Q2 2020 Gildan Activewear Inc Earnings Call
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Sophie Argiriou Vice President of Investor Communications. Please go ahead.
Thank you for Hannah good morning to one thank you for joining US earlier, we issued a press release announcing our earnings result.
Second quarter 2020, we also issued our interim shareholder report campaigning management's discussion and analysis of consolidated financial statements.
Documents will be filed with the Canadian Securities and regulatory authorities and the U.S. Securities Commission and are available on the Companys corporate website.
On the call today, we have glass your math here President Chief exact executive officer about Harvey.
Second a vice president and Chief financial and administrative officer in a moment Rod will take you through their results for the order and acuity session will follow.
Where we began 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 visa.
I'll have 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 Canadian Securities regulatory authorities that may affect the company's future results.
I'll now turn the call over Toronto.
Okay. Thank you like you Sophie good morning to wall and thank you for joining.
We hope everyone has continued stay safe and it's keeping well.
This morning, we reported our second quarter results and as we expected back in April when we last reported we incurred significant earnings loss in the quarter tied to the impacts the Cobiz 19 is having on economic activity and in turn our business.
However, despite the loss in the quarter, we maintained a strong focus on our key priorities ticking business decisions and actions to strengthen our competitive position for the long term like accelerating our efforts under our back the basic strategy to simplify our product portfolios.
Complexity and cost them, a business better support our customers and drive long term market share girls, all of which I will cover shortly.
Moreover, like tightly managing our business, we generated strong free cash flow of 177 million in the quarter more than offsetting the impact of the earnings loss and improving our liquidity position, which stood at 1.2 billion at the end of June.
Further during the quarter, nor to increase our financial flexibility as we move through this global health crisis, we negotiated a 12 month Covenant amendment to our existing credit agreements.
The amendment provides that our leverage covenant now excludes the impact or financial results for the second quarter from the leverage ratio calculation through the first quarter 2021.
At the same time, we also negotiated higher covenant level and the combination of these two factors gives us ample flexibility to navigate through the duration of the pandemic.
Finally in line with improving demand trends, we started to resume production various operating levels across the majority of our facilities implement comprehensive bio security protocols.
You're talking to prioritize the health and safety of our employees returning to work.
These measures led by our medical and human resources to cover testing and monitoring save transportation Reconfiguring the floor sleeves in facilities to ensure appropriate physical dispensing and the provision of personal protective equipment for all employees.
Overall, we are proud and thankful for the way that Gildan team, both manufacturing and nonmanufacturing employees have stepped up to new challenges and have come together June this crisis.
Turning to our sales and earnings results for the quarter.
Not surprisingly the effect of the Lockdowns. It started in March and continued through April and May significantly impacted sales and earnings in the quarter.
We generated sales of 230 million this quarter after reflecting a sales just got discount accrual of 25 million.
Sales were down 71% from a year ago with activewear sales of 132 million down, 80% and sales of hosiery underwear 90 million down 20% compared to last year.
The decline in our overall sales was primarily driven by volume declines, resulting from the significant demand down during the quarter and inventory destocking as well as negative product mix impacts and higher promotional discounts.
Moving to demand trends in activewear with shutdowns in effect during the quarter in principles distributors closed warehouses and retailers shut their doors, causing significant sell through declines in our channels of distribution.
In the U.S. and principles channel, we saw Pos declined to low 80% in April before starting to pick up in may as Reopenings occurred.
Averaging down approximately 50% for them on and then in the quarter in June down in the 20% range compared to last year.
Although for the quarter average P. west was down 50% trends improve sequentially on a monthly basis, and we were ahead of our expectations and in some categories like fleece in fashion basics Pos turned to positive girls in the month of June.
Having said that we've seen some pullback in Pos in the principles channel during the latter part of July which I'll cover a little later.
In our international markets, where the cobot Nike impacted earlier than in North America. We saw Pos declines continued to decelerate during the second quarter and trying to better than we expected, particularly in Europe, which was down approximately 30% for the quarter.
The impact on our sales from these lower sell through levels was also called crowded quite high levels of de stocking distributors, mostly surface and customer demand from their own inventories.
