Q3 2021 Gildan Activewear Inc Earnings Call

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C B S and gentlemen, thank you for standing by and welcome to the theory quite third 2021, gilden active where or evenings country and scholar at this time all participants are in a listen only mode I'll stay the speaker's presentation, there will be a question and answer session.

Please be advised that the these countries is being recorded that if you require any further assistance. Please press <unk> I wouldn't know like behind the conference over it through your speakers a D. Sophie Argyria U V B invest part Dude, making sure. Thank you. Please go ahead.

<unk> good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our earnings results for the third quarter of 2021. We also issued our interim shareholder report containing management's discussion and analysis of consolidated financial statements, which will be filed with the Canadian security has been regular.

Sorry authorities and the U S Securities Commission and are available on the company's corporate website. Joining me on the call. This morning, or Glen <unk>, President and Chief Executive Officer of Gilden, and rot, Harry our executive Vice President and Chief financial and administrative officer in a moment Rod will take you through the results for the order in.

Q and a session will follow afterwards, I would like to remind you that certain statements included in this conference call may constitute forward looking statements within the meaning of the he was private Securities Litigation Reform Act of 1995.

Such forward looking statements involve unknown unknown risks uncertainties and other factors, which could cause actual results to differ materially from future results expressed.

Orange line by such forward looking statements.

We refer you to the company's filings with the Euro Securities and Exchange Commission and Canadian Securities regulatory authorities that may affect.

The companies to get your results and now I will turn turn it over to that plan.

Thank you Sophie good.

Good morning to all and thank you for joining us on the call today, where.

We are pleased with the record results we delivered in the third quarter building on the strong performance we achieved in the first half of the year.

Ah back to basic strategy and our focus on operational execution is delivering a sustainable improvement in the economic suburb business.

This combined with the continued improvement is the demand environment allowed us to generate record sales of 802 million in the quarter, which were above prepandemic levels record adjusted EPS of 80 cents up 51% over 2019 and free cash flow of 232 million a record for a third quarter.

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On a capital allocation priorities, we we're active with our share repurchase program, which we reinstated in August buying back more than 3.3 million shares in the war.

Another 1.3 million in the month of October, bringing our total share repurchase the date to more than 4.6 million shares at a total cost of approximately $175 million.

Our net debt position further declined to 287 million by the end of the third quarter, reducing our net debt leverage ratio of 2.4 times and leaving us with strong ongoing return of capital capability.

Turning to the details of the results for the quarter total net sales of 802 million were up 33% over last year, driven by sales volume increases inactive wearing underwear favorable product mix and lower promotional spending and accruals.

In the Activewear category, where we generated $656 million in sales, 44% higher than last year volume growth was primarily driven by the strong euro will be your recovery and principles P O S.

Consequently, activewear shipments were up and and principles channels, both in North America and internationally as well as in North American retail channels compared to last year.

Sales and the hosier and underwear category of $146 million were flat versus the prior year as lower stock sales, which were affected by supply constraints of sore sock products offset continued sales volume growth of wonder where products.

When compared to Prepandemic levels sales in the third quarter reflected strong growth, increasing 8% from a base of $740 million in the third quarter of 2019.

With higher activewear under the worst sales volumes and favorable products mix as the main drivers for the growth.

Our activewear sales volumes reflected the significant recovery in demand in our own principles channels.

And higher year over yourself through of our products in retail.

We were pleased with the continued recovery we saw in our total principals pass which turned positive in the quarter driven by positive sell through versus 2019 in North America. Despite international pass still lagging 2019 levels.

In the Hosier and underwear category sales were 21% above 2019, driven by strong underwear volumes, which more than doubled offset in part by lower stock sales.

So overall, a strong topline performance, despite a tight supply chain environment, particularly on the Orange side, which has been limiting our ability to build inventory as a secondary priority to our current primary focus of servicing our customers pass needs.

Moving on the margin performance Ah key call out for the quarter with adjusted gross margin coming in at 30, 31.4%.

This translated into an 890 basis point margin increase compared to 22.5% in the third quarter of 2020.

