Gildan to employ hundreds as it sets up yarn spinning facilities in U.S. south

MONTREAL – Gildan Activewear is expanding U.S. production for the first time by investing US$85 million on yarn-spinning facilities in southern states, the maker of T-shirts, socks and other clothing said Thursday.

The plants will employ hundreds of workers who will make yarn that will be transformed into clothes at Gildan’s low-cost centres in other countries and exported to the United States duty-free.

The Montreal-based company expects to hire about 200 additional workers at a new facility that will be built next year to make soft ring spun yarn. They will join 230 employees at two facilities in Georgia and North Carolina that it owns after taking full control of a joint venture earlier this year.

The investment in U.S. manufacturing comes several years after it close its high-cost apparel manufacturing in Canada and the United States and shipped jobs to Central America and the Caribbean.

This investment will allow the company to establish its only U.S. manufacturing and take advantage of low electricity prices and technological expertise, says chief financial and administrative officer Laurence Sellyn.

“This will be our first manufacturing major investment in the U.S.,” he said in an interview.

“Yarn is the first step in the supply chain that consumes the raw cotton so it is good to do close to the raw material.”

Ring-spun yarn is a softer material used in underwear and T-shirts that’s typically imported from Asia at a higher price. By making the yarn in-house, Gildan will develop closer relationships with farmers and produce a material that fetches a higher price.

It will also be able to take advantage of the Central America Free Trade Agreement that allows the importation duty free of finished goods made from yarn spun in the United States or Central America.

Gildan (TSX:GIL) also plans to invest $15 million next year on advertising in Canada and the U.S. to promote its branded clothing as their sales are expanded next summer in major national and regional retailers such as Walmart.

The company has hired New York-based agency DeVito/Verdi to oversee the print, TV and social media advertising.

Gildan said Thursday it is raising its quarterly dividend after achieving its most profitable quarter as earnings in the final period or its fiscal year was 84 per cent higher than last year, although slightly below analyst estimates due to an unanticipated expense.

Gildan’s net income for the three-month period, reported in U.S. currency, jumped to $89 million or 73 cents per share. That’s up from $48.5 million or 40 cents of net earnings in the fourth quarter of 2011.

After excluding restructuring and acquisition-related costs incurred during the fourth quarter, the Montreal-based maker of T-shirts, socks and underwear had adjusted earnings of $94.9 million or 78 cents per share.

The adjusted profit was a penny per share below a consensus estimate compiled by Thomson Reuters.

Gildan said its adjusted earnings were reduced by two cents per share by an unanticipated product labelling issue disclosed on Oct. 16.

Its net sales for the three-month period rose to $561.6 million from $481.6 million a year earlier in 2011.

Analysts had estimated revenue would be US$562.47 million, according to figures compiled by Thomson Reuters, but the sales were above Gildan’s own guidance of US$560 million.

“While we continue to be cautious about overall economic conditions and uncertainties, we’re excited about the continuing positive momentum in our company,” Sellyn said during a conference call.

Gildan said its net sales are expected to rise again in 2013, after growing 1.9 per cent this year to $1.9 billion for the 12 months ended Sept. 30.

The company will increase its quarterly dividend to shareholders by 20 per cent, which will be nine U.S. cents a share, start with a payout on Jan. 7 for shareholders of record as of Dec. 13.

The company said it has secured $100 million in annual branded programs, that will begin shipping next year to retail chains, “which will provide significant exposure and visibility for the Gildan brand.”

Gildan said it expects to make between $2.60 and $2.70 per share in adjusted profits next year due to expanded sales and falling cotton prices.

Tal Woolley of RBC Capital Markets said the guidance was in line with market expectations.

“Our view is that these numbers are achievable in a reasonable operating environment, potentially giving Gildan some room to raise guidance as the year progresses,” he wrote in a report.

Sales are expects to be $2.1 billion driven by $1.4 billion of printwear sales and $700 million from branded apparel.

“Lower cotton costs will drive improved gross margins along with a more favourable sales mix, offset by higher promotions and other input costs.

Woolley said the fourth quarter results were “a little shy of expectations” even though the branded apparel beat expectations as sales increased 41 per cent or 18 per cent excluding the impact of its acquisition of Anvil.

On the Toronto Stock Exchange, Gildan’s shares gained 75 cents, or 2.27 per cent, at C$33.84 in morning trading.