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Edited Transcript of GIL.TO earnings conference call or presentation 21-Feb-19 1:30pm GMT

Q4 2018 Gildan Activewear Inc Earnings Call

MONTREAL Feb 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Gildan Activewear Inc earnings conference call or presentation Thursday, February 21, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Glenn J. Chamandy

Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director

* Rhodri J. Harries

Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer

* Sophie Argiriou

Gildan Activewear Inc. - VP of Investor Communications

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Conference Call Participants

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* Alexander Diakun

Canaccord Genuity Limited, Research Division - Associate

* Brian Morrison

TD Securities Equity Research - Research Analyst

* Heather Nicole Balsky

BofA Merrill Lynch, Research Division - VP

* James Vincent Duffy

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Keith Howlett

Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst

* Kenric Saen Tyghe

Raymond James Ltd., Research Division - SVP

* Mark Robert Petrie

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst

* Martin Landry

GMP Securities L.P., Research Division - Director and Equity Research Analyst

* Omar Regis Saad

Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Softlines, Luxury & Department Stores Team

* Sabahat Khan

RBC Capital Markets, LLC, Research Division - Analyst

* Stephen MacLeod

BMO Capital Markets Equity Research - Analyst

* Vishal Shreedhar

National Bank Financial, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to the Q4 2018 Gildan Activewear Earnings Conference Call. My name is John, and I'll be your operator for today's call. (Operator Instructions) Please note, the conference is being recorded.

And I will now turn the call over to Sophie Argiriou.

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Sophie Argiriou, Gildan Activewear Inc. - VP of Investor Communications [2]

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Thank you, John. Good morning, and thank you for joining us this. This morning, we issued a press release announcing our earnings results for the fourth quarter and full year 2018. The company's management's discussion and analysis and consolidated financial statements are expected to be filed with the Canadian securities and regulatory authorities and the U.S. Securities Commission tomorrow, Friday, the 22nd of February, and will be available on our website. With me on the call today, we have Glenn Chamandy, our President and Chief Executive Officer; and Rhod Harries, our Executive Vice President and Chief Financial and Administrative Officer. Shortly, Rhod will be providing commentary on our results and our business outlook for 2019, after which, a Q&A session will follow.

Today's conference call includes certain statements that may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve unknown and known risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S. Securities and Exchange Commission and Canadian securities regulatory authorities that may affect the company's future results.

And with that, I'll turn the call over to Rhod.

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [3]

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Good morning, and thanks for joining the call. We were pleased with the results we announced today. We delivered a strong Q4 with double digit revenue and EPS growth and very strong free cash flow. We generated sales growth of 14%, adjusted EPS growth of 39% over last year and more than $250 million in free cash flow in the quarter.

For the full year, total sales grew by 5.7%, adjusted EPS of $1.86 was up 8.1% and free cash flow for 2018 totaled $429 million. During the year, we were pleased to return more than $460 million to our shareholders in the form of dividends and share buybacks. And today, we also announced another 20% increase in our dividend, the seventh annual increase on a consecutive basis, and we renewed our share repurchase program to buy back another 5% of our outstanding stock. So overall, a strong performance in 2018 despite unanticipated headwinds, be it weather impacts or other disruptions to our supply chain.

We were able to navigate through these challenges while driving strong revenue growth, absorbing unanticipated cost pressures and delivering on our objectives. We were able to execute on initiatives related to our organizational realignment to better leverage our go-to-market strategy and drive increased operational efficiencies across the organization. We drove strong SG&A leverage in the year, beating our targets despite investments in enhancing our distribution and e-commerce capabilities during the first half of 2018.

In the fourth quarter alone, SG&A expenses as a percentage of sales were down 300 basis points, translating to 100 basis point improvement for the full year versus 2017. And in the fourth quarter, we also started to take actions on the manufacturing side, which I'll cover later in my remarks.

Finally, before moving to the details for the quarter, I just want to quickly highlight performance against the key metric which we follow closely inside Gildan, return on net assets, or as we call it, RONA.

This is a metric that our management team uses as its North Star, which helps to guide our business decisions, how we use capital and how we operate to create long-term value. And we're seeing our focus pay off, and our results underscore the progress we are making over time. Our RONA continues on an upward trajectory. In 2018, we generated RONA of 15.6%, which was up 70 basis points from 14.9% in 2017, and up 160 basis points from 2 years ago, continuing to position us well to deliver strong shareholder value over the long term.

Now let me take you through the details of our results for the fourth quarter and then onto our outlook for 2019.

We generated sales of $743 million in the fourth quarter, up 13.6% over last year, driven by strong performance in activewear where sales in the quarter totaled $569 million and were up 22% over the prior year quarter. The strong performance in activewear came from volume growth, a richer product mix and higher net selling prices. We saw higher activewear volumes in all markets, both with imprintable products and products sold within the retail channel into our global lifestyle brand customers. Sales in the retail channel included private label activewear.

The strong momentum we've seen internationally continued into the fourth quarter, with activewear volumes up close to 30%. Our sales in the hosiery and underwear category, as expected, were down about $15 million for the quarter, mainly due to lower Gildan-branded sock sales and lower replenishment levels of Gildan-branded underwear in the mass channel. Partly offsetting these impacts was the rollout of one of our new private label underwear programs, which shipped in the fourth quarter, as well continued strong growth of e-commerce sales of Gildan-branded underwear. More broadly, for e-commerce, our sales in the quarter were up strong double digits.

