Gildan shares plummet after 2008 profit estimates cut

Tag: T shirt machine Shares of Gildan Activewear Inc shed more than 30 percent on Tuesday after the T-shirt maker cut its full year and second-quarter earnings forecasts on Tuesday, hurt by lower-than-expected sales growth amid sluggish output at a Dominican Republic facility. The company said it expects adjusted diluted earnings per share of 35 cents in the second quarter, down from its previous estimate of 42 cents. The company cut its 2008 forecast to $1.45-$1.50 a share, from $1.85-$1.90. Gildan was the biggest net decliner on the Toronto Stock Exchange, diving C$10.59, or 29.2 percent, to C$25.67 in afternoon trading. It had earlier fallen as low as C$24.07. Gildan said the revision was due to slower-than-expected sales growth of its activewear amid a shortfall in output at its textile factory in the Dominican Republic. A writedown of inventories of discontinued product lines as Gildan integrates its sock products and the additional costs of servicing retailers during the integration of information systems also contributed to the lowered forecast. Gildan said these issues were partially offset by a more favorable product mix and lower than expected promotional discounts by U.S. wholesale distributors. In a research note, Sara O'Brien, analyst with RBC Capital Markets, said the integration of its acquisition of hosiery manufacturer Kentucky Derby Hosiery Co had led to disruptions in the second quarter, including the writedown. The integration had also led to missed retail sales volumes, and additional distribution and freight costs to get products on shelves on time, the research note said. The lower-than-expected production at the Dominican facility will continue to hurt the company in the second half of the fiscal year, Gildan said, and will prevent it from capitalizing on strong sales demand, particularly in the peak summer season. That shortfall will also result in higher-than-forecast manufacturing costs, the company said, adding it expects to be hurt by larger-than-expected increases in freight and energy costs in the second half of the year. O'Brien wrote that the facility "has been hurt by management turnover, complications from the introduction of ring spun cotton technology, and some neglected machine maintenance." Nonetheless, Montreal-based Gildan was confident it could resolve the operational issues during the second half of the year. Gildan, which sells blank T-shirts, sport shirts and fleece to wholesale distributors to be decorated by screenprinters, is undergoing a major growth initiative to sell athletic socks, underwear and activewear to retailers in North America. ($1=$1.01 Canadian)