UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of: May 2024 Commission File Number: 1-14830
GILDAN ACTIVEWEAR INC.
(Translation of Registrant's name into English)
600 de Maisonneuve Boulevard West
33rd Floor
Montreal, Quebec
Canada H3A 3J2
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
Form 20-F Form 40-F
o D
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1):
o
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7):
o
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GILDAN ACTIVEWEAR INC.
Date: May 1, 2024 By: /s/ Michelle Taylor
Name: Michelle Taylor
Title: Vice-President, General Counsel and Corporate/Secretary
SEC 1815 (04-09) Persons who are to respond to the collection of information contained in this form are
not required to respond unless the form displays a currently valid OMB control number.
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EXHIBIT INDEX
Exhibit Description of Exhibit
99.1 Management's Discussion and Analysis
99.2 Interim Financial Statements
99.3 Certifications of Interim Filings - CEO
99.4 Certifications of Interim Filings - CFO
2024 First Quarter
Shareholder Report
Contents
MD&A
1.0 Preface 2
2.0 Caution regarding forward-looking statements 2
3.0 Our business 4
4.0 Strategy 7
5.0 Operating results 8
6.0 Financial condition 18
7.0 Cash flows 20
8.0 Liquidity and capital resources 22
9.0 Legal proceedings 26
10.0 Financial risk management 27
11.0 Critical accounting estimates and judgments 27
12.0 Accounting policies and new accounting standards not yet applied 27
13.0 Internal control over financial reporting 28
14.0 Risks and uncertainties 28
15.0 Definition and reconciliation of non-GAAP financial measures 29
Condensed interim consolidated financial statements 36
Notes to the condensed interim consolidated financial statements 40
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MANAGEMENT'S DISCUSSION AND ANALYSIS
1.0 PREFACE
In this Management's Discussion and Analysis (MD&A), "Gildan", the "Company",
or the words "we", "us", and "our" refer, depending on the context, either to
Gildan Activewear Inc. or to Gildan Activewear Inc. together with its
subsidiaries.
This MD&A comments on our operations, financial performance, and financial
condition as at and for the three months ended March 31, 2024. All amounts in
this MD&A are in U.S. dollars, unless otherwise noted. For a complete
understanding of our business environment, trends, risks and uncertainties,
and the effect of accounting estimates on our results of operations and
financial condition, this MD&A should be read in conjunction with Gildan's
unaudited condensed interim consolidated financial statements as at and for
three months ended March 31, 2024, and the related notes, and with our MD&A
for the year ended December 31, 2023 (2023 Annual MD&A).
In preparing this MD&A, we have taken into account all information available
to us up to May 1, 2024, the date of this MD&A. The unaudited condensed
interim consolidated financial statements as at and for three months ended
March 31, 2024 and this MD&A were reviewed by Gildan's Audit and Finance
Committee and were approved and authorized for issuance by our Board of
Directors on May 1, 2024.
The unaudited condensed interim consolidated financial statements as at and
for the three months ended March 31, 2024 have been prepared in accordance
with International Accounting Standard (IAS) 34, Interim Financial Reporting,
as issued by the International Accounting Standards Board (IASB). All
financial information contained in this MD&A is consistent with International
Financial Reporting Standards (IFRS), except for certain information discussed
in the section entitled "Definition and reconciliation of non-GAAP financial
measures" in this MD&A.
Additional information about Gildan, including our 2023 Annual Information
Form, is available on our website at www.gildancorp.com, on the SEDAR+ website
at www.sedarplus.ca, and on the EDGAR section of the U.S. Securities and
Exchange Commission website (which includes the Annual Report on Form 40-F) at
www.sec.gov.
2.0 CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this MD&A constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995 and Canadian securities legislation and regulations and are
subject to important risks, uncertainties, and assumptions. This forward-looking
information includes, amongst others, information with respect to our
objectives and the strategies to achieve these objectives, including
statements related to the Gildan's Sustainable Growth (GSG) strategy and Next
Generation ESG strategy and ESG targets as well as information with respect to
our beliefs, plans, expectations, anticipations, estimates, and intentions. In
particular, information appearing under the headings "Our business",
"Strategy", "Operating results", "Liquidity and capital resources - Long-term
debt and net debt", "Financial risk management", and "Risks and uncertainties"
contain forward looking statements. Forward-looking statements generally can
be identified by the use of conditional or forward-looking terminology such as
"may", "will", "expect", "intend", "estimate", "project", "assume",
"anticipate", "plan", "foresee", "believe", or "continue", or the negatives of
these terms or variations of them or similar terminology. We refer you to the
Company's filings with the Canadian securities regulatory authorities and the
U.S. Securities and Exchange Commission, as well as the risks described under
the "Financial risk management", "Critical accounting estimates and
judgments", and "Risks and uncertainties" sections of this MD&A for a
discussion of the various factors that may affect the Company's future
results. Material factors and assumptions that were applied in drawing a
conclusion or making a forecast or projection are also set out throughout this
document.
Forward-looking information is inherently uncertain and the results or events
predicted in such forward-looking information may differ materially from
actual results or events. Material factors, which could cause actual results
or events to differ materially from a conclusion, forecast, or projection in
such forward-looking information, include, but are not limited to:
.
changes in general economic, financial or geopolitical conditions globally or
in one or more of the markets we serve;
.
our ability to implement our growth strategies and plans, including our
ability to bring projected capacity expansion online;
.
our ability to successfully integrate acquisitions and realize expected
benefits and synergies;
QUARTERLY REPORT - Q1 2024 P.2
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MANAGEMENT'S DISCUSSION AND ANALYSIS
.
the intensity of competitive activity and our ability to compete effectively;
.
our reliance on a small number of significant customers;
.
the fact that our customers do not commit to minimum quantity purchases;
.
our ability to anticipate, identify, or react to changes in consumer
preferences and trends;
.
our ability to manage production and inventory levels effectively in relation
to changes in customer demand;
.
fluctuations and volatility in the prices of raw materials from current levels
and energy related inputs used to manufacture and transport our products;
.
our reliance on key suppliers and our ability to maintain an uninterrupted
supply of raw materials, intermediate materials, and finished goods;
.
the impact of climate, political, social, and economic risks, natural
disasters, epidemics, pandemics and endemics, such as the COVID-19 pandemic,
in the countries in which we operate or sell to, or from which we source
production;
.
disruption to manufacturing and distribution activities due to such factors as
operational issues, disruptions in transportation logistic functions, labour
disruptions, political or social instability, weather-related events, natural
disasters, epidemics and pandemics, such as the COVID-19 pandemic, and other
unforeseen adverse events;
.
compliance with applicable trade, competition, taxation, environmental, health
and safety, product liability, employment, patent and trademark, corporate and
securities, licensing and permits, data privacy, bankruptcy, anti-corruption,
and other laws and regulations in the jurisdictions in which we operate;
.
the imposition of trade remedies, or changes to duties and tariffs,
international trade legislation, bilateral and multilateral trade agreements
and trade preference programs that the Company is currently relying on in
conducting its manufacturing operations or the application of safeguards
thereunder;
.
elimination of government subsidies and credits that we currently benefit
from, and the non-realization of anticipated new subsidies and credits;
.
factors or circumstances that could increase our effective income tax rate,
including the outcome of any tax audits or changes to applicable tax laws or
treaties, including the expected implementation in the near term of a global
minimum tax rate of 15%;
.
changes to and failure to comply with consumer product safety laws and
regulations;
.
changes in our relationship with our employees or changes to domestic and
foreign employment laws and regulations;
.
negative publicity as a result of actual, alleged, or perceived violations of
human rights, labour and environmental laws or international labour standards,
or unethical labour or other business practices by the Company or one of its
third-party contractors;
.
our ability to protect our intellectual property rights;
.
operational problems with our information systems or those of our service
providers as a result of system failures, viruses, security and cyber security
breaches, disasters, and disruptions due to system upgrades or the integration
of systems;
.
an actual or perceived breach of data security;
.
our reliance on key management and our ability to attract and/or retain key
personnel;
.
rapid developments in artificial intelligence;
.
changes in accounting policies and estimates;
.
exposure to risks arising from financial instruments, including credit risk on
trade accounts receivables and other financial instruments, liquidity risk,
foreign currency risk, and interest rate risk, as well as risks arising from
commodity prices; and
.
the aggregate costs to the Company for CEO separation costs and related
advisory fees on shareholder matters as well as costs relating to assessing
external interests in acquiring the Company.
These factors may cause the Company's actual performance and financial results
in future periods to differ materially from any estimates or projections of
future performance or results expressed or implied by such forward-looking
statements. Forward-looking statements do not take into account the effect
that transactions or non-recurring or other special items announced or
occurring after the statements are made may have on the Company's business.
For example, they do not include the effect of business dispositions,
acquisitions, other business transactions, asset write-downs, asset impairment
losses, or other charges announced or occurring after forward-looking
statements are made. The financial impact of such transactions and
non-recurring and other special items can be complex and necessarily depends
on the facts particular to each of them.
QUARTERLY REPORT - Q1 2024 P.3
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MANAGEMENT'S DISCUSSION AND ANALYSIS
There can be no assurance that the expectations represented by our
forward-looking statements will prove to be correct. The purpose of the
forward-looking statements is to provide the reader with a description of
management's expectations regarding the Company's future financial performance
and may not be appropriate for other purposes. Furthermore, unless otherwise
stated, the forward-looking statements contained in this report are made as of
the date hereof, and we do not undertake any obligation to update publicly or
to revise any of the included forward-looking statements, whether as a result
of new information, future events, or otherwise unless required by applicable
legislation or regulation. The forward-looking statements contained in this
report are expressly qualified by this cautionary statement.
3.0 OUR BUSINESS
3.1 Overview
Gildan is a leading vertically integrated manufacturer of everyday basic
apparel, including activewear, underwear, and hosiery products. Our products
are sold to wholesale distributors, screenprinters, and embellishers in North
America, Europe, Asia-Pacific, and Latin America, as well as to retailers in
North America, including mass merchants, department stores, national chains,
specialty retailers, craft stores, and online retailers. We also manufacture
products for global lifestyle brand companies who market these products under
their own brands through their own retail establishments, e-commerce
platforms, and/or to third-party retailers.
Manufacturing and operating as a socially responsible producer is at the heart
of what we do. The vast majority of our sales are derived from products we
manufacture ourselves. Since the Company's formation, we have made significant
capital investments in developing and operating our own large-scale,
vertically integrated manufacturing facilities, including yarn production,
textile and sock manufacturing, as well as sewing operations, controlling all
aspects of the production process from start to finish for the garments we
produce.
We believe the skill set that we have developed in designing, constructing,
and operating our own manufacturing facilities, the level of vertical
integration of our supply chain and the capital investments that we have made
over the years differentiate us from our competition who are not as vertically
integrated and may rely more heavily on third-party suppliers. Owning and
operating the vast majority of our manufacturing facilities allows us to
exercise tighter control over our production processes, efficiency levels,
costs and product quality, as well as to provide reliable service with short
production/delivery cycle times. In addition, running our own operations
allows us to achieve adherence to high standards for environmental and social
responsibility practices employed throughout our supply chain.
3.2 Our Operations
3.2.1 Brands, Products and Customers
The products we manufacture and sell are marketed under Company brands,
including Gildan(R), American Apparel(R), Comfort Colors(R), Gildan(R)
Hammer", GoldToe(R), and Peds(R). Further, we manufacture for and supply
products to select leading global athletic and lifestyle brands, as well as to
certain retail customers who market these products under their own exclusive
brands.
Our primary product categories include activewear tops and bottoms
(activewear), socks (hosiery), and underwear tops and bottoms (underwear). In
fiscal 2023, Activewear sales accounted for 83% of total net sales, and
Hosiery and underwear sales accounted for 17% of total net sales.
We sell our activewear products primarily in "blank" or undecorated form,
without imprints or embellishment. The majority of our Activewear sales are
currently derived from activewear sold to wholesale distributors in the
imprintables channels in North America and internationally. These wholesale
distributors then sell the blank garments to screenprinters/embellishers who
decorate the products with designs and logos, and who in turn sell the
embellished/imprinted activewear into a highly diversified range of end-use
markets. These include educational institutions, athletic dealers, event
merchandisers, promotional product distributors, charitable organizations,
entertainment promoters, travel and tourism venues, and retailers. The
activewear products have diverse applications, such as serving as work or
school uniforms or athletic team wear or simply conveying individual, group,
QUARTERLY REPORT - Q1 2024 P.4
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MANAGEMENT'S DISCUSSION AND ANALYSIS
and team identity. We also sell activewear products in blank form directly to
various retailers, or through national accounts servicing retailers, in
addition to underwear and socks for men, ladies, and kids. These retailers
include mass merchants, department stores, national chains, sports specialty
stores, craft stores, food and drug retailers, dollar stores, and price clubs,
all of which sell to consumers through their brick and mortar outlets and/or
their e-commerce platforms. Additionally, we sell to pure-play online
retailers who sell to consumers. We also manufacture for and sell to select
leading global athletic and lifestyle consumer brand companies who distribute
these products within the retail channel through their own retail
establishments, e-commerce platforms, and/or through third-party retailers.
The following table summarizes our current primary product offering under
Company and licensed brands:
Primary product categories Product-line details Brands
Activewear T-shirts, fleece tops and bottoms, Gildan(R), Gildan Performance(R), Gildan(R) Hammer",
sport shirts, polos and tank tops Gildan Softstyle(R), Gildan Heavy Cotton", Gildan
Ultra Cotton(R), Gildan DryBlend(R), Gildan
HeavyBlend", Comfort Colors(R), American Apparel(R)
Hosiery athletic, dress, casual and workwear socks, Gildan(R), GoldToe(R), Signature
liner socks, and socks Gold by GoldToe(R), GoldToe Edition
for therapeutic purposes TM
(1) , Peds(R), MediPeds(R),
All Pro(R), Powersocks(R)
Underwear men's and boys' underwear (tops Gildan(R), Gildan Platinum(R)
and bottoms) and ladies panties
(1) Applicable only to MediPeds(R).
3.2.2 Manufacturing
The vast majority of our products are manufactured in facilities that we own
and operate. To a much lesser extent, we also use third-party contractors to
supplement certain product requirements. Our vertically integrated operations
range from start to finish of the garment production process and include
capital-intensive yarn-spinning, textile and sock manufacturing facilities, as
well as labour-intensive sewing facilities. Our manufacturing operations are
situated in four main hubs, specifically in the United States, Central
America, the Caribbean, and Bangladesh. All of our yarn-spinning operations
are located in the United States, while textile, sewing, and sock
manufacturing operations are situated in the other geographical hubs mentioned
above, the largest of which is in Honduras in Central America.
In order to support further sales growth, continue to drive an efficient and
competitive cost structure, and enhance geographic diversification in our
supply chain, we are expanding manufacturing capacity with a significant
expansion in Bangladesh, which involves the development of a large multi-plant
manufacturing complex expected to house two large textile facilities and
related sewing operations. The construction of the first textile and sewing
complex is substantially completed, while progressive ramp-up of operations is
underway and will continue through 2024.
QUARTERLY REPORT - Q1 2024 P.5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table provides a summary of our primary manufacturing operations
by geographic area:
United States Central America Caribbean Asia
Yarn-spinning facilities Salisbury, NC
(1) Mocksville, NC
: Eden, NC
conversion of cotton, polyester Clarkton, NC
and other fibres into yarn Sanford, NC
(2 facilities)
Mayodan, NC
Textile facilities: Honduras Dominican Bangladesh (2 facilities)
knitting yarn into fabric, (4 facilities) Republic
dyeing and cutting fabric
Sewing facilities Honduras Dominican Bangladesh (3 facilities)
(2) (2 facilities) Republic
: Nicaragua (3 facilities)
assembly and sewing (5 facilities)
of cut goods
Garment-dyeing Honduras
(3)
:
pigment dyeing or reactive
dyeing process (Pigment Pure")
Hosiery manufacturing Honduras
facilities:
conversion of yarn
into finished socks
(1) While the majority of our yarn requirements are internally produced, we
also use third-party yarn-spinning suppliers, primarily in Asia for our
Bangladesh operations, to satisfy the remainder of our yarn needs. The
majority of cotton used by our Asian contractors is U.S. cotton.
(2) Although the majority of our sewing facilities are Company-operated, we
also use the services of third-party sewing contractors, in other regions in
Central America and Haiti, to satisfy the remainder of our sewing requirements.
