Q3 2023 Gildan Activewear Inc Earnings Call

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 'twenty twenty-three Gilden Activewear earnings conference call.

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

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

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

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question again press the star one.

Now I'd like to hand, the conference over to Jessie Hey, I'm, Vice President head of Investor Relations. Please go ahead.

Good morning, everyone earlier, we issued a press release announcing our results for the third quarter of 'twenty 'twenty. Three 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 I FRS measures are provided in today's earnings release as well as our M. DNA and now I'll turn it over to Rob.

<unk>.

Thank you Jessie good morning, all and thank you for joining us today.

This morning, we reported our third quarter results, which unfolded largely in line with our expectations.

We resumed our sales growth trajectory and delivered operating margin, which is back within our target range. A testament to the fact that our competitive position remains very strong even in a challenging environment driven are driven by our industry, leading vertically integrated manufacturing platform and our continuous focus on optimizing our operations.

So we ended the quarter with net sales of $870 million up 2% year over year and operating margins of 18.1% with GAAP EPS and adjusted EPS of <unk> 73 cents in 74 cents respectively.

We generated operating income of $305 million and free cash flow of $265 million, which allowed us to be active on our capital allocation priorities or more specifically our share buyback program, where we have repurchased over 3.5% of our float year to date through the end of the third quarter.

As communicated in today's press release, we are updating our guidance for revenues and E. P. S, which are now expected to be at the lower end of our previously communicated ranges.

I'll provide more details on our guidance a little further but more importantly, I will also provide details on why we remain confident in our ability to maintain growth momentum and strong operating margins as we move through this uncertain environment towards 'twenty 'twenty four and beyond.

Now, let me turn to our third quarter results.

Net sales for the third quarter came in at $870 million up 2% with activewear sales essentially flat at 744 million, while hosiery and underwear sales were up 16%.

Looking at Activewear, there are several puts and takes to highlight.

Firstly, we benefited from healthy P O S levels for activewear overall, particularly in fleece and ring spun products. In fact, we benefited from strong fleece shipments, which were driven by both double digit sell through trends and seasonal replenishment.

Now within fleece, we did see some of the trade down we had described in Q2, but all in all it was a strong quarter for our police category.

We also saw strong shipments of ring spun products as we continue to grow share in this category.

Elsewhere, we did see some offsetting factors in activewear with lower shipments of basic T shirts, and the unfavorable impact of some targeted price actions in certain channels, although overall the pricing environment remains relatively stable.

Finally international markets performed well below our expectations with sales down 23% during the quarter due to lower demand and price pressures across all international markets.

Turning to the hosiery and underwear category. This was a bright spot for the quarter and we saw increasing momentum and good sell through data.

In particular, we are excited with the rollout of our new and expanded underwear programs in the mass retail channel, which are driving market share gains.

Further in hosiery, we continue to see strong demand for our products. Thus overall, a solid quarter for the hosiery and underwear category, despite ongoing industry wide weakness.

So on the whole and despite the challenging environment. We are pleased with the sales performance, we were able to deliver in the quarter as travel tourism large events in the everyday use and replenishment nature of our products continue to drive underlying demand.

Turning to margins.

Gross margin came in at 27.5% of sales in the third quarter down 220 basis points versus the prior year as.

As anticipated the lower gross margin was primarily driven by higher raw material and manufacturing input costs as well as slightly lower net selling prices.

However, as expected we saw a sequential improvement of 170 basis points to our gross margin from Q2 to Q3 as pressure stemming from the flow through of peak cotton costs in the first half of 'twenty twenty-three abated.

This will continue to be a tailwind for us as we move through Q4, and importantly, as we move into 2020 four.

Turning to SG&A expenses for the third quarter were $82 million and were flat year over year.

As a percentage of sales SG&A was down 20 basis points to 9.5%, primarily driven by the benefit of sales leverage.

Looking at our SG&A performance. So far this year, we continue to be pleased with how the team is managing SG&A in this difficult inflationary environment and we expect this performance to continue as we move forward.

