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Gildan to sell its branded products in Canada with Honduras free trade deal

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MONTREAL - After successfully growing U.S. sales of its own brand of underwear, socks and activewear, Canada's Gildan Activewear now plans conquer its home market following ratification of a free-trade agreement with Honduras that will eliminate all duties on clothing made in the Central American country.

Montreal-based Gildan is the leading maker of T-shirts used for screenprinting in Canada, but the Gildan brand of socks are currently only sold at Target.

That is expected to change as other Gildan products manufactured in Honduras are slated to be introduced at various Canadian retailers in 2015 as the trade agreement with Honduras moves toward final reading in Parliament.

Chief executive Glenn Chamandy foresees Gildan becoming a leading provider of basic underwear, socks and T-shirts to all of the mass market retailers in Canada.

"There's still a big opportunity for us in Canada," he said in an interview Friday.

"What's going to be a major thrust for us is being a Canadian (company). That will really drive our sales in Canada as we go forward."

Gildan (TSX:GIL) (NYSE:GIL) has Canada's largest presence in Honduras, operating four plants employing about 24,000 workers.

But critics of the trade deal, including the Council of Canadians, say Gildan's factories in the northwestern part of the country are noted for "debilitating work-related injuries suffered by workers due to excessively long work shifts and high production targets, and for firing workers for attempting to unionize."

A Gildan spokeswoman denied those allegations, saying the company operates within industry standards with few injuries, offers shifts over four days followed by four days of rest, and hs one union governed by a collective agreement.

"It's totally not material given all the programs and given all the focus that we put on ergonomics as well on how we handle the work day," said Anik Trudel.

Meanwhile, Gildan announced plans Friday to expand its low-cost manufacturing capabilities by setting up a textile facility in Costa Rica.

Construction of its largest textile plant will begin later this year with production ramping up in late 2016 or early 2017. The facility will have the capacity to make the equivalent of 350 million T-shirts a year. It will be the seventh country where Gildan has manufacturing facilities. The company is mostly located in the Caribbean and Central America, in addition to Bangladesh and has a yarn-spinning plant in the southern U.S.

The 250-hectare Costa Rican site will be large enough to eventually accommodate three plants and was selected because products can be shipped to the United States duty and quota free. It is also close to operations in Nicaragua and Honduras and features ports that allow transportation to the U.S. east and west coasts.

The plant will employ more than 1,200 workers, but will lead to the hiring of about 8,000 more employees in lower-wage Nicaragua to sew the material into finished products. Even before the Costa Rica plant is open, Gildan plans to build another plant at one of its existing facilities to accommodate the growing demand for its retail products, especially underwear.

Chamandy said the underwear making capacity is expected to be double original forecasts as the company continues to add new retail customers and expand shelf space.

In its financial results, Gildan reported a record second quarter with net profit growing 9.5 per cent to US$79.2 million, up from $72.3 million a year ago.

Reporting in U.S. dollars, the company said it earned 64 cents per diluted share, one cent above analyst forecasts and up from 59 cents per share in the comparable prior-year period.

That prompted Gildan's shares to set new all-time highs in intraday Friday trading in Toronto and New York before falling back slightly. The issue closed up $3.68 or 6.49 per cent at C$60.38 on the Toronto Stock Exchange, and up $3.30 or 6.38 per cent at US$55.06 on the New York Stock Exchange

Net sales increased 4.9 per cent at US$548.8 million, compared with $523 million a year ago.

Gildan said the results were boosted by strong growth in sales of underwear to U.S. retailers and increased sales to global lifestyle brands and international printwear markets.

Derek Dley of Canaccord Genuity raised his target price to US$64 from US$60 on improved confidence in the company's outlook.

"In our view, Gildan should continue to demonstrate growth with its branded initiative, while potential acquisition opportunities along with cost-cutting initiatives and capacity expansion plans should support earnings growth over our forecast period," he wrote in a report.

Follow @RossMarowits on Twitter

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