Q1 2025 Gildan Activewear Inc Earnings Call
So.
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to Golden Activewear 2025, Q1 earnings Conference call. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Jesse Hamm Senior Vice President head of Investor Relations and Global Communications.
Speaker Change: Please go ahead.
Speaker Change: Thank you Sarah.
Speaker Change: Good afternoon, everyone and thank you for joining US earlier today, we issued a press release announcing our results for the first quarter and maintaining our guidance for 2025. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements.
Speaker Change: These documents are expected to be filed with the Canadian Securities unregulated authorities and the U S Securities Commission today and are available on our corporate website. As a reminder, please note that we'll be holding our AGM tomorrow morning at 10 am Eastern time with more information available on the events page of our corporate website.
Speaker Change: Now joining me on the call today are Glenn <unk>, President and C. E O of Gilden, Luca, but really executive Vice President Chief Financial Officer, and Chuck Ward Executive Vice President Chief operating Officer.
Speaker Change: This afternoon, we'll take you through the results for the quarter and then a question and answer session will follow.
Speaker Change: Before we begin please take note that certain statements included in this conference call May constitute forward looking statements, which involve unknown unknown risks uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward looking statements.
Speaker Change: We refer you to the company's filings with the U S Securities and Exchange Commission and Canadian Securities regulatory authorities.
Speaker Change: During this call. We will also discuss certain non-GAAP financial measures reconciliations to the most directly comparable I FRS measures are provided in today's earnings release as well as our M. DNA.
Glenn: And now I'll turn it over to Glenn.
Glenn: Thank you Jesse and good afternoon everybody.
Jesse Hamm: As we highlighted in our press release.
Jesse Hamm: Can see that the Gil Dan sustainable growth strategy or G. S. G continues to drive profitable growth and we are very pleased with our progress and performance.
Jesse Hamm: We delivered first quarter sales of $712 million, which were up 2.3% versus last year, driven primarily by strong activewear sales growth of 9%.
Jesse Hamm: Our first quarter growth rate would have been mid single digits. When you exclude the phase out of our under armour business.
Jesse Hamm: Our adjusted earnings per share of 59 cents essentially flat year over year.
Jesse Hamm: Which includes a negative impact of an ethnic ment of global minimum tax and the positive impact of job credits.
Jesse Hamm: Despite the time.
Jesse Hamm: Okay.
Jesse Hamm: Rapidly evolving environment, we remain highly committed to continue executing in our G. S. T shroudie across its three pillars capacity innovation and ESG.
We continue to be on a path to deliver on our three year objectives for 2025 to 2027 period, which include net sales growth of mid single digit range.
Jesse Hamm: And adjusted EPS growth in the mid teen range.
Jesse Hamm: Now looking at the current year.
Jesse Hamm: With the recent tariff announcements and despite the challenging macroeconomic environment.
Jesse Hamm: We are maintaining our guidance for 'twenty to 'twenty five.
Jesse Hamm: Supported by many drivers, which should allow us to deliver on our objectives for the full year.
Jesse Hamm: As we mentioned in the past.
Jesse Hamm: Three quarters of our expected sales growth for 2025 is coming from new programs.
Jesse Hamm: And we remain very excited about our innovation pipeline such as our soft cotton technology, our plasma print our color blast just to name a few.
Jesse Hamm: Which is increasing our competitive advantage and allowing us to continue to drive market share gains.
Jesse Hamm: Luca will go over our 2025 guidance in more detail.
Speaker Change: But I'd like to address the current operating environment and the recent tariff announcements.
Speaker Change: Although the situation remains fluid with respect to terrorists the 10% reciprocal tariff now in effect on goods imported into the U S. For most countries I'd like to leave you with three points to keep in mind.
Speaker Change: First remember we are a global vertically integrated low cost manufacturer.
Speaker Change: Which we believe is our competitive advantage as it provides a great deal of flexibility and agility.
Speaker Change: Second we have a significant U S cotton and yarn content in our products.
Speaker Change: Which should allow for significant tariff savings since a 10% of our civil baseline tariff does not apply to the value of U S content imported products.
Speaker Change: Which puts us in a very strong competitive advantage.
Speaker Change: Finally, we had other levers, which we can use in this environment such as price.
Speaker Change: So in conclusion, we will continue to monitor the monitor the situation closely.
Speaker Change: We are cautiously optimistic as we look ahead.
Speaker Change: So we are well positioned to maneuver through a period of uncertainty thanks to our strong industry positioning our agility to operate in dynamic environments. However.
Speaker Change: However, while we continue to focus on the things that we can control I'd like to emphasize that regardless of the environment. We will continue to leverage our <unk> strategy with a focus on executing long term shareholder value.
Speaker Change: I look forward to answering your questions. After our formal remarks, and now I'd like to turn it over to Luca for financial review.
Speaker Change: Yeah.
Luca: Thank you Glenn and good afternoon, everyone.
Luca: Thank you for joining us today to discuss our first quarter results.
Luca: Let me start by saying that I'm very pleased to be here today and to have the opportunity to take you through our company's first quarter performance.
Speaker Change: Before we begin I'd like to take a brief moment and thank Glenn Rod and the rest of the management team for their continued support as I step into this role.
