* Q4 EPS $0.47 vs $0.35 last year
* Sees 2011 sales of $1.6 bln vs 2010's $1.31 bln
* Sees Q1 2011 margin of 25 pct, down from 29.8 pct
* Sets quarterly dividend of 7.5 cents (Updates with details, shares, analyst comment. In U.S. dollars unless noted)
By Solarina Ho
TORONTO, Dec 2 (Reuters) - Clothing maker Gildan Activewear Inc (GIL.TO) (GIL.N) posted a 34 percent rise in quarterly profit on Thursday, but its 2011 financial forecast fell short of expectations, sending its shares 7 percent lower.
Gildan forecast sales of more than $300 million in the first quarter of fiscal 2011, which began Oct. 4. That is 40 percent higher than the year-earlier period, but it said gross margins would be about 25 percent, down from 29.8 percent in the first quarter of 2010.
"The projected reduction in gross margins compared to last year is due to the impact of significantly higher cotton costs, and manufacturing start-up inefficiencies," Laurence Sellyn, Gildan's chief financial and administrative officer, said on a conference call with analysts.
"These unfavorable variances will only be partially offset by the benefit of the recent price increases, which have not been applied to back orders."
The Montreal-based manufacturer of basic apparel such as T-shirts, socks and underwear, projected its earnings per share would rise 20 cents in fiscal 2011. This would result in an EPS estimate of about $1.87 a share. The full year forecast according to Thomson Reuters I/B/E/S was C$2.00.
"If you look at where consensus was, the new guidance came in below that consensus EPS, so that's a little bit disappointing. That said, there's still topline growth in the name and the valuation is reasonable," said Canaccord Genuity analyst, Candice Williams.
"As long as demand remains strong and supplies remain tight it seems like these are favorable conditions for Gildan."
The company expects net sales in 2011 will rise to about $1.6 billion from $1.31 billion in 2010.
It also introduced a quarterly dividend: 7.5 cents a share, payable on March 18 to shareholders of record on Feb. 23.
For its fourth quarter, ended Oct. 3, the company reported net earnings of $56.8 million, or 47 cents a share, up from $42.4 million, or 35 cents a share, a year earlier.
Before a restructuring charge of 1 cent a share related to the consolidation of U.S. distribution activities, adjusted net earnings were $58.3 million, or 48 cents a share.
Sales rose 22 percent to $368 million.
Analysts had expected earnings of 46 cents a share on revenue of $370.1 million, according to Thomson Reuters I/B/E/S.
Gildan shares were down 7.03 percent at C$29.22 on the Toronto Stock Exchange and off 5.57 percent at $29.16 in New York Thursday afternoon.
$1=$1.00 Canadian Additional reporting by Aftab Ahmed in Bangalore; editing by Rob Wilson