Q3 2021 Gildan Activewear Inc Earnings Call
[music].
C B S and gentlemen, thank you for standing by and welcome to the thread quite third 2021, gilden active where or evenings country and skull. 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.
<unk> I would know like behind the conference over it through your speakers a D. Sophie R. J U V B invest part Dude, making sure. Thank you. Please go ahead.
Thank you Gail 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 securities.
Latoya authorities and the U S Securities Commission and are available on the company's corporate website. Joining me on the call. This morning, or Glenn should that'd be president and Chief Executive Officer of Gilden, and rock Harry's Alright, Executive Vice President and Chief financial and administrative officer in a moment Rod will take you through the results for the court.
<unk> and a Q&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 U as 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.
Or implied by such forward looking statements.
We refer you to the company's filings with the U S Securities and Exchange Commission and Canadian Securities regulatory authorities that may affect.
The companies to get your results and now I will turn turn it over to that plan.
Thank you Sophie.
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.
Or back to basic strategy and our focus on operational execution is delivering a sustainable improvement in the economic suburb business at.
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.
51% over 2019, and free cash flow of 232 million a record for a third quarter.
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 water and another $1.3 million in the month of October, bringing our total share repurchase the date to more than four 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 year 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 Hoser and underwear category of 146 million were flat versus the prior year as lower stock sales, which were affected by supply constraints of source products offset continued sales volume growth of underwear 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.
With higher activewear underwear 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 Hoser 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 covered 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 realm.
Relative to 2019 levels SG&A expenses were up slightly and as a percentage of sales totaled $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 a diluted EPS for the quarter was 80.
167% from 30 last year.
Compared to 2019 stronger adjusted gross margin and 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 as well positioned to deliver over $500 million a free cash flow for the full year.
As I mentioned earlier in the call. We ended the quarter with a net debt position of 287 million down approximately $75 million for the end of the second quarter.
Or that leverage ratio declines sequentially to a 0.4 times net debt to trailing 12 months of adjusted EBITDA from six times at the end of the second quarter, well below our target leverage 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 location 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 similar.
Similarly, our dependence on the West Coast ports, where we are seeing heavy backlogs is also limited as 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 free 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're confident that our team will continue to navigate through this environment.
Finally on raw material costs <unk>, obviously, many of you have been following the recent rise in cotton prices, which is a meaningful input for many apparel companies tip.
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 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 pre kubat 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 their 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 you Rod.
Before moving to the Q&A fashion I would ask that you limit the number of questions to <unk> and we will circle back for a second round of questions as time permits I will now turn the call over back to the operator to start off.
Sasha.
Yeah.
Thank you as a reminder to ask that question you will need suppressed fire one on your telephone though is that all your question France's punky. Please elaborate compiled a 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.
Curious.
What have we seen so far did any of your price increases.
Impact the third quarter, and what sort of increases are we talking about that will impact the future quarters. Thanks.
Okay, we'll aspect of 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.
That 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 2001.
We've already started to wrap up the capacity I mean as you can see we're already producing.
2019 levels as we support sales as we move forward and that's being bounced out by our ability to bring our yarn to support the price.
Passage 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 shoe.
Short fall 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 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 when the third quarter and if you want to compare it 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 pressure and increases and so we'll look at that and we will use that scale and back to base it deficiencies to offset as much cost as possible but.
But we will take whatever costs that we need ultimately as we move in.
Whatever price, 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 will 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 mind match up to the competition.
World over we think that the price cap is widening that's way we feel very comfortable there's lots of room, if we 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 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 competitors is is increasing.
And.
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 where 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 that take market share. So we want to bounce.
Still all these pieces together and as long as we can deliver top line growth of 18% of operating margins and it takes significant market share.
Period.
A couple of years, we think we've referred comfortable with that position.
Got it thank you guys come up.
Thanks, Paul.
Your next question comes from the lineup Vishal she'd dire from National Bank. Your line is open.
Hi, Thanks for taking my question then.
Congrats on the on the quarter.
In terms of the outlook management has performed very well on back to basics, probably better than than than 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.
