Q3 2020 Gildan Activewear Inc Earnings Call

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Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lights will again be placed on musical. Thank you for your patience.

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Ladies and gentlemen, thank you for standing by and welcome to the third quarter Twenty-twenty Gordon Activewear earnings Conference call. Please be advised that today's conference is being recorded I would now like to hand that conference over to Sophie Argyria U V. P. Investor Communications. Please go ahead.

Good morning to all and thank you for joining that earlier, we issued a press release announcing our earnings resolved for the third quarter of 2020, we also issue dark insurance Shanholtzer report containing management.

[laughter] consolidated financial statement.

These documents will be filed with the Canadian security has been regulatory authority and then your security information and will be available on the company's corporate websites.

On the call today, and we have a question on your account.

Second of Officer, Harry our executive Vice President and Chief financial and administrative officer.

In a moment Roswell. Thank you submit the results for the border and then Q&A session will follow.

Let me begin please take note.

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Awesome, Oh may constitute forward looking statements within the meaning of the U S private security litigation.

Format 1995.

Such forward looking statements involve unknown unknown risks.

<unk> and other factors, which could cause the actual results to differ materially from future resolved express or implied by such forward looking snake.

We refer you to the companies Friday with a huge securities and Exchange Commission and Canadian Securities Regulatory authority.

The company's future result.

I will now turn to call over to Ross.

Thank you.

Good morning, and thank you all for joining us on a three quarter call. Both of you and your families are healthy and staying safe.

Morning, we posted results, reflecting strong recovery from the park work.

Sales came back nicely with a doubling from the second quarter you saw good retail performance with sales up year over year, driven by momentum and underwear and although the pandemic continues to weigh on the demand for principals used for large events other areas within this part of our business are growing and mitigating the impact.

Further we're making good progress with our back the basic strategy as we continue to focus on servicing our customers with a more streamlined product portfolio, which in turn is allowing us to reboot complexity from our business and fully leverage our manufacturing platform to drive market share growth.

In this regard during the third quarter, we saw manufacturing cost efficiencies from our back to basic strategy come through as we brought back more capacity online and together with a C.

Sequential improvement in product mix of sales improved we generated gross margin of 22, 5% a strong recovery from the second quarter.

This was achieved despite Ah continuing your over your impact from period costs related to below normal manufacturing capacity utilization rates.

And albeit better, but suboptimal product mix, given the covid related environment.

Moreover, we kept a strong focus on managing our SG&A expenses, which came in at 10% of sales.

So adding all this up we return to profit in the quarter with gap EPS 20th and.

And adjusted diluted EPS 30 <unk>.

We're also very pleased with our strong free cash flow generation $137 million in the quarter.

Or on a cumulative basis $300 million in the last two quarters as we continued to tightly manage are working capital and capital expenditures.

Finally, a liquidity position at the end of the quarter further improve to 1.3 billion, leaving us and strong financial standing.

Before I get into the specifics of the quarter's results I would like to provide a status update on our manufacturing operations.

With improving sales across our channels of distribution our team did an outstanding job on ramping up production levels during the quarter, bringing back our factory employees to a safe workplace and navigating through the requirements of safety protocols and social distancing measures in this new operating environment.

This is not without its challenges as many in the industry are facing but nonetheless with the expertise of our team and the benefit of owning and operating vertically integrated manufacturing operations a production levels by the end of the quarter third quarter, where backup at 75% of overall pretty covid capacity.

And I can say, we've continued to bring more production back on as we've moved into the fourth quarter as our manufacturing team continues to navigate well through this in part.

Turning to our operating results.

We generate sales of $602 million in the quarter down 18.6% versus last year, but significantly better than the 71% decline in the second quarter.

Afterwards sales of $456 million in the order were down 26, 3%, while sales and the whole, Missouri and underwear category totaling 146 million were up 21.2%.

We're we're activewear sales was mainly due to lower sales volumes of the principles down 21% in North America, and 25% in our international markets together with unfavorable product mix and the impact of the continuation of higher promotional discounting in the U S. A printable channel as we continued to drive per share in this environment.

