Q3 2004 - Form 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934


For the month of: August 2004 Commission File Number: 1-14830
   
GILDAN ACTIVEWEAR INC.
(Translation of Registrant's name into English)
 

 

 

725 Montée de Liesse
Ville Saint-Laurent, Quebec
Canada H4T 1P5
(Address of principal executive offices)
   

 

Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F       Form 40-F    X  

 

Indicate by check mark whether the Registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes        No   X  

If  “Yes” is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-_N/A_.

 

 
For Immediate Release
   
Contact:
Laurence G. Sellyn, Executive Vice–President, Finance
 
and Chief Financial Officer
 
Tel: (514) 343-8805
 
Email: lsellyn@gildan.com

 

Gildan Activewear Announces All-Time Record Quarterly Earnings

— EPS for Third Quarter up 20.5% to U.S. $0.88, ahead of Previous Guidance —
— Company Announces Further Textile Expansion in Nicaragua —


Montréal, Wednesday, August 4, 2004 - Gildan Activewear Inc. (NYSE: GIL; TSX: GIL.A) today announced its results for its third fiscal quarter and nine months ended July 4, 2004, and also updated its sales and earnings outlook for the balance of the fiscal year. With effect from the beginning of the 2004 fiscal year, the Company has adopted the U.S. dollar as both its functional and financial reporting currency.

Third quarter sales and earnings

The Company reported record net earnings of U.S. $26.2 million or U.S. $0.88 per diluted share for the third quarter, up 20.2% and 20.5% from U.S. $21.8 million or U.S. $0.73 per diluted share a year ago. The third quarter of fiscal 2003 included an extra week of sales and earnings, due to the Company's floating year-end.

The results for the third quarter of fiscal 2004 included charges of $0.03 per share which were incurred primarily for asset disposals and write-downs arising primarily from the sale of surplus equipment in the Canadian yarn-spinning and textile operations. Excluding these charges as well as the impact of adjustments relating to the change to U.S. functional currency, which continue to impact depreciation expense, diluted EPS for the third quarter amounted to U.S. $0.93, up 27.4% from last year. The Company had previously provided guidance for the quarter of U.S. $0.80-U.S. $0.85 per share.

 

 

Compared to last year, the higher third quarter net earnings reflected higher unit sales, further manufacturing efficiencies and more favourable pricing. These factors were partially offset by increased cotton costs, higher SG&A costs primarily due to the Company’s sales growth and higher depreciation expense mainly as a result of the Company’s capital investment program. SG&A and depreciation were also impacted by the special charges for asset disposals and write-downs recorded in the third quarter of fiscal 2004.

Sales in the quarter were U.S. $168.4 million, up 17.4% from U.S. $143.4 million in the third quarter of fiscal 2003. The higher sales were due to a 13.5% increase in unit shipments combined with higher selling prices. The higher unit sales reflected continuing strong overall industry demand growth in the U.S. wholesale distributor channel, together with continuing market share penetration in all target market segments. The significant year-over-year sales increase was achieved in spite of the fewer number of weeks in the third quarter of fiscal 2004 compared to the prior year.

Three of the Company’s main distributors have now discontinued their participation in the S.T.A.R.S. report by ACNielsen Market Decisions, which is the basis for market and market share data provided by the Company for the U.S. wholesale distributor channel. As a result, the S.T.A.R.S. market share data for the third quarter of fiscal 2004 excludes the effect of sales through these customers and the value of the report is diminished compared to prior years. The Company will continue to monitor the value of presenting data from the S.T.A.R.S. report. With this caveat, based on the S.T.A.R.S. data, Gildan’s share in the T-shirt segment of the U.S. wholesale distributor market increased to 29.6% from 28.0% in the third quarter of fiscal 2003. During the third quarter, Gildan’s share of the sport shirt segment increased to 23.0% from 19.5% in the corresponding quarter of last year. Gildan’s share of the fleece category was 16.4% in the third quarter, up from 12.1% in the third quarter a year ago.

