Q2 2024 Gildan Activewear Inc Earnings Call

Speaker Change: [music].

Okay.

Operator: Ladies and gentlemen, thank you for standing by.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Q2 'twenty 'twenty four Gilden Activewear earnings Conference call.

Operator: Welcome to the Q2 2024 Gildan Activewear earnings conference call. Please advise that today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

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

Speaker Change: 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.

Operator: After the speaker's remarks, there will be a question and answer session. Joining me on the call today are Glenn Chamandy, President and CEO of Gildan, Rod Harries, Executive Vice President and Chief Financial and Administrative Officer, and Chuck Ward, President, Sales, Marketing, and Distribution.

Operator: After the speakers are marked, 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 join us.

Jessy Hayem: Thank you, Jessy Hayem, Vice President, Head of Investor Relations.

Operator: Please go ahead. Thank you, Jeannie.

Operator: Good morning, everyone. Earlier, we issued a press release announcing our results for the second quarter of 2024, along with our interim shareholder report containing management's discussion and analysis, as well as consolidated financial statements. These documents are expected to be filed with the Canadian securities regulatory authorities and the U.S. Securities Commission today, and they'll also be available on our corporate website.

Jessy Hayem: Joining me on the call today are Glenn Shemendi, President and CEO of Gildan; Rod Harry's Executive Vice President and Chief Financial and Administrative Officer; and Chuck Ward, President, Sales, Marketing, and Distribution. This morning we'll take you through the results for the quarter, and then a question-and-answer session will follow.

Operator: This morning, we'll take you through the results for the quarter, and then there will be a question and answer session. 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 that 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.

Operator: 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.

Operator: During this call, we will also discuss certain non-GAF financial measures. Reconciliation to the most directly comparable IFRS measures are provided in today's earnings release, as well as our MD&A.

Glenn Chamandy: And now I'm very happy to turn the call over to Glenn. Well, thank you, Jesse, and good morning, everybody. First, I'd like to take a moment to sincerely thank all of our employees, shareholders, and customers, and our new board of directors for their incredible support to the company and to myself personally over the past several months.

Glenn J. Chamandy: First, I'd like to take a moment to sincerely thank all of our employees, shareholders, and customers, and our new board of directors for their incredible support to the company and to myself personally over the past several months. I'm very proud to be here today celebrating Gildan's 40th anniversary with our dedicated team. Today, I can confirm that everything is on track and will be at 75% exit capacity at the end of this year. On innovation, our soft cotton technology is performing well. On ESG, we just launched our 20th anniversary ESG report, focusing on our accomplishments, which we're very proud of.

Glenn Chamandy: I'm very proud to be here today celebrating Guild Dance's 40th anniversary with our dedicated team. Last fall, I communicated to shareholders that Guild Dance positioning had never been stronger, with the largest pipeline of innovation in the company's history rolling out this year. Today, I can confirm that every season is on track, and we're continuing to widen our competitive advantage. We continue to execute on Guild Dance Sustainable Growth Shred.

Glenn Chamandy: Technology. We're delivering on each of our three pillars, where we've seen significant progress to date. On capacity growth, our Bangladesh ramp-up is on track. We'll be at 75% exit capacity at the end of this year. On innovation, our stuff's cotton technology is performing well. We're starting to see good results in market, in the market with positive POS on basics. On ESG, we just launched our 20th anniversary ESG report focusing on our accomplishments, of which we're very proud. We reported Q2 results that were strong and in line with our expectations, with solid top line and strong adjusted operating margins.

Glenn Chamandy: We also announced in our press release that we're reconfirming our full year 2024 guidance. And we're providing our three-year outlook. We're capitalizing on our GST strategy, where we're well positioned to deliver top line growth in the mid single digit range, adjusted diluted EPS growth in the mid teen range over 2025 through 2027 period in line with our super charge plan.

Operator: We also announced in our press release that we're reconfirming our full year 2024 guidance. We're capitalizing on our GSG strategy, where we're well positioned to deliver top-line growth in the mid-single-digit range and adjusted diluted EPS growth in the mid-teen range over the 2025 through 2027 period, in line with our supercharge plan. And thank you for joining us today to discuss our second quarter results. If we exclude the impact of the phase-out of Under Armour, net sales for the quarter are up mid-single digits year over year.

Glenn Chamandy: I'm looking forward to answering your questions after Roger's formal remarks, and thank you again.

Rod Harrys: Thank you, Gildan, and good morning everyone. And thank you for joining us today to discuss our second quarter results. I'll start by going over the specifics of the quarter. I'll talk briefly about our new NCIB program. And then I will comment on our outlook and guidance for 2024 before recapping our outlook for the 2025 to 2027 period. So let's get started. As Glenn mentioned in his remarks, the quarter unfolded largely as we anticipated. We reported sales of 862 million, up 22 million or 3%, at the higher end of our guidance for the quarter of flat to low single digit growth.

Rod Harrys: If we exclude the impact of the phase out of Under Armor, net sales for the quarter are up mid single digits year over year. This was driven by a strong performance in active wear, up 45 million or 6%, where we saw increased active wear shipments reflecting positive POS trends across all channels and geographies, as well as favorable mix, which was driven by higher replenishment of fleece by North American distributors ahead of our peak selling season. Strong active wear sales in the quarter were further reinforced by continued market share gains in fleece and ring spun products, which are key growth categories.

Operator: This was driven by a strong performance in activewear, up 45 million, or 6%, where we saw increased activewear shipments reflecting positive POS trends across all channels and geographies, as well as favorable mix, which was driven by higher replenishment of fleece by North American distributors ahead of our peak selling season. Strong activewear sales in the quarter were further reinforced by continued market share gains in fleece and ring-spun products, which are key growth categories.

Speaker Change: Womens inactive were up 45 million or 6%, where we saw increased activewear shipments, reflecting positive Pos trends across all channels and geographies as well as favorable mix, which was driven by higher replenishment of fleece by North American distributors ahead of our peak selling season.

Speaker Change: Strong activewear sales in the quarter were further reinforced by continued market share gains in fleece and ring spun products, which are key growth categories.

Rod Harrys: We were also pleased to see a positive market response to products that we recently introduced, which feature key innovations such as our soft cotton technology. Finally, in international markets, we performed well in the quarter, with sales up by 7%.

Operator: We were also pleased to see a positive market response to products that we recently introduced, which feature key innovations such as our soft cotton technology. Moving to SG&A, Excluding these charges, adjusted SG&A expenses were down 15% to $66 million, or 7.7% of net sales versus 9.3% for the same period last year. The reduction reflected the significant positive benefit of the jobs credit introduced by Barbados as part of its economic policies, which was retroactive to January 1, 2024, and which totaled $17 million in the quarter. With the retroactive enactment of the global minimum tax in Canada and Barbados, income tax expenses increased significantly year-over-year in the second quarter.

Speaker Change: We were also pleased to see a positive market response to products that we recently introduced which feature key innovations such as our soft cotton technology <unk>.

Speaker Change: Finally in international markets, we performed well in the quarter with sales up by 7%.

Rod Harrys: Turning to hoesering underwear. As expected, this category was down 16% versus the prior year, mainly owing to the phase out of the Under Armor business and, to a lesser extent, to unfavorable mix and continued broader market weakness in underwear. That said, if we would exclude the impact of the Underarmor phase out, our Hoserian underwear sales would have been up mid-single digits year over year. Turning our focus to margins for the quarter, our gross margin was 30.4% versus 25.8% in the prior year, a 460 basis point improvement primarily due, as anticipated, to lower raw material and manufacturing input costs.

Speaker Change: Turning to hosiery and underwear as expected this category was down 16% versus the prior year, mainly owing to the phase out of the under armour business and to a lesser extent to unfavorable mix and continued broader market weakness in innerwear.

Rod Harrys: Moving to SGNA, expenses were 124 million in the quarter and included significant charges related to the proxy contest and related matters, which totaled 57 million in the quarter. These charges are detailed fully in our press release and our MDNA and impact the gap numbers. Excluding these charges, adjusted SGNA expenses were down 15% to 66 million, or 7.7% of net sales versus 9.3% for the same period last year. The reduction reflected the significant positive benefit of the jobs credit introduced by Barbados as part of their economic policies, which was retroactive to January 1st, 2024, and which totaled 17 million in the quarter.

Rod Harrys: Note that SGNA would have been approximately 9% of net sales if we had reflected the benefit of the jobs credit only for the second quarter as opposed to a retroactive impact. Putting these elements together and adjusting for proxy contest matters, we generated an operating margin of 22.7%, up 620 basis points compared to the prior year, coming in above the high end of our 18 to 20% target range and in line with our previously provided guidance. With the retroactive enactment of global minimum tax in Canada and Barbados, income tax expenses increased significantly year over year in the second quarter.

Rod Harrys: In fact, the company's adjusted effective income tax rate for the quarter was 27% compared to 4.8% last year, bringing the year-to-date adjusted tax rate to approximately 18% in line with our expectations. Reflecting higher net financial and income tax expenses and our lower outstanding share base, we reported GAAP EPS of 35 cents. Adjusting for the charges related to the proxy contest matters, second quarter adjusted earnings per share were 74 cents versus 63 cents in the prior year, a 17% increase. Moving on to cash flow and balance sheet items. After absorbing a cash impact of 40 million from the proxy contest, cash flow from operating activities was 140 million compared to 182 million in the prior year, which included the net positive effect of a 74 million insurance gain.

