyone that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. 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 U.S. Securities and Exchange Commission and Canadian Securities Regulatory Authority that may affect the company’s future results.

I would now like to turn the call over to Laurence Sellyn.

Laurence G. Sellyn

Thank you, Sophie. Good morning. This morning we announced our results for the second fiscal quarter, which were slightly ahead of our previous guidance, and reconfirmed our sales and EPS guidance for the full year. Also, we announced the acquisition of Anvil, which further solidifies our leadership position in the printwear market, creates potential new growth opportunities to build in relationships with consumer brands supplied by Anvil and provides attractive returns and capital and EPS accretion. We also announced plans to proceed with the modernization and refurbishment of Rio Nance I, which will begin in the third quarter of fiscal 2012 and be completed by the end of fiscal 2013.

Adjusted EPS of $0.23 for the quarter were down from $0.53 per share in the second quarter last year, as the results continue to be significantly impacted by the consumption of inventories previously manufactured with high-cost cotton. The average cost of cotton in cost of goods sold in the second quarter was approximately $1.60 per pound compared with approximately $0.85 per pound a year ago, which negatively impacted year-over-year EPS by close to $0.70 per share and impacted gross margins by close to 2,000 basis points.

Selling prices in Printwear were reduced in the first fiscal quarter to align with current cotton futures and were close to the same level in the second quarter last year. The higher cost of cotton resulted in significantly reduced margins and operating income for the Printwear division, which has historically been highly profitable and a significant cash flow generator for Gildan.

The reduction in printwear industry selling prices in the first fiscal quarter has helped to stimulate a recovery in industry demand in the second quarter. CREST data for the second quarter showed 4.9% growth in demand in the distributor channel compared to the second quarter of last year.

Also, after being capacity constrained throughout most of fiscal 2011, we have regained our market share momentum and strongly reinforced our leadership position in the printwear market. This strong trend in demand for Gildan brand in the channel has continued into the month of April.

Also, as a result of the price reduction and resulting improved visibility to plan their business, our U.S. wholesale distributors have confidence to rebuild inventories during the second quarter. Distributors restocked inventories during the quarter to normal seasonal levels.

We are also increasing our penetration in all of our international screenprint markets, where unit sales volumes in the second quarter were up strongly compared to the second quarter of last year.

Shipments to national accounts were flat during the second quarter compared to the second quarter of last year. We did not achieve our forecasted growth in national accounts due to weak market conditions, in which our national account customers, and the retailers which they service, were delaying replenishment of inventories.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

Canada's Top 10 Dividend Stocks to Buy Now

Canada's Top 10 Dividend Stocks to Buy Now

Steady, Reliable V.F. Corp. Is a Great Income Stock to Buy Now

Steady, Reliable V.F. Corp. Is a Great Income Stock to Buy Now

6 Mall Brands That Are Near Death or Have Already Dropped Dead

6 Mall Brands That Are Near Death or Have Already Dropped Dead

Stocks Build on Early Gains in Midday Trading, Nasdaq Moves Further into Record Territory

Stocks Build on Early Gains in Midday Trading, Nasdaq Moves Further into Record Territory

Gildan Wins Auction to Purchase American Apparel

Gildan Wins Auction to Purchase American Apparel