(3) Garment dyeing is a feature of our Comfort Colors(R) products only, a
proprietary dyeing process under the name Pigment Pure" which involves a
different dyeing process than how we typically dye the majority of our
products at our textile facilities. Our garment dyeing operations are located
in our Rio Nance 3 facility in Honduras.
3.2.3 Sales, marketing and distribution
Our global sales and marketing office is located in Christ Church, Barbados,
out of which we have established customer-related functions, including sales
management, marketing, customer service, credit management, sales forecasting,
production planning, inventory control, and logistics, as well as finance,
human resources and information technology functions. We also maintain sales
support offices in the U.S. We have established extensive distribution
operations primarily through internally managed and operated large
distribution centres and some smaller facilities in the U.S., a large
distribution facility in Honduras, as well as a distribution facility in
Bangladesh. To supplement some of our distribution needs, we also use
third-party warehouses in North America and Europe.
3.2.4 Employees and corporate office
We currently employ over 44,000 employees worldwide. Our corporate head office
is located in Montreal, Canada.
QUARTERLY REPORT - Q1 2024 P.6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
3.3 Competitive environment
The basic apparel market for our products is highly competitive. Competition
is generally based upon service and product availability, price, quality,
comfort and fit, style, and brand. We compete on these factors by leveraging
our competitive strengths, including our strategically located and vertically
integrated manufacturing supply chain, scale, cost structure, global
distribution, and our brand positioning in the markets we serve. We believe
our manufacturing skill set, together with our large-scale, low-cost
vertically integrated supply chain infrastructure that we have developed
through significant investments over time, are key competitive strengths and
differentiators from our competition.
We face competition from large and smaller U.S. based and foreign
manufacturers or suppliers of basic family apparel. Among the larger competing
North American-based manufacturers are Hanesbrands Inc., as well as Fruit of
the Loom, Inc., a subsidiary of Berkshire Hathaway Inc., which competes
through its own brand offerings and those of its subsidiary, Russell
Corporation. These companies manufacture out of some of the same geographies
as Gildan and compete primarily within the same basic apparel product
categories in similar channels of distribution in North America and
international markets. In socks and underwear, our competitors also include
Renfro Corporation, Jockey International, Inc., and Kayser Roth Corporation.
In addition, we compete with smaller U.S. based companies selling to or
operating as wholesale distributors of imprintables activewear products,
including Next Level Apparel, Color Image Apparel, Inc. (owner of the Bella +
Canvas brand), and Delta Apparel Inc., as well as Central American, Mexican
and Asian manufacturers that supply products in the imprintables channel.
Finally, although we also compete with some of our customers' own private
brand offerings, we also supply products to certain customers that are seeking
strategic suppliers with our type of manufacturing capabilities to support
their private brand offerings.
4.0 STRATEGY
Gildan Sustainable Growth Strategy
Building on a strong foundation, in 2022 the Company launched its "Gildan
Sustainable Growth" (GSG) strategy focused on driving organic top and
bottom-line growth through three key pillars - capacity expansion, innovation,
and ESG. We believe that by leveraging our competitive advantage as a
low-cost, vertically integrated manufacturer, successfully executing on
well-defined capacity expansion plans, delivering value-driven and innovative
products, and leading ESG practices, in addition to pursuing the five key
focus strategic priorities announced on April 15, 2024, the Company will be
well positioned to drive long-term revenue growth, profitability and effective
asset utilization, all of which are expected to allow us to deliver compelling
shareholder value creation over the long-term.
The three pillars of our GSG strategy are:
Capacity-driven growth:
Leveraging our strong competitive advantage as a low-cost vertically
integrated manufacturer as we execute on well-defined plans to expand and
optimize our global production capacity to support our long-term growth plans
Executing on our plans, we have strengthened our vertical integration by
expanding our yarn-spinning capabilities through the acquisition and
modernization of Frontier Yarns. We are also executing on the first phase of
development of a large vertically integrated textile and sewing complex in
Bangladesh, as described in more detail in subsection 3.2.2 entitled
"Manufacturing" in this MD&A.
Innovation:
Driving leadership in innovation across the organization and all areas of
operations aimed at delivering high-quality, value-driven products, increased
speed-to-market, operational efficiencies and a reduced environmental footprint
The Company has identified and defined specific key initiatives, as well as
investments aimed at driving innovation in our product development and
manufacturing processes, distribution and final products, including fabric
features, product fit, fabric adaptability to evolving printing and decorating
techniques, and ESG-friendly product attributes. In early 2024, we announced
the release of a number of new products, including our improved ultra cotton
2000 T-shirt. In this regard, we developed a new proprietary cotton technology
by re-engineering our entire process from the yarn through to the finished
process, enhancing fabric softness, all while improving printability. We are
also actively investing in digital tools, predictive analytics, and artificial
intelligence to accelerate decision-making across the organization, streamline
processes, and optimize supply chain planning.
QUARTERLY REPORT - Q1 2024 P.7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
ESG:
Further increasing our ESG focus across all operations and leveraging our
strong ESG standing and progress to enhance our value proposition to all our
stakeholders
As of 2024, Gildan is embarking on its third year of implementing its Next
Generation ESG strategy, which encompasses a broad range of initiatives. These
include reducing carbon footprint and water intensity, fostering a circular
economy, supporting regional economic development, ensuring respect for human
rights, and maintaining safety standards throughout the supply chain. The
strategy also embraces a commitment to people, with a focus on investing in
our workforce, promoting diversity and inclusion, in addition to enhancing ESG
transparency. This strategy includes 10 core targets focused on five different
pillars: Climate, Energy and Water; Circularity; Human Capital Management;
Long Term Value Creation, and Transparency and Disclosure. For more detailed
information regarding these initiatives, please refer to Gildan's 2022 ESG
report. Information in our 2022 ESG Report does not form part of and is not
incorporated by reference in this MD&A.
Finally, capitalizing on this strong foundation and the continued execution of
the GSG plan which remains core to Gildan's business, key focus strategic
priorities were outlined in mid-April 2024, to unlock further growth potential
while amplifying the Company's commercial capabilities. These five key
priorities are:
.
Successfully execute supply chain initiatives to maintain availability, cost
leadership and industry leading margins;
.
Leverage Gildan's unique brands and develop distinct commercial capabilities
to accelerate growth and strengthen the Company's market position;
.
Deepen Gildan's relationships with existing and prospective retail partners,
strengthening the Company's position as the supplier of choice;
.
Complement Gildan's strong North American market position with renewed focus
on select international markets to drive growth; and
.
Empower and build world-class talent and leadership to ensure long term
resilience of Gildan's business.
5.0 OPERATING RESULTS
Overview and business environment
Throughout 2023, the apparel sector faced significant challenges amid broader
economic and political uncertainty, contributing to an industry-wide soft
demand environment, albeit showing improvement from 2022. We observed
sequential improvements in year-over-year point of sales ("POS") trends for
Activewear throughout the first three quarters of the 2023 year, before
stabilizing over the past six months. Our 2023 net sales were down
year-over-year as we faced strong 2022 comparative periods, which had
benefited from distributor inventory replenishment following the COVID-19
pandemic. Nevertheless, the printwear industry showed resiliency, marked by
continued enthusiasm surrounding experiences, such as travel, concerts, and
large events. In the Hosiery and underwear categories, demand remained weak
across the industry in 2023 but we capitalized on a comparatively more
favorable demand environment versus the previous year.
We delivered adjusted operating margins
1
within our target of 18% to 20% in the second half of 2023 and the first
quarter of 2024, as the pressure from the flow through of peak cotton costs
abated. Overall, we are proud to have diligently navigated through the
changing environment of the past few years, which allowed us to deliver strong
performance within key growth categories. Moreover, over the past year we made
significant progress on each of the three pillars of our GSG strategy,
optimizing our manufacturing capacity, fostering innovation, and further
reinforcing our commitment to ESG. While we believe our vertically-integrated
manufacturing model and financial strength facilitates our ability to navigate
through various headwinds impacting the current market landscape, it is
difficult to predict the impact on our business due to the lagging effects of
inflationary pressures, increased recessionary and geopolitical risks and
other factors.
(1) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
QUARTERLY REPORT - Q1 2024 P.8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.1 Non-GAAP financial measures
We use non-GAAP financial measures and ratios to assess our operating
performance and liquidity. Securities regulations require that companies
caution readers that earnings and other measures adjusted to a basis other
than IFRS do not have standardized meanings and are unlikely to be comparable
to similar measures used by other companies. Accordingly, they should not be
considered in isolation. In this MD&A, we use non-GAAP financial measures and
ratios including: adjusted net earnings; adjusted diluted EPS; adjusted gross
profit; adjusted gross margin; adjusted selling, general and administrative
expenses (adjusted SG&A expenses); adjusted SG&A expenses as a percentage of
net sales; adjusted operating income; adjusted operating margin; adjusted
EBITDA; and return on adjusted average net assets (adjusted RONA) to measure
our performance and financial condition from one period to the next, which
excludes the variation caused by certain adjustments that could potentially
distort the analysis of trends in our operating performance, and because we
believe such measures provide meaningful information to investors and
management on the Company's financial performance and financial condition. We
also use non-GAAP financial measures including free cash flow, total debt, net
debt, net debt leverage ratio and working capital.
We refer the reader to section 15.0 entitled "Definition and reconciliation of
non-GAAP financial measures" in this MD&A for the definition and complete
reconciliation of all non-GAAP financial measures used and presented by the
Company to the most directly comparable IFRS measures.
5.2 Summary of quarterly results
The table below sets forth certain summarized unaudited quarterly financial
data for the eight most recently completed quarters. This quarterly
information is unaudited and has been prepared in accordance with IAS 34 of
IFRS. The operating results for any quarter are not necessarily indicative of
the results to be expected for any future period.
For the three Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 Q4 2022 Q3 2022 Q2 2022
months ended
(in $ millions, except share and per
share amounts or otherwise indicated)
Net 695.8 782.7 869.9 840.4 702.9 720.0 850.0 895.6
sales
Net 78.7 153.3 127.4 155.3 97.6 83.9 153.0 158.2
earnings
Net earnings
per share:
Basic 0.47 0.89 0.73 0.87 0.54 0.47 0.84 0.85
(1)
Diluted 0.47 0.89 0.73 0.87 0.54 0.47 0.84 0.85
(1)
Weighted average number
of shares outstanding
(in `000s)
:
Basic 168,869 171,495 175,087 177,624 179,543 179,680 181,980 185,506
Diluted 168,977 171,806 175,348 177,902 179,843 179,897 182,239 185,869
(1) Quarterly EPS may not add to year-to-date EPS due to rounding.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.2.1 Seasonality and other factors affecting the variability of results and
financial condition
Our results of operations for interim and annual periods are impacted by the
variability of certain factors, including, but not limited to, changes in
end-use demand and customer demand, our customers' decisions to increase or
decrease their inventory levels, changes in our sales mix, and fluctuations in
selling prices and raw material costs. While our products are sold on a
year-round basis, our business experiences seasonal changes in demand which
result in quarterly fluctuations in operating results. Although certain
products have seasonal peak periods of demand, competitive dynamics may
influence the timing of customer purchases causing seasonal trends to vary
somewhat from year to year. Historically, demand for T-shirts is lowest in the
fourth quarter and highest in the second quarter of the year, when
distributors purchase inventory for the peak summer selling season.
Historically, demand for fleece is typically highest in advance of the fall
and winter seasons, in the second and third quarters of the year. Sales of
hosiery and underwear are typically higher during the second half of the year,
during the back-to-school period and the Christmas holiday selling season.
These seasonal sales trends of our business also result in fluctuations in our
inventory levels throughout the year.
Our results are also impacted by fluctuations in the price of raw materials
and other input costs. Cotton and polyester fibers are the primary raw
materials used in the manufacture of our products, and we also use chemicals,
dyestuffs, and trims, which we purchase from a variety of suppliers. Cotton
prices are affected by consumer demand and global supply, which may be
impacted by weather conditions in any given year, speculation on the
commodities market, the relative valuations and fluctuations of the currencies
of producer versus consumer countries, and other factors that are generally
unpredictable. While we enter into purchase contracts and derivative financial
instruments in advance of delivery to establish firm prices for the cotton
component of our yarn requirements, our realized cotton costs can fluctuate
significantly between interim and annual reporting periods. Energy costs in
our results of operations are also affected by fluctuations in crude oil,
natural gas, and petroleum prices, which can also influence transportation
costs and the cost of related items used in our business, such as polyester
fibers, chemicals, dyestuffs, and trims. Changes in raw material costs are
initially reflected in the cost of inventory and only impact net earnings when
the respective inventories are sold.
Business acquisitions may affect the comparability of results. In addition,
management decisions to consolidate or reorganize operations, including the
closure of facilities, may result in significant restructuring costs in an
interim or annual period. Subsection 5.5.5 entitled "Restructuring and
acquisition-related costs" in this MD&A contains a discussion of costs related
to the Company's restructuring actions and business acquisitions. Share
repurchases have reduced our number of shares outstanding and increased our
net earnings per share (EPS). The Company may repurchase more shares in the
future as deemed appropriate, but this remains uncertain. The effect of asset
write-downs, including allowances for expected credit losses, provisions for
discontinued inventories, and impairments of long-lived assets can also affect
the variability of our results. In the fourth quarter of fiscal 2023, we
recorded a reversal of impairment of $41 million, compared to an impairment
charge of $62 million in fiscal 2022 relating to our Hosiery cash-generating
unit (CGU). Our results of operations over the past two years also include net
insurance gains resulting from accrued insurance recoveries for the Company's
claims for losses relating to the two hurricanes in Central America in
November 2020 (Q4 2022: $25.6 million, Q1 2023: $3.3 million and Q2 2023: $74
million), as well as a $16 million after-tax gain on the sale and leaseback of
a distribution facility located in the United States in Q1 2023. Our results
of operations over the past two quarters have been impacted by higher than
usual SG&A expenses, due to the CEO separation costs and related advisory fees
on shareholder matters and special retention awards which resulted in costs
and charges totaling $6.3 million and $17.2 million in the fourth quarter of
fiscal 2023 and the first quarter of fiscal 2024, respectively, and $2.5
million of costs in the first quarter of fiscal 2024 relating to assessing
external interests in acquiring the Company (as explained in section 5.5.3 and
section 15.0 of this MD&A).
Our reported amounts for net sales, cost of sales, SG&A expenses, and
financial expenses or income are impacted by fluctuations in certain foreign
currencies versus the U.S. dollar as described in the "Financial risk
management" section of this MD&A. The Company periodically uses derivative
financial instruments to manage risks related to fluctuations in foreign
exchange rates.
QUARTERLY REPORT - Q1 2024 P.10
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.3 Global Minimum Tax
On August 4, 2023, the Government of Canada released draft legislation in the
form of the Global Minimum Tax Act for consultation which is intended to
follow the model rules and guidance from the OECD initiatives against base
erosion and profit shifting (BEPS). If enacted as published, the legislation
would implement a 15% global minimum tax rate for fiscal years that begin on
or after December 31, 2023. The proposed rules would apply to the income of
certain of the Company's non-Canadian subsidiaries that are currently subject
to an effective tax rate of below 15%, after reflecting the impact of
substance based carveouts included in the rules, which together comprise the
majority of the Company's taxable income. On December 15, 2023, the Government
of Barbados also released draft legislation in response to Pillar Two which
would effectively subject the Company's profits in Barbados to an effective
tax rate of 15% for fiscal years that begin on or after January 1, 2024. If
Pillar Two legislation would have applied in 2023, the Company's average
effective tax rate would have been approximately 18%.
