Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by.
And welcome to the Q3 2019, Gildan Activewear earnings Conference call.
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After the speakers presentation, there will be a question answer session.
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I'd now like to have the conference over to Sophie Argiriou. Please go ahead.
Thank you Michelle good morning to everyone and thank you for joining US here. This morning, we issued a press release announcing our results for the third quarter 2009, Inc.
So we should our interim shovels report any management discussion about.
Consolidated financial statements. These documents will be filed with the Canadian Securities and regulatory authorities on the U.S. Securities Commission and are available on the company's corporate website.
I'm joined here today by collection matching our president and Chief Executive Officer about Harry's, our executive Vice President and Chief financial and administrative officer.
The bottom hole, taking the results for the quarter in our business outlook for the year and Accuen <unk> session will follow.
Before we begin I would like to remind you that certain statements included in this conference call may constitute forward looking statements.
The meaning of the U.S. Private Securities Litigation Reform Act 1995, such forward looking statements involve I know I've known risks uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward looking statements.
I refer you to the company's filings with the U.S. Securities and Exchange Commission and the Canadian Securities Regulatory authority and with that I'll turn the call over Twox.
Thanks Sophie.
Good morning, and thank you for joining us. This morning, we reported Q3 results in line with a preliminary results melt October 17.
Sales of 740 million for the quarter were down 2% compared to last year, reflecting a slight increase in fact were sales of 1.1% offset by a decline in the whole human underwear category, 15.1%.
I know this category on a year over year basis was mainly driven by lower Sox Hilton masks and other retail channel.
However, our sales and retail Walt were largely as expected as activewear sales came in stronger than expected offsetting lower than expected sales folks hills to retailers.
The area softness in our business relative to the expectations. We communicated to you at the end of the second quarter was in the Unprintable channel inactive work.
We indicated two weeks ago during the third quarter, we saw significantly weaker Pos than expected for in principles in North America.
And the softness in international markets, we called out in the first half of your did not improve as the quarter in the corner as planned.
In the U.S.U.S. trends in the first half of the year unfolded in line with anticipated trend and we expect the strengthening in the second half given our normal promotional programs.
We're projecting low single digit Pos growth in North American principal channel for the third quarter and instead, we saw high single digit to quite a few Wes.
Accordingly, our sales expectations mid single digit growth from third quarter did not materialize and contributed to lower than anticipated net earnings when adjusted EPS for the third quarter.
Three cents down 7% over the prior year quarter.
Given the sales weakness in a principles during the third quarter, which we continue to see in the fourth quarter, Lord our sales and earnings outlook, we communicated to you on October 17.
Although the current softness in a principal sales is restraining growth. This year, we do not attributed to any structural change to our business for competitive positioning as a leading supplier a basic replenishment apparel driven by a large scale low cost vertically integrated manufacturing system.
We believe the slowdown in Pos for in principle is temporary and driven by broader macro elements, which we will navigate through while we continue to drive the growth areas of our been business, including growing as a supplier appointed brands.
Further we continue to execute on our supply chain initiatives driving increased operational efficiency across our manufacturing system and we remain committed to achieving our margin objectives.
In this regard we've been working over the last 12 month on a long list of initiatives, including the consolidation of textile production for the former <unk> age facility to our new state of the art, we an assay six facility consolidation of soft manufacturing because actually into one facility.
And closure of share hosiery operations as well as shedding some are higher cost filling plans.
In addition at the end of October we took the decision to move forward with plans to close textile and sewing operations in Mexico and relocate equipment at these facilities far lower cost operations in Central America, and the Caribbean Basin, which I'll touch on later in my comments.
Of course, it's not only about optimization, we're very definitely working on capacity growth.
Specifically, we're working on a number of initiatives across our system, including our largest initiative, which involves major capacity expansion plan, a large scale textile and sewing operations in Bangladesh, where our plans remain unchanged on track.
We're also evaluating additional opportunities to reduce cost and enhance our ability to execute on our strategic growth drivers.
We're currently assessing the full phase out of our direct ship to the piece business in a principles.
