May 3, 2012 / 11:40 AM / 5 years ago

UPDATE 1-Gildan Inc quarterly profit hurt by high cotton costs

May 3 (Reuters) - Clothing maker Gildan Activewear Inc reported a 56 percent drop in quarterly earnings on Thursday, as higher cotton costs more than offset gains from improved sales volumes and higher selling prices.

Net income in the second quarter that ended April 1, fell to $26.9 million, or 22 cents a share, from $61.7 million, or 50 cents a share, a year earlier.

Excluding restructuring and acquisition-related costs, earnings were $27.8 million, or 23 cents a share. This topped the company's previously announced second-quarter forecast of 20 cents a share. Analysts, on average, had also expected earnings to be in line with the company's forecast that was issued in February.

Net sales in the second quarter rose 26 percent to $482.6 million, driven by gains in both its printwear and branded apparel segments.

Higher cotton costs hurt gross margins in the quarter, which fell to 17.8 percent from 28.4 percent, a year earlier.

Gildan is a top supplier to the screenprint market in the United States and Canada, with more than 60 percent of the market. It also supplies private-label and Gildan-branded socks, primarily to mass-market retailers.

Montreal-based Gildan also said it would acquire smaller rival Anvil Holdings Inc for $88 million and finance the deal through its bank credit facility.

The company reaffirmed its fiscal 2012 earnings before restructuring and acquisition-related costs of about $1.30 per share. It expects sales of some $1.95 billion, compared with its prior view of about $1.9 billion. Analysts, on average, had forecast earnings of $1.32 a share, on revenue of $1.91 billion, according to Thomson Reuters I/B/E/S.

The company also forecast fiscal third-quarter earnings of 65 cents a share, on revenue of about $600 million. Analysts, on average, had forecast earnings of 79 cents a share, on revenue of $588.7 million.

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