(all amounts are in U.S. dollars except where otherwise indicated) |
(1) Please refer to "Definition and reconciliation of non-GAAP financial measures" in this press release |
- Net sales of $783 million in the fourth quarter, up 9% vs. Q4 2022
- Q4 operating margin of 22.8%, adjusted operating margin1 of 19.7%
- Q4 diluted EPS of $0.89 up 89% and adjusted diluted EPS1 of $0.75 up 15% vs. Q4 2022
- Cash flow from operations of $239 million in Q4 and $547 million for the full year; free cash flow1 of $203 million in Q4 and $392 million for the full year
- Capital returned to shareholders of $204 million in Q4 and $492 million for the full year, through dividends and share repurchases
- Company announces 10% dividend increase for 2024
- Company initiates 2024 annual guidance
MONTREAL, Feb. 21, 2024 (GLOBE NEWSWIRE) -- Gildan Activewear Inc. (GIL: TSX and NYSE) today announced results for the fourth quarter and year ended December 31, 2023, and initiated annual guidance for 2024. In addition, the Company announced a dividend increase of 10% for 2024.
Overall, despite a challenging macro-economic backdrop and tough year over year comparative periods, 2023 was a year of strong progress on Gildan's Sustainable Growth strategy and its three key pillars focused on innovation, manufacturing capacity and ESG. Gildan finished the year with strong sales growth in the fourth quarter, an adjusted operating margin1 at the high end of the Company's target range and a return to growth in EPS. In addition, 2023 cash flow generation was robust and we closed the year with a healthy balance sheet, all of which positions us well for 2024.
"Outstanding operational execution by our highly skilled team of employees across our global footprint delivered strong Q4 results" said Vince Tyra, President and CEO. "As the Company celebrates its 40th anniversary this year, I see a bright future ahead, where we can leverage our strengths and continue to enhance value for all stakeholders. Since joining the Company, I've had the opportunity to visit with hundreds of employees in Montreal and Honduras and I've met with many of our key customers during the recent industry trade shows in Las Vegas, Nevada and Long Beach, California, which fueled my excitement for the future."
We generated sales for the fourth quarter of $783 million, up 9% over the prior year, and operating margins of 22.8%. We delivered strong adjusted gross margin1 and adjusted SG&A1 performance, which together drove adjusted operating margin of 19.7%, up 90 basis points versus last year. These results yielded GAAP and adjusted diluted EPS1 of $0.89 and $0.75, up 89% and 15% respectively year over year, marking the resumption of our quarterly EPS growth. Cash flow from operating activities increased to $239 million, up $50 million, mainly driven by a normalization of inventory levels at year end compared to last year, bringing full year cash from operating activities to $547 million. After capital expenditures, we generated free cash flow1 of $203 million and $392 million, slightly below our expectations for the fourth quarter and the full year respectively. In the fourth quarter, we repurchased 5.4 million shares under our normal course issuer bid (NCIB) program at a total cost of approximately $173 million, bringing our total repurchases for the year close to 7% of our public float. Accordingly, the Company returned a total of $492 million of capital to shareholders in 2023 through share repurchases and dividend payments. We ended 2023 with net debt1 of $993 million and a net debt leverage ratio1 of 1.5, well within our targeted debt levels.
Fourth Quarter 2023 Results
Net sales of $783 million for the fourth quarter ending December 31, 2023, were up 9% over the prior year, consisting of Activewear sales of $644 million, up 8%, and sales of $139 million in the Hosiery and underwear category, up 11%. The increase in Activewear sales was due to higher volumes, driven by POS as well as higher levels of customer replenishment than the prior year. POS also reflected strength in key product categories including fleece and ring spun products, which also drove favorable mix. While we saw some POS recovery in International markets, sales were down 24% reflecting continued macro-economic challenges in these markets and the lack of inventory replenishment compared to the prior year. In the Hosiery and underwear category, the increase was mainly due to higher volumes, driven by a combination of better POS and the rollout of new programs in the mass retail channel. Despite continued industry-wide weak demand for men's underwear and socks, we achieved a solid performance in this category.