Although point of sales was down year over year for our principles products similar to levels. We saw we exited the second quarter friends remained relatively stable through the quarter.

On average pass in North America was down in the 15% to 20% level and down 25% in international markets.

Putting these numbers together you can tell we saw further in principles distributor destocking in the quarter in North America how.

However, the level of Destocking is considerably from won't be experienced in the second quarter.

On the retail side as I mentioned earlier growth was driven by the strength of our underwear sales, which doubled in the quarter, reflecting strong market share gains related to our men's private brand and Gilda brand programs.

While ozery sales were flat sequentially sales were down slightly compared to last year.

Gross margin of 22.5% in the third quarter was down 490 basis points from last year as manufacturing efficiencies generated from our back to basics initiatives and lower raw material costs.

More than offset by a $15 million or 250 basis point impact on gross margin related to unabsorbed overhead costs due to lower manufacturing utilization.

Gross margin was also impacted by higher and principles promotional discounting an unfavorable product mix compared to last year.

Although product mix impacted margins by 280 basis points in the quarter on a sequential basis mixed improved significantly compared to the 600 basis point impact we saw in the second quarter and we expect a negative impact on product mix to continue to reverse as our sales continue to normalize going forward.

Moving on to SG&A, SG&A expenses totaled $61.5 million or 10, 2% of sales down 17.5 million over last year.

The decrease stemmed from cost savings related to back to basics initiatives, including lower compensation expenses, resulting from permanent workforce reductions announced last quarter as well as lower volume driven distribution costs.

Adding up all these elements operating income totaled 68 $8 million in the quarter and $73 $5 million on and adjusted basis down from $117 9 million at $122 $3 million, respectively. In the third quarter of 2019.

After financial expenses of $11.4 million in the quarter net earnings totaled 56, 4 million or 28 per diluted share and $59 $2 million or 30 cents per diluted share undimmed adjusted basis.

Turning to free cash flow and the balance sheet as I mentioned at the beginning of my remarks, we delivered another strong quarter of free cash flow performance generating 137 million in the quarter, bringing us to a two quarter cumulative total of over $300 million a free cash flow generated thus far as we move through the pandemic.

Further we expect to build on this level next quarter with a continued strong focused on working capital management.

All our customers or continue to manage well as they move through this environment and our Dsos, which had grown in the second quarter and now well normalized.

Inventories at the end of the third quarter, or 939 million down, 9% sequentially and 10% compared to last year. As we continue to continue to focus on carefully managing raw materials with at our finished goods level.

Accordingly at the end of the third quarter. The company's net that stood of 850 million our leverage ratio for that covenant purposes, with two times net debt adjusted EBITDA.

And we ended the quarter with approximately 1.3 billion of liquidity, which provides us with strong flexibility as we move towards 2021.

Still uncertain environment.

So overall, a good quarter given the circumstances.

Now before opening the call to questions. Let me leave you with some commentary and what we're currently seeing in the marketplace.

Moving into the fourth quarter past trends across our and principles channels are further improved.

<unk> for the month of October down in the 10% range in the U S and in international markets down between 20, and 25% compared to last year, depending on the market.

On the retail side sales for most of our products are currently up from last year, thus far in the quarter.

While this was an encouraging start to the fourth quarter, we nonetheless remain cautious given the ongoing trajectory of the pandemic, particularly with news of the recent surge in case globally and the unclear global economic outlook.

And the impact all of this could have on the demand for our products.

Having said that we feel the actions we have taken heading into and during the pandemic of provided us with the financial and operating flexibility to continue to navigate well through the crisis.

We are pleased with the continuing progress on our back to basic strategy and we will continue to focus our efforts in this regard or we can control outcomes, regardless of the global environment.

For example, having completed are in principle skew rationalization initiative last quarter. We are currently performing a strategic retail product review, which we expect to complete by the end of the year as we previously communicated.

