Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the coupon 2020, Gildan Activewear earnings Conference call.
At this time office, it's been remains in listen only mode. At this because presentation there'll be a question answer session. That's the question doing essentially you need to price door wine.
Please be advised todays conference is being recorded.
Have you acquire any further systems. Please press star endeavor.
I would now like we had the conference over.
She's Sophie Argiriou. Please go ahead.
Thank you Didnt yeah.
Afternoon, everyone and thank you for joining US earlier, we issued a press release announcing our earnings results for the first quarter of 20 to 20. We also we also issued our interim shareholder reports.
Any managements discussion and analysis and consolidated financial statements.
Documents will be filed with the Canadian Securities and regulatory authority 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, <unk>, Our executive Vice President and Chief financial and administrative officer in a moment Rod will take you through the results for the quarter and our business outlook and acuity session 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 statement, 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 thoughtful.
Thank you Sophie good afternoon tool and thank you for joining the call.
We hope everyone is staying safe and keeping as well as possible joined as an 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 is taken since March 20, Threerd, we last talked with you.
From the outset, that's the whole situations have developed our first priority has been in remains to health and welfare of our employees customers suppliers and other partners.
As we ensure the continuity of our business.
In this regard we're very pleased that our production of face masks and.
And I solution gallons is now underway.
We are currently showing massed in some of our facilities in Central America support local government requirements as well as on behalf of a co-operative consortium of North American apparel in textile companies supplying nonmedical mastered the healthcare sector.
We're also producing nonmedical mass and 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 and we'll continue to provide as much supply of product as you can because we moved to the pandemic.
In order to support production of mass and gallons, we have limited manufacturing activity currently underway.
Operating with stringent safety processes, improving protocols in place.
As far and away the majority of our manufacturing capacity around the world remains idle.
After we extended the shutdown of our operations following 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 service customers the appropriate safety measures in place for employees, but it 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 on 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% of our 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.
In our 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 did in 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 and 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 and 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 months to the quarter our sales performance in North America for in principles was relatively on track fell off considerably in March.
Finally, the biggest sales month, let's first quarter as 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 net selling prices due to lower discounting.
Activewear sales of approximately 373 million sell 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 sales return allowance related to our SKU rationalization initiatives.
In retail active where 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 the hosts are in underwear category, we generated 86.5 million in sales in the first quarter down 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 mass 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% and adjusted gross margin was 24.6% after excluding an $8 million charge related to discontinued and printable skews.
Although adjusted gross margin was down 120 basis points over the first quarter of 2019.
It's important to highlight the year over year variance included 340 basis points of negative variance related to manufacturing idling and other corporate 19 related costs.
Without these costs adjusted gross margin would've been 28% 220 basis points above the prior year level.
Accordingly, covert 19 costs more than offset 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 basics strategy.
Moving on to ask you to expenses for the first quarter SGN expenses totaled 74 million down 19 million over last year, primarily resulting from reductions in compensation expense lower volume driven distribution expenses and from tightly managing all our costs, including eliminating all discretionary expenses as we move.
Through 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 in working capital positions.
While we are working with these customers and fully expect payment. We're 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 and hosiery business acquisitions.
After conducting an impairment review of our hosts a recast 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 covert 19 on market valuations, including for Gildan.
Finally in the first quarter, we recorded $10 million of 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.
It will and intangible asset impairment.
And discontinued in principle 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 of free cash flow in the first quarter of 2020 compared to 128 million consumed last year for this period.
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.
Our capital expenditures in the first quarter were approximately 26 million primarily for textile and yarn operations.
Expect lower levels of capital spending spending going forward as we defer 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.
Our total cost of 23.2 million.
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.
I asked was down approximately 50% and we expected 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 T 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.
POS in 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 essentials.
At this juncture. It is unclear how these trends will evolve as different actions are enacted in various jurisdictions to adjust to the ongoing phases 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.
Accordingly, this sales outlook combined with the impact of fixed 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've taken positions gildan well to navigate through this challenging environment.
As I highlighted earlier, our primary focus is to 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 helped alleviate global PB shortages.
We have taken the steps to reduce our fixed cost and expect to continue to lower our expenses as we move forward and adjust to a 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.
And 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 look personal back for a second round of questions. The kind permanent I'll now turn the call over back to the operator for the question answer session.
