Q2 2020 Gildan Activewear Inc Earnings Call
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All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question that's recession, if he would like to ask a question. During this time. Please press star one on your telephone keypad.
Please be advised that today's conference is being recorded I wouldn't like to hand, the conference over to Sophie Argiriou Vice President of Investor Communications. Please go ahead.
Thank you [laughter] learning to well and thanks for joining a earlier we issued a press release announcing our earnings we saw a second quarter 2020, we also issued our interim shareholder report.
During management's discussion and analysis and all of these financial statement.
Documents will be filed with the Canadian Securities and regulatory authorities and the U.S. Securities Commission and I don't want to companies corporate website.
On the call today, we have Glastra, Matthew our President and Chief exact Executive Officer about Harvey, our executive Vice President and Chief financial and administrative officer in a moment Rod Wholl take you through the results for the corner and accumulate session will follow.
When 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 movies.
<unk> 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 Oh, I will now turn the call over truck.
I think you like you Sophie good morning to wall and thank you for joining.
We hope everyone is continue to stay safe and is keeping well.
This morning, we reported or second quarter results as we expected back in April when we last reported we incurred significant earnings loss in the quarter tied to the impacts that Cobiz 19 is having on economic active activity then in turn our business.
However, despite the loss in the quarter, we maintained a strong focus on our key priorities, taking business decisions and actions to strengthen our competitive position with a long term by accelerating our efforts under our back the basic strategy to simplify our product portfolios.
Complexity and cost of our 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 in order 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 of 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 implementing comprehensive bio security protocols.
<unk> 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 say transportation Reconfiguring. The four sleeves in facilities to ensure appropriate physical distancing and the provision of personal protective equipment for all employees.
Overall, we are proud and grateful for the way that Gildan team, both manufacturing and nonmanufacturing employees have stepped up to new challenges that have come together June this crisis.
Turning to our sales and earnings results for the quarter.
Not surprisingly the effect of the Lockdowns that 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 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 of 90 million down 28% 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 discounting.
Moving to demand trends in activewear with shutdowns in effect during the quarter principles distributors closed warehouses and retailers shut their doors, causing significant sell through declines in our channels of distribution.
In the U.S. and printable channel, we saw Pos declined to lose the 80% in April before starting to pick up in May as Reopenings occurred.
Averaging down approximately 50% for the month and then in the quarter in June down in the 20% range compared to last year.
Although for the quarter average Pos was down 50% trends improve sequentially on a monthly basis, and we were ahead of our expectations and in some categories like fleece and fashion basics.
Let's turn to positive growth 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 19 impact hit earlier than in North America. We saw Pos declines continued to decelerate during the second quarter and try 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 compounded by high levels of de stocking distributors, mostly servers and customer demand from their own inventories.
Consequently inventories in the distributor channel at the ended the quarter work and continued to be significantly below prior year levels as our customers of adjusted to lower levels of demand.
Our sales in the Activewear category also reflected the impact of higher promotional incentives in the principles, which we initiated 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 it directly linked to our back to basics strategy, where we are leveraging our low cost position to reinforce market leadership.
Further market share gains and grab available demand in what we know it's a difficult market environment.
We know this playbook, well and though but it's still early days, we're very pleased with the results of this initiative in all three categories, where we are running the promotions basics fashion basics and fleece.
Finally in the retail channel sales of active were were also down due to the widespread closure of retail stores, most notably impacting our business with department stores National chains Sportsbook specialty retailers.
Global lifestyle lifestyle brand customers, partly offset by better sell through in the mass and online channels.
Moving to water hosiery and underwear sales. The overall decline in this category was due to lower stock sales, partly offset by strong performance in underwear sales, where we saw a 23.5% increase in sales during the quarter compared to last year.
Lower stock 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.
A decline in overall industry demand in this category.
Driven by sales of private brand underwear maps and other products sold through online platforms.
Without plug a 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 a 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 koby related charges. The bulk of these costs primarily related to an observer unabsorbed manufacturing labor and overhead costs.
During the quarter, while our facilities were idle or operating at low capacity levels.
He's cash in noncash costs, which amounted to 86 million would have normally being absorbed into inventory for facilities had been running at normal levels.