At 18% margin is management could be it could have managed to that using 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 C. 2% I think that's a given.
And that's a long term Michael move up a little bit like I did that this year, but.
Focuses 18%.
And look at I moved 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 and that's what mayor company successful. That's why we were able to capture a large portion portion of the market share.
From the beginning stages is thats gilden developed a strategy of being a low cost manufacturer passing those gross cost savings into a better quality products 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 are still.
Opportunities within our system you can never stop many of challenge yourself.
We're looking at ways to continue look reducing costs and increasing capacity and efficiencies. So.
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.
And are operating plants, we have deflation that most people are seeing inflation, but I mean, 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 would you think of that as it applies to yoga.
While we're tracking what's going on with a global minimum tax.
To add to effectively.
Understand.
How it is I will 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 built 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 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 no value for shareholders long term.
Thank you.
Next question comes from the lineup.
Mcclellan.
From BMO capital markets your dining is open.
Thank you 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 it.
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 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 them and 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 turned a corner.
It's been something that's affecting us all year long.
We started the year I think.
Struggling with 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.
You aren't 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.
Actually producing more today than we did in 2019 is we use 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.
<unk> 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 was a.
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 that 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 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 operator.
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 <unk>.
<unk> together with obviously.
Our sales are capacity driven growth to hit that.
Target and that will effectively we'll see how it goes quarter to quarter.
We as we move into the new year, but again, we're we're focused effectively on delivering that number full.
Full year and.
The fourth quarter, I think will be a good quarter down from where we currently are.
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 rock Thanks, Mark.
Your next question comes from the line of priestly from digital right.
And is open.
Thank you and good morning planet to the extent that you can share.
Tell us how much of the common requirement for make sure has been locked in prior to the recent searching con prices I'm, just trying to get a sense of when Gil down will start consuming content has been up 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 our position in terms of Clinton, but I would just say that both partners definitely.
Moving up.
We don't know where.
It's going to land, obviously, because it's still volatile.
But we have a position where you feel comfortable where we are today.
We have good visibility.
We have our pricing strategy, which is in line.
I think his mutt.
We have lots of move on pricing, if we need big and.
We're going to deliver 18% operating margin Regrows protocontinent at this point in time.
So we really are pretty comfortable where we are I think as we move forward in the twenties way too.
Okay. That's very helpful. In my other question is historically.
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 those low inventory tight supply and recovering demand.
Complex of more to come down Luckily for whatever reason that that type of margin volatility that he had experienced in the past will not.
Materialize as much yes.
Right I mean look at it.
Big volatility was in 2011, right when I went to $2 because of <unk>.
And will world ending.
Ending inventories were 46 million bills today the ratings, so we're not going to.
There's still Apple causes of the World I mean part of the the.
Fixed bite and cotton 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.
I 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 look at we're not aggressively raising prices I mean, we've got our price I think if you look at that what Rudd said our prices are going to be slightly 90 in 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 or 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 first to take sure and rent.
Up to a $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% of operating margin.
And we will take what price, we need and I don't think that will be in a position to have to worry about the.
The receipt of constant coming back down to lower levels.
Great that's helpful and all the best Thank you.
At 10.
<unk> comes from the line and then some kind of an accord.
Cherry 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 of demand.
From your distributor customers. So as a result of these cotton prices going higher so I guess, a chance for them to be opportunistic and get.
Some lower cost inventory on their books.
No looking at I mean, we saw Ashley Destocking into channel and the Q3 arena distributor our customers inventories of actually.
Kris slightly from Q2 Q3, because demand is so strong so.
This is all being pulled 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 I mean.
The supply chain is basically.
We think 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 we left 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.
Four post COVID-19.
Prior.
Prior to the onset of the pandemic.
No I think that they need more product that incur efficiencies are.
Lack of product I think in the channel vendor 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 not it's not healthy we need we need more inventory in the channel that's what we're working to get too.
Increase obviously, our capacity that ultimately support for the bedroom and stories of the channel because.
When they buy a product that they have to ship 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 of those in your print shop.
It's just not good business is not something that they want to do right. So.