Yeah go ahead.
Thank you as a reminder to ask the questions really depressed our wine when you're telling them.
I would tell your question. Please Crestor County, please stand by we come to how to culinary roster.
In our first question comes from.
Like Hughes with Citi Research you May proceed.
The information.
I'm curious about your expectation for cash burn in Q2 relative to Q1, given now that you've had more time to make adjustment to inventory and capex.
Well as today.
And then I just wanted to circle back on the financial health of your largest customers on the on the perimeter side. What are what are the conversations that you are having with those folks what sort of terms are you extending.
What do they communicating to you about future orders. Thanks.
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 burn down at the 35 $40 million range as we move to fruit or the end of April and into May and I could say that were very much on track for that right. So as as we move.
Through the the first part of the first quarter and through the remaining part of the first Oh, sorry, the second quarter.
Cash burn will be at that level 35 to 40 million we've done a lot we've implemented a lot of.
Actions as we went through 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. Our 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.
Customers are effectively their operating.
In some cases, they may have reduce some of their warehouses in order to reduce cost 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, our 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 Blind 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 the potential for M&A. Despite your cash conservation measures on going right now.
Well I'm looking at its hard 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 you know 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 at the shakeup 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 it was before so I think what we're doing this what putting ourselves in a pretty good position too.
The weather the storm, but the additional liquidity that we have.
Both from you know a go forward position on organic basis as well as you know we have the liquidity and events of.
There are opportunistic acquisitions available to us as a as you would mark it 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 candidate in Honduras or the facility consolidations or they are they proceeding or they complete or then pause where they stand right now.
Well the the other facilities in Mexico, now fully been close down than we've been moving equipment I'm basically at the end of.
For 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 and towards the end of our middle end of March and the balance of that couldn't who'll be purposes as we go forward.
And look at regarding or are you not sure expectations on both on Thanksgiving and margins look Theres nothing has changed in our business.
We're continuing to execute their back to basic strategy.
From 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 last year and 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 those who are doing in terms of leveraging our core Conversely in our back a basic strategy and manufacture.
Occurring.
10, new to improve our margins as we go forward.
Thank you.
Your next question comes from Heather Balsky with Bank of America.
You May proceed.
Both hyper recovery there are the it until recovery I guess first one rig <unk> GAAP ARPU.
Oh, I don't know manufacturing, we ramped up what how does that process work to ramp up yes, I thought he is asking and then or you have to ramp up the possibility.
And then and the other factors may be thinking about it and then second questionnaire.
Yeah, well defined on your customer Hello.
It's a three cents or a deck ranking in the south in place, but curious like we saw backend Oh, eight or nine and maybe what we can glean from that hurt for this time around it.
Okay, well start off with Elidel nine because these are question Vince we also who I'm in the circumstances that away, though nine wasn't a customer demand issue. It was a it was very short lived in terms of the negative Pos but there was a banking crisis, there wasn't a consumer confidence capabilities that wasn't the event stop having events.
<unk> complete different situation than we were in a way though nine.
Because consumers, we're still going to baseball games, and football and hockey and whatever so and traveling I mean, so there was a short term impact financially, which drove through the system, but it doesn't affect the consumer where here, we really have a consumer.
Social distancing has really been the major driver were gatherings jog runs a schools.
[laughter] Cam somebody in almost every single event that a venue that we potentially sell product too.
So that's I think there's a big difference so look at as the snow social dismissing.
Requirements change and things open up I mean people are going to the beach now Im in stores are opening up you know, we're gonna have a gradual or restaurants will have a gradual increase I think in a in a more gradual increase versus versus you know we had a quarter maybe that they can or two quarters in the of down Pos which I think our net.
This was not more to negative 25, I think back then.
I remember right, but you.
Overall.
You know I think this would be a little bit slower pickup.
Because until the sports events in the rock concert and everything else with comes back.
It will take some time.
As far as our wrap up this concern are number one focus is definitely to you know is to make sure that that we first of all utilize all of our existing inventory and what our plan or is too is to ramp up our plan is probably a little bit on stagger stack segmented basis bring on cups.
Passes as we need it.
And somebody draw down a little bit on or inventory.
We ended up Q1, but the boat just under 1.2 billion of inventory.