The Company is closely monitoring the developments in the various
jurisdictions in which it operates, including specific implementation details
related to Pillar Two and other unrelated legislation or programs in order to
continue to assess the overall impact of such legislation on the Company's
effective tax rate and operating results. Though the timing of the potential
enactment of legislation remains uncertain, we have incorporated in our 2024
financial profit and cash flow plans, the estimated impact of the
implementation of draft Global Minimum Tax legislation, retroactive to January
1, 2024. Our results of operations for the first quarter of fiscal 2024 do not
reflect the impact of a Global Minimum Tax as the aforementioned legislation
has not yet been substantively enacted in Canada and Barbados. This
legislation is expected to be enacted during fiscal 2024 with retroactive
effect to January 1, 2024, and as such, the cumulative retroactive impact will
be accounted for in the fiscal quarter in which enactment occurs. For
additional disclosures relating to Global Minimum Tax, including the impact of
the enactment of Pillar Two legislation in Belgium and in the United Kingdom,
please refer to Note 19 of our 2023 audited annual consolidated financial
statements, as well as section 15.0 entitled "Risks and uncertainties" of our
2023 Annual MD&A.
QUARTERLY REPORT - Q1 2024 P.11
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.4 Selected financial information
(in $ millions, except per share amounts or otherwise indicated) Three months ended
Mar 31, 2024 Apr 2, 2023 Variation
$ %
Net sales 695.8 702.9 (7.1) (1.0) %
Gross profit 211.1 187.7 23.4 12.5 %
Adjusted gross profit 211.1 184.4 26.7 14.5 %
(1)
SG&A expenses 105.2 81.8 23.4 28.6 %
Adjusted SG&A expenses 85.5 81.8 3.7 4.5 %
(1)
Gain on sale and leaseback - (25.0) 25.0 n.m.
Restructuring and acquisition-related costs 0.8 2.8 (2.0) (71.4) %
Operating income 105.1 128.0 (22.9) (17.9) %
Adjusted operating income 125.6 102.5 23.1 22.5 %
(1)
Adjusted EBITDA 157.2 130.4 26.8 20.6 %
(1)
Financial expenses 22.7 17.0 5.7 33.5 %
Income tax expense 3.7 13.4 (9.7) (72.4) %
Net earnings 78.7 97.6 (18.9) (19.4) %
Adjusted net earnings 99.2 81.6 17.6 21.6 %
(1)
Basic EPS 0.47 0.54 (0.07) (13.0) %
Diluted EPS 0.47 0.54 (0.07) (13.0) %
Adjusted diluted EPS 0.59 0.45 0.14 31.1 %
(1)
Gross margin 30.3 % 26.7 % n/a 3.6 pp
(2)
Adjusted gross margin 30.3 % 26.2 % n/a 4.1 pp
(1)
SG&A expenses as a percentage of net sales 15.1 % 11.6 % n/a 3.5 pp
(3)
Adjusted SG&A expenses as a percentage of net sales 12.3 % 11.6 % n/a 0.7 pp
(1)
Operating margin 15.1 % 18.2 % n/a (3.1) pp
(4)
Adjusted operating margin 18.0 % 14.6 % n/a 3.4 pp
(1)
Mar 31, 2024 Dec 31, 2023 Variation
$ %
Total assets 3,686.7 3,514.9 171.8 4.9 %
Total non-current financial liabilities 840.0 685.0 155.0 22.6 %
Net debt 1,143.1 993.4 149.7 15.1 %
(1)
Quarterly cash dividend declared per common share 0.205 0.186 0.019 10.2 %
Net debt leverage ratio 1.6 1.5 n/a n/a
(1)
n.m. = not meaningful
n/a = not applicable
(1) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
(2) Gross margin is defined as gross profit divided by net sales.
(3) SG&A expenses as a percentage of net sales is defined as SG&A expenses
divided by net sales.
(4) Operating margin is defined as operating income divided by net sales.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.12
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.5 Operating review
5.5.1 Net sales
Three months ended
(in $ millions, or otherwise indicated) Mar 31, Apr 2, Variation
2024 2023
$ %
Activewear 592.1 587.8 4.3 0.7 %
Hosiery and underwear 103.7 115.1 (11.4) (9.9) %
Total net sales 695.8 702.9 (7.1) (1.0) %
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Net sales were derived from customers located in the following geographic areas:
Three months ended
(in $ millions, or otherwise indicated) Mar 31, Apr 2, Variation
2024 2023
$ %
United States 618.0 625.1 (7.1) (1.1) %
Canada 25.3 25.7 (0.4) (1.6) %
International 52.5 52.1 0.4 0.8 %
Total net sales 695.8 702.9 (7.1) (1.0) %
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Net sales for the first quarter ended March 31, 2024 were $696 million, down
$7 million or 1% versus prior year sales, reflecting an increase in Activewear
sales offset by a decline in the Hosiery and underwear category. Overall
shipments were essentially in line with prior year, with the net sales decline
driven by lower net selling prices and unfavorable mix. Activewear sales of
$592 million, were up 0.7%, driven by higher shipments reflecting positive POS
trends across geographies, as well as seasonal replenishment at distributors,
which came in slightly below last year's level. Activewear volume growth was
partly offset by lower net selling prices and unfavorable product mix relative
to the prior year. Activewear sales also reflected strong momentum with
National account customers, who service retail markets, as well as continued
share gains in key product categories. International sales were up 0.8%
reflecting a potential stabilization in POS trends, with noticeable signs of
recovery in some regions. In the Hosiery and underwear category, sales were
down 10% versus the prior year reflecting unfavorable mix within this
category, the phase out of the Under Armour business resulting from the expiry
of our license agreement on March 31, 2024 and broader market weakness in the
underwear category.
5.5.2 Gross profit and adjusted gross profit
Three months ended
(in $ millions, or otherwise indicated) Mar 31, Apr 2, Variation
2024 2023
Gross profit 211.1 187.7 23.4
Adjustment for:
Net insurance gains - (3.3) 3.3
(1)
Adjusted gross profit 211.1 184.4 26.7
(2)
Gross margin 30.3 % 26.7 % 3.6 pp
Adjusted gross margin 30.3 % 26.2 % 4.1 pp
(2)
(1) See subsection entitled "Certain adjustments to non-GAAP measures" for
additional information on adjustments in section 15.0 "Definition and
reconciliation of non-GAAP financial measures" in this MD&A.
(2) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.13
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company generated gross profit of $211 million in the first quarter, or
30.3% of sales, versus $188 million last year, or 26.7% of net sales. On an
adjusted basis, gross margins were 30.3% versus 26.2% last year, representing
a 410 basis point improvement which was primarily driven by lower raw material
and manufacturing input costs. These factors were partly offset by lower net
selling prices and unfavorable mix.
5.5.3 Selling, general and administrative expenses (SG&A)
Three months ended
(in $ millions, or Mar 31, Apr 2, Variation
otherwise indicated) 2024 2023
SG&A 105.2 81.8 23.4
expenses
Adjustments for:
CEO separation costs and related advisory fees on 17.2 - 17.2
shareholder matters and special retention awards
(1)
Costs relating to assessing external 2.5 - 2.5
interests in acquiring the Company
(1)
Adjusted SG&A 85.5 81.8 3.7
expenses
(2)
SG&A expenses as a 15.1 % 11.6 % 3.5 pp
percentage of net sales
Adjusted SG&A expenses as 12.3 % 11.6 % 0.7 pp
a percentage of net sales
(2)
(1) See subsection entitled "Certain adjustments to non-GAAP measures" for
additional information on adjustments in section 15.0 "Definition and
reconciliation of non-GAAP financial measures" in this MD&A.
(2) This is a non-GAAP financial measure or ratio. See section 16.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
For the first quarter ended March 31, 2024, SG&A expenses were $105 million,
or 15.1% of net sales, including a charge of $20 million pertaining to
advisory fees on shareholder matters, costs relating to assessing external
interests in acquiring the Company, adjustments to CEO separation costs as
well as special retention awards. Excluding this charge, adjusted SG&A
expenses as a percentage of net sales were 12.3% in the quarter compared to
11.6% last year, reflecting various non-recurring expenses and to a lesser
extent sales deleverage.
At March 31, 2024, accounts payable and accrued liabilities include unpaid
severance, supplemental executive retirement plan accruals and share based
compensation in respect of the former CEO in the amount of approximately $26
million. The former CEO contends that he is entitled to a total severance
package of approximately $38 million (which amount is contested by the Company
as being beyond what he is entitled to under his employment agreement). The
amounts recognized in accounts payable and accrued liabilities are recorded on
a without cause assumption.
On December 15, 2023, the Government of Barbados released draft legislation,
proposing two new tax credits, a jobs credit and a research and development
credit, in order to foster economic activity and employment in Barbados. The
proposed tax credits, which if enacted would be retroactively effective to
January 1, 2024, are designed to be "qualified refundable tax credits" under
Pillar Two rules. The Company expects to qualify for the jobs credit at a
credit rate of 100% of eligible payroll expenses and the amount of the credit
would be recorded as a reduction of SG&A expenses beginning in fiscal 2024,
and as such this expected benefit has been incorporated in our 2024 financial
profit and cash flow plans. However, our results of operations for the first
quarter of fiscal 2024 do not reflect the impact of these proposed new tax
credits, as the aforementioned legislation has not yet been substantively
enacted. This legislation is expected to be enacted during fiscal 2024 with
retroactive effect to January 1, 2024, and as such, the cumulative retroactive
impact will be accounted for in the fiscal quarter in which enactment occurs.
However, there can be no assurance that this draft legislation will be
enacted, and if enacted, that it will be enacted in its current form or that
the Company will fully qualify for these tax credits.
5.5.4 Gain on sale and leaseback
During the first quarter of fiscal 2023, the Company entered into an agreement
to sell and leaseback one of its distribution centres located in the U.S. The
proceeds of disposition were $51 million. The Company recognized a
right-of-use asset of $4 million and a lease obligation of $16 million. In
addition, a pre-tax gain on sale of $25 million ($16 million after tax) was
recognized in the condensed interim consolidated statements of earnings and
comprehensive income in gain on sale and leaseback.
QUARTERLY REPORT - Q1 2024 P.14
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.5.5 Restructuring and acquisition-related costs
Three months ended
(in $ millions) Mar 31, Apr 2, Variation
2024 2023
Employee termination - 0.5 (0.5)
and benefit costs
Exit, relocation 1.2 2.7 (1.5)
and other costs
Net (gain) loss on disposal, and write-downs of property, plant and equipment, (0.4) (0.4) -
right-of-use assets and computer software related to exit activities
Restructuring and 0.8 2.8 (2.0)
acquisition-related costs
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Restructuring and acquisition-related costs for the three months ended March
31, 2024 related to costs incurred to complete restructuring activities that
were initiated in previous years. Restructuring and acquisition-related costs
for the three months ended April 2, 2023 mainly related to the December 2022
closure of a yarn-spinning plant in the U.S., and the exit cost from
terminating a lease on a previously closed yarn facility.
5.5.6 Operating income and adjusted operating income
Three months ended
(in $ millions, or Mar 31, Apr 2, Variation
otherwise indicated) 2024 2023
Operating 105.1 128.0 (22.9)
income
Adjustments for:
Restructuring and 0.8 2.8 (2.0)
acquisition-related costs
(1)
Net insurance - (3.3) 3.3
gains
(1)
Gain on sale - (25.0) 25.0
and leaseback
(1)
CEO separation costs and related advisory fees on 17.2 - 17.2
shareholder matters and special retention awards
(1)
Costs relating to assessing external 2.5 - 2.5
interests in acquiring the Company
(1)
Adjusted 125.6 102.5 23.1
operating income
(2)
Operating 15.1 % 18.2 % (3.1) pp
margin
Adjusted 18.0 % 14.6 % 3.4 pp
operating margin
(2)
(1) See subsection entitled "Certain adjustments to non-GAAP measures" for
additional information on adjustments in section 15.0 "Definition and
reconciliation of non-GAAP financial measures" in this MD&A.
(2) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
The Company generated operating income of $105 million, or 15.1% of net sales,
compared to $128 million, or 18.2% of net sales in the first quarter last year
which included the benefit of a $25 million gain from the sale and leaseback
of one of our U.S. distribution facilities. The benefit of higher gross profit
versus last year was offset by charges incurred pertaining to advisory fees on
shareholder matters, costs relating to assessing external interests in
acquiring the Company, adjustments to CEO separation costs as well as special
retention awards. On an adjusted basis, excluding these charges, as well as
restructuring costs in both years and the gain from sales and leaseback last
year, adjusted operating income was $126 million or 18.0% of net sales, up $23
million or 340 basis points compared to prior year reflecting a higher
adjusted operating margin, resulting from a higher adjusted gross margin and a
partially offsetting impact of higher adjusted SG&A expenses.
QUARTERLY REPORT - Q1 2024 P.15
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.5.7 Financial expenses, net
Three months ended
(in $ millions) Mar 31, Apr 2, Variation
2024 2023
Interest expense on financial liabilities recorded at amortized cost 16.0 11.4 4.6
Bank and other financial charges 4.9 5.3 (0.4)
Interest accretion on discounted lease obligations 1.0 0.7 0.3
Interest accretion on discounted provisions 0.1 0.1 -
Foreign exchange (gain) loss 0.7 (0.5) 1.2
Financial expenses, net 22.7 17.0 5.7
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
The increase in interest expense for the three months ended March 31, 2024 was
mainly due to the impact of higher effective interest rates on our long-term
debt bearing interest at variable rates and higher average borrowing levels.
The decrease in bank and other financial charges was mainly due to lower fees
incurred on our receivables sale program, due to lower volumes under this
program, partially offset by higher variable rates. Foreign exchange gains and
losses in both periods relate primarily to the revaluation of net monetary
assets denominated in foreign currencies.
5.5.8 Income taxes
The Company's average effective income tax rate is calculated as follows:
Three months ended
(in $ millions, or otherwise indicated) Mar 31, Apr 2, Variation
2024 2023
Earnings before income taxes 82.4 111.0 (28.6)
Income tax expense 3.7 13.4 (9.7)
Average effective income tax rate 4.5 % 12.1 % (7.6) pp
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
The decrease in income tax expense for the three months ended March 31, 2024,
compared to the same period last year, was mainly due to lower pre-tax
earnings, as well as $9.5 million tax charge related to the gain on the sale
and leaseback of a distribution centre located in the U.S in 2023. The
aforementioned gain and the related tax charge was reflected as an adjustment
in arriving at adjusted net earnings as noted in the table in subsection 5.6
of this MD&A.
Refer to 5.3 section of this MD&A for an update on Global Minimum Tax.
QUARTERLY REPORT - Q1 2024 P.16
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MANAGEMENT'S DISCUSSION AND ANALYSIS
5.6 Net earnings, adjusted net earnings, and earnings per share measures
Three months ended
(in $ millions, except Mar 31, Apr 2, Variation
per share amounts) 2024 2023
Net earnings 78.7 97.6 (18.9)
Adjustments for:
Restructuring and 0.8 2.8 (2.0)
acquisition-related costs
(1)
Net insurance - (3.3) 3.3
gains
(1)
Gain on sale - (25.0) 25.0
and leaseback
(1)
CEO separation costs and related advisory fees on 17.2 - 17.2
shareholder matters and special retention awards
(1)
Costs relating to assessing external 2.5 - 2.5
interests in acquiring the Company
(1)
Income tax expense relating to - 9.5 (9.5)
the above-noted adjustments
Adjusted net 99.2 81.6 17.6
earnings
(2)
Basic EPS 0.47 0.54 (0.07)
Diluted EPS 0.47 0.54 (0.07)
Adjusted 0.59 0.45 0.14
diluted EPS
(2)
(1) See subsection entitled "Certain adjustments to non-GAAP measures" for
additional information on adjustments in section 15.0 "Definition and
reconciliation of non-GAAP financial measures" in this MD&A.
(2) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
The decrease in net earnings in the first quarter of 2024 compared to the same
period last year was mainly due to the decrease in operating income as
explained above. Adjusted net earnings increased as a result of the higher
adjusted operating income compared to the same period last year, partially
offset by higher financial expenses. Year-over-year changes in GAAP diluted
EPS and adjusted diluted EPS also reflect the benefit of share repurchases net
of the related additional finance expense.
QUARTERLY REPORT - Q1 2024 P.17
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MANAGEMENT'S DISCUSSION AND ANALYSIS
6.0 FINANCIAL CONDITION
6.1 Current assets and current liabilities
(in $ millions) Mar 31, 2024 Dec 31, 2023 Variation
Cash and cash equivalents 91.2 89.6 1.6
Trade accounts receivable 512.1 412.5 99.6
Inventories 1,137.2 1,089.4 47.8
Prepaid expenses, deposits and other current assets 109.7 96.0 13.7
Accounts payable and accrued liabilities (427.2) (408.3) (18.9)
Income tax payable (0.4) (1.6) 1.2
Current portion of lease obligations (14.2) (14.2) -
Current portion of long-term debt (300.0) (300.0) -
Dividends payable (34.4) - (34.4)
Total working capital 1,074.0 963.4 110.6
(1)
Current ratio 2.4 2.3 n.m.