We believe we built this business through various acquisitions and as a fragmented smaller volume business, which does not fit with our high volume large scale in principles franchise.
And fully out of this business would allow us to reduce complexity put more emphasis on our distributors simplify our product line and reduce costs.
Moving to the details of our third quarter results. The sales decline in the quarter was mainly due to lower sales volumes, which more than offset the benefit of a richer product mix and slightly higher net selling prices.
Activewear sales totaled 619 million up approximately 7 million over the prior year quarter, reflecting double digit growth in activewear sales to global lifestyle brands as well as higher fleece in fashion basics sales in North America.
This flights despite slowing Pos in these categories fleece in fashion basics Pos remain positive for the quarter.
Increased sales of these products was largely offset by a decline in basics driven by negative Pos in North American and principles, which was more favorable than we plan as well as continued softness in Europe and Asia.
The sales decline into always run underwear category was mainly due to ward sock sales and masks and other channels.
During the impact of accident soft programs and weaker overall industry demand in the Soc category, which according to NPD is retail tracking service was down more than 4% on a unit basis for the quarter.
Our sales in underwear were essentially flat compared to last year. Despite overall industry demand in this category down approximately 5% on a unit basis in the September quarter, as private label share growth and space gains in mass were offset by the nonrecurring initial set on private label program launched in the third quarter last year in the club Jeff.
Gross margin pressure persisted in the third quarter consistent with what we previously communicated as we consumed a lot of our higher cost year over year cotton before we see these costs flatten out in the fourth quarter.
Accordingly, gross margin of 27.4% was down 160 basis points over the prior year quarter due to inflationary pressure on our manufacturing costs, including the impact of raw materials as well as the impact of foreign exchange.
These factors were partly offset by more favorable product mix and slightly higher net selling prices in the quarter.
<unk> expenses for the third quarter were 79 million down 9 million your quarter, which translated to ask today as a percentage of sales of 10.7% 100 basis points better than last year mitigating some of the pressure on gross margin.
Therefore operating income in the quarter came in at approximately 118 million compared to 128 million last year.
And before reflecting anticipated restructuring and acquisition related costs adjusted operating income totaled 122 million or 16.5% of sales down 80 basis points from last years level.
Summing up our adjusted net earnings for the September quarter totaled 108 million or 53 cents per delayed diluted share down 7% compared to 57 cents in 2018.
In the third quarter, we generated just over 87 million a free cash flow after 40 million of capital investment for expenditures related to manufacturing capacity expansion and higher working capital requirements.
We ended the third quarter of 2019 with net debt of approximately 934 million at a net debt leverage ratio of 1.1, 0.7 times net debt to trailing 12 months adjusted EBITDA inline with our target leverage range.
Now before I turn to the for your outlook I want to expand them. Some recent plants, we've decided to move forward with related to our global manufacturing system, which I touched on earlier.
Given everything we see and the flexibility we have across our large manufacturing system, we've decided to close our sewing and textile facilities in Mexico and move the equipment to our existing facilities in Central America, and the Caribbean base.
Well this means a temporary shuttering of capacity as we transition the production to Central America and the Caribbean Basin. We believe it is a good time do so in light of the current sales softness we're seeing in our principal business.
Estimate that this capacity can be relocated and operational within three to six month.
As you would expect we're always evaluating our cost structure in the various geographies, where we operate.
After considering the benefits offer by our large scale infrastructure in Central America, and the Caribbean Basin. We expect the relocation of this capacity to these regions will enhance our overall manufacturing cost structure, while allowing us to continue achieve our long term capacity objectives.
We look forward to providing a comprehensive overview of our global manufacturing plants at our upcoming Investor Conference in Honduras in November and showing investors and analysts are operations and industry, leading infrastructure in Central America, including our new Rio Nance six facility, which has been ramping up nicely.
Moving on to the outlook today, we reconfirmed the updated sales and adjusted diluted EPS guidance, we provided on October 17.
We expect sales for the full year to be down low single digits compared to 2018.