Sequentially inventories in the distributor channel at the ended the quarter work and continued to be significantly below prior year levels as our customers if adjusted to lower levels of demand.
Our sales in the Activewear category also reflected the impact of higher promotional incentives in a principles, which we initiate initiated in June and subsequently extended through July and August.
These incentives are aimed at driving the ongoing sell through of our products from distributors to screen printers and as a result, we recorded a sales discounts accrual of 25 million during the quarter.
This pricing initiative directly linked to our back to basic strategy, where we are leveraging our low cost position to reinforce market leadership drive further market share gains and grab available demand, what we know it's a difficult market environment.
We know the sleep, well and though and it's still early days, we're very pleased with the results of this initiative in all three categories, where we are running promotions basics fashion basics and fleece.
Finally in the retail channel sales of active were also down due to the widespread closure of retail stores, most notably impacting our business with department stores National chains sports betting specialty retailers.
Global lifestyle lifestyle brand customers, partly offset by better sell through in the mass and online channels.
Moving to our hosiery and underwear sales. The overall decline in this category was due to lower sock sales, partly offset by strong performance in underwear sales, where we saw at 23.5% increase in sales during the quarter compared to last year.
Lower sock sales reflected the overall industry demand decline in this category as well as the impact of retailer inventory de stocking.
Conversely, we were very pleased by double digit sales growth performance related to our underwear programs slight decline in overall industry demand in this category.
Driven by sales of private brand underwent a mass and under what products sold through online platforms.
With a private brand men's underwear program now rolled out in all stores or largest mass retail customer in a new display format. We have seen sell through trends accelerate meaningfully on a very encouraged by the significant gains in market share related to this program.
This covers our sales performance I'll now, let's move to earnings well talk about 224 million of GAAP charges that we took in the quarter.
130 million of cobot related charges, and 93 million in accelerated back to basics initiatives that are simplifying our business lowering our cost structure and positioning us for the future.
So starting with the Colby related charges. The bulk of these costs primarily related to on observe unabsorbed manufacturing labor and overhead cost.
During the quarter, well, our facilities, where idle or operating low capacity levels.
He's cash in non cash costs, which amounted to 86 million would have normally been absorbed into inventory for facilities had been running at normal levels.
However, as we kept most of our facilities close for the second quarter, managing a line or operations in inventory levels. These costs were treated as period costs, which flowed through our cost of sales in the quarter.
In addition to the manufacturing idling costs, we recorded a 25 million dollar charge related to the unwinding of commodity positions due to lower production requirements during the second quarter and through the remainder of the here.
During the quarter. We also made very difficult decision to further reduce our global workforce reductions of approximately 6000 people in manufacturing and 380 people in SJ positions.
Overall this decision allows us to adjust our manufacturing sales and administrative support infrastructure with the current business impact of Cobot 19.
And provides us with good flexibility is move into the back half of the year.
Charges associated with the workforce reductions amounted to approximately 8 million for the second quarter.
Well you would expect higher charges related to these headcount reductions most manufacturing employee severance costs are based on statutory requirements and our accrued on ongoing basis from date of employment.
Annual cost savings related to these employee reductions and the yarn spinning closure, which I will talk about as part of our back to basics initiatives are projected to be approximately $46 million.
Finally, as a result at the current environment, we took an inventory reserve 14 million related to the decline in the net realizable value certain retail end of life products.
While we incurred significant cope and related costs in the quarter. We also recorded 93 million in charge is tied to actions related to our back to basics strategy.
Managing our business to the effects of the pandemic, let the decisions and actions to significantly accelerate initiatives tied to our strategy of simplifying our business and optimizing operations, which in turn we expect will materialize and further cost reductions and better position us for market recovery.
Consequently, we incurred additional inventory charges of 26 million related to our in principle SKU rationalization initiative and 16 million related to our retail product what inventory management initiatives.
While the work we've done to optimizer and principles product offering is now complete we will continue continue to review our retail product line offering prefer the potential improvements as we move through the back half of this year.
We also recorded restructuring charges of 29 million in the quarter, primarily related to the plant closure of a smaller specialty yarn spinning facility in the U.S.