(2)
n.m. = not meaningful
(1) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
(2) Current ratio is defined as current assets divided by current liabilities.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
The increase in trade accounts receivable (which are net of accrued sales
discounts) was mainly due to the impact of higher days sales outstanding (DSO)
as a result of longer payment terms, and a seasonally lower offset for
accruals for sales discounts compared to the end of fiscal 2023 mainly
relating to the payout of annual rebate programs in the first quarter of
fiscal 2024.
.
The increase in inventories was mainly due to seasonal increases in activewear
unit volumes, as well as increases in raw material and work-in-progress
volumes to support planned increases in production, partly offset by lower
unit costs.
.
Prepaid expenses, deposits and other current assets are higher mainly due to
an increase in the fair value of derivative financial instrument assets.
.
The increase in accounts payable and accrued liabilities is mainly due to the
reclassification of certain stock-based awards for the Company's former CEO
from contributed surplus to accounts payable and accrued liabilities. The
reclassification resulted from a change from equity-settled to cash-settled
non treasury RSUs.
.
The increase in dividend payable results from the dividend declared in the
first quarter of fiscal 2024 being cash settled shortly after the end of the
quarter, while the dividend declared in the fourth quarter of fiscal 2023 was
cash settled within that quarter.
.
Working capital was $1,074.0 million as at March 31, 2024, compared to $963.4
million as at December 31, 2023. The current ratio at the end of the first
quarter of fiscal 2024 was 2.4, compared to 2.3 at the end of fiscal 2023.
QUARTERLY REPORT - Q1 2024 P.18
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MANAGEMENT'S DISCUSSION AND ANALYSIS
6.2 Property, plant and equipment, right-of-use assets, intangible assets, and
goodwill
(in $ millions) Property, plant Right-of-use Intangible Goodwill
and equipment assets assets
Balance, December 31, 2023 1,174.5 81.4 261.4 271.7
Additions 42.0 0.4 1.7 -
Depreciation and amortization (27.2) (3.4) (3.7) -
Net carrying amounts of disposals 0.7 - - -
Write-downs and impairments - (0.1) - -
Balance, March 31, 2024 1,190.0 78.3 259.4 271.7
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
Additions in property, plant and equipment are mainly due to capital
expenditures related to the expansion of textile and sewing manufacturing
operations, as well as modernization of the yarn facilities acquired through
the December 2021 acquisition of Frontier Yarns.
.
The decrease in right-of-use assets mainly reflects the impact of depreciation
during the three months ended March 31, 2024.
.
Intangible assets are comprised of customer contracts and relationships,
trademarks, license agreements, non-compete agreements, and computer software.
The decrease in intangible assets mainly reflects the amortization of $4
million.
6.3 Other non-current assets and non-current liabilities
(in $ millions) Mar 31, 2024 Dec 31, 2023 Variation
Deferred income tax assets 23.6 24.0 (0.4)
Other non-current assets 13.5 14.3 (0.8)
Long-term debt (840.0) (685.0) (155.0)
Lease obligations (80.1) (83.9) 3.8
Deferred income tax liabilities (17.0) (18.1) 1.1
Other non-current liabilities (44.4) (46.3) 1.9
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
See section 8.0 of this MD&A entitled "Liquidity and capital resources" for
the discussion on long-term debt.
.
The decrease in lease obligations mainly reflects the payments made during the
three months ended March 31, 2024.
.
Other non-current liabilities include provisions and employee benefit
obligations. The slight decrease results mainly from a reduction in the
obligation for statutory severance benefits for employees primarily located in
the Caribbean and Central America.
QUARTERLY REPORT - Q1 2024 P.19
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MANAGEMENT'S DISCUSSION AND ANALYSIS
7.0 CASH FLOWS
7.1 Cash flows from (used in) operating activities
Three months ended
(in $ millions) Mar 31, Apr 2, Variation
2024 2023
Net earnings 78.7 97.6 (18.9)
Adjustments for:
Depreciation and 31.6 27.9 3.7
amortization
Gain on disposal of property, plant and equipment, - (25.0) 25.0
including insurance recoveries relating to PP&E
Deferred (0.8) 7.4 (8.2)
income taxes
Share-based 6.3 8.0 (1.7)
compensation
Other (1.2) (4.8) 3.6
Changes in non-cash (141.9) (290.6) 148.7
working capital balances
Cash flows from (used in) (27.3) (179.5) 152.2
operating activities
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
Cash flows used in operating activities were $27 million for the three months
ended March 31, 2024, compared to cash flows used in operating activities of
$180 million in the corresponding period last year. The improvement in
operating cash flows mainly reflected a lower increase in non-cash working
capital relative to the comparative period.
.
Non-cash working capital increased by $142 million during the three months
ended March 31, 2024, compared to an increase of $291 million during the three
months ended April 2, 2023. The lower increase was due to a lower increase in
trade accounts receivables and inventories, and an increase in accounts
payable and accrued liabilities compared to a decrease in the same period last
year.
QUARTERLY REPORT - Q1 2024 P.20
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MANAGEMENT'S DISCUSSION AND ANALYSIS
7.2 Cash flows from (used in) investing activities
Three months ended
(in $ millions) Mar 31, Apr 2, Variation
2024 2023
Purchase of property, plant and equipment (42.2) (73.0) 30.8
Purchase of intangible assets (1.8) (0.9) (0.9)
Proceeds from sale and leaseback and other disposals of property, plant and equipment 0.1 51.0 (50.9)
Cash flows from (used in) investing activities (43.9) (22.9) (21.0)
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
Cash flows used in investing activities were $44 million for the three months
ended March 31, 2024, compared to cash flows used in investing activities of
$23 million in the corresponding period last year. The change was mainly due
to proceeds from the sale and leaseback of one of our distribution centres
located in the U.S. in 2023, partially offset by lower capital expenditures in
2024.
.
Capital expenditures
2
for the three months ended March 31, 2024 are described in section 6.2 of this
MD&A entitled "Property, plant and equipment, right-of-use assets, intangible
assets, and goodwill".
7.3 Free cash flow
Three months ended
(in $ millions) Mar 31, Apr 2, Variation
2024 2023
Cash flows from (used in) operating activities (27.4) (179.4) 152.0
Cash flows from (used in) investing activities (43.9) (22.8) (21.1)
Adjustment for:
Business acquisitions - - -
Free cash flow (71.3) (202.2) 130.9
(1)
(1) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
The year-over-year decrease in negative free cash flow of $131 million for the
three months ended March 31, 2024 was mainly due to the $152 million
improvement in operating cash flows, partially offset by an increase in cash
flows used in investing activities.
2 Capital expenditures include purchases of property, plant and equipment and
intangible assets.
QUARTERLY REPORT - Q1 2024 P.21
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MANAGEMENT'S DISCUSSION AND ANALYSIS
7.4 Cash flows from (used in) financing activities
Three months ended
(in $ millions) Mar 31, Apr 2, Variation
2024 2023
Increase (decrease) in amounts drawn under revolving long-term bank credit facility 155.0 200.0 (45.0)
Payment of lease obligations (3.8) (13.0) 9.2
Proceeds from the issuance of shares 0.3 5.1 (4.8)
Repurchase and cancellation of shares (56.7) (32.0) (24.7)
Share repurchases for settlement of non-Treasury RSUs (13.9) (19.6) 5.7
Withholding taxes paid pursuant to the settlement of non-Treasury RSUs (8.0) (15.2) 7.2
Cash flows from (used in) financing activities 72.9 125.3 (52.4)
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
.
Cash flows from financing activities for the three months ended March 31, 2024
of $73 million were mainly from funds drawn on our long-term bank credit
facility, partially offset by the repurchase and cancellation of common shares
under the NCIB programs as discussed in section 8.7 of this MD&A, and funds
used for the settlement of the stock-based awards vesting during the quarter.
Cash flows from financing activities for the three months ended April 2, 2023
of $125 million
were mainly from funds drawn on our long-term bank credit facilities,
partially offset by funds used for the repurchase and cancellation of common
shares under the NCIB programs, funds used for the settlement of the
stock-based awards vesting during the quarter, and payments made during the
period on lease obligations.
8.0 LIQUIDITY AND CAPITAL RESOURCES
8.1 Capital allocation framework
Historically, our primary uses of funds have been for working capital
requirements, capital expenditures, the payment of dividends and share
repurchases, and business acquisitions, which we have funded with cash
generated from operations and with funds drawn from our long-term debt
facilities. We have established a capital allocation framework intended to
enhance sales and earnings growth as well as shareholder returns. After
funding working capital needs, our first priority of cash use is to fund our
organic growth with the required capital investments. Beyond these
requirements, our next priorities for capital allocation are to support our
dividends and repurchase shares under normal course issuer bid programs.
Occasionally, we use capital for opportunistic complementary acquisitions with
a preference towards opportunities that could enhance our supply chain model.
The Company has set a fiscal year-end net debt leverage target ratio
3
of 1.5 to 2.0 times pro-forma adjusted EBITDA for the trailing twelve months
(previously 1.0 to 2.0 times), which it believes will provide an efficient
capital structure and a framework within which it can execute on its capital
allocation priorities. We expect that cash flows from operating activities and
the unutilized financing capacity under our long-term debt facilities will
continue to provide us with sufficient liquidity to fund our organic growth
strategy, including anticipated working capital requirements and projected
capital expenditures of 5% of sales in 2024, as well as for returning capital
to shareholders through dividends and continued share repurchases in line with
our leverage framework and value considerations. Refer to note 26 of the
audited annual consolidated financial statements for the year ended December
31, 2023 for a discussion on the Company's liquidity risk.
3
T
his is a non-GAAP financial measure or ratio. See section 15.0 "Definition and
reconciliation of non-GAAP financial measures" in this MD&A.
QUARTERLY REPORT - Q1 2024 P.22
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MANAGEMENT'S DISCUSSION AND ANALYSIS
8.2 Long-term debt and net debt and net debt leverage ratio
The Company's long-term debt as at March 31, 2024 is described below:
Effective interest rate Principal amount Maturity date
(1)
(in $ millions, or otherwise indicated) Mar 31, 2024 Dec 31, 2023
Non-current portion
of long-term debt
Revolving long-term bank credit facility, 6.6% 390.0 235.0 March 2027
interest at variable U.S. interest rate
(2)(3)
Term loan, interest at variable 4.3% 300.0 300.0 June 2026
U.S. interest rate, payable monthly
(2)(4)
Notes payable, interest at fixed 2.9% 100.0 100.0 August 2026
rate of 2.91%, payable semi-annually
(5)
Notes payable, interest at Adjusted SOFR 2.9% 50.0 50.0 August 2026
plus a spread of 1.57%, payable quarterly
(5)(6)
840.0 685.0
Current portion
of long-term debt
Delayed draw term loan (DDTL), interest at 6.9% 300.0 300.0 May 2024
variable U.S. interest rate, payable monthly
(2)(4)
300.0 300.0
Long-term debt (including 1,140.0 985.0
current portion)
(1) Represents the annualized effective interest rate for the three months
ended March 31, 2024, including the cash impact of interest rate swaps, where
applicable.
(2) Secured Overnight Financing Rate (SOFR) advances at adjusted Term SOFR
(includes a 0% to 0.25% reference rate adjustment) plus a spread ranging from
1% to 3%.
(3) The Company's committed unsecured revolving long-term bank credit facility
of $1 billion provides for an annual extension which is subject to the
approval of the lenders. The spread added to the adjusted Term SOFR is a
function of the total net debt to EBITDA ratio (as defined in the credit
facility agreement and its amendments). In addition, an amount of $34.2
million (December 31, 2023 - $36.0 million) has been committed against this
facility to cover various letters of credit.
(4) The unsecured term loan is non-revolving and can be prepaid in whole or in
part at any time with no penalties. The spread added to the adjusted Term SOFR
is a function of the total net debt to EBITDA ratio (as defined in the term
loan agreements and its amendments).
(5) The unsecured notes issued to accredited investors in the U.S. private
placement market can be prepaid in whole or in part at any time, subject to
the payment of a prepayment penalty as provided for in the Note Purchase
Agreement.
(6) Adjusted SOFR rate is determined on the basis of floating rate notes that
bear interest at a floating rate plus a spread of 1.57%.
On May 26, 2023, the Company amended its $300 million term loan to include an
additional $300 million delayed draw term loan ("DDTL") with a one year
maturity from the effective date. All other terms of the agreement remained
unchanged. The Company plans to extend the term of the DDTL during the second
quarter of fiscal 2024.
The Company was in compliance with all financial covenants at March 31, 2024.
The Company expects to maintain compliance with its covenants over the next
twelve months, based on its current expectations and forecasts.
(in $ millions) Mar 31, 2024 Dec 31, 2023
Long-term debt (including current portion) 1,140.0 985.0
Bank indebtedness - -
Lease obligations (including current portion) 94.3 98.1
Total debt 1,234.3 1,083.1
(1)
Cash and cash equivalents (91.2) (89.6)
Net debt 1,143.1 993.4
(1)
(1) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.23
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The primary measure used by the Company to monitor its financial leverage is
its net debt leverage ratio as defined in section 15.0 "Definition and
reconciliation of non-GAAP financial measures" in this MD&A. Gildan's net debt
leverage ratio as at March 31, 2024 was 1.6 times (1.5 times at December 31,
2023) which was within the Company's target range of 1.5 to 2.0 times. The
Company's net debt leverage ratio is calculated as follows:
(in $ millions, or otherwise indicated) Mar 31, 2024 Dec 31, 2023
Adjusted EBITDA for the trailing twelve months 701.1 674.5
(1)
Adjustment for:
Business acquisitions - -
Pro-forma adjusted EBITDA for the trailing twelve months 701.1 674.5
Net debt 1,143.1 993.4
(1)
Net debt leverage ratio 1.6 1.5
(1)(2)
(1) This is a non-GAAP financial measure or ratio. See section 15.0
"Definition and reconciliation of non-GAAP financial measures" in this MD&A.
(2) The Company's net debt to EBITDA ratio for purposes of its loan and note
agreements was 1.9 at March 31, 2024.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
The total net debt to EBITDA ratios (as defined in the credit facility and
note agreements and their amendments) vary from the definition of the
Company's non-GAAP ratio and non-GAAP financial measures "net debt leverage
ratio" and "adjusted EBITDA" respectively, as presented in this MD&A in
certain respects. The definitions in the loan and note agreements include
letters of credit in net debt, exclude certain cash balances, and are based on
accounting for all leases in accordance with previous accounting principles
whereby the Company's leases for premises were accounted for as operating
leases, while the Company's reported net debt leverage ratio reflects lease
accounting in accordance with the Company's current accounting policies. In
addition, adjustments permitted to EBITDA in the loan and note agreements vary
from the adjustments used by the Company in calculating its adjusted EBITDA
non-GAAP financial measure. As a result of these differences, our total net
debt to EBITDA ratio for purposes of our loan and note agreements was 1.9 at
the end of the first quarter of fiscal 2024 (1.6 at December 31, 2023).
The Company, upon approval from its Board of Directors, may issue or repay
long-term debt, issue or repurchase shares, or undertake other activities as
deemed appropriate under the specific circumstances.
QUARTERLY REPORT - Q1 2024 P.24
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MANAGEMENT'S DISCUSSION AND ANALYSIS
8.3 Off-balance sheet arrangements and maturity analysis of contractual
obligations
In the normal course of business, we enter into contractual obligations that
will require us to disburse cash over future periods. The following table sets
forth the maturity of our contractual obligations by period as at March 31,
2024.
(in $ millions) Carrying amount Contractual Less than 1 year 1 to 3 years 4 to 5 years More than 5 years
cash flows
Accounts payable and 427.2 427.2 427.2 - - -
accrued liabilities
Long-term 1,140.0 1,140.0 300.0 840.0 - -
debt
Interest - 128.7 48.2 80.5 - -
obligations
(1)
Purchase and other - 545.1 350.6 126.1 68.4 -
obligations
(2)
Lease 94.3 133.0 21.5 39.3 23.8 48.4
obligations
Total contractual 1,661.5 2,374.0 1,147.5 1,085.9 92.2 48.4
obligations
(1) Interest obligations include expected interest payments on long-term debt
as at March 31, 2024 (assuming balances remain outstanding through to
maturity). For variable rate debt, the Company has applied the rate applicable
at March 31, 2024 to the currently established maturity dates.
(2) Purchase and other obligations includes commitments to purchase raw
materials and equipment, as well as minimum royalty obligations and other
contractual commitments.
