Q3 2022 Gildan Activewear Inc Earnings Call

[music].

Okay.

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2022, Gilden Activewear earnings Conference call.

All lines have been placed on mute to prevent any background noise.

Please be advised that today's conference is being recorded today Thursday November three 2022.

After the Speakers' remarks, there will be a question and answer session.

You would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If at any point, you would like to remove yourself from the queue just press star one again.

I would now like to hand, the conference over to Sophie Argyria, Vice President of Investor Communications. Please go ahead.

Good morning, and thank you all for joining US earlier. This morning, we issued a press release announcing our earnings results for the third quarter of 2022, along with our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents will be filed with the Canadian securities and regulatory.

Authorities in the U S Securities Commission and are available on the company's corporate website.

With me today is Glen Sherbondy children's President and Chief Executive Officer, and Rod Harries, <unk> Executive Vice President and Chief financial and administrative officer. This morning, Rod will take you through the results for the quarter and a Q&A session will follow before we begin. Please take note that certain statements included in this conference call May.

Constitute forward looking statements 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 U S Securities and Exchange Commission and the Canadian Securities.

Tori authority during.

During this call. We will also discuss certain non-GAAP financial measures reconciliations to the most directly comparable <unk> financial measures are provided in today's earnings release and in our MD&A and with that I'll turn it over to Rod.

Thank you Sophie and good morning, all and thank you for joining us on the call today.

This morning, we were pleased to report another strong quarter, particularly in the current macroeconomic environment specifically.

Despite tough retail and international markets, the strength of our vertically integrated manufacturing model and the resiliency of our large core principles activewear business is clearly differentiating us and driving our ability to deliver.

During the third quarter, we generated sales growth of 6% over record sales last year.

We delivered another quarter of operating margin at the top end of our target range and we grew adjusted EPS by 5%, while returning $125 million of capital to shareholders through dividends and share buybacks.

At the end of the quarter, our balance sheet remained in great shape with net debt to EBITDA at one two times as we continue to run at the low end of our target leverage framework.

Moving on to the details of our results.

Our sales for the quarter totaled $850 million with activewear sales up 13%, while hosiery and underwear sales were down 26%.

Total activewear sales were $742 million in the quarter compared to $656 million last year, driven by higher selling prices.

Sales volumes to U S and Canadian distributors grew over last year and included strong sell through of ring spun products, where we believe our market share continues to grow.

The area, where we saw weaker volumes was with national accounts or retail related customers due to the broader industry decline in demand across retail.

International shipments were also down due to ongoing demand weakness across these markets.

Hosiery and underwear, where we generated sales of $108 million in the quarter. The decline in sales compared to last year reflected both weaker sell through and the impact of tight inventory management by retailers.

So on the whole despite the challenging environment. We are pleased with the sales performance, we were able to deliver in the quarter.

As travel tourism large events and the everyday use and replenishment nature of our products continued to drive underlying demand and offset softer retail market conditions.

Moving onto our margin performance, despite the headwinds of inflation across our supply chain our margins for the quarter remained strong with.

We generated gross and adjusted gross margin of 29, 7% in the quarter.

Essentially maintaining levels versus the second quarter of this year.

Compared to last year gross and adjusted gross margins declined as we expected reflecting declines of 540 under 100, and 170 basis points, respectively compared to gross margin of 35, 1% and adjusted gross margin of 31, 4% in the third quarter.

Last year.

Inflation and higher selling expenses.

The improvement in SG&A as a percentage of sales reflected primarily the benefit of sales leverage.

Overall looking at our SG&A performance. So far this year, we continue to be pleased with how the team is managing around 10% of sales level in this difficult inflationary environment.

Summing up these elements the sales increase combined with our gross margin and SG&A performance in the quarter translated to operating margin levels of 25% on a gap basis, and 20% on and adjusted basis coming in at the high end of our target range.

And after reflecting higher net financial expenses due to increases in interest rates and average boring levels.

Higher GAAP income taxes, as well as the benefit of a lower outstanding share bass, driven by our share buybacks, we reported gap and adjusted diluted EPS for the quarter of 84 cents.

This compared to gap diluted EPS of 95 cents and adjusted EPS of 80 cents in the third quarter of 2021, reflecting a 5% year over year increase in EPS on and adjusted basis.

Now before concluding on our results, let me provide some commentary on our cash flow and balance sheet.

During the third quarter, we generated $66 million of cash flows from operating activities down in comparison to 243 million generated last year, mainly due to higher working capital requirements that were largely inventory related.

And after funding capital expenditures of $74 million, we ended up consuming $70 million of free cash flow, we ended up consuming $7 million a free cash flow in the quarter.

An inventory levels at quarter end, our inventories total just over $1.1 billion up from $725 million last year.

As a reminder, last year's inventories, where it's suboptimal levels due to production constraints from yarn labor shortages and the impact of the Hurricanes in Central America from late in 2020.

Higher inventories this quarter were also due to the impact of inflation on unit cost.

As well as higher raw material and work in process levels, given broader supply chain constraints.

Finally, we finish the quarter with a net debt position of 900 and 144 million.

Maintained our leverage ratio at one two times at the low end of our target range as mentioned previously.

This sums up Ah results for the third quarter, which combined with a record results in the first half of the year leaves us in a position of strength.

As we navigate through near term challenges related to the current environment.

In this regard and importantly are large north American business geared toward and principles channels continues to benefit from demand driven by travel tourism and large events and is expected to remain relatively stable.

On the other hand, where we are seeing continued weakness is with our national account or retail related customers, which represents a smaller part of our business.

Further in international markets, we're also killing continuing to see ongoing softness in demand.

From a profitability standpoint.

We feel good about the actions we have taken to strengthen the economics of our business and.

While the impact of higher costs will impact the fourth quarter, we remain committed to delivering on our operating margin targets.

So in closing we have a strong team and we believe a proven track record of operating excellence in both good and tough environments.

This combined with the progress, we're making and executing on the key pillars of gilden sustainable growth strategy, driven by capacity innovation and E. S. G gives us confidence in our ability to deliver on our three year growth objectives, which we shared with you earlier in the year.

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

Thank you Rod.

Time, we are ready to begin the question and answer session. So I will turn it to the operator to begin with.

Alright.

At this time.

In order to ask a question. Please press star one on your telephone keypad.

Get into a dry yourself primary care simply press star one again.

Your first question comes from the lineup Mark Patrick P C.

Hi, good morning, Thanks for the comments route hopefully you can just give us a little bit more color specifically on the volume trends that that you are seeing across your channels into a into the early part of Q4.

Okay. If you look thanks for the question Mark If you look at the volume trends, we are seeing as we move into the queue for I'm going to take a look effectively the way that.

Or a distributor business is running I would say, we're we're quite pleased with that right as I've called out effectively we are seeing the strength of travel tourism and events related to experiences which are driving that business and we really are see we aren't seeing I would say trends, which were similar to what we saw in Q3 and to a certain extent to what.

We saw in Q2, so that's really providing support in this channel I would say and and that has been a big driver of our businesses I called out in our remarks, and really it's differentiating us and is allowing us to drive.

Drive that strong active word growth that we saw in in Q2, Q3, sorry, a 13%.

If you look at the other areas, which are more retail related we as we call. It out we saw week P. U S. As we move through Q3, we seek retailers.

Retailers continuing to bring down inventories in line with a broader industry trends, we actually probably more softness in Q3 than we saw in Q2.

That side of the business in there and then an international markets, we are continuing to see demand weakness.

Also carrying over into into into Q3, and as we head into Q4. So it's a mixed outlook I would say.

To sum up where we are but we do have that core which is still running well as we as we move into the fourth quarter now as we think about that though I think the one thing you do have to think about is as we think about last year in queue for it was particularly strong we did see restocking occurring in the quarter.

<unk> and I think just given the overall environment environment, we won't see that in the queue for of this year, but overall, it's mixed as we called out in the commentary on Q3, and that's continuing into Q4.

Okay, and and thanks for that and you sort of touched on my follow up question, just with regards to the inventory and the distributor channel.

