Q2 2023 Gildan Activewear Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q2 2023 you'll then after you Blair earnings Conference call. Please be advised that today's conference is being recorded I would now like to hand, the conference over the Jesse Hay and <unk>.
Go ahead.
Good morning, everyone.
Earlier, we issued a press release announcing our results for the second quarter of 2023, we also issued our interim shareholder report with the Canadian Securities and regulatory authorities and the U S Securities Commission, which are available on our corporate website.
Joining me on the call today are Glenn <unk>, President and CEO of Gilden, Rod Harries, our executive Vice President and Chief financial and administrative officer, and Chuck Ward, President sales marketing and distribution.
This morning, Rod will take you through the results for the quarter and a question and answer session will follow.
Before we begin please take 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 Securities regulatory authorities.
During this call. We will also discuss certain non-GAAP financial measures reconciliations to the most directly comparable ifr S. Measures are provided in today's earnings release as well as our M. D N a.
And now I'll turn it over to Rod.
Thank you Jesse.
Good morning to all and thank you for joining us on the call today.
This morning, we reported our second quarter results, which came in slightly ahead of our expectation.
The line in operating margin.
We ended the quarter with $840 million in net sales with better than expected sales volumes, and activewear, which offset weaker than expected product mix tied to current market conditions, which I'll speak about a little later.
During the quarter, we believe we outperformed the industry in a challenging environment supported by positive activewear, Pos trends and the breadth of our product offering which provided flexibility in what appears to be an increasingly more price conscious environment.
This speaks to our strong competitive position and our ability to continue to drive market share gains.
This said, while we continue to expect our revenues to grow year over year in the second half.
We believe it is prudent to lower our outlook for the full year to reflect the impact of current market conditions on activewear mix as well as near term uncertainty related to the broader macro environment.
I will take you through the details of our revised 2023 outlook a little later, but first I'd like to highlight that we remain fully committed to our capital allocation priorities, having returned $175 million to shareholders year to date supported by strong free cash flow, which we continue to expect will exceed $425 million for the full year.
As such with our existing and CIB program expiring, we announced this morning, the renewal of our N CIB program to repurchase up to 5% of the company's issued and outstanding common shares over the next 12 months.
Now, let me turn to the specifics of our second quarter results.
Net sales for the second quarter came in at $840 million down 6% year over year, reflecting a decline in activewear sales of 9%, partly offset by 8% growth in the hosiery and underwear category.
In activewear as previously communicated we faced a strong comparative period as we cycled post pandemic inventory replenishment.
Overall, the year over year Pos trend for the Activewear category was positive during the quarter driven by performance in North America, which improved sequentially largely as anticipated.
On the other hand international markets remained challenged with sales in the quarter down 2% versus the prior year with Pos trends softening sequentially, which fell below our expectations.
Finally, good growth in the hosiery and underwear category for the quarter was mainly driven by underwear sales volume growth, reflecting the expansion of our private label offering and the rollout of new programs in the mass retail channel.
Further while industry demand for men's underwear remained down year over year. It continues to improve sequentially and we remain encouraged by the improving momentum for this product.
Turning to margins adjusted gross margin came in at 25, 8% down 380 basis points year over year.
This was largely a result of the anticipated flow through impact on our cost of sales of peak fiber as well as unfavorable product mix in activewear related to shifting product preferences in this environment.
SG&A expenses for the second quarter were $78 million down $11 million versus last year, mainly due to lower variable compensation expenses, and our continued cost containment efforts, which more than offset the impact of cost inflation.
As a percentage of sales SG&A of nine 3% improved 70 basis points, despite the impact of sales deleverage.
Consequently, we generated operating income of 21, 7% of sales during the quarter, which included a net insurance gain of $74 million related to the two hurricanes that impacted the company's operations in Central America back in 2020, partly offset by restructuring charges of $30 million.
Which include the closure of a sewing facility in Honduras.
On an adjusted basis operating margin of 16, 5% was up 190 basis points sequentially slightly better than expected, but down 310 points compared to the prior year.
After reflecting net financial expenses of $24 million and factoring in continued share repurchases, we reported GAAP and adjusted diluted EPS for the quarter of 87, and <unk> 63, respectively.
