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Gildan Activerwear: Covid-19 leads to sharp decline in Q1 sales and earnings

By Prachi Singh

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Business

Sales for the first quarter at Gildan Activerwear Inc., of 459.1 million dollars, were down 26.4 percent compared to the prior year quarter, comprised of activewear sales of 372.6 million dollars and sales in the hosiery and underwear category of 86.5 million dollars, down 24.5 percent and 33.7 percent, respectively. The company said in a statement that while it was anticipating an overall decrease in net sales for the first quarter, sales volume declines were higher than previously anticipated due to the significant downturn in demand as a result of the Covid-19 pandemic. The company reported net loss of 99.3 million dollars or 50 cents per share on a diluted basis compared to net earnings of 22.7 million dollars or 11 cents per share on a diluted basis, while adjusted net earnings in the quarter totalled 11.2 million dollars or 6 cents per share on a diluted basis, compared to adjusted net earnings of 32.8 million dollars or 16 cents per share on a diluted basis, in the first quarter last year.

“During the first quarter, we faced unprecedented impacts globally as the Covid-19 pandemic unfolded. This required us to amplify our focus on what we do best and on what we can do to support all our stakeholders as a values-driven, strong, resilient, and well-positioned company,” said Glenn J. Chamandy, President and CEO of the company.

Gildan Activerwear sales hit by Covid-19 pandemic

The company added that decrease in activewear sales reflected double-digit volume declines of imprintables in North America and in international markets, the impact of a sales return allowance of 6 million dollars for anticipated product returns for discontinued SKUs, and lower activewear product sales in retail, as retailers increasingly closed stores during the quarter due to the Covid-19 pandemic. Similarly, sales in the hosiery and underwear category were also negatively impacted by retail store closures and declining store traffic trends as consumers adopted social distancing measures.

The company added that decline in sock sales also included the impact of exit of a mass sock program and the non-recurrence of sock shipments related to the initial roll-out of a new private brand sock program in the first quarter of 2019. Underwear sales were down in the quarter due to the current challenging demand environment and the year-over-year impact of fully exiting a branded underwear program in the mass channel at the end of the first quarter of 2019, partly offset by an increase in sales of private brand men’s underwear in mass.

Reported gross margin for the first quarter was 23.2 percent, down from 25.8 percent in the first quarter last year, while adjusted gross margin was 24.6 percent, down 120 basis points over the prior year quarter. The company reported an operating loss of 92.3 million dollars compared to operating income of 32.7 million dollars in the first quarter of 2019 and adjusted operating income of 19.9 million dollars, down 23.4 million dollars from 43.3 million dollars in the first quarter of 2019.

Gildan anticipates greater drop in Q2 sales and earnings

Gildan further said that the demand deterioration that started in March has increased through the month of April with POS levels in the North American imprintables channel down approximately 75 percent. Sellthrough trends in retail, including with global lifestyle brand customers, have also deteriorated, with overall retailer POS for products in April down approximately 45 percent.

Based on this situation and the expectation that Covid-19 social distancing measures and related economic impacts will have a significant impact on demand during the quarter, the company is planning for a significant decline in point of sale (POS) and shipments for the second quarter of 2020. Accordingly, the company expects, this sales outlook combined with the impact of fixed cost absorption, while it manufacturing facilities remain idle, will likely result in a significant earnings loss in the second quarter of 2020.

Picture:Facebook/Gildan

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