Q1 2020 Earnings Call

[music].

At this time office, it's been original listen only mode.

I guess presentation, there will be a question answer session asked a question on essentially you need a fresh start right.

Please be advised today's conference is being recorded.

If your party further since these fresh start there.

I would now like in October.

She's Sophie Argiriou. Please go ahead.

Thank you then yes.

Afternoon, everyone and thank you for joining US earlier, we issued a press release announcing earnings results for the first quarter 20 to 20. We also we also issued our interim shareholder reports campaigning managements discussion and analysis of consolidated financial statements. These documents will be filed with the Canadian securities and regulatory.

Before I.

Ambiguous Securities Commission and are available on the company's corporate website on the call today, we have Glenn Chamandy, our president and Chief Executive Officer, and watch hobbies, or executive Vice President and Chief financial and administrative officer in a moment Rod will take you through the results for the quarter as our business outlook and acute.

An exceptional will follow before we begin please take note that certain statements included in this conference call May constitute forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, such forward looking statements involve unknown and 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. We refer you to the company's filings with the U.S. Securities and Exchange Commission and with the Canadian Securities regulatory authorities and with that I'll turn the call over to Rod Let's go ahead.

Thank you Sophie.

Good afternoon to all one thank you for joining the call.

We hope everyone is staying safe and keeping as well as possible during this unprecedented time.

Before we get to the results for the quarter, let's start with an update on the cold at 19 related actions. The company have taken since March 23rd.

The last talked with you.

From the outset, that's the whole situation to develop our first priority has been in remains to health and welfare of our employees customers and suppliers and other partnerships as we ensure the continuity of our business.

In this regard we're very pleased that our production of face masks and isolation gallons is now underway.

Currently showing massed in some of our facilities in Central America.

Port local government requirements as well as on behalf of a cooperative consortium of North American apparel and textile companies.

Hi, nonmedical mastered the healthcare sector.

We're also producing nonmedical mass in isolation gallons for various retailers to be distributed to healthcare organizations.

In total we have current plans to produce over 150 million masks and gallons under this efforts.

Continue to provide as much supply of product as we can because we moved to the pandemic.

No wonder support production of masking gallons, we have limited manufacturing activity currently underway.

Operating with stringent safety processes, improving protocols in place.

Aren't away the majority of our manufacturing capacity around the world remains idle.

After we extended the shutdown of our operations.

In mid April to respect government directives and to manage our inventory levels given the significant downturn in demand caused by the pandemic.

Our distribution centers, which have strong inventory levels, mostly remain open to surface customers. The safety measures in place for employees, but much reduced operating levels.

In parallel with this reduced operating activity, we have moved quickly and decisively to control costs for a non critical capital investments and to manage our working capital.

In this regard March Thirtyth, we implemented a number of workforce measures.

Gildan Board of directors, Glenn myself, and the rest of the executive team agreed to forego, 50% over salaries and we have implemented pay reductions ranging from 20% to 35% across all senior management levels.

Further much of our salaried workforce is now operating on a four day work week.

Finally, given the uncertain duration of this crisis and the related economic impacts.

We have moved forward with major additional actions to strengthen our balance sheet and liquidity position.

March update we indicated that after drawing down the remaining available portion of our revolving long term bank credit facility. We stood with just over 500 million of cash and over 50 million of available credit lines.

On April six we secured an additional 400 million of long term debt, providing us with liquidity of over 950 million and we're currently operating with just over 650 million of cash on hand, 300 million available credit lines.

Further in addition to suspending our share repurchases, which we didn't early March today, we announced that we will be suspending our quarterly dividend starting with the first quarter.

While returning capital to shareholders is a key priority for Gildan.

We remain fully committed to doing so when the environment normalizes. We've taken these actions to ensure that we are extremely well positioned to move through this evolving challenging and highly uncertain environment.

Now moving on or first quarter results.

We generated 459 million in sales down 26.4% over the prior year quarter, mainly due to lower sales volumes.

Although our initial expectations call for lower volumes in the first quarter. The overall volume declines in the quarter were meaningfully higher than we anticipated given significantly weaker demand in March.

During the first two wants to the quarter, our sales performance in North America for and principles was relatively on track.

Sell off considerably in March typically the biggest salesman first quarter, that's the spread of the pandemic started to heighten in North America.

Further our retail sales were also impacted although less severely in the mass and online channels.

Overall these year over year volume declines in the quarter were partly offset by positive product mix and slightly higher net selling prices due to lower discounting.

Activewear sales of approximately 373 million fell 24.5% during the quarter driven in principles by double digit unit volume declines in both North America and international.

As well as due to a 6 million dollar sales return allowance related to our SKU rationalization initiatives.

In retail activewear sales were down due to store closures and lower demand caused by the downtick.