Moving on to cash flow and balance sheet items.
Cash flow from operating activities was $182 million in the second quarter, which includes the net positive effect from the insurance gain mentioned earlier.
This compares to $210 million in the prior year and the drop is primarily due to higher working capital and lower net earnings.
We continue to maintain healthy inventory levels, ensuring product availability in depth. Furthermore, we expect our inventory levels to decrease sequentially as was the case in Q2 and end the year below 2022 levels.
After capital expenditures of $56 million, we generated approximately $126 million of free cash flow in the second quarter.
On the Capex front, the progressive ramp up of our new Bangladesh facilities is underway, which will continue through 2023 into 2024.
We also bought back two 6 million shares in the quarter, reflecting our strong commitment to return capital to shareholders.
The company ended the second quarter of 2023 with net debt of $1 7 billion and our net debt to EBITDA leverage ratio of one eight times in line with our 1% to two times targeted debt levels.
Moving onto the outlook for the full year.
With strong comparative periods now behind US we continue to expect our revenues to grow in the second half of the year supported by the planned rollout of incremental retail programs.
However, despite continued market share gains.
We are seeing current market conditions negatively impact activewear product mix in both North American and international markets as customers focus on lower priced products.
Combined with the near term uncertainty related to the macro environment.
We believe it is prudent to temper our previous full year 2023 expectations for revenue growth and operating margins, which now reflect the trade down occurring within our activewear product category.
Finally, our full year 2023 outlook is also factoring in the impact of higher than previously expected financial charges for the second half.
Accordingly for 2023.
We now expect revenue for the full year to be flat to down low single digits versus the prior year.
We also expect full year adjusted operating margin to be slightly below the low end of our 18% to 20% annual target range.
Although this said we continue to expect sequential quarterly improvement in operating margins through the second half of 2023.
We expect adjusted diluted EPS in the range of $2 55 to $2 65.
Including the impact of assumed share repurchases of 5% of our outstanding public float in 2023.
And finally, we expect strong full year free cash flow generation above 425 million after capital expenditures, which we continue to expect to be at the lower end of our 6% to 8% target range.
So in conclusion, while we faced some near term headwinds driven by the macro environment, which we can see is driving customers to focus on lower priced products and which is largely driven the change in our 2023 outlook.
We are encouraged by our performance relative to our peers as we continue to gain market share in a difficult environment.
Accordingly, we remain confident that as macro pressures subside will be positioned to fully capitalize on our market share gains and resume our growth trajectory.
This combined with our cost structure that we believe is well under control and which we continue to improve positions us well as we work towards delivering on our financial targets and creating long term shareholder value under the gilden sustainable growth strategy focused on three key pillars of capacity driven growth innovation.
And ESG.
Thank you and I will now turn the call back to Jesse.
Thank you Rod before moving to the Q&A session I would ask you to limit the number of questions to two and we'll circle back for a second round of questions if time permits.
Cepheid you may begin the Q&A session.
At this time I would like to remind everyone in order to ask a question.
Then the number one on your telephone keypad.
Airbus Vigesimo meant to compile the Q&A roster.
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Zero.
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Josephine we're ready to take questions.
Yes.
Okay.
Okay.
At this time I would like to remind everyone in order to ask a question.
Star then the number one are you identifying keybanc.
Your first question comes from the line of Jay sole.
Your line is open.
Great. Thank you so much I am wondering if you can elaborate on the current market conditions that you're talking about that are unfavorably impacting activewear, what exactly is going on is it sort of a customer issue is it a consumer issue can you. If you can elaborate that'd be very helpful. Thank you.
Yeah, I'll start with that one would look at I think.
What we're saying is that our market conditions are actually pretty strong ourselves, we're gaining share in the market the.
The overall market, we think is down.
Low double digits in terms of activewear in the North American market, but we know obviously, we're gaining share with a positive 2%.
The rules.
Change and I think we're looking at is at the customers that are buying products are actually changing the type of product or buying so they're buying lesser.
Value type products. So for example in sort of buying a hoodie sweatshirt or buying your crew next lecturer instead of buying.