Operator: In fact, the company's adjusted effective income tax rate for the quarter was 27% compared to 4.8% last year, bringing the year-to-date adjusted tax rate to approximately 18%, in line with our expectations. Reflecting higher net financial and income tax expenses and our lower outstanding share base, we reported a gap EPS of $0.35. After absorbing a cash impact of $40 million from the proxy contest and after CapEx of $36 million, the company generated free cash flow of approximately $104 million in the second quarter.

Rod Harrys: After capex of 36 million, company generated free cash flow of approximately 104 million in the second quarter. Finally, reflecting our strong commitment to returning capital to shareholders, we resumed share repurchases in the final month of the quarter, repurchasing approximately 3 million shares and returning 182 million in capital to shareholders in the second quarter, including dividends. With the current NCIB program approaching expiry this month, our Board of Directors approved a new program to repurchase up to 10% of the company's public float over the next 12 months. We ended the quarter with net debt of $1.24 billion and a net debt to EBITDA leverage ratio of 1.6 times.

Operator: We ended the quarter with net debt of $1.24 billion and a net debt to EBITDA leverage ratio of 1.6 times. As Glenn mentioned earlier, we continue to progress on the three pillars of our GSG strategy, which includes capacity-driven growth, innovation, and ESG. On the first pillar, we're very pleased with the progressive ramp-up of our new manufacturing complex in Bangladesh, which is ramping up fully as planned. We have announced the release of numerous new products incorporating this and other technologies across various product lines, and the reception has been positive.

Rod Harrys: Turning to our strategy and outlook, as Glenn mentioned earlier, we continued to progress on the three pillars of our GST strategy, which includes capacity drift growth, innovation, and ESG. On the first pillar, we're very pleased with the progressive ramp-up of our new manufacturing complex in Bangladesh, which is ramping up fully as planned. On the innovation front, thanks to proprietary cotton technology, we continue to improve fabric softness, all while improving printability. We have announced the release of numerous new products incorporating this and other technologies across various product lines, and the reception has been positive. Touching briefly on ESG, we're proud of our 20th ESG report issued mid-June, which highlights Gildan's continued progress against key targets two years into the implementation of our next generation ESG strategy.

Operator: Touching briefly on ESG, we're proud of our 20th ESG report issued in mid-June, which highlights Gildan's continued progress against key targets two years into the implementation of our next generation ESG strategy. In this regard, we're also proud of the recognition that we've recently received. In fact, for the third consecutive year, we were recognized as one of the best 50 corporate citizens in Canada by Corporate Knights, and we're the only company in the Textiles and Clothing Manufacturing Peer Group to have received this recognition.

Rod Harrys: In this regard, we're also proud of the recognition that we've recently received. In fact, for the third consecutive year, we were recognized as one of the best 50 corporate citizens in Canada by Corporate Knights, and we're the only company in the textiles and clothing manufacturing peer group to have received this recognition. Furthermore, Gildan was one of only 12 Canadian companies to have been included in the recent inaugural edition of Time's World's Most Sustainable Companies. So all in all, a strong recognition for the important work we're doing on the ESG front for all stakeholders.

Rod Harrys: So this brings us to our 2024 outlook. While we are encouraged by the positive demand trends for our products in all our channels in the first half of 2024, the macroeconomic backdrop remains mixed globally, driving a generally cautious consumer spending outlook. Nonetheless, we are reiterating our previously provided 2024 guidance, underscoring our confidence in our continued execution against our GST strategy. So recapping our guidance for 2024. We still expect revenue growth for the full year to be flat to up low single digits, noting that if we were to exclude the impact of the underarm or license agreement, 2024 full year revenue growth would be in the low to mid-single digit range.

Operator: So this brings us to our 2024 outlook, noting that if we were to exclude the impact of the Under Armour Licence Agreement, 2024 full-year revenue growth would be in the low- to mid-single-digit range. We continue to expect Adjusted Operating Margin to be slightly above the high end of our 18-20% target range for 2024. This takes into account the benefit of the refundable jobs credit recently introduced by Barbados, as described earlier, which will reduce our SG&A in 2024. We've also incorporated the estimated impact of the recently enacted GMT legislation in Canada and Barbados on our effective tax rate, retroactive to January 1st, 2024.

Rod Harrys: We continue to expect adjusted operating margin to be slightly above the high end of our 18-20% target range for 2024. This takes into account the benefit of the refundable jobs credit recently introduced by Barbados, as described earlier, which will reduce our SGNA in 2024. We've also incorporated the estimated impact of the recently enacted GMT legislation in Canada and Barbados on our effective tax rate retroactive to January 1, 2024. The company's adjusted effective income tax rate is expected to be approximately 18% for the full year. Our adjusted deluded EPS is expected to be in the range of $2.92 to $3.07, up significantly between 13.5% and 18.5% year-over-year.

Operator: Our adjusted diluted EPS is expected to be in the range of $2.92 to $3.07, up significantly between 13.5% and 18.5% year over year. We expect CAPEX to come in at approximately 5% of sales. Now, providing some color on our expectations for Q3, net sales are expected to be flat to up low single digits year over year. An adjusted operating margin is expected to come in above the high end of our 18 to 20 percent target range for 2024 after reflecting the positive benefit of the refundable jobs credit. As Glenn mentioned earlier today, we are also providing our three-year outlook for the 2025 to 2027 period, and we expect the following: net sales growth at a compound annual growth rate in the mid-single-digit range.

Speaker Change: $2.92 to $3 seven up significantly between 13, 5% and 18, 5% year over year.

Rod Harrys: We expect CapEx to come in at approximately 5% of sales, and even after absorbing the cash impact for the proxy contest in related matters, we still expect free cash flow to be above 2023 levels. Finally, given the strength of our balance sheet, our expected strong free cash flow, and the renewed NCIB program, we plan to continue share repurchases in the second half of 2024, with a revised leverage framework of one and a half to two and a half times net debt to adjusted EBITDA. Now providing some color on our expectations for Q3, net sales are expected to be flat to up low single digits year over year, and adjusted operating margin is expected to come in above the high end of our 18 to 20% target range for 2024 after reflecting the positive benefit of the refundable jobs credit.

Speaker Change: We expect capex to come in at approximately 5% of sales.

Speaker Change: And even after absorbing the cash impact for the proxy contest and related matters, we still expect free cash flow to be above 2023 levels.

Speaker Change: Finally, given the strength of our balance sheet, our expected strong free cash flow and the renewed N. CIB program. We plan to continue share repurchases in the second half of 2024 with a revised leverage framework of one five to two five times net debt to adjusted EBITDA.

Rod Harrys: Has Glenn mentioned earlier today we are also providing our three year outlook for the 2025 to 2027 period, and we expect the following net sales growth at a compound annual growth rate in the mid single digit range: annual adjusted operating margin to further improve over the three year period as compared to 2024. CapEx as a percentage of sales of about 5% per year on average to support long-term growth and vertical integration. We expect to continue our share of purchases in line with a leverage framework of one and a half to two and a half times, and we expect adjusted diluted EPS growth at a compound annual growth rate in the mid teen range.

Operator: CAPEX will have a percentage of sales of about 5% per year on average to support long-term growth and vertical integration. We expect to continue our share of purchases in line with a leverage framework of one and a half to two and a half times. And we expect adjusted diluted EPS growth at a compound annual growth rate in the mid-teen range. While we acknowledge that there is a lot going on with our numbers this quarter, with the phase-out of the Under Armour license, the retroactive impact of the global minimum tax and jobs credits, and unfortunately, the impact of significant proxy-related costs, we are overall pleased with our results and enthusiastic about our outlook.

Rod Harrys: Assuming no deterioration in the current macroeconomic environment, we're confident that our targeted priorities will position the company to continue to drive market share gains in key product categories and unlock further opportunities in target markets. As such, as we further capitalize on the GST strategy and pursue our disciplined approach to returning capital to shareholders, we believe that the company is well positioned to deliver strong value for shareholders over the long term.

Rod Harrys: So that's all I wanted to cover from a financial perspective. While we acknowledge that there is a lot going on with our numbers this quarter, with the phase out of the Underarmoral license, the retroactive impact of the global minimum tax and jobs credits, and unfortunately the impact of significant proxy related costs, we are overall pleased with our results and enthusiastic about our outlook. In short, we believe that our cost structure remains well under control. Our balance sheet is strong, and we are encouraged by our performance relative to peers as we continue to gain market share in a somewhat mixed environment.

Operator: In short, we believe that our cost structure remains well under control, our balance sheet is strong, and we are encouraged by our performance relative to peers as we continue to gain market share in a somewhat mixed environment. Thank you, Rod.

Rod Harrys: So, in closing, we want to thank you all for joining us today and for your patience and support during the last several months. We are proud to say that our team has remained very engaged, staying focused on our key pillars and working diligently to create long-term shareholder value.

Jessy Hayem: And with that, I will now turn it back over to Jesse. Thank you, Rod.