Although the decline was less severe than we saw in and principles.

In those are in underwear category, we generated 86.5 million in sales in the first quarter.

34% compared to last year as the downturn in demand related to store closures drove lower sales.

In addition, as we highlighted in February when we reported our 2019 fourth quarter results decline in hosiery. This quarter also reflected the impact from the exit of a sock program in math.

And the year over year impact of the initial rollout of a new private brand Sock program, which launched in the first quarter last year.

In underwear overall sales were down due to the current challenging demand environment and the year over year impact a fully exiting a branded underwear program in mass at the end of the first quarter of 2019, partly offset by increased sales of private brand men's underwear in the mass channel.

Gross margins first quarter was 23.2%.

Adjusted gross margin was 24.6% after excluding an 8 million dollar charge related to discontinued Unprintable skews.

Although adjusted gross margin was down 120 basis points over the first quarter of 2019.

It's important to highlight but the year over year variants included 340 basis points negative variance related to manufacturing idling and other cobot 19 related costs.

Without these costs adjusted gross margin would've been 28%.

220 basis points above the prior year level.

Accordingly, cobot 19 costs more than offsetting favorable product mix related to our underwear business lower raw material costs, and most notably the benefit of an improving cost structure for manufacturing optimization initiatives under our back to basic strategy.

Moving on to ask you to expenses for the first quarter SGN expenses totaled 74 million down 19 million over last year.

Our legal resulting from reductions in compensation expenses, lower volume driven distribution expenses and from tightly managing all our costs, including eliminating all discretionary expenses as we move to the back part of the quarter.

Now, let me highlight certain impairment charges taken in the quarter in light of the impact of the cobot 19 situation.

During the first quarter, although we did not incur any significant customer specific accounts receivable write offs, we increased our allowance for expected credit losses reflect heightened credit risk in this environment.

As you would expect some of our customers are working to navigate through this challenging period and have requested extended payment terms on their account balances as they closely manage their operations and working capital positions.

While we are working with these customers fully expect payment. We are nonetheless required to assign an element of risk to these receivables and adjust our allowance for credit losses Accordingly.

In addition, this quarter, we recorded an impairment charge of 94 million relating to goodwill and intangible assets acquired in previous Soc in hosiery business acquisitions.

After conducting an impairment review of our whole should be cash generating unit.

On the longer term outlook for this business.

For this part of our business remains unchanged.

We believe that we are well positioned from a competitive perspective, the impairment was triggered by the broad impact of cobot 19 on market valuations, including for Gildan.

Finally in the first quarter, we recorded $10 million, an anticipated restructuring and acquisition related costs largely associated with the relocation of our Mexican operations and costs related to the completion of the exit of our ship to the piece activities.

Adding up all these elements are operating loss in the quarter totaled 92 million compared to operating income of 33 million in the prior year.

For reflecting charges associated with restructuring and acquisition related costs.

Goodwill and intangible asset impairment.

Discontinued in principle that skews, we generated adjusted operating income of 20 million in the quarter compared to 43 million in 2019.

Net loss for the quarter was 50 cents per share while adjusted EPS was six cents down from 16 cents last year, reflecting the sales and operating margin decline, including eight cents of manufacturing idling and covered related costs.

Turning to free cash flow, we consumed 235 million a free cash flow in the first quarter of 2020 compared to 128 million consumed last year for this period.

The change was mainly due to the decrease in earnings in the quarter and higher working capital from increased finished goods inventory due to a planned inventory build in the first part of the quarter.

Capital expenditures in the first quarter were approximately 26 million primarily for textile and yard operations.

Lower levels of capital spending spending going forward.

Deferred noncritical capital expenditures in the near term.

Finally under our 2019 share repurchase program, we bought back just over 800 843000 shares in the first two months of 2020.

Total cost of 23.2 million.

At quarter end, we had net debt of just over 1.1 billion and a net debt leverage ratio of 2.2 times trailing 12 months just adjusted EBITDA.

Now for a few words on the outlook.

Visibility regarding the duration and extent of the impact of the pandemic remains extremely low and if you are already aware on March 20, Threerd, we withdrew our quarterly and annual guidance.

However to provide further context, we thought it would be helpful to update you on the demand trends, we have seen thus far in April.

In the in principle channel when we last talked during the third week of March to U.S. was down approximately 50% and we expect it further weakness.

Yes played out at the end of March and April we have seen Pos trending down 75% versus prior year levels.

Turning to our international Unprintable channels to U.S. in Europe is tracking at similar levels as North America, while Asia is slightly better with Pos down 65% from last years levels.

She U.S. and retail channels has also deal decelerated in April as more and more retailers close their doors in response to shelter in place non essential business closure directives.