Some of the fringe items that we sell they are buying more basic items and then one area. We're seeing is a shift back to basic product from from the fashion product is zero the price points are lower so that's really what's happening, but it's the unit volumes are good. It's just a shift in the mix of product, which is reflecting the actual net.
Selling prices that we sell to these consumers, but our volumes are on track our volumes are good we're taking share in the market. Although the market is as we can being challenged.
That's really what's happening.
Got it and then Glenn can you just talk about.
The factory closure and maybe Greg context for us.
You know how to be how that decision came about and sort of what the implications are.
We'll look at we're you know I wouldn't take that factory closures anything, but the continued optimization of our whole manufacturing.
Supply chain and optimization in terms of really focusing on our back to basics. So it's not a capacity driven thing we're still running our capacity relatively at the same levels we were.
In in Q1, and Q2 and where we are today. So we haven't changed our capacity. We're just continuing to optimize in these markets I mean, we're not running at full you know like what we said last time as we're running between 85 and 90, we're still at those levels, but we're constantly optimizing.
Our structure, our cost structure and positioning ourselves to be.
Low cost as we move forward into the future. So it's more of a back to basics approach than anything.
Okay. Thank you so much.
Okay.
Your next question comes from the line of George domain of Scotia Bank.
Your line is <unk>.
Yeah, Hi, Thanks, Good morning, Glen and Rod I think last quarter, you mentioned, we're seeing pretty good yielding Pos for fleets and then you mentioned high single low double can you just talk a little bit about how that said thats been trending now.
Chuck Chucker-out yet.
Good morning, Yes, we're still pleased to still trending well, it's a it's not as strong as it was I think the big thing that Glenn mentioned this shortly we're seeing a mix change between hoods and crews which.
<unk> heard seller, a slight premium to the to the crews. So we're seeing more of a mix shift, but fleece is still performing well and the mix shift assist significant like in a discipline things in perspective the.
Price difference is in the neighborhood of 40% differential in price between a hunting accrue. So we're selling the unit volume the share is going up we're still in mid single digit type growth in fleece, but the thing is is that two of the price point of the items from accrued to our HUD is significant as fits in the neighborhood of.
40% difference between the krona Hood, so they're just buying a lesser priced item.
But we're still selling the unit volume.
Okay. That's helpful and maybe on the 380 basis points of contraction on the gross margin can you talk a little bit about.
How much of that was cotton and just how should we think of maybe ride how should we think of the second half.
The recovery in the in the in the margin is driven by lower price corn any bank and maybe help us out there just to model that out thanks.
Okay. George So if you look at the the margin what happened in the second quarter margin.
Actually our performance was better than we anticipated right. We had said last quarter that for the second quarter, we would be up 100 150 basis points over the first quarter and we actually came in a bit stronger. So we I think we'd say we were we're very pleased with that overall and if you look at what happened with our margin actually.
<unk> mix as we said drove a weaker margin overall, probably about 170 basis points of headwind.
In that in those numbers, but because of our.
Our performance on our cost structure performance on SG&A and other areas effectively we were able to achieve a good operating margin of 16, 5%. If you look at the fiber impact we had headwind in the first half and then as we go into the second half that abates and it turns into a tailwind.
So if you look at the second quarter basically if you look at cotton or fiber in our cost of sales. We had we still had a or sorry. If you go into the third quarter. If you look if you look at what's going to go on there we're still going to have a little bit of a headwind, but it's you know as we move through the quarter basically are flat and then as you as you go into the fourth quarter it turns into a tailwind.
For sell if you look at our margins overall good performance in the second quarter, we're very pleased with the with the way it unfolded and then if you look at the third quarter effectively you get sequential improvement in our margins. So if you look overall, we're probably going to be just below the low end of our target range in the third quarter from an.
<unk> margin perspective, and as you push into the fourth quarter, we're going to get to the high end of our target range and again, our cost structure is really well under control.
That really will drive us as we move into the into the back part of the year and obviously that sets us up very well as we move into 2024. So I would say we feel very good about our overall cotton position and our overall cost position as we go forward.