Lastly charges related to our back the basic strategy also included the 25 million impact of the strategic pricing action in principles, taking in the quarter covered in the sales discussion.
So putting this all together we reported a gross loss in the quarter of 148 million were 122 million on an adjusted basis after adding back the SKU rationalization charge of 26 million.
A significant decline compared to last year was due to the combination of lower sales manufacturing idling costs inventory provisions and the impact of unwinding the excess commodity commitments.
On a gross margin basis, we reported a negative GOP margin of 64.6%.
52.2% on an adjusted basis, mainly as a result at the corporate related back to basics charges just discussed.
Of these charges 196 million impacted the gross loss.
And 170 million impacted the adjusted gross loss for the quarter.
Excluding these charges would have resulted in an adjusted gross margin of 18% in the quarter down primarily due to the impact negative product mix and discounting.
We expect the gross margin will revert back to more normal levels as our sales recover.
Further we remain committed to driving towards our long term gross margin and SNA margin targets, which we have previously outlined under our back to basics strategy.
As you know expenses for the quarter of 65 million were down 27 million or close to 30% compared to last year, reflecting the impact of lower compensation lower distribution costs.
And by lower sales volumes and cost containment efforts.
Separately during the quarter, we reported a recovery of the impairment of trade accounts receivables line of $6 million due to strong collections in the quarter, which has led to lower expected credit losses.
Summing all these elements up we reported an operating loss of 236 million.
Adjusted operating loss of 180 million during the quarter. After financial expenses was 60 million, which were up 6 million over last year due to fees incurred in connection with the Covenant Amendment and higher average scoring levels. The overall net loss for the quarter totaled 250 million.
Well $1.26 per diluted share and 197 million or 99 cents per diluted share on adjusted basis.
Normally I would close of the discussion of our guidance, however, having suspend or annual guidance in March due to the uncertain cobot 19 impacted environment. Let me instead give you some color in terms of what we're currently seeing in the marketplace.
As we've moved its July we were initially encouraged to see further improvement in a principles Pos in U.S. from quarter end level.
However, we have now seen some retraction in Pos during the latter part of July and POS is now down in the 50% to 20% range as Reopenings have slowed reversed in certain states in the U.S.
On the retail side, we're encouraged by our sales so far in the third quarter, which through July month to date are tracking slightly ahead of prior year levels.
Although overall, we have seen further Pos improvements in July Pos is mixed in retail depending on the channel.
Sell through in mass and online channels continues to perform strongly up in the double digit range, while Pos in the mid tier in sports specialty channels, although better than what we saw in the second quarter is still being impacted by weak traffic trends and continues to show declines and the 20% to 30% range.
That's finishes or update and closing while the trajectory of the pandemic remains uncertain, we continue to focus on strengthening our competitive positioning and driving market share gains.
We believe we've acted swiftly and executed on important initiatives to provide us with the necessary financial and operating flexibility to take us through this challenging environment, and which will allow us to emerge stronger company for the long term.
And with that I'll turn it back over to so.
Thank you Ron.
Before moving.
As to the too many session I ask that can limit the number of questions to too and we'll circle back for a second round of questions as time permits and I'll turn the call over to the operator first question answer session I Hannah I had.
At this time I would like to remind everyone. If you would like to ask a question. Please press star one on your telephone keypad, where pause for just a moment to compound the Q1 day roster.
Your first question comes from a sign of Paul New ways of Citigroup.
Hi, Thanks, It's sad Tracy Kogan filling in for Paul I was wondering if you could talk about the specific categories that you took promotional pricing in and what they wanted to institute the categories or was it across the board and do you anticipate having to take any further action in the current in the coming quarter.
<unk> and then just secondly, I wonder about the state of.
Our distributor partners and if any of them are financially challenged and if you think there any trouble perhaps on the horizon there. Thank you.
I'll start off with the with the pricing.
As far as our pricing is concerned I mean, we know we went in paper with negative Pos 80% and then.
Turning to promote our fashion basics and selective colors, which shop. This hybrid signs in terms of our Pos.