The table below summarizes the unit sales growth for the calendar quarter ended June 30, 2004 compared to the quarter ended June 30, 2003 for Gildan and for the industry overall through the U.S. wholesale distributor channel, as reported by S.T.A.R.S. after adjusting the prior period comparatives to exclude sales through distributors no longer participating in the S.T.A.R.S. report:

 
Gildan
Unit growth
Industry
Unit growth
         
T-shirts 35 .9% 14 .3%
         
Sport shirts 19 .6% 3 .4%
         
Fleece 53 .9% 13 .8%

 

2

Gildan is pleased to announce that it is also adding a major new distributor, which will begin to carry Gildan’s product-lines in the fourth quarter of fiscal 2004, and is expected to contribute significantly to the Company’s year-over-year sales growth in fiscal 2005.

Gildan’s unit shipments in Europe increased by 43.7% over the third quarter last year, and shipments in Canada were up by 32.6%. Selling prices in the Canadian market continued to be negatively impacted as a result of the lower landed selling prices for U.S. competitors in the Canadian market, due to the decline in the relative value of the U.S. dollar.

Gross margins in the third quarter were 30.3%, compared with 30.7% in the third quarter of fiscal 2003. The favourable impact on percentage gross margins of the continuing manufacturing efficiencies and more favourable selling prices was offset by the effect of higher cotton costs.

Nine Months Earnings

Net earnings for the first nine months of fiscal 2004 were $43.4 million or U.S. $1.46 per diluted share, up 11.6% and 11.5% from the first nine months of fiscal 2003 when the Company generated net earnings of U.S. $38.9 million or U.S. $1.31 per diluted share. Before the adjustments due to the change to U.S. functional currency, net earnings for the first nine months of fiscal 2004 were U.S. $48.0 million, or U.S. $1.61 per share, up 23.4% and 22.9% respectively from the first nine months of fiscal 2003.

Earnings Outlook

The Company now expects to be at the top end of its previously indicated range of U.S. $0.55-U.S. $0.60 for diluted EPS in the fourth quarter of fiscal 2004 before functional currency adjustments and the estimated charge of U.S. $0.10 per diluted share to meet the cost of the Company’s contractual obligations to H. Greg Chamandy. The Company announced in a separate press release this morning that H. Greg Chamandy was stepping down from his roles as Co-Chief Executive Officer, Chairman of the Board and Chairman of the Executive Committee.

Due to the stronger than projected third quarter results, and its outlook for the fourth quarter, the Company is projecting EPS for the full fiscal year of approximately U.S. $2.20 per diluted share before functional currency adjustments and the fourth quarter charge in respect of H. Greg Chamandy. Diluted EPS after the adjustment for functional currency and the special charge in the fourth quarter is expected to be approximately U.S. $1.95 per share.

 

3

Cash Flow and Capital Expenditures

In the third fiscal quarter, the Company generated U.S. $34.7 million of free cash flow, defined as cash flow from operating activities less cash used in investing activities. Operating earnings and the impact of the reduction of inventories during the third quarter significantly exceeded cash requirements for seasonal accounts receivable and for capital expenditures. The Company used U.S. $19.0 million of its free cash flow for repayment of long-term debt, including U.S. $17.5 million for the first scheduled installment of its senior note repayment on June 10, 2004. The Company ended the quarter with cash and cash equivalents of U.S. $37.1 million.

The Company also announced that, subsequent to the end of the third quarter, it had purchased land and buildings in Nicaragua for approximately U.S. $5.0 million, and that it intends to immediately begin construction of a major facility on this site for the production of fleece, in order to support the Company’s anticipated growth in this product-line in both the wholesale and retail channels. The total capital cost of the project, including the land and buildings, is estimated at approximately U.S. $60 million. The Company is also continuing to develop its new manufacturing hub in the Dominican Republic and Haiti, and construction of its first textile facility in the Dominican Republic is progressing well.

Net capital expenditures for the full 2004 fiscal year are now anticipated to be in the range of U.S. $65 million-U.S. $70 million, due to the additional cost of the Nicaragua property and initial work at this location, partially offset by the proceeds from the sale of surplus equipment from the Company’s Canadian operations.

As of July 31, 2004, there were 29,629,904 Class A subordinate shares issued and outstanding along with 673,085 options outstanding.