Speaker Change: Let me begin by covering the specifics of the quarter and then I will comment on our outlook and guidance for 2025.
Speaker Change: So let's begin with the quarter's results.
Speaker Change: We reported first quarter sales of $712 million up 2.3% year over year.
Speaker Change: If we exclude the impact of the phase out of under armour.
Speaker Change: Net sales for the quarter are up mid single digits.
Speaker Change: This was driven by a strong performance in activewear up 55 million or nine 3%.
Speaker Change: Driven by higher sales volumes, which reflected a favorable product mix in North America with a higher proportion of fleece and ring spun products.
Speaker Change: Although the quarter started slower than expected, we observed an improving trend as we move through the second half of February and into March.
Speaker Change: We continued to experience strong market response to our recently introduced products, which feature key innovations.
Speaker Change: Including our soft cotton technology.
Speaker Change: We also saw continued momentum with national account customers driven by our competitive positioning and the ongoing benefits from recent changes in the industry landscape.
Speaker Change: Looking at international markets sales decreased by 2% year over year, following two strong quarters of growth.
Speaker Change: Europe, our largest market performed well in the quarter, but was offset by softness in Asia, which persisted due to the macroeconomic backdrop and a tougher year over year comp in Latin America.
Speaker Change: Turning to hold share in underwear. This category was down 38% versus the prior year, mainly due to the phase out of our under armour business, along with unfavorable mix within this category.
Speaker Change: We also continued to see broader market softness in hosiery and underwear in the category in Q1, though we are encouraged to see some pickup in momentum for underwear in the current quarter.
Speaker Change: Turning our focus to margins for the quarter.
Speaker Change: Our gross margin was 31.2% a 90 basis point improvement over the prior year, primarily due to lower raw material costs.
Speaker Change: SG&A expenses decreased by $18 million to $87 million versus $105 million last year, which included significant proxy contest and leadership charges.
Speaker Change: Excluding these charges adjusted SG&A for the quarter was $86 million or 12, 1% of sales and essentially flat year over year.
Speaker Change: As the positive benefit of the jobs credit introduced by Barbados in the second quarter of 2024 was largely offset by higher variable compensation and higher distribution expenses.
Speaker Change: As we bring all these elements together.
Speaker Change: And after adjusting for restructuring and acquisition related items in both years, we generated adjusted operating income of $135 million or 19% of net sales up 100 basis points year over year, well ahead of guidance provided driven primarily by higher gross.
Speaker Change: <unk>.
Speaker Change: Moving on to taxes, the Companys adjust adjusted effective income tax rate for the quarter was 15% compared to three 6% last year, reflecting the enactment of global minimum tax in Canada, and Barbados in the second quarter of 2024 as previously communicated.
Speaker Change: <unk>.
Speaker Change: After reflecting higher net financial and income tax expenses and our lower outstanding share base, we reported GAAP diluted EPS of <unk> 56 cents in the first quarter up 19% versus the prior year.
Speaker Change: Whereas adjusted diluted EPS of <unk> 59 cents came in flat year over year after adjusting for the negative impact of proxy costs in 2024.
Speaker Change: Now turning to cash flow and balance sheet items.
Speaker Change: Cash flows used in operating activities totaled 143 $42 million compared to $27 million in the first quarter of 2024.
Speaker Change: Primarily due to an increase in noncash working capital.
Speaker Change: Largely in line with the company's expectations.
Speaker Change: After accounting for Capex of 23 million the company consumed approximately $166 million in free cash flow.
Speaker Change: We also returned 62 million to shareholders by repurchasing one 2 million shares in the quarter.
Speaker Change: Finally, we ended the quarter with net debt of about $1 8 billion and a leverage ratio of 2.2 times net debt to adjusted EBITDA.
Speaker Change: Well within our targeted range of one and a half to two and a half times.
Speaker Change: So overall and concluding on the results, we're very pleased with the quarter and we remain confident in our ability to deliver this continued financial performance despite a dynamic macroeconomic environment.
Speaker Change: Now turning to our strategy and outlook.
Speaker Change: As Glenn highlighted earlier, we are pleased with our execution and the progress made on the three pillars of our GST strategy first.
First our new manufacturing complex in Bangladesh continues to ramp up and is well on track.
Speaker Change: Moreover, on the innovation front, we continue to tap into the largest innovation pipeline in the company's history with more product launches to come in 2020 five as detailed by Glenn.
Speaker Change: And lastly, with regards to ESG, we remain fully on track with our next generation objectives.
Speaker Change: In this regard we are pleased to have been included in S. N. PS 20, twenty-five sustainability yearbook for the 13th consecutive year.
Speaker Change: Moreover building was also included in Cdp's leadership band for its 2020 for climate change disclosures for the fifth time.
Speaker Change: Highlighting our strong commitment to sustainable practices.
Speaker Change: With regards to our outlook, we continue to feel cautiously optimistic.
Speaker Change: As Glenn detailed we are committed to executing on our G. S T strategy.
Speaker Change: And despite an evolving and challenging macroeconomic backdrop.
Speaker Change: We believe that our low cost vertically integrated business model.
Speaker Change: Along with our industry positioning and our demonstrated agility and operating in dynamic environments underscore.