Operator: This concludes our prepared remarks, and now we'll be taking your questions. Before moving to the Q&A session, as usual, I'd like to remind you to limit your questions to two, and then we'll circle back for a second round if time permits. Jeannie, you may begin the Q&A session, please.

Jessy Hayem: This concludes our prepared remarks, and now we'll be taking your questions. Before moving to the Q&A session, as usual, I'd like to remind you to limit your questions to two, and then we'll circle back for a second round if time permits.

Jessy Hayem: Jeannie, you may begin the Q&A session, please. Thank you. The floor is now open for questions. questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.

Paul Lejuez: And your first question comes from the line of Paul Lejuez with City. Please go ahead. Hey, thanks, guys. Here's what you could talk about where you saw the strongest and weakest POS trends during the quarter and what POS look like in the third quarter to date.

Glenn J. Chamandy: Hey, thanks, guys. I'm curious if you could talk about where you saw the strongest and weakest POS trends during the quarter and what POS has looked like so far this quarter. Curious if you've seen any changes that are influencing your outlook. And then second, can you just talk about the competitive landscape in both activewear and hosiery? You've got some weak competitors out there, I think you would say, and I'm curious how that might be impacting the pricing environment, if at all.

Paul Lejuez: Here's you talk about the competitive landscape in both Activewear and Hojury. You've got some wheat competitors out there. I think you would say, and I'm curious how that might be impacting the pricing environment, if at all.

Glenn Chamandy: Okay, well, when we start off with the competitive landscape and then maybe Chuck will be covered at POS. Look at, I mean, we're continuing to strive and invest and innovate in our market, and look, we're developing a competitive advantage. We've widened the gap. We think against a lot of our competitors. You can see some of our competitors have Delta has actually filed for Chapter 11, and we think other companies in industry are not doing well as well. So we're very optimistic that that's an opportunity for us to continue to execute, particularly in the areas with growth, which is the fashion, t-shirt category and fleece where we have a dominant position.

Glenn J. Chamandy: Okay, well, why don't we start off with the competitive landscape and then maybe Chuck can cover the POS, look at I mean we're continuing to strive and you know invest and innovate in our market and look we're developing a competitive advantage we've widened the gap we think against a lot of our competitors you can see some of our competitors have you know Delta has actually filed for chapter 11 and we think other companies in industry are not doing well as as well so you know we're very optimistic that that's an opportunity for us to continue to execute particularly in the areas with growth which is you know the fashion t-shirt category and fleece where we have a dominant position so we're very excited and we think that the the landscape is weak and we're keeping widening the gap on our competitive position. And Paul, regarding the POS, I mean, as we progress through the quarter, you know, we saw improving POS through the quarter overall, with June ending mid-single digits, you know, Early in the season, obviously, they were liquidating a lot of inventory, so it put a little bit of price pressure, particularly in our national count segment.

Chuck Ward: So we're very excited, and we think that the landscape is weak, and we're keeping widening the gap on our competitive positioning. And Paul, regarding the POS, as we progress through the quarter, you know, we saw improving POS through the quarter overall, with June in the mid single digits. First part of July start off a little slower, but it's improved as we've gone through them through the month to where we're ending July kind of flat to slightly down. But overall, the strength continues to be in the fleece and the ring spun categories where we're doing very well, and we're taking share.

Glenn J. Chamandy: But that inventory has dried up pretty quickly, and as we go forward, that would be an upside in terms of stabilization in that segment. And also, look, Delta's revenues in this segment were roughly close to $400 million, and that's an opportunity for us as we move into next year, and we continue to focus on driving our national count business, which is where they had, I think, their largest sales penetration. I'm sorry, just one last point, and pricing is stable in the market. Thank you. Your next question comes from the line of Mark Petrie with CIBC. Please go ahead. Yeah, thanks. Good morning.

Speaker Change: Where we're doing very well and we're taking share if you look at the market overall, the market was down a bit but.

Chuck Ward: If you look at the market overall, the market was down a bit, but we were up. So we're continuing to see strength in our fleece and ring spun categories. And then overall, on the retail side, I would say the underwear market has been kind of mixed overall. But again, we think we're continuing to perform well there. Then, on the international front, we're actually seeing great improvement on the international side, with international up high single digits. Kind of still some mix between the UK and continental Europe, with continental Europe being higher, but overall, good positive growth there in the international markets.

Speaker Change: But we were up so we're continuing to see strength in our fleece in ring spun categories.

Speaker Change: And then overall on the on the retail side I would say the underwear market has been kind of mixed overall, but again, we think we're continuing to perform well. There are then on the international front, we're actually seeing great improvement on the international side with international up high single digits.

Speaker Change: Kind of still some mix between the U K and Continental Europe.

Speaker Change: With you with Continental Europe, being higher but overall a good positive growth there in the international markets.

Glenn Chamandy: Have you seen a change in the pricing environment with Delta situation? Are you doing anything different to take advantage of market share?

Speaker Change: Have you seen that.

Speaker Change: Change in the pricing environment.

Glenn Chamandy: Well, look at, I mean, early in the season, obviously, they were liquidating a lot of inventory, so it put a little bit of price pressure, particularly in our national count segment, but that inventory has dried up pretty quickly, and as we go forward, that would be an upside in terms of stabilization and that segment. And also, look at the indulged revenues. In this segment, we're roughly around close to 400 million, and that's an opportunity for us as we move forward. And to next year, and we continue to focus on driving our national count business, which is where they had, I think, their largest, you know, sales penetration.

Glenn Chamandy: Thank you, welcome. And I'm just, I'm sorry, just one last point, and pricing is stable in the market.

Mark Petrie: Your next question comes from a line of Mark Petrie with CIBC. Please go ahead. Yeah, thanks. Good morning. I wanted to just follow up on the comment with regards to fleece. You called out growth, but then check. I think you were saying that the category was softer.

Chuck J. Ward: I wanted to just follow up on the comment with regard to fleece. You called out growth, but then Chuck, I think you were saying that the category was softer. Could you just clarify that?

Glenn Chamandy: Could you just clarify that? And when it comes to Gildan's performance specifically, how much of that would be market share gains versus the restocking that you called out? Well, maybe just to start with is that, you know, we think that the overall market was down, probably around, you know, mid-single digits, basically, for the, for the quarter. And, you know, what, what Chuck alluded to is that we've done really well, really, because if you look at our POS in Q2, you know, it started off slow, but in June, we got positive, you know, 4% POS in as somewhat down market.

Speaker Change: Overall market was down.

Speaker Change: Probably around mid single digits basically for the for the quarter end.

Speaker Change: What I'm chuckling alluded to is like we've done really well really because if you look at our Pos in Q2.

Speaker Change: <unk> off slow, but in June we had positive 4% Pos and is somewhat down market. So we're gaining share and all of that share gain is coming out of fashion basics and fleece. So.

Chuck Ward: So we're gaining share. And all that share gain is coming out of fashion basics and fleece. So, you know, we are performing really well. We're taking share. The category is growing. We've seen very, very strong sales and fleece. And we have a huge order book and fleece for Q3 and Q4 already. And we're well positioned to execute on our guidance for 24.

Speaker Change: We are performing really well, we're taking share the category is growing we've had we've seen very very strong sales in fleece.

Speaker Change: And we have a huge order book and fleet for Q3 and Q4 already.

Speaker Change: And we're well positioned to execute on our guidance for 'twenty four.

Chuck Ward: Okay. And could you comment specifically on the inventory levels, both retail and distributor? How would you characterize that versus, you know, something you would call normalized and that sort of an opportunity or risk in the coming six to 12 months in your view? I would say overall inventory is in line and in balance. You know, as we look at it, you have some accounts that are, you know, a little bit better. Stock than others. And, you know, others may be a little short, but overall, I would say it's well in balance. That includes, you know, that includes retail distributors on the international side.

Speaker Change: Okay and could you comment specifically on the inventory levels, both retail and distributor how.

Speaker Change: How would you characterize that versus something you would call normalized.

Operator: And when it comes to Gildan's performance specifically, how much of that would be market share gains versus the restocking that you called. That's sort of an opportunity or a risk in the coming 6 to 12 months. Okay, so not expecting inventory to be a positive or a negative other than the impact of the Bangladesh ramp-up giving you some opportunity. Yes, that's correct.

Chuck Ward: I would say there's areas where it's a little light, but with the Bangladesh ramp up that both Glenn and Rod talked about earlier. We should see that resolved in Q4 so that we're seeing better inventory positions and international by that point. So again, overall in balance. Okay. So not expecting inventory to be a positive or a negative other than the Bangladesh. The impact of the Bangladesh ramp up giving you some opportunity in international. Yes, that's correct. Yeah. Okay. Appreciate the comments, guys. All the best.

Glenn J. Chamandy: Okay, appreciate the comments guys, all the best. Okay, well, I would say that, look, if everything's on track with Bangladesh, and maybe just take a step backwards. And another point of reference, I think, for us would be that, you know, we've pointed out that we're only running around 85% capacity. And that's also another big opportunity for the company as we move into the future, where we continue to look at filling up our capacity at a much more optimized level.

Brian Morrison: Your next question comes from line of Brian Morrison with TD Cowan. Please go ahead. Thank you.