Overall Pos in the retail channel is down 45% in April.

In this regard our branded and license Soc business and our global lifestyle private brand business is experienced weaker levels of Pos given a high exposure to department sporting and specialty store channels as well as large sporting related events.

On the other hand, we're very encouraged by the strong performance of our private brand underwear business in mass stores and our E Commerce sales, particularly as online retailers are starting to include our basic apparel product categories as priority shipments along with the Centrals.

At this juncture. It is unclear how these trends will evolve as different actions are enacted in various jurisdictions to adjusted the ongoing seasons of the pandemic.

However, given what we have seen thus far in April and given broader economic expectations. We do expect a significant decline in Pos and shipments for the second quarter of 2020.

Fortunately this sales outlook combined with the impact.

Cost absorption, while our manufacturing facilities remain idle will likely lead to a significant earnings loss in the second quarter of 2020.

In closing despite this outlook the actions, we have taken positions gildan well to navigate through this challenging environment.

As I highlighted earlier, our primary focus is the health and wellbeing of our people and the continuity and long term success of the business.

We're very proud of how our whole organization has adapted to deal with the current environment, including responding to that help alleviate global p. shortages.

We have taken the steps to reduce our fixed cost and expect to continue to lower our expenses as we move forward and adjustable weak demand outlook, which could extend through the remainder of the year.

We have good inventory levels in all product categories to service, our customers and we have strong liquidity overall.

Further our back the basic strategy, which we have been implementing over the last two years to simplify and lower our cost structure has put us in a better positioned to deal with these events.

We have successfully navigated through challenging environments in the past, we're confident that our strong business model financial position and resilience will allow us to emerged successfully from this global crisis positioned well for the long term.

With that thank you and I'll turn the call back over to Sophie.

Thank you rock.

That concludes our formal remarks before moving to the QNX Sampson I ask that you limit the number of question too and we will circle back for a second round of question Hi, permanent I'll now turn the call over back to the operator for the question answer session you.

I mean, yeah go ahead.

Thank you as a reminder to ask the questions when he departs dart wine when you're telling them.

Your question. Please Chrysler town T. Please stand by weakened Tata culinary roster.

In our first question comes from public Hughes with Citi Research you May proceed.

The information I'm curious about your expectation for cash burn in Twoq two relative to Q1, given now that you've had more time to make adjustment inventory and capex.

Well as today.

And then I just wanted to circle back on another financial health of your.

Just customers on the you know the perimeter side you know what are what are the conversations that you are having with those folks what sort of terms are are you extending.

And what are they communicating to you about future orders.

Rob you want to deal with us.

Yes, yes, I will okay. Thanks, Paul for the question so on cash burn when we spoke to you in mid March we said that.

We were expect to get our cash burned down at the 35 $40 million range as we moved through.

The end of April and into May and I can say that were very much on track for that right. So as as we move or through the first part of the first quarter and through the remaining part of the first Oh, sorry, the second quarter.

Our cash burn will be at that level 35 to 40 million. We've done a lot we've implemented a lot of ER actions as we went through with the opening remarks, the call and all of that is allowing us to effectively drive our cash burn to where we expected it would be.

If you look at the financial health of our customers are customers are obviously like everybody else working through the the overall situation they've taken actions to effectively manage their overall operating positions.

To effectively ensure that they can both service their customers, while adjusting their cost structures to deal with the the reduced level of demand that we're seeing across the various states, particularly the states where you have shelter in place mandates. So I would say Oliver.

Summers are effectively their operating in some cases, they may have reduce some of their warehouses in order to reduce costs, they're adjusting to the demand.

Footprint, that's out there and there as they move through this as you might expect they're effectively selling down out of their inventory.

And as effectively demand rises they may be coming to us and effectively.

Sourcing supply from us as required.

In order to support a the sales, but obviously given inventory that was in the channel and the end the level of sales that were seeing obviously oh shipments are very low now because effectively distributor inventory. It's for the most part taking care of demand.

Understood. Thank you very much good luck.

Thank you.

And our next question comes from brain Morrison with TD Securities.

You May proceed.

I have to believe in this environment that several competitors must be must be much more negatively impacted or are greater than yourself I'm curious, how you view the landscape from an ability to gain market share perspective, and maybe even a potential for M&A. Despite your cash conservation measures on going right now.

Well I'm looking at its hard to say, it's hard to say how our competitors are weather. The storm I think whats important is really early days right now because there's really not a lot of business activity happening as we speak.

And you know as we move towards the end of this year I think we'll see a lot of.

Materialization happened in terms of how the market will shape out and you know the competitive landscape and how people are able to you know bring their capacity back on et cetera, et cetera. So there's definitely going to be a I think somebody to shake up in the industry in the sense, where you know things are this year.

A changing.

