Gildan Activewear, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2022 Gildan ActiveWare earnings conference call. All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. Please be advised that today's conference is being recorded. If you require operator assistance at any time, please press star zero. I would now like to hand the conference over to Elizabeth Hamoui. Please go ahead.

Good morning, everyone. This morning, we issued a press release announcing our fourth quarter and full year 22 results. Please take note, the company's MD&A and financial statements will be filed tomorrow and made available on our website. Joining me on the call this morning are Blanche Amandi, President and CEO of Gildan, Rod Harries, our Executive Vice President and Chief Financial and Administrative Officer, and Chuck Ward, President, Sales, Marketing, and Distribution. In a moment, Rod will take you through our results and a Q&A session will follow. Please note that certain statements included in this conference call may constitute forward-looking statements which involve unknown and known risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S. Securities and Exchange Commission and Canadian Securities Regulatory Authorities. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable IFRS measures are provided in today's earnings release, as well as our MD&A. And now, I'll turn it over to Rod.

Thank you, Elizabeth, and good morning, everyone. I'd like to start the call by thanking the entire Gildan team for everyone's excellent work and dedication during 2022. This put us in a position to be able to deliver record full-year results with sales up 11% and adjusted EPS up 14% and $573 million of capital returned to our shareholders during the year through a combination of share repurchases and dividends. We are now one year into the Gildan Sustainable Growth Strategy, or GSG strategy, and we are extremely pleased with our progress executing on all three of the key strategic pillars we laid out early last year, focused on manufacturing capacity, innovation, and ESG. And even though the environment has been challenging, with fourth quarter net sales coming in softer than we originally expected, we believe our strong fundamentals and competitive advantages are positioning us to be able to navigate through near-term macro headwinds and capitalize on future growth. I'll provide a detailed update on our GSG strategy and our financial outlook later in my remarks. But first, let me take you through our fourth quarter results. We reported total revenue of $720 million, down 8% versus the prior year quarter, due to a 5% decrease in activewear, where we generated $595 million of sales, while sales in the hoser and underwear category of $125 million were down 21% in the quarter. More specifically, the decrease in activewear sales during the quarter reflected continued POS softness in retail and markets, as well as some slowing in in printables combined with the impact of the non-recurrence of post-pandemic restocking, which occurred in the same quarter last year. Highlighting a few bright spots, the quarter included strong sell-through of ring, spun, and fleece products, where we believe our market share continues to grow. And we saw higher year-over-year shipments in international markets, as distributors in Europe replenished inventory levels, showing some confidence in the outlook ahead. And, as in previous quarters during 2022, higher net selling prices were also a favorable factor for activewear during the fourth quarter. In hosiery and underwear, we generated sales of $125 million in the quarter, reflecting weak category-level demand for these products and the ongoing impact of tight inventory management by retailers. We also saw this reflected in the numbers reported by MPD, with demand for men's underwear and hosiery in the total measured market down again for the quarter, without any sequential improvement from Q3. Moving on to margins, excluding accrued insurance recoveries of 26 million recognized in the fourth quarter, adjusted gross margin came in at 29.1%, down 150 basis points compared to 30.6% last year. The decline was primarily due to higher raw material and manufacturing costs, which more than offset higher net selling prices and favorable product mix. Our SG&A expenses for the fourth quarter were $76 million, down 6% from last year, reflecting lower compensation expenses as well as ongoing cost containment efforts. As a percentage of sales, SG&A expenses were 10.5%, 20 basis points above the prior year, reflecting the impact of lower sales in the quarter. As part of our annual impairment testing requirements, we recorded a non-cash impairment charge in the fourth quarter of $62 million, with the charge tied to current market conditions and related to intangible assets acquired in previous SOC and HOSRI business acquisitions. You should note this charge follows a net reversal of impairment for these assets recorded in the same quarter last year in the amount of $32 million. Excluding this charge, and given our combined growth margin and SG&A performance, adjusted operating margin in the fourth quarter came in at 18.8%, down 160 basis points from 20.4% last year, but in line with our expectations for the quarter, despite lower than expected sales. Overall, adjusted net earnings for the December quarter totaled $117 million, or $0.65 per share, down 14% from adjusted net earnings of $149 million, or $0.76 per share last year. This brought adjusted net earnings per share for the full year to $3.11, a record for Gildan, and we think a testament to the strength of our overall business model. Turning to free cash flow, for the quarter we generated $131 million, up from $116 million in the prior year quarter, mainly driven by focused working capital management efforts, which combined with insurance recoveries more than offset the impact from inventory build in the quarter and higher capital investments during 2022. Full year cash flow totaled $198 million, down from 594 million in 2021, mainly due to significant investments in inventories and