Not expecting sort of material restocking, but do you feel like we're sort of stable here or what's the outlook with regards to sort of our what's the physician with regards to the distributor inventories today.

Yeah, I think if you look at a distributor inventories today I would say we are at normalized levels. I think is the way to think about it for aware P. O. S is running so we we have seen inventories move with the with P. O S. As we as we move through the year and as we've effectively come out of.

What was a much weaker environment, we were coming through the pandemic. We saw strength building in in 21, and we continue to see strength in those inventories as we've moved into <unk>.

22 that doesn't mean to say that they're perfect are definitely areas where they're.

So I'll need some support I would say, but overall I would say inventory levels are normalized and where are they should be effectively at this juncture and we'd expect them to sort of continue along those lines as we move into into Q4 and as we move into you know obviously.

More of an uncertain environment, but I would say there at a normalised levels and sort of probably optimize for where pass is running currently.

Okay. Thanks, and just last question on Opex I mean, that's the lowest margin right. We've seen from you guys and down you know from last year on a dollar basis could you just give us a bit more color on the drivers there and then what's a reasonable way to think about the cost base either on our radar dollar basis going forward.

Thanks.

Yeah. If you if you look at the the <unk> well if you look it up when you talk about Opex market, you're talking about SG&A are effectively you want to talk more broadly about our operating costs and gross margins could you just clarify.

Yeah, sorry, I was specifically focused on our SG&A, obviously I'll take whatever comments you care to share, but I was specific.

Specifically asking about Australia.

<unk>, Yeah, Yeah, and I'll look we did see very good SG&A performance in the quarter I would say 9.3 per cent of sales is is very very low rates as a percentage of sales and we're very pleased with that I think we are working hard to contain costs in this inflationary environment.

We did see lower variable comp in the quarter and we just need a bit of an adjustment for that actually and so we.

We did benefit from that I would say in the quarter that probably in the end was about 60 basis points.

When you look at it. So we were this was a particularly favourable quarter.

We did see the benefit of sales leverage, but I would say overall, we're very focused on SG&A and.

We have been as we move through back to basics, we're performing very well there.

We are going to continue to focus on on making sure that we have appropriate SG&A for the way that the business is running as.

As we go forward and I think as you as you look to the queue for it will probably be at those low levels it'll be up a bit I would say in our target right now is around 10% from an SG&A perspective, and we're trying to deliver around those levels. Some quarters will be below some quarters in this environment, maybe a little bit higher.

But it is an area of focus in long term I would say as we continue to grow as we continue to drive the business and really see that the growth that we are.

Hating over the longer term, we do see even moving down from those levels, but I think in this environment right now I would say that we're very pleased with what we how we performed last quarter and particularly good versus probably what you'll see over the next few quarters as we move forward.

Okay I appreciate all the comments all the best effects.

Your next question comes from J L. M E B S.

Great. Thank you so much <unk> could you give us a little bit of an update on the factory capacity expansions in Central America in Bangladesh, just maybe give us an update on the progress made over the last 90 days in any increase in visibility into the orders that are coming in to fill up those factories as you look out into next year.

Oh I'll take that one so our plans for Bangladesh are remain on track.

Like we said last quarter of that the the plant will commenced to start.

Q2 of 2023, and then subsequently billed the built up so Bangladesh is really a cue for a 24 story basically in terms of.

The capacity that will be available in that facility. As we you know because we have a ramp up period I got it up and running and as far as the rest of our capacity it's running appropriately.

We have all the things in place I think to support growth as we move into 2023.

Terrific. Thank you so much.

Thank you.

Your next question comes from Stephen Mccloud at BMO capital markets.

I think you're good good morning, everyone.

I just I just wanted to follow on brought some of your commentary around the queue for expectations and specifically with respect to the.

Gross margin you talked about the pressure sort of accelerating in queue for I'm. Just curious if you can give a little bit of color on what kind of magnitude you might be expecting and then and then along those lines as well.

Would it be safe to say that Q for gross margin pressure reflects kind of what we saw in terms of geek cotton prices.

Okay, Steve Thanks for the for the questions. So if you're looking if you look at Q4 and again, we're not giving specific guidance, but the trends certainly happy to talk about and if you look at the margins for Q4, we will see the impact of higher raw material costs as we move into into Q4, they will become a little bit more <unk>.

Announced and what we saw.

In Q3, obviously, there's a lag in what you see.

On the impact of cotton prices on our.

On our P&L and as prices were moving up you start to see that.

Coming through more so as we move into Q4, and probably you'll still see a little bit of that as we move into a into Q1 of of next year as well <unk>.

Just to.

Actively give you an idea of how it the cadence works.

As we moved from Q3 to queue for to Q1, so we'll be higher raw material prices coming through that will put some a little bit more upward pressure I would say on our margins.

I also talked about her SG&A performance, the not quite as strong as what we saw in in Q3 and so the net of all of that is that we do see our operating margins will likely be lower in Q4 than what we saw in Q3, but I think we still feel very comfortable about achieving margins in our target range. So again I.

I think we're very pleased with the way the margin performances evolved overall as we move through the year. If you look at a really what we've done on on the cost side.

In order to operate in this environment the way that the teams have worked to be able to effectively offset why would say strong inflation coming through in all areas.

I would say we are very pleased with the margin performance, but we will see some pressure as we move into into Q4 as a result of the things that I've talked to them.

Right. Okay. That's that's helpful. Thank you and then just just with respect to the some of the trends are sitting in the queue for Ya I know you've already given some great color, but I just wanted to ask you know as you are seeing sort of macro weakness beginning to creep into the sentiment surely.

Have you seen any impacts on an uncertain pockets of the of the distributor.

Or has it has it still continue to just sort of move forwards across all the channels.

Alright look I think our distributor businesses like what Rudd said earlier is really performing quite well being honest with you and I think it actually in Q4.

Uhm, we've actually seen some increases in police for example, which was helping the overall I think sales growth in within within the distributor channels. So.

Had a very warm summer this year, so hopefully shells historically.

Are strong in the fall and it's taking a little bit longer for them to kick in but the the the sales and police are actually very strong now which is continuing to support the outlook of the distributor business as we move into Q4.

Okay. That's that's great. Thank you very much.

Your next question comes from the <unk>.

Thanks, Good morning, [noise] Glen I think you had mentioned last call that.

In past periods, where there are higher cotton prices some of your competitors.

Pull back on production and I think you alluded to maybe that same sort of dynamic playing out and becoming quarters have you seen any any signs of that yet.

Well I think that there's been definitely reduction in overall capacity.

I'm really driven I think by the.

Poor retail conditions in the market.

So there's definitely not just in our hemisphere I think that's everywhere I mean.

Global phenomenon and I think that there has been.

A big reduction in overall.

Capacity adjusting <unk> address.

Dressing in line with.

Retail volumes.

It's.

That's probably a fair statement in today's environment.

Which I think at the end of the day has I think will give us the ability to.

L. As we move into twenty-three, we're well positioned from our capacity position to to support the gross and twenty-three as we as.

As we exit the 22.

Okay, and then moving onto the the retailer Destocking and I appreciate it it's tough to get some visibility here, but if we go back to the last time, where there was this sort of prolonged period of retailer Destocking can you give us any idea is today sort of a close proxy to what it was like then was it short lived the general tone.

Seems to be that this overhang is taking a bit longer than maybe past overhangs what are the sort of dynamics that player.

Well, it's hard to say to be perfectly honest with you I mean, but I say that this is probably.

From a retail perspective, probably the worst we've seen it in a long time and I mean.

Cause we've been in the retail market, it's never we've never seen such a.

I think a pullback.

Particularly in Camille things like underwear, which are typically staples.

So you know there's definitely you know.

A pullback obviously things all worked themselves out we've we've.

And there's no question is when does it turn I think that's partly the inventories at the major retailers are significantly higher.

They were chasing volume.

And until those is inventories get work through their.

Turn it into cash I think things will remain tight.

But I would just maybe on our point and looking at where we stand which I think is more relevant.

