Q2 2024 Gildan Activewear Inc Earnings Call

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Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2024 Gildan Activewear Earnings Conference. Please be advised that today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Q2 2024 Gildan Activewear earnings conference call.

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

Operator: Please be advised that today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

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

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 withdraw your question, press star one again.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Operator: I would now like to hand the conference over to Jessy Hayem, Vice President, Head of Investor Relations. Please go ahead. Thank you, Jeanne. 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 and Regulatory Authorities and the U.S. Securities Commission today, and they'll also be available on our corporate website. Joining me on the call today are Glenn Schimandy, President and CEO of Gildan, Rod Harris, Executive Vice President and Chief Financial and Administrative Officer, and Chuck Ward, President, Sales, Marketing, and Distribution.

Jessy Hayem: I would now like to hand the conference over to Jessy Hayem by President Head of Investor Relations. Please go ahead.

Jessy Hayem: Thank you, Jeannie.

Jessy Hayem: 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 Chamandy, 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.

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

Jessy Hayem: 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.

Jessy Hayem: During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable IFRS measures are provided in today's earnings release as well as our MD&A. Now, I'm very happy to turn the call over to Glenn. Thank you, Jessy, and good morning, everybody.

Glenn Chamandy: And now, I'm very happy to turn the call over to Glenn. 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 Schimandy: 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. Last fall, I communicated to shareholders that Gildan's positioning had never been stronger, with the largest pipeline of innovation in the company's history rolling out this year.

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 everything is on track, and we're continuing to widen our competitive advantage. We continue to execute on Guild Dance's sustainable growth strategy. We're delivering on each of our three pillars, where we see 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.

Glenn Schimandy: Today, I can confirm that everything is on track, and we're continuing to widen our competitive advantage. We continue to execute on Gildan's sustainable growth strategy. 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, and we will be at 75% exit capacity at the end of this year. On innovation, our soft cotton technology is performing well, and we're starting to see good results in the market with positive POS on Basics in Q2. On ESG, we just launched our 20th anniversary ESG report focusing on our accomplishments, which we're very proud of.

Glenn Chamandy: On innovation, our stuff's cotton technology is performing well, where we're starting to see good results in the market, with positive DOS on basics in Q2. On ESG, we just launched our 20th anniversary ESG report focusing on our accomplishments, of which we're very proud. We reported two results that were strong and in line with our expectations, with solid top line and strong adjusted operating margins. 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 GSG 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 supercharge plan.

Glenn Schimandy: We reported Q2 results that were strong and in line with our expectations, with a solid top line and strong adjusted operating margins. 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 GSG strategy, where we're well positioned to deliver top line growth in the mid single digit range, adjusted diluted, and diluted EPS growth in the mid teen range over 2025 through 2027, in line with our supercharge plan. So let's get started.

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

Rod Harrys: Thank you, Glenn, 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.

Rod Harrys: 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 percent at the higher end of our guidance for the quarter of flat to low single-digit growth. 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. This was driven by a strong performance in active wear, up 45 million or 6 percent, 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.

Glenn Schimandy: 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. 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.

Speaker Change: <unk> 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.

Speaker Change: 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.

Speaker Change: 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.

Rod Harrys: 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. 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 percent. Turning to hosary and underwear, as expected, this category was down 16 percent versus the prior year, mainly owing to the phase out of the Underarmor business and, to a lesser extent, to unfavorable mix and continued broader market weakness in and aware.

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.

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.

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

Rod Harrys: That said, we would exclude the impact of the Underarmor phase out; our hosary and underwear sales would have been up mid-single digits year over year. Turning our focused margins for the quarter, our gross margin was 30.4 percent versus 25.8 percent in the prior year, a 460 basis point improvement primarily due, as anticipated, to lower raw material and manufacturing input costs. 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.

Rod Harrys: 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 1, 2024, and which totaled $17 million in the quarter. 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.

Glenn Schimandy: 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. Moving on to cash flow and balance sheet items, 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.

Rod Harrys: With the retroactive enactment of global minimum tax in Canada and Barbados, income tax expenses increased significantly year over year in the second quarter. 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.

Rod Harrys: Moving on to cash flow and balance sheet items. After observing 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. 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.

Rod Harrys: 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.

Glenn Schimandy: We ended the quarter with net debt of $1.24 billion and a net debt to EBITDA leverage ratio of 1.6 times. On the innovation front, thanks to proprietary cotton technology, we continue to improve fabric softness, all while improving printability. 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. Hi, thanks for taking my question.

Rod Harrys: Williams. 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-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. On the improved 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.

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 be 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.