Margin performance was driven primarily by favorable product mix a reduction in promotional spending and accruals the impact of nonrecurring COVID-19 related costs incurred last year and cost benefits from our back-to-basics initiatives, which are continuing to favorably impact our gross margin.

When compared to the third quarter of 2019, adjusted gross margins of 31.4% in the quarter.

400 basis points due mainly to a back to basics cost efficiencies and lower raw raw material costs, while net selling prices remained essentially flat to 2019.

Turning to SG&A expenses of $81 million in the quarter or 10.1% of sales were relatively flat versus the second quarter of this year and up approximately $20 million compared to $61 million or 10.2% of sales in the third quarter of 2020, the year over year increase was mainly due to higher variable compensation expenses offset in part by.

Back to basics cost savings.

Relative to 2019 levels SG&A expenses were up slightly and as a percentage of sales total $10, 1%, improving 60 basis points compared to 10.7% in the third quarter of 2019 as volume leverage in cost savings more than offset higher variable compensation.

Something that's all up as a result of our growth in sales are strong gross margin performance and SG&A leverage we generated adjusted operating income of $172 million in the third quarter translating two and adjusted operating margin of 21.5% compared to 12, 2% last year.

Financial expenses were down 6 million over the prior year offsetting higher income taxes.

Consequently, we reported net earnings of 188 million and adjusted net earnings of $159 million up from $56 million and $59 million respectively in 2020.

Just did diluted EPS for the quarter was 80.

167% from 30 last year.

Compared to 2019 stronger adjusted gross margin in SG&A performance drove 500 basis point adjusted operating margin improvement in the quarter compared to 16.5% in 2019, which led to a 51% increase in adjusted EPS versus the third quarter of 2019.

Finally from a free cash flow perspective, we generated $232 million in the quarter, bringing our total on a year to date basis to 478 million and leaving us well positioned to deliver over $500 million a free cash flow for the full year.

As I mentioned earlier on the call. We ended the quarter with a net debt position of 287 million down approximately 75 million from the end of the second quarter.

Or that leverage ratio declines sequentially to a 0.4 times net debt to trailing 12 months adjusted EBITDA from six times at the end of the second quarter, well below our target leveraged range of one to two times and positioning us with strong ongoing return of capital capability.

This sums up the key highlights of our results for the third quarter and before opening up the call to questions I want to touch on two more areas ESG in the current market environment.

On the ESG side, we were pleased this past week to rank eighth overall in the investor's business Daily Top 100, best ESG companies list, which was published on October 25th.

Further to our top 10 ranking gilden placed first in the consumer goods sector strong recognition of our focus on ESG, which is a fundamental part of our overall business strategy.

On the current environment, although there are various dynamics in the marketplace today, including supply chain disruptions and inflationary pressures, which are creating headwinds for many companies. We believe we are well positioned to manage through these factors and continued to deliver on our financial objectives.

A relative position positioning is strong given our vertically integrated model and the geographical locations of our manufacturing supply chain.

The vast majority of our sales are internally manufactured predominantly in our facilities in Central America and the Caribbean.

Consequently, our exposure to manufacturing delays for source products from the eastern Hemisphere, specifically countries like Vietnam in other regions in Asia that have been experiencing pandemic related shutdowns is low.

Similarly, our dependence on the West Coast ports, where we are seeing heavy backlogs is also limited.

The largest proportion of our ocean shipments come through reports in the East coast.

And although we are seeing some inflationary pressure on transportation costs are exposure to the level of fruit inflation for goods coming in from Asia is limited in the context of our overall supply chain.

On the other side of the Ledger are you aren't supply has remained constrained due to U S labor market tightness, although we are seeing improvement.

Overall, we have done an exceptional job managing through these constraints and we are confident that our team will continue to navigate through this environment.

Finally on raw material costs, almost obviously many of you have been following the recent rise in cotton prices, which is a meaningful input for many apparel companies.

Typically we like to maintain a certain level of visibility over our future raw material costs, and we try to mitigate or offset rising raw material costs through a combination of hedging cost reductions driven by our scale and vertical integration and through pricing.

