Q4 2022 Gildan Activewear Inc Earnings Call

February 22, 2023

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2022 gilden Activewear earnings conference call.

All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session.

To ask a question you will need to press star followed by the number one on your telephone keypad.

Please be advised that today's conference is being recorded.

If you require operator assistance at any time, Please press star zero.

I would now like to hand, the conference over to Elizabeth Hamoui. Please go ahead.

Good morning, everyone. This morning, we issued a press release announcing our fourth quarter and full year 'twenty. Two results. Please take note the company's MD&A and financial statements will be filed tomorrow and made available on our website joining.

Joining me on the call. This morning are bunch of Monday, President and CEO of Gill done Rod Harries, our executive Vice President and financial Chief Financial and administrative officer, and Chuck Ward, President sales marketing and distribution in a moment, Rob will take you through our results in the Q&A session will follow.

Please note that certain statements included in this conference call May constitute forward looking statements, which 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 Canadian <unk>.

<unk> regulatory authorities.

During this call. We will also discuss certain non-GAAP financial measures reconciliations to the most directly comparable <unk> measures are provided in today's earnings release as well as our MD&A.

And now I'll turn it over to Rod.

Thank you Elizabeth and good morning, everyone.

Like to start the call by thanking the entire guild and team for everyone's excellent work and dedication during 2022.

This put us in a position to be able to deliver a record full year results with sales up 11% and adjusted EPS up 14% and.

$573 million of capital returned to our shareholders during the year through a combination of share repurchases and dividends.

We're now one year into the gilden sustainable growth strategy or <unk> strategy and we are extremely pleased with our progress executing on all three of the key strategic pillars. We laid out early last year focused on manufacturing capacity innovation and ESG.

And even though the environment has been challenging with fourth quarter net sales coming in softer than we originally expected. We believe our strong fundamentals and competitive advantages are positioning us to be able to navigate through near term macro headwinds and capitalize on future growth.

I'll provide a detailed update on our <unk> strategy and our financial outlook later in my remarks, but first let me take you through our fourth quarter results.

We reported total revenue of $720 million down 8% versus the prior year quarter due to a 5% decrease in activewear, where we generated $595 million of sales while sales in the hosiery and underwear category of $125 million were down 21% in the quarter.

More specifically the decrease in activewear sales during the quarter reflected continued softness in retail end markets as.

As well as some slowing in and principles.

And bind with the impact of the non recurrence of post pandemic restocking, which occurred in the same quarter last year.

Highlighting a few bright spots the quarter included strong sell through of ring spun and fleece products, where we believe our market share continues to grow.

And we saw higher year over year shipments in international markets as distributors in Europe replenished inventory levels, showing some confidence in the outlook ahead.

And as in previous quarters during 2022 higher net selling prices were also a favorable factor for activewear during the fourth quarter.

And hosiery and underwear, we generated sales of $125 million in the quarter, reflecting weak category level demand for these products and the ongoing impact of tight inventory management by retailers.

We also saw this reflected in the numbers reported by MPD with demand for men's underwear and hosiery and the total measured market down again for the quarter without any sequential improvement from Q3.

Moving onto margins, excluding accrued insurance recoveries of $26 million recognized in the fourth quarter. Adjusted gross margin came in at 29, 1% down 150 basis points compared to 36% last year.

The decline was primarily due to higher raw material and manufacturing costs, which more than offset higher net selling prices and favorable product mix.

Our SG&A expenses for the fourth quarter were $76 million down 6% from last year, reflecting lower compensation expenses as well as ongoing cost containment efforts.

As a percentage of sales SG&A expenses were 10, 5% 20 basis points above the prior year, reflecting the impact of lower sales in the quarter.

As part of our annual impairment testing requirements, we recorded a noncash impairment charge in the fourth quarter of $62 million with the charge tied to current market conditions and related to intangible assets acquired in previous sock and hosiery business acquisitions.

You should note. This charge follows a net reversal of impairment for these assets recorded in the same quarter last year in the amount of $32 million.

Excluding this charge and given our combined gross margin and SG&A performance adjusted operating margin in the fourth quarter came in at 18, 8% down 160 basis points from 24% last year.

But in line with our expectations for the quarter, despite lower than expected sales.

Overall adjusted net earnings for the December quarter totaled $117 million or <unk> 65 per share down 14% from adjusted net earnings of 149 million or <unk> 76 per share last year.

This brought adjusted net earnings per share for the full year to $3.11 a record for <unk> and we think a testament to the strength of our overall business model.

Turning to free cash flow for the quarter, we generated $131 million up from $116 million in the prior year quarter, mainly driven by focused working capital management efforts, which combined with insurance recoveries more than offset the impact from inventory build in the quarter and higher capital investments during 2022.

Full year cash flow totaled $198 million down from $594 million in 2021, mainly due to significant investments in inventories and the impact of higher capital investments.

On inventories you may recall, we were running below optimal levels last year due to the impact of the hurricanes in Honduras in 2020, and a tight yarn supply environment in 2021.