Is that we entered 2020.

To very tight on capacity so.

We didn't really you'll go after new programs, but I would say that you know as we move into twenty-three.

We worked hard this year and we have quite a few new opportunities that will occur which will support I think growth for us in that environment.

Despite the you know the negative comps on.

Current programs and current P. O S. So I think that's something that I think is what we're looking for as we move into twenty-three and at the market <unk>.

Continues to rebound.

Then I think that would be Hershey.

In in a better position. So we're we're still cautiously optimistic about as we move out of 22 23.

Got it thank you very much.

Your next question comes from Brian Morrison M. P D security.

Hi, Good morning, I want to follow up on inventory, specifically a guild in you seem to be back to pre pandemic levels and Rod you mentioned some of that is cost input.

Understand this production discipline in industry, but how do you think about price stability and sustaining that gross margin outlook as as you get a little bit of pressure here with a decline in commodity prices.

I'm going to start with the question that they could look at him in.

The pricing and the market is stable very stable I would say.

Cotton is only one part of the input, obviously, which is the largest but the only one.

We as a company and I think the even the industry because we are the market leader in setting prices.

We only set prices for cotton and around the dollar level. So just put that in perspective.

So part of that people are gonna absorb in their margin because we've only raise prices up to the dollar level, we never raised them to the peak of work hard and.

Came off the board in July .

And there's other significant inflation activities still happening energy is up significantly.

And it's not just up in Central America, it's up in the United States as well.

Labor costs, I mean everywhere you read labor continues to grow.

Polyester has gone up significantly cause it's a byproduct of oil.

And there's other input costs have gone up so although cotton is starting to come down there's other factors. They haven't so I would say that you know there there's definitely support for price as we go we didn't bring pricing up all the way.

And the market today, you'll pricing is relatively stable so.

Everybody in industry has high cost.

High cost I think even in raw material will take at least six to nine months before it gets flushed out of the industry I mean, just because of the weaker sales and we go pretty less so.

We're not really concerned about that at this point.

Okay, and then an inventory O'brien I mean, if you look at the inventory increase and I called out in the remarks, what's driving that but I would say probably 40 per cent of the increases related to our raw materials and our whip.

And that is driven by cost and it's driven by us I would say carrying higher.

Probably safety stocks as maybe the way to think about it because of the broader supply chain constraints right that we've been dealing with everywhere. So we have been naturally are we have been carrying higher levels of of raw materials whip cost is is in there, but causal will ultimately reverse out and then as as the whole environment Abates I would say that the whole pie.

Fitness in.

Various things that we use inputs into our processes, we're talking about things like dies and trims and all sorts of things that we use.

The supply chain effectively becomes a little bit more flexible we don't have to carry the same types of levels that we have carried in the past and that will naturally reverse out and then on the finished good side I would say again, it's being driven by cost in history and driven by units. So we said on the cost side that will ultimately reversed itself out.

Is.

Is Glenn said, we don't we don't see real exposure there from a from a price perspective, when we actually go to liquidate this or move this inventory sell this inventory sorry into the into the market place and then from a units perspective in certain areas. We've needed more units we've needed more units in order to support the business. So.

Overall, we're comfortable with where we are aware of the inventory levels are.

Especially given adjustments that we see will will occur as we go forward and then the final point I think you always have to remember with respect to our inventories is that we sell basic replenishment nonsense of fashion products and so the inventory that we have we always feel good about the quality of the inventory.

And again in the environment that we see going forward.

We're not concerned about our ability to attempt to be carrying high priced inventory in an environment, where we can't price for it so overall higher than where we were many of those impacts we're going to unfold. They were given the environment and I think we feel we're in a good level, where we currently aren't we would like to try and stay at these levels as we move forward in.

Then obviously you will benefit from that as we move into into 2023.

Okay, Sir thank you both once.

Follow up question on Bangladesh Rod maybe.

Understand you wrap production fall into 2000, 2024, I assume you'll transfer transfer some production from Honduras.

It ramps up should there be any drag on margins from Bangladesh or is it insignificant.

You know there'll be no drag on margin be insignificant.

And we will continue to manage our.

Capacity based on the sales outlook and we're in a good good position today to be able to support sales.

And if you need a moderate production a little bit of it it's not an issue for us at all either.

Which would not be any drag on our margin that performance.

Thank you ma'am.

Your next question comes from <unk>, a national Bank.

[noise], Thanks for taking my questions and just.

I wanted to get your thoughts a few issues that come up in the past or opportunities.

In the past I've given this has talked about.

The opportunity associated with Nearshoring and retailers increasingly looking at private label I Wonder how these conversations are going with retailers and if you expect.

Gilden to capitalize on any of these opportunities call. It in 2023.

Well, that's what I said, a little bit earlier look at we we.

Beginning of 21 moving into 22, we were so tight for capacity, especially after surviving the hurricane.

That we never really focused on new programs and.

We began twenty-two we obviously aggressively started looking for new opportunities to support twenty-three. So we do have new programs and new opportunities both of 'em nearshoring retailers.

And so that's part of our obviously overall growth plan and strategy to support the targets that we set out over the three year period. So definitely we'll see some of that as we move into 23.

Okay, Thanks, and and and I know you touched on this but with respect to the the capacity expansion plans and the the <unk> that you're seeing in travel and tourism is as your anniversary kind.

Kind of that period of weakness in the consumer gets back caught up on those on those and markets do you expect the stability that you're seeing a pet where to continue or or or do you expect that to.

Kind of a decline if it's historically has with consumer confidence.

So we expect it to continue to do to to grow and don't forget there is definitely a portion.

Although our detour businesses doing really well there are there is a portion of the product that they sell that gets resold as as a consumer space as well right. So.

It could actually be going better because if you look at the beginning of the year.

P O S and.

Sales and R. U S distributor business was much more robust of us today, it's still good.

It tailed off a bit and part of the part that actually does tailed off was the part that was more related I think around the consumer side of it so.

We're optimistic we're in a good position, we think that we're well positioned both of my capacity place as well as our market. That's as we started to see this this whole thing I'm. So sorry that you know there'll be a lot of upside in terms of our sales volume and combining that with new opportunities from nearshoring in retail.

Shelf space will we're well positioned as we move into 23 and 24.

I'd also add to that the shell and the and the point where business the corporate promotional side of it never really come back to the strength that it was.

Pre pandemic and that's a driver as well in the business that.

Probably has has been impacted by the macro weakness that we've seen so is gone centers. There's a number of drivers and then you later on different areas of the business, which will start firing again.

Overall, we see good strength.

Okay and in the past during periods of weakness Goldman that's been opportunistic and capitalize on acquisitions wondering if that's something that you see potentially as an option per gilden, particularly given the strength of your balance sheet.

We're focused on you know our Golden gross story, so we believe that our capacity and place our cost structure is in place and objectively. We're gonna continue to stay focused and build organic growth.

In line with our three year targets over the next 24 months.

Thank you.

Your next question comes from <unk>.

Hey, guys, it's Bryan and Shane I'm on for Paul Thanks for taking our questions. So if we could dig in a little bit on.

Kind of price increase dynamics and how much that help sales in the third quarter and then what units trended during the quarter.

Okay. Thank you for the for the questions. So if you look at price in the third quarter. It turned out basically the way I think we had a we had talked about on the last call it that.

We had him for the for the Q2 earnings call so effectively.

Price came in in the mid team range, which was basically wearing had been traveling effectively if you look at Q2 and Q1, so consistent I would say price impacts now the one thing to call out there is that gonna that's gonna actually start to moderate as we go into Q4, because there were comping.

<unk> price increases in Q4 of last year, and so you'll see that price impact starting to starting to drop down and then from a volume perspective, we were down over all the other you know obviously, we should we had six per cent revenue growth. We did see <unk> on the price, but again that was it was mixed.

Pending on where you are looking so we had a good strength in the on the distributor side as we've talked about whereas the retail.

Side of the international side, there you saw because of the effectively that pass weakness destocking.

I would say tougher comps from last year.

Negative volume so.

