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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The analysis has consolidated financial statements.
These documents will be filed with the Canadian Securities and regulatory authority and the US Securities Commission and will be available on the company's corporate website.
On the call today, we have Glenshane, IDR, President and Chief Executive Officer, and Rot Harries, our executive Vice President and Chief financial and administrative officer animal.
In a moment, Rob will take you through the results for the quarter and accumulate session will follow before we begin. Please take note that certain statements included in this conference call May constitute forward looking statements within the meaning of the U.S Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve unknown and known risks.
Uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward looking statements.
We refer you to the company's filings with the US Securities and Exchange Commission and Canadian Securities Regulatory authority that may affect the company's future results.
I will now turn the call over to Rod.
Thank you Sophie.
Good morning, and thank you all for joining us on our third quarter call. We hope that you and your families are healthy and staying safe.
This morning, we posted results, reflecting strong recovery from the prior quarter sales.
Sales came back nicely more than doubling from the second quarter.
Saw good retail performance with sales up year over year, driven by momentum in underwear and although the pandemic continues to weigh on the demand for Unprintable used for large events other areas within this part of our business are growing and mitigating the impact.
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, our production levels by the end of the quarter third quarter or backup at 75% of overall pre cobot capacity.
And I can say, we have continued to bring more of production back on as we've moved into the fourth quarter as our manufacturing team continues to navigate well through this environment.
Turning to our operating results, we generated sales of $602 million in the quarter down 18.6% versus last year, but significantly better than the 71% decline in the second quarter.
Activewear sales of $456 million in the quarter were down 26.3%, while sales into hosiery underwear category totaling $146 million were up 21.2%.
We're activewear sales was mainly due to lower sales volumes of 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 USA printable channel as we continue 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 trends remain relatively stable through the quarter.
On average Pos 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 principle distributor destocking in the quarter in North America.
However, the level of Destocking ease considerably from what we 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 Gildan brand programs.
While those results 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 were 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 end principles promotional discounting and unfavorable product mix compared to last year.
Although product mix impacted margins by 280 basis points in the quarter on a sequential basis mix improved significantly compared to the 600 basis point impact we saw in the second quarter and we expect the negative impact from product mix to continue to reverse as our sales continue to normalize going forward.
Moving on SDMA, SDMA expenses totaled $61.5 million or 10.2% of sales down 17.5 million over last year.
The decrease stems 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 an adjusted basis.
And from $117.9 million and $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 cents per diluted share and $59.2 million or 30 cents per diluted share on an 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 of 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 focus on working capital management.
All our key customers are continuing 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 were $939 million down, 9% sequentially and 10% compared to last year as we can to continue to focus on carefully managing raw materials wip and finished goods level.
Accordingly at the end of the third quarter, the company's net debt stood at $850 million, our leverage ratio for debt covenant purposes, with two times net debt to 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 on what we're currently seeing in the marketplace.
Moving into the fourth quarter Pos trends across our in principle channels have further improved.
Averaging for the month of October down in the 10% range in the us 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 cases 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 and 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 basics strategy and we will continue to focus our efforts in this regard where we can control outcomes, regardless of the global environment.
For example, having completed our improved double SKU 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 our review leads to a decision to rationalize any part of our retail product offerings are related inventory charge could be incurred in the fourth quarter, which we do not currently expect to exceed $25 million.
So overall good work done to date on our back to basics strategy, but more to do as we fundamentally strengthen our competitive position in order to allow us to emerge from this pandemic as 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 the strong culture within Gildan regarding sustainably managing our business.
On behalf of the rest of the senior management team I would like to finish this update by thanking the whole gildan team, who operate with this mindset everyday.
Thank you.
We'll now turn the call back over facility.
Thank you Rob.
Before moving to the Q and a session I ask to limit the number of questions too and we will circle back for a second round of questions as time permits.
Ill 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 press star one on your telephone keypad.
And that is star and the number one.
Your first question is from the line of policy with Citibank.
Uh-huh.
And Paul Your line is open.
Hello.
Yes.
Hi, Jeremy.
Yes, we hearing.
And all that.
Two films curious if you've seen any improvement in the promotional levels within the in principle channel this quarter versus last quarter. I'm curious are there any categories that standout as being more or less promotional owners of promotions across the board and you mentioned the sales trends are better this quarter, but curious if anything has changed on that front.
Additional front and then totally separate I'm, just curious about your raw materials outlook for the first half on a 20 month. Thanks.
There may be on the promotion look weve her comments.