Consequently, summing up these elements for the third quarter, we generated operating margin of 17.8% of sales and adjusted operating margin of 18.1% of sales, putting us back within our target 18% to 20% range.

And after reflecting net financial expenses of $21 million and factoring in continued share repurchases, we reported GAAP and adjusted diluted EPS for the quarter of 73 cents in 74 cents respectively.

Moving on to cash flow and balance sheet items.

Cash flow from operating activities totaled 305 million versus 66 million in the prior year, mainly due to significantly lower working capital investments this quarter, which included the impact of working towards ending 2023 with healthy, but below 2022 inventory levels.

Furthermore, after capital expenditures of 43 million in the third quarter, we generated 265 million of free cash flow compared to the use of $7 million in the prior year.

On the Capex front, the progressive ramp up of our new Bangladesh facility is underway, which will continue through 2023 and into 'twenty 'twenty four and we continue to expect an exit capacity right around 25% at the end of 2023.

Finally, we ended the quarter with net debt of 1 billion and a net debt to EBITDA leverage ratio of one six times well within our one to two times targeted debt levels.

Now turning to the outlook for the full year, we continue to expect year over year revenue growth in the fourth quarter as we cycle, an easier comparative period and benefit from the full rollout of our new retail programs. However, even though P. O S trends have progressively improve through 'twenty 'twenty twenty-three across both our activewear and.

Hoser and underwear categories and trends remain in positive territory into Q4, we are seeing some softness in certain markets stemming from the macro environment.

As such we are tilting our guidance towards the lower end of previously provided ranges for revenue and EPS.

Accordingly for 2023.

We now expect revenue for the full year to be down low single digits versus the prior year. This compares to prior guidance of revenues being flat to down low single digits.

There is no change to our full year adjusted operating margin guidance, which is expected to be slightly below the low end of our current 18% to 20% annual target range.

We now expect adjusted diluted EPS to be at the low end of the previously provided range of $2 55 to $2.65. Excluding the impact of assumed share repurchases of 5% of our outstanding public float in 2023.

And again, we continue to expect strong full year free cash flow generation above 425 million after capital expenditures, which are expected to be at the lower end of our 6% to 8% target range. So no change to these metrics or to our attention to remain active on share buybacks as we finished the year and head into 'twenty 'twenty four.

So in closing and as we head towards the end of the year I would like to leave you with a few thoughts.

23 has been characterized by normalizing inventory and replenishment patterns following the multiyear volatility related to the pandemic.

Unfortunately, we are seeing end user behavior impacted by inflationary pressures and uncertain macroeconomic conditions.

Consequently, while our year to date topline growth is not where we originally hoped it would be when we started the year. We have demonstrated again, how our company can remain resilient al Joe and financially strong in any environment.

Further we are incredibly excited with the opportunities that lie ahead disc.

Despite the tough environment, we have resumed our growth trajectory and we are making great strides in our G. S. G strategy accelerating the pace of product innovation, optimizing our manufacturing platform to strengthen our competitive cost structure and progressing on our ESG targets, all of which support our long term growth opportunities which remain intact.

Furthermore, we remain encouraged by market share gains in key categories, and our strong margins and cash flow generation and our overall balance sheet strength, which are allowing us to deliver on our.

Capital allocation priorities are focused on the long term vision for our company and on creating value for our stakeholders remains unwavering and we thank you for interest and support in gilden.

This concludes my formal remarks, and with that I'll turn it back over to Jesse.

Thank you Rod before moving to the Q&A session I ask that you to limit the number of questions to two and we'll circle back for a second round of questions if time permits.

Deseret you may begin the Q&A session.

The floor is now open for your questions to ask a question at this time. Please press Star then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Okay.

Your first question comes from the line of Paul Lajoie with Citigroup. Your line is open.

Hey, Thanks, guys can you talk a little bit more about the international markets, where you saw weakness.

Any more specifics.

And where that was what categories and I'm curious.

If that is what's driving the change towards the low the low end of the range and then specifically how did your outlook change if at all within the U S market within each of your two segments. Thanks.

