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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I'd now like to hand, 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.
We also issued our interim shareholder report any management, especially my mouth.
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 clash I'm, asking our president and Chief Executive Officer about Harry's, our executive Vice President and Chief financial and administrative officer momentarily Vod, hoping the results for the quarter in our business outlook for the year and accumulate session will fall.
Well, we began I would like to remind you that certain statements included in this conference call may constitute forward looking [laughter] within 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 could 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 with that I'll turn the call over trial.
Thanks Toby.
Good morning, and thank you for joining us. This morning, we reported Q3 results in line with a preliminary results melt over 17.
Sales of 740 million for the quarter were down 2% compared to last year, reflecting a slight increase in act where sales of 1.1%.
Set by a decline in the whole you mean underwear category, 15.1%.
The decline in this category on a year over year basis was mainly driven by lower stock sales in math another retail channel.
However, our sales and retail role 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 wrote the expectations, we communicated to you at the end of the second quarter was Indian Printable channel you back to work.
As we indicated two weeks ago during the third quarter, we saw significantly weaker Pos than expected for him 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.
Projecting low single digit Pos growth in North American critical channel for the third quarter and instead, we saw high single digit to quite a few Wes.
Certainly our sales expectations of mid single digit growth and third quarter did not materialize and contributed to lower than anticipated net earnings with adjusted EPS for the third quarter of 53 cents down 7% over the prior year quarter.
Given the sales weakness in a principal 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 or 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 P. westward 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 applied in France.
Further we continue to execute on our supply chain initiatives to drive 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 from the former <unk> age facility to our new state of the art Rio Nance, He six facilities consolidation of Soc manufacturing because actually into one facility.
And closure of sheer 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 for a 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 then 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 and fashion basics sales in North America.
The 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 declined in the hosiery and underwear category is mainly due to lower sock sales and masks and other channels, including the impact of exited soft programs and weaker overall industry demand in the Soc category, which according to NPD is retail tracking service was down more than 4% 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 schemes in mass were offset by the non recurrence of the initial set a 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 asked 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 onetime 1.7 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 and some recent plants, we have decided to move forward with related to our global manufacturing system, which I touched on earlier.
Given everything we see in the flexibility we have across our large manufacturing system, we've decided to close our sewing and textile facility in Mexico and move the equipment to our existing facilities in Central America, and the Caribbean base.
Well this means 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.
We 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 offered 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 plant 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 hosiery and 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 unaware 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.
Spice 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 a benefits flow through from all of our manufacturing initiatives.
Question 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 costs 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 cost 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 shifts to the piece business.
We estimate such charges could range between 35 to 45 million in the fourth quarter.
However, should we incur these charges we would not expect they 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 in which has further being exacerbated by distributor inventory Destocking. We believe our overall business model, which has been 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 on SNA 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.
Thank you Ron that concludes our formal remarks, and we'll be starting to joining ash.
However, I think you limit the number of questions too. So we can addresses many callers this past fall and we'll circle back for a second round of questions as time permits.
Now I'll turn the call over back to the operator for the question and 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, while the composite Q and they roster.
Our first question comes from Cyber had Khan of RBC capital markets. Your line is open.
Thanks, just the first one on D. 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 and also as a demand of weekend, what kind of competitive.
Intensity or the has that changed at all have competitors taken pricing. If you can maybe talk about the industry environment and how the competitive environments change it makes sense.
Okay. It's Glenn will in terms of the demands it's hard to tell because we don't control the overall.
Firemen, but typically when we see in demand softness.
Never persisted for more than two to three quarters. So thats typically historically I think we've seen a downturn in Pos that sort of the length of time.
That weve see this last quarter, we've never really comped.
Negative Pos on an annualized basis.
As far as the pricing in the market interest by promotional pricing today, but I would say that is pretty normalized.
And there hasn't been aggressive pricing.
Flip side of.
On the flip side of in terms of the overall cost structure, although we see raw materials coming down.
The 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 bound 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 your look.
And to exit that channel what it means for brands like comfort colors.
You kind of exit those brands as well as maybe some thought process and what this means for those brands.
I'll answer the commercial size and us regressive essential side, where we've acquired these businesses, obviously the acquisitions of comfort colors.
Metro so.
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 of 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 that they have user with these products.
And then we're going to.
Exit the drop ship and the and the sales to the smaller.
Attributed this is a very highly fragmented business Miss automotive revenue I missed a lot of 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 alleviate any complexity and out of the system and.