I would say decent price offset by mixed impacts of volume across the board and that ultimately delivered the growth for the quarter.

Got it and so you really start to annualize that price increase in the first quarter of next year understanding that you took some price for two last year is that correct.

Yeah, I mean, I think if you if you actually look at where we are as we as we move into the.

Into the first quarter of next year, yes. It obviously the annual <unk> really step up in the price impact really reduces as we move into Q1 and Q2 of next year.

Thanks, that's helpful and sorry, if I missed that did you guys quantify where P. O S is trending today and.

Was in the quarter.

I know, we gave general commentary on what we're seeing across the various challenges.

Got it and.

Have you guys internalize frontier yard capacity fully.

I know that that was debottlenecking, but have you kept any some of those external contracts on his capacity.

Cassidy constraints of seem to alleviate.

<unk> was fully internalised and it's fully part of our vertical integration today.

Got it.

I appreciate it good luck.

Thank you.

Your next question comes from seven Hot chunk of RBC capital markets.

Alright, great. Thanks, So I'm just following up on the volume of pricing discussion I guess I'll just start to lap now some of the price increase says.

Given no volume trends are kind of heard it over the next while I guess, how are we thinking about this sort of promotional activity or just in general just other ways you can drive volume.

Do you think maybe the international travel turned at some point is going to get an understanding of.

Also we can choose a magnitude of shifts between weather.

North American distributor channel, how that's trending versus international just so I can understand how the next two to three quarters may look backdrop.

Okay I don't think the price is gonna drive volume in this market.

So you know as we go through or we go to navigate through I.

Take a little bit of volatility on volume.

But as we move into twenty-three our objective is to support new opportunities really that's what we're gonna get the volume now if the market does rebound by twenty-three then we'll also get supported by.

The the growth and the existing volumes are we do have but.

Price is not going to drive volume in this market and there's just not going to move the needle so.

Does that answer your question, but what's gonna move the needle for US is obviously new opportunities new growth near shoring and the things that we really laid out in our <unk>.

Long-term planning.

Alright, that's helpful. I guess are you able to move parse out on a call volumes or down in Q3 and wholesale but maybe you know how much international might've been down and I think you indicated north American might've been positive variable just get some perspective on that.

Oh, I don't really want to separate out the the different channels, but again I think if you you can put together the map of the where sales growth was where prices.

Actively we said distributor volume was positive.

Then retail you can get a sense that you know volumes, we're moving in line with will actually probably a little bit more negative them tos because of the destocking that was was going on.

In international probably mostly driven by a P.

Negative because of the weakness in all markets and you know on the West side, We report that and you can see the numbers and that was driven bypass weakness in destocking. So effectively we've got all these trends they're impacting us.

So a really a mixed environment, but of course, the core strength of our distributor businesses is really holding up in it as we go forward ultimately what we're seeing on the retail side. It will reverse ultimately will work our way through a retail is working their way through inventory levels.

We will start to see the upside from what's occurred in the last few quarters again, because our products are basic the replenishment they need them on the shelf.

Obviously, if Glenn said, we're looking at some new programs that drives.

Sell in as well as as sell through so I would say overall, if you look at the <unk> the environment that we're in now it is I would say a tougher environment from a volume perspective, although again, some some areas of some bright spots.

But as we go forward those longer term trends will still be there for US you know given the basic <unk> sort of the setup of our business and then those macro trends that the Glenn called out that we've been talking about in casual ization on the creator economy on Nearshoring on private label on ESG I mean, all of these things are driving or <unk>.

Business ultimately driving really good demand for active where.

And that's why we do feel I would say confident about our ability to deliver on our three year targets. We are in an unstable or weaker environment now, we'll see what happens in twenty-three. We don't have a crystal ball, we don't know, but these trends are strong and they are driving our business over the long term.

Great. Thanks for that color and just one quick one through kind of the last couple of years has been a benefit from kind of the spirit homework or some of that I'd be quieter economy that you reference.

Finding that you know.

Some of that businesses. So what do you what is kind of the longterm outlook.

For that sort of work from home consumer or maybe some of those online sales that you started to gather over the last couple of years, just some color there.

Well, that's where we sediments those online sales or maybe more relevant to retail let's say for example, consumer end user the end users of consumer so.

Our distributor business.

First quarter was you know up until you know sometime in mid March was significantly higher than it is today and that's part of the business we think.

Part I fell off or didn't fall off as all the travel team sports uniform rock concerts that parched mascara sporting events, I mean that part still strong and driving you know our volume.

<unk>, we think in the distributor area that actually.

Mitigate it a little bit was exactly the the part that was more address as a consumer so I don't think that's going away I think that's just the broader overall consumer market.

And there's just a little bit of that it within our distributor segment. So.

Overall, we're still very optimistic and I think that we're well positioned.

Great. Thanks, very much for that.

Your next question comes from <unk>.

<unk>.

Good morning, everyone. My first question is coming back to cotton.

If you assume that con prices stay where they are and swimming.

Southern price capabilities maintain <unk>.

Do you expect to be a tailwind for margins Netgear swimming, that's b heche costs for next year will likely be lower than the current year. Thank you.

Well, there's all kinds of puts and takes right. So we don't know exactly where it will end up but it would just say look at there's still other inflation.

Like I said earlier, we have energy labor.

Other input costs polyester offsetting cotton. So it's you know there are all kinds of puts and takes a look at where I think Moreover, we're confident delivering our our operating margins and will be in that range as we move into twenty-three.

Twenty-three and supported by our sales growth.

Okay. That's helpful Diamond maybe another one just maybe a follow up on comments you can make them about new program opportunities for next year could you maybe go down to the rest of the day.

Where are you seeing the opportunities how much visibility you have and and maybe just the size of the opportunity for for next year. Please. Thank you.

Well the opportunities are really part of our overall longterm strategy, which is near shoring a retailer private label.

Obviously and those are the big areas of growth for the company as well as obviously you know continuing growth in our distributor in the National Council segment, but and that's where we're seeing the the new opportunities and and are a function of us bring on capacity Bruce Hotel last year that we really didn't for 22 really wanted to do.

<unk> new programs, but as we built up our capacity during the year integrated frontier and had available insight to more opportunity we start aggressively going after these these programs. So we do have a new volume opportunities and which will support the growth for for twenty-three and.

Depending on how the market performs on our existing business and that will sort of.

Well, we'll see what happens that some part of that we.

Really don't have a crystal ball on but we're well positioned I think and doing all the things we can in our power to support growth.

Great. Okay. Thanks again.

Thank you.

This includes the question and answer session that today's call I would like to now turn it over to Roger here for closing remarks.

Okay. Thank you offer here.

Before we close off the call I would just like to mention to everybody that many of you know that Sophie will be retiring at the end of this year and so this has been so fees lost earnings call.

Gilden, we have many talented employees across the organizations what drives gilden everyday and.

And Sophie really has been one of them and really over her last 17 years that gilden has made an outstanding contribution to the the I R area and has obviously interacted with many of you. So I think Glenn and I and the rest of the team would just like to thank Sophie and wish you all the best as she heads towards a very well.

Earned retirement, and unfortunately, or maybe Fortunately no more quarterly calls so with that thank you everybody really appreciate you joining and we look forward to talking with you going for Ya. Thank you and thank you Sophie.

Thank you.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].

Mmm.

[music].

[music].

Mmm.

[music].

Uh-huh.

[music].

Mmm.

[music].

Okay.

[music].

Uh-huh.

[music].

Mmm.

Ladies and gentlemen, thank you for standing by and you're welcome to the third quarter of 2022, Galvin <unk> earnings Conference call.

All lines had been <unk> to prevent any background noise.

Please <unk> today's conference is being recorded today Thursday November 3rd 2022.

After the Stinkers May March there will be a question and answer session.

You would like to ask a question during that time simply <unk> then the number one on your telephone keypad.

Is there any point <unk> from the Hills guest Star one again.

Now I'd like to hand, the conference Edward <unk>, Vice President and Investor Communications. Please go ahead.