For active we're projecting a low single digit decline in sales and for the whole industry in underwear kept category. We are taking a more conservative view and now project flat to a low single digit decline versus our prior mid single digit growth projection.
Let me emphasize that we're very pleased with how our private label underwear programs are unfolding.
However, we are being more cautious in our assumptions for replenishment orders and socks and underwear given the current overall industry Pos data from MPD.
Gross margin for the full year is now projected to be lower than 2018 versus our prior your expectation of year over year flat gross margin due in part to robot.
Alright product mix assumptions in relation to the updated sales project. However, we do expect gross margin expansion as we move into 2020 as increases in raw material costs subside and benefits flow through from all of our manufacturing initiatives.
As you know expenses are expected to come in lower than last year and are expected to improve as a percentage of sales over 2018.
Estimated after tax restructuring and acquisition related cost for 2019 are now projected to be approximately 45 million.
15 million higher than previously projected after incorporating estimated costs related to the relocation of the Mexican operations to Central America, and the Caribbean base.
Adjusted operating margin for 2019 is expected to be lower than 2018, GAAP diluted EPS for 2019, including the updated restructuring costs projection is now projected to be $1.43 to $1.48 and adjusted diluted EPS is expected to be in the range of $1.65 to $1.70 inline with the updated.
Adjusted EPS range, we announced on October 17.
Adjusted EBITDA for the full year is projected to be in the range of 545 to 555 million and free cash flow for 2019 is expected to be 200 to 250 million.
Lastly, I just want to point out that our guidance for 2019 does not include potential additional GAAP charges that could arise in relation to the full phase out of our direct shift to the piece business.
We estimate such charges could range between 35 to 45 million in the fourth quarter.
However, should we incurred these charges, we would not expecting will be included in adjusted non-GAAP measures.
Finally, I would like to reemphasize our view on our business in line with my comments from the beginning of the call.
While we are disappointed by the recent demand weakness, which is impacting results in 2019, and which has further being exacerbated by distributor inventory Destocking. We believe our overall business model, which is being built in the strength of our large scale vertically integrated manufacturing system remains intact.
As we navigate through the current sales volatility we're continuing to focus on further optimization of our manufacturing operations and tight control and asked today to drive the profitability objectives, we have communicated and to continue to enhance our competitive positioning.
Further we will continue our efforts to drive growth in fashion basics international markets and to grow as a supplier of private brands.
In this respect we're encouraged with the discussions we're having with our retail customers and expect to grow in that area next year.
We have a strong balance sheet and expect to continue to generate strong free cash flow and we will continue to allocate capital, where we think we can achieve strong returns and deliver value to our shareholders over the long term.
Thank you and I will now turn the call back facility.
That concludes our formal remarks, and we'll be starting to get your name Ash.
However, I ask you limit the number of question too. So we can address as many callers this past fall and we'll circle back for a second round of questions. It's time for me.
Now I'll turn the call over back to the operator for the question answer session shop. Thank you as a reminder to ask a question you would need to press star one on your telephone.
Withdraw your question press the pound key.
Please standby probably compiled the Q and a roster.
Our first question comes from Sabahat Khan of RBC capital markets. Your line is open.
Sure. Thanks Im just the first one on the the demand weakness that you're talking about can you maybe talk about your line of sight as we head into kind of late this year in early next year into some of that demand coming back what would drive that.
Also as a demand of weekend, what kind of competitive.
Intensity or has that changed at all have competitors, taking pricing. If you can maybe talk about the industry environment and how the competitive environments change it makes sense.
Okay. It's Glenn will you know in terms of the demands it's hard to tell because we don't.
Well, the overall environment, but typically when we see in demand softness.
Never persisted for more than two to three quarters. So that's typically historically I think we've seen a downturn in Pos that's sort of the length of time.
We've seen this last quarter, we've never really comp or negative Pos on an annualized basis.
As far as the pricing in the market interest like promotional pricing today, but I would say that is a pretty normalized.
And there hasn't been aggressive pricing on that on the flip side of a.
On the flip side of in terms of the overall cost structure, although we see raw materials coming down.
A year over year basis are still lot of other inflationary.