We want to see that number come down in 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 or 21.
Hi, Thanks, so much.
Your next question comes from Lucchino, but Canada, which nobody you May proceed.
Thanks, I'm actually I wanted to go up on that a lot point of that inventory. Glenn you mentioned you had a 1.2 billion.
As of the ended the quarter and I get that that's going to be enough to satisfy demand across all channels, but I'm curious, though the fashion basics part of it is not subject to any sort of seasonality and do you envision needing to get promotion will be able to move some of that inventory out.
Well look I mean, you know fashion basics is a ring spun to hurt the you know so it's really in.
It's not us probably still fashion basics basically the word basics whenever we make pretty basic and doesn't really have a life span as long as in our catalog. So you know there's no need to liquidate inventory because there'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 were.
You know, but we'll see how the market proceeds as it goes out but you know were our inventories in good shape.
And look at them today.
We're going to leverage our competitive advantage to make sure that.
We continue to drive our sales and drive market share as we exit I would say this whole.
Event as we move in a that imports to the doors open up and products ourselves.
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 to continue the you know to take advantage of the opportunity and and sell them and drive markers for as we go forward.
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 late 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 a meal, we were going to reduce our capital investment. The good news is like I mentioned the last call is that we're sort of at a stage, where we're doing foundation work at the at the facility. So over the next couple of months, which is not a heights two to 3 million of of capital can be spent.
We will put into foundation voids rainy season and then.
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.
Just opened up recently and they're starting to see you know Pos is taking a little bit more positively of than some of our assumption. So if 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 going to relapse and things that close down you know, we'll have to evaluate our options in terms of how we manage our old or.
Manufacturing supply chain.
Okay appreciate the color.
And our next question comes from SAP, a hot kind with RBC capital markets.
He made Christie.
[noise], Thanks, and good afternoon, just wanted to get I guess, you know obviously the visibility, it's very law and the demand side and just on the broader market, but it's what I understand what kind of scenario you contemplated when we just hopes or suspend the dividend you know what do you what do you sort of.
That's happened over the next few quarters in terms of Cashew said, maybe also took us some additional debt. So I understand kind of what kind of decreased as you might planning where are we thinking they lose happier sales this year potentially more kind of what's a ballpark the ranges.
Roger on terms doesn't close.
Yeah. So when we looked at a you know this the various scenarios on a go forward basis I mean, they really is hard to get a good visibility or at how things are going to a ton sold 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 for it ultimately to try and get a sense of what the you 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 EUR $35 million to $40 million, a month and weve projected that effectively is as we go forward if stays 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 to that makes sense also to where effectively 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 take 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, let's say to to effectively dual we need to do to move to weather. The storm and then be very very well positioned as a as we come out of this so I would say again.
Well, obviously, we suspended guidance and 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 people responding better that were well, we're well positioned to to respond to them.
Thanks, and then just a follow up on that in terms of cash availability of liquidity and so forth.
We'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 on so for them.
Or is that something you expect to deal with maybe later on the back of the dividend cut just want to go.
Those 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 our our covenants to be manageable. If we go forward right given the it they actions that we've taken with.
Given all of these actions that are underway again, thats 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 had do have to have discussions in the covenants. We do very definitely think that effectively we wouldn't be able to obtain the flexibility that we need going forward, but right now we don't see that and so I would say, we're very comfortable with a with how things stand.
As a as we currently sit here today.
Thank you for the color.
Your next question comes on the Shaw.
At our.
National Bank you May proceed.
Hi, Thanks for taking my question regarding the shutdown.
The yep, some fairly large programs with fairly significant retailers.
And I'm, just wondering if their understanding where I appreciate it.
The situation that you're in and maybe you're unable to new shipping commitment I can have in the past.
Has.
Is there potential christen increase charges from then you can't meet your commitments that's good to hear too in the past or is it just everyone understands the different scenario.
Well, we have enough inventory to support the man with our major retail customers. So we're in.
Very good inventory position virtues of something that we've we've built up going into the season because of the anticipated high growth of sales in particularly our big large mass retailer. So I think we're pretty comfortable in sales have been.
Colin met our expectations.
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 for us to get the markets is to continue supporting a even.
As we go into the number that you know second quarter until the beginning of the Q <unk> third quarter. So.