Rod Harrys: We continue to expect adjusted operating margins 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.

Speaker Change: We enacted GMP legislation in Canada in Barbados on our effective tax rate retroactive to January one 2024.

Speaker Change: The company's adjusted effective income tax rate is expected to be approximately 18% for the full year.

Speaker Change: Our adjusted diluted EPS is expected to be in the range of $2 92 to $3 seven.

Speaker Change: 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 and related matters, we still expect free cash load to be above 20-23 levels. Charles. 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 upload single digits year over year, and adjusted operating margin is expected to come in above the high end of our 18-20% 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.

Rod Harrys: As Glenn mentioned earlier today, we are also providing our three-year outlook for the 2025-2027 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 is 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 repurchases 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.

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 Underarmour 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.

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.

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.

Operator: Genie, you may begin the Q&A session, please. Thank you. The floor is now open for 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 Q. If you would like to withdraw your question, simply press star one again. If you were called upon to ask a 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.

Operator: 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 a good 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. Here's a few few changes that are influencing your outlook. And then check in.

Paul Lejuez: Can you just talk about the competitive landscape in both activewear and hosiery. 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 uncover the 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, you know, Delta has actually filed for Chapter 11 and we think other companies in industry are not doing well 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.

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, I mean, as we progress through the quarter, you know, we saw improving POS through the quarter overall, with June and mid single digits, you know. 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.

Speaker Change: Pass through the quarter overall.

Speaker Change: With June mid single digits.

Speaker Change: First part of July started off a little slower, but it has improved as we've gone through the through the month.

Speaker Change: 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.

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

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. You know, with continental Europe being higher, but overall good positive growth there in the international markets.

Speaker Change: 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.

Speaker Change: 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.

Glenn Chamandy: Have you seen the change in the pricing environment with the Delta situation? Are you doing anything different to take advantage of market share? Well, look at, I mean, early in the season, obviously they were liquidating a lot of inventory. So, put a little bit of price pressure, particularly in our national count segment. But that inventory is 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 delta revenues in this segment; we're roughly around close to 400 million. And that's an opportunity for us as we move into next year.

Glenn Chamandy: And we continue to focus on driving our national count business, which is where they had, I think, their largest sales penetration.

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

Mark Petrie: Thank you. Your next question comes from a line of Mark Petrie with CIBC.

Mark Petrie: Let's go ahead. Yeah, thanks.

Mark Petrie: Good morning. I wanted to just follow up on the comment with regards to fleece. You called out growth, but then Chuck, I think you were saying that the category was softer. 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 we think that the overall market was down, probably around, you know, mid single digits basically for the quarter. And what Chuck alluded to is, like, we've done really well because if you look at our POS and Q2, it started off slow, but in June, we had positive 4% POS in a somewhat down market, so we're gaining share.

Speaker Change: <unk> growth, but then Chuck I think you were saying that the category was softer could you just clarify that and when it comes to <unk> performance, specifically, how much of that would be.

Chuck: Market share gains versus the restocking.

Speaker Change: That you called out.

Chuck: Well, maybe just to start with is that we think that the overall market was down probably around mid single digits basically for the for the quarter and what.

Speaker Change: But Chuck alluded to is like we've done really well really because if you look at our Pos in Q2.

Speaker Change: Started 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 we.

Glenn Chamandy: 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 in fleece, and we have a huge order book in 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 seen very very strong sales in fleece.

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

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. Stopped in 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.

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.

Chuck Ward: 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 and international. Yes, that's correct. Yeah. Okay. Appreciate the comments, guys.

Chuck Ward: All the best.

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

Brian Morrison: 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 in the recent civil unrest. Glenn, have you visited the site? And where are we with respect to moving forward with phase two? Okay.

Glenn Chamandy: Well, I would say that look at everything's on track with Bangladesh, and maybe just to take a step backwards. And you look at Gile Dan'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 we've undergone a couple years ago, which is our yarn modernization plan, which is still being completed. So we fully haven't optimized our cost, our cost structure of all of our yarn facilities. 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.

Speaker Change: And you look at Gill dance whole manufacturing system today.

Speaker Change: We have a lot of room for optimization and continued improvement in and one of the things I think that.

Speaker Change: We've undergone underwent a couple of years ago, which is our yarn.

Speaker Change: Modernization plan.

Speaker Change: <unk> is still being complete.

Speaker Change: Completed so we fully havent.

Speaker Change: Optimize our costs our cost structure.

Speaker Change: Of all of our yarn facilities.

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

Glenn Chamandy: 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. 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 also at a cost. So, you know, all of 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.