I'll just add on the western and the changes on the low end of the guidance that I will turn it over to Chuck to give us a view on what's going on in the market, but if you do look at what we've said on the on the guidance. Yes. The answer is international did play.

So we look at the fourth quarter and what we're seeing we do still see good growth, but I would say it that way to think about it is this mid single digit type growth rate for Q4, we will get the benefits of the retail programs. We are seeing our market share gains we have easier comps.

We have to be a little cautious as we look at the market on a go forward basis, driven by some softness that we're seeing in certain areas in international is.

Is playing into that very definitely we're also being careful on pricing well I think as we go into the fourth quarter and that is really an international win so we use the lower prices in international we see some pockets somewhere around if a market overall actually pricing is staying relatively stable as we finish up the year.

Area as we move into into 2020 reward.

National display and <unk> I'll turn it over to Jeff gave you some color.

Thank you Rod.

Good morning, and I guess, we'll start first with Q3 and the international question I mean overall as we look internationally.

I will break down Europe, and Asia as we think about Europe, we were up low single digits from a Pos perspective, but we did see destocking during the quarter it.

It continues to be a challenging market.

In Europe, obviously, there's.

Curt geopolitical and economic environment challenges.

But the fundamentals of the market. We think are still there and we're starting to see the Pos come back.

But we did see Destocking during Q3, and we're seeing sequential improvement as we go into Q4.

Asia also was down high single digits low double digit.

As well and again I think thats all inflationary pressure.

Now as we as we think about Q4 as Rod mentioned and when you think about internationally. We are seeing improvement in the past, but we think it'll be continue to be a challenging market. We're also seeing some challenges obviously in national accounts that serves large retailers are.

As they also face sort of a macroeconomic conditions that we see and that's the way we're looking at the Q4.

And then specifically on the you asked us what what changed there in terms of your your outlook.

If you look at the U S business actually the business is holding up pretty well Paul It's Lee.

Whereas we said we'd see positive Pos.

From a credit perspective, we've seen positive Pos underwear and hosiery. So we again, we feel very good about that really we know we're taking share and we know that the programs that we're focusing on doing very well in the marketplace. So.

Overall U S is holding up now we are seeing probably a little bit more destocking in the in the fourth quarter than we had anticipated.

The third quarter, we did see some destocking, we saw in basics wasn't quite as much as we anticipated, but as we go into the fourth quarter will always with cash on that and we'll see a little bit more destocking. So those are the things that we're thinking about from a U S perspective, but overall I would say, we're very very pleased with how we're performing in that market.

Because we can see our market share is growing and how effectively we're very well positioned in all of this from Janssen or something.

Thank you good luck.

Next question comes from the line of Chris Lee with <unk>. Your line is open.

Hi, Good morning, everyone, maybe just a follow up question on the Pls trend in particular in the glass for Activewear I remember last quarter, you mentioned that in July was up mid single digits.

Is it possible to provide some guidance level color in terms of how that trended in August and September and then also how that is trending so far in that in Q4. Thank you.

Chris It's Glenn I'll look at tier two tier to rods point them in our P. O S. Overall activewear is running mid single digits positive. So we're really.

In Q3, similar to what we discussed with you in our last conference call. So we really basically for the full quarter.

<unk> finished around mid single digits and that was driven by double digit fleece in ring spun.

<unk>.

And the overall market, particularly in our distributor channel was probably down.

Double digits, so either we're taking share and I think that's.

That's really the point is that we're really performing well.

In a really tough environment. So I'm you know we're on all four cylinders and we're pretty excited about.

Our share momentum and you know one of the things I think is important for for US in this type of environment is to focus on what we can control Sophia we were focusing on taking share our availabilities are great.

We're doing quite well in all of our product categories.

We're focusing on our operating margins, where we can see that the margin improvement in Q3 will continue to improve as we move into Q4 as we discussed.

Our costs are under control and we have very good visibility as we move into Q4.

We had really great cash flow and that's another big focus for the company is to continue driving strong cash flow and.

It will continue to buy back shares like we've seen.

The 5% and you know maybe it will be in a position to even the buyback more as we move into <unk>.

The later half of the year.

And.