That's not an issue courseware, though.
Okay. That's helpful. Thank you and on the Soc and Hosni business and I know.
At this current makeover period, it's probably not the best one to reflect on the business, but even looking back over the last few years. This is really hasn't performed as well as somebody of anticipated just wondering how gildan things of 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 of Jochen trying to build out that retail product portfolio and expand into adjacent categories.
Well look at a visit 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.
That's what we guided to in the beginning of the year.
Unfortunately, Neil good love the half of our stock businesses mass and the other half is somewhat geared to the carbon and specialty stores between or gold toe brand or under armour license et cetera. So those stores there 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 I mean and problem 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 a pretty good base of programs today and I'm like we said in our guidance somewhat stable. They will come back because I mean those are you know those are I think programs that 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 in 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 Pos is 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 are 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.
Things change I mean, I'm thrilled to pay a 40% of the global Perils men, China men, we don't see that materializing in the 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 shift from retail in the private label.
I think all three categories are going to be CRO categories. As we go forward into.
The future.
Thanks.
And our next question comes with it kind of favorite Schwartz with Morningstar.
You may Christine.
Thanks for taking my question all right. So in the talks and hosiery 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.
I'm like like towards the back half in March.
I wouldn't central's became such a big push.
A lot of the both mass and online retailers I'm basically stopped receiving product and focused on the all these central's and everything else so but to 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 started bringing products back in and replenishing their or their doors and then the big wave is over there there's got to oil there, 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 as manufacturing someday starts up again and get back to normal production levels can talk about how the lower commodity prices may benefit the business.
Well I mean replaces our prices are low carbon is our largest commodity a maintenance 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 the they look at them in.
The deflation is probably going to be potentially a factor with oil and other things, but that's all short lived and then you know there's going to another I'm sorry. The coin is that how are people going to bring capacity back on so short term, there's going be a lot of capacity because people have inventory and then selling but then I mean.
How do your 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 is all puts and takes in terms of your raw materials and the capability of people bring.
Back capacity online after them each of them so.
[noise], how it's going to play out, but I would say that look at work and a very good position from all sides. We have good inventory, we have a low cost model I'm. We've made a plan out to bring our facilities back, including social distancing and the capabilities of how we run or factors mean, we bought 54000 employees.
We have to bring back to work and nearly 5000 sewing operators in the facilities. So that's our strength basically as having to deal with these things and that's why we're the you know the global low cost manufacturing. So in all cases, I think we're going to being a very good position and we're going to leverage that compensated to gain market share as we go forward.
And make sure that.
You know, we get up our fair share of our business as we does materialize when we get out of the though and business our spoken up again.
Thanks, and good luck in this difficult time.
Thank you.
And our next question comes from speaking in the cloud we'd be in capital markets. You May proceed.
You gave some good color around the gross profit impact in the quarter gross margin impact of 350 340 basis points is there any way like it is any of that just related to the initial shock of the manufacturing shutdown or is that something you would expect to accelerate as you roll into.
Potentially well Q2, and then potentially into Q3.
Rob.
Well I mean, if you look at the D. the impact right. The 340 basis points I may not effectively.
What was the lions share of that was driven by labor and and manufacturing shut down so we call 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 cold at 19, a situation and so you know ultimately you know we as we move forward, we will see those costs, a affectively unfold right don't forget that effectively we shut down Allah.
Good day shutdown effectively in 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 a will we will see.
Effectively being incurred and so that's all wrapped into the 35 to 40 million of cash burn it to that we bear a adds as our facilities are idle.
And if you look at it overall are there youve have you have a cash costs and then on top of that obviously, we have depreciation right that a effectively 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 right.
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 something that's really helpful. Thank you.
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. A 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 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 in principle space.
No I think look at us into the space is well balanced.
Were they.
Say that.
The opportunity typically and.
Sometimes and Mark this is price elasticity.
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 wouldn't you know because instead of merchandising something would depend it over the t. shirt and give away or.
Dog food or a case of Virago T shirt I mean, so there's all kinds of Vicki.
Getting except people could use which typically has been more the basic category. So I would say that in.
Balance I don't think could be a huge shift I mean, I think the shift still is.
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 covert started I mean, it was still continuing to grow.
