MONTREAL – Apparel manufacturer Gildan Activewear Inc. was punished by investors on Thursday after its quarterly profit tumbled 15 per cent due to higher cotton prices and restructuring charges.
The company, which makes socks, T-shirts and underwear, also warned that it expects to post a loss in the first quarter of fiscal 2012 as the high price of cotton continues to affect its results.
Shares in Gildan dropped more than 29 per cent by the afternoon, down $7.17, to $17.35 on the Toronto Stock Exchange.
“We are forecasting a loss of approximately 40 cents per share in the first quarter of fiscal 2012, which will be only the second quarterly loss in our history as a public company,” chief financial officer Laurence Sellyn told a quarterly conference call.
Gildan’s results will gradually strengthen next year as the company expects lower cotton costs in the second half of the fiscal year, along with increased efficiencies in manufacturing, Sellyn said.
The company, which reports in U.S. dollars, said net income was US$48.5 million, or 40 cents per share, a drop from $56.8 million or 47 cents per share in the fourth quarter a year earlier. The results included after-tax restructuring charges of $2.3 million.
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The results were weakened by higher cotton prices, a cost that it was only partly able to recover through higher prices for its socks. It also faced the non-recurrence of insurance proceeds and the lack of a cotton subsidy received in the fourth quarter of last year.
However, net sales were up 30.6 per cent to $481.8 million from $368.9 million a year earlier.
Gildan’s first quarter loss is projected at $300 million, or 40 cents per share. Full-year adjusted earnings were expected to be US$1.30 in 2012, compared to $2.01 in 2011.
RBC Capital Markets analyst Tal Woolley noted that Gildan’s first quarter next year will be a difficult one.
“A sharp hit in Q1 is expected, with results rebounding thereafter,” Woolley said in a research note.
“With Q1 projecting a loss … this is the quarter that will be taking most of the financial hit for the year.”
But results for the balance of the fiscal year should begin to return to normal after that, Woolley said.
Sellyn said in spite of the weak economic environment, Gildan expects to expand into more international markets and its retail business is now structured as a separate operating division.
But he noted that Gildan expects to be hit by lower sales in its screenprint business, which sells T-shirts and fleeces to companies for logos and other designs, in the first quarter due to increased competition.
Even though sock sales grew in the fourth quarter by 84 per cent due to the recent acquisition of U.S.-based Gold Toe Moretz Holdings Corp., Sellyn said Gildan’s overall sock business isn’t profitable due to high cotton prices and manufacturing facilities being transferred to Honduras from the United States.
Gildan became the world’s largest sock producer with the US$350 million acquisition of Gold Toe, an acquisition that boosted its U.S. retail market share in socks to about 40 per cent from 28 per cent.
Headquartered in Montreal, Gildan has about 29,000 employees worldwide, primarily at its manufacturing facilities in Central America, the Caribbean and Bangladesh.
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