Great. Thanks for the color.
Your next question comes from the line of Stephen Macleod of BMO capital markets.
Your line is open.
Great. Thank you good morning morning, guys morning, everyone.
Just just circling back on that last question about the color you gave on the margins.
Can you can you I know you were talking specifically around the operating margin do you have any incremental color you can provide around the gross margin and how are the balance between gross and SG&A gets you into that.
Those are consolidated margins you're talking about.
Yes look if you look at effectively what's going to go on it's all really going to flow through the for the gross margin right as we go into the into the back half because all of that cost structure improvement in cost structure will be reflected in gross margin. We will have the weaker mix right that effectively will continue in the third.
Quarter in the fourth quarter as we called out for the second quarter and really if you look at our full year outlook.
Our total outlook and you look at our sales outlook and the way we've moved it it's all being driven by a weaker mix. So the the real move from our prior guidance to where our current guidance is flat to down low single digit. If you go to the midpoint, it's all being driven by weaker mix so that weaker.
Mix that is.
Flowing through in the back half very definitely but our cost structure is really improving as we move through the year.
And effectively that's that'll offset it we get the improvement in margin as I said and again as we go into 2024.
We'll see what happens from a macro perspective, we'll see what happens from a from a mix perspective, but because of that strength and cost structure. We feel very very good that the setup at the at the end of the year and as we move into 'twenty four.
Okay. That's great. Thank you.
And then and then Glenn you mentioned that the overall market's download low double digit, but <unk> was up by here up 2% in activewear.
Can you talk a little bit about.
Where youre seeing our share gains.
As part as it partially driven by.
The fact that Youre. So much you have such a strong position in basics, so you're capturing that trade down or are there any other.
Any other factors.
Influencing that.
So Stephen I'll take that as Chuck Yes, I think we're seeing we're seeing gains in multiple places I mean, we're seeing gains in the basics, but we're.
We're still gaining share in the fashion ring spun area as well.
The response is not as is.
Moving as fast as it was up.
A few quarters ago, but we're continuing to gain share against those competitors also what we're seeing more in the national accounts that service retail customers, they're more up mid single digits as retailers have continued to experience improvement in sell through in there doing continued.
Replenishment.
And then for <unk> and also on the maybe just to add to that is where our fashion is maybe not as strong as it was it's still you know.
High single digit positive, but our basics are now.
Low single.
Emotional side of things, whether now with consumers trading down do you expect there to be a little bit more competitive pressure to be able to capture that customer.
We've seen some pricing action, particularly from some of the brands in the fashion category.
However, you know even after they've you know justice Hemmeter pricings, we're still significantly below them.
You know in the tune of 2025 per cent in certain cases right. So we're you know, we're we're position dwell on price and what our product portfolio and all the different price points that we have we think we're well position that will see our price deteriorate on mix, we won't see it deteriorate because we're lowering prices I mean I think is that's.
The way to look at how we're positioned.
Okay. So that in other words, if you look also at the the rest of the competitive set I know you mentioned before in the past that there's been this lebron where you guys can can take price because you are seeing inflation not just on fiber costs, but on a variety of different cost buckets.
As it stands today are you seeing any evidence of competitors more broadly looking to take price as a result of those.
That cost inflation abating.
Well I don't know if it's so much cost inflation, but I think that some would say like I said some of our fashion competitors have lowered prices, but are still significantly above us.
It may not be because of inflationary <unk>.
Reductions, but it's maybe more from business that business. I mean, you know I think that they're losing significant share we're gaining share in this market. So one of the things that we mentioned earlier that the market's down you know I was low double digits and were positive you know single low single digits I mean, so we're obviously taken Sharon.
There is a reaction, but you know, we're we're positioned ourselves perfectly because of our product portfolio. The.
The different levels of pricing basics are coming back now we're diagnostic of what's being sold.
<unk>, we we really don't care and we're taking sure. So I think we're well positioned and I think more importantly, even one of the things are Raj said that even with this mix, which is factor into our forecasts you know will be at the high end of operating margins in queue for and you know we would have been higher than that if the mix, obviously would've been better cause you have added a couple of like.
