Gildan shares take biggest hit in three years on lower earnings guidance

MONTREAL – Shares in Gildan Activewear posted their biggest drop in three years after the clothing maker warned that its results will fall short of investor expectations.

The company said it is cutting its prices for T-shirts sold to screenprinters in an effort to deter competitors from trying to undercut its prices, Gildan executives said Thursday.

“We think that this is going energize and allow us to continue to drive market share,” said CEO Glenn Chamandy during a conference call following its fourth-quarter results.

In addition, the company plans to pass along lower cotton prices next year and $100 million in cost savings over three years resulting from investments to build large yarn spinning and manufacturing facilities in the southern U.S., Caribbean and Central America.

“We think that structurally, the vision is in good form and operating margins will continue to be as good as they have in the past,” Chamandy told analysts.

Gildan warned that the moves will result in a loss of about 30 cents US per share on about US$400 million of revenue for the quarter ended Jan. 4.

For the full year, Gildan is estimating adjusted earnings of between US$3 and US$3.15 per share and sales of US$2.65 billion. Analysts had expected a profit of US$3.59 per share for the year.

Gildan shares fell C$6.10 or about nine per cent to C$60.22 in trading on the Toronto Stock Exchange.

The drop in the stock came despite a dividend increase by the company Thursday and a higher fourth-quarter profit compared with a year ago.

The company said it will now pay a dividend of 13 cents US per share, up from 10.8 cents, and plans to repurchase up to 6.1 million shares over the next year, or about five per cent of its outstanding shares.

For its fourth quarter, Gildan earned a net profit of US$122.7 million or $1 per diluted share on US$666 million of revenues for the three months ended Oct. 5.

That was up about 26 per cent from US$96.8 million or 79 cents per share a year earlier, when revenues were US$626.2 million.

The company was expected to earn $1.07 per share on US$715.7 million of revenues, according to analysts polled by Thomson Reuters.

Stephen MacLeod of BMO Capital Markets said 2015 will be a weak year for Gildan, with earnings strengthening later in the year.

“Beyond 2015, we still see the potential for strong earnings growth, and we would view any near-term price weakness as a buying opportunity,” he wrote.

The change in printwear pricing won’t affect its branded apparel division, where aggressive prices have helped the company making inroads against larger competitors Fruit of the Loom and Hanesbrands.

Chamandy said Gildan’s branded products are gaining retail shelf space and attracting new customers in a lacklustre retail climate where back-to-school season and Black Friday sales weren’t as robust as retailers expected.

Gildan expects to record $120 million in new branded apparel revenues in 2015, including $70 million from its acquisition of Canadian hosiery manufacturer Doris. Gildan said it also sees significant other sales opportunities next year and plans to spend up to US$15 million more on advertising.

Follow @RossMarowits on Twitter