Gildan branded sales take hit from stocking problems at Walmart stores in U.S.

MONTREAL – Gildan Activewear says Walmart’s challenges in stocking shelves at its U.S. stores is hampering sales of the clothing manufacturer’s branded underwear and socks.

The Montreal-based company says shoppers at Walmart’s U.S. stores are likely turning to competitor brands because the retailer hasn’t refilled the empty spots where Gildan’s products should be on display.

“They can’t get enough goods from the back (storage) to fill the demand of our product in the (display) space that’s available to us today,” CEO Glenn Chamandy said Thursday during a call about its third-quarter results.

“So, therefore, if the consumer wants to buy something, he’s not buying our product.”

That contributed to branded sales being about US$15 million less in the third quarter than previously anticipated, Chamandy said.

He said there is no shortage of demand but the difficulty at Walmart — the largest retailer in the United States — is hampering its Gildan’s ambitious growth plans.

Gildan had expected to grow its share of the U.S. underwear market to 10 per cent by year-end from seven per cent. The original 2015 target likely won’t be reached until mid-2016, but next year’s target could be set even higher in February.

Chamandy said Gildan is working with Walmart on some solutions that will take some time to gain traction. But he added Gildan’s strategy isn’t just built around just one retailer.

Gildan (TSX:GIL) also had 14 per cent share of the sock market in September, with men’s socks being the Number 2 brand.

Despite lower inventory replenishment and a weaker than anticipated back-to-school period, branded apparel sales grew 1.7 per cent to US$234 million in the quarter as Gildan branded volumes increased by about 30 per cent.

The clothing maker ramped up efforts earlier this year to promote its Gildan brand, including commercials featuring country music star Blake Shelton, one of the coaches on “The Voice.”

Sales were helped by the first delivery of socks and underwear to 1,800 stores of an unidentified major retailer, which analysts believe is Target. Gildan added more than 6,000 retail stores in the quarter as it aims to have its brand lines available in more than 18,000 retail locations by year-end.

Gildan now expects branded clothing sales will grow by only 12 per cent this year, compared with the previous estimate of 15 per cent because of inventory challenges at Wal-Mart and soft retail market conditions in the fourth quarter.

The company’s printwear products, which don’t carry the Gildan brand, increased 1.1 per cent to US$440.5 million. But Gildan says growth will be weaker for the full year because unusually warm weather is expected to reduce sales of high-value fleece and long-sleeved T-shirts.

Gildan is now estimating US$2.55 billion worth of sales this year, about US$50 million below the previous estimate.

It’s also reducing its adjusted profit estimate for the current year by two to four cents per share, from the previous estimate of $1.50 per share.

Third quarter net income increased slightly to US$123.1 million or 50 cents per share with US$674.5 million of net sales. Adjusted earnings were US$126.4 million or 52 cents per share, which was one cent above analyst estimates.

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