Then we expanded that all of her colors and fashion, which you know continued driving our POS and then we added basics lease was really.
Categories, our fashion basics are basic traditional futures and our some of our fleece categories are really it's not all the products interest to core items within those categories and newish into big Big improvements in our Pos and all three segments.
What Rob said in his script does have even see we saw beginning in July.
Trends towards positive Pos overall, which was driven mainly by the big improvement of these styles, which is somewhat.
It's come down a little bit towards the end of July but still tracking pretty good. So we're pretty excited about our pricing strategy as we go for it.
More importantly.
With the pricing strategy is all ties into what we're doing from an act of basic strategy.
And the to go together, because we're going to take significant cost and infrastructure that will allow us to maintain very competitive prices in the market and continue to grow our share as we go forward I mean, we've we've taken a in rescue rationalization, taking two thirds of our product line.
We see managed 30000 Sq news within their brands without a thousand so.
That's a major impact in our overall cost their manufacturing efficiency reductions announced yesterday.
Improvements in our service and our inventories that were going to build built that both in the channel and our warehouses and a reduction of overall working capital and improvement in room as we continue to go forward, so lower pricing more aggressively today.
And we probably most likely will continue that as we go forward, but the economics of our business will be the same just because we're going to absorb.
Josh the system and provide better returns as we go forward continue to.
Emphasize our leader position Joan.
Thank you and on the distributor partners first.
No our distributors pace I'm very well most of our AR.
Your question is obviously a group.
No wonder reasons, why we reversed our our reversal on the attaches because of the.
Payments from our distributors the cash flows coming in.
And we don't have any concerns or whatever.
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Thank you.
Your next question comes from the line of Vishal Shreedhar National Bank.
Hi, Thanks for taking my questions I'm, just wondering as the markets recover could you speak restocking turn to restocking.
Can you give us a sense of how much months of inventory are healthier wholesalers.
Well, we reduced talk about one third of our inventory that was in the channel.
And the Q1, which is roughly $550 million.
And our channel.
We also to be stopped up pretty significantly and retail as well.
As far as they are the wholesale China, we just talked and the other thing is that.
Typically Q2, we sell a lot of at least going into this flu season.
And we Didnt.
Ship any of those bulk orders is because they'll be shipped as we move into Q3 Q4.
As I would once basis as the market needs those goods monex have dating terms on at least like and we historically have done so.
Those are really the two factors that.
Reduced sales basically every quarter.
Besides having less.
Okay. Thank you and.
Regarding the Youre PPV.
And dozens and thoughts I was that evolved regarding making masks and gallons are or you still.
Still expect negligible contribution from that business.
Well, what we're doing our part in terms of helping local governments.
Asking gallons.
You know as part of <unk>.
Our initiative.
Yes, I understand that.
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Opportunity for us.
We are selling resets.
I've got a dollar.
So there's a lot of capacity that's coming online.
Asia.
No that's.
Business.
Well do our part.
Yes.
Hi.
Yes.
Thank you [noise].
Your next question comes from a line of Stephen Macleod of BMO capital markets.
Thank you good morning.
Thanks for all the coloring your her prepared remarks I'm just wondering if you can if you have visibility or can provide some insight into a sort of what end markets are driving the sequential improvements in Pos in the in principles business.
Well the thing is really happened as I guess.
Longer term perspective.
Positive as people are sitting at home.
Huh.
I personally have been homes since the crisis.
There is much much right so.
That's a real positive sign for us.
The traditional way, where people who might have got a shirt gathering or chalk run or something that may not be occurring or finding other ways to get those products I mean, and that's I think is a key so we've seen you know online sales.
As distributors that are not sure, but the screen printers as Hell online.
That's a big growing area, it's probably doubled and sales of treatment home prices I would say.
And the other big thing is Oh.
Reselling them a lot of reselling our products up online and also one or two areas. Its strongest part of our business right. Now is our national account business, where we have large screen print customers that basically provide product to retailers. So you know the supply chain global supply chain.
It's just not there today show you know, we're we're benefiting from as people look into buying more products.
Basically locally at once.
We think that that's a big opportunity. So we don't retailers are are putting more the screen printing to type T shirts under four right now as they reopen up so.
