Gildan says proxy battle cost US$57 million in Q2 as Glenn Chamandy returns to helm

The Gildan logo is seen outside their offices in Montreal, Monday, Dec. 11, 2023. (Christinne Muschi/The Canadian Press)

As Gildan Activewear Inc. gears up for its 40th anniversary, the Montreal-based company is ready to put a recent leadership battle in the rearview mirror.

Glenn Chamandy was reinstated as CEO in May after a months-long public struggle pitting several major shareholders against the company's board, which terminated the co-founder last year.

That leadership struggle cost Gildan US$57.2 million in the second quarter, denting its earnings -- the company brought in US$58.4 million, down from US$155.3 million a year earlier as higher income taxes also took a bite.

Speaking to analysts on a call Thursday, Chamandy didn't dwell on the leadership battle. He thanked employees, shareholders, customers and the new board for their support.

"Last fall, I communicated to shareholders that Gildan's positioning had never been stronger," he said. "Today I can confirm that everything is on track."

"Now that I'm back," he added, "I can see that everything is intact."

Several shareholders, led by activist investor Browning West, campaigned to have Chamandy reinstated after he was replaced by Vince Tyra. Browning West announced on May 24 that its campaign had been successful, as Gildan's board and its new CEO stepped aside after preliminary votes showed they didn't have shareholder support.

Reported costs related to the proxy fight included US$18 million for advisory fees, US$21.6 million for severance costs and US$7.8 million for expenses related to Chamandy's firing and subsequent reinstatement.

The company also saw higher expenses from income tax, after the enactment of the global minimum tax in Canada and Barbados. It said the impact, retroactive to the start of the year, pushed its adjusted effective income tax rate to 27.2 per cent for the quarter, up from 4.8 per cent last year.

The increase left income tax expenses at US$58.5 million for the quarter, up from US$6.7 million last year.

Gildan said its adjusted net income worked out to US$124.7 million, up from US$112.3 million last year. Net sales for the quarter came in at US$862.2 million, up from US$840.4 million last year.

International sales were up by seven per cent, while sales in the hosiery and underwear category were down 16 per cent, which the company attributed mainly to the phase-out of an Under Armour licensing agreement.

Gildan's executive vice-president and chief financial and administrative officer Rhodri Harries said the company saw higher activewear shipments during the quarter.

Chamandy said Gildan's ramp-up of its Bangladesh facility is on track, and said recent civil unrest in the country didn't have a material impact despite a short disruption.

Harries said despite a "mixed" global macroeconomic backdrop with cautious consumer spending, the company is reiterating its previous guidance for 2024.

Gildan expects revenue growth for the full year to be flat to up low-single digits, and expects its adjusted diluted earnings per share to rise between 13.5 per cent and 18.5 per cent year over year.

The company also provided a three-year outlook that sees net sales growth at a compound annual growth rate in the mid-single digits, and adjusted diluted earnings per share growth at a compound annual growth rate in the mid-teen range.

"Assuming no deterioration in the current macroeconomic environment, Gildan is confident that its targeted priorities will position the company to continue to drive market share gains," the company said in its release.

This report by The Canadian Press was first published Aug. 1, 2024.