As disclosed in note 24 to our fiscal 2023 audited annual consolidated
financial statements, we have granted financial guarantees, irrevocable
standby letters of credit, and surety bonds to third parties to indemnify them
in the event the Company and some of our subsidiaries do not perform their
contractual obligations. As at March 31, 2024, the maximum potential liability
under these guarantees was $162 million, of which $15 million was for surety
bonds and $147 million was for financial guarantees and standby letters of
credit.
8.4 Derivative instruments
The Company may periodically use derivative financial instruments to manage
risks related to fluctuations in foreign exchange rates, commodity prices,
interest rates, and changes in the price of our common shares under our
share-based compensation plans. Derivative financial instruments are not used
for speculative purposes. As at March 31, 2024, the Company's outstanding
derivative financial instruments (most of which are designated as effective
hedging instruments) consist of foreign exchange and commodity forward,
option, and swap contracts, as well as floating-to-fixed interest rate swaps
to fix the variable interest rates on a designated portion of borrowings under
the Company's term loans and unsecured notes. For more information about our
derivative financial instruments, please refer to notes 9 and 10 to the
unaudited condensed interim consolidated financial statements as at and for
the three months ended March 31, 2024.
8.5 Outstanding share data
Our common shares are listed on the New York Stock Exchange (NYSE) and the
Toronto Stock Exchange (TSX) under the symbol GIL. As at April 29, 2024, there
were 168,589,957 common shares issued and outstanding along with 467,401 stock
options and 60,870 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 exercise 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. Treasury RSUs are used exclusively for one-time
awards to attract candidates or for retention purposes and their vesting
conditions, including any performance objectives, are determined by the Board
of Directors at the time of grant.
8.6 Declaration of dividend
On May 1, 2024, the Board of Directors declared a cash dividend of $0.205 per
share for an expected aggregate payment of $35 million which will be paid on
June 17, 2024 on all of the issued and outstanding common shares of the
Company, rateably and proportionately, to the holders of record on May 23,
2024. 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.
QUARTERLY REPORT - Q1 2024 P.25
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MANAGEMENT'S DISCUSSION AND ANALYSIS
As part of the Company's capital allocation framework as described in section
8.1 of this MD&A, the Board of Directors considers several factors when
deciding to declare quarterly cash dividends, including the Company's present
and future earnings, cash flows for working capital requirements, capital
expenditures, debt covenant and repayment obligations, capital requirements,
the macro-economic environment, and present and future regulatory and legal
restrictions.
The Company's dividend payout policy and the declaration of dividends are
subject to the discretion of the Board of Directors and, consequently, there
can be no assurances that Gildan's dividend policy will be maintained or that
dividends will be declared in respect of any quarter or other future periods.
The declaration of dividends by the Board of Directors is ultimately dependent
on the Company's operations and financial results which are, in turn, subject
to various assumptions and risks, including those set out in this MD&A.
8.7 Normal course issuer bid (NCIB)
In August 2022, the Company received approval from the TSX to renew its normal
course issuer bid (NCIB) program commencing on August 9, 2022, to purchase for
cancellation a maximum of 9,132,337 common shares, representing 5% of the
Company's issued and outstanding common shares, as at July 31, 2022 (the
reference date for the NCIB). Under the NCIB, the Company was authorized to
make purchases under the normal course issuer bid during the period from
August 9, 2022 to August 8, 2023 in accordance with the requirements of the
TSX.
In August 2023, the Company received approval from the TSX to renew its NCIB
program commencing on August 9, 2023, to purchase for cancellation a maximum
of 8,778,638 common shares, representing approximately 5% of the Company's
issued and outstanding common shares, as at July 31, 2023 (the reference date
for the renewed NCIB). The Company is authorized to make purchases under the
renewed NCIB until August 8, 2024 in accordance with the requirements of the
TSX. Purchases can be made by means of open market transactions on both the
TSX and the NYSE, or alternative Canadian trading systems, if eligible, or by
such other means as may be permitted by securities regulatory authorities,
including pre-arranged crosses, exempt offers, private agreements under an
issuer bid exemption order issued by securities regulatory authorities and
block purchases of common shares. The average daily trading volume of common
shares on the TSX (ADTV) for the six-month period ended July 31, 2023 was
370,447. Consequently, and in accordance with the requirements of the TSX, the
Company may purchase, in addition to purchases made on other exchanges
including the NYSE, up to a maximum of 92,611 common shares daily through the
facilities of the TSX, which represents 25% of the ADTV for the six-month
period noted above.
In connection with each of its 2022-2023 and 2023-2024 NCIB programs, the
Company entered into an automatic share purchase plan (ASPP) with a designated
broker which 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.
During the
three months ended March 31, 2024, the Company repurchased for cancellation a
total of 1,420,600 common shares under its NCIB program for a total cost of
$47 million, of which $2 million was charged to share capital and the balance
was charged to retained earnings. The total cash outlay in the first quarter
of fiscal 2024 for share repurchases was $57 million, and included $10 million
for share repurchases at the end of December 2023, that were only cash settled
in January 2024. During the period from August 9, 2023 to April 29, 2024,
Gildan purchased for cancellation a total of 8,611,018 common shares,
representing 4.9% of the Company's issued and outstanding common shares as at
July 31, 2023.
9.0 LEGAL PROCEEDINGS
9.1 Claims and litigation
The Company is a party to claims and litigation arising in the normal course
of operations. The Company does not expect the resolution of these matters to
have a material adverse effect on the financial position or results of
operations of the Company.
QUARTERLY REPORT - Q1 2024 P.26
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MANAGEMENT'S DISCUSSION AND ANALYSIS
10.0 FINANCIAL RISK MANAGEMENT
The Company is exposed to risks arising from financial instruments, including
credit risk, liquidity risk, foreign currency risk, interest rate risk,
commodity price risk, as well as risks arising from changes in the price of
our common shares under our share-based compensation plans. Please refer to
note 26 of the audited annual consolidated financial statements for the year
ended December 31, 2023 for additional details, and for more information about
our derivative financial instruments, please refer to notes 9 and 10 of the
unaudited condensed interim consolidated financial statements as at and for
the three months ended March 31, 2024.
11.0 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Our significant accounting policies are described in note 3 to our fiscal 2023
audited consolidated financial statements. The preparation of financial
statements in conformity with IFRS requires management to make estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income, and expenses. Actual results
may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
11.1 Critical judgments in applying accounting policies
The following are critical judgments that management has made in the process
of applying accounting policies and that have the most significant effect on
the amounts recognized in the consolidated financial statements:
.
Determination of cash-generating units (CGUs)
.
Income taxes
11.2 Key sources of estimation uncertainty
Key sources of estimation uncertainty that have a significant risk of
resulting in a material adjustment to the carrying amount of assets and
liabilities within the next financial year are as follows:
.
Recoverability and impairment of non-financial assets
.
Other sources of estimation uncertainty
12.0 ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS NOT YET APPLIED
12.1 Accounting policies
The Company's unaudited condensed interim consolidated financial statements as
at and for the three months ended March 31, 2024 were prepared in accordance
with International Accounting Standard ("IAS") 34, Interim Financial
Reporting, as issued by the International Accounting Standards Board ("IASB").
The Company applied the same accounting policies in the preparation of the
unaudited condensed interim consolidated financial statements as at and for
the three months ended March 31, 2024 as those disclosed in note 3 of its
fiscal 2023 audited annual consolidated financial statements, except as
described below.
On January 1, 2024 the Company adopted the following new or amended accounting
standards:
Amendments to IAS 1, Presentation of Financial Statements
On January 23, 2020, the IASB issued narrow-scope amendments to IAS 1,
Presentation of Financial Statements, to clarify how to classify debt and
other liabilities as current or non-current. The amendments (which affect only
the presentation of liabilities in the statement of financial position)
clarify that the classification of liabilities as current or non-current
should be based on rights that are in existence at the end of the reporting
period to defer settlement by at least twelve months and make explicit that
only rights in place at the end of the reporting period should affect the
classification of a liability; clarify that classification is unaffected by
expectations about whether an entity will exercise its right to defer
settlement of a liability; and make clear that settlement refers to the
transfer to the counterparty of cash, equity instruments, other assets, or
services. On October 31, 2022, the IASB issued Non-current Liabilities with
Covenants (Amendments to IAS 1). These further amendments clarify how to
address the effects on classification and disclosure of covenants which an
entity is required to comply with on or before the reporting date and covenants
QUARTERLY REPORT - Q1 2024 P.27
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MANAGEMENT'S DISCUSSION AND ANALYSIS
which an entity must comply with only after the reporting date. The 2020
amendments and the 2022 amendments (collectively "the Amendments") are
effective for annual periods beginning on or after January 1, 2024 and are
applied retrospectively. The amendment of IAS 1 had no impact on the Company's
consolidated financial statements.
12.2 New accounting standards and interpretations not yet applied
Lack of Exchangeability
In August 2023, the IASB issued amendments to IAS 21 - The Effects of Changes
in Foreign Exchange Rates in relation to Lack of Exchangeability. The
amendments require entities to apply a consistent approach in assessing
whether a currency can be exchanged into another currency, and in determining
the exchange rate to use and the disclosures to provide when it cannot. These
amendments are effective for annual reporting periods beginning on or after
January 1, 2025, and are not expected to have an impact on the Company's
consolidated financial statements. Early adoption is permitted.
IFRS 18 Presentation and Disclosure in Financial Statements
On April 9, 2024, the IASB issued IFRS 18 Presentation and Disclosure in
Financial Statements to improve reporting of financial performance. IFRS 18
replaces IAS 1 Presentation of Financial Statements. It carries forward many
requirements from IAS 1 unchanged. IFRS 18 applies for annual reporting
periods beginning on or after January 1, 2027. Earlier application is
permitted. The Company is currently evaluating the impact from the adoption of
IFRS 18 on its consolidated financial statements.
13.0 INTERNAL CONTROL OVER FINANCIAL REPORTING
Changes in internal controls and procedures
There have been no changes in the Company's internal control over financial
reporting that occurred during the period beginning on January 1, 2024 and
ended on March 31, 2024 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
14.0 RISKS AND UNCERTAINTIES
In note 26 of our 2023 audited annual consolidated financial statements we
describe certain risks related to financial instruments and in our 2023 Annual
MD&A under the section "Risks and uncertainties", we describe the principal
risks that could have a material and adverse effect on our financial
condition, results of operations or business, cash flows, or the trading price
of our common shares, as well as cause actual results to differ materially
from our expectations expressed in or implied by our forward-looking
statements. The risks listed below are not the only risks that could affect
the Company. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial may also materially and adversely
affect our financial condition, results of operations, cash flows, or
business. The risks described in our 2023 Annual MD&A include:
.
Our ability to implement our growth strategies and plans
.
Our ability to compete effectively
.
Our ability to integrate acquisitions
.
We may be negatively impacted by changes in general economic and financial
conditions
.
We rely on a small number of significant customers
.
Our customers do not commit to purchase minimum quantities
.
Our ability to anticipate, identify, or react to changes in consumer
preferences and trends
.
Our ability to manage production and inventory levels effectively in relation
to changes in customer demand
.
We may be negatively impacted by fluctuations and volatility in the price of
raw materials used to manufacture our products
.
We rely on key suppliers
.
We may be negatively impacted by climate, political, social, and economic
risks, natural disasters, pandemics, and endemics in the countries in which we
operate or from which we source production
.
Compliance with laws and regulations in the various countries in which we
operate and the potential negative effects of litigation and/or regulatory
actions
.
We rely on certain international trade (including multilateral and bilateral)
agreements and preference programs and are subject to evolving international
trade regulations
.
Factors or circumstances that could increase our effective income tax rate
QUARTERLY REPORT - Q1 2024 P.28
-------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
.
Compliance with environmental and health and safety regulations
.
Global climate change could have an adverse impact on our business
.
Compliance with product safety regulations
.
We may be negatively impacted by changes in our relationship with our
employees or changes to domestic and foreign employment regulations
.
We may experience negative publicity as a result of actual, alleged, or
perceived violations of labour laws or international labour standards,
unethical labour, and other business practices
.
Our ability to protect our intellectual property rights
.
We rely significantly on our information systems for our business operations
.
We may be negatively impacted by data security breaches or data privacy
violations
.
We depend on key management and our ability to attract and/or retain key
personnel
.
Rapid developments in artificial intelligence could adversely impact our
business
15.0 DEFINITION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND RELATED
RATIOS
We use non-GAAP financial measures, as well as non-GAAP ratios to assess our
operating performance and financial condition. The terms and definitions of
the non-GAAP financial measures used in this MD&A and a reconciliation of each
non-GAAP measure to the most directly comparable GAAP measure are provided
below. The non-GAAP financial measures are presented on a consistent basis for
all periods presented in this MD&A. These measures do not have any
standardized meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies. Accordingly, they
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS.
Non-GAAP financial measures and related ratios
In this MD&A we use non-GAAP financial measures including adjusted net
earnings, adjusted gross profit, adjusted SG&A expenses, adjusted operating
income, adjusted EBITDA, as well as non-GAAP ratios including adjusted diluted
EPS, adjusted gross margin, adjusted SG&A expenses as a percentage of net
sales, and adjusted operating margin. These financial metrics are used to
measure our performance and financial condition from one period to the next,
which excludes the variation caused by certain adjustments that could
potentially distort the analysis of trends in our operating performance, and
because we believe such measures provide meaningful information on the
Company's financial performance and financial condition. Excluding these items
does not imply they are non-recurring. We also use non-GAAP financial measures
including free cash flow, total debt, net debt, net debt leverage ratio and
working capital.
Certain adjustments to non-GAAP measures
As noted above certain of our non-GAAP financial measures and ratios exclude
the variation caused by certain adjustments that affect the comparability of
the Company's financial results and could potentially distort the analysis of
trends in its business performance. Adjustments which impact more than one
non-GAAP financial measure and ratio are explained below:
Restructuring and acquisition-related costs
Restructuring and acquisition-related costs are comprised of costs directly
related to significant exit activities, including the closure of business
locations and sale of business locations or the relocation of business
activities, significant changes in management structure, as well as
transaction, exit, and integration costs incurred pursuant to business
acquisitions. Restructuring and acquisition-related costs is included as an
adjustment in arriving at adjusted operating income, adjusted operating
margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA. For
the three months ended March 31, 2024, restructuring and acquisition-related
costs of $0.8 million (2023 - $2.8 million) were recognized. Subsection 5.5.5
entitled "Restructuring and acquisition-related costs" in this MD&A contains a
detailed discussion of these costs.
Net insurance gains
For the three months ended March 31, 2024, net insurance gains were nil (2023
- $3.3 million). The $3.3 million gain in Q1 2023, included in cost of sales,
relates to the two hurricanes which impacted the Company's operations in
Central America in November 2020, and mainly comprises accrued insurance
recoveries at replacement cost value for damaged equipment in excess of the
write-off of the net book value of property plant and equipment. This gain is
included as an adjustment in arriving at adjusted gross profit and adjusted
gross margin, adjusted operating income, adjusted operating margin, adjusted
net earnings, adjusted diluted EPS, and adjusted EBITDA.
QUARTERLY REPORT - Q1 2024 P.29
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Gain on sale and leaseback
During the first quarter of 2023, the Company recognized a gain of $25.0
million ($15.5 million after reflecting $9.5 million of income tax expense) on
the sale and leaseback of one of our distribution centres located in the U.S.
The impact of this gain was included as an adjustment in arriving at adjusted
operating income, adjusted operating margin, adjusted net earnings, adjusted
diluted EPS, and adjusted EBITDA.
CEO separation costs and related advisory fees on shareholder matters and
special retention awards
Comprises the separation costs with respect to the departure of the Company's
former CEO in December 2023 and related advisory, legal and other expenses for
the ongoing proxy contest and shareholder matters. Also includes stock-based
compensation expense relating to special retention awards to executive
officers and other employees with a total fair value of $8.6 million made in
the first quarter of fiscal 2024 to ensure stability and operational
performance in light of the CEO transition process and ongoing proxy contest.
The stock-based compensation expense relating to these awards is being
recognized over the respective vesting periods ($6 million of the fair value
is vesting at the end of fiscal 2024, and $2.6 million is vesting primarily at
the end of fiscal 2025).
Costs relating to the above matters were incurred in the fourth quarter of
fiscal 2023 and the first quarter of fiscal 2024 as follows:
.
