(all amounts are in U.S. dollars except where otherwise indicated)

Gildan Activewear Reports Third Quarter Results and Increases Full Year Adjusted EPS Guidance
  • Q3 GAAP diluted EPS of $0.52 and adjusted diluted EPS of $0.53, up 6% from the prior year

  • Q3 consolidated net sales of $716.4 million, in line with prior year

  • Gross margin of 31%, up 60 basis points over Q3 2016

  • Strong free cash flow of $150 million in the quarter, $353 million on a year-to-date basis

  • Company raises full year adjusted EPS guidance range to $1.70-$1.72, representing projected growth of 13% over the prior year

  • Free cash flow now projected to exceed $450 million

  • Company increases size of existing NCIB program

Montreal, Thursday, November 2, 2017 - Gildan Activewear Inc. (GIL: TSX and NYSE) today announced its results for the third quarter ended October 1, 2017, updated its full year guidance for 2017 and announced that it has increased the common share allotment of its current normal course issuer bid (NCIB) program.

The Company generated strong earnings per share growth during the third quarter, with EPS of $0.52 and adjusted EPS of $0.53, up 6% compared to the prior year. Stronger than expected adjusted EPS was due to more favourable product mix in Printwear, earnings contribution from the impact of the American Apparel transaction, and lower income taxes, partly offset by lower than expected Branded Apparel sales, reflecting the continuation of a challenging retail market. With stronger adjusted EPS year-to-date, the Company increased its full year guidance range for adjusted EPS to $1.70-

$1.72, which at the mid-point of the range represents projected growth of 13% compared to last year. During the quarter, the Company continued to make good progress with the American Apparel integration, including the continued ramp up of production and the successful launch of the American Apparel consumer e-commerce platform. From a free cash flow perspective, Gildan continued to deliver strong free cash flow with approximately $150 million generated in the third quarter, bringing the total cumulative free cash flow year-to-date in excess of $350 million. As a result of increased profitability and stronger working capital management, the Company now expects its free cash flow for the full year to be in excess of $450 million, compared to its previous guidance of in excess of $425 million.

Consolidated Results

Consolidated net sales of $716.4 million in the third quarter ended October 1, 2017, were essentially flat compared to the prior year as Printwear sales growth of 4.1% was offset by a 6.9% decline in Branded Apparel sales compared to the third quarter of last year.

Consolidated gross margin in the third quarter came in at a strong 31.0%, reflecting a 60 basis point increase over the same period last year. The increase was mainly due to higher net selling prices and favourable product mix in Printwear, partly offset by unfavourable product mix in Branded Apparel, and higher raw material and other input costs compared to the third quarter of 2016 as we had forecasted.

Consolidated SG&A expenses as a percentage of sales were 13.2% in the third quarter compared to 12.1% in the same quarter last year, primarily due to the impact of the American Apparel acquisition. The Company generated a strong adjusted operating margin for the quarter of 17.8%, slightly down from 18.3% in the prior year quarter.

Net earnings for the three months ended October 1, 2017, amounted to $116.1 million, or $0.52 per share on a diluted basis, compared with net earnings of $114.4 million, or $0.49 per share on a diluted basis for the same period last year. Excluding the impact of after-tax restructuring and acquisition-related costs of $2.5 million in the quarter and

$2.0 million in the prior year quarter, Gildan reported adjusted net earnings of $118.6 million, or $0.53 per share on a diluted basis for the third quarter of 2017, up from $116.4 million, or $0.50 per share on a diluted basis in the same quarter last year. The 6.0% increase in adjusted diluted EPS in the quarter was mainly driven by a higher gross margin, lower income taxes, and the benefit of share repurchases, partly offset by higher SG&A expenses due in part to the American Apparel acquisition.

Gildan generated strong free cash flow of $149.9 million in the third quarter bringing total free cash flow for the first nine months of 2017 to $353.3 million, up $96.8 million from $256.5 million in the same period last year. The increase was driven by higher earnings, working capital improvements, and lower capital expenditures compared to the first nine months of 2016. Capital expenditures of $18.7 million in the quarter and $61.2 million for the first nine months of the year were primarily for investments in textile capacity, distribution and garment dyeing expansion. Pursuant to its NCIB program, the Company repurchased 3,872,980 common shares at a total cost of $119.3 million during the third quarter and 9,829,852 common shares at a total cost of $276.6 million during the first nine months of the year. The Company ended the third quarter with net debt of $657.8 million and a leverage ratio of 1.1 times net debt to trailing twelve months adjusted EBITDA.