Commented that we are continuing to drive our activists exposure, which includes continuing to price and promote our products.
And basically this allowing us to continue to generate market share and improve our Pos and lower spending and promoting our products in the fashion basics bridge funds category.
Our open end basic T shirts on our fleece products and those were the main three areas that are.
Promoting and those are the three big categories that are driving.
Our Pos and market share gains as we speak so.
As far across the border promotions is specifically through to the three categories norm.
To date.
Okay.
Fended part your question Paul is our raw materials and I think if you look at raw materials, I mean cotton prices are going up but I think if you obviously I.
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.
Thank you good luck.
Thank you.
And your next question is from Chris Lee with Jordans.
Hi, Good morning, England, I know, we're still far away from the new normal, but I was just curious if you could give more colors on what tools to the Pos improvement from Q3 to October.
Casino consuming your end user demand that is quite impressive improvement. So if you can provide some more color on that it will be much appreciated. Thank you.
Well I mean, even Q3 was what we are pretty excited about it with an improvement in Q3 very honest with you everything you look at the.
Our industry and we were a little bit like the airline industry reached travelling tourism spur.
Sporting events as rock concerts, I mean, none of these things are clearly.
Come back to the sources. So factors. So the good news is that our products.
Our strong I'd.
Our lifestyle basic casual stay at home.
Is driving sales and what is happening this esters alternative waves of great product to market and thus assess the great news is that we have efficient industry.
We should have begun surgeons.
Scrip institutions and retail customers for example.
That are now carrying more products online recycling.
It's been very strong.
As of end of the day, you know really what were positions as Weve physicians, who have an effective supply chain to support.
Shifting in the market and the shifting of behavior of how people are consuming our new products.
Thats really the most important shining star of this will figure is net loss attributable to continue to grow.
And our market share.
In the market.
Service issues in the fall or social gathering expenses, such as assessing so we're very excited about it because we don't have all the answers because rigs with market waterparks or resort to distributors I guess, we'll screen printers. So it's hard for us to get a total enrollment.
Is very encouraging and as we've moved into October we continue to see.
Further upside in terms of more.
Our sales and market share gains.
Okay. That's helpful. Maybe a quick follow up you mentioned I think last quarter that you know.
Your expectation is still that by next year sales will recover to around 80% to 85% of the pre corporate 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 lets say thats a good view of.
We see that two three we see slightly improving so far this quarter, but some of the pandemic is also worsening I mean, what we see in Europe today.
So thats really a function of note.
Overall however.
How it effects, but I think of where we are and how we positioned our business, regardless I think we're well positioned we have a good handle on our manufacturing capacity to be able to go up or down or support and the demands of the market. Our inventory levels are in very good shape. Our debt has come down and will continue to drive return more cash flow as we move into the right.
Q4 into 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 of selling and driving pricing market share by price, but ultimately continuing to reduce the amount of working capital requires or business and all those things together are going to continue to play a big part of that.
Coverage for us and structure.
Great that's helpful and best left for the rest of the year and continue to face stay safe.
And your next question comes from the line of the shop Shreedhar with National Bank.
Hi, Thanks for taking my questions and congrats on nice results and the tough.
Okay.
Regarding regarding the Youre wholesaler.
Your wholesale customers wondering if you can update us on the state of inventories in the wholesale channel and.
And now that we've seen restocking for some period of time is it reasonable to Destocking sorry for some period of time is it reasonable to expect restocking in the coming quarters and also maybe just tag along the financial health of the.
Average wholesale customer.
Hello.
Most of our customers are sort of in the same position we are they've seen a big recovery.
In the industry.
So because of most of these products are being sold through our distributors. So as we recover they've recovered.
They also have managed our working capital and their financial stability as well. So overall, we're all the same.
Growth in the same direction, there and the inventories, yes, they probably hit the low at the end of Q3.
We'll be a little bit of that.
I was his are stable, but they will probably grow a little bit in Q4, EPS demand continues to grow.
To support the future sales, but they're very good shape customers are in good shape and.
<unk> expenses in our position right now.
Okay I appreciate that color and just a follow on to that with respect to your own money.
Manufacturing capability and the restrictions imposed the risk associated Coca 19 can you talk about.
Until there is ability to make sufficient inventory to reflect this seemingly improving demand outlook and do you foresee any problems related to COVID-19 and.
Okay, social discussing and restrictions and the manufacturing footprint.
Well you know whether this is one of the things on that.
Our strength is being a vertically integrated manufacturer.
And would you really see how we've performed.
This quarter and how we brought back our production as we move auction and our strength of our management manufacturing team salt.