Moving onto margins. Overall, our operating margin performance for the quarter was strong, with operating margins of 13.5%, up 230 basis points from the fourth quarter last year. Although gross margin of 26.3% in the quarter came in lower than we expected and was down 80 basis points compared to last year, the pressure on gross margin was more than offset by the stronger leverage we gained in SG&A. The decrease in gross margin over last year was due to expected higher raw material and other input costs, activewear growth ramp-up costs and the flow through of supply chain disruption costs we saw earlier in the year. These impacts offset the benefit of higher net selling prices and product mix.

Although product mix was strong in the quarter, adding about 140 basis points to gross margin over last year, it came in about 100 basis points lighter than we expected.

SG&A expenses were down 300 basis points to 12.9% as a percentage of sales from last year's levels as anticipated cost reductions from our organizational consolidation came in better than planned. For the second half of 2018, SG&A expenses as a percentage of sales reflected a 220 basis point improvement, well above the 100 to 200 basis points that we were targeting and guided to for the second half of the year.

Overall, we were extremely pleased with the progress we made in 2018 on our organization realignment. During 2018, we combined 2 separate business divisions into 1 front-ended organization, and we streamlined various administrative, marketing and merchandising functions. We reconfigured our warehouse distribution network. We opened 2 new distribution centers, and we consolidated a number of smaller warehouses, some of which we -- were acquired as part of past business acquisitions. And we also made significant progress with common IT platform across our distribution system. So strong progress overall, which we plan to continue to build on in 2019.

So summing up our earnings performance. We delivered adjusted diluted EPS of $0.43 for the fourth quarter, in line with our guidance and up 39% over last year, driven by the increase in adjusted operating income and the benefit of a lower share count, offset in part by higher financial and income tax expenses.

Moving to free cash flow. As I said at the beginning of my remarks, Q4 was a strong quarter for cash generation. Free cash flow totaled $252 million, up $87 million from last year due to higher earnings, more favorable working capital changes and slightly lower capital expenditures for the quarter compared to Q4 last year. This brought our total free cash flow for the full year to $429 million, beating our latest guidance of free cash flow of $400 million to $425 million.

Total capital expenditures for the fourth quarter were $26 million and $125 million for the full year, in line with guidance. The expenditures were for textile capacity, sewing expansion, distribution and IT investments.

Under our share repurchase program, we bought back approximately 665,000 shares in the fourth quarter. For the full year, we repurchased a total of approximately 12.6 million shares for a total cost of $368 million. And our board just approved the renewal of the share repurchase program to buy back another 5% of our current share base.

At the end of the year, our net debt stood at $622 million or 1x adjusted EBITDA for 2018, in line with our target leverage framework.

Turning to our outlook for 2019. We're initiating guidance of adjusted diluted EPS in the range of $2 to $2.10 compared to $1.86 in 2018, which at the midpoint of our guidance, represents adjusted diluted EPS growth of 10% over 2018.

Our earnings guidance assumes the benefit of sales growth in the mid-single-digit range, cost benefits from supply chain initiatives, SG&A leverage and the impact of share repurchases. We expect to generate higher sales by driving increased unit sales in our growth areas, including fashion basics; international markets; global lifestyle brands; and with our new private label programs, particularly in underwear. Offsetting some of the benefit of these factors are projected lower activewear basics and sock sales, and the negative impact from foreign exchange.

Adjusted EBITDA for 2019 is expected to be above $630 million, and we are projecting to generate free cash flow in the range of $350 million to $400 million, after projected capital expenditures of approximately $125 million for the year. We estimate the restructuring and acquisition-related charges will be approximately $20 million in 2019 related to supply chain initiatives. And finally, our tax rate in 2019 is expected to be approximately 4%.

As we discussed on our last call, raw material costs are expected to be higher compared to last year, meaningfully higher in the first half and slightly higher in the second half. Adding to this increase will be the impact of inflationary pressure on other input expenses, including labor, dyes and chemicals, energy and transportation costs. Despite these cost pressures, we're targeting to maintain gross margin in 2019 in line with the prior year level. We have various levers to maintain our gross margin, including projected higher net selling prices and anticipated more favorable product mix. In addition, we expect to generate cost reductions from our initiatives to drive increased efficiency from our manufacturing operations which we expect to have a larger impact on our cost of goods sold as we move to the latter part of the year.

Specifically, during the fourth quarter in 2018, we began implementing supply chain initiatives to streamline some of our textile and sock production capacity in an effort to drive increased operational efficiency across our manufacturing base. We consolidated the textile production at the AKH facility in Honduras, which was the facility that came as part of the Anvil acquisition in 2012. This facility was in a different location outside of our large Rio Nance complex, where all our textile and sock production in Honduras is located.

You may recall we were producing much of our fashion basics and performance products in AKH. With the ramp up of our new Rio Nance VI facility, which began production towards the end of the second quarter in 2018 and which is set up for fashion basics production, we felt we can enhance efficiency levels by integrating the production from AKH into this facility.

In addition, during the fourth quarter, we consolidated the majority of our sock production in Honduras into 1 facility, the Rio Nance IV facility, where we are focusing on high value-add, high-return products. Rio Nance III, which was our other sock facility, is now largely focusing on our garment dyeing operations.

Overall, these initiatives are expected to generate increased efficiency in manufacturing and resulting cost reductions, which are expected to start flowing through in the latter part of 2019 and continue to benefit gross margins in 2020.

While we're moving fast on manufacturing, we are not finished with SG&A improvements, and we plan to make further progress in 2019 as a percentage of sales over 2018 levels. Accordingly, after offsetting significant first half raw material pressures, we expect our full year operating margin in 2019 to be slightly higher compared to 2018 and to be well positioned for further improvement as we move into 2020.