Our inventory levels now put us in a strong position to service our customers as we move through 2023.

On capital spending we spent approximately $80 million on capex in the quarter, bringing total capital investments for the year to approximately $245 million with most of the spending related to optimization and expansion projects.

Further we repurchased approximately $1 2 million common shares in the fourth quarter for approximately $37 million, bringing our share repurchases for the full year under two buyback programs to $13 1 million shares or 7% of our float at an overall cost of $444 million we.

We did this while maintaining a strong balance sheet with our net debt on January 1st totaling $874 million and our net debt to adjusted EBITDA leverage ratio at one one times at the lower end of our target range of one to two times.

This brings me to our update on our <unk> strategy and our outlook for the year ahead.

A year ago, we provided an overview of gilden sustainable growth strategy focused on capacity driven growth innovation and ESG.

We are pleased with the progress we have made with our strategy, which is reflected in our strong 22 results.

With our 2022 revenue base of over $3 2 billion and our full year adjusted operating margin of 19, 7% coming in at the higher end of our target range of 18% to 20%. We believe our business model is positioning us well to deliver on our long term profitability and return targets.

Specifically by executing on our strategy, we have shifted gears from a year ago, when we were capacity constrained.

Today, our capital investments have translated into increased manufacturing capacity and flexibility throughout our supply chain. This.

This has allowed us to invest in inventory and improve product availability, which together with leadership in pricing in ESG is enabling us to adapt to the current environment and take market share in key product categories.

Turning to 2023, we feel cautiously optimistic despite ongoing uncertainty.

In the first part of 2023, we expect continued headwinds tied to the demand environment and two strong comparative periods, particularly as we cycle post pandemic inventory replenishment in the first quarter.

In this regard while we continue to see momentum in the principal's market driven by the return of large gatherings and the shift of consumer spending to experiences including travel. We're also seeing macro uncertainty weighing on buying patterns as some of our customers are placing orders closer to their needs and managing their inventory levels more tightly.

Nonetheless, we believe we are well positioned to gain share even in a softer demand environment and we have recently seen this in the strength of our distributor Pos which is now running better than the fourth quarter.

With regard to our national accounts business, where we serve as retailers our business continues to be impacted by soft demand in retail end markets and ongoing tight inventory manage by retailers.

However, despite this current tightness, we expect demand for replenishment type products to start to normalize as we move through the year given the nature of the products we sell.

Finally in international markets, we started to see improvement in Q4 with positive sell through trends in certain regions together with healthy demand for inventory to support a stronger outlook for 'twenty three.

Moving to the margin front in the first part of the year, we're expecting increased margin pressure due to higher raw material and input costs, which are currently in our inventories.

As we move past the first quarter, we expect these headwinds to start to abate and to deliver strong margin performance during the remainder of the year.

So summing it all up I'm looking at our 2023 financial performance and providing additional color given the current circumstances, we expect revenue growth for the full year to be in the low single digit range. Following what will be a slow start to the year in the first quarter, given the demand environment and tough comps.

On margins, we expect our full year adjusted operating margin to fall within our 18% to 20% target range. Despite expected margin pressure in the first quarter driving US 200 to 300 basis points below the low end of our target range.

As we translate this into earnings we expect to achieve adjusted diluted EPS in 2023 in line with 2022, assuming the continuation of share repurchases aligned with our capital allocation targets of purchasing approximately 5% of our public float annually.

Finally, we plan to stay the course on our new capital projects, while managing our existing capacity carefully demonstrating our confidence in the long term outlook for our business.

Capital expenditures are expected to come in at the lower end of our previously stated 6% to 8% range and with significant working capital investments behind US, we expect to drive strong operating and free cash flow generation for the year.

So overall you can you can see we entered the second year of our <unk> strategy excited.

And as we prepare to launch production at our new manufacturing facility in Bangladesh in late March which will ramp up through the year, providing us with new capabilities and opportunities ahead.

Our in stock levels are in great shape, we have significant flexibility in our manufacturing system and a healthy balance sheet.

In closing, although the current environment presents challenges, we remain excited and focused on our long term strategy.

Industry trends remain intact, including the Casuals Asian of apparel the interest in private label, the growing creator economy and ongoing developments in digital printing as well as the appeal of near shoring and sustainable practices, all of which are creating long term growth opportunities for <unk>, given our strong competitive advantages.

With that I will now turn the call back over to Elizabeth.

Thank you Rod before moving to Q&A session I ask that you limit the number of questions to two and we'll circle back if time permit operator, you may begin the Q&A session.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, well pause for just a moment to compile the Q&A roster.

And our first question comes from Paul Lajoie.

Please go ahead your line is open.

Hey, Thanks, guys.

Curious if maybe you could just share a little bit more detail about your first quarter top line plan and how that breaks down between the two segments.

You gave the.

EBIT margin, but.

Can you share a little bit more on the on the top line assumption and then.