To the extent are reviewing leads to a decision to rationalize any part of our retail product offering a related inventory charge could be included in the fourth quarter, which we do not currently expect like Phew $25 million.

So overall good work done to date on our back to basic strategy, but more to do as we fundamentally strengthen our competitive position in order to allow us to emerge from this pandemic is a stronger company.

Finally, you would have seen that we called out in our press release the recognition that we recently received related to sustainability in the Wall Street Journal inaugural ranking.

We are particularly pleased with this recognition as this reflects strong culture within gilden regarding sustainably managing our business.

On behalf of the rest of the senior management team I would like to finish this update by thinking the whole mcgilton team who operate with this mindset every day.

Thank you.

We'll now turn the call back will result.

Thank you Ron.

I'm moving to the Q&A session.

The number of questions too and we will circle back for a second half of the question as time permits.

Now turn the call over back to the operator for the question and answer session.

At this time, if you would like to ask a question crash Star one on your telephone keypad again that is star and the number one.

Your first question is from the lineup Halloween with Citibank.

Uh-huh.

As part of your line is open.

Hello.

Yes.

How did you hear me.

Yes, we hear Ya.

And all that.

Since Tom curious, if you've seen any improvement in the promotional levels within the and principles channel this quarter versus last quarter curious if they're in categories that stand out as being more or less promotional owners with promotions across the board and you mentioned the sales trends are better this quarter vicarious if anything has changed on the <unk>.

<unk> from and then totally separate I am just curious about your raw materials outlook for the first half of 21.

Sure maybe on the promotional look we've.

Commented that we are continuing to private back-to-basics strategy, which includes continuing a price and promote our products.

And basically, allowing us to continue to generate market share and through our pls.

And we're we're spending and promoting our products as a fashion pay six Bruce pumps category.

Fernandez basic T shirts on our police products and those are the main three areas that are.

We're promoting and those are the three categories that are driving.

<unk> market share gains as we speak so.

As far across the board or promotion of the specific include through to three categories.

To date.

That's been part of your question Paul was our raw materials that I think if you look at raw materials, I mean cotton prices are going up but I think if you obviously.

If you look at the lag time I think in the in the first half you won't necessarily see that but obviously there is some upward pressure as we go forward.

Alright. Thank you good luck.

Thank you.

And your next question is from Kressley with Disheartens.

Hi, Good morning, England, I know, we're still far away from the new normal but.

Curious if you can keep more colors on what tools.

The <unk> improvement from Q3 to October.

Casino considering your end user demand that's quite impressive improvements so you've been provide some more colors on that will be much I. Appreciate it. Thank you.

Well I mean, I've, even Q3 was.

We are pretty excited about the with the improvement in queue through the very honest with you everywhere.

You look at the.

Our industry and we're a little bit like the airline industry.

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Sporting events is rock concerts, none of these things is really.

Come back.

This will factor so.

The good news is that our products.

Are stronger lifestyle.

Lifestyle levels basic casuals stay at home.

Is driving sales and what is happening assessors alternative way of Supreme parked market.

That's a great those as a result of efficient industry.

Sure the biggest surgery.

Screw present T shirts.

Retail customers for example.

Are carrying more products online recently.

Has been very strong.

At the end of the day really what we're position.

Physicians, who.

The fact of supply chains to support.

The shifting isn't marketed in the shifting the behavior of how people are consuming products.

Think that's really the most important.

Star of this will figure this out.

And the last being able to continue.

Bruce in our market share.

And the market.

Service issues.

Social gatherings.

Social distancing so.

We're very excited about a and also because we don't have all the answers because it's grips with market Watercrafts a reasonable to distributors I guess, we'll discreet printer. So it's hard for us to get a total avalon it but.

It's very encouraging as as we move terms of October we continue to see.

Further upside in terms of.

More sales for market share gains.

Okay. That's helpful and maybe a quick follow up you.

You mentioned I think last quarter that.