However, as we kept most of our facilities close for the second quarter to managing a line or operations in inventory levels. These costs were treated as peering costs, which flowed through our cost of sales in the quarter.
In addition to the manufacturing idling costs, we recorded a $25 million charge related to the unwinding of commodity positions due to lower production requirements during the second quarter and through the remainder of the year.
During the quarter. We also made a very difficult decision to further reduce our global workforce reductions of approximately 6000 people in manufacturing and 380 people in SGN a positions.
Overall this decision allows us to adjust our manufacturing sales and administrative support infrastructure with the current business impact of covert 19.
And provides us with good flexibilities 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 head count 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 of certain retail end of line products.
While we incurred significant coping related costs in the quarter. We also recorded 93 million in charges tied to actions related to our back to basics strategy.
Managing our business through the effects of the pandemic led to 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 line inventory management initiative.
Well 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 us.
Lastly charges related to our back the basic strategy also included the 25 million impact of the strategic pricing action in in principles taken in the quarter covered in the sales discussion.
So putting this altogether, we reported gross loss in the quarter of 148 million or 122 million on an adjusted basis after adding back the SKU rationalization charge of 26 billion.
Significant decline compared to last year was due to the combination of lower sales manufacturing idling cost 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% and 52.2% on an adjusted basis, mainly as a result at the corporate related and 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 the basic strategy.
As soon as 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.
Driven 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 and adjusted operating loss of 180 million during the quarter. After financial expense was 60 million, which were up 6 million over last year due to fees incurred in connection with the Covenant Amendment and higher average borrowing levels. The overall net loss for the quarter totaled.
250 million.
Or $1.26 per diluted share and 197 million or 99 cents per diluted share on adjusted basis.
Normally I would close to the discussion of our guidance, however, having suspend or annual guidance in March due to the uncertain cobot 19 impacted environment. Let me instead gives you some color in terms of what we're currently seeing in the marketplace.
As we move to July we were initially encouraged to see further improvement in principles Pos in us from quarter end levels.
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 sport 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 finished at their update and in 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 Sophie.
Thank you Ron.
Before moving on to act to the tune a fashion I ask that you limit the number of questions to too and we'll circle back for a second round of questions as time permits I'll now turn the call over to the operator for the question answer session Hannah I have.
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, what pause for just a moment to compound the Q1 day roster.
Your first question comes from a sign of Paul maybe lists 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 it was it in a specific categories or was that across the board and do you anticipate having to take any further action in the current in coming quarters, and then secondly, I wonder about the state of.
You are distributor partners and if any of them are financially challenged and if you think there any capital perhaps on the horizon there. Thank you.
I'll start off with the with the pricing.
As far as or pricing is concerned I mean, we know we went into April was negative Pos 80% and then.
We started to promote our fashion basics and selective colors, which shop was hybrid signs in terms of our Pos.
Then we expanded that's all of our colors and fashion, which continue to driving our POS and then we added basics completion was really.
Three categories, our fashion basics are basic traditional futures and our some of our please categories are really just on all the products is just a core items within those categories and newish into big Big improvements and our Pos and all three segments.
What it runs with in his script was that we even see we saw beginning in July given trends towards positive Pos overall, which was driven mainly by the big improvement of these files, which was somewhat.
I have 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 forward.
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 out of our structure that will allow us to maintain very competitive prices in the market and continue to grow our share as we go forward and we've taken though.
In the rescue rationalization.
Two thirds of our product lineup.
We used to manage 30000 sq used within their brands without 1000 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 has an improvement in room as we continue to go forward. So although we're 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 is because we're going to absorb.
The system and provide better returns as we go forward continue to.
Emphasize our leader position Joan.
Thank you went out of distributor partner firms.
Yes.
No our distributors pace I'm very well most of our AR.
POS is obviously improved.
No one of the reasons why we reversed our our reversal on the.
This is because of the.
Payment from our distributors, who is the cash flows coming in.
And we don't have any concerns of our distributor business.
Thank you.
Your next question comes from the line of Vishal Shreedhar National Bank.
Hi, Thanks for taking my questions.
Just wondering if the markets recover could you speak de stocking turned to restocking and can you give us a sense of how much months of inventory are healthier wholesalers.
Well, we just talked about one third of our inventory that was in the channel.