Now let me provide some color on our expected quarterly performance in 2019 so you can see how we expect to deliver during the year. We are projecting adjusted diluted EPS in the first half of the year to be down compared to the first half of 2018, while strong growth in adjusted EPS is expected for the second half of the year. For the first quarter of 2019, we expect adjusted EPS in the range of $0.24 to $0.26, down from $0.34 in the first quarter of 2018, largely because we're projecting sales in the first quarter to be down in the mid- to high single-digit range, combined with significant headwind from higher raw material and other input costs compared to the first quarter of 2018. We expect lower imprintable sales in the first quarter of 2019 as we do not anticipate the same level of distributor restocking that occurred in the first quarter of 2018 in advance of a price increase, which was implemented late in the first quarter last year.

We're also projecting overall sales in the hosiery and underwear category to be down in the first quarter of 2019. The expected decline relates to the nonrecurrence of Gildan sock sales in mass, which were shipped in the first quarter last year, and anticipated lower Gildan men's underwear sales ahead of the planned rollout of our new private label men's underwear program in the mass channel, which is expected to ship during the second and third quarters of 2019.

As these impacts to sales normalize, we expect to return to sales growth in the second quarter and the remaining quarters of the year and overall deliver our full year sales guidance of mid-single-digit growth. One more factor weighing on sales in 2019 is the impact of foreign exchange, which is currently expected to be more meaningful in the first half of 2019.

So to wrap up, we are pleased with the performance we delivered in 2018, and our outlook for 2019 calls for another year of delivering results fully in line with our long-term targets of mid-single-digit sales growth and high single digit to low double-digit EPS growth, with strong returns on invested capital. Further, we are excited about our competitive positioning and plans, and we will be holding our 2019 Investor Conference in Honduras this year in November where the Gildan management team will discuss how we are capitalizing on faster growth areas of imprintables, particularly fashion basics in international markets; taking advantage of retail opportunities as private label offerings gain share and how we are growing with our global lifestyle brand partners.

We'll also show you how we are leveraging Rio Nance VI, discuss how we're driving manufacturing efficiencies across our global manufacturing system as well as our future capacity expansion plans. Finally, we will provide updates on our SG&A initiatives and how this positions us well to service our markets on a go-forward basis. We'll get the specific date out to you as soon as possible, and we look forward to seeing everyone at our facilities later in the year. That ends my remarks, and thank you.

I will now turn the call back over to Sophie.

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Sophie Argiriou, Gildan Activewear Inc. - VP of Investor Communications [4]

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Thank you, Rhod. That concludes our formal remarks. (Operator Instructions)

I'll now turn the call over to the operator to start the Q&A session. Tom?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Heather Balsky from Bank of America Merrill Lynch.

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Heather Nicole Balsky, BofA Merrill Lynch, Research Division - VP [2]

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I was hoping you could first clarify the product mix miss in terms of gross margin this quarter. What happened? And I guess, why the more positive outlook into next year? And then as the second question, just your visibility around the private label underwear rollout next year or this year, I guess. How much visibility do you have around orders going to 2Q and 3Q?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [3]

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Okay. Well, regarding the mix is look at we are -- our core business is on plan, and we exceeded our sales a little bit, and we also sold off a lot of inventory that is not go-forward like Gildan socks that used to be mass. We sold a lot of those products. We got out of the Mossy Oak brand license that we had. So mainly the big culprit of that is products that were not going forward that we moved to the channel, really. And as far as the underwear, I mean right now we're projecting -- we have a good projection of growth in underwear for next year. We see underwear growth being pretty significantly up based on the [2Q available] underwear programs we have obtained. And we're preparing to ship those programs in the beginning of Q1. The ships -- started shipping in Q4, and the new big one will be -- start shipping again and set the floor in warehouses in Q2.

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Operator [4]

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Our next question is from Saba Khan from RBC Capital Markets.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [5]

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And just in terms of, just a follow-up on the private label. Like are you able to comment on how much private label sales are built into kind of your 2019 guide? And how do you think that program maybe ramps up in terms of -- do you really need to get to scale with some of these customers for it to be really kind of accretive to you? Or -- and how do you see that playing out over the course of the year? And how big is it this year?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [6]

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Well, look, we said in our last call that we're expanding our space in mass because of this private label program. One of the reasons why we have this program is because we're capable of producing scale. Really, we just moved out our manufacturing volume of our Gildan brand and put in private label. Some of the products have really nice features. So we're geared up to be able to -- and running at full speed to be able to support this and we don't see any issues. And we expect then to have a pretty significant increase in underwear sales in '19.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [7]

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All right. And then just in terms of the ramp up of American Apparel, can you maybe provide an update on what the outlook for this year is and where the growth areas for that brand might be?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [8]

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Well, we are looking, we're really excited, I mean, it is one of the big contributors to driving our fashion basics business in the -- in all of our markets, in the U.S. as well as international. We've rolled the brand out internationally in every single market. We've expanded the distribution. We're in Europe, Japan, Australia, moving into China. So we've got really good distribution, and we're supporting it also from a direct-to-consumer perspective, where we're selling the brand in over 225 countries today. So it's a main driver of our e-commerce growth, and we think we're going to continue to see continued growth. We're just getting going because one of the things that, I think as far as we're concerned is that there was big delay from the time we bought the brand and really got it to market, and built the distribution. And we're seeing continued POS growth and accelerated POS growth as we go forward. And we really achieved our objectives of exit rate in the $100 million that we set forth. So we're very excited about it, and we continue to see big growth of the brand.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [9]

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Sorry, the $100 million you're referring to, that was run rate exiting last year?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [10]

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Yes, just '18.