Despite the environment, we're reinvesting in low cost.

In developing our low cost positioning with continued investments in.

Bangladesh as well as investments in our yarn spinning operations, which.

We're focusing on really focusing on value and innovation. So we're we've got a lot of innovation that we're going to bring to the market in 2024, and we think we're going to enhance our value proposition.

And we're working on supporting and new programs as well. So all of these things together I mean, the market conditions are weak.

But.

More importantly, as we were we're focusing on what we can control and just making sure that we stick to our knitting and deliver.

Deliver a strong operating results for Q4 and as we move into 2024.

Okay. That's very helpful. Thank you Glenn and maybe my second question is switching gear to the attach rate.

There seems to be a potential for a 15% global minimum tax potentially for next year just wanted to get maybe your latest thoughts around that and if it does happen what are some of the ways that give dan can offset some of the impact. Thank you.

<unk> set up a budget there is a lot of focus on both net of tax we are closely monitoring developments to estimate that the impact as we go forward.

As you look at Goldman Goldman Sachs, you have to take a look at and understand the specific implementation implementation details.

Recurring in the various countries the countries, where we operate and we are monitoring the impact of other incentive programs, which are under review in certain jurisdictions around the world, which are effectively being put in place to support investment in local activity. So as we go forward here I think we'll get more clarification.

Or clarity on that as we move into the into the fourth quarter and we have to look at all of this together to be able to assess the impact for 2024 and beyond so we're monitoring it and we do very definitely expect news here as we finish out the year, we'll get into the early part of next year and I think really have to look at the complete <unk>.

Tax the whole package.

In order to assess Westland to control. So we are monitoring and like Glenn.

One said, we're focusing on the things that we can control and we think we're doing very very well and in some of these other things that are unfolding, we'll see how the impact is but I think that's just a linear interpretation of effectively a 15% tax rate.

Totally agree conservative based on what we're seeing unfolding.

<unk>.

Great. That's helpful. Thanks, Thank you Ron all the best.

Next question comes from Jay sole with UBS. Your line is open.

Great. Thank you so much I'm just wondering if you can elaborate a little bit more on the ring spun business in the quarter. It sounded like it was quite positive and there's some market share gains.

Maybe give us a little bit more idea about what youre seeing in that business, that's driving the strong trends that youre seeing for Goldman.

Sure Jay I think we continue to perform well in that market and we continue to take share.

Where we have a quality product at a good value price and we continue to see that we're taking share from our competitors in that area. So as Glenn mentioned, we are up.

Double digits and in that area and we'll I think we'll continue to do that as we go forward.

Because we know we're competing with.

You know competitors that have a very high cost structures.

And as we continue to reinvest in our low cost manufacturing you know, where we're widening the gap on our on our cost position that will continue allowing us to continue taking more share. So we're in a great position, we're investing heavily in our low cost manufacturing, particularly in our Bangladesh facility, which will be dedicated.

Two 100% our ring spun type products and will be utilized to support you with all of our future growth. So we're pretty confident that we're going to continue to take share as we move into the future.

Got it Okay, and then maybe if I could ask one more just on modeling the fourth quarter is it possible.

You can tell us a little bit about how gross margin.

Trends will continue to improve and sort of how youre thinking about SG&A dollar growth in <unk>. Thank you so much.

Okay. Jay if you look at gross margin and when we look at how that's going to evolve in Q4, we do see improvement we saw improvement at while effectively if you look sequentially from Q2 to Q3, we saw a 170 basis points of improvement driven by the lower fiber costs, and we said that will be a tailwind.

And as of Q4, and very definitely we do see that so effectively we see we will see sequential improvement in gross margin as we move into Q4 as we continue to see those lower fiber costs in the effectively the tailwind that we're going to see in Q4 is.

Probably even stronger than what are effectively we saw from a sequential basis between Q2 and in Q3. If you look at our SG&A effectively we do have our SG&A dialed in very well, we've got it well under control and I think if you look at effectively what we see we would expect spending on a dollar basis to be pretty.

Consistent sequentially with what we saw in.