And the Q1, which is roughly about a $150 million.
Trigger channel.
We also think the start up pretty significantly and retail as well but.
As far as they are the wholesale channel we've you stop and the other thing is that the.
Typically Q2, we sell a lot of lease going into this lease user.
And we did.
Ship any of those.
Orders, because they'll be shipped as we move into Q3 Q4.
As at lunch spaces as the market needs those goods components to have dating terms on looks like and we historically have done so.
Those are really the two factors that.
Reduced sales basically of during the quarter women's footwear, besides getting less.
Okay. Thank you on.
Regarding your PE.
Ambitions and thoughts I was that evolved regarding the making masks and gowns, our or you still.
Still expect negligible contribution from that business.
What we're doing our part in terms of helping local governments.
Asking gallons.
You know as part of the.
Our initiative.
Yes, I understand that.
Long term.
Opportunity for us mass recall that we're selling three cents.
They are selling at a dollar.
So there's a lot of capacity that's coming online.
Asia.
No thats.
Yes.
Yes.
We'll do our part.
As we could.
Hi.
Uh huh.
Thank you.
Your next question comes from a line of Stephen Macleod of BMO capital markets.
Thank you good morning.
Thanks for all the color in your prepared 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 happens as I guess from a longer term perspective.
The big positive as you first thing.
Outerwear.
I personally have been homes since the crisis, where no one futures as much as right. So I think thats, a real positive sign for us.
The traditional way, where people who might have thought usher in a gathering or chalk run or something that may not be recurring or finding other ways to get those products I mean, and that's I think is a huge so we've seen online sales I'm you know the distributors that are not sure, but the screen printers as how online.
That's a big growing area, it's probably doubled in sales during the cold prices.
I would say and the other big thing is no reselling them in lot of reselling of our products.
On line.
And also one or two areas. It's the 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 shows are we're we're benefiting from as people look at the buying more products.
Basically locally at once.
We think that that's a big opportunity. So we know retailers are are putting more the screen print the two type futures under four right now as they reopen up so.
No people will find a way to get the product I think that's the message here.
Obviously, there was a huge.
Shock.
In April when you know when everything from compression halt, but for me and the other day.
We believe that the long term viability of ours. So we made is there.
The market without where people to continue buying or products and we're well positioned.
With that product strategy and our price strategy, we think two to capture a significant moshe.
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.
And you indicated that you expected sort of revert to more normal levels was your sales recovery.
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 the back half of the or.
Yes. Thanks for the question statements. So if you look at the gross margin as we said the gross margin went 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 order were running in the Printwear channel.
Sure the impact of that is about 400 basis points right. So effectively that was driven by this negative mix impacted the negative impacts.
Mix impact was driven by the the mix associated with lower fleets that to 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 so as we move into the back half of the year, we expect a sales recover with all of the Reopenings effectively our mix will revert back to normal levels and then with respect to from a promoting perspective, we 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 the 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.
And 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, I'm glad I wanted to ask you on the decision to adds to the sale discount was this.
Something that was.
Determined sort of internally or it was determined based on what you version.
I didn't hear your question isn't coming through this would be.
Sure Yeah.
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 will more a decision internally based on what you guys have in terms of your low cost manufacturing footprint.
That's a decision on the you know we were we drove the promotional activity in the market a patient on.
Our ability to look at where we are today.
And to continue.
Our focus on our back to Mr. strategy, which is basically focusing on fewer skews.
Bringing 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 these issues that we put together I mean of I'll only 400 basis points of you know negative margin that who can even if we continue to price at these levels our margin should normalize.
Based on all the cost savings that we had before so as you know obviously the upside for us is.
Producer promotion normalcy margin expansion, but I think we consider where we are now and how we're positioned our back to basics strategy that we've been pretty well be very aggressively price and still maintain normalized margins. So I think that sort of where we're having right now as we continue to ramp.
So weve now come back we started wrapping up all of our manufacturing.
Okay.
Currently building it up to about 70% of the capacity that recall of it.
And you know it's our same time our focus is also continuing.
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.
Make sure that we're positioned for the long term and I think that's most important thing I can leave you with today is that everything that we've done over the last three months is going to make our company very strong.
As we emerge from this will situation.
