(Refiles to change “rosy” to “rosier” in headline)
* EPS $0.06 vs $0.35 in year-earlier quarter
* Revenue falls 17 percent to $244.8 million
* Company sees gross margin improving
* Expects Broder Brothers to win lender approval
* Shares rise 23.7 pct (Adds analyst’s comments and updates share price. In U.S. dollars unless noted)
TORONTO, May 14 (Reuters) - T-shirt maker Gildan Activewear Inc (GIL.TO) reported an 83 percent drop in quarterly profit on Thursday, hurt by a drop in demand and lower gross margins, and it warned that weak demand would continue.
But its shares jumped more than 20 percent as investors keyed in on optimism expressed by the company that gross margins would improve in the second half of the year and that a key customer would likely avoid filing for bankruptcy.
Broder Bros, which represents about 23 percent of Gildan’s 2008 sales in the U.S. screenprint business, faces a midnight deadline on Thursday for its key lenders to accept a refinancing of its senior notes.
But Montreal-based Gildan said on a call with analysts on Thursday that it was not preparing for Broder Bros to fail.
“The results were obviously below consensus. The sales outlook was not particularly cheerful, but people seem to be heartened somewhat on the commentary on Broder,” said Candice Williams, an analyst at Genuity Capital Markets, in Vancouver, British Columbia.
“The share price reaction of double digits this morning seems aggressive.”
The shares rose 23.7 percent to C$15.60 on the Toronto Stock Exchange.
The company also said it expects gross margins to improve in its third and fourth quarters due to better manufacturing and material costs.
The company, which sells T-shirts, socks and underwear, said it earned $7.1 million, or 6 cents a share, in its second quarter, ended March 31, down from $42.1 million, or 35 cents a share, in the year-before quarter.
Sales fell 17 percent to $244.8 million. Sales in the Canadian market dropped about 46 percent due to weak demand, distributor destocking and decline in the value of the Canadian dollar against the U.S. dollar, in which Gildan reports.
Analysts, on average, expected a profit of 10 cents a share, before items, and revenue of $219.8 million, according to Reuters Estimates.
Gross margins for the quarter were 15.8 percent, compared with 28.8 percent a year earlier.
$1=$1.17 Canadian Reporting by Scott Anderson in Toronto and Anurag Kotoky in Bangalore; editing by Peter Galloway