Good morning, and thank you all for joining US earlier. This morning, we issued a press release announcing our earnings results for the third quarter of 2022.

With our interim shareholder report containing management's discussion and analysis and consolidated financial statement. These documents will be filed with the Canadian Securities and regulatory authorities in the U S Securities Commission and are available on the company's corporate website.

With me today is Glenshee, Mandy yoga, as President and Chief Executive Officer, and Rod Harried Executive Vice President and Chief financial and administrative officer. This morning, Rod will take you through the results for the border and a Q and a session will follow before we begin. Please take note that certain statements included in this conference call.

<unk> is forward looking statements.

Alright, I can statements and Bob unknown unknown rant sorry.

These and other factors, which could cause actual results the different materials for future results expressed or implied by search for them on that big statement.

Refer you to the company's filings Securities and Exchange Commission and the Canadian Securities Regulatory authority.

During this cost.

Disgusting non-GAAP financial measures reconciliations to the most directly comparable <unk> financial measures are provided in today's earnings release and in our MBNA and with that I'll turn it over to rot.

Thank you Sophie.

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

This morning, we were pleased to report another strong quarter, particularly in the current macroeconomic environment, specifically, despite tough retail in international markets. The strength of our vertically integrated manufacturing model and the resiliency of our large core and principles active where business is clearly differentiating us and drive.

<unk> our ability to deliver.

During the third quarter, we generated sales growth of 6% over record sales last year.

Deliberate another quarter of operating margin at the top end of our target range and we grew adjusted EPS by 5%.

While returning $125 million of capital to shareholders through dividends and share buybacks.

At the end of the quarter, our balance sheet remained in great shape with net debt to EBITDA at 1.2 times as we continued to run at the low end of our target leveraged framework.

Moving onto the details of our results.

Our sales for the quarter totaled $850 million with active or sales up 30% <unk> under where sales were down 26%.

Total active where sales were $742 million in the quarter compared to 656 million last year, driven by higher selling prices.

Sales volumes to U S security and distributors grew over last year and included strong sell through Ah brings spun products, where we believe our market share continues to grow.

The area, where we saw weaker volumes with with national accounts or retail related customers due to the broader industry decline in demand across retail.

International shipments were also down due to ongoing demand weakness across these markets.

<unk> and underwear, where we generated sales of $108 million in the quarter.

A decline in sales compared to last year reflected both weaker sell through and the impact of tight inventory management by retailers.

So on the whole despite the challenging environment. We are pleased with the sales performance, we were able to deliver in the quarter as.

As travel tourism large events and the everyday use and replenishment nature of our products continued to drive underlying demand and offset softer retail market conditions.

Moving onto our margin performance.

Spite the headwinds of inflation across our supply chain, our margins for the quarter remains strong.

We generated gross and adjusted gross margin of 29.7% in the quarter esque.

Essentially maintaining levels versus the second quarter of this year <unk>.

Compared to last year gross and adjusted gross margins declined as we expected reflecting declines of 540.

And 170 basis points, respectively, compared to gross margin of 35.1% and adjusted gross margin of 31.4% in the third quarter last year.

Keep in mind last year's margin on a gap basis included at $30 million or 376 at this point.

Point impact related to net insurance schemes tied to the 2020 Hurricanes in Central America, which were not in our numbers this year.

Excluding this item the gross and adjusted gross margin decline on a year over year basis was due to higher raw material and other manufacturing costs, which more than offset higher net selling prices and favorable mixed impacts.

Turning to ask you ne <unk>.

Expenses for the third quarter came in at 79 million down slightly versus the prior year and as a percentage of sales SG&A came in at 9.3% compared to 10.1% last year.

The decrease in SG&A expenses was due to lower variable compensation expenses and are.

<unk> focus on containing costs, which more than offset the impact of cost inflation and higher selling expenses.

The improvement in SG&A as a percentage of sales reflected primarily the benefit of sales leverage.

Overall looking at our SG&A performance. So far this year, we continue to be pleased with how the team is managing around 10% of sales level in this difficult inflationary environment.

Summing up these elements the sales increase combined with our gross margin and SG&A performance in the quarter translated to operating margin levels of 25% on a gap basis, and 20% on and adjusted basis coming in at the high end of our target range.

And after reflecting higher net financial expenses due to increases in interest rates and average boring levels.

Higher GAAP income taxes, as well as the benefit of a lower outstanding share bass, driven by our shared <unk> buybacks, we reported gap and adjusted diluted EPS for the quarter of 84 cents.

This compared to gap diluted EPS of 95 cents and adjusted EPS of 80 cents in the third quarter of 2021, reflecting a 5% year over year increase in EPS on and adjusted basis.

Now before concluding on our results, let me provide some commentary on our cash flow and balance sheet.

During the third quarter, we generated $66 million of cash flows from operating activities down in comparison to 243 million generated last year, mainly due to higher working capital requirements that were largely inventory related.

And after funding capital expenditures of $74 million, we ended up consuming $70 million of free cash flow.

Ended up consuming $7 million, a free cash flow in the quarter.

An inventory levels at quarter end, our inventories total just over 1.1 billion up from $725 million last year.

As a reminder, last year's inventories, where it's suboptimal levels due to production constraints from yarn labor shortages and the impact of the Hurricanes in Central America from late in 2020.

Higher inventories this quarter were also due to the impact of inflation on unit cost.

As well as higher raw material and work in process levels, given broader supply chain constraints.

Finally, we finish the quarter with a net debt position of 944 million and maintained our leverage ratio at one two times at the low end of our target range as mentioned previously.

This sums up Ah results for the third quarter, which combined with a record results in the first half of the year leaves us in a position of strength.

As we navigate through near term challenges related to the current environment.

In this regard and importantly are large north American business geared toward and principles channels continues to benefit from demand driven by travel tourism and large events and is expected to remain relatively stable.

On the other hand, where we are seeing continued weakness is with our national account or retail related customers, which represents a smaller part of our business.

Further in international markets were also kidney continuing to see ongoing softness in demand.

From a profitability standpoint.

We feel good about the actions we have taken to strengthen the economics of our business and.

While the impact of higher costs will impact the fourth quarter, we remain committed to delivering on our operating margin targets.

So in closing we have a strong team and we believe a proven track record of operating excellence in both good and tough environments.

This combined with the progress, we're making and executing on the key pillars of gilden sustainable growth strategy, driven by capacity innovation and E. S. G gives us confidence in our ability to deliver on our three year growth objectives, which we shared with you earlier in the year.

This concludes my formal remarks, and with that I will turn it back over his soapy.

Thank you Rod.

Time, we are ready to begin the question and answer session. So I will turn it to the operator to begin with.

Alright go ahead.

At this time as a reminder, in order to ask a question. Please press star one on your telephone keypad.

Get into your withdraw yourself primary care simply press star one again.

Your first question comes from the lineup Mark Patrick <unk> D C.

Hi, good morning, Thanks for the comments right hopefully you can just give us a little bit more color specifically on the volume trends that that you are seeing across your channels.

Into into the early part of Q4.

Okay. If you look thanks for the question Mark If you look at the volume friends, we are seeing as we move into the queue for I'm going to take a look at effectively the way that.

Or a distributor business is running I would say, we're we're quite pleased with that right as I called out effectively we are seeing the strength of travel tourism and events related to experiences.

Which are driving that business and we really are see we aren't seeing I would say trends, which were similar to what we saw in Q3 and to a certain extent to what we saw in Q2. So that's really providing support in this channel I would say and and that has been a big driver of our businesses I called out in our remarks.

And really it's differentiating nothing is allowing us to.

Drive that strong active work growth that we saw in in Q2, Q3, sorry, a 13%.

If you look at the other areas, which are more retail related we as we called out we saw week P. U S. As we move through Q3, <unk> retailers continuing to bring down inventories in line with a broader industry trends, we actually probably more softness in Q3 than we saw in.

Q too on that side of the business in there and then an international markets. We are continuing to see demand weakness also carrying over into <unk> into Q3, and as we head into Q4. So it's a mixed outlook I would say to.