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Operator [11]

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Next question is from Vishal Shreedhar from National Bank.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [12]

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Just on the global lifestyle brands. Did I hear correctly that you've exited Mossy Oak?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [13]

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Well, Mossy Oak was not a global lifestyle brand. Mossy Oak was a license that we had for the mass market. So primarily, it was sold in the dollar chain and the -- in mass -- Walmart and so forth. So we exited the brand.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [14]

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Okay. So licensed brand. And in the materials, you indicated growth in global lifestyle brands. That's correct? In 2019?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [15]

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Yes. Yes, that's correct. Yes.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [16]

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Okay. So how should investors think about the pending losses or potential losses in the former branded segment versus the private label business which is gaining traction? Is that a net gain in 2019? Or do you think there could be more losses -- perhaps Gold Toe or something like that?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [17]

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No. We're -- our sales are growing. In the agenda today, we are offsetting losses with other incremental -- I mean our underwear business is growing. I mean our sock business is projected to be a little bit down next year. That's primarily because of the discontinued or some of this low-end mass market programs we have. But net-net, you're going to see growth because underwear is going to be steadily growing. We're growing in our GLB business, which is really providing active products, T-shirts, sweatshirts, socks -- global lifestyle brands. So we have growth everywhere. We're well positioned. Our fashion basics continue to grow. I think we are well positioned, which is driving top line sales through better mix. American Apparel, Comfort Colors or Anvil, all of our brands are really doing well. International growth is -- we had 30% growth in international markets, driven by our branch strategy. And we still have a long way to go in all these markets. We're going to continue to leverage the large private label programs. We're just getting going. If you look at -- if you walk into any of these retailers today, the amount of private label that is being enhanced in their stores is continuing to grow. So that's a phenomenon that we think is still a big opportunity for us, and we're going to continue to drive it. We have new programs for this year in private label that will be a benefit to our sales. So as far as our legacy business, which is our Gildan brand, our Gold Toe, our Under Armour, these businesses are still growing outside of what we lost in underwear at Gildan, and we are actually doing very well in e-commerce today. In our Gildan brand, even in retail, is still a significant brand. We have in retail dollars probably closest to $400 million in revenue. So it's still relatively big. And you know we're continuing to see big sales in e-commerce. And one of the things we did this year is we really, with the alignment, and we said in '18, if we invested in the first half of the year significantly in distribution and e-commerce expense, and that's paying off for us basically to support sales in these other activities. So we feel we are very comfortable, and we have a very good platform of growing in all these segments that will continue to drive mid-single digit progress as we go forward to the future.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [18]

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Okay. And in terms of the -- just shifting gears here. In terms of the acquisition strategy. In the past, Gildan would acquire Peds or Gold Toe or -- I'm talking over the long term here. Is this acquisition strategy the same? Or should we -- should investors think differently now given the shift to private label?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [19]

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No, I think, look, we're not giving up on our brand strategy. We're basically taking advantage of the opportunity of the shift in the retail market into private label. So we think that brick and mortar is going to continue to drive private label. And if you walk into one of the mass big retailers, you'll see that the floors have completely changed. So we don't want to fight city hall. We want to take advantage of that and really take and enhance our sales opportunity because it fits our criteria where it's large scale, big volume type programs. But we're continuing to look at driving our other brands as well. So we're not giving up on that. And as far as the acquisition strategy, look, our acquisition strategy is a priority of our use of cash. And right now we're sort of focusing on business realignment and getting our house in order before we really want to do another acquisition. But all the acquisitions that we've made so far in the last 2 years, be it Comfort Colors, American Apparel, I mean these acquisitions were strategic really to growing our own fashion basics business, which is really the driving part of our sales today. So we're not going to stop looking at ways we can continue to drive our sales. We think there's other things out there than we can acquire and will make sense to be bolt-on type acquisitions. But it's just a question of timing. And we have a lot of momentum right now to be able to drive top line sales basically. And it is much more accretive, obviously to do it organically, at the same time, allowing us to get our house in order. And we have a lot of manufacturing efficiencies that we see going forward. I mean we think and we're going to project that all the new manufacturing efficiencies, 150 to 200 basis of margin improvement that will flow through to the end of this year going into next year. We still have more SG&A leverage that we're going to have, which is we see SG&A leverage in the back half of this year, but into '19, we'll get more and we'll have more SG&A leverage in 2020. And our objective is to get our SG&A coverage closer down to the 12% as a percentage of sales. So all these things, I think, is where we're going today, and we'll not lose sight of acquisitions. We're not planning really for as being a '19 phenomenon. But as we go through '19, I think we'll be in a position to really look at our acquisition criteria as we move into '20, and that is still our first use of cash as we go forward.

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Operator [20]

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Our next question is from Kenric Tyghe from Raymond James.

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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [21]

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Could you speak to the AKH facility closure? Specifically, the timing and also just the relative manufacturing efficiencies on the move to Rio Nance VI? And then just a follow-up to the first question. On Rio Nance VI, can you tell us where you are on the ramp up? And what your 2019 exit is expected to be at that facility -- exit capacity of that facility, sorry.

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [22]

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Okay. So look, the Rio Nance AKH facility, just going back to what Rhod's comments are, we bought that plant -- the AKH, with the Anvil acquisition in 2012. And what we've always told investors that our manufacturing strength is really in our textiles. So that plant really never had a cost pressure relative to anything close to what we do at Rio Nance. And though we needed capacity, we always kept it going. And as we made a transition into some performance and fashion, we utilized the plant. But there's a huge synergy for us obviously to move the plant into our park, and that's one of the reasons why we're going to get a big lift and we think in terms of cost structure as we close it down and move it. So it was always in our back of our mind because it was sort of was an orphan child in another park. And so we think that, that's going to benefit us and allow us to have, I think, better access and better opportunity of developing more products. And then also it was a little bit further away for us to -- from our management team at the same time. So all those things combined, it made sense for us. And Rio Nance VI is ramping up quickly. It's almost 50% ramped up as we speak today, and it will be probably in the 80% ramped up in November when everybody comes to visit the facility. It's very impressive. It's our largest facility, and it's performing very well and we're very excited to show it off in November.