No people will find a way to cut the product I think that's the messenger obviously there was a.
Shock.
In April when you know when everything from compression halt, but I mean I'd have to pay a we believe that the long term.
Our so we make is there the mercury without for people to be playing or products and we're well positioned.
With that product strategy and our play strategy, we think the cash reserves I think I'm not sure.
Okay. Thank you and then with respect to the gross margin Roger gave some good color in your remarks around all the puts and takes on a gross margin in the quarter.
You indicated that you expect it sort of revert to more normal levels was yourselves recover is there anything you can provide in terms of anything more discrete around how you expect your gross margin to evolve like into Q2 or into Q3 story and other back after the or.
Yeah. Thanks for the question Stephen So if you look at the gross margin as we said the gross margin was down in the quarter and it was dropped down for the two reasons that I highlighted it was down because of negative mix.
About 600 basis points and it was down because of the discounting the promotions that weve provided in the or were running in the Printwear channel.
Which the impact of that is about 400 basis points right. So effectively that was driven by this negative mix impact and the negative impacts.
Mixed impact was driven by the the mix associated with lower fleets that Glenn called out and then also if you move into the retail channel you'll see that we sold a lot lower level of our higher value retail products as the mid tier channel was close to the sports specialty stores were closed right. So that had a negative impact as well.
Well, so as we move into the back half of the year, we expect that sales recover with all of the Reopenings that effectively our mix will revert back to normal levels.
And then with respect to from a promoting perspective, we've talked about that.
We'll see how things evolved in the back half, but I think one of the things that were really driving is a cost of the business and we would expect that obviously to contribute to gross margin as we move through the back half of this year.
Then into 2021, and then obviously forward as we drive towards those long term back to basics targets.
Okay. That's great. Thank you.
Your next question comes from the line of Luke Canon of Canaccord Genuity.
Thanks, Good morning, Glenn I wanted to ask you on the decision to adds to the sales discount was this something that was.
Determined sort of internally or is determined based on what you version.
I didn't hear your question didn't coming through this would be.
Sure Yes.
I was.
Just saying the decision to Institute. These sales discount was that something as a reactions to what you were seeing in the channel or is that more <unk> decision internally based on what you guys have in terms of your low cost manufacturing footprint.
That's a decision on a you know we were.
We drove the promotional activity in the market based on.
Our ability to look at where we are today and to continue our focus on.
Attributes are strategy, which is basically focusing on fewer skews.
Graham to market at the right price.
And driving market share. So you know we tested the like I said earlier, we tested.
Our strategy our early on and as as we saw the results. We continued our pricing strategy and I think it's important with all the issues that we put together I mean, I'll hopefully on the 400 basis points as.
No negative margin that will even if we continue to price at these levels our margin should normalize fish when all the cost savings that we of course, so as you know obviously the upside for us.
Producer promotion and we'll see margin expansion, but I think we consider where we are now in how we're positioned our back to be surprising.
Well be very aggressively price and still maintain normalized margins. So I think that's sort of where we're having right now as we continue to ramp up. So we now come back we started wrapping up all of our manufacturing.
Yes.
Currently building it up to about 70% of asked me that pre call that and you know it's our same time our focus is also continuing.
Let's focus on cash flow. So we're still working doing a lot of work on reducing inventories generating free cash back after the or so all these things combined have sort of positions. Our strategy you make sure that were position for the long term and I think that's most important thing I can leaves you with today is.
Everything that we've done over the last few months is going to make our company very strong as we emerge from this will situation.
Moving the I think that the one of the biggest opportunity is basically the whole shift in global supply chain.
If you look at the world in the future.
You know people that were able to go and fight Asia will just use of manufacturing byproduct.
They're not running so fast anymore. So I mean, if you look at we'd take to purchase a lot of opportunity for us, particularly in our retail our global lifestyle brands as we continue to move into 21.
To leverage our low cost manufacturing ambitiously take advantage of.
The big shifts in the global supply chain.
Got it.
One last one for me I'm, just curious to know what progress has been like in Bangladesh and are you guys are in early stages of the building at the facility. There. So just curious to know if you can give any color on how that's progressing.