Areas, putting pressure on cost structure in terms of labor ice chemicals transportation. So.
Things are bounced so there is a little bit more promotional activity, but nothing significant.
Okay, and then on this direct to kind of screen printer business, how youre thinking about potentially exiting I'm, assuming this $35 million to $45 million charges, maybe a write down of that business, but can you maybe give some color on.
The magnitude of the sales or EPS contribution to that business and also kind of the thought process behind why you're looking to exit that channel what it means for brands like comfort colors.
You kind of exit those brands as well just maybe some thought process and what this means for those brands.
I'll answer the commercial side and that's run glass for disaster side, where we've acquired these businesses, obviously the acquisitions of comfort colors and et cetera. So you know what we acquired these businesses and this this just this restructuring will be real as a function.
The acquisitions themselves mainly.
And these businesses really had two types of a revenue wonders where they sold products directly to small screen printers, and the second is where they support to the distributors on on low volume selling products have basically they drop ship.
As we go forward, we're going to consolidate this and take the best selling products and have our distributors conventions and service the end user with these products and.
And then we're going to.
Exit the drop ship and the ER and the sales to the smaller distributors. This is a very highly fragmented business must automotive revenue is from audit complexity.
And also allow us to reduce the up the product lines that were offering.
And supporting as we go forward. So all in all our focus is to continue to leverage our distribution channel our distributor customers and deviate any complexity and Oh the system and.
I believe the sales in this business currently it's in the range of 50 to 65 million on annual basis.
As we go forward as Glenn said, we expect a lot of that to be picked up a buyer distributors and if you look at the current profitability of the business probably little bit below where current distributor businesses. So overall, we don't really see a big impact as we as we move into 2020.
Sorry, just a quick follow up there I guess, if you're exiting this sort of channel I think there's a certain element or certain part of the overall use printwear market that is direct to screen print or maybe with some of the larger ones should we assume that that's the channel that you probably don't want to pursue then going forward, even with the maybe some of the larger guys.
Well.
Some of the larger printers don't quite honestly from our distributors because there is certainly mass market.
Retailers, so as long as we will continue to service them. We're just getting out of the fragmented portion of fuse picking basically which is really the expertise of our distributors and again, we bought this business, which.
Position. So this is not consistent with the I would say with Gildan ER.
Our strategy and.
Skill set record policy as we're really go high skill.
Hi volumes large manufacturer of a.
Basic apparel, and we're going to support our distributors with a with the with I think this the core products that will generate a large bulk holder volume and andas fragmented, we're going to learn from that.
Okay. Thank you guys.
Our next question comes from Heather Balsky of Bank of America Merrill Lynch. Your line is open.
Hi, Thank you for taking my questions and I was hoping you can you address the long term algorithm that you've presented on your past calls, especially given some of the uncertainty right now and that Printwear channel. How do you think about your 30% margin gross margin target.
As long as your question a call. Thanks.
Yeah. So if you look at our long term algorithm I mean really again, we'd said the fundamentals of the business haven't changed right. The things that we're focused on the things that we're driving all of the changes that we're making in our manufacturing system to continue to improve to continue to focus on our key growth drivers a remains and try and tax so.
We look at set our focus on achieving that 30% gross margin, we're still very much driving that right and we still think for the most part where we're on the same timetable as we communicated before and the same thing from an M&A perspective, I mean, we're driving towards a 12% or slightly better. If we can get there from an M&A standpoint, and we're making very good progress on that.
You can see that in our numbers and we continue to expect to do so so all of that remains unchanged at it.
And do you need the mid single digit sales growth.
Is that still in insert if your your plan or are you thinking you can get there if sales are a little bit softer in 20 Tony.
So what will obviously, we'll update you on our guidance as we move into 2020, but I can say that given all of the plans that were focusing on and the things that we control we feel good about achieving those targets.
Yes.
Our next question comes from Paul Let's use of Citigroup. Your line is open.
Thanks, its Tracy Kogan filling in for Paul I was wondering if you guys could talk about the differences in performance between the basics fashion basics and can be.