In in Q3, so overall, our operating margin is moving to the high end of that range right. We've effectively been talking about that for some time that we expected that to occur in the back half of the year and we can see that coming and it effectively will put us in a strong position in the fourth quarter and entered pool will put us in a very strong.

Mission as we move into 2024 and as Glenn said, we have good visibility on our on our cost structure on our fiber costs as we move into 'twenty four and so we do feel very good about how we're set up so high end of the range in Q4, and then as we move into 'twenty four we're going to continue to benefit from that.

As we as we move into next year.

Our next question comes from the line of Mark Petrie with CIBC. Your line is open.

Yeah. Thanks, So just a follow up with regards to the Destocking commentary could you just talk a little bit about the behavior that you're seeing at distributors broadly.

Both around price and inventory levels.

Well the price is pretty consistent and so there's really nothing on price at the distributor level through Q3.

And inventory levels are in good shape I mean, we.

We anticipated a little bit more stock Destocking and again Thats one of the reasons why our sales were a little higher than we anticipated, but we also expect destocking in Q4, which is seasonally what happens it's the lowest quarters of the year as we move into deal because typically distributors carry inventory in Q4 to serve as Q1 and <unk>.

Both those quarters being the lower end of our quarters. It's normal that we got Destocking. So I think we've got it dialed in the inventories are in very good shape.

<unk> as a service levels are good and <unk> is for US is is pretty strong. So we're I think we've got pretty well laid out right now.

Okay, Thanks, and based on your expectations.

For 2024, and sort of the macro environment and what you see it in for inventory levels at distributors.

Or shouldn't be embedding in your guidance for Q4 would you expect destocking to be a headwind in 2024 or or or stable.

No we don't Mark we do not expect the destocking to be a headwind in 'twenty 'twenty four we expect it to effectively to to have a stable environment and of course.

If you look at our 2022 to 2020 three that was a big headwind for us in 'twenty three because we had all of that restocking that was occurring effectively in the first half of 'twenty, two which is very difficult for us to comp in the beginning of twenty-three. That's obviously why we saw that the weaker quarters in Q1 in Q2.

Now, we've got all that behind that behind us and so we do see a very stable environment from an inventory perspective, as we move into 2024 on the print wear side and I would say that puts us in a very good position as we allow that P. O S and market share gains to really just to drive our performance.

Yes got it helpful. Thank you.

Question, just with regards to the shelf space.

You guys have had in retail in 2023.

I'm curious just your view sort of on opportunities that you see in the market today for sort of continued momentum just given how dynamics in the category have evolved and private label being.

Being a general winter thanks.

Well, we're going to continue to leverage obviously, our shelf space.

Obviously, we roll those programs out there were they were off to a late start so we didn't really get.

While we anticipated the full benefit of those programs in a rollout. So I think that that's maybe one positive thing as we move into 'twenty four as we really get the full impact of all of the shelf space that we will have in 2024 and like anything else, we obviously obtained new programs.

In retail.

Matt as well as with our G O P customers. So.

Overall look at where we're well positioned.

To move into 2024 with the full rollout of this as underwear programs, some activewear Windsor and the <unk> programs.

And continued taking market share as we move into 2024, and our wholesale core wholesale business. So overall.

We're still cautiously optimistic.

But more importantly, you know like I said earlier, we're going to continue to focus on what we control and that is going to be our operating margins and.

As we move into 2024, we've got great visibility on.

Maintaining really strong operating margins and strong.

Free cash flow as we move into next year.

Okay.

Our next question comes from the line of <unk> <unk> with National Bank Financial Your line is open.

Hi, Thanks for taking my question.

In the past.

<unk> history, it's these periods of weakness.

And to build this business and acquired brands.

Is that something that's on the radar for Gilden as you look at some of your competitors may be struggling a bit.

Well right now look at if.

Historically, we bought some brands in our channel.

Anvil, we bought all style, but we bought these brands for the value of their inventory or working capital pretty much right. So and then we leveraged our low cost manufacturing and had a significant return on investment so.

I wouldn't say, we would never not look at something but I think right now we're well positioned we've we're focusing on organic growth.