We're slowly progressing in final duchemin reality is that we're probably going to be behind for six months and the plants is scheduled now to start main shoe to 20 22.2 yet.
Hi, too. So you don't wait we we are cautiously seeing what happened over these three months and then obviously now we're we're putting our minds around going forward, if I look at Bangladesh rushes treaty.
Part of our overall business I mean, it's not just so much promotionally for.
Our international growth, there's also a function.
Driving our fashion basics other categories that we have so it's not being built just strictly to support international. It's also support where we think the market's going in the future.
As we continue to June shirt, whose category so.
We're going to definitely go full speed ahead had with the project.
But I was going to still be delayed probably about as much.
Thanks appreciate the code.
Your next question comes from I know some ahead Kang of RBC capital markets.
Yes.
Thanks, and good morning, just the commentary in the press leaf around.
The fashion basics category, we're turning positive in June as just wondering if you can talk what the drivers of that gives us a surprising given the current macro backdrop I think some other categories services I think the uniform business on the corporate side is it that are where was it something else driving that growth.
Well that this category is not really on the corpus item in the corporate charges really.
Our cases more.
The basics actually because are used for for her advertising event planning another thing so that's.
So that category basically a them is still down.
But you know we've come back because we think we're generating you know share in the category by a pricing strategy.
The fashion side of it is completed as of March professional.
Business and attended a day, we have basics and we have fashion and the big differences between these two shirts once open and once French fun.
And we define this has fashion.
But the reality is that every one of the insurance has airway labels.
Jason Futures with her we label with different fabrications. So.
Schumer's are looking for value right now and the reality is that you know when you look at all the church and industry, there's not a differentiation between all the shirts.
Prices a big driver of.
Product in our channel and you know were low cost manufacturing are investing heavily.
And cost reductions and new capacity expansion and we think that you know we're going to continue to relatively price this category and take market share.
Scenario for growth worse.
How we're going to make sure that we got our Shirley.
Okay, and then I'm on the working capital looks like there was a sizable lift.
Drove the free cash flow there just trying to get an idea of what drove the strong kind of accounts receivable during the quarter or was it from a larger customers a smaller ones and then sort of how are those collections trending into Q3. It can provide some color there.
Okay.
So the.
Big reduction in accounts receivable was really driven across the board right as we as Glenn mentioned earlier I think distributors have done a great job.
As they work through the second quarter.
And effectively have worked with us and we've collected from our distributors, we've collected from our retail customers and so I would say very definitely we're very pleased with the way that our receivables came in through the quarter and as we mentioned earlier, we've taken a reduction in our allowance for expected credit losses on obviously.
Bubbles.
With respect to inventories, we sold down out of inventories in the quarter as we expected to do with all of our operations basically down or or a direct operating a very low levels and again, we're very pleased with the cash that we generated from inventory.
And then with respect to are payable side, we worked a lot of our suppliers a lot of our partners and we were able to manage that I would say.
Very well during the quarter, so all in all and with a great job by the team the whole team.
To manage working capital into really effectively.
Worked our way through what is a difficult environment with everybody in order to drive that cash flow and and all and also really to set us up well as we continue into the back half of the here.
And then if I could just squeeze in one on the inventory I guess as we started or facilities I think it's about 150 860 million dollar lift to working capital now should we expect that to remain positive through the back half of your as you start to restore our <unk> I was kind of industry restarts and you start to ship out or how should we think about that line item through.
The back half a good morning.
Just think about but our focus is continue to reduce inventory, but at the same time improve service because we're focusing on less products less sq. So we think there's still.
Sniffing come out of inventory, we can take out of our system and generate free cash between now and ended the year. So we're focusing on on that number wrapping up our production, but obviously, we're not wrapping up our production at the same rate of Sellthrough. So as we continue to grow and sell in two three or you know our production will get a lower level than our actual shales.
Allow us to continue to reduce inventories and generate free cash Uh huh.
If it looks out of if you look at the full a year. We obviously, we did a great job in the second quarter and one of our objectives really for this year right as we move through a difficult environment is to generate free cash flow positive free cash flow for the full year and we're still very focused on that.
