GILDAN PLANT

Gildan Activewear Inc. has reduced its global workforce by 12.3%, or by 6,380 jobs, in response to the COVID-19 pandemic's significant impact on its production needs.

Gildan Activewear Inc. has reduced its global workforce by 12.3%, or by 6,380 jobs, in response to the COVID-19 pandemic’s significant impact on its production needs.

Gildan, based in Montreal, has yarn-spinning manufacturing and other operations in Mocksville, Eden and Salisbury with more than 1,000 employees combined before the brunt of the pandemic began to be felt in mid-March. The latest Mocksville workforce count was at more than 200.

The company said Thursday in its second-quarter earnings report that it cut 6,000 manufacturing and 380 administrative jobs during the quarter. That left Gildan with 46,000 jobs globally.

Including in the restructuring is closing on Aug. 21 a specialty yarn-spinning operation in East Columbus, Ga., affecting 155 employees.

“In North Carolina, the restructuring had minimal impact,” said Geneviève Gosselin, Gildan’s corporate communications and marketing director.

“All of our N.C. distribution centers and yarn spinning facilities have now reopened at different levels of production. We are also in the process of recruiting employees to fill open positions within our yarn-spinning division.

"The temporary shutdown of our facilities ... and potentially personal work/life factors in the current environment, are elements that may be contributing to some of the labor shortages."

In announcing the job reductions, Gildan said “we continued to manage and align our operations with the current demand environment, and taking into consideration the uncertainty that remains with respect to the ultimate impact of the virus and the pace at which global economies will recover.”

Production plants in North Carolina and companywide were idled March 17 in response to state-mandated shutdowns of non-essential businesses. Gildan said the majority of those plants were closed or operated at low capacity levels for most of the second quarter.

Gildan said production and distribution facilities began ramping up operations toward the end of the second quarter, “initially at reduced capacity levels and adjusted in line with demand through the quarter. The majority of our office employees continue to work remotely.”

By June 30, Gildan had ended the employee furloughs and salaried employees went from working four days back to five.

“We took a number of actions to drive market share in this environment, further reduce our cost base, and strengthen our level of financial flexibility,” the company said. “We believe these actions will position us well as we continue to manage through the impact of the pandemic as we head towards 2021 and for longer term growth in 2022.”

The company said it recorded $29 million in restructuring charges during the quarter, primarily related to cost reduction actions. “We currently expect (to) generate $46 million of cost reduction savings on an annual go-forward basis.”

Second-quarter results

The job reductions overshadowed what proved to be a major financial hit during the quarter.

Gildan reported a $249.7 million overall and a $196.6 million adjusted loss.

The company said it took $224 million in charges during the quarter, of which $131 million were COVID-19 related — including $85.9 million for manufacturing idling costs — and $93 million related to the Back-to-Basics restructuring, of which $21.9 million was related to the closing of the specialty yarn spinning facility.

There was an earnings loss of $1.26 a share, as well as an adjusted earnings loss of 99 cents.

The average earnings forecast was a loss of 22 cents by four analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.

Sales plunged 71.3% to $229.7 million. Activewear sales dropped 80.2% to $131.6 million, while hosiery and underwear were down 27.9% to $98.1 million.

U.S. sales dropped 72.8% to $185.7 million.

“We started to see sell-through trends in retail improve in the latter part of the second quarter, as government restrictions eased and retail stores began re-opening,” the company said.

“We have seen further retail point-of-sale improvement in July, and we are encouraged by our retail sales thus far in the third quarter, which are tracking slightly ahead of prior year levels.”

However, point-of-sale “within certain mid-tier retailers, such as department stores, national chains and sports specialty, are still down in the 20% to 30% range compared to prior year levels.”

CFRA analyst Camilla Yanushevsky responded to the Gildan report by lowering her fiscal 2020 earnings estimate from a loss of 25 cents to a loss of $1.41 per share.

“COVID-19 cases rising and renewed focus on social distancing can impede demand, notably imprintables, which relies on sports and other large gatherings,” she said.

“Long term, we think Gildan has the right partners (Amazon, Walmart, Costco, Target, TJ Maxx) to leverage first-mover advantage in private label manufacturing and capture valuable market share, but believe this is already reflected in current valuation.”

Stifel analyst Jim Duffy said that "social distancing protocols have severely impacted end-markets, and distributor destocking weighed heavily" on the second-quarter results, although he said "the worst of this destocking is likely over."

"With any signs of vitality in end markets, we expect distributors will restock and Gildan can quickly return to normalized earnings power."

rcraver@wsjournal.com

336-727-7376

@rcraverWSJ

Load comments