Our back to basics is working on all four cylinders and moving into a gesture strategy, where we're going to start seeing good topline growth, we're taking share in a weak market.

We've got our Bangladesh facility coming on long, which is going to give us we think a significant competitive advantage and driving our rigs bond category and allowing more capacity to be freed up for expanding our fleece business.

So we're in relatively good shape, so I would never say never I am at the right price, we'll always look at everything but I mean at this point in time, we think we can drive significant EPS growth on an organic basis.

Okay and over the last several years Goldman is putting a lot of work on efficiency and we've seen that come through in the P&L. Just wondering if theres any major initiatives that we should contemplate in 2024.

Well, that's that's built into our DNA right. There's we're constantly.

Optimizing our operations last quarter, we optimize.

Some of our sewing facilities, we recently in the process of optimizing some of our yarn spinning facilities.

So we're always looking at ways to maximize our cost.

Back to basics is is was the strategy to sort of put us in this position, but it's that's our DNA right is making sure that we optimize everything we're doing so.

Our cost competitiveness and is the most important skill set that we have which has allowed us to achieve.

These high operating margins and then the one area, where I think that we have a really big focus, which we're going to bring to the market in 'twenty four is innovation.

We've been spending a lot of energy on a complete cycle of innovation and probably the largest innovation cycle and since we actually started the company's ability to be honest with you.

Which we're going to cover all of our fabrics are garments. The construction of our garments et cetera. So you know as.

As we move into next year, I think we're not only going to be positioned on the low end of the cost curve, but we're also going to be I think separating ourselves from our competitors in terms of the innovation, we're going to be able to bring to the market by leveraging our low cost manufacturing so.

We're in a relatively good position and I think we're excited about our about 2024.

Thank you.

Next question comes from the line of Martin Landry with Stifel. Your line is open.

Hi, good morning.

If we look at your your guidance for.

In Q.

Full year guidance implies that your Q4 operating margin is going to be.

In or around 20%.

And I was wondering I mean next year as you mentioned youre going to benefit from from lower cotton costs. So is it is it is this a good run rate.

For next year and is it is there a potential for you to perhaps maybe even exceed your high end of your.

Historical range of 18% to 20% next year, given given fiber costs are going to be so are so low.

Martin on the answer to that is yes. There is the potential we could exceed the high end of our range I mean, I think if you look at how we're performing.

Where our margins are going to here as we finish up the year as we move into next year. If you think of all the things that Glenn just covered far as optimize further optimization of our facilities and everything that we're doing are theyre very definitely is the potential that we could go to the above our range and in 'twenty four.

Okay, and maybe the other side of the coin.

Assuming that everybody benefits from lower fiber costs next year.

Is there a risk that the industry becomes more promotional and you need to discount to move out to move products. How do you think about that.

Well like you know what are the things that I would say to you is that it's.

It's not necessarily lower cotton costs, it's driving our operating margins it's normal.

Cotton costs in relation to our selling prices. So we never raised selling prices to reflect the peak of cotton.

Now.

Selling they'll cottons come down, but its gardens come down to where we really set price. So I would say that there's still lots of inflation.

Wages are continuing to go up both in North America, and particularly in Central America energy is going up.

So there's it's not like there's not still a big.

Headwind of inflation, that's still there be honest with you.

And.

So partly what's driving our operating margins as more of the alignment of our pricing and cotton as well as our ability to optimize all of our first fills facilities our cost structure.

And even though we're going to be at the higher end of our operating margins and maybe pass. It. We're also investing heavily on innovation. So typically we've we've taken.

A lot of our cost savings from from a manufacturing and put into price and drove market share by price. We're already the price price leader I M. R gap in pricing relative to our fashion competitors is significant right. So our focus right. Now is really is to take our low cost model.

Leverage our operating margins and also to reinvest in innovation to put a little bit of money back into our products basically.

To help us Jay and gained more market share. So I think we're in a good position as we move into 'twenty four on all fronts.

Okay. That's helpful. Thank you and good luck.

Our next question comes from the line of Brian Morrison with TD Securities. Your line is open.