Glenn Chamandy: Good morning, and nice to see you back in the chair, Glenn. Can you maybe just talk about the current capacity utilization at Bangladesh today? I realize you're going to be 75% year at your end. We impact from the recent civil unrest.

Glenn Chamandy: Glenn, have you visited the site, and where are we with respect to moving forward with phase two? Okay, well, I would say that look at everything is on track with Bangladesh, and maybe just to take a step backwards. And you look at Gildan's whole manufacturing system today. You know, we have a lot of room for optimization and continued improvement. And you know, one of the things I think that, you know, we've undergone a couple of years ago, which is our yarn, you know, modernization plan, which is still being completed. So we fully haven't optimized our cost, our cost structure of all of our yarn facilities.

Speaker Change: Our plan.

Speaker Change: Which is still being completed.

Speaker Change: Completed so we fully havent.

Speaker Change: Optimize our costs our cost structure.

Speaker Change: Of all of our yarn facilities and.

Glenn Chamandy: And another point of reference, I think, for us would be that, you know, we've, you know, we've pointed out that we're only running around, you know, 85% capacity. And that's also another, you know, big opportunity for the company as we move into the future, where we continue to look at filling up our capacity and with a much more optimized level. So, and then as far as, you know, Bangladesh is concerned, we're, you know, we're ramping up the facility. We believe we'll be at 75% of our exit capacity of the facility by the end of this year.

Speaker Change: And another point of reference I think for US would be is that we've we pointed out that we're only running around.

Speaker Change: 85% capacity and that's also another big opportunity for the company as we move into the future, where we continue to look at filling up our capacity and with a much more optimized level. So and then as far as Bangladesh is concerned where we're ramping up the facility. We believe we'll be at 75% of our <unk>.

Glenn J. Chamandy: So and then as far as, you know, Bangladesh is concerned, we're, you know, we're ramping up the facility; we believe we'll be at 75% of our exit capacity of the facility by the end of this year. And you know, that ramp-up is coming at a cost.

Speaker Change: <unk> capacity of the facility by the end of this year.

Glenn Chamandy: And you know, that ramp up is coming also at a cost. So, you know, all these, you know, big three initiatives are important because, you know, these are, I think, initiatives that will continue to give us some upward momentum in our operating margins as we move forward, as we continue to optimize our manufacturing. And, you know, we're in a good position.

Speaker Change: That ramp up is coming also at a cost. So you know all of these big three initiatives.

Glenn J. Chamandy: So you know, all these big three initiatives are important because, I think, these are initiatives that will continue to give us some upward momentum in our operating margins as we move forward, as we continue to optimize our manufacturing. And you know, I think we're looking, we're in a good position. We're looking at phase two right now.

Glenn Chamandy: We're looking at phase two right now. We, you know, we believe within the three year period in terms of our guided capex, about to 5%, that would include actually the development of that facility in our capex. And one thing that's happened is that with the growth of fleece, and fleece takes a lot more fabric than t-shirts. I mean, three times the amount of material to make a sweatshirt and a T-shirt. So, our mix is changing. So, we're utilizing our textiles at a much greater extent. So, which will allow us to, you know, bring on additional textile capacity, probably earlier than we originally dissipated.

Glenn J. Chamandy: We, you know, we believe within the three-year period in terms of our guided capex, about the 5%, that would include actually the development of that facility in our capex. And one thing that's happened is that with the, With the growth of fleece, and fleece takes a lot more fabric than t-shirts, I mean three times the amount of material to make a sweatshirt than a t-shirt, so our mix is changing, so we're utilizing our textiles at a much greater extent, so which will allow us to, you know, bring on additional textile capacity probably earlier than we originally anticipated, and, you know, to fully utilize our system and bring our costs in a better equilibrium.

Glenn Chamandy: And, you know, to fully utilize our system and bring our costs in a better equilibrium. So, everything is, I think, is working.

Glenn J. Chamandy: So everything is, I think, working. You know, I did go out and visit all of our facilities since I've been back. I am planning to, with our team, inaugurate our facility in Q4 in Bangladesh, which I will be visiting, and we're excited about. We continue to execute on our strategy. That's great. Can I just follow up on that?

Glenn Chamandy: You know, I did go out and visit all of our facilities since I've been back. I am planning to, with our team, inaugurate our facility in Q4 in Bangladesh, which I will be visiting. And we're excited about; we continue to execute on our strategy.

Operator: That's great.

Glenn J. Chamandy: Is there any impact from the recent civil unrest and did I understand correctly that it was margin dilutive in Q2, the Bangladesh facility? Well, I'd say that you look at, I mean, in our, the point I'm trying to make, if you look at the operation, operating margin that we're delivering today, embedded in those operating margins are the startup of Bangladesh, are the inefficiencies of not running our facilities at 100%. And we haven't really optimized our yarn spinning to its fullest potential.

Rod Harrys: Can I just follow up on that? Is there any impact on the recent civil unrest? And did I understand correctly that it was margin diluted in Q2, the Bangladesh facility? Well, let's say that you look at, I mean, in our, look at in our, in the point of trying to make it, if you look at the operation, operating margin. So, we're delivering today. Embedded in those operating margins are the start up of Bangladesh, are the inefficiencies that are not running our facilities at, at 100%. And we haven't really optimized our yarn spitting to its fullest.

Glenn J. Chamandy: So as we continue to execute and deliver and build these three areas, you know, that will allow us to actually increase our operating margins as we move forward. So we've already got really good operating margins. And the point is that we've got negative efficiencies embedded in them. And, you know, as we move forward, and that's what we guide it to, we will have continued improvement in our operating margins. And regarding the civil unrest, look at it was, you know, it was. We were down for a couple of days.

Glenn Chamandy: So, as we continue to execute and deliver and build these, these three areas. You know, that will allow us to actually increase our operating margins as we move forward. So, we've already got really good operating margins, and the point is that we've got negative efficiencies embedded in them. And, you know, as we move forward, and that's what we guided to, is that, you know, we will have continued improvement in our operating margins.

Speaker Change: Allow us to actually increase our operating margins as we move forward. So we've already got a really good operating margins and the point is that we've got negative efficiencies embedded in them and you know as we move forward and that's what we guided to is that we will have continued improvement in our operating margins and regarding the Chevron Brasil looking it was it was a we were.

Glenn Chamandy: And regarding the civil unrest, look at it was, you know, it was, we were down for a couple days. I mean, nothing happened to our facilities. You know, it was, it was non-material to us and, you know, we're running full and business like usual. And we're all back working right now.

Operator: I mean, nothing happened to our facilities. You know, it was not material to us, and we're running full and business as usual. And we're all back to working right now. Yeah, Brian, so we tried to give you as much guidance as we could on SG&A, and I think we believe we're performing very well, right? SG&A has been a big focus, was a big focus under Back to Basic, and as we've moved into the GSG strategy, we really are delivering on it.

Speaker Change: For a couple of days I mean, nothing happened to our facilities.

Speaker Change: It was it was not material to us and we're running full and business like usual.

Speaker Change: And we're all back working right now.

Rod Harrys: That's excellent. My follow-up question, maybe, Rod, I appreciate the operating margin, leverage guidance, especially the SG&A call out for the quarter.

Rod: At that point my follow up question, maybe rod.

Speaker Change: I appreciate the operating margin leverage guidance.

Speaker Change: Especially the SG&A call out for the quarter.

Rod Harrys: What do you think is a sustainable level of SGNA, inclusive of the Barbados tax credit, in our forward outlook? Yeah, Brian, so we try to give you as much guidance as we could on SGNA, and I think we believe we're performing very well, right? SGNA has been a big focus. This was a big focus under Back to Basics, and as we've moved into the GSG strategy, we really are delivering on it. So if you look at the call out for the quarter, effectively 7.7% is very low, but we do have the benefit. I indicated that in my remarks that if you adjust for the retroactive impact, or basically, it would have been around 9%.

Operator: So if you look at the callout for the quarter, effectively 7.7% is very low, but we do have the benefit. I indicated in my remarks that if you adjust for the retroactive impact, we're basically or it would have been around 9%.

Rod Harrys: I think if you move forward, we're probably going to be, I would say, near term in that 9.9.5% range, right? That's the way to think about it as we move through the year, and as we move into 2025. But look, bottom line on SGNA: we can leverage it as we go forward. We can get leverage off SGNA. And I think one of the things that we are excited about, and we call that out for the three-year outlook, that we can improve our operating margin going forward. Some of that's going to come on the gross margin line, and some of that's going to come on the SGNA line.

Operator: And I think if you move forward, we're probably going to be, I would say, near term in that 9, 9.5% range, right? That's the way to think about it as we move through the year and as we move into 2025. But look, the bottom line on SG&A; we can leverage it as we go forward. We can get leverage off SG&A. And I think one of the things that we are excited about, and we call that out for the three-year outlook, is that we can improve our operating margin going forward.

Operator: Some of that's going to come on the gross margin line, and some of that's going to come on the SG&A line. But we're in great shape, really, to deliver margins on a go-forward basis as we grow at the higher rates as we start 2025. Thank you very much. Your next question comes from the line of Vishal Shreedhar with National Bank Financial. Please go ahead.

Rod Harrys: But we're in great shape, really, to deliver margins on a go-forward basis as we grow at the higher rates as we start to 2025.

Operator: Thank you very much.