the impact of higher capital investments. On inventories, you may recall we were running below optimal levels last year due to the impact of the hurricanes in Honduras in 2020 and a tight yarn supply environment in 2021. Our inventory levels now put us in a strong position to service our customers as we move through 2023. On capital spending, we spent approximately $80 million on capex in the quarter, bringing total capital investments for the year to approximately $245 million, with most of the spending related to optimization and expansion projects. Further, we repurchased approximately 1.2 million common shares in the fourth quarter for approximately $37 million, bringing our share repurchases for the full year under two buyback programs to 13.1 million shares, or 7% of our float, at an overall cost of $444 million. We did this while maintaining a strong balance sheet with our net debt on January 1st totaling $874 million and our net debt to adjusted EBITDA leverage ratio at 1.1 times at the lower end of our target range of 1 to 2 times. This brings me to our update on our GST strategy and our outlook for the year ahead. A year ago, we provided an overview of Gildan's sustainable growth strategy focused on capacity-driven growth innovation, and ESG. We are pleased with the progress we have made with our strategy, which is reflected in our strong 22 results. With our 2022 revenue base of over $3.2 billion and our full-year adjusted operating margin of 19.7%, coming in at the higher end of our target range of 18% to 20%, we believe our business model is positioning as well to deliver on our long-term profitability and return targets. Specifically, by executing on our strategy, We have shifted gears from a year ago when we were capacity constrained. Today, our capital investments have translated into increased manufacturing capacity and flexibility throughout our supply chain. This has allowed us to invest in inventory and improve product availability, which together with leadership in pricing and ESG is enabling us to adapt to the current environment and take market share in key product categories. Turning to 2023. We feel cautiously optimistic despite ongoing uncertainty. In the first part of 2023, we expect continued headwinds tied to the demand environment and to strong comparative periods, particularly as we cycle post-pandemic inventory replenishment in the first quarter. In this regard, while we continue to see momentum in the imprintables market driven by the return of large gatherings and the shift of consumer spending to experiences, including travel, We're also seeing macro uncertainty weighing on buying patterns as some of our customers are placing orders closer to their needs and managing their inventory levels more tightly. Nonetheless, we believe we are well positioned to gain share even in a softer demand environment. And we have recently seen this in the strength of our distributor POS, which is now running better than the fourth quarter. With regard to our national accounts business, where we serve as retailers, Our business continues to be impacted by soft demand in retail and markets and ongoing tight inventory managed by retailers. However, despite this current tightness, we expect demand for replenishment-type products to start to normalize as we move through the year, given the nature of the products we sell. Finally, in international markets, we started to see improvement in Q4 with positive sell-through trends in certain regions, together with healthy demand for inventory to support a stronger outlook for Q23. Moving to the margin front, in the first part of the year, we're expecting increased margin pressure due to higher raw material and input costs, which are currently in our inventories. As we move past the first quarter, we expect these headwinds to start to abate and to deliver strong margin performance during the remainder of the year. So summing it all up and looking at our 2023 financial performance and providing additional color given the current circumstances, We expect revenue growth for the full year to be in the low single-digit range, following what will be a slow start to the year in the first quarter, given the demand environment and tough comps. On margins, we expect our full-year adjusted operating margin to fall within our 18 to 20 percent target range, despite expected margin pressure in the first quarter driving us 200 to 300 basis points below the low end of our target range. As we translate this into earnings, we expect to achieve adjusted diluted EPS in 2023 in line with 2022, assuming the continuation of share repurchases aligned with our capital allocation targets of purchasing approximately 5% of our public float annually. Finally, we plan to stay the course on our new capital projects while managing our existing capacity carefully, demonstrating our confidence in the long-term outlook for our business. Capital expenditures are expected to come in at the lower end of our previously stated 6% to 8% range. And with significant working capital investments behind us, we expect to drive strong operating and free cash flow generation for the year. So overall, you can see we enter the second year of our GSG strategy excited. And as we prepare to launch production at our new manufacturing facility in Bangladesh in late March, which will ramp up through the year, providing us with new capabilities and opportunities ahead. Our in-stock levels are in great shape. We have significant flexibility in our manufacturing system and a healthy balance sheet. In closing, although the current environment presents its challenges, we remain excited and focused on our long-term strategy. Favorable industry trends remain intact, including the casualization of apparel, the interest in private label, the growing creator economy, and ongoing developments in digital printing, as well as the appeal of nearshoring and sustainable practices. all of which are creating long-term growth opportunities for Gildan, given our strong competitive advantages. With that, I will now turn the call back over to Elizabeth.