Profile

Gildan Activewear is a public, vertically-integrated manufacturer and marketer of premium quality branded basic activewear for sale principally in the wholesale imprinted activewear segment of the Canadian, U.S., European and other international markets. The company manufactures and sells premium quality 100% cotton and 50% cotton/50% polyester T-shirts, placket collar sport shirts and sweatshirts in a variety of weights, sizes, colours and styles. The company sells its products as blanks, which are ultimately decorated with designs and logos for sale to consumers. Gildan employs more than 9,300 full-time employees.

 

4

Certain statements included in this press release may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown 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 authorities for a discussion of the various factors that may affect the Company’s future results.

Information for shareholders

Gildan Activewear Inc. will hold a conference call to discuss these results today at 10:00 AM Eastern Time. Interested parties can join the call by dialling 800-263-8506 (Canada & U.S.) or 719-457-2681 (international) and entering passcode 771017. The conference call can also be accessed via live webcast at www.gildan.com ("Investor Relations" section).

If you are unable to participate in the conference call, a replay will be available starting that same day at 2:00 PM EDT by dialing 888-203-1112 (Canada & U.S.) or 719-457-0820 (international) and entering passcode 771017, until August 11, 2004 at midnight, or by sound web cast on Gildan’s Internet site for 30 days.

 

- 30 -

 

5

Gildan Activewear Inc.
Consolidated Statements of Earnings
(In thousands of U.S. dollars, except per share data)


   
  Three months ended
  
Nine months ended
    July 4, 2004   July 6, 2003   July 4, 2004   July 6, 2003
   
(unaudited)
  
(unaudited)
  
(unaudited)
  
(unaudited)
                 
Sales
$
 168,429
$
 143,361
$
 387,757
$
 321,976
Cost of sales   117,443   99,388   278,134   225,334
   
 
Gross profit   50,986   43,973   109,623   96,642
                 
Selling, general and administrative expenses   15,629   13,280   42,177   36,892
   
 
Earnings before interest, income taxes,                
depreciation and amortization   35,357   30,693   67,446   59,750
                 
Depreciation and amortization   5,517   4,109   15,698   11,309
Interest expense   1,626   1,733   4,970   4,891
   
 
Earnings before income taxes   28,214   24,851   46,778   43,550
                 
Income taxes   1,986   3,021   3,345   4,618
   
 
Net earnings
$
   26,228
$
   21,830
$
   43,433
$
   38,932
   
 
                 
Basic EPS
$
       0.89
$
       0.74
$
       1.47
$
       1.33
                 
Diluted EPS
$
       0.88
$
       0.73
$
       1.46
$
       1.31
                 
Weighted average number of shares outstanding (in thousands)                
        Basic   29,628   29,373   29,576   29,165
        Diluted   29,859   29,768   29,839   29,700

See accompanying notes to interim consolidated financial statements.

 

 

Gildan Activewear Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)

   
Three months ended
    
Nine months ended
  
   
July 4, 2004
    
July 6, 2003
    
July 4, 2004
July 6, 2003
  
   
(unaudited)
    
(unaudited)
    
(unaudited)
(unaudited)
  
                 
                 
Cash flows from operating activities:                
        Net earnings $ 26,228   $ 21,830   $ 43,433   $ 38,932  
        Adjustments for:                        
                Depreciation and amortization   5,517     4,109     15,698     11,309  
                Future income taxes   320     1,123     1,781     2,994  
                Stock based compensation expense   115     —     299     —  
                Other   595     360     534     201  
 
 
    32,775     27,422     61,745     53,436  
                         
        Net changes in non-cash working capital balances:                        
                Accounts receivable   (9,270 )   (5,386 )   (29,889 )   (19,051 )
                Inventories   16,611     11,852     (9,994 )   (6,965 )
                Prepaid expenses and deposits   1,931     365     (897 )   (1,568 )
                Accounts payable and accrued liabilities   438     881     (2,577 )   8,997  
                Income taxes payable   1,570     3,206     (195 )   1,797  
 
 
    44,055     38,340     18,193     36,646  
                         
Cash flows from financing activities:                        
        Repayment of long-term debt   (19,031 )   (1,101 )   (20,655 )   (3,210 )
        Increase in secured debt   —     —     4,125     96  
        Proceeds from the issuance of shares   48     1,037     1,570     3,345  
 
