By Chris Prentice
NEW YORK, Nov 21 (Reuters) - Canada’s Gildan Activewear Inc is finalizing plans to build a new textile plant in Central America, as the maker of Gold Toe socks and other basic apparel aims to expand its operations in the Americas.
The Montreal-based company said on Thursday it plans to spend as much as $350 million in fiscal year to end-September 2014 on a series of projects in the Americas. The company is also looking to cut operational costs and expand its shelf presence in North America and Europe.
The bulk of the company’s operations are in the United States and Honduras. The new investments in its home region come as consumers and activists have been pressuring retailers and the global textile trade about unsafe working conditions in global manufacturing hubs including Bangladesh.
Gildan is in the final stages of choosing between two sites for its textile plant in the Central America, where apparel makers can take advantage of lower labor costs while still snagging fast, duty-free access to the key U.S. retail market.
“One of the advantage of staying in this hemisphere is speed to market,” Gildan’s president and chief executive officer Glenn Chamandy said as he detailed the plans on a call to discuss quarterly earnings.
Management declined to give further details but ruled out Honduras as the company aims to diversify its geography.
Other projects include ramping up and modernizing already-existing plants in Honduras and building a distribution center in Honduras, a new sewing facility in the Dominican Republic and two spinning mills in the United States.
That will add to the three other yarn-spinning mills in the United States, as the company takes advantage of lower-cost and reliable energy to make yarn, a semi-fabricated product that is less labor-intensive than clothing manufacturing.
Its Bangladesh textile and sewing facility feeds distribution centers throughout Asia and will remain the “engine” of growth in the region this year, Chamandy said.
Even so, Gildan warned that retailers will increasingly look to suppliers in areas with better safety standards and working conditions, after a building collapse and fires have killed thousands of factory workers in Bangladesh, one of the world’s major textile hubs.
“As there is more scrutiny in terms of building in these countries, there are a lot of reputational risks,” Chamandy said.
“People are going to continue to look to produce more goods in this hemisphere,” he said.
Gildan said it expects net revenues to grow to $2.35 billion in fiscal 2014 from $2.18 billion in 2013 as higher sales in printwear and branded apparel businesses offset inflationary pressures.
Gildan will be “front-loading” its European distribution business after missing out on sales due to capacity constraints, particularly for its fleece products, Chamandy said.
Cotton costs will be relatively stable compared with last year, though they are expected to be higher year-over-year in the first half of 2014 and lower in the last quarter.
Cotton purchased during a recent price spike will hurt the company’s bottom line, said executive vice president and chief financial and administrative officer Laurence Sellyn.
“Higher cotton costs in the first half are not currently assumed to be passed through (to customers) ... as cotton prices have declined significantly from the recent peak,” he said.
Spot cotton prices on ICE Futures U.S. have tumbled some 20 percent from an August high near 94 cents a lb, an echo of the wild price swings that have roiled the cotton industry in recent years.
The fiber market is still reeling from a price spike in 2011 that lifted prices to above $2.20 per lb, their highest since the U.S. Civil War, before dropping almost as quickly.
The gyrations prompted waves of contract defaults and drove mills to switch to lower-cost, synthetic alternatives.