Michelle: Your next question comes from the line of the Shell Shroudar with National Bank Financial. Please go ahead. Hi, thanks for taking my questions. Raj, just following up on the comment that you gave us about the expansion in gross margin, what would be driving that? Is that Nick's, or is that pricing? How should we think about it?

Speaker Change: <unk> National Bank financial please go ahead.

Glenn J. Chamandy: Hi, thanks for taking my question. It's a little bit of everything, the mix, the... Okay, thank you for that. With respect to the transition to softer cotton. Can you talk about the impact of that on the cost side, and if that's going to help drive prices higher in the industry as you make those transitions, or will the prices of the products be similar? No, we're pricing the products similarly, we haven't changed our prices, and the cost will be absorbed by other manufacturing efficiencies within our system.

Speaker Change: Hi, Thanks for taking my questions Rod just following up on the comment that you are you you gave us about the expansion in gross margin. What was driving that is that is that mix or is that pricing how should we think about it.

Rod Harrys: So if you look at expansion in the quarter, a lot of the expansion came from improvement in raw material costs and on the manufacturing side. Now, we've been flagging that for a long time, Michelle, as you recall. And we've seen the benefit of that as we, with respect to our improved raw material costs, as we moved into the fourth quarter of last year, and then it was moved in the first quarter of this year, second quarter. We'll continue to see some of that as we move forward, but it'll evade, right? Because obviously, on a wrap-around basis, you won't get the level of improvement on a go-forward basis.

Rod: So if you look at the expansion in the quarter a lot of the expansion came from improvement in raw material costs and on the manufacturing side and now we've been flagging that for a long time Michele as you you will recall and we've seen the benefit of that as we.

Speaker Change: With respect to our.

Rod Harrys: But the margins are performing very well. And as Glenn said, we still have not really seen the full impact over our manufacturing structure, with 85% capacity utilization in Central America; the ramp-up of Bangladesh still coming through. I would say we're excited about what we see with respect to the margin evolution. So I would say overall, if you look at the cost side of the business, we're running very well. And then, if you go to the top line, I would think all the things that we're very excited about on market share games with fleece, with ring spun, with product innovation, product innovation are on basics, which I think is very exciting.

Rod Harrys: The new products; some of our brands are doing very, very well. We haven't talked that much about comfort colors, but comfort colors are a very strong brand. And it's flying. And that provides support to margins overall. So I would say, again, we've given a three-year outlook, and we feel good about all of the different areas that are driving margin, both on from the top line and on the construct. Okay, so if I'm trying to take from your answer that in the three-year outlook, it's a little bit of everything to mix: the manufacturing efficiency, the top line leverage.

Michele: Inefficiency at the topline leverage does that is that a fair comment or is there any in particular that you'd point out.

Rod Harrys: Is that a fair comment, or is there any in particular that you'd point out? If you look at the numbers, the past few quarters from a growth perspective, as you look on a go-forward basis, Activewear is running very well, and it's related to all the things that we've talked about: market share gains, innovation, new programs, international growth; they're all driving the growth as we go forward. So, on the Activewear side, you can think of that as a high single-digit type growth business. On the innerwear side, it's lower; it's more like a low single-digit type growth business.

Speaker Change: No. It is it's it's a it's a you know all of the different areas. We're focusing is firing right. So if you actually look at the three year outlook you know our activewear business is running very well and if you. If you even if you look at the numbers a lot the past few quarters from a growth perspective as you look on a go forward basis.

Speaker Change: Activewear is running very well and.

Speaker Change: And it's related to all the things that we've talked about.

Speaker Change: Market share gains our innovation our.

Speaker Change: New program or programs are international growth, they're all driving.

Speaker Change: The growth as we as we go forward. So on the Activewear side. You know you can think of that as a high single digit type growth business.

Rod Harrys: But I would say we are really doing very well across all of the different product categories and channels that we're focusing on, and that is driving that strong, I would say, view of the growth that then ultimately will benefit from that as we bring all of our capacity online. And really drive, I would say, a really good outlook, and that mid-teen EPS compound growth rate over the next three years.

Rod Harrys: Okay, thank you for that. With respect to the transition to software cottons, can you talk about the impact of that on the cost side, and if that's going to help drive pricing higher in the industry as you make those transitions or as you transition the prices of the products will be similar. No, we're pricing the products similarly; then we haven't changed our prices, and the cost will be absorbed by other manufacturing efficiencies within our system. Okay, and are you seeing higher demand as a result of this transition? Well, we're starting to see. Look, for the first time in Q2, we've actually seen positive POS and basics, and it's just being rolled out.

Glenn J. Chamandy: Okay, and are you seeing higher demand as a result of this transition? Well, we're starting to see, look, for the first time in Q2, we've actually seen positive POS in BASIC, so it's, you know, and it's just being rolled out. So we have, I think it's, you know, people who have tried the product, they love it, it prints better, it's softer, it feels better. I mean, you know, so when you're offering a better quality at the same price and better printability, I think it's a home run. And, you know, we think that this is actually going to be really, really strong for us. Your next question comes from the line Martin Landry with Stiefel. Please go ahead.

Rod Harrys: So I think it's people who've tried the product; they love it, it prints better, it's softer, it feels better. So when you're offering a better quality at the same price and better printability, I think it's a home run. And then, you know, we think that this is, it's actually going to be really, really strong for us. Okay, thank you.

Martin Landry: Your next question comes from a line of Martin Landry with Steeple, please go ahead. Hi, good morning, everyone, and Glenn. It's great to have you back in the seat. So my first question is on the three-year outlook. I was wondering right now if we look at your position in the US printwear industry. You've talked a lot about market share gains. Would you be able to give us your best assumption of where you are in terms of market share gains when you look at... All your products in aggregate? Well, look at, I mean, the market in 23 I think was down, you know, probably a little higher than mid-single digits, and, you know, we upperformed the market.

Glenn J. Chamandy: Hi, good morning, everyone. And Glenn, it's great to have you back in the office. So my first question is on the three-year outlook. I was wondering, right now, if we could take a look at your position in the U.S. printwear industry. You've talked a lot about market share gains. Would you be able to give us your best assumption of where you are in terms of market share gains when we look at, you know, all your products in aggregate? Well, look, I mean, the market in 23, I think, was down, you know, in view of the market where we think the market's going to be flat to low single digits.

Glenn Chamandy: I think we're outperforming the market again this year. So, you know, I think we were in a good position; we keep taking market share and, you know, particularly in the category as a fashion and fleece. But, you know, as we look forward, you know, what we've done is we've taken a modest view of the market where we think the market's going to be flat to low single digits. And, you know, we'll be able to, what we think we're going to continue to do is, you know, gain share in the fashion segment, continue driving and growth of fleece products.

Speaker Change: Look forward you know what we've done is we've taken a modest.

Speaker Change: View of the market, where we think the market is going to be flat to low single digits.

Glenn J. Chamandy: And we'll be able to, what we think we're going to continue to do is gain share in the fashion segment, continue driving growth of fleece products. You know, we're going to benefit from our innovation and our basics. And, you know, we saw in Q2 that we've actually for the first quarter seen positive POS. The Comfort Colors that Rod mentioned before are actually doing really well.

Speaker Change: And we'll be able to what we think we're going to continue to do as you know gain share in the fashion segment continue driving in growth of fleece products.

Glenn Chamandy: You know, we're going to benefit from our, from our innovation and our basics. And, you know, like we saw in Q2 that we've actually, for the first quarter, saw positive POS. Comfort colors that Rod mentioned before is actually doing really well. I mean, this is a very strong brand, which lots of runway. And we have a lot of runway with American Apparel as well, which we've, you know, we're continuing to spend against and look at driving that product line as well. And, you know, we have a lot of new programs in our pipeline. I mean, our GOB business is strong.

Speaker Change: We're going to benefit from our from our innovation in our basics and we don't like we saw in Q2 that we've actually for the first quarter saw positive Pos.

Rod: Comfort colors of Rod mentioned before is actually doing really well I mean this is this is a very strong brand.

Glenn J. Chamandy: I mean, this is a very strong brand with lots of runway. And we have a lot of runway with American Apparel as well, which we're, you know, continuing to spend on and look at driving that product line as well. And, you know, we have a lot of new programs in our pipeline. I mean, our GLB business is strong. You know, we're working with our retail customer partners. Our international growth has been weak over the last three years but is starting to rebound.

Rod: Which lots of runway and we have a lot of runway with American apparel, as well, which we've we're continuing to.

Rod: Spend against and look at driving that that product line as well.

Rod: And we have a lot of new programs in our pipeline I mean <unk> businesses is strong.

Glenn Chamandy: You know, we're working with our retail customer partners. Our international growth has been weak over the last three years, and it's starting to rebound. Chuck mentioned that, you know, we've seen good growth, and we can, we believe it, we're on a roll back to driving international again into good growth levels. And, you know, as we move forward, I think importantly, and, you know, as we move forward into 2025, we've got good visibility on all of these factors. So, you know, I think we feel, feel very comfortable. We also feel very comfortable on the operating margin side because of performing well.

Rod: We're working with our retail customer partners.

Glenn J. Chamandy: Chuck mentioned that we've seen good growth, and we believe that we're on a roll back to driving international growth again. And as we move forward, I think important, and as we move forward into 2025, we've got good visibility on all of these factors. So I think we feel very comfortable.

