Lockdowns and bans on large gatherings across North America and elsewhere have sapped demand for Gildan’s printwear, which makes up two-thirds of the company’s revenue.Jim Young/The Globe and Mail
Gildan Activewear Inc. is bracing for a lengthy lull in its main printwear business as the maker of T-shirts and socks gears down operations and slashes costs to weather the fallout from the COVID-19 crisis.
Sales of Gildan’s “imprintables” – basically blank T-shirts and other clothing used to make specialized apparel such as children’s softball team jerseys – dropped 75 per cent in April as the COVID-19 pandemic spread around the world. The Montreal-based company said it believes demand won’t shrink further but that the timing of a pickup remains unclear.
“We think it’s going to be a slow trajectory,” Gildan chief executive officer Glenn Chamandy said in an interview Thursday after the company’s virtual annual meeting. “We definitely will have less sales as we go forward. And they will be a function of how people will move around and how things open up. If they open up quicker, we’ll start selling more. So that’s the point. We just don’t know.”
Lockdowns and bans on large gatherings across North America and elsewhere have sapped demand for Gildan’s printwear, which makes up two-thirds of the company’s revenue. With concerts and sports events suspended, no corporate promotional events happening and many retail stores closed, the company has halted almost all of its manufacturing facilities.
The printwear business is not dead, Mr. Chamandy said, adding sales to online direct-to-consumer companies such as Vistaprint have held up. “It’s just basically on life support right now until you get people moving out of their houses.”
Gildan is preparing for the worst. Late Wednesday, the manufacturer said it would suspend its dividend, cut executive compensation and defer non-essential capital spending and expenses as it reported a US$99.3-million loss for the first quarter on sales of US$459-million. It said it expects another significant loss in the second quarter.
The company estimates that by suspending manufacturing it can reduce its cash burn to between US$35-million and US$40-million a month, with most of its spending being used to continue to pay workers. It has about US$950-million in available liquidity, the support of key lenders and enough inventory on hand to serve projected demand, Gildan finance chief Rhodri Harries said.
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Gildan shares fell 12.8 per cent to close at $19.42 Thursday on the Toronto Stock Exchange. Gildan has a current market capitalization of $3.8-billion.
Sales declines are less severe in the company’s two other businesses. The first is the retail channel, where it sells Gold Toe socks, American Apparel shirts and other staple branded clothing to mass-market store operators and online.
“Consumers still need to buy underwear. They need to buy socks and leisurewear to stay home,” Mr. Chamandy said. “So we’re still continuing to sell those products.”
The second is its growing private brands business, in which Gildan makes clothing for other customers such as Walmart, Costco and Adidas. Mr. Chamandy sees that unit taking share from rivals in the months ahead as U.S. customers move orders to suppliers closer to home. Gildan has sewing factories in Honduras, barely an hour and a half away from Miami by air, he pointed out, while it has several yarn-spinning plants in the United States.
“How many sourcing guys have been on an airplane to go to China or anywhere in Asia today? I mean it’s just not going to happen for a long time,” the CEO said. “We have the capability … of being the beneficiary of this shift.”
Chris Li, an analyst with Desjardins Capital Markets, said Gildan has several advantages in its corner to weather the storm and provide long-term value to investors, including low-cost manufacturing and scale. “The big unknown is how long it will take [the company] to return to its prepandemic earnings level."
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