Thank you, Rod. Before moving to Q&A session, I ask that you limit the number of questions to two, and we will circle back if time permits. Operator, you may begin the Q&A session.

Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile the Q&A roster. And our first question comes from Paul Lejouet from Citi. Please go ahead. Your line is open.

Hey, thanks, guys. I'm curious if maybe you could just share a little bit more detail about your first quarter top line plan and how that breaks down between the two segments. You gave the... the EBIT margin, but hopefully it can share a little bit more on the top-line function. And then second, I'm wondering if you can talk about the pricing environment within the Printware channel and how you view your price gaps relative to what you would typically see. And then I might have one follow-up.

Okay. I'll start with the top line, and then I'll turn it over to the team for pricing, Paul, So if you look at top line for Q123, I think we called it out that it is a, first of all, it is a tough quarter from a comp perspective, but we had a strong quarter in Q221. And we are calling the quarter down from a sales perspective. And if you look at what's driving that, if you look at where we were in 2022, we were getting prices, we were effectively moving price. We'd started moving price in 21. And we were seeing the benefit of that in 22. But as we move into 23, that really diminishes. So we're not getting much price from a top line perspective in overall sales as we move into 23. From a POS perspective, effectively, what you'll see is that we do have weak POS in the first quarter. It's soft POS. So you have POS in the distributor side probably down low single digit, you have retail down double digit. So whatever price that we had in the first, sorry, that we're getting in the first quarter of 23, it's for the most part probably being offset by weaker POS. And then if you look at the overall sales number, it'll be impacted by not being able to comp Q1 22, the restocking that we saw, and then also we do expect to see some destocking in Q1 of 23. The total impact of that, because of, again, what's going on in the inventory environment and how customers are managing inventory tightly, is probably around $75 million in Q1. So effectively, you will see a softer Q1. We've called it out. As we effectively move through these effects that we have to comp, and as we work our way through the current environment. But then, obviously, as we move into the remainder of the year, we do see strength from a number of different areas, which we can talk about in more detail as we get into the call.

And I'll jump on the price one. Well, first of all, pricing in the market is stable. It's relatively the same as it has been in the last two quarters. And the main drivers of, I think, stable pricing in the market is inflation is still relevant. Just to refresh your memories, as we increase prices to cover inflation, particularly raw material, we never raise prices high enough to cover the peak raw material costs. It was more in the just over a dollar range, let's say. And today with content and basis, We're not far off from where we set pricing. The other factors are there's still other inflation we're seeing. I mean, labor inflation is a factor. Materials, energy are all inflations as we go forward. So I think inflation is still here, and we believe that pricing will be somewhat stable as we go through the year in 2023.

Thanks. And what's the average unit cost increase that you expect as we move throughout the year when you take into account those cost pressures, labor, raw materials? How does that look in the first half or the second half?

So if you look full year, it's actually pretty low, Paul, right? Again, we're not really calling out much from a price perspective as we look at the full year. If you look at our low single-digit increase in sales, That very little of it really is coming from price. I would say some of it is coming from mix and volume is sort of staying in there. It's not obviously because if we look at the comp versus last year from a volume perspective, we're not forecasting major volume. Actually, we're being quite conservative really when you look at it, when you think about the year, because the way that we've set up the assumption is that we are assuming the U.S. market is down significantly. effectively for the full year. And really what we've assumed is that effectively the sales bump that we get, the low single digit increase, that that's really coming from some recovery in the international markets, which have been very, very weak over the last number of years, but we've started to see some strength as we moved out of the fourth quarter. And then we're also assuming that we'll get the benefit of new retail programs, which we can also talk about. So effectively, if you look at the full year, Not much from price, really. If you look at the real drivers, it's these two factors that we talked about. And we are assuming a down market in the U.S. So if the market is stronger than we ultimately expect currently, effectively, we will see the benefit on a go-forward basis.

Got it. Thank you. Good luck, guys. Thank you.

Our next question comes from Luke Hannon from Canaccord Genuity. Please go ahead. Your line is open.

Thanks. Good morning, everyone. I just want to focus on the inventory for a second, your own inventory. Curious to know how the composition shakes out across each of your product lines, how you feel about that, and then also how you feel about capacity changes. moving into this early part of the year where presumably demand is going to be a little bit weaker. And if we look at some of the other peers in the industry, it looks like they've scaled back capacity. So curious to know your thoughts there on your position going forward.