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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [23]

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Great. And then if I could just switch gears to pricing given the input cost pressures. Does your guide include further pricing in-year? And if so, is that pricing fully baked into your guidance at the midpoint?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [24]

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Well, we've taken a price increase that, I think is already embedded in our guidance, and price will be representing about 2% of -- in our revenue and from a revenue perspective will be price. And then obviously that's what's baked in, which will be offset by other factors. But we definitely -- I think we've covered what we feel is the input costs with the price increases. First quarter, obviously, we will have a lot harder COGS in the first quarter than we will in the second quarter. But net-net, for the full year, I think we cover the price and costs are going to be somewhat in balance, we think, throughout the whole year.

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Operator [25]

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Our next question is from Mark Petrie from CIBC.

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Mark Robert Petrie, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst [26]

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Actually, I just want to follow up on that but specific -- specifically around the imprintables business, and wondering if you can just talk about the volume growth that you saw in Q4? And then what your assumptions are for 2019? And then I guess, any color you can provide specifically on basics and fashion basics would be helpful.

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [27]

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Yes. Well, look, I mean we're planning for mid-single-digit growth, right. So I think that that's a fair statement, and that's going to be a combination with high double-digit growth in international markets and good growth in our North American markets. That's how you maybe need to look at it. And look at fashion basics, it's what's driving our market today. I mean we are taking market share. We think our market share last year went up probably around 10 basis points. So we're doing quite well in the fashion side, and we still got a lot of runway left to go. But the basics, we're planning down. The category is still down. I mean there's definitely been a shift towards the fashion side, which is obviously giving us a better mix, higher pricing and it's more lucrative to us, so we are okay with that. But overall, I would say that the mid-single digits and high double-digit growth for international markets is really a forecast for Printwear.

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Mark Robert Petrie, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst [28]

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Okay. And so where do you estimate your market share is today in fashion basics and then in basics?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [29]

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I really don't want to say but -- because it's not public information but, look, we're driving our share pretty good. And I think that we're -- we've got all the tools in place between the product lines that we've installed in our Gildan brand. Our American Apparel, Comfort Colors, Anvil. So we've got a lot of product that is out there in the marketplace, and we're doing very well. And if you look at our yarn spinning, for example, and put things in perspective, we never made a -- half of our yarn spinning initiative that we made back and then we invested the $400 million, large chunk of that has all been into ring spun yarn, which is all new. And that capacity is completely sold out, and we're buying another 50% today through other vendors. So we exceeded our expectations in terms of how much we would actually sell this category. So it's going very well for us.

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [30]

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Mark, one thing I would add is that from a fashion basics perspective, I mean we are big. That's still the one thing you should understand, right. We're the biggest player in North America, so we are -- we are not going to give you our market share, but we are big and we're growing fast.

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Mark Robert Petrie, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst [31]

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Okay. And market share is stable in basics, more or less?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [32]

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In basic T-shirts, it's probably trending a little down. We're planning to move down next year, but in fleece, for example, we're doing very well. Our POS is very strong in fleece. But in the basic core [dumb-dumb] T-shirts, I would say, we're trading a little bit down as people trade up to the fashion basics -- in unit volume, right.

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Mark Robert Petrie, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst [33]

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Yes, understood. And then I wanted to just ask about the free cash flow guidance. And Rhod, maybe you could just give a bit more detail in terms of your assumptions there, just given it's going to be down from 2018. Is that just a matter of no divestitures? Or what's driving that really?

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [34]

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No, look, our free cash flow is going to be strong, right. And we had strong free cash flow last year. We expect strong free cash flow this year. I think one of things that we're really doing as we move through the year is -- obviously, we're taking care of 2019. We've got a strong outlook, but we're also making sure that we're going to be in a very good inventory position as we finish the year and as we move into 2020. So what you're seeing really in free cash flow is strong base free cash flow coming from the business, CapEx about the same as we said last year and then we're building inventory as we move to the end of the year. Overall, we feel very good about our free cash flow.

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Mark Robert Petrie, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst [35]

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Okay. And then sorry, I just want to squeeze in one more, which is beyond the 2 private label underwear contracts that you've already secured and you talked about, what does the landscape look like in terms of additional contracts? And how competitive is sort of the process to be bidding for those deals?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [36]

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It's not like anything else -- the whole world is competitive, right. So I mean as long as you're in a position to be the global low-cost manufacturer at least you've got a competitive advantage, right. So I think that's where we're positioned. But I think that it still takes time to get these programs, and it's -- like anything else, it's a matter of working, looking for the opportunities to building, having the right relationships. So we're continuing to grow. We have new programs that we'll be obtaining this year that will support, obviously, our growth this year but also will support growth into next year as well. So we're going to continue to thrive and obtain as many programs as we can. And like we said, if we take all these moving pieces together, the mid-single-digit growth is a very realistic strategy for us and which will drive low double-digit EPS growth. I mean over the next couple years, if we take the continued basic -- the continued penetration of our fashion basics, our expansion of our international, our private label as well as leveraging our GLB brands and relationships, our e-commerce through growth with the brand portfolio that we have, all these things work together. So there's not one big order or one big thing that's going to happen. It's just that we have so many growth drivers in the company that we feel very comfortable delivering mid-single-digit growth and low double-digit EPS growth over the years to come.

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Operator [37]

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Our next question is from Omar Saad from Evercore.