In this regard we believe we are well positioned to manage through current inflationary pressures, primarily due to back to base with cost efficiencies combined with recent pricing actions, we started to implement in the fourth quarter of this year.

In particular, having lower pricing last year in order to drive market share even with the recent price increases we have announced our current pricing levels remain only modestly above 2019, prepandemic levels, providing us with strong flexibility to manage inflationary pressure as we go forward.

So in closing our continued focus on execution and our strong performance. The date in the context of the current environment together with a positive progression and demand, which is now driving pass trends in North America above <unk> levels leaves us feeling good about the momentum we're seeing in our business and.

In spite of supply chain tightness in certain areas and rising inflationary pressure are positioning gives us confidence that we can manage through these near term factors and as we continue to shift our focus to a capacity innovation and ESG driven sustainable growth strategy. We believe we are well placed to capitalize on market share opportunities.

And create long term value for our shareholders.

This concludes my formal remarks, and with that I will turn it back over to Sophie. Thank.

Thank you Rod.

The problem logging into Q&A session I would ask that you limit the number of questions to <unk> and we will start call back for a second round of questions. If time permits I will now turn the call over back to the operator to start off.

Answer Sasha.

Yeah.

Thank you as a reminder to ask that question you will need to breath fire. One on your telephone though is that all your question France's Punky. Please stand by lab, we compiled Q&A roster.

Sure first question comes from the line of fall led Giovanna from Citigroup.

Gary Lane is open.

Okay. Thanks, guys curious if you can give us an update on the additional manufacturing capacity you expect to come on line for 22, when you might be able to start taking orders.

Under the assumption that that additional capacity can fulfill orders and 22 or maybe have already and then second just on the price increases.

Just curious.

What have we seen so far did any of your price increases impact.

Impact the third quarter, and what sort of increases are we talking about that will impact the future quarter strength.

Okay, well I'll check the capacity question, it's Glenn.

Well, what we said previous calls is that we were repurposing all of our equipment from Mexico into Central America.

And we were going to expand our capacity in the neighborhood of about $500 million in potential revenue.

Equipment was going to be installed towards the end of this year, which was what we are on track for.

The bulk of this equipment will be installed by the end of fiscal 21.

We've already started to wrap up the capacity as you can see we're already producing past 2019 levels as we support sales as we move forward and that's being balanced out by our ability to bring our yarn to support the price the capacity increase so that's what we're we're really managing through right now as we which is improving.

Every day as we as we get more folks back to work and our capacity in training and everything else in our yard facilities as well as our European partners, which experience really the same type of shortfall.

Shortfall in their yards. So we're moving forward and the capacity of the ramp up during.

22, and it'll be a function of really the availability of our yard which were working and focusing on so we only really have really one major focus right. Now is just making sure we secure yard requirements to support system capacity buildup, because everything else is in place.

And the price increases Paul I mean, if you look at our pricing and Glenda third quarter, and if you want to compare versus pre COVID-19 levels really we didn't have any net price increase in the in the third quarter more basically flat to 2019 as you move into the fourth quarter. We did take some price increases they will start to kick in at the.

At the beginning of the quarter, but it's pretty modest as I called out in the in my comments. So overall, we're effectively looking at price.

Net price in the fourth quarter of between two and 3% versus 2019, and then if you move to next year, we'll see where we are we are.

Obviously, as we think about our whole system or vertically.

Integrated manufacturing system in our back to basics, that's the first place we look to offset.

Cost of pressure and increases and so we'll look at that and we'll use that scale and back to base of deficiencies to offset as much cost as possible.

But we will take what whatever cost that we need ultimately as we move in whatever place we need as we move into.

2022 in order to manage our margin profile and we've talked about it like this many times before that we are really driving this operating margin target of 18%. We believe that's the optimal place first to be as we run the business as we drive to use our capacity and so we will effectively manages.

We move into 2022 to focus on that.

And take what price, we need in order to manage that but again that'll be after we use all of our efficiencies and I think given our overall price setup, we're very well positioned to manage that as we as we move forward.