Well, we'll start off on the inventory. And like anything else, we continue to invest in our business, and inventory for us is an investment. We believe that our inventory is well-positioned. It's in historic levels. We're running around 34% working capital today, which is in line with historic levels. And we have the balance sheet really to support this level of inventory. But inventory, we think, is going to be a strategic advantage. It's going to allow us to, we believe, gain market share in this market. As we see, we competitors that can't afford to finance high levels of inventory are And so we think that's going to be a competitive advantage. And as well as even on the manufacturing front, I mean, we're continuing to invest into the future. We're continuing to invest in capital investments. We've completed all of our ramp up in the DR in Central America. Like Rod said, Kolnur will start at the end of March, but really be a slow ramp up during this year and into 2024. And You know, this capacity, we've got everything in place, we believe, to really support our GSG strategy. And one point, I think, on our capacity, we've got flexible capacity and flexible utilization. So although, you know, our forecast this year, obviously we're not utilizing 100% of our capacity, we're very comfortable with our operating margins in the 18% to 20% range. So the unutilization of capacity in our system will not materially affect our margin profile and at the end of the day look at the gildan historically has built capacity and we've sold that capacity and we're very confident that you know as we drive through this year into next year that our gs3 strategy our positioning our investments will occur and we'll utilize all the capacity that we've got on in the process of developing okay

I appreciate that. And then for my follow-up here, the international markets, Rod, you had touched on that. You guys saw strength there during the quarter. Curious to know which particular markets where you saw strength and growth and which markets, rather, are still lagging and what the trends have been so far earlier in the year.

I'll turn it over to Chuck. Good morning, Luke. Thanks for the question. I think as we look at the international markets, the, the Asian markets, parts of them continue to be, you know, more challenging, you know, as, as there continue to be certain restrictions in those markets. And so they're lagging as we see the return. I think what you're seeing is a little more optimism in the European market from our, from our both UK and European distributors. So we're seeing potential upside from a, from an international perspective in Europe and, continued challenges in Asia. Okay. Thank you.

Our next question comes from Stephen McLeod from BMO Capital Markets. Please go ahead. Your line is open.

Thank you. Good morning. I just wanted to start with, I just wanted to see if you could give a little bit of color around your visibility around the top line as you move beyond Q1. Just sort of what you're seeing in terms of puts and takes on your improved outlook beyond Q1.

Well, maybe what we'll do is we'll just, I just want to reiterate, I guess, our forecast where, you know, we're planning to have low single-digit growth, right? And particularly in the U.S. market, you know, being down and all of the growth coming from new programs, both in our retail and our GLB categories. And, you know, so for us, I guess, you know, the opportunity for us is that if there's more market recovery in the U.S., I think we've taken a very conservative approach to our forecasting, and that potentially could be upside. And maybe I'll let Chuck just talk about the POS and the position today in the market.

Okay. Thank you, Glenn. I mean, I think, Stephen, the way we see it, as Glenn said, with the low single digits, how it's going to mix is North American down, and as he said, We're probably, you know, we're cautious there. We're watching the North American market. As Rod said, we think international will be slightly up as we go through the year. And then really the growth is kind of, as Rod said in his opening remarks, is around some of the new programs. And that's going to drive the sales growth that's going to deliver the low single digits. That'll be new programs sort of across the board, whether it be expansion in our underwear space. We have some new programs in the underwear space. We also have some new programs with some global lifestyle brand partners, you know, as they continue to look at nearshoring. And then finally within that North American imprintables market, you know, you've probably seen we've continued to launch more and more ring spun product, both in the fleece and the T area. And so we think that'll be a positive area to help drive growth to cover some of the, some of the downside on the North American market.

Maybe just one more point is that, you know, in the, print wear market, um, particularly in Q4, you know, we saw some, you know, negative POS basically. So if you look at the year last year, um, you know, we started January, February, things were booming and then sort of, we sort of deteriorated our POS as we went through the year and Q4 was somewhat, um, you know, a little bit more disappointing to be honest with you. Um, you know, we factored, you know, same types of levels of POS, um, that we saw in Q4. The good news is I think that as we've sort of gone through January and February, we're actually seeing in our distributor business at least POS picking up almost flat to last year, which is, I would say, you know, relatively strong two months before we had the tailspin. So that's an encouraging sign. You know, hopefully, we're cautiously optimistic, but we can only forecast conservatively in this macro-type environment. But so far, in the beginning of this year, POS has been a little bit better than we anticipated.

