Strong growth in activewear helped drive Gildan’s (PPAI 250187) net sales up 5.3 percent in the third quarter. The Montreal, Quebec-headquartered apparel supplier says in its Q3 financial results report that it also gained ground in faster-growing areas, including fashion basics, international markets, global lifestyle brands and e-commerce. Year-to-date, Gildan posted net sales of $2.166 billion, up 3.3 percent over the same period in 2017.

Hurricane Florence’s impact constrained sales growth in September as it disrupted Gildan’s distribution operations in the Carolinas, reducing overall sales by approximately $30 million. Despite this the company reported $754.4 million in sales for the quarter ending September 30, supported by a 12.1 percent increase in activewear sales. This was partly offset, however, by a 16.6 percent reduction in the hosiery and underwear category.

The increase in the activewear category, which generated $612.4 million in sales for the quarter, was driven by higher unit sales volume and net selling prices. Growth reflected higher shipments of imprintable products, including fashion basics, combined with higher unit sales of global lifestyle brand products and a 27.6 percent increase in international sales. The decline in the smaller hosiery and underwear category, where Gildan saw $142 million in overall sales, was mainly due to lower stock volumes, primarily in mass, and lower licensed brand sales. Distribution disruptions due to the impact of Hurricane Florence resulted in approximately $15 million in lost sales in this category as the company was unable to fulfill certain replenishment orders in September.

Gildan also attributed the quarter’s healthy performance to the shifting emphasis by mass retailers toward their own private label brands. In third quarter, the company secured a new private label underwear program for 2019 with its largest mass retail customer. Shelf space allocated to the current men’s underwear program with this retailer will be increasing and will be dedicated to the retailer’s private label underwear brand, which Gildan will be manufacturing.

Gross margins of 29 percent in third quarter were down 200 basis points against the same quarter last year. Largely in-line with expectations, the decrease in gross margins was primarily due to higher raw material and other input costs, activewear growth ramp up costs and costs related to disruptions in the supply chain in Central America. Gildan’s SG&A (Selling, General and Administrative) expenses for third quarter totaled $88.1 million, down $6.7 million, or 7.1 percent, compared to third quarter 2017. Operating income was $127.6 million and adjusted operating income was $130.7 million in the quarter, up $2.7 million and $3.3 million, respectively, compared to the same period last year. Net earnings of $114.3 million for the quarter were down from the $116.1 million in the quarter in 2017 but excluding the impact of after-tax restructuring and acquisition-related costs, net earnings were essentially flat.