We generated gross profit of $237 million, or 30.2% of sales, versus $235 million, or 32.6% in the prior year which included an insurance gain of $25.6 million. On an adjusted basis1, gross profit of $237 million, or 30.2% of sales, was up $28 million. The resulting adjusted gross margin improvement of 110 basis points was primarily due to lower raw material costs slightly offset by lower net selling prices. As expected, we saw a sequential improvement of 270 basis points to our adjusted gross margin, as pressure from the flow-through of peak cotton costs subsided significantly in the fourth quarter.
SG&A expenses of $88 million, or 11.3% of sales, were up $15 million compared to last year, reflecting higher volumes, as well as a charge of $6 million related to CEO separation costs and related advisory fees on shareholder matters. Adjusting for this charge, adjusted SG&A expenses as a percentage of sales of 10.5% in the quarter compares to 10.2% last year, as the impact of higher expenses more than offset the benefit of sales leverage.
In the quarter, we incurred restructuring and acquisition-related costs of $11 million, mainly due to the previously announced closure of a yarn-spinning plant in the U.S., compared to $6 million of restructuring and acquisition-related costs in the prior year. Given fiscal 2023 performance and profitability projections related to our hosiery sales, we also recorded a $41 million reversal of prior hosiery-related impairment charges. After reflecting the net impact of these items in both years, operating income of $178 million was up from $93 million last year. On an adjusted basis, operating income1 of $155 million, or 19.7% of sales, compares to $136 million, or 18.8% of sales in the prior year. The increase in adjusted operating income reflected higher sales and higher adjusted gross margin. The 90 basis point improvement in adjusted operating margin was mainly due to the increase in adjusted gross margin.
After reflecting net financial expenses of $21 million, up $8 million over the prior year due to higher interest rates and average net borrowing levels, and the positive benefit of a lower outstanding share base, we reported diluted EPS and adjusted diluted EPS of $0.89 and $0.75, up 89% and 15% respectively, versus diluted EPS and adjusted diluted EPS of $0.47 and $0.65 respectively, in the same quarter last year.
Cash flow from operating activities increased to $239 million in the fourth quarter, and to $547 million for the full year, up respectively $50 million and $133 million from the prior year. Capital expenditures of $208 million for the full year, which included $36 million in the fourth quarter, came in, as expected, closer to the lower end of our target range for 2023. These investments were related to capacity and vertical integration projects, including the construction of our new large-scale, low-cost manufacturing complex in Bangladesh which continues to ramp-up. We generated free cash flow of $203 million in the fourth quarter, bringing the total for the year to $392 million in 2023, up respectively $72 million and $194 million versus the prior year. For both periods, the increase in free cash flow reflected lower working capital investments versus the prior year when the Company brought inventories to higher and more optimal levels, as well as lower capital expenditures. The Company ended 2023 with net debt of $993 million, up from $874 million in 2022 and a net debt leverage ratio of 1.5 times adjusted EBITDA, well within our targeted debt levels.
Full Year 2023 Results
For the year ended December 31, 2023, net sales of $3,196 million were down 1% year over year, as expected, reflecting a decrease of 3% in Activewear sales and a 10% increase in the Hosiery and underwear category. Activewear sales of $2,668 million were down $95 million, primarily due to lower sales volumes compared to the prior year where we saw stronger levels of distributor inventory replenishment, partly offset by slightly higher net selling prices. While overall Activewear POS was soft for the full year, we saw year over year POS trends for this category improve sequentially through the first three quarters of the year before stabilizing in the fourth quarter. International sales of $225 million were down 17% versus the prior year period mainly due to the non-recurrence of prior year restocking in addition to distributors' cautious inventory management throughout the year, in a challenged market. The strong performance in the Hosiery and underwear category, with sales of $528 million, up $50 million, was driven by growth stemming from the expansion of our private label offering and the roll-out of new underwear programs in the mass retail channel, as well as strength in hosiery. Additionally, even though industry-wide demand remained weak for these categories, we benefited from a more favorable demand environment in comparison to 2022, along with the normalization of inventories at retailers.
We realized gross margins of 27.5%, down 310 basis points year over year, which includes the recognition of hurricane insurance recoveries representing 70 basis points. On an adjusted basis, gross margin of 27.4% was down 240 basis points, mainly a result of the flow-through impact of peak fiber costs on our cost of sales earlier in the year and higher manufacturing input costs, as anticipated, partly offset by slightly higher net selling prices.