Second I'm wondering if you can talk about the pricing environment within the <unk> channel and how you view your price gaps relative.

What you typically see.

Bob.

And then I might have one follow up.

Okay I'll start with the top line and then I'll turn it over to the team for pricing Paul. So if you look at top line for Q1 'twenty three I think we called it out that it is a first of all it is a tough quarter from a comp perspective, but we had a strong quarter in Q.

Q2, 'twenty one and.

And we are calling the quarter down from a from a sales perspective.

And if you look at what's driving that if you look at where we were in 2022, we were getting prices, we were effectively moving price.

Started moving pricing in 'twenty, one and we were seeing the benefit of.

With that in 'twenty, two but as we move into 'twenty three that really diminishes. So we're not getting much price from a topline perspective, and overall sales as we move into 'twenty three.

From a Pos perspective, effectively what youll see is that we have we do have weak Pos in the in the first quarter software Pos so you'll have Pos in the distributor side, probably down low single digits, you have retail down double digits. So whatever price that we had in the in the first but we're getting in the <unk>.

First quarter of 'twenty three it's for the most part probably being offset by weaker Pos and then if you look at the overall sales number it'll be impacted by not being able to comp Q1 'twenty two the restocking that we saw and then also some so we do expect to see some destocking in Q1 of two.

Three the total impact of that because of again, what's going on in the inventory environment and how customers are managing inventory title tightly sorry, it's probably around $75 million in Q1.

So effectively you will see a softer Q1, we've called it out.

As we effectively move through these effects that.

We have to comp and as we work our way through the current environment, but then obviously as we move into the remainder of the year, we do see strength.

From a number of different areas, which we can talk about in more detail as we get into the call.

And Phil jump in the price one well first of all pricing in the market is.

Stable.

Relatively the same as <unk>.

Has been in the last two quarters.

The main drivers of I think stable pricing in the market as inflation is still relevant.

Just to refresh your memories.

As we increase prices to cover inflation, particularly raw material.

We never.

<unk> prices high enough to cover the peak raw material costs.

It was more of the.

Just over $1 range lets say in today with caught in that basis, we're not far off from where we set pricing.

The other factors are there still other inflation.

We're seeing I mean labor labor inflation is a factor of materials energy are all inflation as we go forward. So.

I think inflation is still here.

And we believe that pricing will be somewhat stable as we go through the year and 'twenty three.

And what's the average unit cost increase that you expect as we move throughout the year. When you take into account those those cost pressures labor raw materials, how does that look in first half second half.

Okay.

So if you look full year, it's actually pretty low Paul right again, we're not really calling out much from a price perspective as we look at the full year. If you look at a low single digit increase in sales.

Very little of it really is coming from from price I would say some of it is coming from mix and volume is sort of staying in there.

Obviously, because if we look at the at the comp versus last year from a volume perspective.

We're not forecasting major volume actually we're being quite conservative really when you look at it when you think about the year because the way that we've set up the assumption is that we are assuming the U S market is down effectively for the full year.

And really what we've assumed is that effectively the sales bump that we get the low single digit increase that's really coming from some recovery in the international markets, which have been very very weak over the last number of years, but we started to see some strength as we moved out of the fourth quarter and then we're also assuming that we will get the benefit of new.

Programs, which we can also talk about.

So effectively if you look at the full year.

Not much from price really if you look at the real drivers. It's these two factors that we talked about and we are assuming a down market in the U S. So if the market is stronger than than we ultimately expect currently effectively we will see the benefit on a go forward basis.

Got it thank you and good luck guys.

Thank you.

Our next question comes from Luke Hannan from Canaccord Genuity. Please go ahead. Your line is open.

Thanks, Good morning, everyone.

Wanted to focus on the inventory for a second your owned inventory.

Curious to know how the competition.

Takes out across each of your your product lines, how you feel about that and then also how you feel about capacity.

Moving into this early part of the year, where presumably demand is going to be a little bit weaker and.

If we look at some of the other peers in the industry. It looks like they've scaled back our capacity so curious to know your.

Your thoughts there on your positioning going forward.

Yeah.

Well I'll start off on the inventory.

Anything else we continue to.

To invest in our business inventory for us as an investment.

We believe that our inventory is well positioned its an historic levels as we're running around 34% working capital today, which is in line with historic levels.

And we have the balance sheet really to support this level of inventory.

With inventory, we think is going to be a strategic advantage, it's going to allow us to we believe gained market share in this market as we see with competitors that can't afford to finance high levels of inventory.

So we think thats going to be.

Our competitive advantage.

And as well as even on the manufacturing front I mean, we're continuing to invest into the future.

We're continuing to invest in capital investments, we've completed all of our ramp up in the Dr. In Central America.

Raj said corridor will start at the end of March but really be.

A slow ramp up during this year.

And into 2024.

And.

This capacity as we've got everything in place, we believe to really support our GSV strategy.

And one point on there I think on our capacity, we've got flexible capacity and.