Rod just just as a follow up more of your price caps look like versus the competition right now and how do you see that changing over time as you make your price adjustments.

And do you think your price adjustments my bide match up to the competition.

World over we think that the <unk> is widening that's why we feel very comfortable there's lots of room, if you choose to raise prices, but keeping in mind that we have a lot of capacity coming on our focus is to be capacity driven.

Company and.

And drive our top line sales, so where we are right now I think we've got all the flexibility in the world the cost in terms of pricing and the market our products for certain competitors is is increasing.

And.

Our big focus right now is gearing up and and delivering and.

Both of our manufacturing our capacities of 500 million, we have available, but don't forget we have Bangladesh, which is going to be coming on at the end of Q2, Q4, 22, which is also a big incremental 500 million of capacity. So we have a lot of capacity available to us and this is a chance for US too we believe would take market share. So we want to bounce.

Still all these pieces together and as long as we can deliver top line growth with 18% of operating margins and it takes significant market share.

<unk>. Thanks.

Couple of years, we think we referred comfortable with that position.

Got it thank you guys come up.

Thanks, Paul.

Your next question comes from the line of the shell she'd dire from National that Youre Lane is open.

Hi, Thanks for taking my questions and.

Congrats on the on the quarter.

In terms of the the outlook management has performed very well on back to basics, probably better than than than we would have anticipated at the outset can you give us some comments on where you are back to basics what remains to be done and.

That 18% margin is management can eat it could manage to that you see inflationary pressure and drive towards that 18% or.

Other other leaders that you may cause it goes forward.

Well the 18% is our focus and we're going to continue to manage against do 2% I think that's a given.

And that's a long term Michael move up a little bit later this year, but.

Focuses the 18%.

And look at it would be back to basics is it's a culture. It's not the strategy really so what we've done is we've instilled in our organization Ah discipline to continue to write and that's what America very successful. That's why we were able to capture a large portion portion of the market share.

From the beginning stages as unskilled then developed a <unk>.

Strategy of being a low cost manufacturer.

Asking those cost savings into a better quality product innovation and better pricing.

Or back to basic strategies, just taken us back to what is the core competency of the company and that's what we're continuing to do so we think that there is still.

Opportunities within our system you can never stop I mean, you're a challenge yourself.

We're looking at ways to continue look reducing costs and increasing capacity and efficiencies. So that's.

That's the best part of our DNA. So that I think is going to continue to evolve as we go forward.

And we're very excited about all of this capacity that's coming on this $500 million, we're bringing central America, and it's all going to.

Are operating plants, we have deflation that most people are seeing inflation, but our cost per operating and converting fabrics is coming down as a percentage is not going up. So now that's one of the great things about Hubbard leveraged our system and we will continue to do so as we go forward.

Okay. Thank you for that color and I was hoping you could provide us some perspective that you have on global minimum tax and how to think about it as it applies to kill them.

While we're tracking what's going on with a global minimum tax.

To to effectively.

Understand.

How it is I will evolve as we go forward I think everybody's looking at it and I think it's still probably a little bit early I would say to to really get a good read on it obviously.

We know what has been agreed and put forward and now obviously it has to go to Congress that have to go through the EU.

I think what's really important as we think about our structure. We do have a low effective tax rate, but that's driven by our overall business structure and it's driven by our vertical integration is driven by our setup in Central America.

It's driven by by a number of factors and none of that will change we're going to drive that whole vertically integrated system very hard as we go forward. It's all about back to basic it's all about our pivot now to our guild sort of our growth strategy as we go forward and as a result of that provides the competitive advantage strong competitive advantage.

We have versus the people that we compete against so from a tax perspective, we'll see how that unfolds again still early days.

I think we are obviously focused on 18% operating margin I think ultimately of our tax rates do increase will will probably reassess that and if you look at the the 18% effectively.

If our effective tax rate, which is around 5% went up to 15%. That's a 10% increase a 10% increase on our 18% operating margin pushes push our targets up really to about a 20% operating margin and we did a 20% helping margin last quarter.