<unk> you know the impact is 200 basis points for 170 for example, and and Q2. So we would have been higher than even the high end of operating margins in queue for but we're still there we're well positioned uhm, we have a a good cotton physician that'd be a good visibility of our manufacturing. So you know as we continue to move into the future. Despite.
The next change I think will be well positioned to move into 24.
Okay. Thank you.
Yeah.
Hi off.
How about.
Yeah.
Mm.
Hi, Thanks for taking my questions just on the the comments about being down 12% can you maybe elaborate on that is that industry units is that industry sales how does that reconcile with what you saw last quarter when when the April trends were down to call. It a flattish to fly.
E down and maybe you can give me the time period of that particular data point that you mentioned.
Mmm, well I think the last quarter. We said we were slightly down you know this quarter were positive <unk> low single digits.
But what we're referring to is that the overall market is down.
Low double digits basically so they think that's a question as the actual market itself and the conditions within the market. So we're gaining share within this market and that that's does that answers your question.
Yeah, <unk> is that market, that's marketing units and is that that's <unk> yeah. That's all that's all.
Well, that's one quarter for the quarter, Yeah, you guys for record with how.
Would you lie trend.
Horse stable.
July for us is trending better.
We're mid single digits positive <unk> activewear products.
Our underwear and sock products because of the new launches.
We're basically probably low dull.
Double digits today, and we expect that to actually grow to you know probably high double digits as we move into the future as a no Q Q3, Q for as we continue to see momentum on our new products.
And also you know we're we're mid July is like mid single digits for us, but you know as we would also move into Q for you know we're gonna be copying you know uhm easier comps for us. So we can always we should see that grow a little bit as well just from a can't respect of but we're continuing to take sure I think we're taking more sharing beginning of Keith reason, we didn't you too.
Okay and with respect to the next shift is that is that something that you deem to be more of like.
I got a base that we should reflect permanently in our earnings forecast it or is this more of a transient thing and next year that next might come back a little bit or we'd have to laugh that in Q1 Q2 kind of thing and then we should build their earnings off this new guidance provided.
Looks like it's not I think there's no structural I think it's gonna come back. It's just it's a risk of type environment, where you know when people have to make a decision to buy something.
They're gonna buy the thing that probably is elyse risk for them and also looking at potentially margin impact in terms of what the end use would be or D. On selling price. So there's you know in our cases, you've got members that we know we sell T shirts and be some distributors they sell them to a printer who sells them to somebody else and you know they go down so the average shirt that we sell for.
You know 250 ends up at $25 writes, what's going down the pipeline. So you know people are looking not to be stuck with inventory it could be a souvenir shop for example, where they they had a tank tops or pockets are long sleeves or you know hoodies for example, so they they don't want to take that risk so they're they're taking the risk off themselves in terms of.
Or purchase habits today, because of the macro environment, so, but that's all gonna work itself out I think that that's that's part of what we're seeing I think it's all driven by them really the <unk> D and the environment.
And ultimately I think people will revert back to a normal behavior as we see things suicide.
Thank you.
Yeah.
I see.
Yeah.
Yeah. Thanks, very much question for Glenn or check with the dichotomy here of your market share gains relative decline of low double digits for the industry.
How's the channel inventory Lucky.
For both your products and maybe the industry in general is there more destock that has to take place or are we now in a premium position.
Well look at that looked at the inventory and at the end of a Q2 was flat to Q1.
It was slightly higher than we anticipated.
And you know, we believe there'll be some destocking in the back half of the year.
And our plan.
Okay, and then I guess two small questions sub 10 per cent SG&A margin is this achievable on an annual basis and if so is that sustainable and then rod maybe free cash flow. What's your working capital assumption that you freak that casual guidance will this be pleasant for the.
<unk>.
Yeah, and I'll look if you look in SG&A right now if you're out there we have a target of around 10%. We did 10 per cent last year.
This year effectively it's going to be around that level right as we finished the year.
This quarter, we did nine per cent and as we go forward I mean, we're gonna try and drive those levels, but I think given what's going on from a sales perspective, you'll get a bit of a deleverage, but I would say longer term, where we really are trying to drive down below that 10 per cent level, Brian when you think about SG&A and we think we can do that we think is we continue.