And flexible utilization so although our forecast this year, obviously, we're not utilizing 100% of our capacity, we're very comfortable with our operating margins in the 18% to 20% range. So underutilization of capacity in our system will not materially affect our margin profile.

And at the end of the day I look at the <unk> historically has built capacity.

And we've sold that capacity and we're very confident that as we drive through.

This year into next year that our GSV strategy, our positioning our investments will occur and we will utilize all the capacity that we've got.

On.

In the process of developing.

Okay I appreciate that and then for my follow up here.

The international markets Rod you had touched on that you guys saw strength there during the quarter curious to know, which particular markets, where you saw strength and growth.

Where which markets rather are still lagging and what the trends have been so far earlier in the year.

Chuck will handle the I'll turn it over to Chuck.

Good morning, Thanks for the question.

As we look at the international markets, the Asian markets parts of them continue to be.

More challenging.

As there continue to be certain restrictions in those markets.

So they are lagging.

As we see the return I think what Youre seeing is a little more optimism.

The European market.

From our from our both UK and European distributors.

So we're seeing potential ups.

Upside from a from an international perspective in Europe and continued challenges in Asia.

Okay. Thank you.

Our next question comes from Stephen Macleod from BMO Capital markets. Please go ahead. Your line is open.

Thank you good morning.

I just wanted to start with.

Just wanted to see if you could give a little bit of color around your visibility around the top line as you move beyond Q1.

Just sort of what youre seeing in terms of puts and takes on the on your improved outlook beyond Q1.

Well, maybe we'll do is we'll just I just want to reiterate I guess.

The our forecast, where we're planning to have low single digit growth rate and particularly in the U S market.

Being down and all of the growth coming from new programs, both in our retail and our <unk> categories.

And so for us I guess.

The opportunity for us is that if theres more market recovery in the U S.

We've taken a very conservative approach to our forecasting and that potentially could be upside and I'll, maybe I'll let.

Chuck just talk about the.

Pos in the.

The position today in the market Okay. Thank you Glenn.

Yes, I mean, I think Stephen the way, we see it as Glen says with the low single digits. How it is going to mix as North American down and as he said, we're probably we're cautious there we're watching the north American market.

As Rod said, we think international will be slightly up as we go through the year.

And then really the growth is kind of as Rod said in his opening remarks was around some of the new programs and that's going to drive the sales growth that's going to deliver the low single digits there'll be no new program sort of across the board whether it be expansion in our underwear space. We have some new programs in the underwear space. We also have some new programs with <unk>.

Some global lifestyle brand partners as they continue to look at near shoring.

And then finally within that North American Incredibles market.

You've probably seen we've continued to launch more and more ring spun products both into fleece in the tea area.

So we think that'll be a positive area to help drive growth.

To cover some of the some of the downside on the North American market.

Maybe just one more point is at.

In the <unk> market, particularly.

Particularly in Q4.

We saw some.

<unk> pass basically so if you look at the year last year.

We started January February things are booming and then sort of we sort of deteriorated our Pos as we went through the year in Q4.

Somewhat.

Little bit more disappointed to be honest with you.

We factored the same types of levels of Pos that we saw in Q4.

The good news is I think that as we've sort of gone through January and February were actually seeing in our distributor business at lease Pos picking up.

Almost flat to last year, which is I would say relatively strong two months before we had to tailspin. So so that's an encouraging sign so hopefully we're cautiously optimistic.

But we can only forecast conservatively in this macro type of environment, but so far.

The beginning of this year.

This.

Theres been a little bit better than we anticipated.

Yeah, Okay. That's that's great color thanks, guys.

And then maybe secondly on the gross margin.

Obviously seeing some pressure in Q1.

Do you expect that once you get past Q1 into Q2 and beyond on a quarterly basis, you'll you'll be within that 18% to 20%.

Target range.

Yes, that's the way we've got it modeled out so Q1 as we called out we will be two to 300 basis points below the low end of the range right as we effectively deal with the factors that.

Highlighted in the opening remarks, and then as we get into the second quarter third quarter fourth quarter, we do see strength back in our margins so effectively.

The second quarter will be.

Significantly stronger than the first quarter and back on a range and then obviously as we continue to go through the remainder of the year, we expect to run well within our range. So we feel good about margins.

As the year unfolds I think if you look at our manufacturing system and what we control our supply chain.

We know what we have in inventory I mean, all of these things we've got I think a very good.

Handle on our on the cost structure.

So I think we can speak with.

Confidence really around margin performance for 2023 on the back of what we've delivered in 'twenty two.

Great. Okay, well, thanks, guys I appreciate the color.

Our next question comes from Vishal <unk> from National Bank. Please go ahead. Your line is open.

Hi, Thanks for taking my questions I, just want to get a bit more color on mix and <unk>.

Management suggested that mix will be a favorable factor again in 2023 and I understand the lease with the contributor in 2022 and Fleece made then a contributor due to work from home as work from home and wines would you expect that contribution to similarly unwind in place some pressure on gross margin how should we think about that.