You expectation is still that by next year sales will recover to around 80% to 85% of the prequel, but level by 2021, I know, there's still a lot of moving parts, but is that still your view.

Well I mean from where we are today.

Sure.

Two three receives slickly, improving so far this quarter, but the pandemic is also worsening and what we see in Europe today.

Socio that's really a function of.

Overall.

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But I think that where we are how we position our business, regardless I think we're well positioned we have a good handle on our manufacturing capacity to be able to go out for counters court and a demand in the market. Our inventory levels are very good shape or that has come down and will continue with revenue sharing more cash flow as we move into the queue for Q1.

As we continue to focus on our inventories and when you look at our whole strategy of back to basics, what it means is improving.

Our availability.

And the driving price market share by price.

Ultimately continuing to be reduced remodel working capital requires or could business and all those things together are going to continue to play a big part.

The recovery for Us and drive sure.

That's helpful and best of luck with the rest of the year and continue to Stacey Stacey.

And your next question comes from the line as the Shah Street R with National Bank.

Hi, Thanks for taking my questions and congrats on this results in the task.

Regarding regarding the your wholesaler.

Your wholesale customers wondering if you can update us on the state of inventory and the wholesale channel.

And now that we've seen restocking for some period of time is it reasonable to the X destocking sorry for some period of time is it reasonable to expect restocking from the coming quarters and also maybe just tag along the financial health of the average wholesale customer.

Hello.

The health of our customers.

Sort of in the same position that we are they have seen a big recovery.

And the industry.

Because most of these products are being sold through our distributors. So as we recover recovered.

They also manage their working capital of their financial stability as well. So we're all we're all the same.

Road in the same direction and.

And the inventories yesterday, they probably had pillow at the end of two three.

Will be a little bit of.

I wish hyster stable, but they will probably grow a little bit to chew for us demand continues to grow.

To support the future sales, but they're very good shape customers were in good shape.

Pretty excited in that position right now.

Okay I appreciate that color I am just a follow on to that with respect to your own manufacturing.

Manufacturing capability and the restrictions imposed.

Associate with COVID-19 can you talk about until the <unk> ability to make sufficient inventory to reflect the seemingly and proofing demand outlook foreseeing.

<unk> problems related COVID-19, and.

Social distancing in restrictions in your manufacturing plant.

Leo.

Susan.

Our strength is being a Bruce Lindsey rude manufacturer.

Would you really see how we performed.

This quarter of how we brought that our production as we will function of our strength of our mentioned manufactured contained what's wrong with.

Through this ritual.

Will be ballpark capacity to 75% level, which was lower than.

Sales level, because we're we're focusing on making sure that.

Free cash flow and numbering down our inventories and.

And we're continuing to increase it as we speak into two four to support demand. So we have all the flexibility related to decide how fast we want to go up and.

We have to scale.

Do that relatively easy to.

Goodness manage.

What what occurs in the market.

We've got available capacity to continue growing to 100% free corporate levels and that's all that's all ready to go we've got capacity that is big installed as we speak.

From the closer very Mexican enough facilities, though.

We are closed counted March that were Repurposing in Central America.

We're continuing to expand.

Plan for Bangladesh is passion, which is to come on long queue to of 2022. So I think we're at a very good position.

Manufacturing perspective introduces sports.

Sales growth and we're also the physicians that have sales.

Curtailed.

Supports are relatively easy.

Where we are today.

So.

And we're excited we have all of the protocols of our factories redesign of our plants social distancing the transportation testing employees every single day when they come in protest.

<unk> scans.

Sanitation are there.

Whereas we've put in all the protocol is a factor that culvert is.

Okay.

Relevant in Central America, but we've been able to operate and control our situations are five degrees.

I've been pretty well so far.

Thank you.

And your last question comes from the line up Sam Con with RPC.

Just.

Uh-huh, we're having we're having trouble hearing.

And your line is open.

Eight question Westwood, Sean you'd ask question is from.

Even the clouds.

The amount.

Thank you and good morning.

Alright.