Speaker Change: Underscore our confidence and Reconfirming our guidance metrics for 2025.
Speaker Change: Which include.
Speaker Change: Revenue growth for the full year to be up mid single digits.
Speaker Change: Full year adjusted operating margin to increase approximately 50 basis points.
Speaker Change: Capex to come in at approximately 5% of sales.
Speaker Change: Adjusted diluted EPS to be in the range of $3.38 to $3.58 up between approximately 13% and 19% year over year.
Speaker Change: And free cash flow is expected to come in above $450 million.
Speaker Change: Further the outlook that I just laid out is underpinned by some key assumptions, including the following.
Speaker Change: Firstly based on the information available at this time, we have considered the impact of tariff measures in place on our operations as well as an industry demand in conjunction with mitigation initiatives that are available to us.
And our ability to leverage our flexible business model as a low cost vertically integrated manufacturer.
Speaker Change: We also continue to expect growth in key product categories, driven by recently introduced innovation Fei.
Speaker Change: The favorable impact from new program launches.
Speaker Change: And continued market share gains.
Speaker Change: We expect ongoing benefits from the jobs credit program that took effect in Barbados in 2024 and.
Speaker Change: And we anticipate that our effective tax rate for 2025, we will remain at a similar level to what we saw for the full year in 2024.
Speaker Change: Lastly, we expect to continue repurchasing shares under our N CIB program, given the strength of our balance sheet, our expected strong free cash flow and our leverage framework target of one and a half to two and a half times net debt to adjusted EBITDA.
Speaker Change: Finally, we have also provided guidance for our second quarter.
Speaker Change: With net sales expected to be up mid single digits year over year, and adjusted operating margin expected to be in a similar range as the second quarter of 2024, which included the significant positive benefit from the jobs credit introduced in May 2024 by Barbados, and which was.
Speaker Change: Retroactive to January 1st 2024.
We also expect our adjusted effective income tax rate in the second quarter of 2025 to be at a similar level to the full year 2024, adjusted effective income tax rate.
Speaker Change: In summary, while we are mindful of the uncertain economic environment.
Speaker Change: Our solid foundation.
Speaker Change: Our resilient low cost vertically integrated business model.
Speaker Change: And our operational and financial discipline provide us agility.
Speaker Change: Confidence and the foundation to navigate through this environment.
Jesse Hamm: Thank you and now I'll turn it over to Jesse.
Speaker Change: Thank you Luca This concludes our prepared remarks and now we'll begin taking your questions before me moving to the Q&A session as usual I'd like to remind you to limit your questions to two and we'll circle back for a second round if time permits Sarah you may begin the Q&A session.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If he would like to withdraw your question simply press Star. One again. Please ensure you are not on speaker phone and that your phone is not on mute when called upon thank you.
Speaker Change: Your first question comes from Paul Lewis with Citigroup. Your line is open.
Paul Lewis: Hey, Thanks, guys. Two questions. One can you talk about Pos trends in each of your major channels.
Paul Lewis: Are you seeing any signs of Destocking amongst major customers and then second can you talk about what specific tariff pressure you baked into guidance from a cost perspective, and what sort of mitigation you build it on the pricing side. Thanks.
Paul Lewis: Okay, well chuckles startup of the peers.
Paul Lewis: Yeah, Hi, Paul.
Paul Lewis: Yes.
Speaker Change: <unk> mentioned in his comments when we had a very strong quarter from.
Speaker Change: From an export perspective that will really happy with where we landed there we continue to gain share in a market that was down low to mid single digits that we gained share capitalizing all the same drivers that we talked about the last few quarters, our innovation guarantees and pleased with ourselves caught in technology, our comfort colors American apparel were.
Speaker Change: Both of them double digits again, as well and then Luca mentioned and obviously, we had a strong momentum in national accounts.
Speaker Change: One we had wraparound effect of business from that we picked up from Delta and closure last year, but also we started to shift some of the new programs that we've been talking about so again, we performed better than the market and where we're happy with <unk>.
Speaker Change: And what we saw.
Speaker Change: We did mention also later, where we did see.
We were down in innerwear, but largely driven by filing.
Speaker Change: And as far as the inventory in the channel. It's a mitten good bounds and we haven't seen any sign of Destocking and Luca.
Speaker Change: Now with respect to the guidance and the assumptions with respect to tariffs I think it's important too to understand that when we gave we maintained our guidance. Our guidance is based on elements that we can control. What we've done is we've taken the impact of the current measures that are in place and we've factored in how that impacts.
Our operations, we factored in what that means in terms of demand and we factored in those mitigating factors that you would look to that you alluded to so again.
Speaker Change: In terms of our guidance for the full year revenue was up mid single digits and if you Peel back the onion and you take a look at the market assumption, we're a bit conservative there and were saying look the market is going to be flat to down low single digit based on the uncertainty that's in the market and the impacts of tariffs more broadly.
Speaker Change: With respect to tariffs I think the headline that you have to remember is that with respect to Gil Dan.
Speaker Change: Tariffs impact before any mitigation strategies is well below the 10%. So the headline number that you see in the AR in the overall environment and the reason for that is because we benefit from the amount of U S caught the content that is in our product. So we know that U S inputs make up a meaningful percentage of our cost of sales.
