Gildan Activewear Inc. GIL-T reported industry-beating financial results on Thursday, selling more T-shirts at a time when rivals’ sales are declining, while spending $20-million on a boardroom battle with its former chief executive office ahead of a key shareholder vote on May 28.
Montreal-based Gildan earned $211-million in gross profit in the first three months of the year, its first quarter under newly installed CEO Vince Tyra, compared with $188-million in the same period in 2023. Sales in the quarter were $696-million, down from $703-million the previous year.
Sales of socks and underwear, Gildan’s lower-profit margin product lines, declined in the quarter compared with last year.
“I’m pleased with our competitive positioning and our execution, which drove significant year-over-year improvement in our key financial metrics,” Mr. Tyra said in a press release.
Gildan’s activewear division – its most profitable product lines of T-shirts and fleeces – posted low-single-digits sales growth “while the industry declined by high-single digits,” said analyst Mark Petrie at CIBC Capital Markets in a report. He said Gildan’s management showed “continued discipline on margins and costs.”
Gildan’s overall profit took a hit as the company spent $20-million on advisory fees to lawyers, bankers, public relations and proxy solicitation firms, along with retention awards for key employees. All the costs stem from the board‘s drawn-out battle against co-founder and former CEO Glenn Chamandy, who the board dismissed in December, and asset manager Browning West.
Los Angeles-based Browning West owns 5 per cent of Gildan and put forward a slate of eight directors for the board, which currently has 12 members. Browning West wants to reinstate Mr. Chamandy and several significant shareholders in Gildan support its campaign.
Gildan shareholders are scheduled to vote on the competing slates at the company’s annual meeting on May 28.
Gildan’s board also started a sales process earlier this year after receiving an unsolicited takeover offer, which has cost the company $2.5-million. Analysts say several private-equity funds are interested in buying one of the country’s largest consumer product companies. Gildan has $7.57-billion market capitalization.
Gildan’s spending on the succession battle cut its operating income to $108-million in the first three months of the year, compared with $128-million in the same period a year ago. Looking past the fight for control of the board, analyst George Doumet at Scotiabank said in a report: “While we acknowledge that there’s lots of noise in the interim, we continue to see a solid runway for earnings growth over the medium-to-longer term.”
Gildan and Browning West’s increasingly expensive fight for control of the board is “ironic,” in the words of CIBC’s Mr. Petrie, because “we believe the vision and strategic plan put forth by each party is relatively comparable.”
“Despite varying financial projections, there are no substantial deviations in strategic or capital allocation priorities,” between Gildan CEO Vince Tyra’s plan, announced in mid-April and the strategy Mr. Chamandy and Browning West unveiled shortly after, said Mr. Petrie in a report.
“We do not believe there is a clear ‘favourite’ at this point, and see any input from the proxy advisory services as important swing factors,” he said. In the next two weeks, shareholder advisers Glass, Lewis & Co. and Institutional Shareholder Services Inc. are expected to recommend how Gildan investors should vote at the May 28 meeting.