First fleeces concerned is still growing rapidly in fact is accelerating as we speak so we've.

What's driving our Pos so far in Q1 is actually even more robust flu sales so.

It's been a contributor and as well as the failure of the fashion T shirt segment. So both of those continue to drive both topline mix and performance.

Okay.

Does management understand the drivers behind fleece is it still a work from home demand or is there some other.

Driver that we should contemplate.

Well I think it's a lifestyle thing people are wearing morris more casual wear.

The economy is.

It's all of the factors really I mean people are still casual even though they're there.

We're getting out of the house not right. So.

It's just that it's definitely a lifestyle thing.

Okay, and just switching gears here with respect to labor across your various manufacturing platforms, how does management feel with regards to labor.

Got it.

What levers factor I mean, we've seen we're seeing inflation both last year, we see continued inflation in labor across our.

Our manufacturing.

Globally to be honest with you. So inflation is a factor in energy is a factor.

Materials and so all of these factors are supporting inflation still I mean, the only.

We'll leave a little bit is cognizant of normalized back down to the levels. It has today, but.

Definitely.

Inflation is there and I think at the end of the day, it's going to continue to.

Support.

Long term pricing.

Okay, and with respect to getting the bodies you need in your yarn spinning facilities thats issues.

It is under control.

Yes so.

Vishal you were asking about the labor and yarn.

Yes. It was an issue for us in 2001 in 'twenty two when we started to get our arms around that the environment improved and now as we move through 'twenty three availability of labor is not a concern for us we have the labor that we need.

And that we don't see that as being a constraint actually we see are our yarn operations are in very good shape really with the after the acquisition of frontier and we've been integrating and optimizing and so we feel very good about the supply chain and our ability to run the iron textiles sewing in.

As we go forward and that really puts us in a position of strength.

Thank you.

Our next question comes from Brian Morrison from TD Securities. Please go ahead. Your line is open.

Hey, good morning, Thank you so <unk>.

Actually for chocolate, but Glenn here, you talk about the new program opportunities and it sounds like private label in <unk>.

Can you give us some more details of these contracts being awarded how should we think about magnitude and then you did talk about that a bit in Q1 is it still in the same timeframe or if they've been pushed out at all.

Yeah, Brian I think from the from the new programs perspective, the ones that we're speaking to are all things that we have been awarded and we're moving forward with the timing of the launch of different once it takes takes effect throughout the year, but but those are programs that arent speculative. They are things that we have been awarded.

So we kind of have a good feel for those and when they'll come through from a Q1 perspective.

I think as Glenn said it has been.

POS has been a little bit better than we would've expected.

Going off of a strong comp from from Q1 2022.

And in the Incredibles in distributor channel.

Still some challenges there, but it's definitely better than than we had maybe expected January a little a little worse, but then February we're starting to see it pick up.

Okay, and specifically are these new programs are they private label or the <unk> of the world.

Yes, they are across the board. So you hit them. All so we have some sort of a private label somewhere in the global lifestyle brands.

As well and some are gilder.

Recall in our last call, we mentioned that we had.

Picked up quite a few underwear programs additional shelf space in underwear. I mean these are all the driving factors of R. R.

Growth.

New programs.

Okay. Thanks for that clarification, Glenn and then maybe for Ron I, just wanted to circle back to the corporate inventory I know you say you're comfortable with it it's up about 17% from 2019 admittedly that was a bit high. So is it really volumes are somewhat flattened inflation and mix with much more fleets in there and I guess, maybe how should we think about corporate inventory balance as we look out.

Year end is it going to be a source or use of working capital.

No.

Glenn gave the explanation on where we are in the inventories.

We.

If you look at that and again I called it out right I mean, the last number of years, we ran with low inventories and we needed to get back to optimal levels.

More optimal levels and we've been working away and we've been able to do that as we've.

Really built out our supply chain and from a number of factors. So if you look at where our inventory levels are right now in the fourth quarter. It was $1 2 billion was up.

On a year over year that was driven by higher units and it was driven by higher costs, but again, we needed those units effectively in order to in order to service. The business now we're in a very good position to service customers. It is again you got to remember we're all basic software.

<unk> products and as Glenn said, what we've done is we worked very hard from an overall working capital perspective to actually be in a position to be able to invest in this inventory. So if you look at our broader working capital.

We're in we finished the year at 34% and right in our range of 30% to 35% and so now at that inventory without inventory level, we do see as we go through the year pretty well I would say flat inventory levels.

As we as we move through Q2, Im sorry, Q1, Q2, Q3 to Q4, and so we don't see significant investment.

In our inventories required as we go through 'twenty three actually that's what drives the strength of our overall free cash flow.

Cause if you looked at our free cash flow in 'twenty, two we had $200 million in total and we had to work our working capital and inventory, but a working capital build of around 300 million, which we're not expecting in 2023. We also had higher capex in 'twenty two than we're expecting in 'twenty three.

And 'twenty two we were more in the higher end of our range, our target 6% to 8% range.