And the question is also is gonna be as how long will take to get the man back to levels that are was before so I think what we're doing this what putting ourselves in a pretty good position to weather the storm, but the additional liquidity that we have both from you know I'm a go forward position on organic basis as well as you know weve.

Have they liquidity and defensive or you are opportunistic acquisitions available to us as though has been market unfolds in the future.

Okay, and then Rod one quick one just in terms of your prior cost saving initiatives to get your 30 in 12 I realize that those are not achievable at this point in time, but in terms of facility consolidations, specifically, Mexico also maybe Canada in Honduras or the facility consolidations or they are the proceeding or they complete or the end pause where they stand right now.

Well the the other facilities in Mexico now fully been close down on the be moving equipment I'm basically at the end of.

But Q4 and during Q1 is we've been moving equipment throughout our system.

There was some operations I'm still being performed in Mexico that were completely discontinued.

Towards the end of our middle end of March.

The balance it I couldn't go busy purposes as we go forward.

And look at regarding or are you sure expectations on Bocom, that's going in margins.

Look there's nothing has changed in our business, we're continuing to execute their back to basic strategy.

I'm all aspects and truthfully is this is going to make us even better and stronger because you know we're able to expedite and manage restaurant news. So you know we're we're planning on making sure that we continue to focus on that's true in as a percentage of sales. We don't anticipate as we go forward into two.

2021 that we will be fully recovered we think we'll be moving forward and right direction. So we know we're going to make sure that our estimate is rightsized as we move into 2021 and you know all the things that we're doing in terms of leveraging our core conversation or back to basics tragic and manufacture.

And we'll continue to improve our margins as we go forward.

Thank you.

Your next question comes from Heather Balsky with Bank of America.

You May proceed.

But type recovery there are the eventual recovery I guess first when when they do get there can you think through Oh.

Manufacturing, we ramped up whats how does that process work to ramp up your facilities at the man comes in or do you have to ramp up the full facility and other factors me could be thinking about it and then the second question is yeah, well up on on your customers you.

This situation is very different given the shelter in place, but curious what we saw backend Oh Ito nine and maybe what we can glean from that hurt for this time around it.

Okay, well start off with they'll wait on nine because these are question density. We also do I'm in the circumstances I don't wait till nine wasn't a customer demand issue. It was a it was very short lived in terms of the negative Pos but it was a banking crisis. It wasn't a consumer confidence capabilities that wasn't the event stop having events.

A completely different situation than we were in a wheel nine.

Because consumers, we're still going to baseball games in football and hockey and whatever so and traveling I mean, so there was a short term impact financially with school through the system, but it didnt affect the consumer where here, we really have a consumer social distancing has really been the major driver were gatherings.

Jog runs a schools you know cab somebody in almost every single event that a venue that though we potentially sell product too.

So that's I think there's a big difference so look at as the snow social distancing requirements change and things open up I mean people are going to the beach now and its doors are opening up you know we're gonna have gradually restaurants will have a gradual increase I think in a in a more gradual increase.

Versus you know we had a quarter, maybe I think one or two quarters in a valid Pos which I think our <unk> or Pos was not more to negative 25 at the back then.

I remember right, but you.

And overall.

You know I think this would be a little bit slower pick up because until the sports events in her concerts and everything else when it comes back it will take some time.

As far as I wrap up this concern are number one focus is definitely to.

Just to make sure that that we first of all utilize all of our existing inventory and what our plan or is too is to wrap up our plan is probably a little bit on 'em stagger stack mistake netted a basis bring on capacity is as we need it and somebody draw down a little bit on or inventory.

Ended up Q1, but the boat just under 1.2 billion of inventory.

We want to see that number come down in a and generate some cash flow from that during the course of this year again to continue to improve our liquidity situation and put us in a better position as we enter into 20 to 21.

Great. Thank you so much.

Your next question comes from leukemia, Cannacord Genuity you May proceed.

Yes.

I think some actually I just wanted to go up on that a lot.

Glenn You mentioned you had a 1.2 billion absent the energy corridor and I get that that's going to be enough satisfy demand across all channels, but I'm curious, though the fashion basics part of it is that it's not subject to any sort of seasonality and do you envision needing to get promotion will be able to move some of that inventory.

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Well look I mean, you know fashion basics is a ring spun too for the you know so it's really.

It's not as probably still fashion basics basically the word basics whenever we make its pretty basic and doesn't really have.

Lifespan as long as in our catalog. So you know there's no need to liquidate inventory because it's going to go up so let rod pumps Lee.

You know definitely I would say that you know we're in a position now that potentially you know we're.

But we'll see how the market proceeds as it goes out but you know were our inventories in good shape and I'm looking at in the day I'm you know, we're going to leverage our competitive advantage to make sure that we continue to drive or sales and drive marketshare as we exit I would say this whole event as we move into that.