SG&A expenses were $330 million, or 10.3% as a percentage of net sales, reflecting the impact of CEO separation costs and related advisory fees on shareholder matters, detailed above, and inflation on overall costs, which were mostly offset by the impact of lower volumes, lower variable compensation expenses and the benefit from our cost containment measures. On an adjusted basis, SG&A expenses as percentage of sales came in line with prior year, at 10.1%.
We generated operating income of $644 million or 20.1% of sales, which included the benefit of a $77 million net insurance gain, a $41 million non-cash reversal of a portion of a prior-year hosiery-related impairment charge, and a $25 million gain from the sale and leaseback of one of our U.S. distribution facilities, partly offset by higher restructuring costs of $46 million. Operating income of $603 million in 2022, or 18.6% of sales, included the non-cash impairment charge of $62 million for hosiery, partly offset by an insurance accounting gain of $26 million. On an adjusted basis, we generated operating income of $553 million in 2023, which translated to an adjusted operating margin of 17.3% compared to $639 million and 19.7% respectively last year, mainly reflecting gross margin pressure in the year.
After reflecting net financial expenses of $80 million, up from $37 million last year, our net earnings and adjusted net earnings1 reached $534 million and $453 million respectively, in 2023, down 1% and 21% versus prior year. After reflecting the impact of share repurchases made under the Company's NCIB programs, diluted EPS and adjusted diluted EPS of $3.03 and $2.57, were up 3% and down 17% respectively, versus diluted EPS and adjusted diluted EPS of $2.93 and $3.11 respectively, last year.
Outlook
Over the last year, Gildan has continued to execute on the key components of the Gildan Sustainable Growth strategy. While an industry-wide soft demand environment has meant that revenue growth during this period was challenging to achieve, we have nonetheless continued to drive market share gains in key product categories. This positions us well as we move forward, leveraging our strategy and strong capabilities, and further opportunities in the targeted markets that we serve.
For 2024, we expect the following:
- Revenue growth for the full year to be flat to up low-single digits;
- Adjusted operating margin slightly above the high end of our 18% to 20% annual target range;
- Capex to come in at approximately 5% of sales;
- Adjusted diluted EPS in the range of $2.92 to $3.07, up significantly between 13.5% and 19.5% year over year;
- Free cash flow above 2023 levels driven by increased profitability, lower working capital investments and lower capital expenditures than in 2023.
The assumptions underpinning our 2024 guidance are as follows:
- Our outlook assumes that POS trends continue to improve compared to 2023, reflecting potential for recovery in various markets, as well as overall growth opportunities. Our top line guidance also takes into account the expiration of the Under Armour sock license agreement on March 31, 2024, which is expected to have minimal impact on our profitability. Excluding the impact of this agreement, full year revenue growth in 2024 would be in the low to mid-single digit range.
- Q1 net sales are expected to be down low single digits year over year, as the impact of higher-than-expected levels of customer replenishment realized in Q4 2023 will result in lower levels of replenishment in Q1 2024. As such, we expect Q1 adjusted operating margin to come in around the low end of our 18% to 20% target range.
- Given our strong free cash flow outlook, we assume share repurchases continue in 2024, with our debt leverage ratio maintained within our target range of 1 to 2 times.
- Though the timing of the potential enactment of legislation remains uncertain, we have incorporated the estimated impact of the implementation of draft Global Minimum Tax legislation in Canada and Barbados on our effective tax rate, retroactive to January 1, 2024, as well as certain refundable tax credits expected to be introduced in one of the jurisdictions in which we operate, which will reduce our SG&A.
The above outlook assumes no meaningful deterioration from current market conditions including the pricing and inflationary environment. This outlook reflects our expectations as of February 21, 2024 and is subject to significant risks and business uncertainties, including those factors described under "Forward-Looking Statements" in this press release and in our annual MD&A for the year ended December 31, 2023. The board may modify, extend or terminate current or future share repurchase programs at any time.
Environmental, Social and Governance (ESG) Highlights
As previously announced in December 2023, the Company was included on the Dow Jones Sustainability™ (DJSI) North America Index for its ongoing efforts towards ESG initiatives, marking its 11th consecutive year of inclusion on the DJSI. More recently, Gildan was also included in the 2024 Sustainability Yearbook for the 12th consecutive year based on S&P Global's Corporate Sustainability Assessment for its demonstrated sustainability practices. Finally, Gildan was also recently included in CDP's leadership band for the fourth time based on its 2023 climate change disclosures.