Speaker Change: And so we've baked that into our guidance assumptions and.
Speaker Change: And in terms of the mitigation factors, we've taken a little bit of price and that assumption is in there and we also take a look at let's not forget we're the low cost manufacturer and we have flexibility within our supply chain. So there's elements that we've already put in place within our supply chain using that flexibility to mitigate some of those factors. So in summary, we're very comfortable with.
Speaker Change: Confidence in the guidance that we've maintained with giving you a little bit of the assumptions behind the curtain and it takes into account the measures that are in place today.
Speaker Change: Okay.
Speaker Change: Thank you good luck.
Speaker Change: Yeah.
Speaker Change: The next question comes from Brian Morrison with TD Cowen Your line is open.
Brian Morrison: Thanks, very much evening, Glenn and welcome Luka.
Speaker Change: First question. The MD&A, you know benefits from national accounts due to changes in the industry landscape I just want make sure I understand this it sounds like competitive weakness new product success and I assume vertical integration widening your cost advantage can you confirm that and then the question is is this leading to near shoring and if so are you seeing further income means including G. L. B.
Well the change in the competitive landscape on a year over year basis is really the the.
Speaker Change: Some of the competitors that are left to channel.
Speaker Change: You know Delta who closed down last year.
Speaker Change: Other competitors have vacated the channel and a combination of as well as potentially nearshoring another activities coming back to you.
Speaker Change: To this hemisphere.
Speaker Change: That you know things are changing now rapidly, particularly with the you know with the tariffs.
Speaker Change: The one thing maybe.
Speaker Change: From a near shoring perspective, when you look at the I think imports into United States, maybe to put things in perspective.
Speaker Change: China represents around over 20% of the products being sold into the United States today.
Speaker Change: And obviously you know with their tariff levels. That's that's.
Speaker Change: That's prohibitive for for them to supply products into the market.
Speaker Change: And then if you take tea AZN of type countries, which is Vietnam, Indonesia, Cambodia, Thailand, Philippines Miramar, those are also countries, which.
Speaker Change: We still have to negotiate their tariff levels that were above where you know where that had high tariff levels.
Speaker Change: The first go around they represent another 31% so I would say that when you look at the.
Speaker Change: The overall structure, particularly in retail because you have a lot more Asian type product in the retail servicing retail markets and he was in the wholesale I think we're going to see a you know a lot of.
Speaker Change: People thinking about their supply chain and that could be a positive impact for us on people looking to a niche near shore.
Speaker Change: And maybe just a little add one last thing on that is that you know the CAFTA region only represents around 9% of total apparel in the United States. So there's I think we think that there's a lot of opportunity with this with the with the way the landscape is changing and our competitive positioning, particularly on how we're positioned.
Speaker Change: Globally today.
Speaker Change: That's a that's great. My second question is I noticed you left out Bangladesh in your comment there from a strategy perspective, Bangladesh is being built is a ring spun hub for the U S. The tariff was 10% now and I understand you sourced cotton and yarn from the U S and your agile, but how do you adjust to meet growth if Bangladesh tariffs are reinstated.
Speaker Change: At that higher rate is there capacity in Honduras, how should we think about this.
Speaker Change: Well first of all we've got a lot of flexibility in our supply chain number one which is the first thing you have to understand is how we can maneuver things so.
But I would say to you is look firstly from Bangladesh, 50% of the you know it was a 500 million dollar and were running at full because remember the things running full I mean today, just put things in perspective, and a love of the 500 million, we're running out of the plant today.
Speaker Change: 50% of that servicing international markets in Canada, which we still provide product into these countries. The other 50% is producing ring spun products, which are coming back to the U S. Now to put things in perspective, what we said is that the cost once the factory is fully ramped up will have a 25% reduction in cost.
Speaker Change: Relative to our Central American cost. So if you look at the 10% minus the inputs of U S component.
Speaker Change: That's still not moving the needle and still very viable for us to produce goods in Bangladesh.
Speaker Change: Particularly in the run spring spring category.
Speaker Change: In the same breath I would say to you is that we have the capabilities of maneuvering within our supply chain, if tariffs do come back at a higher rate.
Speaker Change: Bangladesh to answer your question before he represents around 9% of the apparel going back into the U S. Just for for that perspective and at the same time, one thing I would tell you is that we're actually in the process now of looking we're running our capacity today is running around 90%. So we do have available capacity most of our capacity.
Speaker Change: That's available is in Central America, because of the way, we've optimized our capacity and we ramped up Bangladesh to 100% of it so utilization, but within our footprint in Central America. We're also looking to actually increase the capacity as well.
Speaker Change: Because we think that theres going to be a lot of opportunity as we go forward, particularly with the way the tariffs are going to evolving and the fact is is that we are I think we're going to be at a cost advantage relative to other geographical areas. So all things put in place with our supplier.
Speaker Change: Chain I think we got in a very effective.
Speaker Change: Opportunity here to.
Speaker Change: Take advantage of the situation.
Thank you very much.
Speaker Change: The next question comes from Chris Li with D. J. Your line is open.
Chris Li: Oh, Hi, good afternoon, everyone. My first question is I just wanted to confirm just your answer to an earlier question about what's embedded in your guidance does it incorporate more conservative outlook in terms of industry demand I think it was mentioned is now flat to down low single digits.