Most of the doors open up and then I'm products from selling so we have we haven't advantage I think because look we are low cost producer and you know we will leverage whatever we need to do do continue to.

So to take advantage of the opportunity and and so and drive markers for as before.

Okay understood and then second one for me as far as Bangladesh I know that right now the.

Capex, that's being spend is just sort of laying the foundation for the facility. There do you envision I think it was laid 2021 is when you expected production from that facility. That's still the same time frame that you're thinking or is there a chance of any slippage there.

Well our objective was to really support sales for Twentytwenty too. So it was going to come on at the end the 21 to support 22.

We're in the process I mean, we've we're going to reduce our capital investment. The good news is like I mentioned, the last call because I was sort of at a stage, where we're doing foundation work at the at the facility. So over the next couple of months, you know, which is not a heights two to 3 million of of capital could be span.

We will put in the foundation voids rainy season, and then you know option the option of timing of the plant will be sort of will be on our side, depending on you know what kind of capital we want to spend and where the what the market conditions are as we go for it I mean, you know things are changing so class I mean, you know already you know, we're starting to see Oh.

We just opened up recently and they're starting to see you know Pos is taking a little bit more positively.

Than some of our assumption. So you know the markets opened up quicker and things go better than you know, we'll look at a one way and the things go the other way and there's not a relapse and things got close down you know we'll have to.

Evaluate our options in terms of how we manage our old or old manufacturing supply chain.

Okay.

Thank God.

And our next question comes from SAP, a hot kind with RBC capital markets.

Give me Christine.

[noise], Thanks, and good afternoon, just want to get I guess, you know obviously the visibility is very law and the demand side and just on a broader market, but it's what I understand what kind of scenario you contemplated when we decide sort of suspend the dividend no. What do you what do you sort of.

That's happening over the next few quarters in terms of cash usage and you're also took some additional debt so understand kind of what kind of decreases you much planning where are we thinking you lose happier sales this year potentially more kind of what's a ballpark that ranges.

Roger on tourism please.

Yeah. So when we looked at Ah you know this the various scenarios and the go forward basis I mean, they really it's hard to get a good visibility right. How things are going to ER to unfold as we as we move forward through Q2 and into Q3 in Q4, obviously, we have the the facts from what we're seeing.

In April.

And we've obviously to have taken that information and we projected forward ultimately to try and get a sense of what the your would look like now.

No. We don't know, whether it's going to be a V. Whether it's going to be a you exactly how it's going to play out, but I think well we need to do is planned for the worst and hope for the best So I think as we have looked forward. We've looked at arc are effectively what our cash burn is when we've got our manufacturing idled as as we said earlier right.

We have cash burn of $35 million to $40 million, a month and weve projected that effectively is as we go forward to stage if sales stay down then to effectively we will.

Consume that cash that's we will have to manage obviously, our our overall a receivables and payables in a in a way that a doesn't make sense also to where effectively or minimize or outflows and then obviously, we've got to get ready for for the ramp back, but you know we don't really know exactly.

How long that's gonna taken and what it looks like so I think what we've done is that we've made sure that weve effectively really solidified our overall financial flexibility our balance sheet. We've got lots of capability you, let's say to to effectively do we need to do to move to weather. The storm and then be very very well positioned to.

As we come out of this so I would say again I've.

Obviously, we suspended guidance.

I think it's very difficult to give you a view, but you can just effectively I think tell from how were set up that Ah. We are making sure that we're prepared for scenarios, which are or negative. It's as we continue to move forward and obviously April has been very very negative.

But nonetheless, if things pick up if we do really see a the economy are moving faster than people responding better that were well, we're well positioned to lead to respond to them.

Thanks, and then just a follow up on that you know in terms of cash availability of liquidity and so forth.

You know if they'll continue to deteriorate at these levels for a few more months the balance sheet could get stretched <unk> have you been having discussions with your syndicate regarding covenant flexibility and so forth.

Or is that something you expect to deal with maybe later.

About cut the dividend cuts just want to go.

Oh discussions might be.

[noise] look if you look at where we are effectively with respect to our covenants I mean, where we're in compliance with our covenants currently.

And we expect a arc our covenants to be manageable as we go forward right given did they actions that we've taken weve.

Given all of these actions that are underway again, that's gives us lots of flexibility.

But we'll continue to monitor the situation as we go forward, we'll see how it unfolds I think again, we don't have a crystal ball, we don't know how it's going to play out and if we do get into a very very negative situation, where we do have to have discussions in the covenants. We do very definitely think that effectively we wouldn't be able to obtain the flexibility.

We need going forward, but right now we don't see that and so I would say, where we're very comfortable with a with how things stand up as a as we currently sit here today.