We've said that we were going to be in through through this type of period.

And this year, we expect to be in the lower end of that range. So yes, I would say we feel very very good our inventory position is good we can service our customers.

And we do expect to generate a significant amount of cash as we go through the year and then that obviously ties into the fact that we've announced the dividend increase and.

We're planning to do the share buybacks. So all in all we feel set up very well for 2003.

Alright, very good color, thanks, very much Rob.

Our next question comes from Jim Duffy from Stifel. Please go ahead. Your line is open.

Hi, This is Peter Mcgoldrick on for Jim Thanks for taking our questions.

First I wanted to get an idea of your expectations for private label into 2020 through can you add some perspective on growth in private label relative to branded products. How should we think of mixed contribution into 2023 net of new programs et cetera.

Well, we don't think theres going to be big.

Mix change in private label versus our brand products I mean, the margin profile is relatively the same.

And as we said earlier I mean, these programs have been awarded and.

They are basically part of our forecasted plan for 'twenty three so we're continuing to look at obviously new opportunities is not.

One of the things we said last call was that as we enter 2002, we were.

Really.

Pedal to the metal in our existing business, we really werent focusing on new programs and then.

As we sort of saw the downturn.

And then Q2 Q3 last year, we aggressively started going after new business, which we've obtained.

We're continuing to look for other opportunities as we move forward. So.

Our objective is to continue driving our <unk> strategy and.

All of the elements are going to be to obviously take market share with our great inventory position that we have in the market.

Continue to utilize and drive near shoring opportunities as private label.

International sales. So these are all parts of our growth initiatives and I think we're going to continue to.

Stay focused on our core competency and making sure that we achieve our targets.

Thanks, and then.

Switching to the print business.

How big could you give us an update on how big the digital printing businesses and how this area of the business has.

Relative to the traditional print business.

I would say, it's pretty difficult for us to give you a number on it.

But I would say that one of the big drivers.

Of growth during 'twenty one.

Was partly the the greater economy.

Digital printing online selling.

Which is also the part that I think that has come down a little bit.

<unk>.

And 'twenty two as we saw e-commerce sort of leveling off.

But.

Replacing that was people getting out and all the events rock concerts sporting events different things. So I don't think thats structural because I think that that will continue to be a growth driver I think it just peaked during the pandemic because people are home.

But we have forecasted and as we went through.

Our Investor Conference last year, and we size the size of the market. We did a recap refresh on that and basically everything is still intact other than I think the economic.

Market has sort of contained the growth rate a little bit as we move but I think all of the pieces are still heading in the right direction on a longer term basis.

Thanks.

Our next question comes from Jay sole from UBS. Please go ahead. Your line is open.

Great. Thank you Glenn you made some comments earlier in the call just about the competitive landscape and how the current environment has made it difficult for some competitors could you elaborate on that a little bit maybe just talk to us how you.

Youre seeing the competitive landscape shift versus maybe a couple of years ago, and what that means for your ability to take market share.

Well I think that if you look at the landscape.

Not just here in North America, but I would say.

Globally.

They're running capacity rate of the apparel industry.

And I prefer that to yarn in textiles et cetera.

Relatively low.

Throughout.

The globe right now so that's a big factor.

One of the things we see is that there's two elements I think that are going to be big opportunities for us as we move forward is that as the cost of capital continues to increase.

The carrying costs and the capability for manufacturing expansion is going to be difficult for a lot of companies.

And the strength of our balance sheet allows us to do both as to carry the inventory as well as to continue making those capital investments because we can afford to do it.

And you can look at anybody who's basically has high debt high leverage and this leverage scale comes due either private equity or companies that have leverage their ability to support inventory I think on a go forward basis will be limited.

And we'll manage those inventories down.

<unk> will be difficult for them to service to market, particularly when the market rebounds, but I think even and it takes time to restart your engines right. So we look at US we it took us almost a year and a half from the hurricane in 'twenty one the pandemic.

Just to get all of that capacity coming online and we think that this is a real opportunity for US right now and Thats why were very confident in carrying the inventory levels that we are carrying and continue making the capex that.

That we've committed to so for both those reasons, we're very optimistic about.

Committing and achieving our GSP strategy targets as we go forward.

Got it thank you so much.

Yeah.

Our next question comes from Chris Li from data. Please go ahead. Your line is open.

Hi, Good morning, everyone, maybe just.

Just maybe follow up to your.

Answer to Brian's question.

I was wondering David would you expect your leverage to remain in the lower end of your one to two times target range by the end by the end of this year and then when can we expect you to resume buying back shares again. Thank you.

So the answer is yes, we do expect the leverage to be at the lower end of our target range.

As we move through the year and definitely by the end of the year again, given the strong cash flow generation and as I said, we do plan to buy back we called out 5% of our shares Youll see us do that on a consistent basis as we go through the year I think if you look at two.

2022.

We bought back 7% and effectively so we were above our 5% and as we as we finished up the year effectively we lightened up a little bit, but as we move through two.