I just had a couple of questions on the in principle segment are actually sort of one question on the principle segment and then on other.

In terms of the approvals can you just talk a little bit about.

Categories, where you saw incremental strengths between Q2, and Q3, and then where you seem incremental shrinks between Q3 and into October.

But really it's from 2223, we saw a big improvement everywhere because of it and the shelves are obviously material grown.

The categories that are driving is really that fashion basic riggs on T shirts, and those are the those actually.

Our attorney positive in the first part of our queue for.

They are actually positive in Q3 actually too as well are positive issue for.

Our basic.

Category was still negative into three but it's actually turned positive so far in queue for.

And our Felice was positive in Q3 and continues to accelerate.

In queue for some of those areas were promoting.

Driving are back from basic strategy on price and availability are proving to be grow drivers.

Our sales.

The other styles. So we have that we have a lot of.

Prince shoes fringe items, let's say for example, Longsleever pocketed attack other types of shirts that are non core.

A lot of those progress catch hold into the souvenir tourism markets et cetera, So they haven't.

Come back as fast as we will patient.

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Basic future if let's say for example, so what's driving those to fashion category.

Basic and I'll, just like I said, it's come back.

Towards this one month.

And this has been strong pretty much all all through or even 223.

Great. Thank you.

And then on the margin side.

Had some nice grows in Q3 sequentially.

Sequentially.

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And you talked about sort of margins normalizing or certainly the mix impact normalizing and can you just talk a little bit about how you expect that to evolve and then do you still view.

The 30% level is essentially obtainable as you get into 2021 2022.

Yeah, I mean, if you if you look at the margin Stephen how it's evolved bright we have the most impact that we called out as.

We moved from Q2 Q3, and you can see them continue to evolve as we move into into queue for so we had an queue to we have a lot of period cost in Q3, we also had period costs and call. It out 250 basis points right as we move Matt ran our manufacturing on average about.

70% utilization 75 at the end of the quarter and then as we move in the queue for that will improve as we as we continue to ramp up our production so effectively that'll diminish Ah mix side, we have seen the evolution of the mix.

Negative shouldn't and Q2 Q3 also negative 280 basis point impact and then as we move into the queue for effectively as to mix starts to normalize that should diminish.

We still have mixed impacts like Clint Colwell, French products that pockets things like those.

They do have a negative impact and if that's not in your mix you don't you don't get that but effectively as we continue our sales continue to come back we do C C.

Positive mix overall.

Police as an area where effectively we probably.

If you look at Q3 effectively some of that has shifted into queue for for a number of different reasons and that's that drives positive margin. So overall I would say our margin is evolving as effectively everything normalizes as as we drive to 21 and you live on a longer term targets, we very definitely R. D.

Rivaling towards those targets, it's going to take some time, we call that out.

Last quarter effectively previously we had said that we thought we would be able to pre covid hit those targets by the end of 21 on a run rate basis. I think you have to push that back now given what's going on from a from a covid perspective.

Right, because we've got to get to a more normal life and bar a normalized.

Environmental overall, we're print where businesses back to where it was in 2019, but we're still going after those targets.

Okay. That's that's helpful. Thank you and the congrats on the great quarter.

Thank you.

And your next question is from the line of Mark poetry with C. I B C.

They're good morning.

Working capital, obviously been very very strong Rod you highlighted your optimism for Q4. So is this just representative of a permanently more efficient operating structure as a result of the reduced SKU count.

And what sort of runway do you see for this sort of further potentially further reduction in working capital or are we sort of at a relatively stable level. Once we see the further benefit in queue for.

While we're going to continue to work on it right away. If you look at the working capital.

As we simplify our overall structure is we've effectively.

On our product portfolio, I mean, everything associated with back-to-basics.

We will translate ultimately into improved working capital better turns and so we've done a lot and you are seeing the benefit come through but we still have more do as we said we were working on our retail portfolio.