To sum up where we are but we do have that core which is still running well as we as we move into the fourth quarter now as we think about that though I think the one thing you do have to think about is as we think about last year in queue for it was particularly strong we did see restocking occurring in the quarter.

<unk> and I think just given the overall environment environment, we won't see that in the queue for of this year, but overall, it's mixed as we called out in the commentary on Q3, and that's continuing into Q4.

Okay, and thanks for that and you sort of touched on my follow up question, just with regards to the inventory and the distributor channel.

Not expecting sort of material restocking, but do you feel like we're sort of stable here or what's the outlook with regards to sort of our what's the physician with regards to the distributor inventories today.

Yeah, I think if you look at a distributor inventories today I would say we are at normalized levels. I think is the way to think about it for aware P. O. S is running so we we have seen inventories move with the with P. O S. As we as we move through the year and as we've effectively come out of.

What was a much weaker environment as we were coming through the pandemic. We saw strength building in in 21, and we continue to see strength in those inventories as we've moved into.

22 that doesn't mean to say that they're perfect. There are definitely areas, where there will.

I'll need some support I would say, but overall I would say inventory levels are normalized and where are they should be effectively at this juncture and you know we'd expect them to sort of continue along those lines as we move into into Q4 and as we move into you know obviously.

More of an uncertain environment, but I would say there at a normalised levels and sort of probably optimize for where pois was running currently.

Okay. Thanks, and just the last question on Opex I mean, it's the lowest margin right. We've seen from you guys and down from last year on a one dollar basis could you just give us a bit more color on the drivers there and then what's a reasonable way to think about the cost base either on our radar dollar basis going forward.

<unk>.

Yeah. If you if you look at the the <unk> well if you look at <unk>. When you talk about Opex market, you're talking about SG&A are effectively you want to talk more broadly about our operating costs and gross margins could you just clarify.

I was yeah, sorry, I was specifically focused on on SG&A, obviously, I'll take whatever comments you care to share, but I was specific.

Specifically asking about SG&A Esther.

<unk>, Yeah, Yeah, and I'll look we did see very good SG&A performance in the quarter I would say 9.3 per cent of sales is is very very low <unk> as a percentage of sales and we're very pleased with that I think we are working hard to contain costs in this inflationary environment, we did see low.

Variable comp in the quarter, and we just need a bit of an adjustment for that actually and so.

We did benefit from that I would say in the quarter that probably in the end was about 60 basis points when.

When you look at it. So we were this was a particularly favourable quarter.

We did see the benefit of sales leverage, but I would say overall, we're very focused on SG&A and.

We have been as we move through back to basics, we're performing very well there.

We are going to continue to focus on on making sure that we have appropriate SG&A for the way that the business is running as.

As we go forward and I think as you as you look to the queue for it will probably be at those low levels it'll be up a bit I would say you know our target right now is around 10% from an SG&A perspective, and we're trying to deliver around those levels. Some quarters will be below some quarters in this environment, maybe a little bit higher.

But it is an area of focus in long term I would say as we continue to grow as we continue to drive the business and really see that the growth that we are.

Hating over the longer term, we do see even moving down from those levels, but I think in this environment right now I would say that we're very pleased with what we how we performed last quarter and particularly good versus probably what you'll see over the next few quarters as we move forward.

Okay I appreciate all the comments on the best effects.

Your next question comes from J L. M E B S.

Great. Thank you so much <unk> could you give us a little bit of an update on the factory capacity expansions in Central America in Bangladesh, just maybe give us an update on the progress. She made over the last 90 days in any increase in visibility into the orders that are coming in to fill up those factories as you look out into next year.

Oh I'll take that one so our plans for Bangladesh are remain on track.

Like we said last quarter of that the the plant will commence to start.

Q2 of 2023, and then subsequently billed the built up so Bangladesh is really.

Eight Q for 24 story basically in terms of.

The capacity that will be available in that facility. As we you know because we have a ramp up period I get it up and running and as far as the rest of our capacity it's running appropriately.

We have all the things in place I think to support the growth as we move into 2023.

Terrific. Thank you so much.

Thank you.

Your next question comes from Stephen Mccloud at <unk> capital markets.

I think you're good good morning, everyone.

I just I just wanted to follow on Rod from your commentary around the queue for expectations and specifically with respect to the.

Gross margin you talked about the pressure sort of accelerating in queue for I'm. Just curious if you can give a little bit of color on what kind of magnitude you might be expecting and then and then along those lines as well.

Would it be safe to say that Q for gross margin pressure reflects kind of what we saw in terms of geek cotton prices.

Okay, Steve Thanks for the for the questions. So if you're looking if you look at Q4 and again, we're not giving specific guidance, but the trends certainly happy to talk about and if you look at the margins for Q4, we will see the impact of higher raw material costs as we move into into Q4, they will become a little bit more <unk>.

Announced and what we saw.

In Q3, obviously, there's a lag in what you see.

On the impact of cotton prices on our.

On our P&L and as prices were moving up you start to see that.

Coming through more so as we move into Q4, and probably you'll still see a little bit of that as we move into a into Q1 of the of next year as well <unk>.

Just to.

Actively give you an idea of how it the cadence works as we move from Q3 to queue for to Q1, so we'll be higher raw material prices coming through that will put some a little bit more upward pressure I would say on our margins I also talked about her SG&A performance the not quite a strong.

Is what we saw in in Q3.

So the net of all of that is that we do see our operating margins will likely be lower in Q4 than what we saw in Q3, but I think we still feel very comfortable about achieving margins in our target range. So again I think we're very pleased with the way the margin performance has evolved overall as we move through the year.

<unk> if you look it really what we've done on on the cost side.

In order to operate in this environment the way that the teams have worked to be able to effectively offset.

Would say strong inflation coming through in all areas.

I would say we are very pleased with the margin performance, but we will see some pressure as we move into into Q4 as a result of the things that I've talked to them.

Right. Okay. That's that's helpful. Thank you and then just just with respect to the some of the trends are sitting in the queue for Ya I know you've already given some great color, but I just wanted to ask you know as you are seeing sort of macro while weakness beginning to creep into the sentiment Shirley.

Have you seen any impacts on an uncertain pockets of the of the distributor.

Or has it has it still continue to just sort of move forwards across all the channels.

Alright look I think our distributor businesses like what Rudd said earlier is really performing quite well being honest with you and I think it actually in queue for.

We've actually seen some increases in police for example, which was helping the overall I think sales growth in within within the distributor channels. So.

We had a very warm summer this year, so hopefully shells historically.

Are strong in the fall and it's taking a little bit longer for them to kick in but the the the the sales and police are actually very strong now which is continuing to support the outlook of the distributor business as we move into Q4.

Mmm.

Okay. That's that's great. Thank you very much.

Your next question comes from the <unk>.

<unk> <unk>.

Thanks, Good morning, [noise] Glen I think you had mentioned last call that in past periods, where there are higher cotton prices some of your competitors.

Had had pulled back on production and I think you alluded to maybe that same sort of dynamic playing out and becoming quarters have you seen any any signs of that yet.

Well I think that there's been definitely reduction in overall capacity.

I'm really driven I think by the.

Poor retail conditions in the market.

So there's definitely not just in our hemisphere I think that's everywhere I mean.

That's just a global phenomenon and I think that there has been.

Big Redux.

Reduction in overall.

Capacity just saving.

Dressing in line with.

Retail volumes I mean, that's.

That's probably a fair statement in today's environment.

Which you know I think at the end of the day has I think will give us the ability to.

L. As we move into twenty-three, we're well positioned from our capacity position to to support the growth and twenty-three as we as.

As we exit the 22.

Okay, and then moving onto the retailer Destocking and I appreciate it it's tough to get some visibility here, but if we go back to the last time, where there was this sort of prolonged period of retailer Destocking can you give us any idea is today sort of a close proxy to what it was like then was it short lived the general tone.

Seems to be that this overhang is taking a bit longer than maybe past overhangs what are the sort of dynamics that player.

Well, it's hard to say to be perfectly honest with you I mean, but I say that this is probably.