Chris Li: Last quarter. So have you had any kind of tweak here.
Chris Li: Our outlook to reflect low single low single digit for industry demand.
Chris Li: Yes. Thank you for your question, Chris Yeah, absolutely. So look when you take a look at the guidance for the full year revenue up mid single digits. Okay. So the first element is the market. So we did add that element of conservatism and the market is now the assumption is that it will be flat to down low single digit. But then you have to go one step further and we have to say okay.
Chris Li: We're in a great position to take share and we have the assumption that we're going to continue to take share on our core business and then let's remember that around 75% of our growth going forward is based on new programs.
Chris Li: And those new programs there is meaningful in a T shirt and fleece programs in our national account.
Chris Li: Business as well as the champion license right in our print where channel. So those are the elements you have to keep in mind and definitely what we did factor in some of that conservatism when it comes to the markets the market assumption.
Speaker Change: Got it Okay and my follow up question is that in terms of that 75% coming from new programs.
Chris Li: How much.
Chris Li: Visibility do you have how secure are they are they dependent on market conditions I E.
Chris Li: Want me to take a sort of a downturn.
Chris Li: Those programs at risk and you say or would you be compensated somehow by by by the customers like how much protection do you have on those.
Chris Li: Hello, Chris.
Chris Li: So yeah, we were gonna launches programs, we look at what the.
Chris Li: The opportunity is in the P O S or the point of sale of these programs once they get launched so lets say you take a program you put in retail. These are all replenishment no fashion risk type programs. So.
Chris Li: If the market was slightly down yeah, maybe we can lose a couple of percentage points on the overall program and the anticipation, which we factored into.
Chris Li: Our forecast.
Chris Li: But overall I would say to you that they're pretty secure because you know we're taking space the spaces quantified into you know sales per square foot and that spirit.
Chris Li: Sales per square foot should yield the <unk>.
Chris Li: Three quarters of our sales guidance, we laid out.
Chris Li:
Speaker Change: To answer your question, Okay, perfect, Thanks, and best of luck.
Speaker Change: The next question comes from Luke Hannan with Canaccord Genuity. Your line is open.
Luke Hannan: Yeah. Thanks, Good evening, good evening, everyone. Glenn you talked about some of the innovation that's going to continue within 2025 I'm. Just curious if you can get a little bit more granularity on it specifically if it's going to be concentrated if at all across any of your main channels being basic spring spun or fleece, and then secondly, what about the.
Luke Hannan: Cadence of that as well and you know is it gonna be filling white space within the portfolio, there's going to be more about revamping some of the existing skus that you sell.
Luke Hannan: I'll start off by saying that look at you know what we did in 'twenty 'twenty.
Luke Hannan: For after two years of a lot of work as we really revamped almost all of our product lines, our basics, our fleece I mean, basically we touched almost every product line with our soft cotton technology.
Luke Hannan: But our fleece basically with the M. D S yarn et cetera. So we also changed the way that the fabric is constructed it's softer at pills less so there's all kinds of different things that we've done through the innovation of our yarn spinning et cetera et cetera, but we also have a pipeline of other.
Luke Hannan: Product categories, and you know Chuck maybe you wanted to just.
Chuck: Yeah, sure look and as Glenn said, we've touched a lot of product if not all of the product.
Chuck: Over the last few years, but as he was talking we also have something called plasma print technology, that's that's coming.
Chuck: Align that'll come on later this year early next year that.
Chuck: That really improves the print ability from a direct to garment printing perspective, we did show a showcase at the ISS show in long Beach earlier, this year and the reception to it has been outstanding and so we're going to continue to innovate across all of our product lines.
Chuck: We have some additional programs in.
Chuck: Coming out in innerwear, as well, where we're moving at a different fabrications that sort of thing, where we're picking up space and so we're really taking the innovation throughout our product and picking up new programs across all categories and we also have innovation and you know quite a few new products that we're offering in our comfort colors brand as well so.
Chuck: We're constantly we just got a whole pipeline of innovation, that's going to continue to rollout through 2025 and enter 2026.
Speaker Change: That's great. Thanks, and then as a follow up to the tariff conversation you mentioned that even the product that youre, creating in Bangladesh that does use U S. Cotton I believe you do most of your yarn spinning within the U S. But in Bangladesh you to use third party spinners you can correct me if I'm wrong, but if that is the case do you envision setting up more.
Chuck: Yarn spinning facilities of your own.
Speaker Change: To support your operations in Bangladesh.
Speaker Change: Well, we have we have a vested interest in all of our yarn spinning facilities in Bangladesh.
Speaker Change: What we use U S. Cotton, so we shipped a cotton we purchase a cartoon with ship at the Bangladesh and you know it gets spun into yarn and produce so we.
Speaker Change: We do have.
Speaker Change: Cotton is a large component of our total cost structure, particularly on your basic T shirts. So.
It sits it's important part of our of our ESG strategies and let alone you know our whole manufacturing process. So.
Speaker Change: In the states you know, obviously, we have a little bit more U S content in the U S because of the yarn spinning.
In this hemisphere, but we're well positioned.
Speaker Change: I think from.
Speaker Change: From a tariff perspective.