And we will be doing that in Q4 and those types of initiatives. They ultimately translate into a better working capital performance as you as you move forward. So I wouldn't say that we're done with that a lot.

But I wouldn't say, we are done yet mark Mark and we are we will be looking to drive better efficiency as we move into 21 on the back of I would say strong performance 20 nominally visits improve our working capital, but also going lower SG&A Hoover efficiency for distribution centers in other parts of our business. So and also if you will allow us to cute.

We're inventory, even though inventories are coming down we're going to have more inventory of the areas. So that we can improve our availability in our service to our customers basically so it's a woodwind less inventory lower cost better availability.

Basis is also.

Yeah understood. Thanks.

And and just with regards to the performance in the in retail and your private label program, how much and the growth. There I guess also when we go there brand too, but predominantly private label. It sounds like so how much of the growth there was increased shelf space versus improving velocity and is there any visibility to any further <unk>.

Change and shelf space or we are you sort of stable with where you are today.

Thanks.

I think that the growth is because of bookshelves based on philosophy really is as of today writes Relievo continue to take care of.

Our products are doing very well.

And we're looking to continue to grow as soon as we move forward in the future. So we're pretty excited about the level of growth.

And.

This is a computer operation as we look forward to us.

Okay I appreciate all the comments all the best.

Thank you.

And your next question is from lieutenant with kind of quaint.

Thanks, Good morning.

When I was wondering if you could give a little bit of color on the retail.

Segment of the activewear.

Division just curious to know what the trends are like for the different sort of and customers there specifically like the retail.

A specialty channel.

And may be mass and maybe just some of the other different customers and how pos's trending amongst those.

Or a retail sales overall, we're flatfoot are mass.

Products were actually up.

And some of our products. The result of global Lisboa Browns were.

Down in the quarter.

So our masses actually doing very well.

Okay. Thanks.

And Roger touched on that.

Manufacturing policy was 75% I think.

As of the end of the quarter, just curious to know if that number's changed significantly since quit around.

We should all right, so effectively where 75 and we've continued to bring it up as we moved into into Q4, and we're bringing it up in line with the.

The trends pos's industry rates still.

Still keeping your mind.

Target manager working capital inventory levels. So that's sort of how we used to look at it.

Okay. Thanks for the comments.

And your next question is from the line of Brian Morrison with CD Securities.

Okay. Good morning, just wanted to follow up on that point actually Rod can you just maybe put a number to queue for capacity utilization, maybe an early look for 2021.

Is going to impact expensive period costs, and then just in terms of mix or you simply referring to lower fleece in higher retail in terms of the way the weight on gross margin right now.

So.

Look at capacity utilization I mean, I think we're.

We're not giving guidance for the quarter, but effectively I think given where we are currently running only around 85% is there is a good number to ultimately.

Probably where we're going to settle out for for Q Q4.

And then if we look at.

The Martha gross margin effectively the impact of gross margin. It doesn't it does normalize as we or revert back to I would say the historical levels right as our sales moves up because again I would say across all of our product lines right. We get to that we just get a better mix I would say.

On average, but if you look at.

If you look at Q4 and then there.

There will be some things that will drive it as I said as well as you touched upon period cost will will help.

Police is going to help.

More generally and so again I think with the way to think about that.

Mix impact.

We were 600 basis points, we were 280 basis points down this quarter and then I would say, there's just a steady progression as we keep moving forward as our as our sales come back.

Okay. Thank you and then Glen just in terms of opportunities with global travel restrictions and your cost structure improvement and obviously more just in time requirements I'm curious if you're seeing hop heightened opportunities in G. L. B a private label label, that's typically a source from Asia.

Or single a lot of demand for.

Large group enters the service solve the retailers online sellers.

That's really been a big catalysts, who are pof's growth.

Because look at it would be the end of the day.

Will that have brands want to repurpose assure if they can take a guild that product is or fashion basic or police with all of our carpet sedentary with labels. They can quickly.

Change the label on the product can rebrand all of our products. So we are a conduit for success for a quick turn.