To grow and give them our business model is we can get operating leverage off SG&A and that's a real competitive advantage force. So again, we're very focused on it and we see it as an area that we can manage well as we go forward.
On the on the free cash flow for the for the for the full year free cash flow, we're calling about 425 million.
Affectively, if you look in the first quarter, we had negative free cash flow, we had good free cash flow in the second quarter and we expect a good.
Free cash flow in Q3 and Q4.
If you look versus last year, we had inventory build going on now we do not have the inventory build overall were alright, as we talked about earlier inventories are coming down uhm and that provides a good support to free cash flow. So I would say, we feel very good about our free cash flow and.
Competitive position in the market, we've got a strong balance sheet and we're very pleased about a week and returned capital to shareholders. We had good return this past quarter and we're planning for good return as we go forward.
With the announcement of the new five per cent N Civ program.
Yeah, No I I. That's very helpful. Just a question you have 325 million of negative working capital in the first half of the year, where will that ended by year end will that'd be flat pauses.
Yeah, we were working capital basically this quarter.
Around 45, 46% of of sales right. If you look at it on a on a L. T M basis, when we called out in prior calls and we're still focused on it is effectively working capital around 35% by the end of the year. So we will we will drive that working capital basically to the <unk>.
Closer to our target level as as we get to the end of the year and so we do feel good about the way that's unfolding.
Thanks for the color.
Yeah. Our next question comes on the line.
Phone.
Hi, good morning.
I just wanted to come back on the guidance revision mm.
You know you your sales for the quarter came in ahead of expectations.
Your your point of sale trends or positive in Q2 in North America.
So I'm I'm wondering what.
What's driving that what's <unk>, what's changing in the outlook is alright, alright things decelerating in July for you to revise your guidance la la or anything.
Anything would be helpful to just to understand given that the positive trends you've seen lately.
Yeah, I mean, that's the simple way to think about it Martin overall is it is the mixed that's driving effectively the change in the outlook for the full year. So yeah. We we came in better than we anticipated for queue to that was driven by volume as we talked about the you know the positive P O S and activewear overall.
<unk> flat.
<unk> P O S in in underwear, and <unk>, and which is improving now as we go into the into the back half Glenn talked about the distributor inventory in the channel was flat, but it came in a bit higher.
Than we anticipated and that will reverse out as we as we go through the back half, but it's mix mix is the real driver ultimately of what's going on in the forecast.
And if you look again for the full year.
The full changing our outlook is driven by mix and we'll see that in the in in queue to you and we'll see it in Q3, we have good <unk> is actually performing well as as we talked about and we're driving market share gains in volume. If you look for your is exactly where we.
We expected it to be so we feel very good about the business overall, but this shift in the marketplace, that's going on to lower price point products, obviously, we're dealing with that and the good news is we have the broad range to be able to deal with it and we have the cost structure to be able to deal with it. So we are well positioned as we move through the end of the year into 2002.
24.
[noise], Okay, and then just just a follow up just to better understand that mixture shift is it happening across all your <unk> and markets. Because you do have and markets that very different dynamics you have some that are more recession resistant and more some that are more cyclical just trying to a nurse.
And a little bit as this across the board or an uncertain and markets.
Pardon I would say it was across the board, it's pretty consistent across the markets and categories.
Okay. That's it for me thank you.
Hi, again, if you would like to ask a question by then the number one.
<unk>.
Yeah. Our next question comes from the line.
Yeah.
Yeah.
Oh good morning, everyone. Maybe just one one question left for me and it might be a difficult one to answer but you know I'm just curious to see how confident you are that you know that.
The cut is sort of uhm that's it.
<unk>.
Sort of risks that can cost diagnose to revise for lower back have just wanted to see how.
What's that on the device guidance. Thank you.
Okay, Chris Thanks for the question if you look at overall effectively as we said we've given you arrange for the full year. If you go to the midpoint of the range we when.
When we see the the next changes that are occurring effectively that drives us to the midpoint of the range and then if you go to the low and there's <unk>, obviously, what we have effectively done is.