So ultimately we'd have to focus on running the business driving that.

Free cash flow ultimately, but it's not going to change the way we are set up the way we think the way we compete what our DNA us and we think that is very strong and that's going to deliver really strong now value for shareholders long term.

Thank you.

Next question comes from the lineup.

Who knows.

From BMO capital markets. Your diet is open.

Thank you and good morning, and congrats on a great quarter.

I just have two questions for you one I was hoping you could just give a little bit of give a little bit more color around your yard supply situation.

You mentioned it as sort of a near term sort of a near term potential constraints as well as longer term.

Managing capacity towards yarn, and then secondly, with respect to the inflationary pressures, you're seeing and the pricing you've put through I just more near term was wondering if you give a little bit color around how you see Q4 gross margin evolving and potentially into Q1 as well.

Okay I'll take the yarn.

So.

Look at I mean, we've made huge improvements in this we earn has been a little bit of.

An issue and related to mainly because of our U S labor pool.

Covid related absenteeism, and et cetera, So I mean, we've we've.

We've turned the corner we've.

Been something that's affecting us all year long.

We started the year I think.

Struggling let's say there is maybe a good word but now we've we're improving every day and not just us I mean, that's a broader sentiment amongst even the partners and suppliers.

Hard as well and we've also increased.

We're seeing an internal volumes.

Through equipments another Avenue so.

We're basically we feel that were.

Moving forward.

And we're actually producing more today than we did in 2019 as we used to consuming some of this capacity.

Obviously, we're not fully utilizing the potential of our $500 million, but over the course of this year, we plan to to get us Sir.

And that's what we're driving for us so we feel that we should be in a position to.

I have a significant portion of the $500 million.

Aren't available for us as we move through 2022.

Alright.

So if you think about gross margin and how that's going to evolve as we go forward. If we look at the third quarter of gross margin was 31.4% very very strong, but the one thing I would call out as in that gross margin that was about 140 basis points of margin that was related to the reversal of a reserved for promotions. So there.

We did get a little bit of uplift in our margin associated from that which we won't see in the in the fourth quarter.

In the fourth quarter, we will see now headwind from raw materials coming through an inflationary pressures, we've pulled that out all year long that we expected that to hit us in the fourth quarter.

And that will come through and then to a certain extent will be offset by the price increases that we've talked about and prior questions. So overall, you will see a decline in our in our gross margin in the fourth quarter, but I think again, we keep going back to this the fact that we are running the business to achieve that target operating.

Margin of 18% and I think as we move into the fourth quarter, you won't you'll see us be able to deliver on that and then as we move into 22022.

The broader level effectively we will be managing gross margin SG&A everything the whole.

Focus together with obviously.

Our sales are capacity driven growth to hit that <unk>.

Target and that will effectively we will see how it goes quarter to quarter as we as we move into the new year, but again I wear.

We're focused effectively on delivering that number.

Full year and.

The fourth quarter, I think will be a good quarter down from where we currently are but.

But I think you'll see again numbers pretty well in line with that as we finish up the year and move into a 2022.

Okay, that's great.

Thanks, Thanks, Rob French wine.

Your next question comes from the line of police Lee from digital Randy Gary Lane is open.

Thank you and good morning planet to the extent that you can sure tell us how much of the common requirement for next year has been locked in prior to the recent searching on prices I'm, just trying to get a sense of when Gil down will stop consuming con that has been above the one dollar level. Thank you.

First we really don't provide that information, but I think that maybe one other way of looking at it is.

Cognizant trading.

Quite significantly higher than a year over year basis for some time now so I mean, the higher cost.

Of yarn or caught in let's say for example, lose probably already impacting.

Our cost of goods sold as we go forward.

But I don't really wouldn't want to say exactly you know our position in terms of cotton, but I would just say that but.

Both partners definitely.

Moving up.

Nowhere is Clinton lamp, obviously, because it's still volatile.

But we have a position.

You feel comfortable where we are today.

We have good visibility.

We have our pricing strategy, which is in line.

I think his nut.

We have lots of room on pricing, if we need big and.

