Gildan Activewear (US:GIL)2023-11-01 16:00Sales Performance - Gildan's activewear sales accounted for 85% of total net sales in fiscal 2022, while hosiery and underwear sales accounted for 15%[17]. - Net sales for Q3 2023 were $869.9 million, a 2.3% increase from $850.0 million in Q3 2022[58]. - Activewear sales were $744.4 million in Q3 2023, a slight increase of 0.3% from $742.0 million in Q3 2022[70]. - Hosiery and underwear sales increased by 16.2% to $125.5 million in Q3 2023, compared to $108.0 million in Q3 2022[70]. - For the nine months ended October 1, 2023, net sales decreased by 4%, primarily due to declines in Activewear, which were partly offset by a 10% increase in the Hosiery and underwear category[72]. - International sales faced challenges, with a 23% decline in Q3 and a 14% decline over the nine months compared to the previous year[73]. Financial Performance - Net earnings decreased to $127.4 million in Q3 2023, down 16.7% from $153.0 million in Q3 2022[66]. - Adjusted EBITDA for Q3 2023 was $188.3 million, a decline of 6.3% compared to $201.0 million in Q3 2022[66]. - The gross margin for Q3 2023 was 27.5%, down from 29.7% in Q3 2022, reflecting a decrease of 2.2 percentage points[66]. - Operating income for Q3 2023 was $155.0 million, down from $174.6 million in Q3 2022[171]. - Adjusted operating income decreased to $157.0 million in Q3 2023 from $170.0 million in Q3 2022, reflecting a decline of 7.6%[171]. - Net earnings for the nine months ended October 1, 2023, decreased to $380.3 million, down 16.9% from $457.6 million in the same period last year[94]. - Adjusted net earnings for the nine months ended October 1, 2023, were $323.4 million, a decline of 29.3% compared to $457.5 million in the prior year[94]. Manufacturing and Operations - The company is expanding manufacturing capacity in Bangladesh with a new multi-plant complex, with the first facility's construction nearing completion and operations ramping up through 2023 and into 2024[23]. - Gildan's manufacturing operations are located in four main hubs: the United States, Central America, the Caribbean, and Bangladesh, with all yarn-spinning operations based in the U.S.[22]. - The company operates a vertically integrated manufacturing process, controlling all aspects from yarn production to sewing, which enhances production efficiency and product quality[15]. - The company has strengthened its vertical integration by acquiring Frontier Yarns, enhancing its yarn-spinning capabilities[44]. Environmental and Social Responsibility - The company emphasizes social responsibility in its manufacturing practices, ensuring adherence to high environmental and social standards throughout its supply chain[14]. - The company aims to reduce absolute Scope 1 and 2 greenhouse gas emissions by 30% and Scope 3 emissions by 13.5% by 2030, with targets validated by SBTi[31]. - The company plans to source 100% sustainable cotton by 2025 and 30% recycled polyester or alternative fibers by 2027, aiming for zero manufacturing waste sent to landfill by 2027[32]. - The company aims to increase its contribution to community engagement to 1% of pre-tax earnings by 2026[35]. - The company is enhancing its ESG disclosure to improve transparency and stakeholder trust[36]. Capital and Investments - The company has made significant capital investments in its manufacturing facilities to maintain competitive advantages over less integrated competitors[15]. - The company is investing in capital projects while returning capital to shareholders through dividends and share repurchases, maintaining a healthy financial position[52]. - Capital expenditures for the nine months ended October 1, 2023, are projected to average 6% to 8% of annual sales, supporting organic growth and working capital needs[112]. - The company has established a capital allocation framework prioritizing organic growth investments, dividends, and opportunistic acquisitions to enhance shareholder returns[111]. Debt and Financial Position - The net debt increased to $1,018.1 million, a rise of 16.5% from $873.6 million at the beginning of the year[66]. - Long-term debt increased from $930 million as of January 1, 2023, to $1,025 million as of October 1, 2023, reflecting a net debt leverage ratio of 1.6 times compared to 1.1 times at the beginning of the year[124]. - The company expects to maintain compliance with its financial covenants over the next twelve months based on current expectations and forecasts[121]. - The company drew down $300 million from a delayed draw term loan during the three months ended October 1, 2023, contributing to its financing activities[119]. Shareholder Returns - The quarterly cash dividend declared per common share increased by 10.1% to $0.186 from $0.169 in the previous quarter[66]. - The company repurchased 6,212,500 common shares for a total cost of $190 million during the nine months ended October 1, 2023[140]. - A cash dividend of $0.186 per share was declared on November 1, 2023, with an expected aggregate payment of $32 million[135]. - The company is authorized to repurchase up to 8,778,638 common shares under its renewed Normal Course Issuer Bid (NCIB) program until August 8, 2024[139]. Risks and Challenges - The company relies on a small number of significant customers, which poses a risk to its revenue stability[11]. - Gildan's financial performance is subject to various risks, including fluctuations in raw material prices and changes in consumer preferences[11]. - The company faces risks including reliance on a small number of significant customers and potential impacts from changes in economic conditions[156]. - The proposed Global Minimum Tax Act by the Government of Canada could materially increase the company's effective tax rate starting in fiscal 2024[92].