Great. Thank you.
Your next question comes from the line of Brian Morrison of TD Securities.
Hi, Good morning, Glenn you've alluded to my question several times, what I want to ask it directly in terms of your incentives and your promotional activity does this in any way impact your 30% gross margin target.
Thank you can achieve 30% in each of retail private label in Printwear and just maybe update us on is the facility consolidation initiatives and SKU rationalization is that complete at this time.
The Printwear is definitely please there's still a little bit of work to do in a retail.
But as far as overall margin is concerned we are not change your aspirations to get the 30% margin.
And we're also focused on the sub 12% extra nice lets just look at that is there's also a big driver our focus right now and as far as the upfront, we're disconcerting, but other than our product line.
The she's just to kind of emphasized the amount of.
Cost, we're going to take on our system by just no streamlining its just its going to be.
Excesses.
I'd also to overall manufacturing.
We're quite into same look at our retail business on the same scale because obviously, it's not the same.
Skilled business of we're going to continue to.
Focus on you know large programs that give us good returns and you know you asking right. So I mean are so much where we are not where right. Now. So we have a huge opportunity here to really consolidate our manufacturing base and focus on a on efficiencies and drive towards.
Targeting or 3% I think as we we move into next year in our factories and we're not planning.
I see the Printwear business recovery fully I mean, we just don't know at this point in time so.
Next year I think we look at that we've got our margins up normalized margins of and then moved from there on to our goal I think that would be different outcome for us with you know when asked you name reduction.
That's how we're trying to see things, but you know promises that no things a little bit Oh, youre right. So I think people right now.
And also focusing on our working capital cash flow generation.
Emphasize more and making sure that enrollment is proving right because all these things Oh ultimately allow us to get a better Rona return.
That's good and then with respect to the shifting your floor plan a strategy at your major retailer now fully complete and I think you said significant market share gains are you seeing the potential for an accelerated acceleration of the potential for product category expansion.
On that private label and a shift.
Well, we've had quite a bit of a expansion this year and a.
Lot of the new products and a new space that we think this years really only got set.
Probably the first week in June so Q2 of our underwear and socks aspect I really haven't really excellent.
Oh, well things are going to go so you know we're very optimistic.
All of our retail business you know specific wrongly has doubled in the corner.
So we're well everywhere. So I mean I read helps is tracking on a year over year basis also.
<unk>.
Okay.
Just very quickly Rod we anticipate in terms of your period costs that get expense in Q1 in Q2 here as we go through the remainder of the second half manufacturing operations have restarted is that now behind us.
No you'll still see some period cost rolling through in the third quarter right because as Glenn said effectively we've got our facilities running 70% that range and so when you you know we don't have.
Actively running at a at full levels of of operation right. So it does lower levels you still we'll see some period costs running through in Q3, and then we'll see where we are in Q4.
Appreciate the color.
Your next question comes from a line of Chris Lee of Disney.
He Glenn I just wanted to confirm what you said earlier.
You guys are now restarting you'll manufacturing capacity.
The view that didn't printable sales will be back to about 70% of the pre corporate sales I think she did I hear you that quickly.
No right now and where sales are somewhat in June and let's see where we're tracking july's, 15% to 20% negative.
You know we haven't obviously, we don't know what will happen next year, but our manufacturing efficiency is ramping up to 70%.
I'm hard normalize capacity and that's because you know sales or are you know if they're minus 20 that msrs adult of 10, right. So and what we're doing is we're drawing down inventory now sales continue to grow like we saw the beginning of July and then we'll just increased capacity, but no keep it up low our actual I'm expectations is.
Sales because we want to contenders look at the cash flow generation and reduction billings were so we can match that as we go and we're just bringing on stages. So we'll see how things evolve as we move into you know in the second third and fourth quarter, but we're pretty optimistic and we know our pricing strategy is working and Ah.
Super It takes us we haven't.
I did for next year at this point, but we're bringing on as we need.
Okay, Great. That's helpful. And then just on the men's underwear up 23 and half dozen in Q2, that's shrink continuing into two like Oh, well old was part of that shrink related to just pent up demand as people started shifting.