In Threeq, you and what do you attribute differences in performance too I think they all weekend, but maybe fleece and fashion basics performed much better I was wondering how you see the performance of these businesses as we head into 2020. Thanks.
Okay, we'll fleece and our fashion basics businesses were both up.
We're down than we anticipated in all segments, Let's say for example is it maybe a good way of looking on that answers your question.
And how do you see those businesses as you move into 2020, and and maybe do you sort of.
Focus more on some of that the businesses that are performing better like fashion basics.
Well look I mean, the day, we our objective is to continue to drive share in our markets.
We're we've got a very good plan in terms of our our products and our positioning.
We're continuing to add new products in the fashion a product segment.
Which will highlight as we move into 2020. So look at we're pretty optimistic we don't think it's really a function of our positioning.
Today more than the economic.
Backdrop of weaker demand. So overall, we think that we're positioned well we've made a major striving to the fashion basics business. We think we're a leader in that channel are ready with all the brands that we do have I mean, we're continuing to invest more in our products and we feel very comfortable at our positioning and we're going to continue to stay focus.
Thank you.
Thank you very much.
What you look for in the market Im wondering what are the initial.
That the market is turning sway very focused on.
Determining if that's off.
Well look at there's you know for US a lot of the softness could come from the examples of corporate promotional products segment.
Ends up its use as a promotional types products, which are our promotions I can be delayed.
To support.
In the future even during the great recession, I mean, we see more than just a couple of quarters of negative Pos and things bounce back.
I don't think were the economies in that type of drives trades at all so we're pretty optimistic still about.
How do we have we.
Forward in a it might have the overall economic conditions.
Okay. So I'm just thinking that we seem to see is good socks and underwear.
Consistent basic type products that have never really she's a unit volume downturn. So no I think a dose its underlining the overall economy, just aren't there and I think that with the government stimulus and hopefully we'll get solutions behind this and.
This has improved since 2020.
The Mexican capacity and transfer to a Caribbean Basin and Central America, you said that that would take six months.
Well when we first start to see that impact the business and I'm I'm assuming that you.
Taking into your guidance.
For some of US lower sales that you would anticipate closing down that capacity.
Well, we've anticipated over a thought you took our sales our view, we're projecting still didn't have higher ending inventories in Q4 relative to Q3 vision or sales assumption. So we have enough inventory.
The transition to Mexico to Central America will happen relatively quickly it's going to be really two phases. We've also built up additional capacity.
That will help to expedite that in Central America was equipment that we're going to move there and then part of the equipment wall as we move into the diminished public so what's going to come in two phases, but I would tell you that seat capacity that we're currently running in Mexico, which represents probably about 8% to 9% of her overall capacity will be absorbed.
Pretty quickly as we move into 2020.
Okay. That's helpful. Roger Thank you.
Hi, Thanks for taking my questions I.
Just don't need destocking from the distributors.
I was a.
A bit a bit surprised by that level of decide destocking.
Lessens, the environment and distributors are being more cautious as or inventory.
Businesses goods inventory, because you know normal high and then when business is little bit we forget normal Olympia and that's sort of the way you go look at it and that's a position over in though.
Okay. So so it doesn't have to do with them thinking that prices potentially come down looking at just the current trends over the last year. So.
I think it's like it's a function of the overall weaker environment.
Got it.
In terms of.
Can you just remind us in terms of the size of that business or that capacity that that was there.
It's around eight 9% of our overall capacity today.
Okay. Okay. So in the past the plan was to build out that facility, but now management SaaS given the current downturn they have enough.
I see in the pipes, and you'll feel reinstitute that that capacity in previous basin.
But net net to still be down relative to where you thought a year ago Thats fair to say.
No we're going to do is first how we've been out we would optimize capacity hunger for units you six is started.
We are expanding in other parts of our operations, which we should where you live in Honduras.
A couple of weeks.
So what one of happiness had installed capacity once we transfer all the assets from Mexico will actually have an increasing capacity and what our current run rate and so we'll we'll move part of the equipment to Central America relatively quickly, which will maintain the and absorb the eight to nine per se.