[music].

Thank you for the color.

Your next question comes on be Shaw.

At our.

National Bank you May proceed.

Hi, Thanks for taking my question regarding the shutdown, obviously, you have thoughts and there'd be large programs with fairly significant retailers and I'm just wondering if their understanding where appreciative of the situation that you're in and maybe you're unable can be shipping commitments like you have in the past.

Is there potential person increased charges from then you can't meet your commitment that's good to hear tend to pass or is it.

Everyone understands a different scenario.

Well, we have enough inventory to support the man with our major retail customers so were.

Very good inventory position, which is something that we've we've built up going into the season because of the anticipated high growth.

Have a sales and particularly our big large mass retailer.

I think we're pretty comfortable them in sales have been fully met our expectations I'm. So we're in a really good inventory position.

And we have a lot of you know product that you know if we need to bring to market or we don't think it'll be an obstacle course to get the markets is to continue supporting a even.

As we go into then do there no second quarter until the beginning of the Q or third quarter. So.

That's not an issue for us right now.

Okay. That's helpful. Thank you and Oh, the Silicon Whos Mi business and I know a at its current makeover period, it's probably not the best one to reflect on the business but.

Even looking back over the last few years business really hasn't performed as well that somebody of anticipated just wondering how children thinks about that so how's your business is it still is it still core for you guys. Its discussion for a different day and should we still think a token trying to build out that retail product portfolio and expand into adjacent category.

Yes.

Well look at other things that the you know this it's still a big significant part them in before this whole situation, we sort of anticipated that are Soc business was plateauing or that's what we guided to in the beginning the year. Unfortunately.

I love the half of our stock businesses mass another half is somewhat geared to the carbon and specialty stores between or gold toe brown for under armour license et cetera. So those stores are just close and that's really what was part of the.

The issue here and we've lost Pos and therefore, you know that was the byproduct of the write down so it's not that that business is really going away.

This is that you know those stores, we're just not able to function.

So we feel very comfortable with our with our Soc business as it is.

And I think we have pretty good base of a programs today.

And I'm like we said in our guidance somewhat stable.

It will come back because I mean, those are you know those are I think programs I will continue to resonate with consumers.

As we go forward.

And look at them and we're going to continue to focus on socks underwear, and activewear products and our big based back to basics strategy.

Both with our existing brands that we do have but also to leverage our private label opportunity with our customer. So you know we were pretty excited still about the opportunity for us to continue growing the business and.

You got to sort of take you know, it's sort of a negative when your sales and p. weapons are down but on the flip side I mean, there's going to be a big change in I think in sourcing and the future. I mean are you know where buyers are running to Asia the source product.

You know so from a private label perspective, I think we've a lot of opportunity to leverage our low cost manufacturing. This hemisphere as you know things changed to me in.

Hey, a 40% of the global perils met in China, I mean, we don't see that materializing into future and so you know there's a lot of opportunity for US, Let's say for example to continue to grow our business and are back to basics strategy and focusing on the big shifts from retail and the private label I think all three categories are going to be broke out.

Or is as we go forward into.

The future.

Thanks.

And our next question comes with some day rich words like Wainstein.

You mean Christine.

Thanks for taking my question all right. So in the talks and how we treat segments, specifically I understand of course that the store closures that impacted that greatly but at the stores that are still open can you talk about what the the Pos trends have been compared to like a baseline for what you'd expect at this time of year.

Or the Pos trends were doing really well and then I think towards the the.

Third second week of March.

Its like towards the back up in March.

I wouldn't central's became such a big push.

A lot of the both mass on online retailer, so basically stop receiving product and focused on the all these central's and everything else. So, but you know we've seen a tick back up to to normal levels and Pos and those those markets today.

And I think we're tracking pretty much on plan.

In where we are now in April basically it's sort of pick back up again as they start to bring products back and then replenishing their or their doors and then the big wave is over everybody's got a little bit but right. So I think that that's that's really that's really what's.

What's happened.

And I think our Pos is sort of back on track with those on what those retailers.

Mhm.

Now has manufacturing someday starts up again and you get back to normal production levels can talk about how the lower commodity prices may benefit the business.

Well I mean repurchases are places or <unk> cotton is our largest commodity I mean, it's down.

The Sun's down significantly it's down a meal 10 cents a pound from you know what it was before the crisis started really so but then that they look at them in.

The deflation is probably you know gonna be potentially if actually with oil and all the other things, but that's all short lived I mean, you know there's going to be another cited the coin is I don't know how are people going to bring capacity back on so short term, there's going be a lot of capacity because people out of inventory and then selling but then I mean.