Increase in Quarterly Dividend
On February 20, 2024 the Board of Directors approved a 10% increase in the amount of the current quarterly dividend and has declared a cash dividend of $0.205 per share, payable on April 8, 2024, to shareholders of record on March 13, 2024. This dividend is an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.
Normal Course Issuer Bid
Under its current normal course issuer bid ("NCIB") that commenced on August 9, 2023, and will end on August 8, 2024, Gildan is authorized to repurchase for cancellation up to 8,778,638 common shares, representing 5% of Gildan's issued and outstanding shares as of July 31, 2023. The NCIB is conducted by means of purchases through the facilities of the TSX and the NYSE and through alternative Canadian trading systems. During the period from August 9, 2023 to February 20, 2024, Gildan purchased for cancellation a total of 8,571,018 common shares, representing 4.9% of the Company's issued and outstanding common shares as at July 31, 2023.
Disclosure of Outstanding Share Data
As at February 19, 2024, there were 168,661,402 common shares issued and outstanding along with 467,401 stock options and 60,528 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder to purchase one common share at the end of the vesting period at a predetermined option price. Each Treasury RSU entitles the holder to receive one common share from treasury at the end of the vesting period, without any monetary consideration being paid to the Company.
Conference Call Information
Gildan Activewear Inc. will hold a conference call to discuss fourth quarter and full year 2023 results and its business outlook today at 8:30 AM ET. A live audio webcast of the conference call, as well as a replay, will be available on Gildan's company website at the following link: http://www.gildancorp.com/events. The conference call can be accessed by dialing toll-free (800) 715-9871 (Canada & U.S.) or (646) 307-1963 (international) and entering passcode 8434821. A replay will be available for 7 days starting at 11:30 AM ET by dialing toll-free (800) 770-2030 (Canada & U.S.) or (609) 800-9909 (international) and entering the same passcode.
Notes
This release should be read in conjunction with the attached unaudited condensed financial statements as at and for the three and twelve months ended December 31, 2023, and Gildan's Management's Discussion and Analysis and its audited consolidated financial statements for the fiscal year ended December 31, 2023 which will be filed by Gildan with the Canadian securities regulatory authorities and with the U.S. Securities and Exchange Commission and will also be provided on Gildan's website. Gildan has filed its annual report on Form 40-F for the year ended December 31, 2023 with the SEC. The Form 40-F, including the audited combined financial statements, included therein, is available at https://gildancorp.com/en/ and on EDGAR at http://www.sec.gov. Hard copies of the audited combined financial statements are available free of charge on request by calling (514) 744-8515.
Certain minor rounding variances may exist between the condensed consolidated financial statements and the table summaries contained in this press release.
Supplemental Financial Data | |||||||||||||
CONSOLIDATED FINANCIAL DATA (UNAUDITED) | |||||||||||||