Segmented Operating Results

Printwear net sales for the third quarter of 2017 were $480.7 million, up $18.8 million, or 4.1% over the same period last year. The increase reflected a sales contribution of $15.4 million from the acquisition of American Apparel, continued strong growth in fashion and performance basics which contributed to favourable product mix, double digit unit sales volume growth in international markets, and higher net selling prices, partly offset by lower sales of basics.

Printwear segment operating income for the three months ended October 1, 2017, totaled $127.5 million, up 3.3% compared to $123.4 million for the same period last year. Printwear operating margin for the quarter was 26.5%, effectively in line with the third quarter last year. The benefit of higher net selling prices and favourable product mix mitigated the unfavourable impact of higher raw material and other input costs, as well as the impact of higher SG&A expenses primarily due to the acquisition of American Apparel.

Net sales for the Branded Apparel segment in the quarter were $235.7 million, down $17.4 million, or 6.9% compared to the third quarter of 2016, mainly due to weakness in the sock category, particularly in department stores and national chains, as well as the sporting goods channel, combined with the unfavourable impact from the transition to a new sock program at a mass-retailer. Lower sock sales in the quarter were partly offset by higher sales of Gildan® branded men's underwear compared to the third quarter of 2016 and strong performance of activewear.

For the three months ended October 1, 2017, Branded Apparel generated operating income of $25.3 million compared to $29.5 million in the same quarter last year. Branded Apparel operating margin of 10.7% was down from 11.7% in the same quarter last year, primarily as a result of unfavourable product mix due to lower sales of higher-margin sock products.

Year-to-date sales and earnings

Consolidated net sales of $2,097.1 million in the first nine months of 2017 was up $99.9 million, or 5.0% compared to the same period last year, reflecting sales increases of 6.1% in the Printwear segment and 2.8% in Branded Apparel. The increase in consolidated net sales was mainly due to the impact of the 2016 acquisitions of Alstyle and Peds and the American Apparel acquisition which closed during the first quarter of 2017, as well as higher net selling prices, increased unit sales volumes of printwear fashion and performance products, and favourable product mix. These positive factors were partly offset by lower unit sales volumes of Printwear basics and Branded Apparel, particularly lower sock sales, as well as the planned exit of private label programs and the impact of unfavourable foreign exchange.

Gross margin for the nine months ended October 1, 2017, of 29.8% was up 160 basis points compared to the same period last year, driven by higher gross margins in both operating segments. The increase was mainly due to the positive net impact of net selling prices and manufacturing and raw material costs compared to the same period in the prior year. SG&A expenses as a percentage of sales for the first nine months of 2017 were 13.0%, up from 12.5% of

sales in the same period last year, mainly due to the impact of acquisitions and other expenses, including higher receivable provisions. Consolidated adjusted operating margins in the first nine months of 2017 totaled 16.7%, up 100 basis points over the same period last year.

Net earnings for the first nine months of 2017 were $307.4 million, or $1.36 per share on a diluted basis, up from net earnings of $272.3 million, or $1.15 per share on a diluted basis for the same period last year. Before reflecting after-tax restructuring and acquisition-related costs in both years, adjusted net earnings were $319.3 million or $1.41 per share on a diluted basis in the first nine months of 2017, up 13.3% and 18.5%, respectively, compared to adjusted net earnings of $281.8 million or $1.19 per share on a diluted basis in the same period last year. The increase in adjusted net earnings was mainly due to the improvement in operating margins, the impact of acquisitions, and lower income taxes, partly offset by higher financial expenses. EPS and adjusted EPS growth also reflected the benefit of share repurchases.

Outlook

After reflecting third quarter earnings per share results and more tempered sales expectations for Branded Apparel in the current retail environment, the Company updated its guidance for the full year. Consolidated net sales growth for the full year is now projected to be in the mid to high single digit range compared to the Company's previous estimate of high single digit net sales growth. The Company continues to expect strong full year Printwear net sales growth in the high single digit range, while it is now projecting Branded Apparel net sales growth in the low single digit range versus its previous projection of high single digit growth, given current retail market conditions. Due to stronger adjusted EPS to date, the Company is now projecting adjusted diluted EPS for the full year to be in the range of $1.70 to $1.72, up 13% at the mid-point of the range compared to adjusted EPS of $1.51 in the prior year. This compares to the Company's previous guidance expecting adjusted diluted EPS to be at the high end of $1.60-$1.70. The Company also updated its expectation for adjusted EBITDA for 2017 to be in the range of $580 -$590 million, up from its prior estimate of adjusted EBITDA at the high end of the $555-$585 million guidance range. Full year capital expenditures continue to be projected to be approximately $100 million. Finally, as a result of stronger than previously anticipated profitability and working capital improvements, the Company is now projecting free cash flow in excess of $450 million for the year compared to its previous estimate of in excess of $425 million.