Onshoring I mean, just in general when people look to make it regularly screen-printing type Robert.

I think that the part of both the bigger picture, both the onshoring global supply chain.

That's still a big opportunity for us as we move into 21 because.

Robert.

Companies retailers.

Large large users of progress.

Has been fending off covid managing their overall.

Always in crisis management et cetera.

Settles people look to grow and other than the manager businesses vehicle for obviously the lack of travel.

<unk> purchasing in this hemisphere, I think is going to be a big plus for us and also the speeds are cool.

Five weeks versus.

Five months measure so I think we're well positioned.

Right now, we're getting a lot of that at once.

Businesses being scrutinized business being serves servicing below the mass retailers as well as the online sellers and I think that the next step forces to seasonal demands these opportunities position.

Our ways.

Marcus recovered.

And sorry, you're stating that based on discussions to date or just your intuition.

More minutes tuition, partly some disclosures.

Thanks very much.

Your next question is from Jim that he was capable.

Thank you. Good morning Hope you guys are doing well uhm I have a question on the retail market landscape can you speak any differences that you're seeing an pof's versus your reported sales I'm curious to what extent Grove <unk> was replenishment of depleted inventories that can scream two Q.

How that compares to Pls germs.

And then if you could speak about quarter to date Pls drunk and all that good for you.

What you're seeing in your ship them cause that'd be helpful.

Or a few three is obviously the biggest.

Parts of the year for for underwear in particular leave so and have all of our Pos's driven by point of sale and basically.

We're actually chasing proud of right now.

Because of our sales were so strong so it's it's all point of sale.

We've seen.

Yes.

Slightly come down a little bit from these levels.

First part of October.

But that seasonal I only have a space back to school that basically.

Like towards the end of the.

A holiday season, so but overall, we're very encouraged it's all based on growth on the point of sale.

Subaru buying our products basically yourself.

Thank you great can you comment on the competitive environment and can principles, our competitors matching your promotional stance.

And then you know it sounds like you think distributor destocking cause complete here at.

At what point would you expect to get to a more normalized pricing environment.

Well, we think they look at our objective is to leverage our back to basic strategy in the first division strategy. After this screw rationalization of his price of availability.

So we're going to continue to be very aggressive on price seeable future.

We think we can do that so.

Margin of Texas, because we're going to be driving manufacturing efficiencies as well as SG&A reductions associated with our activation strategy. So.

Our objective right now is.

Continue to run silver leadership physician drive market share the categories over under developed particularly in the fashion basis Richmond category.

And.

We think we're going to do this.

Seeable future through 2021.

It's definitely are plan.

And it's paying dividends, because we're seeing market share growth.

And we're also seeing I think we're getting market share gains.

Gaining market share through our pricing furniture, where it can.

Can you do it we don't believe their hitters at the staying power to even continue this type of pricing.

This was we're leveraging our low cost manufacturing.

We don't have the same cost structures, so and maybe some short term competitors matching but in the longer term basis, we believe that.

Price and availability, we went for us.

We're going to get back on the offensive, making sure that pressure.

<unk>.

And just one quick follow up if I may related to that is the market environment now stable and all such as if there were any opportunity that presented themselves.

Be ready to capitalize on that.

Well I think we're very happy and we believe.

Absolutely we are coming online.

Bringing it up pre covid levels, and then expanding our capacity beyond expansion Bangladesh.

We can continue to do that organically with all the opportunities that we do have as part of our back to the basic strategy is.

Focus on.

<unk> our capacity utilizing as we ask you that is available between you'll be repurposing of Mexican the capacity as well as the bangles actually a capacity coming online which is only phase. One. We also have a page two so we've got enough in front of US we think to continue driving sales.

And that's why we're focusing on our price.

And our market share.

Thank you.

And your next question comes from the Latin Micr's hernia with eds.

Hi, good morning, and thanks for taking my questions.