Expenses of $6.3 million in the fourth quarter of fiscal 2023, consisting of
$4.6 million of accrued termination benefits net of the reversal of previously
recognized stock-based compensation expense, and $1.7 million of advisory and
legal fees.
.
Expenses of $17.2 million in the first quarter of fiscal 2024, consisting of
$15.4 million of advisory, legal and other expenses, $1.1 million of
stock-based compensation expense relating to CEO separation costs, and $0.7
million of stock-based compensation relating to special retention awards.
Costs relating to assessing external interests in acquiring the Company
Relates to advisory, legal and other expenses with respect to the announced
review process initiated by the Company following receipt of a confidential
non-binding expression of interest to acquire the Company. In the first
quarter of fiscal 2024, the Company incurred $2.5 million of expenses related
to this matter.
The impact of the CEO separation costs and related advisory fees on
shareholder matters and special retention awards and the costs relating to
assessing external interests in acquiring the Company described above are
included as adjustments in arriving at adjusted SG&A expenses, adjusted SG&A
expenses as a percentage of net sales, adjusted operating income, adjusted
operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted
EBITDA.
Adjusted net earnings and adjusted diluted EPS
Adjusted net earnings are calculated as net earnings before restructuring and
acquisition-related costs, impairment (impairment reversal) of intangible
assets, net of write-downs, net insurance gains, gain on sale and leaseback,
CEO separation costs and related advisory expenses on shareholder matters and
special retention awards, costs relating to assessing external interests in
acquiring the Company (new in 2024), and income tax expense or recovery
relating to these items. Adjusted net earnings also excludes income taxes
related to the re-assessment of the probability of realization of previously
recognized or de-recognized deferred income tax assets, and income taxes
relating to the revaluation of deferred income tax assets and liabilities as a
result of statutory income tax rate changes in the countries in which we
operate. Adjusted diluted EPS is calculated as adjusted net earnings divided
by the diluted weighted average number of common shares outstanding. The
Company uses adjusted net earnings and adjusted diluted EPS to measure its net
earnings performance from one period to the next, and in making decisions
regarding the ongoing operations of its business, without the variation caused
by the impacts of the items described above. The Company excludes these items
because they affect the comparability of its net earnings and diluted EPS and
could potentially distort the analysis of net earnings trends in its business
performance. The Company believes adjusted net earnings and adjusted diluted
EPS are useful to investors because they help identify underlying trends in
our business that could otherwise be masked by certain expenses, write-offs,
charges, income or recoveries that can vary from period to period. Excluding
these items does not imply they are non-recurring. These measures do not have
any standardized meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
QUARTERLY REPORT - Q1 2024 P.30
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Three months ended
(in $ millions, except Mar 31, Apr 2,
per share amounts) 2024 2023
Net earnings 78.7 97.6
Adjustments for:
Restructuring and 0.8 2.8
acquisition-related costs
Net insurance - (3.3)
gains
Gain on sale - (25.0)
and leaseback
CEO separation costs and related advisory fees on 17.2 -
shareholder matters and special retention awards
Costs relating to assessing external 2.5 -
interests in acquiring the Company
Income tax expense relating to - 9.5
the above-noted adjustments
Adjusted net 99.2 81.6
earnings
Basic EPS 0.47 0.54
Diluted EPS 0.47 0.54
Adjusted 0.59 0.45
diluted EPS
(1)
(1) This is a non-GAAP ratio. It is calculated as adjusted net earnings
divided by the diluted weighted average number of common shares outstanding.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Adjusted gross profit and adjusted gross margin
Adjusted gross profit is calculated as gross profit excluding the impact of
net insurance gains in fiscal 2023. The Company uses adjusted gross profit and
adjusted gross margin to measure its performance at the gross margin level
from one period to the next, without the variation caused by the impacts of
the item described above. The Company excludes this item because it affects
the comparability of its financial results and could potentially distort the
analysis of trends in its business performance. Excluding this item does not
imply that it is non-recurring. The Company believes adjusted gross profit and
adjusted gross margin are useful to management and investors because they help
identify underlying trends in our business in how efficiently the Company uses
labor and materials for manufacturing goods to our customers that could
otherwise be masked by the impact of net insurance gains in prior years. These
measures do not have any standardized meanings prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented by other
companies.
Three months ended
(in $ millions, or otherwise indicated) Mar 31, Apr 2,
2024 2023
Gross profit 211.1 187.7
Adjustment for:
Net insurance gains - (3.3)
Adjusted gross profit 211.1 184.4
Gross margin 30.3 % 26.7 %
Adjusted gross margin 30.3 % 26.2 %
(1)
(1) This is a non-GAAP ratio. It is calculated as adjusted gross profit
divided by net sales.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.31
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Adjusted SG&A expenses and adjusted SG&A expenses as a percentage of net sales
Adjusted SG&A expenses is calculated as selling, general and administrative
expenses excluding the impact of CEO separation costs and related advisory
expenses on shareholder matters and special retention awards, and costs
relating to assessing external interests in acquiring the Company (new in
2024). The Company uses adjusted SG&A expenses and adjusted SG&A expenses as a
percentage of net sales to measure its performance from one period to the
next, without the variation caused by the impact of the items described above.
Excluding these items does not imply they are non-recurring. The Company
believes adjusted SG&A expenses and adjusted SG&A expenses as a percentage of
net sales are useful to investors because they help identify underlying trends
in our business that could otherwise be masked by certain expenses and
write-offs that can vary from period to period. These measures do not have any
standardized meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
Three months ended
(in $ millions, or Mar 31, Apr 2,
otherwise indicated) 2024 2023
SG&A expenses 105.2 81.8
Adjustments for:
CEO separation costs and related advisory fees on 17.2 -
shareholder matters and special retention awards
Costs relating to assessing external 2.5 -
interests in acquiring the Company
Adjusted SG&A expenses 85.5 81.8
SG&A expenses as a 15.1 % 11.6 %
percentage of net sales
Adjusted SG&A expenses as 12.3 % 11.6 %
a percentage of net sales
(1)
(1) This is a non-GAAP ratio. It is calculated as adjusted SG&A expenses
divided by net sales.
Adjusted operating income and adjusted operating margin
Adjusted operating income is calculated as operating income before
restructuring and acquisition-related costs. Adjusted operating income also
excludes impairment (impairment reversal) of intangible assets, net insurance
gains, gain on sale and leaseback, CEO separation costs and related advisory
expenses on shareholder matters and special retention awards, and costs
relating to assessing external interests in acquiring the Company (new in
2024). Management uses adjusted operating income and adjusted operating margin
to measure its performance at the operating income level as we believe it
provides a better indication of our operating performance and facilitates the
comparison across reporting periods, without the variation caused by the
impacts of the items described above. The Company excludes these items because
they affect the comparability of its financial results and could potentially
distort the analysis of trends in its operating income and operating margin
performance. The Company believes adjusted operating income and adjusted
operating margin are useful to investors because they help identify underlying
trends in our business in how efficiently the Company generates profit from
its primary operations that could otherwise be masked by the impact of the
items noted above that can vary from period to period. Excluding these items
does not imply they are non-recurring. These measures do not have any
standardized meanings prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies.
QUARTERLY REPORT - Q1 2024 P.32
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Three months ended
(in $ millions, or Mar 31, Apr 2,
otherwise indicated) 2024 2023
Operating income 105.1 128.0
Adjustments for:
Restructuring and 0.8 2.8
acquisition-related costs
Net insurance gains - (3.3)
Gain on sale - (25.0)
and leaseback
CEO separation costs and related advisory fees on 17.2 -
shareholder matters and special retention awards
Costs relating to assessing external 2.5 -
interests in acquiring the Company
Adjusted 125.6 102.5
operating income
Operating margin 15.1 % 18.2 %
Adjusted 18.0 % 14.6 %
operating margin
(1)
(1) This is a non-GAAP ratio. It is calculated as adjusted operating income
divided by net sales.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Adjusted EBITDA
Adjusted EBITDA is calculated as earnings before financial expenses net,
income taxes, and depreciation and amortization, and excludes the impact of
restructuring and acquisition-related costs. Adjusted EBITDA also excludes
impairment (impairment reversal) of intangible assets, net insurance gains,
the gain on sale and leaseback, CEO separation costs and related advisory
expenses on shareholder matters and special retention awards, and costs
relating to assessing external interests in acquiring the Company (new in
2024). Management uses adjusted EBITDA, among other measures, to facilitate a
comparison of the profitability of its business on a consistent basis from
period-to-period and to provide a more complete understanding of factors and
trends affecting our business. The Company also believes this measure is
commonly used by investors and analysts to assess profitability and the cost
structure of companies within the industry, as well as measure a company's
ability to service debt and to meet other payment obligations, or as a common
valuation measurement. The Company excludes depreciation and amortization
expenses, which are non-cash in nature and can vary significantly depending
upon accounting methods or non-operating factors. Excluding these items does
not imply they are non-recurring. This measure does not have any standardized
meanings prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
Three months ended
(in $ millions) Mar 31, Apr 2,
2024 2023
Net earnings 78.7 97.6
Restructuring and 0.8 2.8
acquisition-related costs
Net insurance - (3.3)
gains
Gain on sale - (25.0)
and leaseback
CEO separation costs and related advisory fees on 17.2 -
shareholder matters and special retention awards
Costs relating to assessing external 2.5 -
interests in acquiring the Company
Depreciation and 31.6 27.9
amortization
Financial 22.7 17.0
expenses, net
Income tax 3.7 13.4
expense
Adjusted EBITDA 157.2 130.4
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.33
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Free cash flow
Free cash flow is defined as cash flow from operating activities, less cash
flow used in investing activities excluding cash flows relating to business
acquisitions. The Company considers free cash flow to be an important
indicator of the financial strength and liquidity of its business, and it is a
key metric used by management in managing capital as it indicates how much
cash is available after capital expenditures to repay debt, to pursue business
acquisitions, and/or to redistribute to its shareholders. Management believes
that free cash flow also provides investors with an important perspective on
the cash available to us to service debt, fund acquisitions, and pay
dividends. In addition, free cash flow is commonly used by investors and
analysts when valuing a business and its underlying assets. This measure does
not have any standardized meanings prescribed by IFRS and is therefore
unlikely to be comparable to similar measures presented by other companies.
Three months ended
(in $ millions) Mar 31, Apr 2,
2024 2023
Cash flows from (used in) operating activities (27.4) (179.4)
Cash flows from (used in) investing activities (43.9) (22.8)
Adjustment for:
Business acquisitions - -
Free cash flow (71.3) (202.2)
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Total debt and net debt
Total debt is defined as the total bank indebtedness, long-term debt
(including any current portion), and lease obligations (including any current
portion), and net debt is calculated as total debt net of cash and cash
equivalents. The Company considers total debt and net debt to be important
indicators for management and investors to assess the financial position and
liquidity of the Company, and measure its financial leverage. These measures
do not have any standardized meanings prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other companies.
(in $ millions) Mar 31, 2024 Dec 31, 2023
Long-term debt (including current portion) 1,140.0 985.0
Bank indebtedness - -
Lease obligations (including current portion) 94.3 98.1
Total debt 1,234.3 1,083.1
Cash and cash equivalents (91.2) (89.6)
Net debt 1,143.1 993.4
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.34
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Net debt leverage ratio
The net debt leverage ratio is defined as the ratio of net debt to pro-forma
adjusted EBITDA for the trailing twelve months, all of which are non-GAAP
measures. The pro-forma adjusted EBITDA for the trailing twelve months
reflects business acquisitions made during the period, as if they had occurred
at the beginning of the trailing twelve month period. The Company has set a
fiscal year-end net debt leverage target ratio of 1.5 to 2.0 times pro-forma
adjusted EBITDA for the trailing twelve months. The net debt leverage ratio
serves to evaluate the Company's financial leverage and is used by management
in its decisions on the Company's capital structure, including financing
strategy. The Company believes that certain investors and analysts use the net
debt leverage ratio to measure the financial leverage of the Company,
including our ability to pay off our incurred debt. The Company's net debt
leverage ratio differs from the net debt to EBITDA ratio that is a covenant in
our loan and note agreements, and therefore the Company believes it is a
useful additional measure. This measure does not have any standardized
meanings prescribed by IFRS and is therefore unlikely to be comparable to
similar measures presented by other companies.
(in $ millions, or otherwise indicated) Mar 31, 2024 Dec 31, 2023
Adjusted EBITDA for the trailing twelve months 701.1 674.5
Adjustment for:
Business acquisitions - -
Pro-forma adjusted EBITDA for the trailing twelve months 701.1 674.5
Net debt 1,143.1 993.4
Net debt leverage ratio 1.6 1.5
(1)
(1) The Company's total net debt to EBITDA ratio for purposes of its loan and
note agreements was 1.9 at March 31, 2024. Refer to section 8.2 of this MD&A.
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
Working capital
Working capital is a non-GAAP financial measure and is defined as current
assets less current liabilities. Management believes that working capital, in
addition to other conventional financial measures prepared in accordance with
IFRS, provides information that is helpful to understand the financial
condition of the Company. The objective of using working capital is to present
readers with a view of the Company from management's perspective by
interpreting the material trends and activities that affect the short-term
liquidity and financial position of the Company, including its ability to
discharge its short-term liabilities as they come due. This measure is not
comparable to similarly titled measures used by other public companies.
(in $ millions) Mar 31, 2024 Dec 31, 2023
Cash and cash equivalents 91.2 89.6
Trade accounts receivable 512.1 412.5
Inventories 1,137.2 1,089.4
Prepaid expenses, deposits and other current assets 109.7 96.0
Accounts payable and accrued liabilities (427.2) (408.3)
Income taxes payable (0.4) (1.6)
Current portion of lease obligations (14.2) (14.2)
Current portion of long-term debt (300.0) (300.0)
Dividends payable (34.4) -
Working capital 1,074.0 963.4
Certain minor rounding variances exist between the unaudited condensed interim
consolidated financial statements and this summary.
QUARTERLY REPORT - Q1 2024 P.35
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars) - unaudited
March 31, December 31,
2024 2023
Current assets:
Cash and cash equivalents $ 91,196 $ 89,642
Trade accounts receivable (note 4) 512,143 412,498
Inventories (note 5) 1,137,217 1,089,441
Prepaid expenses, deposits and other current assets 109,747 95,955
Total current assets 1,850,303 1,687,536
Non-current assets:
Property, plant and equipment 1,189,983 1,174,515
Right-of-use assets 78,286 81,447
Intangible assets 259,363 261,419
Goodwill 271,677 271,677
Deferred income taxes 23,620 23,971
Other non-current assets 13,506 14,308
Total non-current assets 1,836,435 1,827,337
Total assets $ 3,686,738 $ 3,514,873
Current liabilities:
Accounts payable and accrued liabilities $ 427,216 $ 408,294
Income taxes payable 435 1,635
Current portion of lease obligations (note 8 14,225 14,161
(
d))
Dividends payable 34,432 -
Current portion of long-term debt (note 6) 300,000 300,000
Total current liabilities 776,308 724,090
Non-current liabilities:
Long-term debt (note 6) 840,000 685,000
Lease obligations (note 8 80,098 83,900
(
d))
Deferred income taxes 16,955 18,118
Other non-current liabilities 44,357 46,308
Total non-current liabilities 981,410 833,326
Total liabilities 1,757,718 1,557,416
Equity:
Share capital 278,950 271,213
Contributed surplus 34,194 61,363
Retained earnings 1,597,673 1,611,231
Accumulated other comprehensive income (note 10) 18,203 13,650
Total equity attributable to shareholders of the Company 1,929,020 1,957,457
Total liabilities and equity $ 3,686,738 $ 3,514,873
See accompanying notes to unaudited condensed interim consolidated financial
statements.
QUARTERLY REPORT - Q1 2024 36
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(in thousands of U.S. dollars, except per share data) - unaudited
Three months ended
March 31, April 2,
2024 2023
Net sales (note 14) $ 695,796 $ 702,863
Cost of sales 484,663 515,200
Gross profit 211,133 187,663
Selling, general and administrative expenses (note 8(f), note 8(g)) 105,238 81,845
Gain on sale and leaseback (note 8(e)) - (25,010)
Restructuring and acquisition-related costs (note 7) 798 2,835
Operating income 105,097 127,993
Financial expenses, net (note 8 22,726 16,952
(
b))
Earnings before income taxes 82,371 111,041
Income tax expense 3,704 13,424
Net earnings 78,667 97,617
Other comprehensive income (loss), net of related income taxes (note 10):
Cash flow hedges 4,553 5,310
Comprehensive income $ 83,220 $ 102,927
Earnings per share (note 11):
Basic $ 0.47 $ 0.54
Diluted $ 0.47 $ 0.54
See accompanying notes to unaudited condensed interim consolidated financial
statements.
