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May 02, 2024

Gildan’s Sales & Earnings Decline in Q1 as Proxy Fight Continues

The Top 40 supplier spent about $20 million on expenses tied to the corporate dust-up and the possible sale of the business, which contributed to the bottom-line retreat, according to a financial report.

By  Christopher Ruvo

As a battle with activist investors and co-founder/former CEO Glenn Chamandy continues, Top 40 supplier Gildan (asi/56842) reported Wednesday, May 1, that its sales dropped 1% and its net earnings were down about 20% year over year in the first quarter of 2024.

The financial report comes as the publicly traded apparel manufacturer is reportedly for sale and as a shareholder vote that will decide who controls the company looms for later in May.

financial report

Gildan said total company global sales for the three-month period ended with March tallied $695.8 million.

The 1% topline decline from 2023’s Q1 wasn’t, company leaders said, a result of the proxy fight that’s ensued since Gildan’s board of directors fired Chamandy in December and replaced him with former Fruit of the Loom (asi/84257)/Broder Bros. executive Vince Tyra, sparking a corporate war that’s seen activist investors led by investment firm Browning West calling for an overhaul of the board and the return of Chamandy as CEO.

Rather, executives said, the revenue drop was a repercussion of lower net selling prices and an anticipated 10% decline in the Montreal-headquartered firm’s hosiery and underwear business segment – itself a consequence of the end of a licensing agreement with Under Armour and what Gildan described as “broader market weakness” in the underwear category.

The news was better for Gildan’s activewear division, which includes but isn’t limited to sales to the North American promotional products market. Q1 activewear business rose 1% on an annual basis to $592 million, driven by higher shipments as well as seasonal replenishment by Gildan wholesalers, which include promo suppliers.

Lower raw material and manufacturing input costs helped Gildan improve gross profit year over year, with the measurable summing up to $211 million, or 30.3% of net sales in Q1 2024, as opposed to $188 million, or 26.7% of sales in the prior year’s first quarter.

Earnings Slip, $20 Million Spent on Proxy Fight & Potential Sale

Nonetheless, the bottom line still sagged.

Higher interest rates and average net borrowing costs contributed to net earnings falling 19.4% year over year to $78.7 million, or $0.47 basic earnings per share – a 13% retreat from the previous year’s $0.54 basic EPS.

Notably, however, Gildan reported that it spent $20 million on “advisory fees on shareholder matters, costs related to assessing external interests in acquiring the company, adjustments to CEO separation costs, as well as special retention awards.”

Executives said that if such expenses are excluded, then Gildan’s adjusted quarterly net earnings are $99.2 million, up 22% from 2023’s Q1, translating to adjusted earnings per share of $0.59 – a 31% annual basis increase in adjusted EPS.

Gildan’s board announced in March that it is considering proposals from buyers interested in acquiring the company. Potential buyers reportedly include private equity firms that own other Top 40 promotional products companies. The board said in late April that it will not make any announcements about the potential sales process before the May 28 shareholder meeting.

Gildan’s operating income for Q1 2024 was $105 million, or 15.1% of net sales, compared to $128 million, or 18.2% of net sales in the first quarter last year, which included the benefit of a $25 million gain from the sale and leaseback of its U.S. distribution facilities.

Gildan predicts that full-year revenue will be flat or up in low-single-digit percentage terms compared to 2023.

Tyra called the first quarter performance “solid.”

“The quarter included several bright spots, including continued market momentum in ring-spun and fleece products,” Tyra said. “I’m pleased with our competitive positioning and our execution.”

The Future of the Board

As of now, the future of Gildan’s leadership stands to be decided at the May 28 annual shareholders meeting.

Browning West has put forward a slate of eight directors it wants shareholders to vote on to the board. Those candidates include Chamandy, whom the Browning West-backed candidates would reappoint as CEO if they get control of the board.

Effective May 1, five Gildan board members, including former Chair Donald Berg, resigned from their director roles, making way for five new directors of their choosing to take seats. The new directors, like their predecessors, are loyal to Tyra. Two additional board members who also support Tyra, are not standing for re-election at the shareholder meeting.

For the newly appointed board members to remain with Gildan, they’ll have to survive the shareholder vote. Browning West is working to ensure that doesn’t happen, instead advancing a campaign that calls for all eight of its candidates to take seats presiding over the multibillion-dollar vertically integrated apparel manufacturer.

Based on estimated 2022 North American promotional product revenue of $762.2 million, Gildan ranked fifth on Counselor’s most recent list of the largest suppliers in the industry. Total global full-year sales across all Gildan’s business divisions fell 1.4% year over year in 2023 to about $3.19 billion.