Yeah. Okay, that's great, Keller. Thanks, guys. And then maybe secondly, on the gross margin, obviously seeing some pressure in Q1. Do you expect that once you get past Q1 into Q2 and beyond, on a quarterly basis, you'll be within that 18% to 20% target range?

Yeah, that's the way we've got it modeled out. So Q1, as we called out, will be 200 to 300 basis points below the low end of the range, right, as we effectively deal with the factors that are highlighted in the opening remarks. And then as we get into the second quarter, third quarter, fourth quarter, we do see strength back in our margins. So effectively, the second quarter will be significantly stronger than the first quarter and back on our range. And then obviously, as we continue to go through the remainder of the year, we expect to run well within our range. So we feel good about margins as the year unfolds. I think if you look at our manufacturing system and what we control, our supply chain, We know what we have in inventory. I mean, all of these things, we've got, I think, a very good handle on the cost structure. And so I think we can speak with confidence, really, around margin performance for 2023 on the back of what we've delivered in 22. Great.

Okay. Well, thanks, guys. Appreciate the call.

Our next question comes from Vishal Sridhar from National Bank. Please go ahead. Your line is open.

Hi, thanks for taking my questions. I just want to get a bit more color on mix. And management suggested that mix would be a favorable factor again in 2023. And I understand Fleece was a contributor in 2022, and Fleece may have been a contributor due to work from home. As work from home unwinds, would you expect that Fleece contribution to similarly unwind and place some pressure on gross margin? How should we think about that?

as far as fleece is concerned, it's still growing rapidly. In fact, it's accelerating as we speak. So we've, you know, what's driving our POS so far in Q1 is actually even more robust fleece sales. So it's been a contributor and as well as the fashion t-shirt segment. So both of those continue to drive both top line mix and performance.

Okay. And is, is, does management, understand the drivers behind fleece? Is it still work from home demand or is there some other driver that we should contemplate?

Well, I think it's a lifestyle thing. You know, people are wearing more, it's more casual wear. It's a greater economy. It's a, it's all the factors really. I mean, people are still casual, even though they're, they're getting out of the house now. Right. So it's just a, you know, it's, it's definitely a lifestyle thing.

Okay. And just switching gears here with respect to labor and, across your various manufacturing platforms? How does management feel with regards to labor in your facilities?

Well, labor is a factor. I mean, we're seeing inflation both last year, we see continued inflation in labor across our manufacturing globally, to be honest with you. Inflation is a factor and, you know, energy is a factor and materials. And so all of these factors are, you know, supporting inflation still. I mean, the only relief a little bit is, you know, cotton has sort of normalized back down to, you know, the levels it is today. But definitely inflation is there. And I think at the end of the day, it's going to continue to support, you know, long-term pricing.

Okay, and with respect to getting the bodies you need in your yarn spinning facilities, that issue is under control?

Sorry, say that again? Yeah, no, so, Vishal, you were asking about the labor in yarn. Yeah, it was an issue for us in 21. In 22, we started to get our arms around that. The environment improved. And now as we move through 23, availability of labor is not a concern for us. We have the labor that we need. and we don't see that as being a constraint. Actually, we see our yarn operations are in very good shape, really, after the acquisition of Frontier, and we've been integrating and optimizing, and so we feel very good about the supply chain and our ability to run yarn, textiles, sewing as we go forward, and that really puts us in a position of strength. Thank you.

Our next question comes from Brian Morrison from TD Securities. Please go ahead. Your line is open.

Good morning. Thank you. So potentially for Chuck or for Glenn here, you talk about these new program opportunities, and it sounds like private label and GLB. Can you just give us some more details? Like have these contracts been awarded? How should we think about magnitude? And then you did talk about them a bit in Q1. Is it still in the same timeframe or have they been pushed out at all?

Yeah, Brian, I think from the new programs perspective, the ones I was speaking to are all things that we have been awarded and that we're moving forward with. The timing of the launch of different ones takes effect throughout the year, but those are programs that aren't speculative. They're things that we have been awarded. So we kind of have a good feel for those and when they'll come through. From a Q1 perspective, you know, I think as Glenn said, it has been, POS has been a little bit better than we would have expected. especially going off a strong comp from Q1 2022. And in the imprintables and distributor channel, you know, still some challenges there, but definitely better than we had maybe expected. January a little worse, but then February we're starting to see it pick up.

Okay. And specifically, are these new programs, are they private label, are they GLB, are they the Nikes, Adidas of the world?

Yes, they're across the board, so you hit them all. So we have some that are private label, some are in the global lifestyle brands as well, and some are Gildan.