And we'll see what happens, but I think I don't see a big change in the environment, though and if you look at our Pls from a negative.
Back to this pretty well negatively across the board I mean, it's not the there's not one thing that's doing well as sort of just right across the board, though pretty closely aligned.
Okay. That's.
Let me. Thank you very much and I commend you on your service of health care sector. All your manufacturing plants are down.
Thank you.
Your next question comes from Chris Lean.
Hey, Terry you May proceed.
Good afternoon did I hear you correctly that the Pos in certain parts of your in principal business, it's 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, so I wouldn't hold your breath on that one sorry, but.
You know, it's it's basically you know 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 minutes together. They look when people go to the house are going to start spending.
You know beaches have opened up. So these are types of things were you know venues started taking place again, who well superior west improve so the quicker that the a social distancing eases I think the you know the Pos will pick up so we've taken a pretty conservative approach, we think too because with the approach we've taken 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 dip into just a long time and based on your experience I mean, do you think 75% down its.
Kind of the trough.
I'm trying to understand you can do something structurally it within the in printing market where.
Thank you kind of which really to bottom and stay there for lifted but can you get worse than 75% utilization.
From a b. Riley I wouldn't say.
I would say that 75 is about them 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 <unk> from the optimists exciting plateaued offices bottom and Weve.
Well, we're trading lesson that level today over the last couple of days, so hopefully the bottom.
This is been hit and a you know are moving forward. So I think that that's pretty much. The the bottom there was the bottom in China, it's been the bottom in Europe.
Typically than the bottom so far everywhere weve been.
And I wanted to check of in China, I think last tons, you gave sort of one data point, where it was down 75 February them down 35 ish in March do sort of 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 bounce back I mean, I look at China.
As even though the markets were opened up a minute, it's still not businesses EU, they're much more strict or you know social distancing, there's still a major factor people haven't gone out to restaurants car dealerships are still not doing well.
Although there they they started their factories. It doesnt mean that has started to socialize right. So.
You know, we so it hasn't come back like we anticipated deals with them, but I think it's a different environment I think that you know it's just it's not as I was not comparing the maturity of a north American market, you know him in terms of the lifestyle and everything else. So.
Okay. That's great and then maybe just a quick wonderful rod I just want to come from what you said earlier.
Some of modeling perspective looking on the income statement for Q2 did I hear you correctly that if I'm looking like cost of goods sales and X gene expenses. All in is running about 15 million per month, so about 150 million per quarter.
[noise] comment if basically that's it but that said I would say a fair estimate if you look at again, what our cost structure is and where we are we're going to try and improve upon that Chris right as we go for it.
But that's what I said and that's what you should think about as sort of the base drag, let's say it to that we see as we've got everything idled.
And we're just feeding sales out of inventory.
Okay, great and best wishes to everyone. Thank you.
Thank you.
Your next question comes on like Petrie the T.I.B.C.
Christine.
Yes. 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 water approach it.
No as they look at our ecommerce 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 American apparel today, our comfort colors brand. So everything we have Gomez underwear. So everything we have is I think perform as well.
And you.
No 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 by social distancing 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 issue is in selling in textiles, it's not.
Not a big issue at all really.
So 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 base format of social distancing.
Which we are going to roll out the rest of our facilities. So we have to come to grow up or lines and put in all the restrictions and testing and et cetera.
One of the things of being a global manufacturers that we have a good syndication 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 we can cause all employees.
I have that capability.
We've got a bundle because massive reproducing for them.
Now geared up to have additional transportation us because we can put so many 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 in its own being piloted write down during the development the masking gallons and they were in pretty good to restart when we need to with the social distancing and Mike.
Yes.
Hello.
Yes.
Hello.
[noise], ladies and gentlemen, this concludes actually any question at todays conference I would now like to turn the call back over to take Sophie.
Area for closing remarks.
Okay. Thanks, again to check before ending that timeframe conference call today I'd like to remind you that he will be holding our annual shareholders meeting.
Tomorrow morning at 10 am.
Eastern time that is and it's going to be in virtual format.
So with that I'd like to thank everyone for joining us that again today and we look forward to speak on T.. They still have a good evening bye.
Ladies and gentlemen. This concludes today's conference call. Thank you participating and you may now disconnect everyone have a great day.
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