It has to be an optimal amount of inventory in the channel it's below optimal levels today.
The thing is that businesses, so strong that it's going to take some time before that restock. Eventually happens if it maintains that these types of levels and I think that's where it eventually that 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 Securities You're Lane is open.
Yeah. Thanks, very much good morning, just want to follow up on that question Glen because your inventories down 23%, maybe just update us on what you see is replenishment needs and the distributor channel now and then in terms of the demand environment.
When do you think you're 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 strong pass will be as we move forward right. So I mean just turned positive.
I think there's a lot more I think we are moving orders on the table today and we know it perfect I mean, there's a lot of business have you 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 west point in time will.
We outstripped the demand of the Pof's basically and how I could pass code. That's the part that we don't know.
That's a good problem to have so we'll see what happens I mean.
Relatively good 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.
Continued to manage our working capital.
Nor skew 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 harder to be able to support the demand in the market today.
Just following up on that where 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 when.
And build our yarn availability basically, which we have a plan to.
Plant the 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 the $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 and gaining 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 price gap is obviously, you're going to pay the 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 a tournament effective supply chain being brutally integrated of managing all aspects of our business I mean with very few people in the world to do it right. So.
Proven that when new manager on supply chain you become more effective your control of your destiny. So we're going to continue to benefit from our vertical integration and 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 Glen.
Your next question comes from the line of <unk> from you.
Your line is open.
Great. Thank you so much calm quiet I'm wondering if you can elaborate a little bit on some of the demand sources in the quarter specifically.
Specifically have you seen some of your orders coming in as a result of this big group events to extend your kind of Nevada and you are seeing 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 pre and then 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 credit Brian right I mean, they can buy our shirts.
Put their label and the shirt put a screw prints on the product and create a brand. So a lot of that is I think has happened during the pandemic and there's a lot more around.
Driven opportunities online selling has become.
Big opportunity, which is relative to the brand as well but.
Product get 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 before 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 onesies enthused. So.
People are going online you think a picture and you send it to your online provider and 10 days later or not even 10 days or three days later, you get insured with you 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 it just in general people are reacting quicker to the market retailers are buying T shirts, they're asking their providers two.
Sources products quicker and more domestic which is somewhere which is driving our volume. So we just did casual ization there has been a big factor or police businesses.
On fire really I mean, that'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.
And 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 and Pls with 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.
<unk> 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.
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.
You want us.
The working capital Mark or look 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're 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 it is a big part of our overall strategy and we should be able to keep it reasonably low and turn it fast as we go forward.
What was the second part of the question you asked for.
Oh, I was just asking about sort of opportunities to deploy capital aside from burning cash to shareholders either other opportunities for vertical integration.
Or potentially acquisition, presumably to add capacity, but.
Other possibilities too.
Okay.
We're always looking for ways to the.
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's going to driver 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 and we of Bangladesh too. So we're relatively good spots. So we will continue to.
Look at the polling our cash to shareholders in the near term for sure.
Obviously, we will continue to buy back shares in the.
And look at returning capital from dividends I think that's really the in the shorter term, that's probably where I think the.
We will be in terms of casual.
Return cash.
Thank you.
Okay.
Next question comes from the line of Jim Betsy from the South Carolina's open.
Tim.
I think he may have crossed sorry.
Sorry for that.
Congratulations on your ESG recognition to start.
Can you guys speak to what you see in your globalized sell brands engagement given your ESG standing in Western Hemisphere manufacturing I would expect that to be.
Very constructive.
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 it's been a 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 combining that with our ESG strategy, even looking at providing products in other geographical markets and believe it or not.
Because we're positioning ourselves as a as a tier one supplier of Prada.
And E S. G for US, we think is going to be.
The 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 and then Greg.
Could I ask your state a tributary inventories relative to.
And are you seeing any pull forward a demand from distributors in an attempt to build stock 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, I mean, just put things in perspective.
<unk> <unk> is turning positive relative to 19 so.
Inventories are tightened Chow.
Thanks. Thanks.
Thank you.
There are no further questions at this time Ms. Sophie 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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