Speaker Change: You can do the math and you know theres, a cotton and spending as a large proponent of our of our cost structure.
Speaker Change: Okay. Thank you very much.
Speaker Change: The next question comes from Stephen Macleod with BMO capital markets. Your line is open.
Speaker Change: Thank you good evening everyone.
Speaker Change: Lots of great color. So far so thank you, but I just had two follow up questions.
Speaker Change: One is I'm just wondering if you can provide any color on what you've seen on the.
Speaker Change: Quarter second quarter to date basis with respect to.
Speaker Change: The North American distributor channel in terms of sales trends and then secondly, you know.
Speaker Change: Glenn you talked a little bit about the opportunities to increase capacity in Central America.
Speaker Change: Which I think is particularly interesting. So im just curious if you could if you can provide just even a little bit of color around you know would that be potentially something extension was in your current anti.
19 facility or is there something something new that you're potentially contemplating.
Speaker Change: Well I would tell you look at like like everything else, we have a lot of flexibility in our system.
Speaker Change: And we're continuing to look look like like everything else. When we built our plants, we rebuild them in and we are capable of expanding them quickly.
Speaker Change: We always give ourselves a little bit of.
Speaker Change: The room to maneuver. So what our objective is is that you know we don't want to spend a lot of capital to expand and we need to expand quickly. So.
Most likely working with existing structure basically is the best way for us to do it.
Speaker Change: It's going to maximize our cost and efficiency keeps us within our capex range and allow us to maximize output. So.
Speaker Change: I would say that we're very optimistic that we can increase our capacity in this hemisphere.
Speaker Change: And.
Speaker Change: It's part of what we think is.
Speaker Change: A big opportunity now one of the things I would say to you is that you know the.
Speaker Change: As I mentioned earlier in terms of the.
Speaker Change: The imports from Asia.
Speaker Change: Where are we seeing.
Speaker Change: Customers coming in looking for you know Phil.
Speaker Change: Filling filling shelves really agenda today I mean, there's a there's definitely going to be we think potentially a shortage of product because it's prohibited to bring product in from China.
Speaker Change: So we were in a we think it would need to take advantage of it.
Speaker Change: And we're cautiously optimistic so we know we can put.
Speaker Change: And the line our capacity without really sticking your neck out, but giving us all the flexibility that as we go forward if things materialize and we have opportunity.
Speaker Change: We can take advantage of it.
Speaker Change: And I would say to you on another front is that we have a lot of I would say momentum as we already move into 2020 six in terms of building.
Speaker Change: New business.
Speaker Change: And I think that that's also because it takes time to do these things, but we're starting to see retailers.
Speaker Change: Oh allocate or work with our team.
Speaker Change: And we know we're pretty excited about that too. So our pipeline is strong for 2026 and I think that you know, we even have a chance to do some.
Speaker Change: Some fill in for for this year and that's really why we're excited and really focusing on expanding our capacity.
Speaker Change: And on the on the quarter to date of Q2 P. O S front end business. Brendan you know, we've kind of seen the trend as we talked about last few quarters, where.
Speaker Change: Quarter would start out a little slower and then accelerate but we're actually seeing so in January we saw it start off a little slower impacts of weather fires different things happening it improves sequentially in February it improved again in March well. The good news is it's gone ahead and improving again in April so we're continuing to see consistent improvement.
Speaker Change: Through April so we feel good about how the quarter has started out.
Speaker Change: Yeah, and I would say just to end off on the on the second quarter is that we've put the guidance right that our revenue was up mid single digits and we feel comfortable with the outlook that we've laid out we remain cautiously optimistic but for the second quarter you should see some of the same trends as we finished the first quarter right, where there is market share gains across the channels and.
Speaker Change: Key product categories, and we start to see some of the impact of the new program. So our second quarter revenue up mid single digit and we're quite pleased it's very it's still very early in the quarter, but we're quite pleased with what we see.
Speaker Change: Yeah, Okay. That's great guys. Thanks, so much for the color.
Speaker Change: The next question comes from Paul Attorney with Barclays. Your line is open.
Paul Attorney: Hey, good evening, thanks for taking my questions.
Paul Attorney: Can you talk about what youre seeing in terms of pricing in the market prices in your key categories already started to rise for tariff costs and my second question is given your relative advantage, how do you balance accelerating the potential market share gains versus taking some benefit on margin. Thank you.
Paul Attorney: Thank you Paul on the on the pricing front I mean, we've seen pricing remain fairly stable through Q1 and into early Q2. So.
Paul Attorney: You know not a lot of price changes at that point, we have taken selective minimal price offs, so far to offset inflation and some of the tariffs some of that will begin taking effect later in Q2.
Paul Attorney: But again, we're not seeing that as the both Glenn and Luca mentioned with our ability with our vertically integrated supply chain. Our flexibility. We think that'll continue to be selective minimal price offsetting that tariff and not a large price changes as you may have to see from other regions or other suppliers.
Paul Attorney: And I guess just to round out the question from the margin perspective for the for the full year, we're guiding to an improvement in the operating margin by 50 basis points versus 2024, and if you boil it down to the levers that we need in order to achieve the expected operating margins, which underpin our guidance. The first is fully levered.