 
    (18,983 )   (64 )   (14,960 )   231  
                         
Cash flows from investing activities:                        
        Purchase of fixed assets, net of disposals   (9,221 )   (9,473 )   (35,794 )   (30,446 )
        (Increase) decrease in other assets   (118 )   73     (190 )   230  
 
 
    (9,339 )   (9,400 )   (35,984 )   (30,216 )
                         
Effect of exchange rate changes on cash                        
        and cash equivalents   (52 )   (566 )   505     (366 )
 
 
Net increase (decrease) in cash and cash                        
        equivalents during the period   15,681     28,310     (32,246 )   6,295  
                         
Cash and cash equivalents, beginning of period $ 21,413   $ 22,995   $ 69,340   $ 45,010  
 
 
Cash and cash equivalents, end of period $ 37,094   $ 51,305   $ 37,094   $ 51,305  
 
 

See accompanying notes to interim consolidated financial statements.

 

Gildan Activewear Inc.
Consolidated Balance Sheets
(In thousands of U.S. dollars)

 

    July 4, 2004     October 5, 2003     July 6, 2003
    (unaudited)     (audited)     (unaudited)
           
Current assets:          
        Cash and cash equivalents $ 37,094   $ 69,340   $ 51,305
        Accounts receivable   94,342     64,260     76,146
        Inventories   113,497     103,503     94,268
        Prepaid expenses and deposits   4,749     3,849     4,482
        Future income taxes   4,558     4,682     3,112
 
 
    254,240     245,634     229,313
                 
Fixed assets   199,825     180,349     176,545
Other assets   3,321     3,681     3,577
 
 
                 
Total assets $ 457,386   $ 429,664   $ 409,435
 
 
               
               
Current liabilities:              
        Accounts payable and accrued liabilities $ 64,661   $ 67,278   $ 62,112
        Income taxes payable   3,753     3,909     4,066
        Current portion of long-term debt   18,601     19,481     20,480
 
 
    87,015     90,668     86,658
                 
Long-term debt   38,430     54,077     55,913
Future income taxes   22,436     20,716     17,890
                 
Shareholders' equity:                
        Share capital   77,060     75,490     74,348
        Contributed surplus   519     220     220
        Retained earnings   205,678     162,245     148,021
        Cumulative translation adjustment   26,248     26,248     26,385
 
 
    309,505     264,203     248,974
 
 
Total liabilities and shareholders' equity $ 457,386   $ 429,664   $ 409,435
 
 

See accompanying notes to interim consolidated financial statements.

 

 

Gildan Activewear Inc – Notes to interim consolidated financial statements

For complete notes to the interim consolidated financial statements please refer to filings with the various securities regulatory authorities.

1.

Change in Functional Currency:
 

As a result of a significant portion of its revenues, expenses, assets and liabilities being denominated in U.S. dollars and the increasing international expansion of its sales and manufacturing operations, the Company adopted the U.S dollar as its functional and reporting currency effective October 6, 2003, the beginning of its 2004 fiscal year. All opening assets and liabilities were translated into U.S. dollars using the exchange rate in effect on October 6, 2003. For comparative purposes, historical financial statements and notes thereto up to and including October 5, 2003 have been restated into U.S dollars in accordance with generally accepted accounting principles. The change in the functional currency resulted in a positive currency translation adjustment of $26.2 million as at October 5, 2003, which is reflected as a separate component of shareholders’ equity.

   
2.

Floating year-end:
  The third quarter of fiscal 2003 comprised of 14 weeks instead of the normal 13 weeks for a fiscal quarter. The inclusion of the extra week is required in every sixth fiscal year due to the Company’s floating year-end date. It was included in the third quarter of fiscal 2003 since it is seasonally the largest sales quarter in the year.

 

 

 

SIGNATURE

     Pursuant to the requirements of the Securitiecs Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GILDAN ACTIVEWEAR INC.
 
 
 
(Signed) Stéphane Lemay
Stéphane Lemay
Vice-President, Public and Legal Affairs
 

Date: August 4, 2004