Back to more discretionary.
No. The overall categories I think a slightly down overall, so you know we're selling more product and it's not just our private label business as well as our Gildan brand, which is doing very well.
At the retailers and and online us.
Customers that are basically supplying and selling our products. So you know, it's it's a combination whose too and we have significant share gains visibility and that's where in the quarter. I mean, it was quite substantially on the overall basis. So you know it's going very well.
And it's just a question of our position in the markets and we're pretty excited about the future.
Okay, that's great maybe a quick one for rod.
Last quarter, you mentioned you guys would maintain your fixed cash cost at 35 to 40 million per month.
If that's still the case it was just starting to move up issue we start some of your capacity.
Yeah, the 35 to 41.
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Guidance that we gave effectively when we've got everything idle right. If you look at our whole system effectively when it's when its idle.
And if you look at how we performed during the quarter, we were very definitely I'd probably.
In April effectively were little bit above that as we got in May we could see that if we stripped away some of the costs associated with running facilities are very low levels and so starting a bit of the ramp back we were very definitely at that $35 million range. So I think we feel very good about our cash burn right associated with our.
Our our underlying cost base and again as we've moved through the quarter actually done more.
As we talked about some of these initiatives what we've taken out a cost in.
Certain areas that will also reduce our base underlying cash burn on a go forward basis I think we feel like overall were very good shape. Our liquidity is very strong right at a 1.2 billion and I think from a ability to.
Fleet, whether further impacts on a go forward basis, we've got a very strong balance sheet.
So very strong access to liquidity, we're winding down inventory right as we go forward.
This with the strategy will be balance off production and so I think overall, we feel very good about are positioning.
Great. Thank you mostly answers that stuck.
Thank you.
Your next question comes from a line of Matt.
Thank you see I BC.
Hey, Good morning, a first question is can you give any color on what is happening in your two biggest in principles end markets, specifically, so corporate and then merchandising and tourism.
Well I mean look it's a it's hard for us to get a handle on up to be perfectly honest with you.
But look at the market is slowly recovering I mean, you see that.
Tourism is more of a local a nominal.
Where people are traveling and spending money little closer to home. So it's kind of people coming from outside.
They're basically it's more localized so there is activity happening and all these areas.
So you know the overall market.
I would say is probably the event driven items are so large gatherings is still negative in the overall market in those other categories are are coming back, but I think one of the areas, where we've seen the strongest growth. As you know is is online basically selling through we don't.
Enters its online.
As as people are at home and moving from product features that go all their didnt get something from a corporate events. So people are finding other venues to get the product.
And that's a result.
We see is coming back in terms of our Pos.
Based on your market share gains from our pricing strategy, but the same time as mark.
Okay, and then just stood at just a follow up on that or you are you able to give roughly what percentage of I've been principles end market is related to large large gathering type event.
You know, it's it's pretty hard to do that to be honest with you. When it's let's say, 3% them and I know its business everything is large gathering right I mean, the picnics large gathering oh running marathons large gathering rock concert as hockey games, all gathering people want to buy talking to buying online right. So.
Yes, it was or types of things that.
Even though there may not have you had theres still able to find products different formats.
Having those parties you know as Mike.
Okay. Thanks, and then I just wanted to clarify on a on a question asked earlier I just wasn't sure.
On the question of.
Your customers' inventory levels.
Our your customers keeping inventories at the lean levels that they were at after the destocking process or are they know restocking, which which is which would.
He basically a tailwind.
Right now would say that are more or less staying at these levels and factor group and could be a little bit more de stocking goes from here.
In this quarter, because or no I think that there.
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And then maybe maybe little bit, but overall I would say, it's a it's cautious staples is slightly down.
I've given her thank you.
Thank you.
Your next question comes from season Mcleod, the almost capital markets.
Oh. Thank you my follow up questions already been answered. Thank you.
Thank you.
And there are no further questions at this time.
Okay. Thank you everybody I'd like to thank everyone for joining us once again and we look forward to speaking to you very soon.
Thanks and have a great. Okay. Thank you.
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