Paul Attorney: King our Greenfield project in Bangladesh, right and that flow through in cost of sales.
Paul Attorney: The second is improving the utilization of the central American capacity produce more fleece high growth products right.
Paul Attorney: And the third is benefiting from the yarn modernization investments and other strategic initiatives that optimize our supply chain and finally, no successfully navigate the tariffs situation with the levers that are available to us which is we went over but the flexibility in our in our operations as well as a little bit of price.
Paul Attorney: Okay. Thank you very much.
Speaker Change: The next question comes from the South Street here with National Bank. Your line is open.
Hi, Thanks for taking my questions with respect to the industry trend in Q1, when you talked about the declines was that in sales or units.
Speaker Change: We're speaking mainly in units from a unit perspective, but I think sales perspective tracks the same.
Speaker Change: And with respect to gilden when you what was your units are what were your units year over year.
Speaker Change: In Q1 for prices neutral our prices neutral in our activewear sales were up 9% basically driven by you.
Speaker Change: You know the more innovation.
Speaker Change: Basically our soft style technology, our fleece, our comfort colors are a a basically.
Speaker Change: We had a I think we had a good quarter, we're taking share.
Speaker Change: We have a little bit of revenue from our new programs.
Speaker Change: But basically all in all the you know there was no real price moving in in the quarter.
Speaker Change: Right, but given that mix was favorable.
Speaker Change: Presumably units was something less than nine that stuff still positive mix with mix was slightly the same I don't think mix was.
Speaker Change: Well I think again, if we take a look you have start with the market assumption right or what the how.
Speaker Change: The market performed the market was was down low to mid single digit in the first quarter and for the reasons that Glenn went over we were taking share and we saw strength in our U S. A in our national accounts business are the categories that are touched by innovation like Glen mentioned comfort colors American apparel those were up.
Speaker Change: Double digits, so that those really underpin the 9% growth in activewear and we're I mean, we're quite pleased with that performance. That's good performance and in our quarter than in the first quarter is usually the lowest quarter and we have to remember that now in the underwear and hosiery side, that's where we did have a lower a lower sales, 38%, but that's because of the phasing.
Speaker Change: Out of the under our under armour business.
Speaker Change: Okay, and when do you anniversary the introduction of the soft cotton technology.
Speaker Change: The soft contact knowledgeable, it's hard to say, though because you know why because it's.
Speaker Change: It's it takes a long time for it to constantly get out to the marketplace. So like if you look at last year. We were we started being flat in sales than we were a slight Q2, we were flattish slightly up one and then as we move through the quarters It got a little bit better.
Speaker Change: So it's hard to say to be perfectly honest with you, but I would say to you that it's resonating with end users.
Speaker Change: It's a product of choice and I would say, particularly when you look in a market where inflation is a factor.
Speaker Change: People look to trade down in our soft cotton technology is a great trade on product.
Speaker Change: And you know.
Speaker Change: Maybe one other point that we haven't cross a day is that you know, but people don't realize that.
Speaker Change: The wholesale the wholesale cost on our costs, what our customers are selling to end users our basic bread and butter T shirt is selling for $2.30. So there's two important points here one.
Speaker Change: Is that even if theres a slight price increase.
Speaker Change: On $2.30, it's not going to even move the needle because by the time our products get sold to end users and ended up at either a souvenir store or somewhere else I mean, they are selling for between 20 and $25. So that that deal a couple of cents a share. It is never going to move the needle and secondly, because the price because of our price point is.
Speaker Change: So you don't so favorable.
Speaker Change: We think that we have a good chance and trade down etcetera, etcetera. So I think we're well positioned overall to continue our momentum.
Speaker Change: And continue taking share and we're better positioned than anybody else in the market, which is I think there is an important part because not everybody can offset the tariff cost like we do because of the you know.
Speaker Change: Vertically integration, our low cost manufacturing, our flexibility or agility and everything else that we have working for go then and we're pretty excited about the opportunity.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Martin Landry with Stifel. Your line is open.
Martin Landry: Hi, Good evening, everyone. My question is on your Q2 guidance for margins or operating margins, you're guiding for operating margins to be stable year over year last year. It was your highest quarter I think at 22, 7%. So.
Martin Landry: This would be in last year, you had the Barbados track tax credit for six months.
Martin Landry: That was a significant.
Martin Landry: Help so so this year you're going to have.
Martin Landry: The highest gross operating margin you've had in a long time.
Martin Landry: So the question is how sustainable and is that margin level and.
Martin Landry: Where could margins go next and in the long term.
Martin Landry: Is there upside to your 2025 level or are you maxed out.
Martin Landry: Well. Thank you for your question Marty I think when you take a look at the operating margin and you take a look at the evolution of the of the business right in that like you said last year. The the Mark the operating margin was 22.7% we guided to a similar operating margin for the second quarter of this year you are correct that that is.
Martin Landry: Last year included the positive benefit of the jobs credits. It was introduced in may by by Barbados. It was retroactive to the first quarter and in our disclosures you couldn't you you see that that there was there was a $17 million of that benefit now so that we have to take into account, but nonetheless. It is like you say, it's a very it's a strong operating margin.
Martin Landry: And we're comfortable with the with the guidance that we've given for the second quarter.