Okay, just add Michelle so I'd just add to that obviously, if we move over we get a much better cost structure right a as we consolidate that capacity.
Which Rob will drive gross margin improvement.
Yes, I think set color and just lastly here when you said Rod when you said you're feeling good about achieving the targets you were talking with yesterday in the gross margin rate did that also referred to the mid single digit growth or is it just yesterday and the gross margin right.
With focusing on the margin and yesterday, obviously, we'll give guidance on growth as we give her a we update for 2020, but again I think we feel good about all of our key drove growth drivers and then the Tailwinds. We're seeing just maybe just one point is looked at I mean, Oh, we have to sizes appointed or is that your comfort businesses.
You know our retail business is doing very she is going very strong and very well we're excited about our whole positioning our private brand segment.
We've seen.
Thank you good morning.
I just want to talk about the retail channel you know you cited some incremental sort of caution around the Q4 expectation can use it can you talk a bit about but what you're seeing in the underwear and hosiery segments and you know where that weakness is coming from as it is a specific to channels or is it fairly broad base and what you think is really driving that weakness.
Was it.
Let's just pick up from where business is broad based that as the unit volume was down in both segments. So.
Just a lack of consumer spending in the category really be putting us. So you don't look as far as we're concerned we're positioned we think are pretty good I mean, we're growing our share within we marketed in the underwear category of these talks we're not doing as well, but mostly because we we.
No we got out of some mess. This is from from last year. So look at we are positioned we think.
Good position to continue growing.
All segments as we move into 2020 like I said earlier, because we're going to be pending new shelf.
Opportunities in underwear and new programs both in Sox activewear, if we were going to 2020, so regardless of really the environments. We think that we're going to have a good growth here in retail this 2020.
Okay, and you did site.
Paired remarks to some conversations you're having with retailers I assume these are always ongoing.
We're very optimistic about gaining shows chase shelf space in underwear and 2020 .
Picking up new programs, both in socks, and not to where as we move into 2020.
Okay. Then so that's great. Thank you.
Our next question comes from Brian Morrison of TD Securities. Your line is open.
Thank you good morning, Glenn in the price.
Where price environment I want to know why you think thier approach will defer this time did back in 2014 in a declining cotton environment and what pricing is baked into your printwear assumptions.
Basic business and the Printwear market. So it is what it is at this point because we are the market. So.
Unfortunately, if we see a little bit of negative Pos mean, it will come back.
So there's nothing games like you know like pricing and losing share in that segment and the fashion part of the market. We saw a lot of room to gain share, but we're very competitive price. They have the market relative to the other high cost competitors. So we've been taking share we have a price advantage we have a cost advantage. So we know we're way.
Our position them in them. So there's no sense for us to to react to that I can tell you today with the price environment will be next year, we will give you guidance, but overall, we think we're well positioned to continue taking share hopefully the basis will stabilize as the market stabilizes and we're going to continue to grow in the fashion segment.
To do to grow also in the flu segment as we move into 20 Twond.
So if things happen structurally change rod how do you approached the buyback seen that you've got the capacity on your balance sheet.
Yeah.
Yeah. If you look at the buybacks I mean, if you look at the third quarter or leverage was a little bit higher writes a as we move through the quarter, but as we go move into Q4, well see that leverage come down. So we've got good flexibility.
All right under our program that we announced at the beginning of the year, we announced the 5% a buyback program about 10.7 million shares. Thus far we bought back about 3.5 million shares you can expect that we're going to take advantage of that as we move through the remainder of the year and into early 2020. Thank you.
Our next question comes from Derek Lee of Canaccord. Your line is open.
Hi, just.
On the on the private label or program can you comment just on what you've seen there I mean are you guys gaining shelf space within the retailers.
At your currency currently servicing and how do you sort of think about that business heading into 2020.
And we're pretty optimistic and put our positioning us movements between 20, and as I said earlier and all three categories, both underwear socks and act.
I mean, there's opportunity to go international but look we have a bought opportunity here domestically first since if we're going to stay focused as we move forward into next 12 to 24 months, but there's definitely an opportunity.