As you recall in our last call, we mentioned that we picked up quite a few underwear programs, additional shelf space in underwear, and these were all the driving factors of our growth in new programs.

Okay, thanks for that clarification, Glenn. And then maybe for Rod, I just want to go circle back to the corporate inventory. I know you say you're comfortable with it. It's up about 17% from 2019. Admittedly, that was a bit high. So is it really volumes are somewhat flat and it's inflation and mixed with much more fleets in there? And I guess maybe how should we think about corporate inventory balance as we look out to year end? Is it going to be a source or use of working capital?

No, you know, Glenn gave the explanation on where we are in the inventories and We, you know, if you look at that, and again, I called it out, right? I mean, the last number of years, we ran with low inventories and we needed to get back to optimal levels, more optimal levels. And we've been working away and we've been able to do that as we've really built out our supply chain and from a number of factors. So if you look at where our inventory levels are right now, in the fourth quarter, it was 1.2 billion. It was up. year over year. That was driven by higher units. It was driven by higher costs. But again, we needed those units effectively in order to service the business. Now we're in a very good position to service customers. It is, again, you got to remember, we're all basic, it's all replenishment products. And as Glenn said, what we've done is we work very hard from an overall working capital perspective to actually be in a position to be able to invest in this inventory. So if you look at our broader working capital We finished the year at 34%, right in our range of 30% to 35%. And so now with that inventory level, we do see as we go through the year pretty well, I would say, flat inventory levels as we move through Q1, Q2, Q3 to Q4. And so we don't see significant investment in our inventories required as we go through 23. Actually, that's what drives the strength of our overall free cash flow. Because if you looked at our free cash flow in 22, we had 200 million in total and we had a working capital, not inventory, but a working capital build of around 300 million, which we're not expecting in 2023. We also had higher capex in 22 than we're expecting in 23. In 22, we were more in the higher end of our range, our target 68% range. that we've said that we were going to be in through this type of period. And this year we expect to be in the lower end of that range. So I would say we feel very, very good. Our inventory position is good. We can service our customers. And we do expect to generate a significant amount of cash as we go through the year. And then that obviously ties into the fact that we've announced the dividend increase and we're planning to do the share buybacks. So all in all, we feel set up very well for 23.

All right, very good callers. Thanks very much, Ron.

Our next question comes from Jim Duffy from Stiefel. Please go ahead. Your line is open.

Hi, this is Peter McGoldrick on for Jim. Thanks for taking our questions. First, I wanted to get an idea of your expectations for private label into 2023. Can you add some perspective on growth in private label relative to branded products? How should we think of mixed contribution into 2023 net of new programs, et cetera?

Well, we don't think there's going to be a big mixed change in private label versus our brand products. I mean, the margin profile is relatively the same. and as we said earlier, I mean, these programs have been awarded, and they're basically part of our forecasted plan for 23, so, you know, we're continuing to look at, obviously, new opportunities. It's not, you know, one of the things we said last call was that, you know, as we entered 22, we were, you know, really pedal to the metal in our existing business. We really weren't focusing on new programs, and then As we sort of saw the downturn happen in Q2, Q3 last year, we aggressively started going after new business, which we've obtained, and we're continuing to look for other opportunities as we move forward. So our objective is to continue driving our GSD strategy, and all of the elements are going to be to obviously take market share with our great inventory position that we have in the printware market, continue to utilize and drive near-shoring opportunities, private label, international sales. So these are all parts of our growth initiatives, and I think we're going to continue to stay focused on our core competency and making sure that we achieve our targets.

Thanks. And then switching to the print business, could you give us an update on how big the digital printing business is and how this area of the business has progressed relative to the traditional print business?

I would say it's pretty difficult for us to give you a number on it, but I would say that one of the big drivers of growth during 21 was partly the creator economy, digital printing, online selling. which is also the part that I think that has come down a little bit in, you know, in, in 22, you know, as, as we saw e-commerce sort of leveling off. But You know, replacing that was, you know, people getting out and all the events, rock concerts, sporting events, you know, different things. So I don't think that's structural because I think that that will continue to be a growth driver. I think it just peaked during the pandemic because people were home. But we forecasted and, you know, as we went to... our investor conference last year and we, we sized the size of the market. Um, we did a recap, a refresh on that and basically, you know, everything is still intact other than I think the economic, uh, market has sort of contained the growth rate a little bit as we move. But I think all of the pieces are still heading in the right direction on a longer term basis. Thanks.

Our next question comes from Jay Sol from UBS. Please go ahead. Your line is open.

