Canada -- Gildan Activewear Inc announced its financial results for the second quarter of its 2009 fiscal year, and provided certain planning and financial modeling assumptions for the second half of the fiscal year.

Sales and Earnings
Gildan reported net earnings of U.S. $7.1 million and diluted EPS of U.S. $0.06 for its second fiscal quarter ended April 5, 2009, compared with net earnings of U.S. $42.1 million and diluted EPS of U.S. $0.35 in the second quarter of fiscal 2008.

The reduction in net earnings and EPS was primarily due to significantly lower unit sales volumes, as a result of weak end-use demand and the timing of wholesale distributor replenishment, and significantly lower gross margins, as a result of the consumption of higher-cost inventories produced in previous quarters and unfavourable product-mix. Gross margins are projected to improve in the third and fourth quarters, compared to the second quarter, due to more favourable manufacturing and raw material costs and more favourable product-mix.

Net sales in the second quarter of fiscal 2009 amounted to U.S. $244.8 million, down 16.7% from U.S. $293.8 million in the second quarter of last year, due primarily to a 21.9% decline in activewear sales including a 13.9% decrease in unit shipments of activewear. Increased market share penetration in the U.S. screenprint channel was more than offset by an 18.0% decline in overall industry unit shipments in the channel and the significant impact of the Company's decision to limit its credit exposure to its largest distributor, which has been undertaking a process to restructure its debt financing.

Sales were also negatively impacted by unfavourable activewear product-mix, due to a lower proportion of sales of high-valued fleece and long-sleeve T-shirts, and an abnormally high proportion of sales of second-quality product as the Company significantly reduced inventories of such product which had been manufactured in fiscal 2008. Sales in the Canadian market declined by 45.9% compared to the second quarter of last year, due to weak demand, distributor destocking and the decline in the value of the Canadian dollar.

Sales in international markets were negatively impacted by the decline in the value of local currencies compared to the U.S. dollar. Higher unit sales in Western Europe, the U.K., the Asia/Pacific region and Mexico were offset by the temporary suspension of distribution in Eastern Europe, which had been a growing market in fiscal 2008. Sales of socks were essentially unchanged from the second quarter of fiscal 2008 in spite of the elimination of unprofitable sock product-lines during fiscal 2008.

Unit sales of Gildan socks from the Company's major retail customers to consumers were higher than the previous year, in spite of weak overall retail market conditions. The Company believes that it is well positioned at this time to build on its strong market position in the sock category and pursue its strategy to achieve further penetration with U.S. mass-market retailers.

Gross margins in the second quarter were 15.8%, compared to 28.8% after recasting prior year comparatives to reflect the reclassification of manufacturing depreciation and certain items from selling, general and administrative expenses to cost of sales.

The decline in gross margins was due to significantly higher costs in previously manufactured inventory for cotton, energy, chemicals and dyestuffs, more unfavourable activewear product-mix including the impact of the sale of second-quality product, inefficiencies due to manufacturing downtime, the temporary impact of inefficiencies related to the transition in sock private label brands for Gildan's largest retail customer, higher depreciation expenses absorbed in cost of sales, and the impact of currency fluctuations, partially offset by slightly higher net selling prices for activewear and the non-recurrence of charges related to completing the integration of the acquisition of a sock manufacturer which were incurred in the second quarter of fiscal 2008.

The Company continues to plan its business on the basis of assuming that macro-economic conditions will continue to result in very weak activewear sales demand and severe selling price competition in the second half of the fiscal year. However, gross margins are expected to improve in the second half of the fiscal year, compared to the second quarter, due to more favourable manufacturing efficiencies which are reflected in inventory valuations at the end of the second fiscal quarter, including the benefit of lower energy and transportation costs, the non-recurrence of the abnormally high proportion of sales of second-quality merchandise in the second quarter, a higher proportion of sales of fleece and long-sleeve T-shirts, and the completion of the transition to new sock private label brands.

In addition, cotton costs in the second half of the year will decline compared to the second quarter of fiscal 2009, although gross margins in the second half of the current fiscal year will not yet reflect the full benefit of the decline in commodity costs, as the Company had previously committed itself to cotton purchases at higher cotton prices. Lower manufacturing and raw material costs in the second half of fiscal 2009, combined with more favourable product-mix, are expected to positively impact gross margins by over 10%, compared to the second quarter, and more than offset the negative impact of assumed further downtime and possible further selling price discounting in the second half of the year.
 
Gildan Activewear Inc