But really 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 the 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 us printwear market.
It is direct to screen print or maybe with some of the larger ones should we assume that that's a 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 of surgery 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.
Through the acquisition. So this is not consistent with the I would say with Gildan.
Strategy.
And skill set record policy as we're really go high skill.
Hi volumes large manufacturer of.
Basic apparel, and we're going to support our distributors with with the with I think so the core products I will generate the large bulk hold at 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.
Was hoping you could 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 I 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 or manufacturing system to continue to improve to continue to focus on our key growth drivers are remains and try and tax so.
We look at surf focused 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 S.J. 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.
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 2020.
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.
Our next question comes from Paul that use the 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 basic fashion basics and can be.
In three Q and what do you attribute differences in performance too I think thank all weekend, but maybe fleece and passion basic 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.
They just weren't up as much as we anticipated and our basic business was down and it was down little bit word than we anticipated. So I would say that everything was sort of in line with our expectations except for.
We're down than we anticipated in all segments, Let's say for example is a very good when looking at 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 those businesses that are performing better like fashion basics.
Well look I mean I attended the 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 and 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.
Continue to invest more in our products and we feel very comfortable at our positioning and we're going to continue to stay focus were make sure that we continue to drive or margin expectations are shows expectations and the Russian expectations to support your overall growth company.
Thank you very much I, just want to come back to the overall.
Macro and the discussion around.
No you indicated that when you've seen.
It typically only last two to three quarters can you talk about.
What you look for in the market Im wondering what are the initial indications to that you see.
The market is turning 20 very focused on.
And just about tops.
Well look at there's you know for US a lot of the softness could come from the example, the corporate motion products segment.
Where people buying product can use it for advertising.
This products are typically in the basics segment, the onset to because of the price points those things that can be delayed and people can change or they're buying habit, I mean give a free T shirts soda. The a baseball game for example, I mean, so this words using ended up is used as a promotional touch products, which are our promotions.
Typically corporations.
To cut costs and weaker environments and so those costs get caught and then eventually bigger realize as people need to promoted and move forward. So.
It's hard pressed to say to be proving honest with you but.
I think what we've done is we've we've built to line up we think we'd have to France to to support.
Growth in the future even during the great recession, I mean, weve skew 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 dryer strays at all so we're pretty optimistic still about.
How do we have we will move forward and it might have the overall economic conditions and focus on disciplined we're thing and we seem to see is good socks and underwear.
Which are pretty.
Consists of basic type products that have never really she's a unit volume downturn. So.
The good to us its underlining overall economy, just aren't there I think that with the government stimulus and hopefully we'll get solution is behind us in.
This has improved since 2020.
Okay. That's helpful. Now my second question just on the.
Closure of the Mexican capacity in transfer to.
Jeremy Basin and Central America, you said that that would take six months for you to do that when when we first start to see that impact.
And then my assuming that you.
You've taken.
<unk>.
Q4, some of US lower sales that you would anticipate closing down that capacity.
Well, we've anticipated over at that took our sales are if you were projecting still to have higher ending inventories in Q4 relative to Q3 based on our sales assumption. So we have enough inventory.
To support the market.
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 was we move into the diminish public so it's going to come in two phases, but I would tell you that the capacity that we're currently running in Mexico, which represents probably about 8% to 9% of our overall capacity will be absorbed.
Pretty quickly as we move into 2020.
That's helpful Robin Thank you.
Good.
Our next question comes from the Shaw Street, there of National Bank. Your line is open.
I was.
A bit a bit surprised by that level of decide destocking.
With that anticipated by you when you saw the key west starting to decline or is that more of a question that these distributors expect the prices to go down on on the T. shirts, our apparel.
And distributors are being more cautious as or inventory.
And just in terms of their exposure there, bringing down their inventories. So you know.
This is good inventories kept you know normal hire them and businesses little bit we feel good normal low and may not sort of the way you go look at it.
And that's a position over in though.
Okay. So so it it doesn't have to do with them thinking that prices potentially come down looking at just the current trends are in the last year. So.
In terms of.
In terms of the and the Mexican capacity.
Is it if it could you just remind us in terms of the size of that business or that capacity that that was there.
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.
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, that's fair to say.
Our we're going to do is first of all we've been out we will optimize capacity younger do not see sixs started.
Expand in other parts of our operations, which will you live in Honduras.
A couple of weeks.