He is a great job.
We believe our capacity to 75% level, which was lower than with some of the sales level, because we were focusing on making sure that we can.
Free cash flow and bring down our inventories and.
And we're continuing to increase as we speak into two floor to support demands we have all the flexibility related to decide how fast we want to go up and.
We have to scale and we can do that relatively easy tubing business, we're going to manage.
Really what what occurs in the market.
We've got available capacity to continue growing to 100% pre corporate levels. That's all celebrate ago. We've got capacity that is being installed as we speak.
From the closure of our Mexican facilities.
We closed down in March that were repurchasing in Central America.
We're continuing to expand.
Planned for Bangladesh expansion, which is planned to come online in Q2 as Twentytwenty two so I think we're in a very good position.
Manufacturing perspective to continue to support.
Sales growth and we're also with the physicians that if sales correct.
Curtailed we.
We can support that relatively easy.
Where we are today.
So.
Now as a group were excited we have all the protocols in our factories redesign of our class social distancing the transportation testing employees every single day when they come in protest.
Temperature scams.
Sanitation under their footwear, we've put in all the protocols you know it is a factor that cobalt has.
Quick relevant in Central America.
We've been able to operate and control our situation in our factories.
I've been pretty well so far.
Thank you.
And your next question comes from the line of Sam Khan with RBC.
Just.
Oh, we're having we're having trouble hearing.
And your line is open.
Good question with that Sean Your next question is from.
Even the cloud.
The amount.
Thank you good morning.
Right on.
I just had a couple of questions on the Unprintable segment actually sort of one question on the vertical segments and then one other in terms of the renewals can you just talk a little bit about.
Categories, where you saw incremental strength between Q2 in Q3, and then where are you seeing incremental strength between Q3 and into October.
But really is from Q2 to Q3, we saw a big improvement everywhere because in the shales, obviously material growth categories.
The categories that are driving is really the fashion basic rigs on t. shirts, and those are the those actually.
Our turning positive in the first part of Q4.
They are actually positive in Q3 actually too as well or positive in Q4.
Our basic category.
Category was still negative in Q3, but is actually turn positive so far in Q4.
And our fleece was positive in Q3 and continues to accelerate.
In Q4, so the areas that we're promoting.
Driving our back to basics strategy on price and availability.
Proving to be a the growth drivers of our.
Our sales.
The other styles that we have like we have a lot of.
Hello.
French shoes fringe items, let's say for example, the lost deals are going to tank other types assurance that are non core.
A lot of those progress gets sold into the souvenir tourism markets et cetera, So they have that.
Come back as fast as it will be.
Basic.
Basically surplus and for example, so what's driving that is the fashion category basics now small just like I said, it's come back up.
Fourth towards this one month.
And our leasing has been strong pretty much all three will be in two to three.
Great. Thank you.
And then on the margin side, you had some nice growth in Q3.
Sequentially.
And.
And you talked about sort of margins normalizing or certainly the mix impact normalizing and can you just talk a bit about how you expect that to evolve and then do you still view.
30% level us potentially attainable as you get into 2021 2022.
Yeah, I mean, if you said if you look at the margin that Stephen how it's evolved bright we have seen most of the impact that we called out as.
We moved from Q2 to Q3 and you can see them continue evolve as we move into into Q4. So we had in Q2, we had a lot of period cost in Q3. We also had period cost we call. It out 250 basis points right as we move Matt ran our manufacturing on average but.
70% utilization 75 at the end of the quarter and then as we move into Q4 that will improve as we as we continue to ramp up our production. So effectively that will diminish on the mix side, we have seen the evolution of the mix I'd point negative in Q2 Q3 also negative 280 basis point impact and then.
As we move into Q4 effectively has the mix starts to normalize that should diminish we still have a mixed impacts like let glen called out French products. The pockets things like those that 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.
You see a seed pod positive mix overall.
Fleece is an area where effectively we probably.
If you look at Q3 effectively some of that had shifted into Q4 for a number of different reasons and that's that drives a positive margin. So overall I would say our margin is evolving as effectively everything normalizes and as we drive to 21, if you look at our longer term targets, we very definitely are.
Driving towards those targets, it's going to take some time, we called that out last quarter effectively previously we had said that we thought we would be able to pre cobot 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 cobot perspective.
Right, because youve got to get to a more normalized in buyer of a normalized.
Environmental overall, where print where business is back to where it was in in 2019, but were still going after those targets.
Okay. That's that's helpful. Thank you and congrats on the great quarter.