Glenn J. Chamandy: We also feel very comfortable on the operating margin side because we're performing well. At the same time, we have tons of opportunity between our yarn spinning, our capacity, our Bangladesh ramp-up, and our SG&A leverage. All these things working together, I think that we have guided with confidence that we can deliver over the next three years. Okay, you've answered part of my follow-up.

Glenn Chamandy: We're, at the same time, we have tons of opportunity. I mean, between our yarn spinning, our capacity, our Bangledash ramp up, our SGNA leverage. I mean, all these things working together. I think that we've, we've guided with confidence that we can deliver over the next three years. Okay, that's, you know, you've answered part of my follow-up. I was trying to see what is, what are your market share assumptions embedded in your three-year guidance? And if I understand correctly, I think you're expecting the US printwear market to be flat to up slightly over the next three years, flat market share in police and P.

Glenn J. Chamandy: I was trying to see what your market share assumptions are embedded in your three-year guidance. And if I understand correctly, I think you're expecting the U.S. printwear market to be flat to slightly up over the next three years. You know, obviously, we're projecting to grow with the market plus take share in the distributor market. So that's only one part of our business. And then at the same time, you know, we're also going to be, you know, taking new programs in retail, GLB, international. So we add all that together, you know, the mid single digit is our growth rate.

Glenn Chamandy: Assurance and baby market share gains in fashion, is that fair? No, I would say that the market's going to be flat to, you know, to low single digits; our assumption for the market. You know, obviously, you know, we're projecting to, you know, grow with the market plus take share in the distributor market. So, that's only one part of our business. And then at the same time, you know, we're also going to be, you know, taking new programs and retail, GLB, international. So, we add all that together; you know, the mid-single digit is our growth rate.

Rod: In the distributor markets. So that's only one part of our business and then at the same time, we're also going to be taking new programs in retail G. L. B International So we add all that together the mid single digit is.

Rod: As our growth rate.

Glenn Chamandy: Okay, it'd be great at some point to get, you know, a more clear picture of your market share in the distributor segment, just to get a sense of what more share gains you have ahead of you guys. Well, look, we said before that, just maybe to answer a question, if we have a large share in the basic segment and what we've been saying, you know, over the last couple of years is that, you know, the area for growth for us in the distributor market is in the fashion basic segment, which we're continuing to take share.

Glenn J. Chamandy: Okay, it'd be great at some point to get, you know, a more clear picture of your market share in the distributor segment, just to get a sense of what more share gains you have ahead of you guys. Well, look, we said before that, look, just maybe to answer your question, look, we have a large share in the basic segment, and what we've been saying, you know, over the last couple of years is that, you know, the area for growth for us in the distributor market is in the fashion basic segment, which we're continuing to take share.

Speaker Change: Okay. That's okay. It would be great at some point to get.

Speaker Change: Yes.

Speaker Change: A more clearer picture of your market share in the distributor segment.

Speaker Change: Just to get a sense of what more share gains you have ahead of you guys.

Speaker Change: Look we've said before that just maybe to answer your questions. If we have a large share in the basics segment and what we've been saying over the last couple of years is that you know the area for growth for us in the distributor market is in the fashion basic.

Speaker Change: Segment, which we're continuing to take share. So that's the area that we're going to gain the.

Glenn Chamandy: So that's the area that we're going to gain, you know, the most share, fleece as a category. You know, we have a large share of fleece, but fleece is growing as a category and is growing high single digits, basically, every year because people are in, consumers are wearing more sweatsuits, and we're benefiting from that. And you know, the area that, you know, we've seen, you know, negative growth has been in basics, basically, and we've actually, with our innovation, hope to reverse that trend and get people, you know, buying more of our shirts. So, you know, I think overall, you know, in the distributor business, we're, you know, we're comfortable, as well as Comfort Colors is going.

Glenn J. Chamandy: So that's the area that we're going to gain, you know, the most share. Fleece as a category, we have a large share of fleece, but fleece is growing as a category, and it's growing high single digits basically every year because people and consumers are wearing more sweatshirts, and we're benefiting from that. And you know, the area that we've seen, you know, negative growth has been in basics basically, and we've actually, with our innovation, we hope to reverse that trend and get people, you know, buying more of our shirts.

Glenn J. Chamandy: So you know, I think overall, in the distributor business, we're, you know, we're comfortable as well as Comfort Colors is growing. And then, you know, the point here is that it's not one-dimensional; that's half of our business.

Rod Harrys: And then, you know, the point here is that it's not one dimensional. You know, that's a, that's still half of our business. The other half of our business, which is our national account business, our GLB, our retail, our national, our international, you know, they're all doing well as well. So, you know, the sum of the whole will deliver that mid single-digit growth, and I think that's what you need to focus on. And Martin, just to add, I think to be clear, we do see fleece market share gain as we go forward, right? We don't, as Glenn said, we have a big share, but we still see more opportunity on the printware side. We see opportunity in retail; we see opportunity in international as well.

Glenn J. Chamandy: The other half of our business, which is our national account business, our GLB, our retail, our national, our international, you know, they're all doing well as well. So the sum of the whole will deliver that mid-single digit growth, and I think that's what you need to focus on. And Mark, and just to add, I think to be clear, we do see fleece market share gains as we go forward, right? We don't, as Glenn said, we have a big share, but we still see more opportunity on the printware side.

Operator: We see opportunity in retail. We see opportunity in international as well. So you made the comment about flat market share there. We're growing market share in fleece. We're growing it in ringspun.

Rod Harrys: So, you made the comment around flat market share there. We're growing market share in fleece; we're growing it in ring spun. And these are, these are really important drivers because they drive volume, they drive mix, they drive price. They're really, I would say, our, our big drivers, along with all the other areas that we've talked about. So, just to be clear, we're growing share everywhere.

Operator: And these are really important drivers because they drive volume, they drive mix, they drive price. They really, I would say, are big drivers, along with all the other areas that we've talked about. So just to be clear, we're growing share everywhere. Okay, super. Thank you and best of luck.

Operator: Okay, super, thank you, and best of luck.

Jay Sole: Thank you.

Jay Sole: Your next question comes from the line of J Seoul with UBS. Please go ahead. Great, thank you so much. But a couple of questions, number one is that, you know, just given the unusual kind of time here that they just wanted to just, you know, played out. If you had some time away from the business, you could just talk about any, you know, insights you had just maybe from just having a different perspective, looking at the business from, from where you were, you know, versus, you know, from before. And then secondly, just on the raising the leverage, what's the timeframe you expect to raise the leverage to, you know, two, two and a half, whatever it is.

Glenn J. Chamandy: Thank you. Your next question comes from the line of Jay Sole with UBS. Please go ahead.

Glenn J. Chamandy: Great. Thank you so much. A couple of questions. Number one is that, you know, given the unusual kind of time period that just went by, that just, you know, played out, if you had some time away from the business, you could just talk about any, you know, insights you had, just maybe from just having a different perspective, looking at the business from where you were, you know, versus. And then secondly, just on raising the leverage, what's the time In the fall, I never thought the company had been in a better position on a go-forward basis. I mean, everything was firing on all cylinders.

Speaker Change: It's some time away from the business you can just talk about any.

Speaker Change: And so that you had just maybe from just having different perspective looking at the business from from where you were versus you know from before and then secondly, just on the raising the leverage what's the timeframe you expect to raise the leverage to two two and a half whatever it is and would you expect to immediately buy back stock as you increase the leverage thank you.

Rod Harrys: And would you expect to immediately buy back stock as you increase the leverage? Thank you.

Rod Harrys: Well, I'll talk about the first part, and Rod will second the leverage part. But I will say to you, looking back. I mean, like I said in my comments earlier, is that in the fall, I've never, you know, thought the company had been in a better position on a go forward basis. I mean, everything was firing on all cylinders. You know, we're, you know, we've, we invested it in Bangal Dash, where we, you know, we knew that that was going to be a key to the success of our fashion basics. And also, you know, offsetting some of the trends of inflation in Central America.

Speaker Change: Well I'll talk about the first part and Rod will sit because actually the leverage part, but I would say to you look at looking back I mean like I said in my comments earlier is that.

Speaker Change: In the fall I've never.

Speaker Change: Thought the company has been in better position on a go forward basis, I mean, everything was firing on all cylinders and we are prepared.

Glenn J. Chamandy: We invested in Bangladesh where we knew that was going to be a key to the success of our fashion basics and also offsetting some of the trends of inflation in Central America. We've developed the largest innovation pipeline for every single product, and we keep mentioning basics, but our fleece has been totally revamped. Our Comfort Colors brand, we've got a lot of new technology there as well.

Rod: We invested in Bangladesh, where we knew that that was going to be a key to the success of our fashion basics and also offsetting some of the trends of inflation in Central America.

Glenn Chamandy: You know, we've developed the largest innovation pipeline on every single product. You know, we keep mentioning basics, but, you know, it's including fleece has been totally revamped. Our Comfort Colors brand has brought a new technology there as well. So, you know that we've spent two years developing on this. So, you know, we were in the, and I would say that in the fall, we were in a breakout mode of really, you know, I think, you know, firing on all these cylinders and taking a step backwards. I was saying to myself and say, you know, like, you know, this was, this, it was a little bit crazy to be honest with you.