So what will end up happy just had installed capacity once we transfer all the assets from Mexico actually have an increasing capacity and what our current run rate and so we'll we'll move harder the equipment to Central America relatively quickly, which will maintain the and absorb the eight to nine per.
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.
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 refer to the mid single digit growth or is it just yesterday in the gross margin rate.
With focusing on the margin and the yesterday, obviously, we'll give guidance on growth as we get prior Oh, 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 and just maybe just one point is looked at I mean, Oh, we have two sides of the pointers until October businesses.
Right now is a little bit we'd but are.
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.
Great sell through of our products, we're we're anticipating additional shelf space in a in underwear as we move into 2020 I, we're looking to actually even grow our saw category as we move into 2020 and are active wear categories. So you know all the things that we've done as a company is really to focus on our core hope is our core.
Focusing on leveraging our low cost manufacturing in both segments of our business. So this is just a realignment, though in printwear to support continued growth as we move forward, but we were really looking forward to continued growth in our branded as we push into that market as we move into 2020.
Our next question comes from Stephen Macleod BMO capital markets. Your line is open.
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 can you talk a bit about but what you're seeing in the underwear and hosiery segments and.
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 to go if this is this just I got through where business is broad based that as the unit volume was down in both segments. So.
I was just a lack of consumer spending in the category really be proving us. So you don't look as far as we're concerned were position we think.
Pretty good I mean, we're growing our share within weak market as the underwear category in stocks were not doing as well, but mostly because we we.
We got out of some nice this is from from last year. So look if we are positioned we think.
Good position to continue growing in all segments as we move into 2020 like I said earlier.
Because we're going to be pending new shelf.
Opportunities and underwear and new programs both in Sox activewear, if we were the 2020, so regardless of really the.
Fireman's, we think that we're going to have a good growth here in retail has moved into 2020.
Okay and you did cite in your prepared remarks, just some conversations you're having with retailers I assume these are always ongoing but is it fair to say that based on those conversations you are sort of optimistic for additional private label programs as you roll into 2020 and beyond.
We're very optimistic about gaining show the chase shelf space in underwear and 2020 .
Picking up new programs, both in socks, and active wear as we move into 2020.
Okay. That's a 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.
Printwear 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 as we are the market. So.
Unfortunately affiliates, we see little bit of negative Pos mean, it will come back.
So there's nothing games like you know like pricing is 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're way.
Oh position them in them. So there's no sense for us to to react to that.
Oh, you today with the price environment will be next year, we will we 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 continue to grow also in the flu segment as we move into 20 Twond.
So if things haven't structurally change rod how do you approach the buyback seem that you've got the capacity on your balance sheet.
All right under our program that we announced at the beginning of the year, we announced the 5% buyback program.
But 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 Derrick 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.
Well, we fit look it has a structural changes the environments and retailers are committed to driving their private label, which is which is a great opportunity for us. So as they continue to look at ways to expand on their private labels were basically there to support them.
And we're pretty optimistic and put our positioning as we move into 2020 and like I said earlier and all three categories, both underwear socks and actually.
And within private label correct me, if I'm wrong, but I think it's predominantly a north American business. Today is there any plans to take that international in the near term.
And there is opportunity to go international but look we have a bought opportunity here domestically first one is 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 need as we would need to idle capacity to be able to support.
That's it from 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 in 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 private label opportunities in Europe .
Huh.
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.
Well your two largest markets are really trying to Europe .
Okay. So those markets basically were soft demand just.
The recovery right. So we all know what's happened in China, and then what's happened UK we anticipated.
A bounce back but didn't happen. So hopefully those things will work itself. So photos, we move into it and I'm sure.
Okay. Thank you very much.
Our next question comes from Omar Saad of Evercore ISI. Your line is open.
Hi, Thanks for taking my question.
As you think about building continue to build building capacity over time can you talk about what gives you confidence given now you're seeing this bid of demand softness is it really the expectation that demand by bounces back within a few quarters or are there. Other things you can do in the capacity fraud should.
Bounced back in our Printwear business.
I said is continued shelf space in the the underwear.
Okay and active wear and is also as well as we're going to be expanding on our ecommerce.
As we move into 2020, so that's a great thing about our businesses, we have different areas. So maybe the U.S. from where 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.
Ask for a follow up question on the.
Our family dollar.
<unk> dollar general got it what's going on with that thanks.
Well I was just a low volume business for some low margin.