Including the I think that the one of the biggest opportunity is basically the whole shift as global supply chain and if you look at the world in the future you know people that were able to go fight Asia Buddhist you, so manufacturer who byproduct.
We're not running so fast that anymore. So I mean, if you look at we think to purchase a lot of opportunity for us, particularly in our retail our global lifestyle brands as we continue to move into 21.
The leverage our low cost manufacturing ambitiously take advantage of.
The big shifts in the global supply chain.
Got it.
One last one from me I'm, just curious to know what progress has been like in Bangladesh. No. You guys are in the early stages of both building at the facility. There. So just curious to know if you can give any color on how that's progressing.
Look we're slowly progressing in Bangladesh wins, the reality is that we're probably going to be behind by six months and the plants is scheduled now to start in Q2 2022.
20 to.
Hi, too so it away we are cautiously seeing what happened over these three months and then obviously now we're we're putting our minds around going forward, but look at Bangladesh Russian distributor.
Part of our overall business I mean, it's not just so much functionally for.
Additional growth, but it's also a function of.
Driving our fashion basics and other categories that we have Swiss 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 gain share those categories.
So we're going to definitely go full speed ahead had with the project, but now it's going to still be delayed probably about six months.
Thanks appreciate code.
Your next question comes from there I know, it's kind of ahead Kang of RBC capital markets.
[music].
Alright, Thanks, and good morning, just the commentary in the press release around.
The fashion basics category turning positive in June as just wondering if you didn't talk what the drivers of that no. There's a surprising given the current macro backdrop I think some other categories services I think a uniform business on the corporate side is it that are aware with or something else driving that growth.
No that this category is not really other corporate side I mean, the corporate charges really.
Our cases more.
The basics actually because we use for for her advertising event planning another thing so that's.
That category basically a them is still down.
But we've come back because we've had for generating share in the category by our pricing strategy.
The fashion side of it is completely different as more traditional you know screen print type business and looked at them today, we have basics and we have fashion and the big to differences between these two shirts.
Once open end wasn't much fun.
And we define this as fashion.
But the reality is that every one of the insurance has airway labels home.
Patient future as for the fairway label with different fabrications. So.
Tumors are looking for value right now and the reality is that you know when you look at all the church in the industry, there's not a big differentiation between all the shirts prices big driver of products and our channel and we're in a couple of low cost manufacturing you're investing heavily.
And with the cost reductions and new capacity expansion and we think that I know, we're going to continue to rationally priced this category and take market share I Miss area for growth worse.
How we're going to make sure that we got our Shirley.
Okay, and then under working copper looks like there was a sizable if that 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, if im correct.
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 to 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 our payable side, we worked with us.
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 in 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 a and all and also really to set us up well as we continue into the back half of the year.
And then if because a squeeze in one of them the inventory I guess as we started or facilities I think it's about a 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 he started to ship out or how should we think about that line item through.
By competition.
We should think about but our focus is continue to reduce inventory, but at the same time improve service because you know we're focusing on less products unless sq. So we think there's still.
A significant amount 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 and the wrapping up our production, but obviously, we're not wrapping up our production. That's the same rate of sell through so as we continue to grow and sell in Q3 in Q4, you know our production will get a lower level than our actual shales.
Allow us to continue to reduce inventories and generate free cash.
Sure.
It looks out 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 years, 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.
Where is definitely please they're still little bit of work to do in the retail.
But as far as overall margin is concerned we are not change your aspirations to get 30% margin.
And we're also focused on you know the sub 12% Mr. next let's just look at that isn't what it is also have a big driver our focus right now and as far as the upfront. We're is concerned we other than our product lines out we would be and you can you just can't emphasize the amount of.
Of course, we're going to take on our system by just no streamlining its just its going to be on tend to be accesses and be very positive overall manufacturing.
And we're providing the same look at our retail business on a same scale because obviously, it's not the same type of 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 it may not so much where we are in underwear 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 no we're not planning.
I see the Printwear business recovery fully I mean, we just don't know at this point type so.
Next year I think we look at that we can get our margins up normalized high margins and then moved from their onto our goal I think that would be a good outcome for us with.
The next you named production.
It is how we're just trying to see things, but you know promises that.