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Softlines, Luxury & Department Stores Team [38]

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I wanted to see if you could give a little bit more color around the 1Q sales guidance to help us understand the dynamic there. I think last year, there was a price increase that called some -- caused some pull forward, but it's hard to tease out in the reporting what the impact is. And maybe you can give us an idea what the kind of 1Q underlying sales trajectory is, if you didn't have that dynamic underneath.

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [39]

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Omar, so if you look at the first quarter, I mean we said it's down mid to high single digits. And we've called out the fact that we do see lower restocking in Printwear in the first quarter, right. So if you look last year in 2018, we had a late quarter price increase, and that drove a lot of restocking in the first quarter last year. This year, we don't see that. And that impact, if you were actually trying and get your arms around it, it's probably about $50 million, okay. Then if you go into underwear and hosiery and you look at that category, we talked about that what's going on in socks at mass, and you look at the changeover of the underwear program, that's probably another, let's say, $15 million on top of that, okay. And then FX, we know also we -- is going to be a little bit of a headwind, $5 million. So effectively, if we add all that up -- but then that's all offset also by our growth drivers. So you can't forget that our growth in fashion basics, our growth in GLB, international is also offsetting some of that. So I think you can get a sort of an idea of what's effectively impacting us in the first quarter. But again, as we move out of the first quarter and then we'll back to a sort of normalized level of sales and we see that then flowing through the rest of the year to deliver that mid-single-digit growth overall.

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Softlines, Luxury & Department Stores Team [40]

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That's really helpful. And Glenn, would you mind sharing your kind of view on where we are in the kind of transition and that mix shift that's been going on from more of the basics to the higher-end, more premium activewear imprintables? How long do you think this transition has been going on in the marketplace? And what inning are we in, so to speak?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [41]

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Well, looking at anything -- like anything else, people are looking for value and products. Look, I don't think basics are going to go away because at the end of the day, there's still the giveaway T-shirt. There's still the price point that is important. Basic T-shirts sell for $1.80, $1.70. And we got the fashion products are selling for the $3 to $4 range. There's still going to be a, definitely, a continued demand for basics. The end users still pays $20, $25 per T-shirt. So when you look at the cost associated to end users as the people that resell the product, print it, it goes to retail stores, et cetera, obviously, there's not as big an incremental cost to the end user. Let's say, for example it's a fashion store, that's partly what's driving the opportunity. But look we're agnostic, to be perfectly honest with you. We think that the continued driving of fashion is giving us better mix, higher pricing. It's actually a benefit to the organization. And we see continued growth of this. It's hard to say how big it will get, but it's irrelevant, I think, to us because we'll continue to position ourselves to be able take advantage of it. And we've always -- we got a big pipeline of innovation right now in our organization and looking to make sure that we continue in upgrading our products to be able to support any changes in the market. And that's the strength of being a vertically-integrated low-cost manufacturer. We can adapt to the way the market's changing and take advantage of it and pass our return to our shareholders.

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Operator [42]

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Our next question is from Stephen MacLeod from BMO Capital Markets.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [43]

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I just wanted to follow up on some of the commentary around gross margin. Just, Rhod, in your prepared remarks, did I understand correctly that you said gross margin came in about 100 basis points less than -- lower than expected?

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [44]

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Yes, I mean our gross margin -- sorry, if you look at our gross margin for the quarter, right, we were down 80 basis points for Q4. Effectively, our -- if you look at what was going on, our mix came in a little bit lower than anticipated. Now our mix was strong. You have to understand that. Our mix was up 140 basis points in the quarter. But it came in a little bit lower than we were expecting, effectively 100 basis points. And Glenn explained that earlier, right, as to what was going on with some of that on the hosiery side, some of the products that we're moving out. We had also some closeouts. So not as strong as we were expecting, but still very strong, and we continue to see mix as we move through 2018 as being a driver of gross margin.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [45]

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Okay, no, that's helpful. And then just as you look to 2019, I mean obviously it sounds as though you might see gross margin moving around through the year. Can you just talk a little bit about your confidence level into gross margins as you get into the back half of the year just with some of things that are on the table, is most of that improvement coming in from some of the manufacturing initiatives that you've put into place?

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [46]

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Yes, I mean if you look at our confidence around gross margin, overall, I said it's flat gross margin for the year. But effectively, what you're going to see is it's going to build as we move to the back half of the year, right. So as effectively we get deeper into 2019, we'll see the benefit of price that, I think Glenn talked about, mix will be positive. From a fiber perspective, we called it out, it's -- all you need to do is go and look at where fiber prices were effectively in 2018, and then you can see that the impact in Q1 of this year in Q2. But then obviously, as we move later in the year, effectively that headwind really diminishes, we called out. And then from a manufacturing cost perspective, we've got effectively various things that are rolling through that are impacting us in the first quarters. But all of this work that we're doing with AKH, the consolidation work on the sock side, all the efficiency that we're driving as we bring up Rio Nance VI, all of that then drives, I would say, a significant improvement in the manufacturing costs, particularly as we get in the back half, particularly as we move into Q4 and then really as we set up for 2020. So overall, from a gross margin perspective, it's a story that will evolve as we move through the year. And we feel that we're going to be in a very strong place as we finish 2019.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [47]

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Okay, that's very helpful. Then just one more, if I could. Just on the private label rollout that is expected to come in, in Q2 and Q3. Can you just talk a little bit about -- I know you talked directionally about it on the last call. But just around the margin profile on a like-for-like basis when you swap out branded for private label. And then if that program roll out will be supported with marketing and is that something that is also contributed to by the retailer?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [48]

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Look, we -- our margins are, look, we have -- the objective is to get good margins, period, regardless of what product we're selling. I mean obviously, that's our responsibility to create shareholder value. But we -- like we supported the -- all of our products and what Rhod's alluded to before is our real focus is making sure we're getting a good return on our RONA basically. And that's one of the reasons why we're also focused heavily on even our SG&A. So we're not really responsible for marketing and advertising these private label programs. So we're not going to spend against them. We are spending heavily against our own brand strategy like American Apparel and supporting our own brands and -- Gold Toe and so forth. But anything that is private label basically is supported really by the retailers themselves.