'twenty, three you'll see us pretty well on a steady cadence effectively delivering the buyback up to 5%.

And again all of them and what we're really excited about is that our balance sheet is in great shape. Our leverage we are forecasting will be at the low end of the range.

And we are well positioned to do all the things that Glenn just talked about so I think we're in a strong position to drive the organic growth and we're in a strong position to return capital to shareholders.

Okay. That's very helpful. Thanks, a lot and maybe a wonderful chuckled Glenn you mentioned earlier that you believe your low single digit revenue growth for this year it could be a bit conservative because you expect the north American market to be down can you quantify or maybe give us details of how much.

Like how much it's down.

Low single digit mid single digit.

What's the magnitude so we can get a sense of how can show that your forecast might be.

Yes. So if you look at effectively what were planning Chris for North America down, it's it's sort of in the low single digit range right. When you look at it. So if you listen to sort of all the commentary about what were.

Forecasting we are.

We know that that we will not be able to effectively comp some of the restocking that we saw in the early part of 2022.

And that ultimately will come out of our forecast.

In 2000 and has come out of our forecast in 2003 for North America, So effectively.

You make that adjustment and look at where we are from a.

Overall perspective.

Sort of down low single digit is the way to think about North America, but then again it will be offset by.

The.

Excluding the new programs and then we have the new programs that we layer on and then we have the international So again I think it's a pretty conservative setup for the year.

And again.

The first quarter is softer as we've called out but given the strength of.

Overall.

And consumer demand, obviously, well have to see what people do with their inventories as we go through Glenn just talked about it.

But given.

Given the strength of the consumer I think it's a good setup really is as we look forward into the year, we've been conservative and we'll see how it plays out and we hope to see.

Longer outcome than what we forecast.

Okay, sorry, and maybe just a quick follow up on I think you also mentioned that in February you seem to give that pls is starting to increase versus a year ago is that mainly driven by your ability to gain market share or you're actually seeing some resilience in the on the demand side of things.

Well, we think so.

I personally believe it so is our positioning and taking market share.

I think the market is so much still down, but I think that we're seeing ourselves with positive.

Comps because of our positioning.

And driven by mainly fleece and like I said before the fashion the fashion side of the business.

Big drivers obviously of <unk>.

Of our growth.

I think we're just well positioned in general to continue to take care of the market.

Great. Thank you and all of us.

Yes.

As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad. Our next question comes from our last question will come from Mark Petrie.

From CIBC. Please go ahead your line is open.

Hey, good morning, Thanks for all the comments so far just a couple of follow ups.

Within retail in Q4, how much of the weakness was sort of at shelf.

Your programs versus national accounts order demand.

So if you look at Q4 really we saw.

The retail environment down if you look at the.

The Pos generally it was down double digit I would say on the retail side, but it was it was across the all of the retail end markets Mark. So if you look at it.

National accounts, if you look at the sales to the big retailers because a lot of the sales of the national accounts and up in retail right. So we see sort of similarities.

On the national accounts.

This national Council, where I'm talking about because we call everything including retail national accounts as well, but it was pretty I would say similar across all of the different channels and retail customers. I mean, it was it was a soft quarter.

In retail and we saw it pretty well everywhere.

Okay.

And with regards to sort of end market demand within the within the distributor channel I know youre, saying industry volume down for 2023, but is that driven by one market more significantly than another in terms of the end markets or is it pretty balanced as well.

It's pretty it's pretty balanced.

Okay.

And then.

Do the redo their account wins in retail impacts the EBIT margin at all.

Or are they consistent with the overall profile.

Theyre consistent with the overall profile.

<unk>.

Okay, and then last one.

I'm just curious about your views are.

Any commentary you can provide about the competitive dynamic within the <unk> channel, particularly as.

As if volume does slow through the course of the year.

Do you expect that and I know you were talking about.

Sort of inventory positioning and.

And and.

The challenges for for people, there, but I'm, specifically curious about views on price and how that might play out let's say that.

Maybe the view on price in other way to look at it is that our cost structure.

I think is in far better shape than the industry's cost structure.

Both from our cost of carrying raw material as well as our manufacturing costs. So I think.

The inventory levels in general.

And the lack of capacity being utilized today.

People need to sell down their inventories and they have stopped producing product.

And those costs are those inventories are very high which is going to continue to support.

The price in the market.

Price is not going to drive this market at all I mean theres no.

It's not like in the past, where you know what.

Drove the price and the market was big user and user events that basically somebody went and bought 500000 shirts and it'd be chase that program basically.

And use price to be able to go get it and those programs are still not there. So when you started looking at what what's out in the marketplace today, I think that the prices never going to move the needle.

In terms of volume so.

You take that account I think with People's high cost.

And <unk>.

In fact is that most manufacturers and our segment are significantly cutting down on inventories and manufacturing capacity and I think they're running maybe at 50% they are lucky.

So we're in a good position.

We came off obviously very low inventories.