Glenn Chamandy: And, you know, I think we're looking at; we're in a good position. We're looking at, 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... 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.

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

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 Bangal Dash, which I will be visiting. And we're excited about; we continue to execute on our strategy.

Glenn Chamandy: That's great. 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 Bangal Dash 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 that we're delivering today. Embedded in those operating margins are the start-up of Bangal Dash, are the inefficiencies that are not running our facilities at, at 100%. And we haven't really optimized our yarn spitting to its fullest.

Speaker Change: Since our the startup of Bangladesh or the inefficiencies are not running our facilities at at 100% and we havent really optimize our yarn spinning to its fullest. So as we continue to execute and deliver and build these three areas.

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. And regarding the civil unrest, look at it was, you know, it was, we were down for a couple of days and nothing happened to our facilities.

Speaker Change: 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 as we move forward and Thats. What we guided to is that we will have continued improvement in our operating margins and regarding the <unk> look at it was it was.

Speaker Change: We were down for a couple of days I mean, nothing happened to our facilities.

Glenn Chamandy: 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. That's that point.

Rod Harrys: My follow-up question, maybe Rod, I appreciate the operating margin leverage guidance, especially the SG&A call out for the quarter. 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. It was a big focus under Back the Basic. 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.

Rod Harrys: But we do have the benefit. I indicated that in my remarks that if you adjust for the retroactive impact, we're basically, or it would have been around 9%. 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, 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 or 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.

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.

Speaker Change: But we're in great shape really to deliver margins on a go forward basis as we grow.

Speaker Change: At the at the higher rates as we start 2025.

Rod Harrys: Thank you very much.

Speaker Change: Thank you very much.

Vishal Shreedhar: Your next question comes from the line of Vishal Shreedhar with National Bank Financial. Please go ahead. Hi, thanks for taking my questions. Rod, just following up on the comment that you gave us about the expansion in gross margin. What we're driving that, is that Nick's or is that pricing? How should we think about it? 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. Vishal is you; you will 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 into the first quarter of this year, second quarter.

Vishal <unk>: Your next question comes from the line of Vishal <unk> with National Bank Financial. Please go ahead.

Vishal <unk>: 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 would be driving that is that is that mix or is that pricing how should we think about it.

Rod Harrys: We'll continue to see some of that as we move forward, but it'll, it'll abate, right? Because obviously, on a wrap-around basis, you won't get the level of improvement on a go-forward basis. But the margins are performing very well. And as Glenn said, we still have not really seen the full impact of 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.

Rod Harrys: 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. 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 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 cost structure.

Speaker Change: And we feel good about all of the different areas that are driving margin both from the top line and on the cost structure.

Rod Harrys: Okay, so if I'm trying to take from your answer that's in the three-year outlook, it's a little bit of everything to mix the manufacturing efficiency, the top-line leverage. Is that a fair comment, or is there any in particular that you'd point out? No, it is. All of the different areas we're focusing is firing, right? So if you actually look at the three-year outlook, our active world business is running very well. Even if you look at the numbers, the past few quarters from a growth perspective, as you look on a go-forward basis, Active World is running very well.

Vishal <unk>: Okay.

Speaker Change: So I take from your answer that in the three year outlook.

Speaker Change: It's a little bit of everything the mix the.

Speaker Change: Factoring efficiencies the topline leverage does that is that a fair comment or is there any in particular that you'd point out.

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, our activewear business is running very well.

Speaker Change: 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.

Rod Harrys: And it's related to all the things that we've talked about: market share games, innovation, new program programs, international growth. They're all driving the growth as we go forward. So, on the active world side, you can think of that as a high single-digit type growth business. On the inner world side, it's lower. It's more like a low single-digit type growth business. 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 view of the growth that then ultimately will benefit from that as we bring all of the 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.

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

Speaker Change: Market share gains innovation.

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

Rod Harrys: Okay, thank you for that. With respect to the transition to software cotton, 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've we've we're pricing the products similarly; then we haven't changed our prices, and you know the cost will be absorbed by other manufacturing efficiencies and within our system. Okay, and are you seeing higher demand as a result of this transition? Well, we're starting to see, look at, for the first time in Q2, we've actually seen, you know, positive a POS and basics. So it's, you know, what, and it's just being rolled out. So we have, I think it's, you know, people who've 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 print the ability, I think it's a home run. And you know, we think that this is, it's actually going to be a really, really strong for us.

Rod Harrys: Okay, thank you.

Martin Landry: Your next question comes from the line of Martin Landry with Steeple. Please go ahead. Hi, good morning everyone, and Gwen. 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, you know, 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 outperform the market. 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 categories of 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 is going to be flat to low single digits.