We're going to deliver 18% operating margin Regrows Protocontinent this point in time.

So we really are pretty comfortable where we are I think as we move forward into twenties way too.

Okay, that's very helpful and I had a question it.

Shortly.

Would be some margin volatilities win.

Big jumping com prices, but followed by a quite a rapid decline in a short period of time.

The <unk> you see that as a as a risk to margin or do you think that in the current environment, where there is.

Inventory tight supply and recovering demand that.

Complex of more to come down the equity for whatever reason that that type of margin volatility that he had experienced in the past with up.

Materialize as much yeah, right I mean look at it.

Big volatility was in 2011, right when we went to $2 because of <unk>.

And then the world World ending.

Ending inventories were 46 million bills today to ratings, so we're not going to.

There is still ample cause in the world I mean part of the.

Fixed bite and cost and there is also a function of.

Supply chain disruption of me getting caught and supports and things like that so people are panicking and trying to get their cotton so.

Don't think that we're going to be in a position where we were in 2000.

And 11, but I mean, I would say that looked at were not.

Not aggressively raising prices I mean, we've got our price I think if you look at the lit Rudd said, our prices are going to be slightly.

19, Q3, we're at the same level as 19.

Q4 will be slightly higher than the 19.

So we were being careful on raising price and using our strength is our low cost manufacturing our cost initiatives are back to basics to the drive volume in this market because we think our competitors are under pressure that their cost structures are broken.

And this is a big advantages for us to take sure and ramp up to our $500 million and then followed that up with Bangladesh. So we're not going to go crazy on price and I can tell you, we're going to manage that 18% operating margin.

And we'll take what price, we need and I don't think that will be in a position to.

Worry about the.

The receipt of constant coming back down to lower levels.

Great that's helpful and all the best thank.

Thank you.

Question comes from the line of milk and then some kind of card did there'll be Sherry Lane is open.

Thanks. Good morning, just wanted to follow up on the I guess the demand part of the equation of what you would have seen a Q3 was there any on your end did you notice any I guess pull forward a demand.

From your distributor customers. So as a result of these cotton prices going higher so I guess, a chance for them to be all opportunistic and get.

Some lower cost inventory on their books.

No look at them and we saw Ashley Destocking into channel and the Q3 arena distributor our customers inventories of actually.

Decreased slightly from two to the Q3 because demand is so strong so.

This is all being full through my end user demand.

The market is very strong.

A lot of this is also a function of what's happening from onshoring people needing product.

The supply chain is basically.

Thank our overall market has grown through Covid, obviously through the onset of I'm online selling et cetera. So businesses is actually very strong in fact, if anything.

Sales on the table.

Okay, and then just as a follow up to that Glen I know, we've talked about in Pascal is just the delta the amount of restocking potential I guess, there isn't the channel relative to 2019, but is there anything that's come out of your your conversations with distributors that would indicate that there may be more comfortable with having lower inventory on their books sort of going for.

<unk> Covid.

Wood prior.

Prior to the onset of the pandemic.

No I think that they need more product that thinker efficiencies are.

Lack of product I think in the channel or a inventories are probably half of what they were.

And 19 today, so just to give you an idea of where they stand.

And it's just not it's not healthy we need we need more inventory in the channel that's what we're working to get too.

To increase obviously, our capacity that ultimately support for the bedroom the Tories the channel because.

When they buy a product if they have to ship vanilla consumer one of their end users.

One one.

What size from the East coast in one size from the West Coast and you will receive all those in your French shop.

That's just not good business is not something that they want to do right. So.

It has to be in the optimal amount of inventory in the channel it's below optimal levels today.

The thing is that businesses so strong.

That was going to take some time before that restock eventually happens if it maintains that these types of levels and I think that's worth eventually it will happen and they need to have more inventory for sure.

Okay. Thank you very much.

Next question comes from the line of Ryan Margaret from Phoebe Security secure line it's open.

Yeah. Thanks, very much good morning, just want to follow up on that question Glen because your inventory is down 23%, maybe just update us on what you see is your punishment needs in the history channel now and then in terms of the demand environment.