Speaker Change: We have developed the largest innovation pipeline on every single product, we keep mentioning basics, but.

Speaker Change: It's including Fleece has been totally revamped our comfort colors brand, we've got a lot of new technology, there as well.

Glenn J. Chamandy: So we've spent two years developing all this. So, and I would say that in the fall, we were in a breakout mode of really, I think, firing on all cylinders and taking a step backwards. It was a little bit crazy, to be honest with you. Now that I'm back, I can see that everything is intact.

Glenn Chamandy: And, you know, now that, you know, I'm back, I can see that, you know, everything is intact. You know, I think that, you know, nothing has changed. All those opportunities are still here. I think one thing that I think is important is that I think that the team internally, the management team, the employees, all the ranks and file basically are motivated more than ever. And I think that that's the one, I think, positive about it. This whole outcome is that the management team, the company, there's a resurgence of energy, motivation. So, it's great. And, you know, we're really excited and we're looking forward to, you know, to over the next few years and delivering great results and creating shareholder value.

Glenn J. Chamandy: I think that nothing has changed. All those opportunities are still here. I think one thing that is important is that the team internally, the management team, the employees, all the ranks and file, basically, are motivated more than ever. And I think that's the one positive out of this whole outcome is that the management team, the company, there's a resurgence of energy and motivation. So it's great.

Operator: And we're really excited, and we're looking forward to the next few years and delivering great results and creating shareholder value. And Jay, on the share buyback, so we finished the end of the second quarter with leverage 1.6 times. You can tell we're excited about the strength of the business on a go-forward basis, and you can also see that our free cash flow will be very strong as we move through the back half of the year.

Rod Harrys: And Jay on the share buy back. So we finished the end of the second quarter with leverage 1.6 times. You can tell we're excited about the strength of the business on a go-forward basis. And you can also see that our free cash flow will be very strong as we move through the back half of the year. So, as we effectively move through Q3, Q4, we do expect to continue to repurchase shares. And ultimately we're going to drive towards two times the leverage at the end of the year. So we've got a lot of power as we move through the back half.

Operator: So as we effectively move through Q3, and Q4, we do expect to continue to repurchase shares. And ultimately, we're going to drive towards two times leverage at the end of the year. So we've got a lot of firepower as we move through the back half.

Operator: And obviously, we've increased our NCIB by 10% to give us the flexibility to do that. So, again, in parallel with the way that the business is effectively running and the strength of the business, we feel very good about returning capital to shareholders, and we plan to do that. And as we move now to a midpoint of two times in the middle of our 1.5 to 2.5 times leverage, we expect to continue to buy back at a high rate as we move through the end of the year.

Rod Harrys: And that obviously we've increased our NCIB by 10% to give us the flexibility to do that. So we, again, in parallel with the way that the business is effectively running and the strengths of the business, feel very good about returning capital to shareholders. And we plan to do that. And as we move now to the really midpoint, two times the average time in the middle of our one and a half to two and a half times leverage, we expect to continue to buy back at a heart rate as we move through the end of the year.

Operator: And then as we go into 2025 and 2026 and 2027, again, the strength of the business, and return of capital will effectively be, I would say, a meaningful part of our capital allocation strategy as we ultimately combine that with the fundamentals to drive strong EPS growth. Understand. Thank you so much.

Rod Harrys: And then as we go into 25 and 26 and 27, again, the strength of the business, return of capital will effectively be, I would say, a meaningful part of our capital allocation strategy as we ultimately combine that with the fundamentals to drive the strong EPS growth. Understood.

Operator: Thank you so much.

Stephen McLeod: Your next question comes from the line of Stephen McLeod with BMO Capital Markets. Please go ahead. Thank you. Good morning, everyone. Morning, guys.

Operator: Thank you. Good morning, everyone.

Chuck J. Ward: Morning, guys. Just a couple of questions about industry performance through the quarter. I was just wondering if you could give the POS for fleece and fashion basics, I guess, as well as basics, for the industry and for Gildan's performance as well, just to see how you compare when you're driving those market share gains. Sure.

Rod Harrys: Just a couple of questions I had about industry performance through the quarter. I was just wondering if you could give the POS for fleece and fashion basics. I guess as well as basics for the industry and for guild dance performance as well, just to see how you're comparing when you're driving those marketer games. Sure. Thanks, Stephen. I think overall, I mean, we saw good performance in appeal across the board. I mean, as we talked about, it started, you know, the quarter a little slower, but it continued to progress each month. You know, as Glenn mentioned about the basics, we did see positive POS, and in the basics, we for the first time in a while, you know, and we it's really driven by our innovation.

Chuck J. Ward: Thanks, Stephen. I think overall we saw good performance in POS across the board. I mean, as we talked about, it started, you know, in the quarter a little slower, but it continued to progress each month. You know, as Glenn mentioned about the basics, we did see positive POS in the basic EOE for the first time in a while, and it's really driven by our innovation. You know, we talked about our soft cotton technology, and it's been well received by the market, and I think it's having an impact.

Chuck J. Ward: And so I think we're outperforming the market in that segment as well. You know, when we look at the ring spun, I mean, if we look at it, we were up, made the high single digits and ring spun in the quarter as well. And again, when we look at some of the competitors, you know, they were in the negative range.

Chuck Ward: You know, we talked about our soft cotton technology, and it's been well received by the market. And I think it's having an impact. And so I think we're outperforming the market in that segment as well. You know, when we look at the ring spun, I mean, if we look at it, we were we were up mid to high single digits in ring spun in the quarter as well. And again, as we look at some of the competitors, you know, they were in a negative range. So we continue to gain share across that and then on fleece.

Chuck J. Ward: So we continue to gain share across that. And then on fleece, you know, we're looking at fleece. And we were mid-low to mid on this and then had the ability to continue to take share from them as well. So, you know, I think we're performing well across the markets in each category. Okay, that's a great color.

Chuck Ward: You know, we're looking at fleece, and we were mid low to mid on fleece and then had the ability to continue to take share from them as well.

Rod Harrys: So, you know, I think we're performing well across the markets in each category. Okay, that's that's great color. Thanks, Chuck.

Speaker Change: And in each category.

Operator: Thanks, Chuck. And then just on gross margin, I mean, talk a little about SG&A and how that's expected to evolve as sort of a longer-term target. Just wondering if you can do the same for gross margin, like how we should expect that to evolve through the year. I know eventually you'll be up against some of the tougher comps as you roll into next year.

Speaker Change: Okay. That's that's great color. Thanks Chuck.

Rod Harrys: Um, and then just on the gross margin, I mean, talk talk about the SNA and, um, and how that's expected to evolve. I'm sort of a longer term target. Just wondering if you can do the same for gross margin like how should we expect that to evolve through the year. I know eventually you'll be up against some of the tougher comps as you roll into next year. So just how can we think about gross margin. And, um, I guess for the balance of this year as well as into that three-year margin expansion target that you're highlighting.

Speaker Change: And then just on the gross margin I mean, we talked a lot about the SG&A and.

Speaker Change: And how that's expected to evolve.

Speaker Change: Sort of longer term targets I'm just wondering if you can do the same for gross margin like how well how should we expect that to evolve through the year I know eventually you'll be up against some tougher comps as you roll into next year. So just how can we think about gross margin.

Operator: So just how can we think about gross margin, I guess, for the balance of this year, as well as into that three-year margin expansion target that you're highlighting? Yeah, Stephen, look, we expect strong gross margin, right, as we continue to move through the year. If you look at what we've guided from an operating profit margin perspective, I made some comments earlier about SG&A. You can see the gross margin will stay strong as we move through Q3, and Q4. And again, I mean, all the drivers are in place in order to deliver on that.

Speaker Change: I guess for the balance of this year as well as into that three year.

Speaker Change: Margin expansion target that you're that you're highlighting.

Rod Harrys: Yes, Stephen, we expect strong growth margin, as we continue to move through the year. If you look at what we've guided from an operating profit margin perspective, I made some comments earlier about SG&A. You can see that growth margin will stay strong as we move through Q3, Q4. And again, I mean all the drivers are in place in order to deliver on that. And then, you know, we do expect operating margin growth as we go from 25 to 27, driven by all the things that we've talked about. So, you know, I would say we do believe that we have now moved our growth margin.

Steven: Yes, Steven.

Steven: We expect strong gross margin rate as we continue to move through the year a few.

Speaker Change: If you look at what we guided from an operating profit margin perspective, I made some comments earlier about SG&A you can see the gross margin will stay strong as we move through 2000 the Q.

Steven: Q3, Q4, and then again I mean, all the drivers are in place in order to deliver on that and then.

Glenn J. Chamandy: And then, you know, we do expect operating margin growth as we go from 25 to 27, driven by all the things that we've talked about. So, you know, I would say we do believe that we have now, I would say, moved our gross margin really, I would say, a bit higher versus where we've historically run. And that, combined with SG&A leverage, gives us strong confidence in our ability to take what I would say will be a very good operating margin when we finish the end of 24 and continue to drive that over the next three years.

Steven: We do expect.

Steven: Operating margin growth as we go from 25 to 27.