Thank you.
[noise] enter next question is from the line of Mark Petri, Let's see I BC.
Hi, good morning.
Working capital, obviously been very very strong Rod you highlighted your optimism for Q4. So is this just representative of a permanently in a 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 are we sort of at a relative.
At least stable level once we see the further benefit in Q4.
Well, we're going to continue to work on it right and I think if you look at the working capital.
As we simplify our overall structure as we effectively worked on our product portfolio and everything associated with back to basics.
I will translate ultimately into improved working capital better returns and so we've done a lot and you are seeing a benefit come through but we still have more to 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 Wouldnt say that we've done we've done a lot.
But I wouldn't say, we're done yet a mark Mark and we are we will be looking to drive better efficiency as we move into 21 on the back of flight with a strong performance in 2000 and that not only does it improve our working capital, but also going lower EPS junaid improve our efficiency for distribution centers and other parts of our business. So and also it will allow us to Q.
We're inventory build inventories are coming down we're going to have more inventory in the areas, where we can improve our availability in our service to our customers basically so it's a win win with less inventory lower cost better availability. That's one factor basis is also.
Yes understood. Thanks.
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 in the Gildan brand to but 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.
Change in shelf space or are we are you sort of stable with where you are at today.
Thanks.
I think that the growth is because oppose shelf space on philosophy are related to this day rates, we continue to take share.
Products are doing very well.
And you know, we're looking to continue to grow and as we move forward into the future. So we're pretty excited about the level of growth and I think.
This is a continued operation as we look forward to Pos.
Well.
Okay I appreciate all the comments all the best.
Thank you.
And your next question is from Linkedin with Canaccord.
Thanks, Good morning.
Glenn I was wondering if you could give a little bit of color on the retail segment of the Activewear Division.
Division just curious to know what the trends are like for the different sort of end customers. There specifically like the retail show that the specialty channel.
And maybe mass and maybe just some of the other different customers and how Pos is trending amongst those.
Retail sales overall were flat, but our mass.
Alex actually up.
And some of our products that we sell to global lifestyle brands were down.
Down in the quarter.
So our mass is actually doing very well.
Okay, Thanks, and Ron you touched on that.
Manufacturing costs. He was 75% I think as we ended the quarter just curious to know if that number is changed significantly since quarter end.
We pushed it up right. So effectively we're 75 and we've continued to bring it up as we've moved into a into Q4 and we're bringing up in line with you know the the trends of Pos the industry right.
Still keeping in mind.
Trying to manage our working capital and inventory levels. So that's sort of how we used to look at it.
Okay. Thanks for the comments.
And then I would say, there's just a steady progression as we keep moving forward.
As our other 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've seen hop heightened opportunities in G. L. B your private label label, that's typically a source from Asia.
What we're seeing a lot of them large for your address the service all the retailers and online sellers.
That's really been a big catalysts, who are peer with growth uhm.
Uhm because look at it at the end of the day.
People that have brands Wanna Repurpose assure you can take a guild that product.
Either fashion basic or police all of our carpets I'm terribly labels. They can quickly change the label on the product and rebrand all of our products. So.
Or 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 and I think that's still a big opportunity for us as we move into 21 because.
A lot of big companies retailers.
Large large users a product.
Intending off Covid in managing their overall global inventories and crisis management et cetera.
Thus petals.
Look to grow and other than a manager business as we go forward.
Obviously, the lack of travel.
Inconveniences purchasing in this hemisphere, I think is going to be a big plus for us and also the speed that horrible.
Well.
Five weeks versus.
Five months almost in Asia. So.
Think we're well positioned.
Right now, we're getting a lot of that at once.
Business as being scrutinized visits being serves servicing a lot of the mass retailers as well as the online sellers and I think that the next step for us as the seasons.
Change contention coming on our way as markets recover.
And sorry, you're stating that based on discussions to date or just your intuition.
It's more minute tuition, partly some discussion just.
Thanks very much.
Your next question is from Jim getting was too slow.
Thank you. Good morning Hope you guys are doing well I have a question on the retail market landscape can you speak any differences.
C N N P O S versus your reported sales I'm curious to what extent broken <unk> was replenishment of depleted inventories exiting two Q.
Well, how that compares to pls trends.
And then if you could speak about quarter to date P. O S Dragon, how that fits with what you're saying and your ship and cause that'd be helpful.
Q3 is is obviously the biggest.
Part of the year for underwear in particular leave so and have all of our pos's driven by point of sale and professionally.
