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Feb 20, 2020

Gildan raises quarterly dividend as it reports lower Q4 profit, sales

Christine Poole discusses Gildan Activewear

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Gildan Activewear Inc. is boosting its quarterly dividend 15 per cent despite weaker net profits and revenues in the fourth quarter and 2019.

The Montreal-based clothing maker is increasing its quarterly payout for an eighth consecutive year, to 15.4 cents payable on April 6 to shareholders of record on March 12. That's up from the previous rate of 13.4 cents.

The company's fourth-quarter profit decreased compared with a year earlier as it saw sales fall and it recorded a charge related to a shift in strategy.

"Overall for 2019, we were pleased with the progress we made on our 'Back to Basics' strategy intended to simplify our product portfolio and reduce complexity in manufacturing and distribution as we continue to enhance our competitive positioning," the company said in a news release.

Gildan, which keeps its books in U.S. dollars, says it earned US$32.5 million or 16 cents per diluted share for the quarter ended Dec. 29 compared with a profit of US$59.6 million or 29 cents per diluted share a year earlier.

Net sales for the quarter totalled $658.7 million, down 11.3 per cent from $742.7 million. The decrease was primarily due to $19 million in sales allowance for returns of discontinued products as part of its Back to Basics strategy.

The decline in activewear sales was slightly offset by a one per cent sales increase in the hosiery and underwear category. Underwear sales volumes grew by double digits while sock sales were lower due to weaker demand from mass merchants and its decision to stop supplying dollar stores with the item.

Gildan incurred $16 million of restructuring and acquisition-related costs in the fourth quarter and $47.3 million for the full year of 2019. The costs related to the consolidation of textile, hosiery, sewing, and yarn operations, including its decision last October to relocate Mexican operations to Central America and the Caribbean Basin.

It also incurred a $55 million charge for its Back to Basic strategy, partially offset by a $19 million deferred income tax recovery.

On an adjusted basis, Gildan says it earned $83.4 million or 41 cents per share, down from an adjusted profit of $88.9 million or 43 cents per share a year earlier.

The company was expected to earn 41 cents per share in adjusted profits on $669 million of sales, according to financial markets data firm Refinitiv.

For the full year, it earned $259.8 million or $1.27 per share, down from $350.8 million or $1.66 per share in 2018. Adjusted profits fell to $339.6 million or $1.66 per share. That was in line with analyst forecasts but down from $393.1 million or $1.86 per share a year earlier. Revenues decreased 2.9 per cent to $2.8 billion.

In its outlook, Gildan says it expects to earn US$1.70 to US$1.80 per diluted share in 2020 and adjusted diluted earnings per share in the range of US$1.85 to US$1.95 on projected sales growth for the year of two to four per cent.

Derek Dley of Canaccord Genuity said Gildan's 2020 outlook seemed "modestly optimistic" at first glance.

"Gildan expects the challenging point of sales to persist until the back half of 2020. As well, the company expects Q1/20 adjusted EPS to be down relative to Q1/19, estimating a year-over-year decline of sales within the high-single-digit/low-double-digit range driven by continued point of sales weakness and the exit of a sock program in the mass retail channel," he wrote in a report.

Gildan's shares gained 80 cents or 2.2 per cent at $36.97 in afternoon trading on the Toronto Stock Exchange.