Hey, good morning.

First question for Glen I joined the call late and I know you don't give 2020 for guidance, but I want to make sure I'm summarizing this proper properly. So you are looking for a flat pricing environment. You are looking for market share gains in activewear, you expect retail growth and then obviously lower commodity prices. So you are looking for higher revenues next year higher operating margin and growth excluding your NCI.

Is that correct.

Yeah, that's correct.

Okay. So that takes me and our next question for Rod.

Got it.

Go ahead, sorry, I call quality.

Qualify that as at the only differences will definitely looking at.

New shelf space, we're looking at definitely taking market share, but the only thing that we don't know is really what the overall macro environment will be agenda today because of your core business could.

We don't know what the core vote.

Volume would be basically if there's a recession or something else, so, but giving things equal the answer is yes.

That's great.

Good qualification Glenn.

Rod that leads me to my next question. So in terms of if pricing is flat I want to know what you think the EPS impact was from the elevated cotton prices. This year, if cotton is 25% to 30% of your cost structure I estimate it's got to be at least 20 to 30 cents of EPS. This year is that fair.

Yeah. If you if you look at the AR at the impact overall, I mean, it's probably not far off the range. They are as I think about it Brian.

It has had a big impact on effectively our cost structure other things have had impacts as well, though inflation as well as has impacted us. We had we had the impact that you know if you look at the pandemic you had the inflationary costs that were up effectively that we saw the run off of all of that so it has had a significant impact.

As we've moved through the year and as we say we feel that that's behind US now and as we go into to 'twenty. Four we are well positioned and if you. The one thing we do control.

We've got really our arms around them is our cost structure and are and we feel very good about that is that as we head into 'twenty four.

Yes, I guess I appreciate that but I want to understand that the tailwind.

All things being constant is the tailwind going to be youre, starting basis, not $2.55 of EPS, it's really closer to $2 75 to $2 85.

Yes look our tailwind it yeah. If you look at the effectively are starting have a base level is yes. The answer is it's strong it's as we move to <unk> to 'twenty four.

Okay, and then sorry, Glenn I didn't understand your comment pardon me Rod I caught the comment on GMT when you said it.

It was conservative are you thinking that it might be above or below that 15%.

I'm thinking when you look at the whole.

Ill unfolding of G. M T plus other things that other countries are looking at I think very definitely there effectively is the potential that it's below 15% for us if you look at it on a combined basis. If you look at the total impact.

In 'twenty four we will see people are still working on their legislation and so I think you have to really monitor it closely as you head into the.

24, and some of that will actually leak into sorry, you go to the end of 'twenty three some of that will leak into 24 as well.

I'm not sure they're all legislation will be in places we finished the year it'll it'll roll in in the very early part of the.

Of the new year, but the answer is yes.

I appreciate the clarity.

Next question.

<unk> comes from the line of Stephen Mccleod at BMO capital markets. Your line is open.

Great. Thank you and good morning.

Just a couple of things I wanted to follow up on the first one is just on ring spun.

You talked about some some revenue gains there.

I'm just curious are you seeing any price sensitivity in ring spun or is it more that youre seeing maybe with your pricing differential you're.

You're offering is more attractive to.

Price sensitive consumer I'm, just trying to understand the dynamic on whats driving ring spun.

Hey, good morning, I guess overall again I think as we look at our product I mean, I think we we have a very good quality product at good values, we were talking as we and we saw through the pandemic. We saw some of our fashion competitors raise price.

Pretty significantly above where we were and create a large gap, which drove more and more trial for us and an opportunity for us to gain share during that time since that point in time, we have seen prices by some of the fashion competitors come back down, but even with them, bringing prices back down we're still gaining share and at <unk>.

Forming them.

Despite where the gap may be so we think we'll continue to gain share and in the ring spun category and again as Glenn mentioned, we're able to capitalize on the investments, we're making our vertical integrated manufacturing to continue to do that especially as we bring up Bangladesh. So I think we're well positioned.

Okay, that's great. Thanks Chuck.