And that really what we would view this we would need to final test capacity to be able to support.
That type of growth. So I think we're focusing on our north American customers leveraging our ask in Central America, and we're aggressively pursuing our expansion, Bangladesh, which will discuss in a couple of weeks with our investors and I'm doors, but that would give us the opportunities sports any incremental oh, the live opportunities in Europe .
Yeah.
Okay, and then you mentioned the screen frame.
Market was slowing everywhere really in North America and internationally were any can you just kind of give a little bit more color on some of the international markets, where were some weaker or stronger than others.
Okay. Thank you very much.
Hi, Thanks for taking my question.
Al Specular Printwear business.
But what we're doing is we're driving aggressively the opportunity we haven't private label.
I said is continued shelf space in the the underwear socks activewear and is also as well as we're going to be expanding and our e-commerce .
As we move into 2020, so that's a great thing about our businesses, we have different areas. So maybe the U.S. printwear market is not going to grow was anticipated or when it because we can't tell that today, but we will have a good growth here as we move into next year with all the initiatives.
Dollar program that you mentioned in the press release, I think I remember the family dollar being a big Sock program that you guys. One several years ago. You know why are you guys exiting that business.
It was was it without brands are all in general is one of the accident.
I've somebody dollar.
<unk> dollar general got it what's going on with that thanks.
Well I was just a low volume business for us so low margin and we just felt it was it something leaves was a part of our go forward strategy.
Got it thanks.
Our next question comes from Mark featuring a C. I'd be see your line is open.
Hey, good morning, just a couple of follow ups or given the slowdown and your inventory build a sort of at the end of the year here well that in or do you expect that will normalize through the course of the.
Oh, yeah. It will normalize as we move into next year, but you know even the inventory that we will have it does his years not excessively high.
Given the overall sales growth we've attained over last couple of years. So.
But you know it will normalize itself as a as we move into Q1.
Was it broad based across your distributor customers and was it relatively consistent across geographies or do you think it's been driven by a certain type of and customer or specific part of the market.
Okay, it's difficult for us understand.
Oh the factors what happens in a market because you know obviously the oh send users is highly fragmented.
But you know typically we see that when corporate social products apparel basically get soft and that's a big portion of the markets.
And.
No.
In General I would say, it's all markets all products and you don't do you look at like I said earlier. Please fashion, we're up and that's just not not up as expected and basis for down under more expensive. So I would say its was broad based all markets.
The same thing with our international as well.
Okay and.
And then I guess in retail in mass it looks like there's some changes underway at the shelf level I'm just be helpful to know sort of what the net effect is on your business. I mean, you know you sort of talked about your expectations for growth in 2020, but is that underway today and what would be your outlook on terms of.
The category overall of shelf space over the next kind of 12 to 18 months.
What I consider right now because we're going to give guidance. We will give you guidance in February but look and I would say that to you know as we work with our retail partners, we're getting space allocated to us and as they keep driving their strategy. So we're comfortable that we will obtain additional opportunity in all segments of our.
Businesses, we've been towards the next year like I said and you know we're going to drive topline growth as we move into 2020.
And the changes in pack sizes. There is that just a a is that just a or what's driving that I guess and what's the net impact on your profitability that immaterial or whats behind the thoughts in Missouri. Okay. And then just last could you just sort of talk about your penetration or market share through e-commerce platforms versus instead.
Or is it pretty consistent and do you see one is a better opportunity than another.
Well I mean at our ecommerce businesses up pretty good the shirt, we're expecting into grows as next year as well.
We're leveraging of our brands on a or ecommerce platform, our underwear as well and ecommerce our socs are doing very well. So it was a growth engine in the market right. So we're just so you don't hang on with the with the opportunity a continue and drive or ecommerce platform.
So consistent performance relatively between in store and.
Right.
Yeah like on a share basis.
Sure growing online.
Okay. Thank you.
Yes.
Our next question comes from Keith <unk> of the Jarden Security Your line is open.
Expectations on acquisition.
And also how you're feeling.
Phasing out of the shipped to the piece business.