How do you social business and the fact that you know do you have all your capacity, how you're going to deal with all these things so social distancing until it goes away is actually you know maybe put a breaks on I think in terms of Ah you know the capacity. So there's always puts and takes in terms of your raw materials.

And the capability of people bring back capacity online after them Trabant, though.

[noise], so I was going to play out, but let's say that look at we're in a very good position from all sides. We have good inventory, we have a low cost model I'm. We've made a planned out to bring our facilities back, including social distancing and the capabilities of how we run or factors I mean, we've got 54000 employees.

We have to bring back to work and you know is 5000 selling operators in the facilities. So you know that's our strength basically is having to deal with these things and that's why wouldn't you know the global cost manufacturer. So in all cases, I think we're gonna being a very good position and we're going to leverage that competency to you know to gain market share as we go forward and make sure that.

So you know we get on our fair share of a business as we does materialize when we get out of the a and business are still going up again.

Thanks, and good luck in this difficult time.

Thank you.

And our next question kind of some CK Mcleod, we'd be in capital markets. You May proceed.

You give some good color around the gross profit impact in the quarter gross margin impact of 350 340 basis points is there anyway like if there's any of that just related to the initial shock of the manufacturing shut down or is that something you would expect to accelerate as you roll into.

It's actually well Q2, and then the country into Q3.

Right.

[noise] well I mean, if you look at the D. the impact right. The 340 basis points that may not effectively.

What was the lions share of that was driven by labor and and manufacturing shut down so we called period costs.

There were some contract costs associated with that there there were some or some other costs I would say that are driven by the cool that 19, a situation and so you know ultimately you know we as we move forward. We will see those costs are effectively unfold right don't forget that effectively we shut down.

And.

I'll Oh, we started to shutdown effectively in March right. We had two weeks of shut down and then as we move into April and then we go into May well have those are full monthly costs right that Oh, we will see a effectively being incurred and so that's all wrapped into the 35 to 40 million of cash.

Burn that a that we bear a adds as our facilities are idle.

And if you look at it overall there there youve have you ever cash costs and then on top of that obviously, we have depreciation right that a affectively will be impacting us we have probably around $30 million of depreciation. So all in all as our operations sit idle effectively your total costs is around $50 million.

A month rights or.

Actively with the combination of noncash in cash and so we just expect to see that as we go forward until we start to ramp back up and that's what you saw it really in the back into the first quarter in that's a 340 basis points.

Okay. That's that's really helpful. Thank you [laughter] and then just a question any more forward looking and maybe it's too soon to answer but as you as you see things begin to recover in the Unprintable space.

You know down the road, whether it's three to six months or whatever the case, maybe do you see the possibility for any change in mix like do you think that.

With with with you know customers and consumers essentially being having their own balance sheets.

Being big damaged do you see maybe a shift like back to basics away from fashion basics as you.

See a recovery, taking hold and printable space.

No I think look at I think that the space is well balanced you know where the I would say that.

The opportunity typically and.

Sometimes and Mark this is priceless density.

You know if pricing is a little bit more aggressive I mean, you can create the man from promotional products and.

Other avenues that [laughter] that when you know because instead of merchandising something about a penny do with a t. shirt and they give away or.

Dog food or a case of beer you get a t. shirt I mean, so there's all kinds of Ah of getting except people could use which typically has been more the basic category. So I would say that isn't.

Balance.

I don't think could be a huge shift I mean, I think the shift still is a continued shift to fashion products.

It's still growing in market them and before that that may change, but up until the this the situation. The corporate started a minute was still continuing to grow.

And we'll see what happens, but I think that I don't see a big change in the environmental and if you look at our Pos from a negative perspective, that's pretty well negatively across the board I mean, it's not a there's not one thing that's doing well, it's sort of just right across the board, though pretty closely aligned.

Okay.

Okay. That's.

For me. Thank you very much and I commend you on your surface of health care sector. All your manufacturing plants are down.

Thank you.

Your next question comes on Chris Lee.

Hey targets you May proceed.

Yes.

Good afternoon did I hear you correctly that the Pos in certain parts of your Unprintable business gets a little bit less negative than your internal expectations.

No what I said was that the last couple days to three days it was.

Better than our expectations.

Hold your breath on that one sorry, but you know it's it's basically you know we've we've we've been tracking at the 75 negative level and you know we've gone over the last couple of days. It's it's improved from so you know we don't know.

Is that because markets are opening up I mean, you know, but that's it does that they look when people go to the house and then start spending.

You know beaches have opened up. So these are types of things were you know venues started taking place again will superior west improves so the quicker that the a social distancing eases I think the you know the Pos and pick up so we've taken a pretty conservative approach, we think too because with the protrude taking in turn.

The way, we see things going into Q2 is pretty much we saw in April so things get better than you know, obviously that'd be great news for us.