Oh things a little bit Oh, youre right. So I think people right now and also focusing on our working capital cash flow generation.
And emphasize more and making sure that enrollment is proving right because all these things Oh, <unk>, who 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 initiatives.
Well, we have quite a bit of a expansion. This year I mean, the although a lot of the new products and a new space that we think this you're really only got set.
Probably the first we can do so in Q2 of our underwear and socks aspect I really haven't really.
Oh, well things are going to go so you know we're very optimistic.
All of our retail business deals with hitting their online as is evident in the quarter.
Well everywhere. So I mean I read helps is tracking on a year over year basis outdoor until I see program.
Okay, just very quickly, but 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 costs rolling through in the third quarter right because as Glenn said effectively we've got our facilities running 70% in that range and so when you.
No we don't have a effectively running at a at the 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.
Well I just wanted to confirm what you said earlier.
You guys are now squeeze starting your manufacturing capacity with a view that in principle sales will be back to about 70% of the pre corporate sales.
That makes you did I hear that quickly.
No right now and where sales are somewhat in June and let's see where we're attracting flies 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 sales are are you know there minus 20 that majors 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 then, we'll just increased capacity, but keep it up low our actual expectations of sales because we want to continue to look at the cash flow generation and reductions in inventory. So we can matched out as we go.
And we're just bringing on stages. So we'll see how things evolve as we move into.
In the second third and fourth quarter, but we're pretty optimistic and we know our pricing strategy is working and a 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 continued into July Oh, well all was part of that shrink related to just pent up demand as people start a shifting.
Back to more discretionary.
No. The overall categories I think is slightly down overall.
So you know, we're selling more product and it's not just our private label business was as follows our Gildan brand, which is doing very well and that the retailers in an online us customers that are basically supplying and selling our products. So you know, it's it's a combination lose too and we have significant share gains basically in underwear.
In the quarter him it was quite substantially on the overall basis. So 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 Bob.
The last quarter, you mentioned you guys would maintain your fixed cash cost at 35 to 40 million per month.
It is is that still the case it was just starting to build up issue restart some of your capacity.
Yeah, the 35 to 41.
Yes.
Guidance that we gave effectively when we've got everything idle right. If you look at our whole system effectively when it's a 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 is we got it 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 move through the quarter actually done more.
We talked about some of the 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 obviously weather further impacts on a go forward basis, we've got a very strong balance sheet.
A very strong access to liquidity, we're winding down inventory right as we go forward.
This with a strategy will be bounce up production and so I think overall, we feel very good about are positioning.
Great. Thank you, mostly answers and that's stuck.
Thank you.
Your next question comes from a line of Matt Bank F.C.I.B.C.
Hey, good morning.
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.
Okay.
Well I mean look it's a it's hard for us to get ahead on that 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 no closer to home so instead of people come in.
Right.
They're basically is more localized so there is activity happening all these areas. So you know the overall market.
I'd say is probably the event.
Driven items are still in a large gatherings is still negative in the overall market and 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 looking for products and features at this little all their didn't get something from a corporate events. So people are finding other venues to get the product.
And that's a result of 'em, we see is coming back in terms of our Pos.
Just on your market share gains from our pricing strategy, but the same time as opposed to mark.
Okay and then just stood at just a follow up on that are you are you able to give roughly what percentage of other principles end market is related to large large gathering type event.
You know, it's it's Chris pretty hard to do that to be honest with you. When it's let's say, 3% has been unknowns. Once everything is large gathering right I mean.
Your next allergic gathering or.
Running marathons large gathering rock concert as hockey games, Oh gathering you know people want to buy occupying it online right. So.
Those are the types of things that.
Even though there may not have you had theres still able to find products.
Different formats.
I think those parties you know like.
Okay. Thanks, and then I just wanted to clarify on it on a question asked earlier I just wasn't sure.
On the question of <unk> of your customers' inventory levels are 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.
Be basically a tailwind.
Right now I would say that are more or less staying at these levels and factor through could be a little bit more just talking goes from here.
In this quarter because ER.
I think that there.
No.
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 [noise].
Jim Mcmahon continuum of capital markets.
Oh. Thank you my follow up questions already been answered. Thank you.
Thank you.
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 based on.
Hi, Thanks and have a great. Okay. Thank you.
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