Speaker Change: Probably a little higher than mid single digits, and we outperformed the market.

Speaker Change: I think we're outperforming the market again this year so.

Speaker Change: We're in a good position, we keep taking market share in Europe, particularly in the categories of fashion and fleece, but.

Speaker Change: As we look forward what we've done is we've taken a modest view.

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

Glenn Schimandy: 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 growing fleece products. 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. Okay, you've answered part of my follow-up.

Glenn Chamandy: 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. You know we're going to benefit 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. The comfort colors that Rod mentioned before is actually doing really well. I mean, this is a very strong brand which has 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.

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

Speaker Change: We're going to benefit from our from our innovation in our basics and.

Speaker Change: 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 Chamandy: And you know we have a lot of new programs in our pipeline. I mean our GOB business is strong; 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 that we're 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.

Glenn Chamandy: We also feel very comfortable on the operating margin side because of performing well. We're at the same time we have tons of opportunity. I mean, between our yarn spinning, our capacity, our Bangladesh ramp up, our SGNA leverage, I mean all these things working together, I think that we've guided. We've had confidence that we can deliver over the next three years.

Glenn Chamandy: 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. 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.

Glenn Schimandy: 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 taking new programs in retail, GLB, international. So we add all that together. You know, the mid single digit is our growth rate. Your next question comes from the line of Jay Sole with UBS. Please go ahead.

Speaker Change: Our slot market share and police and T shirts, and baby market share gains in fashion is that fair no I would say that the market is going to be a flat to low single digits, our assumption for the market.

Speaker Change: Obviously, we're projecting to grow with the market plus take share 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 <unk> International So we add all that together the mid single digit.

Glenn Chamandy: 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.

Speaker Change: 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, look, just, just maybe to answer questions. 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, a 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 look.

Speaker Change: Just maybe to answer your question look we have a large share in the basics segment and what we've been saying.

Speaker Change: 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.

Glenn Chamandy: So that's the area that we're going to gain, you know, the most share. We have a large share of fleece, but fleece is growing as a category and is growing high single digits basically every year because consumers are wearing more sweatshirts, 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, we 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.

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 count 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 deliver that mid single digit growth. I think that's what you need to focus on. And Martin, just to add, I think to be clear, we do see police 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.

Rod Harrys: So, you made the comment around flat market share there. We're growing market share in police; 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 big drivers, along with all the other areas that we've talked about. So, just to be clear, we're growing share everywhere.

Martin Landry: Okay, super, thank you, and best of luck. Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Jay Sole: Your next question comes from the line of J Seoul with UBS. Please go ahead. Great. Thank you so much. A couple questions. Number one is just given the unusual kind of time period that I just wanted to just, you know, play it 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, 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.

Speaker Change: Your next question comes from the line of Jay sole with UBS. Please go ahead.

Jay Sole: Great. Thank you so much.

Jay Sole: A couple of questions number one is.

Jay Sole: Just given the unusual kind of time here, but just wanted to just played out did you had some time away from the business you can just talk about any.

Jay Sole: 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.

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

Glenn Chamandy: I'll talk about the first part. Rod will check as I answer 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 better position on a go-forward basis. I mean, everything was firing at all cylinders. You know, we've invested in Bangal Dash, where we, you know, 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.

Jay Sole: 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 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 have gotten a new technology there as well. So, you know, we've spent two years developing on that. So, like, 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 at all these cylinders and taking a step backwards. I was saying to myself, and like, you know, like, you know, this was this, it was a little bit crazy to be honest with you.

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 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 out of this world come 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.

Rod Harrys: And Jay, on the share buyback, so we finished the end of the second quarter with leverage of 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 tons leverage at the end of the year. So, we've got a lot of power as we move through the back half.

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 strength 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 in the middle of our one and a half to two and a half times leverage, we expect to continue to buy back at our heart rate as we move through the end of the year. 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.

Rod Harrys: Rob. Understood.

Rod Harrys: Thank you so much.

Stephen Macleod: Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Please go ahead. Thank you. Good morning, everyone. Morning, guys. Just a couple of questions I had about industry performance through the quarter.

Chuck Ward: I was just as well as basics for the industry and for Gildan's performance as well, just to see how you're comparing when you're driving those marketer games. Sure. Thanks, Stephen. I think overall we saw good performance in PLS across the board. As we talked, it started at the quarter a little slower, but it continued to progress each month. As Glenn mentioned about the basics, we did see positive PLS in the basics. For the first time in a while, it's really driven by our innovation. We talked about our soft cotton technology, and it's been well received by the market.