QUARTERLY REPORT - Q1 2024 37
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three months ended March 31, 2024 and April 2, 2023
(in thousands or thousands of U.S. dollars) - unaudited
Share capital Contributed Accumulated Retained Total
surplus other earnings equity
comprehensive
income
Number Amount
Balance, 169,986 $ 271,213 $ 61,363 $ 13,650 $ 1,611,231 $ 1,957,457
December
31,
2023
Share-based - - 5,162 - - 5,162
compensation
Shares issued 11 383 - - - 383
under employee
share
purchase plan
Shares issued or 383 10,287 (18,331) - - (8,044)
distributed pursuant to
vesting of restricted
share units and SARs
Shares (1,421) (2,277) - - (44,472) (46,749)
repurchased
for
cancellation
Share (410) (656) - - (13,207) (13,863)
repurchases for
settlement of
non-Treasury RSUs
Change from equity-settled - - (13,504) - - (13,504)
to cash-settled
arising from change
in settlement
Deferred - - (496) - - (496)
compensation to be
settled in
non-Treasury RSUs
Dividends - - - - (34,546) (34,546)
declared
Transactions with (1,437) 7,737 (27,169) - (92,225) (111,657)
shareholders of the
Company recognized
directly in equity
Cash flow - - - 4,553 - 4,553
hedges
(note
10)
Net - - - - 78,667 78,667
earnings
Comprehensive - - - 4,553 78,667 83,220
income
Balance, 168,549 $ 278,950 $ 34,194 $ 18,203 $ 1,597,673 $ 1,929,020
March
31,
2024
Balance, 179,709 $ 202,329 $ 79,489 $ 9,845 $ 1,590,499 $ 1,882,162
January
1,
2023
Share-based - - 7,994 - - 7,994
compensation
Shares issued 12 360 - - - 360
under employee
share
purchase plan
Shares issued 193 5,549 (750) - - 4,799
pursuant to
exercise of
stock options
Shares issued or 648 14,429 (29,669) - - (15,240)
distributed pursuant to
vesting of restricted
share units and SARs
Shares (1,000) (1,130) - - (30,888) (32,018)
repurchased
for
cancellation
Share (648) (550) - - (19,005) (19,555)
repurchases for
settlement of
non-Treasury RSUs
Deferred - - 2,075 - - 2,075
compensation to be
settled in
non-Treasury RSUs
Dividends - - - - (33,566) (33,566)
declared
Transactions with (795) 18,658 (20,350) - (83,459) (85,151)
shareholders of the
Company recognized
directly in equity
Cash flow - - - 5,310 - 5,310
hedges
(note
10)
Net - - - - 97,617 97,617
earnings
Comprehensive - - - 5,310 97,617 102,927
income
Balance, 178,914 $ 220,987 $ 59,139 $ 15,155 $ 1,604,657 $ 1,899,938
April
2,
2023
See accompanying notes to unaudited condensed interim consolidated financial
statements.
QUARTERLY REPORT - Q1 2024 38
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars) - unaudited
Three months ended
March 31, April 2,
2024 2023
Cash flows from (used in)
operating activities:
Net $ 78,667 $ 97,617
earnings
Adjustments for:
Depreciation and 31,588 27,936
amortization (note 8(a))
(Gain) Loss on disposal of property, plant and equipment (10) (25,033)
(PP&E), including insurance recoveries relating to PP&E
Share-based 6,289 8,030
compensation
Deferred (822) 7,394
income taxes
Other (note (1,219) (4,772)
12(a))
Changes in non-cash working (141,889) (290,589)
capital balances (note 12(c))
Cash flows from (used in) (27,396) (179,417)
operating activities
Cash flows from (used in)
investing activities:
Purchase of property, (42,171) (72,957)
plant and equipment
Purchase of (1,800) (899)
intangible assets
Proceeds from sale and leaseback and other 72 51,021
disposals of property, plant and equipment
Cash flows from (used in) (43,899) (22,835)
investing activities
Cash flows from (used in)
financing activities:
Increase (decrease) in amounts drawn 155,000 200,000
under long-term bank credit facility
Payment of lease (3,790) (12,995)
obligations
Proceeds from the 345 5,123
issuance of shares
Repurchase and (56,700) (32,018)
cancellation of shares
Share repurchases for (13,863) (19,555)
settlement of non-Treasury RSUs
Withholding taxes paid pursuant to (8,044) (15,240)
the settlement of non-Treasury RSUs
Cash flows from (used in) 72,948 125,315
financing activities
Effect of exchange rate changes on cash and cash (99) 357
equivalents denominated in foreign currencies
Increase (decrease) in cash and 1,554 (76,580)
cash equivalents during the period
Cash and cash equivalents, 89,642 150,417
beginning of period
Cash and cash equivalents, $ 91,196 $ 73,837
end of period
Cash paid during the period (included in cash flows from (used in) operating activities):
Interest $ 16,565 $ 14,259
Income taxes, 5,760 6,095
net of refunds
Supplemental disclosure of cash flow information (note
1
2).
See accompanying notes to unaudited condensed interim consolidated financial
statements.
QUARTERLY REPORT - Q1 2024 39
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the period ended March 31, 2024
(Tabular amounts in thousands or thousands of U.S. dollars except per share
data, unless otherwise indicated)
1. REPORTING ENTITY:
Gildan Activewear Inc. (the "Company" or "Gildan") is domiciled in Canada and
is incorporated under the
Canada Business Corporations Act.
Its principal business activity is the manufacture and sale of activewear,
hosiery, and underwear. The Company's fiscal year ends on the Sunday closest
to December 31 of each year.
The address of the Company's registered office is 600 de Maisonneuve Boulevard
West, Suite 3300, Montreal, Quebec. These unaudited condensed interim
consolidated financial statements are as at and for the three months ended
March 31, 2024 and include the accounts of the Company and its subsidiaries.
The Company is a publicly listed entity and its shares are traded on the
Toronto Stock Exchange and New York Stock Exchange under the symbol GIL.
2. BASIS OF PREPARATION:
(a) Statement of compliance:
These unaudited condensed interim consolidated financial statements have been
prepared in accordance with International Accounting Standard ("IAS") 34,
Interim Financial Reporting, as issued by the International Accounting
Standards Board ("IASB"). These unaudited condensed interim consolidated
financial statements should be read in conjunction with the Company's fiscal
2023 audited consolidated financial statements. The Company applied the same
accounting policies in the preparation of these unaudited condensed interim
consolidated financial statements as those disclosed in note 3 of its most
recent annual consolidated financial statements, except for the adoption of
new standards effective as of January 1, 2024 as described below in note 2(d).
These unaudited condensed interim consolidated financial statements were
authorized for issuance by the Board of Directors of the Company on May 1,
2024.
(b) Seasonality of the business:
The Company's net sales are subject to seasonal variations. Net sales have
historically been higher during the second and third quarters.
(c) Operating segments:
The Company manages its business on the basis of one reportable operating
segment.
(d) Initial application of new accounting standards and interpretations in the
reporting period:
On January 1, 2024. the Company adopted the following new or amended
accounting standards:
Amendments to IAS 1, Presentation of Financial Statements
On January 23, 2020, the IASB issued narrow-scope amendments to IAS 1,
Presentation of Financial Statements, to clarify how to classify debt and
other liabilities as current or non-current. The amendments (which affect only
the presentation of liabilities in the statement of financial position)
clarify that the classification of liabilities as current or non-current
should be based on rights that are in existence at the end of the reporting
period to defer settlement by at least twelve months and make explicit that
only rights in place at the end of the reporting period should affect the
classification of a liability; clarify that classification is unaffected by
expectations about whether an entity will exercise its right to defer
settlement of a liability; and make clear that settlement refers to the
transfer to the counterparty of cash, equity instruments, other assets, or
services. On October 31, 2022, the IASB issued Non-current Liabilities with
Covenants (Amendments to IAS 1). These further amendments clarify how to
address the effects on classification and disclosure of covenants which an
entity is required to comply with on or before the reporting date and
covenants which an entity must comply with only after the reporting date. The
2020 amendments and the 2022 amendments (collectively "the Amendments") are
effective for annual periods beginning on or after January 1, 2024 and are
applied retrospectively. The amendment of IAS 1 had no impact on the Company's
consolidated financial statements.
QUARTERLY REPORT - Q1 2024 40
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED:
Lack of Exchangeability
In August 2023, the IASB issued amendments to IAS 21 - The Effects of Changes
in Foreign Exchange Rates in relation to Lack of Exchangeability. The
amendments require entities to apply a consistent approach in assessing
whether a currency can be exchanged into another currency, and in determining
the exchange rate to use and the disclosures to provide when it cannot. These
amendments are effective for annual reporting periods beginning on or after
January 1, 2025, and are not expected to have an impact on the Company's
consolidated financial statements. Early adoption is permitted.
IFRS 18 Presentation and Disclosure in Financial Statements
On April 9, 2024, the IASB issued IFRS 18 Presentation and Disclosure in
Financial Statements to improve reporting of financial performance. IFRS 18
replaces IAS 1 Presentation of Financial Statements. It carries forward many
requirements from IAS 1 unchanged. IFRS 18 applies for annual reporting
periods beginning on or after January 1, 2027. Earlier application is
permitted. The Company is currently evaluating the impact from the adoption of
IFRS 18 on its consolidated financial statements.
4. TRADE ACCOUNTS RECEIVABLE:
March 31, December 31,
2024 2023
Trade accounts receivable $ 523,417 $ 423,663
Allowance for expected credit losses (11,274) (11,165)
$ 512,143 $ 412,498
As at March 31, 2024, trade accounts receivables being serviced under a
receivables purchase agreement amounted to $208.2 million (December 31, 2023 -
$270.9 million). The receivables purchase agreement, which allows for the sale
of a maximum of $400 million of accounts receivables at any one time, expires
on June 18, 2024, subject to annual extensions. The Company retains servicing
responsibilities, including collection, for these trade receivables sold. The
difference between the carrying amount of the receivables sold under the
agreement and the cash received at the time of transfer was $3.4 million (2023
- $4.1 million) for the three months ended March 31, 2024, and was recorded in
bank and other financial charges.
The movement in the allowance for expected credit losses in respect of trade
receivables was as follows:
Three months ended
March 31, April 2,
2024 2023
Allowance for expected credit losses, beginning of period $ (11,165) $ (15,394)
Reversal of impairment (Impairment) of trade accounts receivable (343) 2,269
Write-off of trade accounts receivable 234 394
Allowance for expected credit losses, end of period $ (11,274) $ (12,731)
QUARTERLY REPORT - Q1 2024 41
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. INVENTORIES:
March 31, December 31,
2024 2023
Raw materials and spare parts inventories $ 171,560 $ 165,527
Work in progress 65,659 57,938
Finished goods 899,998 865,976
$ 1,137,217 $ 1,089,441
6. LONG-TERM DEBT:
Effective interest rate Principal amount Maturity date
(1)
March 31, December 31,
2024 2023
Non-current portion
of long-term debt
Revolving long-term bank credit facility, 6.6% $ 390,000 $ 235,000 March 2027
interest at variable U.S. interest rate
(2)(3)
Term loan, interest at variable 4.3% 300,000 300,000 June 2026
U.S. interest rate, payable monthly
(2)(4)
Notes payable, interest at fixed 2.9% 100,000 100,000 August 2026
rate of 2.91%, payable semi-annually
(5)
Notes payable, interest at Adjusted SOFR 2.9% 50,000 50,000 August 2026
plus a spread of 1.57%, payable quarterly
(5)(6)
$ 840,000 $ 685,000
Current portion
of long-term debt
Delayed draw term loan (DDTL), interest at 6.9% 300,000 300,000 May 2024
variable U.S. interest rate, payable monthly
(2)(4)
$ 300,000 $ 300,000
Long-term debt (including $ 1,140,000 $ 985,000
current portion)
(1)
Represents the annualized effective interest rate for the three months ended
March 31, 2024, including the cash impact of interest rate swaps, where
applicable.
(2)
Secured Overnight Financing Rate (SOFR) advances at adjusted Term SOFR
(includes a 0% to 0.25% reference rate adjustment) plus a spread ranging from
1% to 3%.
(3)
The Company's committed unsecured revolving long-term bank credit facility of
$1 billion provides for an annual extension which is subject to the approval
of the lenders. The spread added to the adjusted Term SOFR is a function of
the total net debt to EBITDA ratio (as defined in the credit facility
agreement and its amendments). In addition, an amount of $34.2 million
(December 31, 2023 - $36.0 million) has been committed against this facility
to cover various letters of credit.
(4)
The unsecured term loan is non-revolving and can be prepaid in whole or in
part at any time with no penalties. The spread added to the adjusted Term SOFR
is a function of the total net debt to EBITDA ratio (as defined in the term
loan agreements and its amendments).
(5)
The unsecured notes issued to accredited investors in the U.S. private
placement market can be prepaid in whole or in part at any time, subject to
the payment of a prepayment penalty as provided for in the Note Purchase
Agreement.
(6)
Adjusted SOFR rate is determined on the basis of floating rate notes that bear
interest at a floating rate plus a spread of 1.57%.
On May 26, 2023, the Company amended its $300 million term loan to include an
additional $300 million delayed draw term loan ("DDTL") with a one year
maturity from the effective date. All other terms of the agreement remained
unchanged.
The Company was in compliance with all financial covenants at March 31, 2024.
QUARTERLY REPORT - Q1 2024 42
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. RESTRUCTURING AND ACQUISITION-RELATED COSTS:
Three months ended
March 31, April 2,
2024 2023
Employee termination $ - $ 507
and benefit costs
Exit, relocation 1,252 2,711
and other costs
Net (gain) loss on disposal, and write-downs of property, plant and equipment, (454) (383)
right-of-use assets and computer software related to exit activities
Restructuring and $ 798 $ 2,835
acquisition-related costs
Restructuring and acquisition-related costs for the three months ended March
31, 2024 related to costs incurred to complete restructuring activities that
were initiated in previous years. Restructuring and acquisition-related costs
for the three months ended April 2, 2023 mainly related to the December 2022
closure of a yarn-spinning plant in the U.S., and the exit cost from
terminating a lease on a previously closed yarn facility.
8. OTHER INFORMATION:
(a) Depreciation and amortization:
Three months ended
March 31, April 2,
2024 2023
Depreciation of property, $ 27,166 $ 24,605
plant and equipment
Depreciation of 3,371 3,259
right-of-use assets
Adjustment for the variation of depreciation included (2,671) (3,402)
in inventories at the beginning and end of the period
Amortization of intangible assets, 2,334 2,101
excluding computer software
Amortization of 1,388 1,373
computer software
Depreciation and amortization $ 31,588 $ 27,936
included in net earnings
Included in property, plant and equipment as at March 31, 2024 is $74.8
million (December 31, 2023 - $185.2 million) of buildings and equipment not
yet available for use in operations. Included in intangible assets as at March
31, 2024 is $1.1 million (December 31, 2023 - $1.2 million) of software not
yet available for use in operations. Depreciation and amortization on these
assets commence when the assets are available for use.
As at March 31, 2024, the Company has approximately $101.2 million in
commitments to purchase property and equipment, mainly related to
manufacturing capacity expansion projects.
QUARTERLY REPORT - Q1 2024 43
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. OTHER INFORMATION (continued):
(b) Financial expenses, net:
Three months ended
March 31, April 2,
2024 2023
Interest expense on financial liabilities recorded at amortized cost $ 16,034 $ 11,406
(1)
Bank and other financial charges 4,871 5,276
Interest accretion on discounted lease obligations 1,013 703
Interest accretion on discounted provisions 106 52
Foreign exchange loss (gain) 702 (485)
Financial expenses, net $ 22,726 $ 16,952
(1) Net of capitalized borrowing costs of nil (2023 - $1.0 million), for the
three months ended March 31, 2024.
(c) Related party transaction:
During the first quarter of fiscal 2023, the Company incurred expenses of $0.2
million, with a company controlled by the former President and Chief Executive
Officer.
