Gildan warning surprises investors

Gildan Activewear Inc. shares were down more than 20 per cent in mid-morning trading Friday after the company cut its 2019 guidance and warned third-quarter earnings would shrink. The shares were down by $10.39, or 22.34 per cent, at $36.12 on the Toronto Stock Exchange after the company highlighted weaker demand for imprintable apparel in North America and internationally. The clothing maker said Thursday it expects to report on Oct. 31 that its third-quarter earnings fell about seven per cent to 51 cents (U.S.) per share and about 53 cents per share on an adjusted basis for the period ended Sept. 29.

The Montreal-based company had said on Aug. 1 that its adjusted earnings per share would be flat on about five per cent sales growth.

Gildan also cut its full-year guidance to reflect a sales shortfall of about $50 million in the third quarter and continued weakness in the fourth quarter that will cut sales by about $70 million. Distributor inventory reductions should reduce sales by about $100 million. The company now expects 2019 sales to be down low single digits from 2018 and diluted earnings per share to be $1.50 to $1.55 per share.

BMO Capital Markets analyst Stephen MacLeod said in a note to investors that the bigger impact will be felt in the fourth quarter.

“The culprit appears to be broader economic activity,” he said, citing data showing a decline in men’s underwear sales.

CIBC analyst Mark Petrie said Gildan has had material guidance revisions over the years, so the move “will bring up bad memories.”