Gildan Activewear Inc. (NYSE:GIL) Q3 2019 Earnings Conference Call - Final Transcript

Oct 31, 2019 • 08:30 am ET

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Gildan Activewear Inc. (NYSE:GIL) Q3 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Rhodri J. Harries

normal promotional programs. We were projecting low single-digit POS growth in North American imprintable channels for the third quarter, and instead, we saw a high single-digit decline in POS. Accordingly, our sales expectations of mid single-digit growth for the third quarter did not materialize and contributed to lower than anticipated net earnings, with adjusted EPS for the third quarter of $0.53, down 7% over the prior year quarter. Given the sales weakness in imprintables during the third quarter, which we continue to see in the fourth quarter, we lowered our sales and earnings outlook, which we communicated to you on October 17th.

Although the current softness in imprintable sales is restraining growth this year, we do not attribute it to any structural change to our business or competitive positioning as a leading supplier of basic replenishment apparel driven by our large scale, low-cost vertically integrated manufacturing system. We believe the slowdown in POS for imprintables is temporary and driven by broader macro elements which we will navigate through while we continue to drive the growth areas of our business, including growing as a supplier of private brands.

Further, we continue to execute on our supply chain initiatives to drive increased operational efficiency across our manufacturing system, and we remain committed to achieving our margin objectives. In this regard, we've been working over the last 12 months on a long list of initiatives, including the consolidation of textile production from the former AKH facility to our new state-of-the-art Rio Nance VI facility, consolidation of sock manufacturing capacity into one facility and closure of sheer hosiery operations as well as shedding some of our higher-cost sewing plants.

In addition, at the end of October, we took the decision to move forward with plans to close textile and sewing operations in Mexico and relocate the equipment of these facilities to our lower-cost operations in Central America and the Caribbean Basin, which I will touch on later in my comments. Of course, it's not only about optimization, and we are very definitely working on capacity growth. Specifically, we are working on a number of initiatives across our system, including our largest initiative which involves major capacity expansion plan for a large-scale textile and sewing operations in Bangladesh, while our plans remain unchanged and on track.

We're also evaluating additional opportunities to reduce costs and enhance our ability to execute on our strategic growth drivers. We're currently assessing the full phase out of our direct ship-to-the-piece business in imprintables. We built this business through various acquisitions, and it is a fragmented, smaller volume business which does not fit with our high volume, large scale imprintables franchise. Moving fully out of this business would allow us to reduce complexity, put more emphasis on our distributors, simplify our product line, and reduce costs.

Moving to the details of our third quarter results, the sales decline in the quarter was mainly due to lower sales volumes, which more than offset the benefit of a richer product mix and