(d) Lease obligations:
The Company's leases are primarily for manufacturing, sales, distribution, and
administrative facilities.
The following table presents lease obligations recorded in the statement of
financial position:
March 31, December 31,
2024 2023
Current $ 14,225 $ 14,161
Non-current 80,098 83,900
$ 94,323 $ 98,061
The following table presents the future minimum lease payments under
non-cancellable leases (including short-term leases) as at March 31, 2024:
March 31,
2024
Less than one year $ 21,456
One to five years 63,150
More than five years 48,432
$ 133,038
For the three months ended March 31, 2024, the total cash outflow for
recognized lease obligations (including interest) was $4.8 million (2023 -
$13.7 million), of which $3.8 million (2023 - $13.0 million), was included as
part of cash outflows used in financing activities. The decrease in cash
outflow is largely due to the termination of a lease in 2023.
QUARTERLY REPORT - Q1 2024 44
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(e) Sale and leaseback:
During the first quarter of fiscal 2023, the Company entered into an agreement
to sell and leaseback one of its distribution centres located in the U.S. The
proceeds of disposition of $51.0 million, which represent the fair value of
the distribution centre, were recognized in the condensed interim consolidated
statement of cash flows as proceeds from sale and leaseback and other
disposals of property, plant and equipment within investing activities. The
Company recognized a right-of-use asset of $3.9 million and a lease obligation
of $15.5 million at inception. In addition, a pre-tax gain on sale of $25.0
million ($15.5 million after tax) was recognized in the condensed interim
consolidated statements of earnings and comprehensive income in gain on sale
and leaseback.
(f) CEO separation costs and related advisory fees on shareholder matters and
special retention awards:
During the first quarter of fiscal 2024 the Company recognized an expense in
selling, general and administration of $17.2 million, consisting of $15.4
million of advisory, legal and other expenses, $1.1 million of stock-based
compensation expense relating to CEO separation costs, and $0.7 million of
stock-based compensation relating to special retention awards. These special
retention awards have a total grant date fair value of $8.6 million, of which
$6 million relates to awards that vest on December 31, 2024 and $2.6 million
relates to awards that vest primarily on December 31, 2025, subject to
performance conditions. The cost of these awards is being recognized as a
stock-based compensation expense over the respective vesting periods.
At March 31, 2024, accounts payable and accrued liabilities include unpaid
severance, supplemental executive retirement plan accruals and share based
compensation in respect of the former CEO in the amount of approximately $26
million. The former CEO contends that he is entitled to a total severance
package of approximately $38 million (which amount is contested by the Company
as being beyond what he is entitled to under his employment agreement). The
amounts recognized in accounts payable and accrued liabilities are recorded on
a without cause assumption.
(g) Costs relating to assessing external interests in acquiring the Company:
During the first quarter of fiscal 2024 the Company recognized an expense in
selling, general and administration of $2.5 million for advisory, legal and
other fees with respect to the announced review process initiated by the
Company following receipt of a confidential non-binding expression of interest
to acquire the Company.
(h) Cost of sales:
For the three months ended March 31, 2024, net insurance gains were nil (2023
- $3.3 million). The $3.3 million gain in Q1 2023, included in cost of sales,
relates to the two hurricanes which impacted the Company's operations in
Central America in November 2020. The insurance gains primarily related to
accrued insurance recoveries at replacement cost value for damaged equipment
in excess of the write-off of the net book value of property plant and
equipment.
QUARTERLY REPORT - Q1 2024 45
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. FAIR VALUE MEASUREMENT:
Financial instruments - carrying amounts and fair values:
The carrying amounts and fair values of financial assets and liabilities
included in the unaudited condensed interim consolidated statements of
financial position are as follows:
March 31, December 31,
2024 2023
Financial assets
Amortized cost:
Cash and cash equivalents $ 91,196 $ 89,642
Trade accounts receivable 512,143 412,498
Financial assets included in prepaid expenses, deposits and other current assets 49,134 45,136
Long-term non-trade receivables included in other non-current assets 12,985 12,863
Fair value through other comprehensive income:
Derivative financial assets included in prepaid expenses, deposits and other current assets 28,135 15,797
Financial liabilities
Amortized cost:
Accounts payable and accrued liabilities $ 414,793 $ 403,534
(1)
Long-term debt - bearing interest at variable rates 1,040,000 885,000
Long-term debt - bearing interest at fixed rates 100,000 100,000
(2)
Fair value through other comprehensive income:
Derivative financial liabilities included in accounts payable and accrued liabilities 12,423 4,760
(1) Accounts payable and accrued liabilities include $14.9 million (December
31, 2023 - $12.5 million) under supply-chain financing arrangements (reverse
factoring) with a financial institution, whereby receivables due from the
Company to certain suppliers can be collected by the suppliers from a
financial institution before their original due date. These balances are
classified as accounts payable and accrued liabilities and the related
payments as cash flows from operating activities, given the principal business
purpose of the arrangement is to provide funding to the supplier and not the
Company, the arrangement does not significantly extend the payment terms
beyond the normal terms agreed with other suppliers, and no additional
deferral or special guarantees to secure the payments are included in the
arrangement. Accounts payable and accrued liabilities also include balances
payable of $32.7 million (December 31, 2023 - $49.0 million) resulting mainly
from a one-week timing difference between the collection of sold receivables
and the weekly remittance to the bank counterparty under the receivables
purchase agreement that is disclosed in note 4 to these condensed interim
consolidated financial statements.
(2) The fair value of the long-term debt bearing interest at fixed rates was
$96.9 million as at March 31, 2024 (December 31, 2023 - $98.6 million).
QUARTERLY REPORT - Q1 2024 46
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. FAIR VALUE MEASUREMENT (continued):
Short-term financial assets and liabilities
The Company has determined that the fair value of its short-term financial
assets and liabilities approximates their respective carrying amounts as at
the reporting dates due to the short-term maturities of these instruments, as
they bear variable interest-rates, or because the terms and conditions are
comparable to current market terms and conditions for similar items.
Non-current assets and long-term debt bearing interest at variable rates
The fair values of the long-term non-trade receivables included in other
non-current assets and the Company's long-term debt bearing interest at
variable rates also approximate their respective carrying amounts because the
interest rates applied to measure their carrying amounts approximate current
market interest rates.
Long-term debt bearing interest at fixed rates
The fair value of the long-term debt bearing interest at fixed rates is
determined using the discounted future cash flows method and at discount rates
based on yield to maturities for similar issuances. The fair value of the
long-term debt bearing interest at fixed rates was measured using Level 2
inputs in the fair value hierarchy. In determining the fair value of the
long-term debt bearing interest at fixed rates, the Company takes into account
its own credit risk and the credit risk of the counterparties.
Derivatives
Derivative financial instruments are designated as effective hedging
instruments and consist of foreign exchange and commodity forward, option, and
swap contracts, as well as floating-to-fixed interest rate swaps to fix the
variable interest rates on a designated portion of borrowings under the term
loan and unsecured notes. The fair value of the forward contracts is measured
using a generally accepted valuation technique which is the discounted value
of the difference between the contract's value at maturity based on the rate
set out in the contract and the contract's value at maturity based on the rate
that the counterparty would use if it were to renegotiate the same contract
terms at the measurement date under current conditions. The fair value of the
option contracts is measured using option pricing models that utilize a
variety of inputs that are a combination of quoted prices and market-corroborate
d inputs, including volatility estimates and option adjusted credit spreads.
The fair value of the interest rate swaps is determined based on market data,
by measuring the difference between the fixed contracted rate and the forward
curve for the applicable floating interest rates.
Derivative financial instruments were measured using Level 2 inputs in the
fair value hierarchy. In determining the fair value of derivative financial
instruments the Company takes into account its own credit risk and the credit
risk of the counterparties.
QUARTERLY REPORT - Q1 2024 47
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. OTHER COMPREHENSIVE INCOME (LOSS) ("OCI"):
Three months ended
March 31, April 2,
2024 2023
Net (loss) gain on derivatives
designated as cash flow hedges:
Foreign $ (2) $ (2,178)
currency risk
Commodity 6,617 5,225
price risk
Interest 2,912 (2,763)
rate risk
Income taxes - 22
Amounts reclassified from OCI to (3,221) 2,848
inventory, related to commodity price risk
Amounts reclassified from OCI to net earnings, related to foreign currency
risk, commodity price risk, and interest rate risk, and included in:
Net sales 152 540
Cost of sales - (55)
Selling, general and (129) 770
administrative expenses
Financial (1,768) 923
expenses, net
Income taxes (8) (22)
Other comprehensive $ 4,553 $ 5,310
income (loss)
As at March 31, 2024, accumulated other comprehensive income of $18.2 million
consisted of net deferred gains on commodity forward, option, and swap
contracts of $8.1 million, net deferred gains on interest rate swap contracts
of $10.4 million, and net deferred losses on forward foreign exchange
contracts of $0.3 million. Approximately $14.3 million of net gains presented
in accumulated other comprehensive income are expected to be reclassified to
inventory or net earnings within the next twelve months.
QUARTERLY REPORT - Q1 2024 48
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. EARNINGS PER SHARE:
Reconciliation between basic and diluted earnings per share is as follows:
Three months ended
March 31, April 2,
2024 2023
Net earnings - basic and diluted $ 78,667 $ 97,617
Basic earnings per share:
Basic weighted average number of common shares outstanding 168,869 179,543
Basic earnings per share $ 0.47 $ 0.54
Diluted earnings per share:
Basic weighted average number of common shares outstanding 168,869 179,543
Plus dilutive impact of stock options, Treasury RSUs and common shares held in trust 108 300
Diluted weighted average number of common shares outstanding 168,977 179,843
Diluted earnings per share $ 0.47 $ 0.54
Excluded from the above calculation for the three months ended March 31, 2024
are nil stock options (2023 - 1,132,737) and nil Treasury RSUs (2023 - 25,614)
which were deemed to be anti-dilutive.
12. SUPPLEMENTAL CASH FLOW DISCLOSURE:
(a) Adjustments to reconcile net earnings to cash flows from (used in)
operating activities - other items:
Three months ended
March 31, April 2,
2024 2023
Unrealized net loss (gain) on foreign $ (429) $ (100)
exchange and financial derivatives
Non-cash restructuring costs (recoveries) related to property, plant (454) (383)
and equipment, right-of-use assets, and computer software (note 7)
Timing differences between settlement of financial derivatives and transfer 845 5,817
of deferred gains or losses in accumulated OCI to inventory and net earnings
Other non-current 770 (6,641)
assets
Other non-current (1,951) (3,465)
liabilities
$ (1,219) $ (4,772)
QUARTERLY REPORT - Q1 2024 49
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. SUPPLEMENTAL CASH FLOW DISCLOSURE (continued):
(b) Variations in non-cash transactions:
Three months ended
March 31, April 2,
2024 2023
Dividends $ 34,546 $ 33,566
payable
Shares repurchased for cancellation included (9,951) -
in accounts payable and accrued liabilities
Net additions to property, plant and equipment and intangible (7) (7,171)
assets included in accounts payable and accrued liabilities
Proceeds on disposal of property, plant and equipment (53) -
and computer software included in other current assets
Additions to right-of-use assets 207 4,185
included in lease obligations
Non-cash ascribed value credited to share capital from shares issued or distributed 10,287 15,179
pursuant to vesting of restricted share units and exercise of stock options
Reclass from contributed surplus to accounts payable and accrued 13,504 -
liabilities pursuant to change in settlement of restricted share units
Amounts payable relating to 1,089 -
non-Treasury RSUs to be settled in cash
Deferred compensation credited 496 (2,075)
to contributed surplus
(c) Changes in non-cash working capital balances:
Three months ended
March 31, April 2,
2024 2023
Trade accounts receivable $ (100,638) $ (149,307)
Income taxes (1,219) 271
Inventories (45,105) (85,427)
Prepaid expenses, deposits and other current assets (1,455) (3,790)
Accounts payable and accrued liabilities 6,528 (52,336)
$ (141,889) $ (290,589)
13. CONTINGENT LIABILITIES:
Claims and litigation
The Company is a party to claims and litigation arising in the normal course
of operations. The Company does not expect the resolution of these matters to
have a material adverse effect on the financial position or results of
operations of the Company.
QUARTERLY REPORT - Q1 2024 50
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
14. DISAGGREGATION OF REVENUE:
Net sales by major product group were as follows:
Three months ended
March 31, April 2,
2024 2023
Activewear $ 592,086 $ 587,800
Hosiery and underwear 103,710 115,063
$ 695,796 $ 702,863
Net sales were derived from customers located in the following geographic areas:
Three months ended
March 31, April 2,
2024 2023
United States $ 617,985 $ 625,056
Canada 25,326 25,671
International 52,485 52,136
$ 695,796 $ 702,863
QUARTERLY REPORT - Q1 2024 51
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Vincent Tyra, President and Chief Executive Officer of Gildan Activewear
Inc., certify the following:
1.
Review:
I have reviewed the interim financial report and interim MD&A (together, the
"interim filings") of
Gildan Activewear Inc.
(the "issuer") for the interim period ended
March 31, 2024
.
2.
No misrepresentations:
Based on my knowledge, having exercised reasonable diligence, the interim
filings do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings.
3.
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the
interim filings fairly present in all material respects the financial
condition, results of operations and cash flows of the issuer, as of the date
of and for the periods presented in the interim filings.
4.
Responsibility:
The issuer's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (DC&P) and
internal control over financial reporting (ICFR), as those terms are defined
in National Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings
, for the issuer.
5.
Design:
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuer's other certifying officer(s) and I have, as at the end of the period
covered by the interim filings:
A. designed DC&P, or caused it to be designed under our supervision, to
provide reasonable assurance that:
I. material information relating to the issuer is made known to us by
others, particularly during the period in which the interim filings are being
prepared; and
II. information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation; and
B. designed ICFR, or caused it to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with the issuer's GAAP.
5.1
Control framework:
The control framework the issuer's other certifying officer(s) and I used to
design the issuer's ICFR is the framework set forth in Internal Control-Integrat
ed Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
5.2
ICFR - material weakness relating to design:
N/A
5.3
Limitation on scope of design:
N/A
6.
Reporting changes in ICFR:
The issuer has disclosed in its interim MD&A any change in the issuer's ICFR
that occurred during the period beginning on
January 1, 2024
and ended on
March 31, 2024
that has materially affected, or is reasonably likely to materially affect,
the issuer's ICFR.
Date:
May 1, 2024
(s) Vincent Tyra
Vincent Tyra
President and Chief Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Rhodri J. Harries, Executive Vice President, Chief Financial and
Administrative Officer of Gildan Activewear Inc., certify the following:
1.
Review:
I have reviewed the interim financial report and interim MD&A (together, the
"interim filings") of
Gildan Activewear Inc.
(the "issuer") for the interim period ended
March 31, 2024
.
2.
No misrepresentations:
Based on my knowledge, having exercised reasonable diligence, the interim
filings do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings.
3.
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the interim
financial report together with the other financial information included in the
interim filings fairly present in all material respects the financial
condition, results of operations and cash flows of the issuer, as of the date
of and for the periods presented in the interim filings.
4.
Responsibility:
The issuer's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (DC&P) and
internal control over financial reporting (ICFR), as those terms are defined
in National Instrument 52-109
Certification of Disclosure in Issuers' Annual and Interim Filings
, for the issuer.
5.
Design:
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the
issuer's other certifying officer(s) and I have, as at the end of the period
covered by the interim filings:
A. designed DC&P, or caused it to be designed under our supervision, to
provide reasonable assurance that:
I. material information relating to the issuer is made known to us by
others, particularly during the period in which the interim filings are being
prepared; and
II. information required to be disclosed by the issuer in its annual
filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation; and
B. designed ICFR, or caused it to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with the issuer's GAAP.
5.1
Control framework:
The control framework the issuer's other certifying officer(s) and I used to
design the issuer's ICFR is the framework set forth in Internal Control-Integrat
ed Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
5.2
ICFR - material weakness relating to design:
N/A
5.3
Limitation on scope of design:
N/A
6.
Reporting changes in ICFR:
The issuer has disclosed in its interim MD&A any change in the issuer's ICFR
that occurred during the period beginning on
January 1, 2024
and ended on
March 31, 2024
that has materially affected, or is reasonably likely to materially affect,
the issuer's ICFR.
Date:
May 1, 2024
(s) Rhodri J. Harries
Rhodri J. Harries
Executive Vice President, Chief Financial and Administrative Officer
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