Declaration of quarterly dividend

The Board of Directors has declared a cash dividend of U.S. $0.0935 per share, payable on December 11, 2017 to shareholders of record on November 16, 2017. This dividend is an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.

Normal course issuer bid

The Company announced today that it has received approval from the Toronto Stock Exchange (TSX) to amend its current normal course issuer bid program (NCIB) in order to increase the maximum number of common shares that may be repurchased from 11,512,267 common shares, or 5% of the Company's issued and outstanding common shares as at February 17, 2017 (the reference date for the NCIB), to 16,117,175 common shares, representing approximately 7.2% of the public float (or 7% of the Company's issued and outstanding common shares) as at February 17, 2017. No other terms of the NCIB have been amended.

The NCIB, which began February 27, 2017 and will end no later than February 26, 2018, is conducted by means of open market transactions on both the TSX and the New York Stock Exchange (NYSE), or alternative trading systems, if eligible, or by such other means as the TSX, the NYSE or a securities regulatory authority may permit, including pre-arranged crosses or by private agreements under an issuer bid exemption order issued by securities regulatory authorities in Canada.

Under the TSX rules, any daily repurchases on the TSX are limited to a maximum of 131,732 common shares, which represents 25% of the average daily trading volume on the TSX for the six months ended January 31, 2017. In addition, Gildan may make, once per week, a block purchase of common shares not directly or indirectly owned by insiders of Gildan, in accordance with TSX rules. All shares purchased pursuant to the NCIB are canceled.

The automatic share purchase plan (the ASPP) entered into with a designated broker on March 24, 2017 also remains unchanged. The ASPP allows for the purchase of common shares under the NCIB at times when the Company would

ordinarily not be permitted to purchase its common shares due to regulatory restrictions or self-imposed trading blackout periods. Outside of the pre-determined blackout periods, common shares may be purchased under the NCIB based on the discretion of the Company's management, in compliance with TSX rules and applicable securities laws.

During the period from February 27, 2017 to October 31, 2017, Gildan purchased a total of 11,203,252 common shares, representing 4.95% of the Company's public float and 4.87% of the Company's issued and outstanding common shares as at February 17, 2017, of which a total of 877,000 common shares were repurchased by way of private agreements with arm's length third party sellers.

Gildan's management and the Board of Directors believe the repurchase of the common shares represents an appropriate use of Gildan's financial resources and that share repurchases under the NCIB will not preclude Gildan from continuing to pursue complementary acquisitions.

Disclosure of outstanding share data

As at October 31, 2017, there were 219,414,970 common shares issued and outstanding along with 2,468,871 stock options and 114,466 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a pre-determined option price. Each Treasury RSU entitles the holder to receive one common share from treasury at the end of the vesting period, without any monetary consideration being paid to the Company. However, the vesting of at least 50% of each Treasury RSU grant is contingent on the achievement of performance conditions that are primarily based on the Company's average return on assets performance for the period as compared to the S&P/TSX Capped Consumer Discretionary Index, excluding income trusts, or as determined by the Board of Directors.

Conference call information

Gildan Activewear Inc. will hold a conference call to discuss third quarter 2017 results and its business outlook today at 8:30 AM ET. A live audio webcast of the conference call, as well as a replay, will be available on its corporate site at http://www.gildancorp.com/events. The conference call can be accessed by dialing (800) 447-0521 (Canada & U.S.) or (847) 413-3238 (international) and entering passcode 45755305#. A replay will be available for 30 days starting at 11:00 AM ET by dialing (888) 843-7419 (Canada & U.S.) or (630) 652-3042 (international) and entering the same passcode.

Notes

This release should be read in conjunction with Gildan's Management's Discussion and Analysis and its unaudited condensed interim consolidated financial statements as at and for the three and nine months ended October 1, 2017 available at http://www.gildancorp.com/financials-and-filings#tab-Quarterly-Reports, which will be filed by Gildan with the Canadian securities regulatory authorities and with the U.S. Securities and Exchange Commission.

Gildan Activewear Inc. published this content on 02 November 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 02 November 2017 11:20:03 UTC.

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