Great. Thank you. Glenn, you made some comments earlier in the call just about the competitive landscape and how the current environment has made it difficult for some competitors. Can you elaborate on that a little bit and maybe just talk to us how you're seeing the competitive landscape shift versus maybe a couple years ago and what that means for your ability to take market share?

Well, I think that if you look at the landscape, not just here in North America, but I would say globally, the running capacity rate of the apparel industry globally, and I refer that to yarn and textiles, et cetera, is relatively low throughout the globe right now. So that's a big factor. You know, one of the things we see is that there's two elements, I think, that are going to be big opportunities for us as we move forward is that As the cost of capital continues to increase, the carrying cost and the capability for manufacturing expansion is going to be difficult for a lot of companies. And the strength of our balance sheet allows us to do both, is to carry the inventory as well as to continue making those capital investments because we can afford to do them. And you can look at anybody who basically has high debt, high leverage, and as this leverage comes due, either private equity or companies that have leverage, their ability to support inventory, I think, on a go-forward basis will be limited. And they'll manage those inventories down and will be difficult for them to service the market, particularly when the market rebounds. But I think it even, and it takes time to restart your engines, right? So, you know, we look at us, it took us almost a year and a half from the hurricane in 21, the pandemic, just to get all that capacity coming online. And we think that this is a real opportunity for us right now, and that's why we're very confident in carrying the inventory levels that we are carrying and continue making the CapEx that we've committed to. So for both those reasons, we're very optimistic about committing and achieving our GSG strategy targets as we go forward.

Got it. Thank you so much.

Our next question comes from Chris Lee from . Please go ahead. Your line is open.

Oh, good morning, everyone. Maybe just a first question for Rod. Just maybe follow up to your answer to Brian's question. I was wondering, do you expect your leverage to remain in the lower end of your one to two times target range by the end of this year? And then when can we expect you to resume buying back shares again? Thank you.

So the answer is that, yes, we do expect the leverage to be at the lower end of our target range as we move through the year and definitely by the end of the year, again, given the strong cash flow generation. And as I said, we do plan to buy back, we call that 5% of our shares. You'll see us do that on a consistent basis as we go through the year. I think if you look at 2022, we bought back 7% and effectively So we were above our 5%. And as we finished up the year, effectively, we lightened off a little bit. But as we move through 23, you'll see us pretty well on a steady cadence, effectively delivering the buyback of the 5%. And again, what we're really excited about is that our balance sheet is in great shape. Our leverage, we are forecasting, will be at the low end of the range. And we're well positioned to do all the things that Glenn just talked about. So I think we're in a strong position to drive the organic growth, and we're in a strong position to return capital to shareholders. Okay, that's very helpful. Thanks, Rob.

And maybe one for Chuck or Glenn. You mentioned earlier that you believe your low single-digit revenue growth for this year could be a bit conservative because you expect the North American market to be down. Can you quantify or maybe give us details? How much is down? Is it low single-digit, mid-single-digit? What's the magnitude so we can get a sense of how conservative your forecast might be?

Yeah, so if you look at effectively what we're planning, Chris, for North America down, it's sort of in the low single-digit range when you look at it. If you listen to sort of all the commentary about what we're forecasting, we are, you know, we know that we will not be able to effectively comp some of the restocking that we saw in the early part of 2022, and that ultimately will come out of our forecast in 20, and has come out of our forecast in 23 for North America. So, effectively, If you make that adjustment and look at where we are from an overall perspective, we're sort of down low single digit is the way to think about North America. But again, it'll be offset by the new, and that's excluding the new programs. Then we have the new programs that we layer on, and then we have the international. So again, I think it's a pretty conservative setup for the year. And again, the first quarter is softer, as we've called out. But given the strength of overall end consumer demand, obviously we'll have to see what people do with their inventories as we go through. Glenn just talked about it. But given the strength of the consumer, I think it's a good setup really as we look forward into the year. We've been conservative, and we'll see how it plays out, and we hope to see a stronger outcome than what we forecasted.

Okay, sorry, and maybe just a quick follow-up. I think you also mentioned that in February, you've seen the GILD and POS is starting to increase versus a year ago. Is that mainly driven by your ability to gain market shares or you're actually seeing some resilience on the demand side of things?

Well, we think it's, you know, I personally believe it's our positioning and taking market share. I think the market is somewhat still down, but I think that we're seeing ourselves with positive comps because of our positioning and driven by mainly fleece. And like I said before, the fashion side of the business is one of the big drivers, obviously, of our growth. I think we're just well-positioned in general to continue to take care of the market.