Okay, and then maybe a follow up on that is I.

I mean tip into missed a long time and based on your experience I mean, do you think 75% down it's.

Kind of the trough I am trying to understand just think there's something structurally within the in Printwear market, where like you kind of which really to bottom and then maybe stay there for a little bit, but can you get worse than 75% didn't incision.

Well from it.

I would say.

I would say that 75 is the bottom because everything is close down it's at 75 right [laughter]. Unfortunately, I think we hit the bottom right. So which is a good news because that's what I'm little bit you know from the optimistic site plateaued off is bought them weve.

Well, we're trading lesson that that level today over the last couple of days, so hopefully the bottom.

As has been hit.

No you know we're moving forward. So I think that that's pretty much the the bottom there was the bottom in China, that's been the bottom in Europe. So.

So it's typically than the bottom so far everywhere we've done.

Yeah, and I wanted to check them in China, I think last time do you consider that data point, where it was down 75 February and down 35 ish.

In March do set an update on how that market is performing in April well still down I'm around 50%. So it's not.

And that bleak, though we gave it started coming back and it's it's still hasn't totally bounced back I mean, I look at China.

Has even though the markets were opened up a minute still not businesses you that much more strict or you know social distancing is still a major factor I people haven't gone out to restaurants cargo ships are still not doing well.

Although there they they started their factories that doesn't mean, it's hard to socialize right. So.

You know, we feel it hasn't come back with anticipated be honest with you, but I think it's a different environment. I think that's you know it's just it's not and it's also not comparing the maturity of a north American market, you know him in terms of the lifestyle and everything else. So oh.

Okay. That's great and then maybe just a quick one for Rod I just want to come from what you said earlier some of modeling perspective looking the income statement for Q2 did I hear you correctly that if I'm looking like Casegoods sales and asking expenses. All in is running about 50 million per month, so about 150 million for the quarter.

[noise] chime in if you basically that's it but that's a I would say a fair estimate if you look at a again, what our cost structure is and where we are we're going to try and improve upon that Chris right as we go forward.

That's what I said and that's what you should think about it sort of the base drag, let's say that a that we see as we've got everything idled.

And we're just feeding sales out of inventory.

Okay, Great and best wishes to you to everyone. Thank you.

Thank you.

And our next question comes on like Petrie the T.I.B.C.

You may Christine.

Yeah. Thanks, I'm, just curious if you've seen any trends in your ecommerce business.

That might have surprised you or might affect how you think about that business going forward or how you kind of want to approach it.

No is it looked at our E commerce businesses doing very well you know we projected that have a significant increase this year it slowed down a little bit like I said at the end of March but it's picked back up and that's really where we need to be we have all of our products currently being sold online including them.

Second apparel today.

Or comfort colors brand. So everything we have go men's underwear. So everything we have is I think performing well.

And you know I think that so we're well positioned to continue to grow.

Okay. Thanks, and then Glenn you touched on this earlier and maybe it's just way too early to up something like this but I was curious about how your capacity would be affected bite social distant thing in your plant if Ah if that wasn't reality that you guys needed to needed to operate under.

Well it isn't reality for sure right. So you know what we've we've already worked out plans to.

To reconfigure, our selling lines, because that's really where the big issuances and selling in textiles, it's not.

Not a big issue at all really.

Show, we already have a plan and during the time that we've started to develop the masking. The gallons. These plants are already geared up to develop this format of social distancing, which we are going to roll out to the rest of our facilities. So we'd have to configure all of her lines and putting all the.

Restrictions and testing and et cetera.

You know one of the things are being a global manufacturers that we had a good indication of some of this happening because of our business in China. You know we've done things like when we bought a covert test kits for example from Korea back in March so.

So we can cause all employees.

I have that capability.

We've got an abundance of massive are producing for them.

Now geared up to have additional transportation us because we can't put somebody people in the buses.

You know working a different types of shifts so we can adapt to the the space. So we require so all these types of things of that we've already put in place to in anticipation of coming online and it's all being piloted write down during the develop the masking gallons and I think we're in pretty good tried to restock.

Our when we need to with the social distancing and Mike.

Yes.

Hello.

Yes.

Though.

[noise], ladies and gentlemen, this concludes actually when a portion of today's conference I would now like to turn the call back over to see Sophie.

Area for closing remarks.

Okay. Thanks again the true.

Before ending that timeframe conference call today I'd like to remind you that we will be holding our annual shareholders meeting tomorrow morning at 10 am eastern.

Eastern time that is and it's gonna be in virtual format.

So with that I'd like to thank everyone for joining us a again today and we look forward to speak on key very soon have a good evening bye.

Ladies and gentlemen. This concludes today's conference call. Thank you participating you may now disconnect everyone have a great day.

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