MONTREAL - Gildan Activewear is expanding U.S. production for the first time by investing US$85 million in yarn-spinning facilities in southern states, the maker of T-shirts, socks and other clothing said Thursday.
The plants will employ hundreds of workers who will make yarn that will be transformed into clothes at Gildan's low-cost centres in other countries and exported back to the United States duty-free.
The Montreal-based company expects to hire about 200 additional workers at a new facility that will be built next year to make soft ring spun yarn. They will join 230 employees at two of its facilities that will be modernized and expanded in Georgia and North Carolina after taking full control of a joint venture earlier this year.
Both states are among those that have enacted the pro-business right-to-work law banning mandatory union membership.
The investment in U.S. manufacturing comes several years after it closed its high-cost apparel manufacturing in Canada and the United States and shipped jobs to Central America and the Caribbean.
The capital expenditures will allow the company to expand its only U.S. manufacturing and take advantage of low electricity prices and technological expertise, says chief financial and administrative officer Laurence Sellyn.
"This will be our first manufacturing major investment in the U.S.," he said in an interview.
"Yarn is the first step in the supply chain that consumes the raw cotton so it is good to do close to the raw material."
Ring-spun yarn is a softer material used in underwear and T-shirts that's typically imported from Asia at a higher price. By making the yarn in-house, Gildan will develop closer relationships with farmers and produce a material that fetches a higher price.
It will also be able to take advantage of the Central America Free Trade Agreement that allows duty-free importation of finished goods made from yarn spun in the United States or Central America.
Gildan had considered establishing a yarn-spinning facility in Honduras but chose the U.S. mainly because of lower energy costs.
Ring-spun yarn is not readily available in the U.S. but adding one of the largest such facilities in the United States will give Gildan a "strategic advantage" by allowing it to sell better products than its competitors, president Glenn Chamandy said during a conference call.
"So we're pretty excited about it, and having a domestic capacity at a favourable cost structure, we think, is going to give us significant cost advantage."
Gildan (TSX:GIL) also plans to invest $15 million next year on advertising in Canada and the U.S. to promote its Gildan and Gold Toe branded clothing as their sales are expanded next summer in major national and regional retailers such as Walmart.
The company has hired New York-based agency DeVito/Verdi to oversee the print, TV and social media advertising.
Gildan said Thursday it is raising its quarterly dividend by 20 per cent to nine cents US per share after achieving its most profitable quarter as earnings in the final period or its fiscal year was 84 per cent higher than last year, although slightly below analyst estimates due to an unanticipated expense.
Gildan's net income for the three-month period, reported in U.S. currency, jumped to $89 million or 73 cents per share. That's up from $48.5 million or 40 cents of net earnings in the fourth quarter of 2011.
After excluding restructuring and acquisition-related costs incurred during the fourth quarter, adjusted earnings were $94.9 million or 78 cents per share, a penny per share below a consensus estimate compiled by Thomson Reuters.
Gildan said its adjusted earnings were reduced by two cents per share, or $2.4 million, following the settlement of a lawsuit with Fruit of the Loom affiliate Russell Brands, which accused it of trademark infringement and unfair competition for selling clothing it had improperly relabelled.
Net sales for the three-month period rose to $561.6 million from $481.6 million a year earlier in 2011.
Gildan said its net sales are expected to rise again in 2013, after growing 1.9 per cent this year to $1.9 billion for the 12 months ended Sept. 30. It expects to make between $2.60 and $2.70 per share in adjusted profits next year due to expanded sales and falling cotton prices.
Tal Woolley of RBC Capital Markets said the guidance was in line with market expectations.
"Our view is that these numbers are achievable in a reasonable operating environment, potentially giving Gildan some room to raise guidance as the year progresses," he wrote in a report.
Sales are expected to be $2.1 billion driven by $1.4 billion of printwear sales and $700 million from branded apparel.
"Lower cotton costs will drive improved gross margins along with a more favourable sales mix, offset by higher promotions and other input costs."
On the Toronto Stock Exchange, Gildan's shares gained 91 cents, or 2.75 per cent, at C$34 in afternoon trading.