When do you think you are going to be in a position to commence replenishment within the channel.

Well, we don't know that obviously, because we don't know how scorpios will be as we move forward right. So it man just turned positive.

I think there's a lot more I think we're leaving orders on the table today, we know perfect. I mean, there's there's a lot of businesses that we had.

And so a lot of the capacity that we're building an increasing as we go forward I think we'll go ready to pass so.

The question is is that when the what point in time will.

We outstripped the demand of the pois basically and how I could pass code. That's the part that we don't know.

But that's a good problem to have so we'll see what happens I mean, we're in a relatively good I think position today.

We'd like to have a little bit more volume as we speak, but it's coming along and.

And our inventories are in line I mean, no one of our strategies in terms of back-to-basics is obviously.

Due to manage our working capital.

And our school so I don't think that it's it's our inventories.

That are.

To load accurate dollars, maybe a little bit low, but nothing significantly.

It's just the fact that.

Our capacity needs to be a little bit higher to be able to support the demand in the market today.

Just following up on that where it is your current state what is the current state of your transfer of assets in tears Central American facilities from Mexico.

It's pretty much complete I mean, we have but enter this quarter beginning of Q1 everything will be installed.

We've already started to utilize those assets because we only producing over 2019 levels as we speak today.

But we will continue to ramp up as we move forward and.

Windows are yarn availability, basically, which we have a plan to.

Plan to ramp up so I think we're we're moving forward.

We will have more capacity as we move into 22 and our objective would be is to try and have as much as $500 million available for sale in the 23.

Okay and last question just in the context of supply chain headwinds.

Is vertical integration has that been a notable benefit you gain market share or is it more still the pricing gap relative to the competition.

Well I think I'd look at we don't have a significant amount of inflation. So the person gap is obviously going to pay big dividends as we move forward I mean, that's that's a given right.

But look at where we are in a position to continue.

Driving success in our hemisphere.

It's paid off we've got adhering to a effective supply chain being brutally integrated of managing all aspects of our business I mean, there's very few people in the world to do it right. So it was proven that when you managerial supply chain you become more effective your control of your destiny. So we're going to continue to to benefit from our brief integration then I think that.

As the World changes and this is something that's a wake up call for everybody I mean.

People are scrambling for products, they need to understand who the reliable partners or I mean, I think that we also are going to be in a good position to continue having steady growth with all of our partners as we continue to move forward.

Thanks, very much Clinton.

Your next question comes from the line of diesel from you and you'll be at your line is open.

Great. Thank you so much I am wondering if you can elaborate a little bit on some of the demand sources in the quarter.

Specifically have you seen some of your orders coming in as a result of this big group events to extend you kind of know that I mean, you seemed like the world is completely reopens are we still kind of in the middle stages of Thanksgiving back to normal and all the different sources of where your demand comes from really coming back.

As they were prepandemic.

I think that the market has grown them and I said that all along as a free and then make I think we think the market has grown significantly through the.

For people that are brands that are able to sell online I mean, if you look at our products.

There is a canvas for somebody to create a brand right I mean, they can buy our shirts.

Put their label and the shirt put a screw prints on the product and creative brands. So a lot of that is I think has happened during the pandemic and there's a lot more friends.

Driven opportunities online selling has become.

Big opportunity, which is relative to the brand as well but.

Product into consumers, which never were able to before and that's a function of having digital printing, which has been a big impact on our industry where.

<unk> you need to run the screen printing operation where.

You basically have to set up and make 200 units at a time with digital printing you can make <unk> enthused. So.

We're going online you take a picture and you send it to your online provider and 10 days later or not even 10 days or three days later he had assured with your print on it.

Near shoring is becoming a bigger bigger factor and that's not just with.

I think global brands that we do business with but at this week in general people are reacting quicker to the market retailers are buying T shirts that are asking their providers too.

Sources products quicker and more domestic which is somewhere which is driving our volume. So we just did casually nation has been a big factor or police businesses.

On fire really I mean, it's up significantly.

The year over year basis, and up significantly over 2019.

Continuing to grow.