Reflected macro uncertainty actually I, even that little bit of that is in probably in the mid point. So we really do feel that we've read this <unk> do you risk the back half with our forecast what we tried to do is.
Give you what we think is a very good baseline for the overall environment shifts that we're seeing on with respect to the consumer how they're effectively trading down and we factored in some as we said macro uncertainty because we know the environment is tough to forecast it's tough to know.
Exactly what inventory levels people are going to carry.
Especially as as the year unfolds. So I would say we feel like we really have derisked. The the forecast for the full year and we feel good about delivering actually we feel good about performing against it and as we said as we come out of the back end of the year, we feel we're very well set up for 2024.
Okay, Thanks for that and all of this.
Thank you.
A city.
Yeah.
Everyone. In this branch you demand for Paul I, just wanted to see if.
If you could give us a little more details on the underwear business you gained and no as it relates to the Bangladesh facility opening early next year.
Having any other conversations.
Potential customers to try and utilize the capacity of it's gonna be from online.
Well I'm not sure I'm going to look at the end of our programs have been rolled out I'm, a little behind schedule I would say in terms of actually not from our perspective perspective, but just one how long it took for us to get the floor set that our retail partners, but they're doing very well.
It's gonna be ramped up to about 25% of its full capacity by the end of this year, which was factored into.
All of our working capital assumptions or inventory levels et cetera, and at the same time, it's gonna really give us the ability.
To strengthen our cost structure and I'm really go after gaining sure not just in our underwear categories, but also in the fashion basics as well as our international market. So it's really going to be.
Something I think that's gonna be very important in terms of the overall manufacturing cost structure for guilt, then as we move into 2024 and 2025 so.
Oh, it's just it's gonna give us room to go after new programs, we actually have a stream of programs. We're looking at that as we move into 24.
A lot of this these types of programs will be supported by us as we wrap up our Bangladesh.
How did things shift around us that comes on line do you shift your underwear business over there kind of wholesale or is it really a piecemeal depending on how these conversations go.
Well, we already make a lot of our underwear in Bangladesh today, you know cause we still have other operations there so.
Underwear as being made in that hemisphere today.
As well as a lot of our fashion shirt, so all of our incremental <unk>.
Fashion basics underwear all of our growth will be supported really by the development of Bangladesh as we move into the future.
Got it and one more if I can.
You know with the shift away from fashion more towards basics are you able to shift what your manufacturing to kind of meet the demand like how quickly can you change things. So that you don't get over inventory.
Category that isn't selling through as as well as you would hope.
Who are cycled times five weeks. So it's very long I mean, we've already adjusted all of our manufacturing all of the products in which we manufacturer. It's a T shirt the fashion sure if the basic sore throat made on the same machine. So we can adjust our equipment and in the case of you know.
Fleece, where we make a hood of her crew. It's all made them the same factories, there's just less operations.
You know to make a crude and hurt it's.
And it's showing it's a little more difficult to go from you'll make more hosing cruise because it takes more labor to make this big a hooded sweatshirt is it a lot easier cleaned going to to make them more crews to be perfectly honest with you, but we have lots of flexibility in our manufacturing are cycled times are relatively short we've adjusted our manufacturing to reflect all of these types of changes on a day.
Really basis, as we get P O S from our customers and it goes through our planning groups are planning groups make the adjustment and our manufacturing groups respond to whatever is being sold in the market. So.
None of that is really an issue for us and.
As we said before like we're well positioned we have good visibility despite.
Despite the fact that you know we've seen somebody who's mix changes, we're gonna be.
I'm driving at the high end of our operating margins as we move into Q for what our current position.
And we've got a good visibility on our cost structure as we move into 24.
Even with this type of mixed so we're well positioned in the.
We're excited about as as we go into the future.
Got it I appreciate it good luck. Thank you. Thank you.
Okay.
Daniel further questions at this time.
I think a call back to Ya.
Okay. Once again, we'd like to thank everyone for joining us. This morning, and we look forward to speaking to you soon have a great day.
This concludes today's thanks. Thanks.
Okay.
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