And we just felt that there was something lead was a part of our go forward strategy.
Got it thanks.
Mexico capacity coming offline.
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.
You know given the overall sales growth we've attained over last couple of years. So.
Was it broad based across your distributor customers and was it relatively consistent across geographies, where do you think it's been driven by a certain type of and customer or specific part of the market.
Well, it's difficult for us understand.
But you know typically we see that when corporate promotional products apparel basically get soft and that's a big portion of the markets.
And.
But generally 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 visits were down under more expensive. So I would say is broad based all markets.
And the same thing with our international as well.
And then I guess in retail and 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.
What I consider right now because we're going to give guidance. We will give you guidance in February but looking I would say that the 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 pay in additional opportunity in all segments of our.
Business as we move towards an extra like I said and.
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 what's behind that no. It's immaterial. Okay. And then just last could you just sort of talk about your penetration or market share through e-commerce platforms versus ins.
Or is it pretty consistent and do you see one is a better opportunity than another.
Well I mean at our income ecommerce businesses up pretty good this year, we're expecting it to grows as next year as well.
No we're leveraging of our brands on a or e-commerce platform, our underwear as well and ecommerce our socs are doing very well. So it was a growth engine into market right. So we're just so you know tightening on with the with the opportunity a.
Continuing to drive or ecommerce platform.
So consistent performance relatively between in store and online.
Yeah like on a share basis.
For shares growing online.
Okay. Thank you.
Yeah.
Our next question comes from Keith <unk> have to Jarden security. Your line is open.
Expectations on acquisition.
And also how you're a phasing out of the ship to the piece business.
Would affect the American apparel, I think you have a direct to consumer component there.
Yeah, well look American apparel is still a a strong brand first so we're very excited about the its positioning.
We're going to put more resources behind the next year in terms of our promotional.
Sales of American apparel, and you know we have some.
Opportunities to expand on that as we move forward with which we're going to announce in the short time from now but no we're very happy with our positioning.
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.
Well go towards maintaining as market shared with the markets down a bit so it's going pretty good right now to 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 in RFP, even what's the biggest hurdle to winning that business for you.
Sure the what's the biggest hurdle to winning that the RFP is you're getting as companies look to.
Sourced 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 its industry, they're not as large and basic T shirts, and sweatshirts in stocks 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 of where were in place that we were were almost like a low cost men were low cost Bruce integrated manufacturer.
Globally, that's almost like domestic you really think 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 nothing can rely on <unk>.
Our our cost structure our CSR.
Et cetera, and still be close enough to markets replenished as 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 programs 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 there is that there's a whole host of them is that impacting the business at all.
No I don't think so okay. There are small in the whole overall scheme of things in terms of revenue I mean mass retail is the largest.
Provider of underwear the units a 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 welfare to bring in gold toe.
Or send your question.
So.
You know going more direct to consumer with a really with the a brand in stocks of gold toe, which is as a very strong reputation and but leveraging that kind of direct to consumer marketing effort.
Those companies are leveraging to gain market share in sox rather than distribute through.
Retailers right. The first of all those companies don't make any money I can lose money. So.
I think 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.
Look at you know how does the but 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 I think that we've been able to you know leverage that platform.
Okay. Thank you for taking my question.
Our next question that's a follow up from Keith Pallet I've did Jarden Securities. Your line is open.
Oh, Yes, that's just wondering on your Mexican plant you. When you when you bought all star <unk>. The first thought was that a that plant would be upgraded and might serve Latin America I.
I guess 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.
Well. The view is is that you know as we looked at our cost structure in the future.
And you know, we're really allocating the equipment to existing facilities or cost will come down relatively quickly and supports additional asked you in a.
Leverage and look at as far as these other markets, we could still service these markets on a central America.
You know so we have a tree preference from Central America as well, so we're not going to lose visibility in any one of these markets at all but will not have more cost consolidate or manufacturing this atmosphere.
Reduce our cost and really focus or energy on expanding Bangladesh, which would be the new geographical hub and we're really supports the long term growth of the company in both international markets as well the other products like segments that we think we'll continue to grow so.
And then just one question on the the Allstar style distributor business is that you going to maintain that business going forward.
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.
The marketplace. So all style will be in the future supported from or distributors basically to support the end users.
Sure.
Thank you.
Uh huh.
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 <unk> someone that our upcoming Investor conference in Honduras on November 19th and with that I wish you want to get that.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.