Martin Landry: Given the trends that you see exiting Q1 right. When you take a look at where the growth comes from coming from categories, such as comfort colors right American apparel.
Martin Landry: It fleece and so these are categories that they really do benefit the the margin and then with respect to the future view, we've given the guidance for the full year rate 50 basis points versus 2024.
Martin Landry: And then again, if you Peel back the onion there when you look at the assumptions we are cautiously optimistic but at the same time, we're comfortable with the guidance that we gave so similar to last year in Q2 at 50 basis points expansion for the full year, that's the way I would think about it.
Speaker Change: Okay, that's helpful and.
Speaker Change: Hey, Glenn just coming back to the dynamic at play here. It seems like your competitive advantage is improving.
Speaker Change: It seems like your you can increase your capacity utilization.
Speaker Change: I mean, I would assume that gives you a bit more flexibility to pick and choose.
Speaker Change: You know, which programming and you want to play in and maybe potentially improve your margin is that a fair a fair assessment.
Speaker Change: Well I would say to you is that obviously that's less that's our goal was always who returned.
Speaker Change: Focus on shareholder value so.
Speaker Change: I'd say, yes that would be the answer but to look at their strategic opportunities for US right. Now we're going to continue to focus on the long term for the business and making sure that we work with our customers.
Speaker Change: For the long term.
And I think that's that's really going to be the most important.
Speaker Change: [noise] decision that will drive our decision making.
Speaker Change: Okay. Thank you and best of luck.
Speaker Change: The next question comes from Mark Petrie with CIBC. Your line is open.
Mark Petrie: Yeah. Good afternoon. Thanks.
Thanks for the question just a couple of follow ups I guess first with regards to price have you observed any price activity or price increases from your competitors.
Mark Petrie: We've seen we have seen selective pricing out by some competitors as well. So I think we're going to continue to see that dynamic play out through the rest of this quarter. I think it was early days take took some people with time to assess our supply chain I think we could do so quickly due to our vertically integrated manufacturer.
Mark Petrie: During our ability to control what we do and so we've moved accordingly, but I think we'll continue to see that happen over the coming weeks and months.
Speaker Change: And would you characterize your moves as being roughly in line with the competitive set or lagging or leading.
Speaker Change: Well, it's early days still so I would say to you that look at I mean, we have I think is an advantage.
Speaker Change: Because of our U S content or both are caught in our yarn versus some of the competitors in the market. So we'll see what happens I mean, where are those they may just sacrificed margin, we'll see but I think we've.
Speaker Change: We're being cautious on how we renew version in the market on price and we're going to leverage.
Speaker Change: Our infrastructure and our low cost manufacturing.
Speaker Change: Yeah understood. Okay. Thanks, and then just on the cash flow.
Speaker Change: Working capital is that just sort of typical seasonality or is there something else there and we should sort of expect it to continue to to normalize through the balance of the year and then also related to that I suppose.
Speaker Change: Have a slower pace on buybacks for you in Q1 versus.
Speaker Change: You know, obviously being more aggressive on the re leveraging in in 2024, but how should we think about the pace of buybacks through the balance of the year I'm, assuming the 5% to 6% sort of general target is still the still the right number.
Speaker Change: Yes, Mark. Thank you for your question. So for the first part in terms of the working capital look the working capitals under control right. So like heading into season, it's normal that you get working capital as a percentage of sales will be higher but in terms of our projections and where really our target does that would moderate back to something around let's say <unk> 37.
Speaker Change: Percent of sales towards the end of the year and the components of that will in terms of the receivables and the inventory will both moderate so we feel very comfortable there.
Speaker Change: We're also well positioned when you look at working capital at this juncture working capital is a good thing because don't forget number one purchasing criteria for our customers as availability. So that comes with working capital cost upfront and then you monetize so by the end of the year normalized back to 37% and in terms of the return of capital to share to shareholders.
Speaker Change: That's of utmost importance for us we've laid that out in our capital allocation strategy. Our first quarter 62 million, one 2 million shares and the way to think about our NCI V program is that we will continue to buy back shares on a sustained cadence and 5% to 6% over the course of the year is the way to think about that and read.
Speaker Change: Important to us is that as we provide capital back to shareholders and as we meet our objectives, we have to maintain a healthy balance sheet and our leverage framework of one and a half to two and a half times is what we're comfortable with and so you'll see that also be monitored in conjunction with the way we buy back stock. So I think.
Speaker Change: That should answer both your questions.
Speaker Change: Yeah, Yeah. It does thank you and maybe just one quick one I think I'm hearing you say that the account wins for 2025 were maybe slightly impact slightly in place for Q1, but obviously getting much more material throughout the year is that right.
Speaker Change: Yes, that's right I mean, we feel most of those will continue through the back half and you'll see you'll see it accelerate there and also as Glenn mentioned.
Speaker Change: We also have line of sight of new programs into 2026 that'll probably that we think will also give us the same level of sustained growth as we look through and support our mid single digit growth going into 'twenty 'twenty six.
Speaker Change: Yeah understood. Okay. Thanks for all the comments all the best.
Thank you.
Speaker Change: This concludes the question and answer session.
Speaker Change: Kaka Jesse Hamm for closing remarks.
Speaker Change: Thanks, Sarah 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 evening.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
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