Gildan Activewear slumps on Q3 sales hit

Shares in casual clothing make r Gildan Activewear Inc., the owner of the American Apparel brand, plummeted by a third on Friday after the company said third- quarter sales dropped and that it will likely take a US$ 100 million hit on sales this year.

The Montreal-based company’s stock slid to as low as US$ 23.45, its biggest intraday drop since 2008, after the profit warning. Several analysts knocked their ratings and price targets on the stock.

The global company said its imprintables, or printwear, business — where it makes shirts and jackets that teams and corporations can stamp on their logos — suffered weaker- than- expected demand that was due to continue.

Lower demand cut sales by about US$ 50 million in the third quarter that ended Sept. 29 as U. S. printwear sales fell in high single-digit percentages compared with expectations of low single- digit growth. Printwear demand in Europe and China was also softer, it said.

“The company estimates that l ower demand expectations than previously projected will reduce the company’s sales projection for the fourth quarter by approximately $ 70 million and anticipates distributor inventory destocking will negatively impact sales by approximately $100 million,” Gildan said in a statement.

Adjusted earnings before interest, taxes, depreciation and amortization for the full year is now expected in the range of US$ 545 million to US$ 555 million compared with previous guidance of more than US$ 615 million, the company said.

The slump comes months after Gildan reported the Asian economy was “on fire,” and could be symptomatic of a wider industry downturn because of Gildan’s size, according to Bloomberg, citing Keith Howlett, an analyst at Desjardins Capital Markets.

“The printwear channel is reliant on demand from the promotional products channel, and it is possible that economic anxiety has caused some companies to reduce discretionary spending,” Howlett said in a note. He downgraded his rating to sell from buy.

Gildan did say sales by its more recent retail business that includes its own- brand underwear was in line with expectations.

Mark Petrie at CIBC said despite the magnitude of the profit warning, it wasn’t as bad as it’s been in the past for the retailer. “That being said, de- stocking issues can linger, and we have limited visibility overall, so it is difficult to have conviction in the pace and shape of a recovery.” He reduced his price target to US$30 from US$40.

Bank of America Merrill Lynch cut its rating to underperform from buy. “End demand from corporate customers has been especially weak, potentially tied to a slowing economy,” analyst Heather Balsky wrote in a note.

“The BOFAML macro team expects continued U. S. economic deceleration, which does not bode well for future demand in our view.”