Gildan’s (asi/56842) sales and earnings have declined so far in 2023 and the Top 40 supplier is lowering its financial expectations for the year. Meanwhile, the Montreal-headquartered firm plans to completely shutter a sewing factory it owns in Choloma, Honduras, by the end of August. The closure isn’t a result of sales performance, but part of a broader need to streamline production, the company said.

Those are two of the top takeaways as publicly traded Gildan reported its half-year and second-quarter results on Aug 3.

For the first six months of 2023, Gildan’s total global sales – which include business with promo and other channels – declined 7.6% year over year to about $1.54 billion.

In Q2, which concluded July 2, sales were down 6.2% on an annual basis to $840.4 million. Activewear business, which includes sales within the promotional products/apparel decorating sector, saw revenue declines of 9% in the second quarter and 10% for the half-year.

In significant part, Gildan attributes the retreat in business to a difficult-to-match comparative year.

To wit, Gildan sellers, including other promo suppliers that carry the company’s apparel basics, were restocking heavily during the first half of 2022 following inventory shortfalls that occurred during COVID-affected 2021. That inventory build-up drove strong sales for Gildan last year but is not being repeated at the same scale in 2023, resulting in a sales decline, executives said.

Earnings Drop, Financial Forecast Grays

Relatedly, earnings also declined.

For the half-year, Gildan reported adjusted net earnings of $193.9 million – a 36% year-over-year drop. Adjusted earnings per share (EPS) were $1.08, down about 33%, while basic EPS was $1.42, down 13%. Lower sales, reduced gross margins, greater expenses and other factors hurt earnings, the firm said.

For the half-year, gross profit was $404 million, down $101 million over the prior year. In Q2, gross profit slipped by 26% to $217 million.

In light of the results and other marketplace dynamics, Gildan is now predicting its full-year 2023 total global sales to be flat or down in the low single-digit percentage range compared to 2022. Previously, the firm was predicting a single-digit year-over-year increase. Adjusted diluted EPS will be in the range of $2.55 to $2.65, below an earlier prediction of being in line with 2022’s adjusted diluted EPS of $3.11.

Factory Closing

During the second quarter, Gildan announced that it will close its San Miguel sewing facility in Choloma, Honduras, by Aug. 31. Gildan said the decision was made as it must reorganize its basic-apparel sewing production in response to market conditions, global competition and a need to optimize and diversify operations.

The supplier said it has established an agreement on financial support and other assistance for the factory’s some 2,700 employees; this agreement is with the union that represents the workers, Sindicato de Trabajadores de Gildan San Miguel (SITRAGSAM).

“The successful agreement reached is a testament to the full cooperative efforts of the parties involved to resolve the closure terms of the San Miguel facility, thereby mitigating the uncertainty for our workers,” Gildan said.

In a tragic turn, union president Xiomar Cocas and union leaders Delmer Garcia, Lesther Almendarez and José Rufino Ortiz were killed in a mass shooting in June. The murders reportedly occurred in a billiards hall away from the factory. In total, 13 people died, five of them Gildan employees.

Both Gildan and authorities have not established any link between the factory closure, union talks with Gildan related to the shuttering, and the murders.

“Gildan responded to this tragic event by providing financial support and assistance for the families of those murdered, and by holding three days of mourning at the San Miguel facility and making emotional and grievance support services available to our workforce,” the company said in a statement.

Gildan is a vertically integrated manufacturer. Its largest production hub has been Honduras, but it also operates factories in the Dominican Republic, El Salvador, Guatemala, Haiti and Nicaragua. Based on estimated 2022 North American promo product industry revenue of $762.2 million, Gildan ranked fifth on Counselor’s most recent list of the largest suppliers in the industry.