(in $ millions, except per share amounts or otherwise indicated) | Three months ended | Twelve months ended | |||||||||||
December 31, 2023 | January 1, 2023 | Variation (%) | December 31, 2023 | January 1, 2023 | Variation (%) | ||||||||
Net sales | 782.7 | 720.0 | 8.7 | % | 3,195.9 | 3,240.5 | (1.4) | % | |||||
Gross profit | 236.6 | 234.8 | 0.8 | % | 880.1 | 992.4 | (11.3) | % | |||||
Adjusted gross profit(1) | 236.6 | 209.2 | 13.1 | % | 877.0 | 965.5 | (9.2) | % | |||||
SG&A expenses | 88.3 | 73.6 | 20.0 | % | 330.4 | 326.3 | 1.3 | % | |||||
Adjusted SG&A expenses(1) | 82.0 | 73.6 | 11.4 | % | 324.1 | 326.3 | (0.7) | % | |||||
Gain on sale and leaseback | — | — | n.m. | (25.0) | — | n.m. | |||||||
Net insurance gains | — | — | n.m. | (74.2) | — | n.m. | |||||||
Restructuring and acquisition-related costs | 10.9 | 6.3 | 73.0 | % | 45.8 | 0.5 | n.m. | ||||||
Impairment (Impairment reversal) of intangible assets | (40.8) | 62.3 | n.m. | (40.8) | 62.3 | n.m. | |||||||
Operating income | 178.1 | 92.6 | 92.3 | % | 643.9 | 603.4 | 6.7 | % | |||||
Adjusted operating income(1) | 154.5 | 135.6 | 13.9 | % | 552.9 | 639.3 | (13.5) | % | |||||
Adjusted EBITDA(1) | 185.3 | 163.6 | 13.3 | % | 674.5 | 764.2 | (11.7) | % | |||||
Financial expenses | 21.2 | 13.3 | 59.4 | % | 79.7 | 37.0 | 115.4 | % | |||||
Income tax expense (recovery) | 3.6 | (4.6) | n.m. | 30.6 | 24.9 | 23.0 | % | ||||||
Net earnings | 153.3 | 83.9 | 82.7 | % | 533.6 | 541.5 | (1.5) | % | |||||
Adjusted net earnings(1) | 129.2 | 117.2 | 10.2 | % | 452.6 | 574.7 | (21.2) | % | |||||
Basic EPS | 0.89 | 0.47 | 89.4 | % | 3.03 | 2.94 | 3.1 | % | |||||
Diluted EPS | 0.89 | 0.47 | 89.4 | % | 3.03 | 2.93 | 3.4 | % | |||||
Adjusted diluted EPS(1) | 0.75 | 0.65 | 15.4 | % | 2.57 | 3.11 | (17.4) | % | |||||
Gross margin(2) | 30.2 | % | 32.6 | % | (2.4) | pp | 27.5 | % | 30.6 | % | (3.1) | pp | |
Adjusted gross margin(1) | 30.2 | % | 29.1 | % | 1.1 | pp | 27.4 | % | 29.8 | % | (2.4) | pp | |
SG&A expenses as a percentage of sales(3) | 11.3 | % | 10.2 | % | 1.1 | pp | 10.3 | % | 10.1 | % | 0.2 | pp | |
Adjusted SG&A expenses as a percentage of sales(1) | 10.5 | % | 10.2 | % | 0.3 | pp | 10.1 | % | 10.1 | % | — | ||
Operating margin(4) | 22.8 | % | 12.9 | % | 9.9 | pp | 20.1 | % | 18.6 | % | 1.5 | pp | |
Adjusted operating margin(1) | 19.7 | % | 18.8 | % | 0.9 | pp | 17.3 | % | 19.7 | % | (2.4) | pp | |
Cash flows from operating activities | 239.1 | 189.4 | 26.2 | % | 546.6 | 413.5 | 32.2 | % | |||||
Capital expenditures | 35.6 | 80.5 | (55.8) | % | 208.0 | 244.6 | (14.9) | % | |||||
Free cash flow(1) | 203.3 | 130.8 | 55.4 | % | 391.7 | 197.6 | 98.2 | % | |||||
Diluted weighted average number of common shares outstanding (in ‘000s) | 171,806 | 179,897 | n/a | 176,224 | 184,532 | n/a | |||||||
As at (in $ millions, or otherwise indicated) | December 31, 2023 | January 1, 2023 | |||||||||||
Inventories | 1,089.4 | 1,225.9 | |||||||||||
Trade accounts receivable | 412.5 | 248.8 | |||||||||||
Net debt(1) | 993.4 | 873.6 | |||||||||||
Net debt leverage ratio(1) | 1.5 | 1.1 |
(1) This is a non-GAAP financial measure or ratio. Please refer to "Non-GAAP Financial Measures" in this press release.
(2) Gross margin is defined as gross profit divided by net sales.
(3) SG&A as a percentage of sales is defined as SG&A divided by net sales.