Thank you, and all the best.

As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our last question will come from Mark Petrie from CIBC. Please go ahead. Your line is open.

Good morning. Thanks for all the comments so far. Just a couple follow-ups. Within retail in Q4, how much of the weakness was sort of at shelf with your programs versus national accounts order or demand?

So if you look at Q4, really, we saw the retail environment down. If you look at the The POS generally was down a double digit, I would say, on the retail side. But it was across all of the retail and markets, Mark. So if you look at national accounts, if you look at the sales to the big retails, because a lot of the sales to the national accounts end up in retail, right? So we see sort of similarities on the national accounts. It's national accounts in the printware I'm talking about because we call everything, including retail, national accounts as well. But it was pretty, I would say, similar across all of the different channels and retail customers. I mean, it was a soft quarter in retail, and we saw it pretty well everywhere.

Okay. And with regards to sort of end market demands within the distributor channel, I know you're saying industry volume down for 2023, but Is that driven by one market more significantly than another in terms of the end markets, or is it pretty balanced as well?

It's pretty balanced.

Okay. And then do the account wins in retail impact the EBIT margin at all, or are they consistent with the overall profile?

They're consistent with the overall profile.

Okay. And then last one, uh, I'm just curious about your views, um, or any commentary you can provide about the competitive dynamics within the printware channel, um, particularly as, uh, as you know, if volume does flow, um, through the course of the year, um, how you expect that. And I, and I know you were talking Glenn about sort of, you know, inventory positioning and, and, um, uh, and, and, uh, the challenges for, for people there, but I'm specifically curious about views on price and how that might play out.

I would say that, you know, maybe the view on price, another way to look at it is that, you know, our cost structure I think is in far better shape than the industry's cost structure, both from our costs of carrying raw material, as well as our manufacturing costs. So I think then, and the inventory levels in general and the lack of, capacity being utilized today, people need to sell down their inventories and they've stopped producing product. And those costs of those inventories are very high, which is going to continue to support the price in the market. I mean, it's... The price is not going to drive this market at all. I mean, there's no... It's not like in the past where, you know, what drove the price in the market was big end-user events that basically, you know, somebody went and bought 500,000 shirts and everybody chased that program basically and used price to be able to go get it. I mean, those programs... are still not there. So when you started looking at what's out in the marketplace today, I think that price is never going to move the needle in terms of volume. So you take that in account, I think, with people's high costs. And the fact is that most manufacturers in our segment are significantly cutting down inventories and manufacturing capacity. I think they're running maybe at 50 percent. They're lucky. So, you know, we're in a good position. You know, we came off, obviously, very low inventories in 21 to support our build, and we're running at a relatively good rate. And our cost structure, I think, is in good shape, both from raw material as well as input costs. So I think we're well positioned, and I think we're very comfortable with our forecasts.

All right. Appreciate all the comments and wish you all the best. Thank you.

And we have another question from Sabat Khan from RBC Capital Markets. Please go ahead. Your line is open.

Great. Thanks. Just a clarification question. I think when you're talking about, you know, POS being somewhat better during the early months of 2023, I guess we read that as, you know, that'll help you kind of get the distributors in better inventory positions so they can order later? Or do you think there is sort of upside to, you know, a guidance that you're already providing in terms of, you know, you might be able to ship more to them than you initially got? Or is that just, you know, that's what you expected for them to be able to do, deplete their inventories over the next three quarters?

What we're saying is that we're comping really, you know, we had, you know, negative let's say POS in Q4, which is our worst quarter of 23. So we've taken our forecast in that light. January and February were very good months in terms of POS in 2022. So if we're able to comp those as we go through the year, as we saw a deterioration in POS during the year, and we've both forecasted a negative POS for the full year. So, therefore, you know, we should be in a pretty good position to potentially have some upside. So, we're cautiously optimistic, and we'll see where the market goes as we move forward.

Okay. And then just a quick clarification on Q2. I guess when you called up some of the tough comps, et cetera, for Q1. For Q2, I guess, do you expect just sequential improvement, or should we look for some top-line growth in Q2 here as well over here?

Yeah, if you look at Q2, effectively, I would say that we do see weakness in Q1, as you said, Sabah. I think as we go to Q2, I think that'll be, again, it was a tough quarter when we looked at Q2-22. We did almost $900 million of revenue, so it is a big comp. So I think there, I think it will be a little tougher. But again, as we move through Q3, Q4, we see real strength. I think that's probably about as much color as I want to give you on the way the quarters unfold. Thanks very much.

We have no further questions in queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.