Rod Harrys: Really, I would say a bit higher in versus where we've historically run. And that combined with SG&A leverage gives us the strong confidence on our ability to take the, you know, I would say what will be a very good operating margin when we finish the end of 24 and continue to drive that over the next three years.

Rod Harrys: That's great. Thanks, Rod.

Glenn J. Chamandy: Thanks Rod. And then maybe just one more question, just on the fleece business. I know you talked about strong replenishment in the quarter. With the warm weather we've been having, have you seen any initial signs of maybe seltzer weakness, or has that not really materialized?

Chuck Ward: And then maybe just one more if I could just on the fleece business. And then he talked about strong replenishment in the quarter with the warm weather we've been having. Have you seen any initial signs of maybe sulfur weakness, or has that not really materialized? Well, look, I mean, POS in the beginning in July was, like we said, was down, and that was pretty much across the board. But that's, you know, that's a function of burl basically that went through mostly the United States, you know, the hot weather, also 4th of July holiday. So it's come back.

Glenn J. Chamandy: Well, look, I mean, POS at the beginning of July was, like we said, down, and that was pretty much across the board, but that's... But the one thing maybe to point out is that look at us. We have a huge order book on fleece. You know, we had strong sales in Q2, we have strong demand in Q3 and in Q4. We're actually, you know, chasing fleece as we speak today.

Chuck Ward: You know, we've seen already our POS come back. I mean fleece in the Q2 up until this period is really not the largest POS cell; through when you look at it as a percentage of sales. So, you know, distributors bring in, bring in, you know, they're inventory basically. And then it's the large POS time frame is really as we move into, you know, the season into Q4 when you actually get the height of the POS. But the one thing maybe to point out is that look at we have a huge order book on fleece. You know, we're at strong sales in Q2.

Speaker Change: You know the fall season and into Q4, when you actually get the height of the P O S.

Steven: But the one thing maybe to point out is that look at we we have a huge order book on fleece.

Speaker Change: We had strong sales in.

Steven: In Q2, we have strong demand in Q3 and in Q4 were actually chasing fleets as we speak today. So we probably won't be able even to deliver all of our commitments in Q3 that may spill into Q4, because you know that.

Chuck Ward: We have strong demand in Q3 and in Q4. We're actually, you know, chasing fleece as we speak today. So, you know, we probably won't be able even to deliver all of our commitments in Q3 that may spill into Q4 because, you know, back in the fall, you know, we closed down one of our sewing factories and part of our optimization of our sewing strut and cost. And we relocated that to Nicaragua. And that wrap up is just taking a little bit longer than we anticipated. So we're a little behind, I would say, in terms of where we want to go in terms of fleece.

Glenn J. Chamandy: So you know, we probably won't be able to deliver all of our commitments in Q3 that may spill into Q4 because, you know, back in the fall, we closed down one of our sewing factories as part of our optimization of our sewing structure and costs, and we relocated that to Nicaragua, and that wrap-up is just taking a little bit longer than we anticipated.

Speaker Change: Back in the fall, we closed down one of our sewing factories and part of our optimization of our sewing pattern cost and we relocated that to Nicaragua in that some wrap up is just taking a little bit longer than we anticipated. So we're a little behind I would say in terms of where we want to go in terms of fleets, but we will be.

Glenn J. Chamandy: So we're a little behind, I would say, in terms of where we want to go in terms of fleece, but we will be towards the end of Q3 and, you know, in Q4 we'll be, you know, back on track. So demand is strong. We have all the orders, you know, pretty much in-house to continue driving good growth in fleece, and we're pushing as hard as we can to fulfill our orders. That's great. Thanks so much, Glenn. It's nice to have you back.

Chuck Ward: But we will be towards the end of Q3, and, you know, in Q4, will be, you know, back on track. So demand is strong. We have all the orders, you know, pretty much in house to continue driving good growth in fleece. And we're pushing as hard as we can to fulfill our orders. That's great. Thanks so much, Blaine. Nice to have you back. Thank you. Thanks so much.

Steven: Towards the end of Q3, and Q4 will be will be back on track. So demand is strong.

Speaker Change: We have all the orders you know pretty much in house to continue driving good growth in fleece, and we're pushing as hard as we can to fulfill our orders.

Speaker Change: That's great. Thanks, so much for a nice to have you back. Thank you. Thank you. Thanks, so much.

Glenn J. Chamandy: Thank you. Thank you. Thank you so much.

Steven: Okay.

Chris Lee: Your next question comes from the line of Chris Lee with Desjardins. Please go ahead. Oh, thank you. Good morning, everyone. Just to maybe a first question on cotton, I know that it's been correctly pulling back through the year. And I'm just wondering what you think the impact could potentially be on your margin for next year. Do you think it's going to be neutral or positive? Just, yeah, just some hell of a comment will be great. Well, look, I think just taking cotton in general, cotton has come down, but as if you look at cotton in an overall cost, it's around 25%, right?

Operator: Your next question comes from the line of Chris Lee with Desjardins. Please go ahead. Oh, thank you. Good morning, everyone. Just maybe a first question on cotton. I know that it's been gradually pulling back through the year, and I'm just wondering what the impact could potentially be on your margin for next year.

Speaker Change: Your next question comes from the line of Chris Lee with Desjardin. Please go ahead.

Chris Lee: Oh, Thank you good morning, everyone.

Glenn J. Chamandy: Do you think it's going to be neutral or positive? Just some high-level comments would be great. Well, look, I think just taking cotton in general. Cotton, you know, has come down. But as a whole, if you look at cotton and our overall cost, you know, it's around 25%, right?

Glenn J. Chamandy: So as you go forward, I would say that there are other inflationary items like labor, transportation, and energy costs. You know, labor is going up, particularly in Central America. So you know, I would say that in a typical inflationary environment that we are in today, where you have labor, transportation, and energy going up, normally you would see price increases to support those inflationary costs. And I think that cotton will basically give us a little bit of runway to maintain, you know, keep prices flat as we move into next year.

Glenn Chamandy: So, as you go forward, I would say that there's other inflationary items like labor, transportation, energy costs. Labor is going up, particularly in Central America. So, I would say that in a typical inflationary environment that we are in today, where you have labor, transportation, and energy going up, normally you would see price increases to support those inflationary costs. And I think that the cotton will basically give us a little bit of runway to maintain probably pricing flat as we move into next year and bail to support some of the inflationary areas. So, I would say that the whole cotton inflationary impact will be neutral to us as we move forward into 25.

Glenn J. Chamandy: And you know, and be able to support some inflationary areas. So you know, I would say that the whole cotton inflationary impact will be neutral to us as we move forward into 2025. Okay, that's great.

Glenn J. Chamandy: And second question, Glenn, maybe just on M&A. I was wondering, you know, where it ranks in your capital allocation. I just ask because, as you mentioned, some of your competitors are weakening. I'm wondering if there are any potentially attractive opportunities that you think would be a good use of capital.

Glenn Chamandy: Okay, that's great. And second question, Glenn, maybe just on M&A, just wondering, where does it rank in your capital allocation? I just ask because, as you mentioned, some of your competitors are weakening, wondering if there are any potentially attractive opportunities that you think would be a good use of capital. Well, look, I think we've called out that we've just increased our NCIB, so our focus is to return capital to shareholders. We're very comfortable with our organic strategy, delivering to mid-single digits, strong and improving operating margins, and obviously we're translates into strong EPS, which will obviously give us a good return.

Glenn J. Chamandy: Well, look, I think we called out that we've just increased our NCIB, so our focus is to return capital to shareholders. We're very comfortable with our organic strategy, delivering to mid-single digits, strong and improving operating margins. And obviously, that translates into strong EPS, which will obviously give us a good return. So I think that's our priority. I mean, some of the competitors that are in trouble today are weak.

Glenn Chamandy: So I think that's our priority. I mean, some of the competitors that are in trouble today are weak. I mean, there's not a lot of value associated with them and their equipment because we've got capacity available to us today. And I think we can get all those sales organically. So, as far as we're concerned, I think we're in a really good position. We're widening our competitive advantage. We've got a large wave of innovation across all segments of the company. We're firing on all four cylinders. So we're going to stay focused right now and continue to deliver on our strategy that we just called out over the next three years.

Glenn J. Chamandy: I mean, there's not a lot of value associated with them and their equipment because we've got capacity available to us today, and I think we can make all those sales organically. So as far as we're concerned, I think we're in a really good position. We're widening our competitive advantage. We've got a large wave of innovation across all segments of the company. We're firing on all cylinders. So we're going to stay focused right now and continue to deliver on our strategy that we just called out over the next three years.

Jessy Hayem: That concludes our Q&A session. I will now turn the conference back over to Jessy Hayem for closing remarks. Thank you, Jessy. Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great day. This does conclude today's call. You may now disconnect.

Glenn Chamandy: It's great to hear and welcome back. Thank you.

Jessy Hayem: That concludes our Q&A session.

Jessy Hayem: I will now turn the conference back over to Jesse Hayum for closing remarks. Thank you, Gigi. Once again, we'd like to thank everyone for joining us and attending our call today. And we look forward to speaking with you soon. Have a great day.

Operator: This does conclude today's call.

Operator: You may now disconnect. .

Speaker Change: [music].