In 'twenty, one to support our build and we're running at.

Relatively good rate and our cost structure.

I think is in good shape, both from raw material.

As well as input costs so.

We're well positioned.

We're very comfortable with our forecast.

Yeah.

Alright, I appreciate all the comments and Michele Buck.

Thank you.

And we have another question from <unk> Khan from RBC capital markets. Please go ahead. Your line is open.

Okay, great. Thanks, So just a clarification question I think when you're talking about.

<unk> being somewhat better during the early months of 2020.

Ed.

That'll help you kind of get a distributor then better inventory position. So they can order later or do you think there is sort of upside too.

Our guidance they are already providing in terms of you might be able to ship more to them than you. Initially thought or is that just that's what's your expected for them to be able to do deplete their inventories.

Next few quarters.

What we're saying is that we're comping really we had neck.

Negative.

Let's say.

POS in Q4, which was our worst quarter of 'twenty. Three so we've took we've taken our forecast in that light.

January and February were very good months in terms of Pos in 2022.

So if we're able to comp those as we go through the year as we saw a deterioration in Pos during the year.

Both forecast of negative Pos for the full year. So therefore, we should be in a pretty good position.

To potentially have some upside so we're cautiously optimistic.

And we'll see where the where the market goes as we move forward.

Okay, and then just a quick clarification on Q2, I guess can you call out some of the tough comps et cetera for Q1 for Q2, I guess do you expect a sequential improvement should we look for some top line growth in Q2 here is all year over year.

Yes, if you look at Q2, effectively yes, I would say that we do see weakness in.

In Q1, as you said, but I think as you.

We go to Q2, I think that will be again, it was a tough quarter and when we looked at.

Q2, 'twenty two we did almost $900 million of revenue. So it is a big comp. So I think there I think it will be a little tougher, but again as we move through Q3 Q4, we see real strength. So I think that's probably about as much color I don't want to give you on the on the way the quarters unfold.

Thanks very much.

We have no further questions in queue. This will conclude today's conference call. Thank you for your participation you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2022 gilden Activewear earnings conference call.

All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session.

Ask a question you will need to press star followed by the number one on your telephone keypad.

Please be advised that today's conference is being recorded.

If you require operator assistance at any time, Please press star zero.

I would now like to hand, the conference over to Elizabeth Hamoui. Please go ahead.

Joining me on the call. This morning are lunch I'm, Andy President and CEO of guilt on Rod Harries, Our executive Vice President and financial Chief Financial and administrative officer, and Chuck Ward, President sales marketing and distribution in a moment, Rob will take you through our results in the Q&A session will follow.

Note that certain statements included in this conference call May constitute forward looking statements, which 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 Canadian <unk>.

Securities regulatory authorities.

During this call. We will also discuss certain non-GAAP financial measures reconciliations to the most directly comparable <unk> measures are provided in today's earnings release as well as our MD&A.

And now I'll turn it over to Rod.

Thank you Elizabeth and good morning, everyone.

Like to start the call by thanking the entire building team for everyone's excellent work and dedication during 2022.

This put us in a position to be able to deliver record full year results with sales up 11% and adjusted EPS up 14% and.

$573 million of capital returned to our shareholders during the year through a combination of share repurchases and dividends.

I'll provide a detailed update on our <unk> strategy and our financial outlook later in my remarks, but first let me take you through our fourth quarter results.

More specifically the decrease in activewear sales during the quarter reflected continued softness in retail end markets as.

As well as some slowing in and principles.

And bind with the impact of the non recurrence of post pandemic restocking, which occurred in the same quarter last year.

Highlighting a few bright spots the quarter included strong sell through of ring spun and fleece products, where we believe our market share continues to grow.

And we saw higher year over year shipments in international markets as distributors in Europe replenished inventory levels, showing some confidence in the outlook ahead.

And as in previous quarters during 2022 higher net selling prices were also a favorable factor for activewear during the fourth quarter.

Moving onto margins, excluding accrued insurance recoveries of $26 million recognized in the fourth quarter. Adjusted gross margin came in at 29, 1% down 150 basis points compared to 36% last year.

Decline was primarily due to higher raw material and manufacturing costs, which more than offset higher net selling prices and favorable product mix.

Our SG&A expenses for the fourth quarter were $76 million down 6% from last year, reflecting lower compensation expenses as well as ongoing cost containment efforts.

As a percentage of sales SG&A expenses were 10, 5% 20 basis points above the prior year, reflecting the impact of lower sales in the quarter.

Note. This charge follows a net reversal of impairment for these assets recorded in the same quarter last year in the amount of $32 million.

Excluding this charge and given our combined gross margin and SG&A performance adjusted operating margin in the fourth quarter came in at 18, 8% down 160 basis points from 24% last year.

But in line with our expectations for the quarter, despite lower than expected sales.

Overall adjusted net earnings for the December quarter totaled 117 million or <unk> 65 per share down 14% from adjusted net earnings of 149 million or <unk> 76 per share last year.