Can make enough of it.

So those are all things that are driving our business. So we.

We think we're relatively in a good position to continue.

Growth, but the only the only area that we have which I think is a little bit.

Lagging as our international business, which fully hasn't come back from Pls puts us improved over last year.

Got it okay. Thank you so much.

Again to ask that question, you will need to breath fire one on your telephone.

Your next question comes from the line of Mark Pepsi from C. I B C. Here Lane is open.

Hey, good morning, just wanted to follow up on a couple of things you've touched on.

Specifically, just with regards to working capital.

Are you comfortable with the level that you are at today in or do you think there's opportunity for that to move one way or the other.

And then related to that.

Obviously, the free cash flow generation is extraordinarily strong.

When you think about opportunities to invest in your business are there additional opportunities for either vertical integration or potentially expanding capacity through acquisition.

Thanks.

Do you want US yeah on the working capital Mark are working capital.

If you look in the quarter was around 25, 26%.

It's a little low I mean back-to-basics has been about optimizing.

Our whole setup and through the optimization, we should be able to run with lower working capital.

We have been able to actually it's been a big benefit I would say from the whole the whole strategy.

But we are tight and we are a little bit low. So if you think about 26 I would say that.

We used to talk about running with our working capital in the low 30, 30 to 35 and I think probably now we could probably run with around 30, something like that so it's effectively it's a little bit low a little bit below where we want it to be but we it is a big part of our overall strategy and we should be able to keep it reasonably low in turn.

It as fast as we go forward.

What was the second part of the question you asked for it.

Oh, I was just asking about sort of opportunities to deploy capital a side or probably burning cash to shareholders either other opportunities for vertical integration.

Or potentially acquisition, presumably to add capacity, but.

Other possibilities too.

I think if we were always looking for ways to.

Grow our business in terms of capacity. So I think that if there is some type of acquisition for us.

Probably more be more capacity.

More textiles, or something that screwdriver, our top line growth really you know what I mean, so that's probably the type of acquisition that we will look at today.

But we have a lot of capacity coming on to to be honest with you I mean, we have a significant amount of capacity today and and Ah.

Central America, textiles, and we have Bangladesh one.

Coming online that we have Bangladesh to sort of real growth in a good spot. So we will continue to.

Look at the polling our cash to shareholders of me in the near term for sure.

Obviously, we will continue to buy back shares in.

And.

Returning capital from governance, I think that's really the in the shorter term, that's probably where I think the.

B.

Luke where we will be in terms of casual.

Okay.

Thank you.

Okay.

Next question comes from the line of Jim That's C from the South Carolina is open.

Go ahead.

I think he may have crossed sorry.

I prefer more there.

Sorry for that.

Congratulations on your ESG recognition to start.

Can you guys speak to what you see it in your globalized sell brands engagement given your ESG standing in Western Hemisphere manufacturing I would expect that to be.

Very constructive found.

Foundation for discussions any new business opportunities to point too.

Well look who were part of our growth strategy is to continue developing our relationship with these customers.

There is definitely I think the big focus on Nearshoring and we're in talks with most of our global lifestyle brands to continue to.

Grow their business and I think combined with our ESG strategy, even looking at providing products in other geographical markets believe it or not.

Because we're positioning ourselves as a as a tier one supplier of product.

And E S. G for US, we think is going to be.

Game changer.

As we move into the future.

Because people are going to need to rely on our supply chain partners and we believe that we are well positioned to continue capitalising on our position.

Great Glen can I ask you a straight a tributary inventories relative to.

And are you seeing any pull forward a demand from distributors in an attempt to build skok ahead of.

Anticipated price increases.

What I said.

A couple of questions ago was that the the inventory in the channel released from roughly about half of what it was in 19 and just put things in perspective.

And <unk> is turning positive relative to 19 so.

Inventories are tightened child.

Thanks. Thanks.

Thank you.

There are no further questions at this time missiles. He please continue.

Great. Thank you Gal and with that once again I would like to thank everyone for their participation today and we look forward to speaking to you have a wonderful day <unk>. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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