Chuck Ward: I think it's having an impact. I think we're outperforming the market in that segment as well. When we look at the ring spun, if we look at it, we were up mid to high single digits and ring spun in the quarter as well. Again, as we look at some of the competitors, they were in a negative range. We continued to game share across that and then on fleece. We were looking at fleece, and we were mid-load of men on fleece and then had the ability to continue to take share from them as well. I think we're performing well across the markets in each category.

Jay Sole: You know, they were in the negative range. 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 these 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 and in each category.

Rod: When the negative range. So we continue to gain share across that and then on please.

Rod: We're looking at fleece, and we were we were mid.

Speaker Change: Mid low to mid <unk>.

Speaker Change: And then had the ability to to continue to take share from them as well.

Speaker Change: So I think we're performing well across the markets.

Speaker Change: In each category.

Chuck Ward: That's great color. Thanks, Chuck.

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

Rod Harrys: And then just on the gross margin, I mean, talk a little about the SG&A and how that's expected to evolve in a longer-term target. Just wondering if you can do the same for a gross margin. 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 talk when we think about gross margin, I guess, for the balance of this year as well as into that clear margin and expansion target that you're highlighting. Yes, Steven. We expect strong gross margin as we continue to move through the year.

Speaker Change: And then just on the gross margin.

Speaker Change: Talked a lot about the SG&A and and how that's expected to evolve.

Speaker Change: And 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 us on some of the tougher comps as you roll into next year. So just how can we think about gross margin.

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.

Speaker Change: Yes, Stephen look we expect strong gross margin rate as we continue to move through the year if you.

Rod Harrys: 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, Q4, and again, I mean, all the drivers are in place in order to deliver on that. And then we do expect operating margin growth as we go from 25 to 27, driven by all the things that we've talked about. So I would say we do believe that we have now moved our gross margin really. I would say a bit higher in versus where we've historically run.

Speaker Change: If you look at what we've guided from an operating profit.

Speaker Change: Margin perspective.

Rod Harrys: And that combined with SG&A leverage gives us 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. It continues to drive that over the next three years. That's great. Thanks, Rod.

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 I was pretty much across the board, but that's, you know, that's a function of burl. So basically that went through mostly the United States, you know, the hot weather, also 4th of July, all day.

Chuck Ward: So it's it's come back. You know, we've seen already our POS come back. I mean fleece in the Q in 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, their 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 we have a huge order book on fleece.

Speaker Change: In the Q in Q2 up until this period is really not the largest Pos sell through when you look at it as a as a percentage of sales so dino distributors bring in bring in their.

Speaker Change: Their inventory basically it had its third large Pos timeframe is really as we move into the fall season and into Q4, when you actually get the height of the Pos.

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

Chuck Ward: You know, we're at strong sales in Q2. 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 close 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, but we will be towards the end of Q3 and, you know, in Q4 will be, you know, back on track.

Speaker Change: We had strong sales in.

Speaker Change: In Q2, we have strong demand in Q3 and in Q4.

Speaker Change: 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.

Speaker Change: Back in the fall, we closed down one of our sewing factories and part of our optimization of our selling cost and we relocated that to Nicaragua in that ramp 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.

Speaker Change: Towards the end of Q3 and.

Speaker Change: Q4 will be will be back on track so demand is strong.

Chuck Ward: 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. Well, nice to have you back. Thank you. Thanks so much.

Christopher Li: Your next question comes from the line of Chris Lee with Desjardins. Please go ahead. Well, 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 do you think the impact could potentially be on your margin for next year? Do you think it can be neutral or positive?

Glenn Chamandy: Just, yeah, just some high level comments will be great. Well, look, I think just taking cotton in general, cotton, you know, has come down. But, as if you look at cotton, their overall cost, you know, it's around 25%. Right? So, as you go forward, I would say that there's other inflationary items like labor, transportation, energy cost. 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, energy going up, normally you would see price increases to support those inflationary costs.

Glenn Chamandy: 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 Chamandy: Okay, that's great. Second question, Glenn, maybe just on M&A. Just wondering, where does it rank in your capital allocation? I just asked 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. Well, look, I think we're 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 translating this into strong EPS, which will obviously give us a good return.

Glenn Chamandy: I think that's our priority. Some of the competitors that are in trouble today are weak. There's not a lot of value associated with them and their equipment, because we've got capacity available to us today. 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.

Glenn Chamandy: 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. Great to hear and welcome back.

Glenn Chamandy: 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, Jesse. 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. Thank you.

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Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: [music].

Operator: Thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention, thank you very much for your attention.