As Gildan Activewear Inc. executives continued to argue with its top shareholders over who should lead the company, which is open to a sale, the business reported its earnings fell almost 20 per cent in its first quarter.
The fight has seen some of the Montreal-based company's shareholders urge Gildan to return former chief executive Glenn Chamandy to the helm of the business, a position one-time Fruit of the Loom leader Vince Tyra landed in January.
Tyra and other Gildan executives attributed the lower results in its first quarter not to the leadership battle but expected softness that materialized in its hosiery and underwear segment.
Sales across the category totalled US$103.7 million, down 10 per cent from a year earlier. They reflected "broader market weakness" and a March end to the licensing agreement the company had with sportswear giant Under Armour.
Retailers wanting to hold less inventory than they did before the COVID-19 pandemic also affected the company.
"We're not seeing the historical replenishment at this point that you would typically see," Chuck Ward, Gildan's president of sales, marketing and distribution, told analysts on a Wednesday call.
"We and the retailers are remaining cautious around that, but we do expect that to return as we go through the year."
These developments weighed on Gildan, which is known for manufacturing clothing that brands and consumers customize with their logos.
Its net earnings hit US$78.7 million in its first quarter compared with from US$97.6 million a year earlier.
Net sales for the period ended March 31 reached US$695.8 million, edging down about one per cent from US$702.9 million a year prior.
Gildan executives told analysts they had expected such patterns and baked them into their previous guidance.
Tyra saw the quarter as showing the company's "resilience" and he and other Gildan leaders who joined him on the call highlighted the performance of the business's activewear division, which saw its sales rise just shy of one per cent from a year ago to US$592.1 million.
Moving forward, Tyra said he would be "laser focused" on the company's supply chains and retail partners with a goal of "becoming the supplier of choice."
"We will apply a focused local approach from product to pricing to supply chain to regain and gain share in targeted international markets," Tyra said.
His remarks follow an intense few months at Gildan, which began last year when the company announced Chamandy's ouster. Gildan said it was moving to replace him with Tyra because Chamandy had no credible long-term strategy for the company and had lost the board's trust and confidence.
Several shareholders, including activist Browning West, railed against the move, calling for Gildan to reinstate Chamandy, whose performance they had been pleased with. Gildan's largest shareholder Jarislowsky Fraser supported Browning West, which also sought changes to Gildan's board.
Amid the feud, Gildan revealed in March that it had received a "non-binding expression of interest" from a potential purchaser that it did not name. It formed a special committee of independent directors to consider the bid and any others that came in.
A month later, Gildan announced plans to replace five members of its board of directors ahead of its annual meeting set for May 28. Gildan said it would recommend shareholders vote for Karen Stuckey and J.P. Towner, who Browning West had been pitching as potential board members.
"Support for the return of Glenn Chamandy does not appear to have faded post the recent board reshuffle," Martin Landry, a managing director at Stifel Financial Corp., said in a note to investors.
The strife was barely mentioned on Wednesday's Gildan financial results call, but an analyst asked about whether recent developments at the company would result in operational or governance changes.
Tyra responded saying he had interviewed some of the candidates who are slated to join the board, but the decision of who was offered a seat was not his.
"We respect and rely on the professionalism and the experience of who's joined us," he said.
Gildan also said Wednesday that its diluted earnings per share were 47 cents US for the quarter, which compared with 54 cents US a year earlier. Analysts had expected the company to report a gain of about 52 cents US per share, according to financial markets data firm Refinitiv.
On an adjusted basis, the company reported net earnings of US$99.2 million compared with US$81.6 million a year earlier.
This report by The Canadian Press was first published May 1, 2024.
Companies in this story: (TSX:GIL)
Tara Deschamps, The Canadian Press