I want to ask if you could provide a little bit more insight on how the end user stockman's have behave throughout the quarter I mean, particularly very interested to see how you're seeing someone like like the corporate work and also like the social advance you see how do you see that evolving maybe next year and how much would you expect.

Expect that to come back.

Right now the good news is at the.

The end users still getting our products and different opportunities in other words, you know mass retailer online selling.

They're making up to avoid I think of.

Tourism and travel.

So the question is going to be.

So I'll ocean of the pandemic.

When social gatherings.

Michigan.

We'll see.

The traditional business come back so I can't really answer that question, because I don't know when that will happen.

But the good news is that despite all of these astronauts correct.

We're very encouraged with our pls.

Almost coming back to normalization.

And that's a function of us taking sure as well as the market recovering at finding ways to bring product to the end user so.

Can't really answer that question because it comes with us.

Yes.

Answer.

Okay understood and just one quick follow up you were also mentioning that probably sales might rebound next year to around 80, 85%.

Pre covid, so how should we think about the SG&A because I mean, you have implemented.

Back to basic strategy. So just.

Wondering like how much of the SG&A should we see that bounce back.

Next year, assuming they are smoking more and more mollescent environment.

And yesterday part we will see volume driven distribution costs right, then we'll roll into our SG&A, but I mean, I think the way to think about SG&A Emma more broadly is that we're driving to this 12% target.

We have two targets are gross margin targeted SG&A target.

And at 12% SG&A is something that we think that we're very close to or below that this quarter.

And we think we can run at that level or better as we as we move into 21.

Understood. Thank you very much and congratulations.

What's your final question comes from the line <unk> RBC capital.

Alright, Thanks, just on the commentary in the press release around the rationalization of kind of the retail offering maybe we would talk about another 25 million potential charge that you talked about Kentucky, which focus areas within your portfolio that might be from and sort of what's driving this rationalization.

Just a review of the strategy on the retail side. Thanks.

Or just continuing to optimize our business.

We're we're going to simplify or retail businesses as the market consensus solid date.

We have.

Mass growing we have basically.

Online selling growing so we want to focus on our growth drivers and make sure that we have our products associated with those.

Areas of distribution.

Simplifying our product line the amount of the assortment that we have.

Lex of the of the.

Products were selling and reduces the sku's improve efficiency like we did approve where we think that all of this will help us to drive sales as we go forward.

Reduce our inventory levels reduced for SG&A and actually improved margins and ultimately that's what we're looking to do is implement same back-to-basics strategy in retail as.

As we did the cougar market so.

You can see from our results and print where it's paid big dividends.

We think we don't seem to have a opportunity retail.

And it just.

For this.

Right in our strategy.

Perhaps.

We're looking at the very excited.

Positioning horizontal.

Okay, and then I know, there's been a bit of discussion on the call around.

All kinds of the current pof's being down only 10% versus prior year and it seems like even in the absence of any large gatherings other channels like online and resellers have stepped up and one of the pandemic started there was a bit of concerned that it's the corporate spend goes away maybe not all of it comes back.

Are you thinking about this new channels that have popped up like the online demand work from home consumer buying some of these product great. Do you think maybe that adds to the end market over time, maybe replaces some of the last.

Demand that might be there on the corporate side when we come out the other side. How are you thinking about how the end mark it looks today and the fact that you're 90% of back to kind of 2019 levels, even without large events.

I would say that.

Tuition will tell you that the market is going to grow Forssmann recovery playhouses, that's probably the way we will look at it and you think of the.

We're very efficient.

Supply chain.

Between the online and also we're also servicing the water large group printers are byproducts.

That are servicing retailer's mass market.

It gets free president traditionally so.

I think that overall I would say to answer questions. The market is growing.

Because the channel distributions expense.

So when when travel does come back corporate promotional spending does come back.

Definitely we will have a bigger markets.

Had before Covid.

Alright, thank you.

And there are no further questions at this time.

Okay, I would like to thank Pat thank everyone for joining us today, and we look forward to speaking to you very soon have a good day and thank thank.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating may now disconnect.

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