From a retail perspective, probably the worst we've seen it I mean and longtime when does this I mean.

We've been in the retail market, it's never we've never seen such a.

I think a pullback.

Particularly in Camille things like underwear, which are typically staples. So you know there's definitely.

Pull back and obviously things will work themselves out we've we've.

And there's no question is when does it turn I think that's partly the inventories of the major retailers are significantly higher.

They were chasing volume.

And until those is inventories get work through their.

Turn it into cash I think things will remain tight.

But I would just maybe on our point and looking at where we stand which I think is more relevant is that you know we entered 2020.

Two very.

Very tight on capacity so.

We didn't really you'll go after new programs, but I would say that you know as we move into twenty-three.

We worked hard this year, we have quite a few new opportunities that will occur which will support I think growth for us in that environment.

Despite the you know the.

Negative comps on.

Current programs and current P. O S. So I think that's something that I think is what we're looking for as we move into 2300 at the market continue.

Continues to rebound.

Then I think that would be Hershey.

In a better position. So we're we're still cautiously optimistic about as we move out of 22 Windsor twenty-three.

Got it thank you very much.

Your next question comes from Brian Morrison at P D security.

Hi, Good morning, I wanted to follow up on inventory, specifically a guild in you seem to be back to pre pandemic levels. You Rod you mentioned some of that is cost input that.

Understand this production discipline in industry, but how do you think about price stability and sustaining that gross margin outlook as as you get a little bit of pressure here with the decline in commodity prices.

Oh, you're gonna start with the question that they could look at him in.

The pricing and the market is stable very stable I would say.

Gil Cotton is only one part of the input obviously, which is the largest but the only one.

We as a company and I think even the industry because we are the market leader in setting prices.

We only set prices for caught in and around the dollar level. So just put that in perspective.

So you know part of that people are gonna absorbing their margin because we've only raise prices up to the dollar level, we never raised them to the peak of work hard and.

Came off the board in July .

And there's other significant inflation activities still happening energy is up certificate Lee.

And it's not just up in Central America, it's up in the United States as well.

Labor costs, I mean everywhere you read labor continues to grow.

Polyester has gone up significantly cause it's a byproduct of oil.

And there's other input costs that have gone up so although cotton is starting to come down there's other factors. They haven't so I would say that you know there there's definitely support for price as we go we didn't bring pricing up all the way.

And the market today, you'll pricing is relatively stable so.

Everybody in industry has high cost and this high cost I think even in raw material will take at least six to nine months before it gets flushed out of the industry I mean, just because of the week or sales and we hope you're less so.

We're not really concerned about that at this point.

Okay, and then an inventory O'brien I mean, if you look at the inventory increase and I called out in the remarks, what's driving that but I would say probably 40 per cent of the increases related to our raw materials and our whip.

And that's driven by cost and it's driven by US I would say carrying higher.

Probably safety stocks as maybe the way to think about it because of the broader supply chain constraint right that we've been dealing with everywhere. So we have been naturally are we have been carrying higher levels of raw materials whip cost is is in there, but a causal will ultimately reverse out and then as as the whole environment Abates I would say that the whole time.

And that's in various things that we use inputs into our processes, we're talking about things like dies and trims and all sorts of things that we use is the supply chain effectively becomes a little bit more flexible we don't have to carry the same types of levels that we have carried in the past and that will naturally reverse out.

And then on the finished good side I would say again, it's being driven by cost and history and driven by units. So we said on the cost side that will ultimately reversed itself out in his his.

Glenn said, we don't we don't see real exposure there from a from a price perspective, when we actually go to liquidate this or move this inventory soulless inventory sorry into the into the marketplace and then from a units perspective in certain areas. We've needed more units we've needed more units in order to support the business. So.

We're all we're comfortable with where we are aware of the inventory levels are especially given adjustments that we see will will occur as we go forward and then the final point I think you always have to remember with respect our inventories is that we sell basic replenishment nonsense of fashion products and so the inventory of the <unk>.

We have we always feel good about the quality of the inventory and again in the environment that we see going forward.

<unk>, we're not concerned about our ability to attempt to be carrying high priced inventory in an environment, where we can't price for it so overall higher than where we were many of those impacts we're going to unfold. They were given the environment and I think we feel we're in a good level, where we currently aren't we would like to try and stay at these levels as we move forward.

And then obviously you will benefit from that as we move into a into 2023.

Okay. Sir Thank you both one follow up question on Bangladesh Rod maybe.

Understand you rant production fall into 2000, 2024, I assume you'll transfer transfer some production from Honduras.

Is it ramps up should there be any drag on margins from Bangladesh or is it insignificant.

No there'll be no dragon margin be insignificant.

And you know we will continue to manage our our capacity based on the sales outlook and we're in a good good position today to to support sales.

And if you need a moderate production a little bit of it it's not an issue for us at all either.

Which would not be any drag on our margins outperformance.

Thank you ma'am.

Your next question comes from Daishowa <unk> National Bank.

[noise], Thanks for taking my questions and just.

I wanted to get your thoughts on a few issues that have come up in the past or opportunities.

In the past I'd given this has talked about the opportunity associated with Nearshoring and retailers increasingly looking at private label I Wonder how these conversations are going with retailers and if you expect.

Tell them to capitalize on any of these opportunities call. It in 2023.

So that's why I said, a little bit earlier look as we we.

Beginning of 21 moving into 22, we were so tight for comfort capacity, especially after surviving the hurricane.

That we never really focused on new programs and.

We began twenty-two we obviously aggressively started looking for new opportunities to support 23.

So we do have a new programs and new opportunities both of 'em nearshoring retailers.

And so that's part of our obviously overall growth plan and strategy to support the targets that we set out over the three year period. So definitely we'll see some of that as we move into 23.

Okay, Thanks, and and and I know you touched on this but with respect to the the capacity expansion plans and the the rebound that you're seeing in travel and tourism is as your anniversary.

Kind of that period of weakness in the consumer gets back caught up on those on those and markets do you expect the stability that you're seeing in print where to continue or or or do you expect that to.

Of a decline historically has with consumer confidence.

So we expect it to continue to grow and don't forget there is definitely a portion.

Or just your business is doing really well there are there is a portion of the product that they sell that gets resold as as a consumer space as well right. So you know it could actually be going better because if you look at the beginning of the year. The P O S and.

Sales and R. U S distributor business was much more robust than it is today, it's still good uhm it tailed off a bit and part of the part that actually does tailed off was the part that was more related I think around the consumer side of that so we're.

We're optimistic we're in a good position, we think that we're well positioned both my capacity place as well as our market that as we started to see this this whole thing I'm. So sorry that you know there'll be a lot of upside in terms of our sales volume and combining that with new opportunities from nearshoring in retail.

<unk> space will we're well positioned as we move into 23 and 24.

I'd also add to that the shell and the and the print where business. The carpet promotional side is it never really come back to the strength it was pre.

Pre pandemic and that's a driver as well in the business that it'll.

I'll probably has has been impacted by the macro weakness that we've seen so let's go on said, there's there's a number of drivers and then you later on different areas of the business, which will start firing again, yeah. Overall, we see a good strength.

Okay and in the past during periods of weakness given that's been opportunistic and capitalize on acquisitions wondering if that's something that you see potentially as an option for guilt and particularly given the strength of your balance sheet.

We're focused on you know our grilled and gross story. So we believe that our capacities and place our cost structure is in place and objectively. We're gonna continue to stay focused and build organic growth.

In line with our three year targets over the next 24 months.

Thank you.

Your next question comes from <unk>.

Hey, guys, it's Brian and shoot him on for Paul Thanks for taking our questions. So if we could dig in a little bit on.

Kind of price increase dynamics and how much that help sales in the third quarter and then what units trended during the quarter.

Okay. Thank you for the for the questions. So if you look at Uhm price in the third quarter. It turned out basically the way I think we had we had talked about on the last call. It.

We had him for the for the Q2 earnings call so effectively pre.

Price came in in the mid teen range, which was basically where he had been traveling effectively.