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Operator [49]

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Our next question is from Martin Landry from GMP Securities.

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Martin Landry, GMP Securities L.P., Research Division - Director and Equity Research Analyst [50]

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I may have missed it, but I was wondering does your guidance include additional product wins at retail this year?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [51]

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Well, there might be some more coming in, but we basically feel very comfortable with our mid-single-digit growth number. And like even in retail, regardless if it's private label or branded, really the cycle is quite long in order to obtain programs, so we have a lot of visibility the way we see the program. We have a couple things that we're working on that could come in late in the year. But basically, I think we've sort of laid our slate out in terms of the programs that we know we're going to have for this year.

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Martin Landry, GMP Securities L.P., Research Division - Director and Equity Research Analyst [52]

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Okay. And can you talk about e-commerce? What are your expectations for you e-commerce growth in 2019? What proportion of sales will e-commerce represent for '19?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [53]

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Well, e-commerce is growing, and it grew significantly in '18. We're approaching basically about $100 million in sales. And we think it's going to continue to grow.

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Martin Landry, GMP Securities L.P., Research Division - Director and Equity Research Analyst [54]

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And what would that be -- that growth year-over-year?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [55]

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Well, look, I really don't want to say. But look, we're -- we've invested heavily in supporting that. We're seeing good penetration. Our Gildan brand underwear is doing very, very well in e-commerce today even though we're not currently in brick-and-mortar. It continues to be one of the top selling brands today at some of our e-commerce sites. American Apparel continues to grow. We're leveraging all of our brands today as we go forward into e-commerce. So we're -- I think we have the infrastructure to be able to support these sales so it's going to continue to grow. I mean we're looking toward a good growth year. Obviously, it's still relatively on a small base but at the end of the day, it's embedded in our mid-single-digit growth in terms of what we're giving guidance to the market. So I think that's the way you should look at it.

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [56]

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I think you can assume that the e-commerce is obviously double digit, right, like strong double digit. So we had very strong growth in 2018, and it is, as Glenn said, embedded in our overall mid-single digit, but it's growing fast.

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Operator [57]

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Our next question is from Brian Morrison from TD Securities.

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Brian Morrison, TD Securities Equity Research - Research Analyst [58]

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Rhod, maybe you could -- you've touched upon a lot of things this morning. But in terms of the second half growth, I think you're looking for EPS of about 20%. Maybe you could just summarize those key drivers? I think you have higher commodity costs. You've got the ongoing operational consolidation benefits, the in-sourcing of socks. I think you said P and L -- private label margins are a little bit better than the replacement of those in branded. Can you maybe just summarize that and any other of the key drivers that drive that growth in the second half?

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [59]

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Look, I think you covered a lot of them, Brian, right. So if you look at the second half, we have -- obviously, we have the sales growth we've called out. Effectively, we've got all of these manufacturing improvements that we've talked about that are driving through the system. We've got the -- talked about the fiber obviously and what happened to the second half -- if you look at pricing there, it's obviously the year-over-year impact is much more minimal than what we're seeing in the first half. From an SG&A perspective, we continue to drive SG&A initiatives through the organization. So we're leveraging SG&A, and we're also driving improvements in SG&A. So those are all of the fundamental drivers that are rolling through. But we spend a little bit of time on the call talking about private label and effectively the rollouts of our underwear programs. And very definitely, they're supporting us as we move into the back half. So all these areas, Brian, really are allowing us to deliver in H2 and again, sets us up very well as we move out of the end of 2019.

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Brian Morrison, TD Securities Equity Research - Research Analyst [60]

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And does that include an active share buyback in there as well?

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [61]

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As we always do, right? When we effectively give you guidance for the full year, in the upper end of the guidance range, we always assume that we'll do share buyback.

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Brian Morrison, TD Securities Equity Research - Research Analyst [62]

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Okay. And then one follow-up question, Glenn, a lot of talk on private label, obviously. Maybe just talk about who your competition is, not necessarily by name but maybe geographically. And then your key advantages I presume is cost structure, available capacity, geographic location. What puts you in that beneficial position that you think you're going to continue to grow on that front?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [63]

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Well, most of the private label historically has been more on smaller items in the stores. There's really never been a large-scale volume replenishment type program in private label underwear because nobody's been able to really deliver that capacity, the cost structure and so forth and so forth. So I think that, that's where we're really uniquely positioned a little bit. Typically, private label has been driven more on fashion items, seasonal products, things that have been supported, really you can buy anywhere in the world that are in-and-out type scenarios. But really we're the -- one of the few people, I think, that can support big programs in private label and the types of products that we make, which is basic T-shirts, sweatshirts in private label, because of our cost position.

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Operator [64]

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Our next question is from Jim Duffy from Stifel.

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James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [65]

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Can you guys please speak in more detail on the opportunities from the supply chain actions? Glenn, you mentioned 150 to 200 basis points margin opportunity. What are the foundational elements to that improvement? Is it simply reduction in overhead? Or you're expecting to get per unit throughput efficiencies?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [66]

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Per unit throughput efficiency and as we started with the 2 announcements we made obviously in the AKH and our socks. But what Rhod alluded to before is there is probably going to be restructuring this year, would be another 20 million. And a lot of that will be other supply chain items which will help us to drive some of those synergies. So we have a plan laid out right now that will drive our margins to 150 to 200 basis points. So a lot of that will happen as we move through Q4, but really start driving our 2020 opportunity as they flow through our cost of goods sold and so forth.