Yeah, well look American apparel is still a a strong brand for us. So we're very excited about a is positioning.
We're going to put more resources behind the next year in terms of our promotional.
We're working on continuing to drive our e-commerce .
Sales of American apparel, and you know we have some.
And then no just in terms of the Soc business.
Yeah, a couple of questions. When I was wondering how gold tool is doing and also I was wondering whether npds industry numbers capture online sales as well as a brick and mortar sales.
I will go towards maintaining its market share it with the markets down a bit so it's going pretty good right now be honest with you.
Thank you.
Our next question comes from Daniel B O C. I apologize your line is open.
Good morning, Glenn with the tariffs, causing companies to re examine when they source from can you speak to what you've seen an RFP, even what's the biggest hurdles winning that business for you.
Sorry repurchase second part your question.
Sure the what's the biggest hurdle to winning that the RFP is you're getting as companies look to.
Source from different countries now with the tariff.
Well look at them in you know in our case, we think that look at the China, particularly as a large.
Provider of apparel this industry, they're not as large and basic T shirts, and sweatshirts in socks, and so for us so.
I think that.
Or different type of product category, so, but overall I would say that people are nervous and we think we're well positioned to continue to drive opportunity just because we're replacing the we're we're almost like a low cost men were low cost Bruton integrated manufacturer.
Globally, that's almost like domestic you really thinking about it because we're so close to the market. So this is playing well into our roads, our whole strategy of continuing to drive.
Our private brands markets, where our customers basically see this is a win win is I think can rely on our cost structure, our CSR et cetera, and still be close enough to markets Replenishes products. So we don't as part of what's driving ourselves and smart pretty optimistic that's why we're getting shelf space gains and new program.
Yes, as we move forward into 2020.
Good morning, Thanks for taking my question just I'm curious about how some of these direct to consumer brands in the underwear and socks categories are impacting the business I'm thinking.
Bomb bus and Tommy John and Theres that through the whole host of them is that is that impacting the business at all.
No I don't think so and there are small in the whole overall scheme of things in terms of revenue I mean mass retail is the largest.
Provider of a underwear and the units in the United States is still growing you know online retailers are doing good but you know it's not it's very small relative to the oversize or the market today.
And is there an opportunity to sort of.
Leverage the strategy that those companies are delivering would there sort of new brands with.
An old and well felt a brand in gold toe.
Or send your question.
So.
You know going more direct to consumer with a really with the.
Those companies are leveraging to gain market share in sox, rather than distribute through retailers like <unk> well. The first of all those loans was companies don't make any money I can lose money. So I'm guessing that's one thing in the second thing is we're leveraging our online sales through our sportswear partners like Amazon.
We're supporting all of our brands right. So when you look at how does the what the most effective way to get the market is is you know there's a network of online providers like Amazon for example, another major retailers that are supporting their online shell. So we think that we've been able to.
10, low rest your neighbor's club in support roles and all of our brands.
Okay. Thank you for taking my question.
Our next question, that's a follow up from key talent.
Jarden Securities Your line is open.
Yes, So just wondering on your Mexican plant you. When you when you bought all star <unk>. The first start was that a that plant would be upgraded and might serve Latin America.
Just geographically, there's not too much difference Central America in Mexico, but I'm just wondering what the main changes were in terms of your change your view as to whether to keep that facility operating.
And you know, we're really allocating the equipment to existing facilities or cost will come down relatively quickly and supports additional unless you in a.
Leverage and look at as far as these other markets. We can still service. These markets had a central America.
They were well positioned and we're going to ever kicking into with as opposed to Mexico.
And then just one question on the the all start style distributor business is that you are going to maintain that business going forward.
Working we're going to continue to leverage our distributor channel and that's what we're saying today is that we're going to leverage our distributor channel to support.
Thank you.
I see.
There are no further questions like to turn the call back over to Sophie Argiriou for any closing remarks.
Thank you I'd like to thank you all again for joining us today, and we look forward.
Oh I'm at our upcoming Investor Conference in Honduras on November 19th and with that I wish you want a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.