(4) Operating margin is defined as operating income (loss) divided by net sales.
n.m. = not meaningful
n/a = not applicable
DISAGGREGATION OF REVENUE
Net sales by major product group were as follows:
(in , or otherwise indicated) | Q4 2023 | Q4 2022 | Variation (%) | YTD 2023 | YTD 2022 | Variation (%) | |||
Activewear | 644.0 | 595.4 | 8.1 | % | 2,668.0 | 2,762.5 | (3.4) | % | |
Hosiery and underwear | 138.7 | 124.6 | 11.4 | % | 527.9 | 478.0 | 10.5 | % | |
782.7 | 720.0 | 8.7 | % | 3,195.9 | 3,240.5 | (1.4) | % | ||
Net sales were derived from customers located in the following geographic areas:
(in , or otherwise indicated) | Q4 2023 | Q4 2022 | Variation (%) | YTD 2023 | YTD 2022 | Variation (%) | |||
United States | 699.5 | 626.6 | 11.6 | % | 2,858.1 | 2,846.8 | 0.4 | % | |
Canada | 29.7 | 22.7 | 30.7 | % | 112.4 | 122.5 | (8.2) | % | |
International | 53.5 | 70.7 | (24.2) | % | 225.4 | 271.2 | (16.9) | % | |
782.7 | 720.0 | 8.7 | % | 3,195.9 | 3,240.5 | (1.4) | % |
Non-GAAP financial measures and related ratios
This press release includes references to certain non-GAAP financial measures, as well as non-GAAP ratios as described below. These non-GAAP measures do not have any standardized meanings prescribed by International Financial Reporting Standards (IFRS) and are therefore unlikely to be comparable to similar measures presented by other companies. Accordingly, they should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The terms and definitions of the non-GAAP measures used in this press release and a reconciliation of each non-GAAP measure to the most directly comparable IFRS measure are provided below.
Certain adjustments to non-GAAP measures
As noted above certain of our non-GAAP financial measures and ratios exclude the variation caused by certain adjustments that affect the comparability of the Company's financial results and could potentially distort the analysis of trends in its business performance. Adjustments which impact more than one non-GAAP financial measure and ratio are explained below:
Restructuring and acquisition-related costs
Restructuring and acquisition-related costs are comprised of costs directly related to significant exit activities, including the closure of business locations and sale of business locations or the relocation of business activities, significant changes in management structure, as well as transaction, exit, and integration costs incurred pursuant to business acquisitions. Restructuring and acquisition-related costs is included as an adjustment in arriving at adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA. Restructuring and acquisition-related costs were $46 million for the fiscal year ended December 31, 2023 (2022 - $0.5 million, 2021 - $8 million).
Impairment (impairment reversal) of intangible assets, net of write-downs
During the fourth quarter of fiscal 2021 we reported a $32 million credit to income, as a result of an impairment reversal of $56 million and a $24 million write-off of certain intangible assets relating to the Company's Hosiery CGU. During the fourth quarter of fiscal 2022 we reported an impairment charge of $62 million relating to the Company's Hosiery CGU. During the fourth quarter of fiscal 2023 we reported an impairment reversal of $41 million relating to the Hosiery CGU. These impairment charges and impairment reversals are included as adjustments in arriving at adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA.
Net insurance losses (gains)
Net insurance gains of $77 million (2022 - $26 million, 2021 - $46 million) for the fiscal year ended January 1, 2023, related to the two hurricanes which impacted the Company's operations in Central America in November 2020. Net insurance gains relate to the recognition of insurance recoveries for business interruption losses and insurance recoveries for damaged equipment. Insurance gains relating to recoveries for business interruption losses of $74 million (2022 - nil, 2021 - nil), are recorded in insurance gains, and included as an adjustment in arriving at adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA. Net insurance gains and losses relating mainly to recoveries for damaged equipment, salary and benefits for idle employees of $3 million (gain), (2022 - $26 million (gain), 2021 - $46 million (gain)), are recorded in cost of sales and included as an adjustment in arriving at adjusted gross profit and adjusted gross margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA.
Impact of strategic product line initiatives
In the fourth quarter of fiscal 2019, the Company launched a strategic initiative to significantly reduce its imprintables product line SKU count. In the fourth quarter of fiscal 2020 the Company expanded this strategic initiative to include a significant reduction in its retail product line SKU count. The objectives of this strategic initiative include exiting all ship to-the-piece activities, discontinuing overlapping and less productive styles and SKUs between brands, simplifying the Company's product portfolio and reducing complexity in its manufacturing and warehouse distribution activities. The impact of this initiative has included inventory write-downs to reduce the carrying value of discontinued SKUs to liquidation values, sales return allowances for product returns related to discontinued SKUs, and in the fourth quarter of fiscal 2021, the write-down of production equipment and other assets relating to discontinued SKUs. The impact of strategic product line initiatives is included as an adjustment in arriving at adjusted gross profit and adjusted gross margin, adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA.