Actively if you look at Q2 and Q1, so consistent I would say price impact now the one thing to call out there is that gonna that's gonna actually start to moderate as we go into Q4, because there were comping price increases in Q4 of last year, and so you'll see that price impact starting to.

Starting to drop down and then from a volume perspective, we were down over all the other you know obviously, we should we had six per cent revenue growth. We did see <unk> on the price, but again that was it was mixed depending on where you were looking so we had a good strengthen the on the distributor side as we've talked about.

Whereas the retail side in the international side. There you saw because of the effectively the <unk> weakness is the Destocking <unk> I would say tougher comps from last year.

Negative volume so I.

I would say decent price offset by mixed impacts of volume across the board and that ultimately delivered the growth for the quarter.

Got it and so you really start to annualize that price increase in the first quarter of next year understanding that you took some price for Q last year is that correct.

Yeah, I mean, I think if you if you actually look at where we are as we as we move into the into.

Into the first quarter of of next year, yes. It obviously the annual at the cops really step up in the price impact really reduces as we move into Q1 and Q2 next year.

Got it. Thanks, that's helpful and sorry, if I missed that did you guys quantify where P. O S is trending today and.

What it was in the quarter.

I know, we gave general commentary on what we're seeing across the various Jones.

Got it and.

Have you guys internalized frontier yard capacity fully.

I know that that was the debottlenecking, but have you kept any some of those external contracts on his capacity constraints of seem to alleviate.

Yeah. So it was fully internalised and it's fully part of our vertical integration today.

Got it.

I appreciate it good luck.

Thank you.

Your next question comes to seven Hot chunk of RBC capital markets.

Alright, great. Thanks, So I'm just like it's following up on the volume of pricing discussion I guess I'll just start to lap now some of the price increase says.

Given how volume trends are kind of heard it over the next while I guess, how are you thinking about the sort of promotional activity or just in general just other ways you can drive volume.

Do you think maybe the international travel turned at some point is darn good understanding of.

Also we can choose a magnitude of chefs between weather.

North American distributor channel, how that's trending where it says international just so I can understand how kind of the next two to three quarters may look backdrop.

Backdrop.

Okay I don't think the price is gonna drive volume in this market.

So you know as we go through or we can all navigate through.

I'll take a little bit of volatility on volume.

But as we move into twenty-three our objective is to support new opportunities really that's what we're gonna get the volume now if the market does rebound by twenty-three then we'll also get supported by.

The the growth and the existing volumes, but we do have but.

Price is not gonna drive volume in this market and it is just not going to move the needle so.

Does that answer your question, but what's gonna move the needle for US is obviously new opportunities new growth near shoring and the things that we really laid out in our <unk>.

Long term planning.

Alright, that's helpful. I guess are you able to move parse out I need to call the volumes or down in Q3 and wholesale but maybe you know how much international might've been down and I think you indicated north American might've been positive available just get some perspective on that.

Well I don't really want to separate out the the different channels, but again I think if you can put together the map of the where our sales growth was where prices effectively we said distributor volume was positive and then retail you can get a sense that you know volumes, we're moving in line.

With will actually probably a little bit more negative them tos because of the Destocking that was was going on in international probably mostly driven by pier one.

It was negative because of the weakness in all markets.

And you know on the West side, we report that and you can see the numbers and that was driven by <unk> weakness in Destocking. So effectively we've got all these trends they're impacting us.

So a really a mixed environment, but of course, the core strength of a distributor businesses is really holding up in it as we go forward ultimately what we're seeing on the retail side. It will reverse ultimately we will work our way through a retail work all the way through inventory levels, we will start to see the <unk>.

Side from what's occurred in the last few quarters again, because our products are basic the replenishment they need them on the shelves you know obviously, if Glenn said, we're we're looking at some new programs that drives.

Sell in as well as as sell through so I would say overall, if you look at the <unk> the environment that we're in now it is I would say a tougher environment from a volume perspective, although again, some some areas of some bright spots.

But as we go forward those longer term trends will still be there for us you'll given the basic network. So the setup of our business and then those macro trends that the Glenn called out that we've been talking about in casual ization on the creator economy on Nearshoring on private label on E. S. G. I mean, all of these things are driving or <unk>.

Business ultimately driving really good demand for active wear.

And that's why we do feel I would say confident about our ability to deliver on our three year targets. We are in an unstable or weaker environment now, we'll see what happens in twenty-three. We don't have a crystal ball, we don't know, but these trends are strong and they are driving our business over the long term.

Great. Thanks for that color and just one quick one kind of the last couple of years has been a benefit from kind of a stay at home worker. Some of that I think create our economy that you reference are you finding that you know.

Some of that business is still with you what is kind of the longterm outlook.

For that sort of work from home consume or maybe some of those online sales that you started to gather over the last couple of years, just some color there.

Well, that's where we sediments those online sales or maybe more relevant to retail let's say for example, consumer end user the end users of consumers. So.

Our distributor business.

First quarter was just you know up until you know sometime in mid March was significantly higher than it is today and that's part of the business. We think you know it was.

The part that fell off or didn't fall off as all the travel team sports uniform rock concerts, you know that part still mascara sporting events, I mean that part's still we are strong and driving you know our volume the.

Part that we think in the distributor area that actually.

Mitigate it a little bit was exactly the part that was more address as a consumer. So I don't think that's going away I think that's just the broader overall consumer market.

And there's just a little bit of that is within our distributor segment. So.

Overall, we are still very optimistic and I think that we're well positioned.

Great. Thanks, very much for that.

Your next question comes from <unk>.

Good morning, everyone. My first question is six going back to cotton.

If you assume that con prices stay where they are and swimming.

The selling price capabilities maintain.

<unk> a tailwind for <unk> next year's from and that's M. C. Heche costs for next year will likely be lower than the current year. Thank you.

So there's all kinds of put some tax rate. So we don't know exactly where it will end up but it will just say look at there's still other inflation like I said earlier, we have energy labor.

Other input costs polyester offsetting cotton. So it's you know there are all kinds of puts and takes a look at where I think Moreover, we're confident delivering our our operating margins and will be in that range as we move into twenty-three.

Twenty-three and supported by <unk>.

Okay. That's helpful Clinton, maybe another one just maybe a follow up on comments you can make them about new program opportunities for next year can you maybe go down with the rest of the debate.

Where are you seeing the opportunities how much visibility you have and and maybe just the size of the opportunity for for next year. Please. Thank you.

Well the opportunities are really part of our overall long term strategy, which is near shoring a retailer private label.

Obviously and those are the big areas of growth for the company as well as obviously you know continued growth in our distributor in the National Council segment, but and that's where we're seeing the the new opportunities and and are a function of us bring on capacity Bruce Hotel last year that we really didn't for 22.

Really wanted to bring on new programs, but as we built up our capacity journey here integrated frontier and had available insight to more opportunity we start aggressively going after these these programs. So we do have a new volume opportunities and which will support the growth for for 23.

<unk> you know depending on how the market performs on our existing business and that will sort of.

Well, we'll see what happens that's the part that we really.

Really don't have a crystal ball on but you know, we're well positioned I think and doing all the things we can in our power to support growth.

Great Okay. Thanks.

Yeah.

Thank you.

This includes the question and answer session that today's call I would like to now turn it over to Roger here for closing remarks.

Okay. Thank you operator.

Before we close off the call I would just like to mention to everybody that many of you know that Sophie will be retiring at the end of this year and so this has been so fees lost earnings call.

Gilden, we have many talented employees across the organizations what drives gilden everyday and.

And Sophie really has been one of them and really over her last 17 years that gilden has made an outstanding contribution to the the I R area and has obviously interacted with many of you. So I think Glenn and I and the rest of the team. We just like to thank Sophie and wish you all the best as she heads towards a very well.

Earned retirement, and unfortunately, or maybe Fortunately no more quarterly calls so with that thank you everybody really appreciate you joining and we look forward to talking with you going for Ya. Thank you and thank you filthy.

Thank you rock.

This concludes today's call. Thank you for your participation you may now disconnect.