We're actually chasing privately I'll be I'll be honest with you.
Because of our sales are so strong so it's it's all point of sale.
We've seen.
Pass slightly.
Slightly come down a little bit these levels.
As part of October.
But that seasonal I mean, the only have a spike back to school and that is basically.
Like towards the end of the holiday.
The holiday season so.
Overall, we're very encouraged it's all based on growth on point of sale.
Buying our products basically.
Thank you Glenn can you comment on the competitive environment and can principles our competitors matching your promotional stand.
And then you know it sounds like you'd think distributor Destocking is complete here at.
At what point would you expect to get to a more normalized pricing environment.
Well, we think they'll look at our objective is to leverage our back to basic strategy in the first however, bass fishing strategy.
Screw rationalization is price availability.
So we're going to continue to be very aggressive on price through the seeable future.
We think we can do that so obtain a margin of Texas, because we're going to be driving manufacturing efficiencies as well as SG&A reductions associated with activation strategy. So.
Our objective right now is.
Continue to deliver leadership position drive market share in the categories that were under developed particularly in the fashion phases Richmond category.
And.
We think we're going to.
C a on 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 strategies can you do it we don't believe their competitors have the staying power to even continue this type of pricing. This was we're leveraging on low cost manufacturing.
And they don't have the same cost structures reasons, so and maybe some short term competitors matching but on a longer term basis.
Lisa.
Price and availability, we went for us.
We're going to get back on the offensive, making sure that we can continue to drive sure.
Categories.
And just one quick follow up if I may related to that is the market environment now stable enough such that if there were M&A opportunities presented themselves.
Be ready to capitalize on that.
Well I think we're very happy and we believe that with the capacity we are coming online.
Bring it up to pre comment levels, and then expanding our capacity beyond included the expansion Bangladesh. We can continue to do that organically, but all the opportunities that we do have and that's part of our back to basic strategy is.
Focus on maximising our capacity utilizing it actually that's available between the repurposing of our Mexican capacity as well as the Bangladeshi acid coming online, which is only face why don't we also have a phase two so we've got.
Just in front of US we think to continue driving sales.
And that's why we're focusing on our price or availability in our market share.
Thank you.
And your next question comes from the line Micr's hernia with EPS.
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 users that men have behave throughout a quarter I mean, particularly very interested to see how you're seeing you know some 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 end users still getting our products to different opportunities in other words, you know mass retailer online selling their.
They're making up to avoid I think of.
That tourism and travel.
So the question is going to be <unk>.
Ocean of the pandemic.
When social gatherings commence again and then 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.
Especially answering that question you because of the hospital.
Us.
Answer.
Okay understood and just one quick follow up you are also mentioning that probably sales.
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 wonder.
I'm wondering like how much of the SG&A should we see that bounce back.
Next year, assuming there smoking more normalized environment.
And we.
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.
Right. 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 move into 21.
Understood. Thank you very much and congratulations.
What's your final question comes from the line <unk> RBC capital.
Thanks, just on the commentary in the press release around the rationalization of kind of the retail offering maybe we would talk about the 25 million potential charge that you talked about conductor, which focus areas within your portfolio that might be from and sort of what's driving this rationalized.
Asian, or just a review of the strategy on the retail side. Thanks.
Well, we're just continuing to optimize our business.
But.
We're we're going to simplify or retail businesses market consensus solid date.
We have.
Mass growing we have basically.
Online selling growing so we want to focus on our growth drivers and making sure that we have our products associated with those.
Areas of distribution.
And simplifying our product line the amount of assortment that we have the complexity of the products were selling and reduces the sku's improve efficiency like we did appear 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 going to do is implement same at the basic strategy in retail as.
As we did in the Hoover market so.
You can see from our results and print where it's paid big dividends.
We think we haven't seen type of opportunity in retail.
Just saying.
Staying focused.
Our strategy fluids.
And we're looking at the very excited about our position with horizontal.
Okay, and then I know, there's been a bit of discussion on the call around.
Kind 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 how are you thinking about this new channels that have popped up like the online <unk>.
I 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.
Intuition would tell you that the market is going to grow forsman recovery playhouses, and that's probably the way we will look at it and you think of it.
We're very efficient.
Supply chain.
Between the online and also we're also servicing a lot of large group printers are byproducts.
That are servicing retailer's mass market.
Things against traditionally so.
I think that overall I would say to answer questions. The market is growing.
Because the channel distribution as expenses.
So when when.
When travel does come back corporate promotional spending does come back.
Definitely we will have a big of a market.
When we had before building.
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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