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James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [67]

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So it sounds like you'll see maybe some of it in Q4 but maybe get that full benefit in 2020?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [68]

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Yes.

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James Vincent Duffy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [69]

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And then, Rhod, are there any working capital opportunities with the supply chain actions?

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Rhodri J. Harries, Gildan Activewear Inc. - Executive VP, CFO & Chief Administrative Officer [70]

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I think from the working capital perspective, we're always looking to optimize working capital, Jim, very definitely is that we manage our system. I think that's the -- I called out earlier, as we move through the year, inventory is one of the things that we are focused on making sure we have good availability and we've got good support and we're really effectively building inventories for our growth rates, right, and to support as we move into 2020. So you can be assured from a working capital perspective that we're always looking to optimize, we're always looking to drive efficiencies across the spectrum of opportunities. And that's just ongoing, Jim. And that's all baked into our forecast in our free cash flow outlook.

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Operator [71]

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Our next question is from Derek Dley from Canaccord Genuity.

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Alexander Diakun, Canaccord Genuity Limited, Research Division - Associate [72]

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This is Alex on the line here for Derek. Just a quick question on your international business. So your growth again internationally was strong during the quarter. Just wondered if you can talk about what markets performed particularly well in Q4? And looking ahead into 2019, what markets are you particularly excited about?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [73]

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Well, we're excited about them all, to be honest with you, because we continue to grow in all of our markets. Our largest market is Europe really, which is the most mature. Obviously, that's -- continues to grow. We continue to add products. We just launched our American Apparel in Europe last year, late last year. And our fastest-growing market obviously is China, and that's where we're really seeing the highest and fastest growth. I mean China is our third largest market today outside of Europe. So it's U.S., China. I'm sorry, U.S., Europe and then China basically. So it has outstripped our -- which traditionally, which was Canada. So we're continuing to see really good growth. And we're also looking, as a -- and I think one of the things that we're really focused on now, too, is how we're going to continue to support that international growth. And the next, I think, big wave of manufacturing capacity for us is actually to look at how we're to continue leverage the opportunity in some of these markets. So that's really a real growth opportunity for us, and we're just in the beginning stages really when you look at the -- obviously, the demographics of the people and the opportunity that we have in those marketplaces.

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Operator [74]

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Our next question is from Keith Howlett from Desjardins.

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Keith Howlett, Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst [75]

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Yes, I was wondering on your manufacturing network. If we look forward to November when Rio Nance's up at about 80%, what sort of dollar value of capacity would you have on it still to utilize?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [76]

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Well, altogether, after we close AKH and -- because we're not just -- you won't just see Rio Nance VI, we did a major expansion in Rio Nance V. We expanded Rio Nance I, and we're in the phases of actually doing some work in the Dominican Republic as well. So we're expanding in our existing facilities, which obviously gives us the best cost reduction and best return on capital. So overall, today, we probably have about an additional $500 million of potential revenue on a go-forward basis.

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Keith Howlett, Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst [77]

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As of today?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [78]

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Yes.

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Keith Howlett, Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst [79]

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And then just in terms of Rio Nance III, did -- are you still proceeding with in-sourcing Gold Toe sock production?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [80]

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We've in-sourced a lot. What's we're making today in our go-forward sock manufacturing, when you come there, you'll see is all high-end, high-value products basically, so it's Gold Toe, Under Armour, GLB socks, basically things that are sold at a premium, better quality products that allows us to get very good returns on capital. So that's really our focus in socks. We've repurposed a large portion of the Rio Nance III facility to drive our garment dyeing processes. Comfort Colors has been very successful. And you will be very impressed when you come and see how well and what we've done with this facility because it is -- so it is turning good returns basically and giving us very high margins supporting our garment dyeing processes for our Comfort Colors brand.

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Operator [81]

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And our final question is from Saba Khan from RBC Capital Markets.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [82]

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Just a quick follow-up. On the sock commentary from earlier, are you just saying that the decrease there is the annualization of some of the delistings from last year? Or is there something new in that, the delisting side?

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Glenn J. Chamandy, Gildan Activewear Inc. - Founder, President, CEO & Non-Independent Director [83]

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Yes, we -- well, we're exiting one small program we had in the dollar chain basically, which is another one of our low-margin sock programs. Basically, look, we need to sell products that give us good returns and anything in the company, so we're just not focusing on sales of -- just for the sake of sales, obviously. We really have taken, as part of this whole realignment, we're taking a hard look at what products make sense to us. And in socks, when you look at some of these low-volume, low-priced socks, I mean the costs associated with the distribution expense, et cetera, et cetera just didn't make sense. So it was part of our whole realignment, maximizing our distribution, maximizing our manufacturing assets we have. We basically are going to exit anything that doesn't make sense to us which we've done in a large part of, a lot of those other private label socks that we had that were going to mass. So I think we've now gotten to the point where socks will probably be down next year around $40 million, let's say, for example, altogether. And that's probably -- after that, you'll probably see that it's really the go-forward type products that really will make sense for us from a RONA, margin and return on capital perspective.

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Operator [84]

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And we have no further questions at this time, and I'll turn the call back over to Sophie Argiriou for final remarks.

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Sophie Argiriou, Gildan Activewear Inc. - VP of Investor Communications [85]

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Again I'd like to thank everyone for joining us this morning. This concludes our call, and we look forward to speaking to you soon. Have a great day.

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Operator [86]

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Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating, and you may now disconnect.