And then just just coming back to the 'twenty 'twenty four outlook I mean, it sounds like you've had a lot of positive commentary around just the outlook in the <unk>.

And what you can control.

But just as it relates to fiber costs.

Do you have is it is it fair to say that you have most of your fiber cost visibility sort of already lined up for 2024 or do you have kind of six months visibility and then and then beyond that kind of depends on what what the market does.

I would say that we have very good visibility in our cost structure for the full of 2024.

Okay. That's great. Okay. Thanks, Glen that's great. Thank you guys appreciate it.

Our next question comes from the line of David Swartz with Morningstar. Your line is open.

Yeah. Thanks for taking my question.

Can you give us a little bit more information about the ramp up of the Bangladesh facility and how that fits into our production cycle and also if your plans have changed at all because of the relative weakness of the international business and the possibility of higher wage rates in Bangladesh. Thank you.

But we're continuing to ramp up.

Annual debt facility, we really.

It's going to be roughly about 25% of its running capacity by the end of our Q4.

2023.

And then we're going to continue to ramp up the plan and our objective is to have 75% by <unk>.

Q4, 'twenty 'twenty four.

So, but that's desperate.

That's an exit rate. So if you take the average isobutanol would start to twenty-five and ends at.

75 American discount is probably more of a 50% impact too.

And that's what we really need to support the growth of our you know our ring spun product categories and as well as the big underwear programs. We have so we're we're pretty much aligned.

And then the exit rate will continue to support our 2025.

As we move forward.

Regarding the.

The wages I mean wages are I think are you now are pretty much.

In line and all of the areas of particularly in Bangladesh I mean, our wages are not a big factor of our overall cost structure and in any of our operating margins on markets.

Anyway. So it's we don't really see that as a as an issue.

Thank you and good luck.

Thank you.

Yeah.

And we have another question comes from the line of her back Ken RBC capital markets. Your line is open.

Okay, great. Thanks, and good morning, just wanted to get a little bit more color on the commentary around the innovation I guess is this innovation more around to re manufacturing the products at lower cost is sort of new to market products that can talk a little bit about kind of what is included in these new launches.

Okay.

Well, it's really about the innovation of the types of material that we put into our products.

We've significantly improved.

A lot of our fabrications.

As well as we redesigned the fit and look and feel of a lot of our products. So it took an imprint ability is another big aspect that we're looking at.

To support.

The digital printing market. So it's a combination of various <unk>.

Innovation.

It is that I think are really going to separate us from what's out there today in the market.

We will be presenting a lot of these at the long beach in a couple of months.

And we hopefully will be hosting a investor conference sometime in the new year.

To help showcase.

But really where we're going and the and the leverage we have from our vertical integration and another great things, we've got going on.

Alright, Great and then I just wanted to follow up there is some discussion earlier around sort of the distributor inventory levels expected to be sort of flat and then.

Your ship and following Pos as well as market share capture I guess.

What is your sort of expectation on market share capture at this point I'm asking Pos ill probably follows a macro to some extent I'm not sure. If you had any commentary there but.

Laura the new innovation and things like that are leading to some expectation of market share capture or how are you thinking about that for the top line for next year.

Okay.

Okay.

Right now in the traditional basic category or the open N T shirts, we've already had a quite a large market share. So you know, we're we're continuing to optum.

Optimizing on that but the real big opportunity for us is to capitalize obviously on the ring spun in the flu segments, which is really where all our focus is.

And we don't have a largest.

A larger share of their so that's the area that we're seeing all of these market share gains it's a combination of.

Taking share in the ring spun as well as the development of fleece, because the one thing about fleece, it's a growth category.

Theres more sweatshirts being sold on a year over year basis. The category is up it's almost up.

We said double digits, but it's almost really are high double digits to be honest with you it's doing very well.

And it's a growing category.

So those are the two big focuses for us.

And we have what we think as competitors with very high cost structures. In these two areas that will allow us to continue taking share.

Great. Thanks, very much for the color.

Okay.

There are no further questions at this time, Ms. Han I'll turn the call back over to you.

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 this concludes today's conference call you may now disconnect.

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