The charges related to this initiative in fiscal 2021, 2022 and 2023, were as follows:
- Fiscal 2021 includes $9 million of charges included in cost of sales, consisting of $4 million in inventory write-downs related primarily to the Company's plan to discontinue its legwear and intimates product line, and the write-down of production equipment and other assets relating to discontinued SKUs of $5 million in the fourth quarter of 2021.
- Fiscal 2022 includes $1 million gain related to the reversal of a reserve relating to Company's strategic initiatives to significantly reduce its product line SKU counts.
- Fiscal 2023 recoveries were nil.
Gain on sale and leaseback
During the first quarter of 2023, the Company recognized a gain of $25 million ($15.5 million after reflecting $9.5 million of income tax expense) on the sale and leaseback of one of our distribution centres located in the U.S. The impact of this gain is included as an adjustment in arriving at adjusted operating income, adjusted operating margin, adjusted net earnings, adjusted diluted EPS, and adjusted EBITDA.
CEO separation costs and related advisory fees on shareholder matters
Relates to the separation costs with respect to the departure of the Company's former CEO in December 2023 and related advisory, legal and other fees and expenses related to the ongoing proxy contest and shareholder matters. The Company has recorded a charge of $6.3 million in the fourth quarter of fiscal 2023, consisting of accrued termination benefits as well as advisory and legal fees, partially offset by a reversal for previously recognized stock based compensation expense.
Adjusted net earnings and adjusted diluted EPS
Adjusted net earnings are calculated as net earnings before restructuring and acquisition-related costs, Impairment (impairment reversal) of intangible assets, net of write-downs, the impact of the Company's strategic product line initiatives, net insurance gains, gain on sale and leaseback (new in 2023), CEO separation costs and related advisory fees on shareholder matters (new in 2023), and income tax expense or recovery relating to these items. Adjusted net earnings also excludes income taxes related to the re-assessment of the probability of realization of previously recognized or de-recognized deferred income tax assets, and income taxes relating to the revaluation of deferred income tax assets and liabilities as a result of statutory income tax rate changes in the countries in which we operate. Adjusted diluted EPS is calculated as adjusted net earnings divided by the diluted weighted average number of common shares outstanding. The Company uses adjusted net earnings and adjusted diluted EPS to measure its net earnings performance from one period to the next, and in making decisions regarding the ongoing operations of its business, without the variation caused by the impacts of the items described above. The Company excludes these items because they affect the comparability of its net earnings and diluted EPS and could potentially distort the analysis of net earnings trends in its business performance. The Company believes adjusted net earnings and adjusted diluted EPS are useful to investors because they help identify underlying trends in our business that could otherwise be masked by certain expenses, write-offs, charges, income or recoveries that can vary from period to period. Excluding these items does not imply they are non-recurring. These measures do not have any standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.
Three months ended | Twelve months ended | |||||||||
(in , except per share amounts) | December 31, 2023 | January 1, 2023 | December 31, 2023 | January 1, 2023 | January 2, 2022 | |||||
Net earnings | 153.3 | 83.9 | 533.6 | 541.5 | 607.2 | |||||
Adjustments for: | ||||||||||
Restructuring and acquisition-related costs | 10.9 | 6.3 | 45.8 | 0.5 | 8.2 | |||||
Impairment (impairment reversal) of intangible assets, net of write-downs | (40.8 | ) | 62.3 | (40.8 | ) | 62.3 | (31.5 | ) | ||
Impact of strategic product line initiatives | — | — | — | (1.0 | ) | 8.8 | ||||
Gain on sale and leaseback | — | — | (25.0 | ) | — | — | ||||
Net insurance gains | — | (25.6 | ) | (77.3 | ) | (25.9 | ) | (46.0 | ) | |
CEO separation costs and related advisory fees on shareholder matters | 6.3 | — | 6.3 | — | — | |||||
Income tax expense (recovery) relating to the above-noted adjustments | (0.5 | ) | 0.2 | 10.0 | 7.2 | — | ||||
Income tax recovery related to the revaluation of deferred income tax assets and liabilities(1) | — |