Gildan Activewear, Inc.

Thank you for standing by and welcome to Gildan ActiveWare's 2025 Q1 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jesse Hamm, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead.

Thank you, Sarah. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our results for the first quarter and maintaining our guidance for 2025. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents are expected to be filed with the Canadian Securities and Regulatory Authorities and the U.S. Securities Commission today, and they're available on our corporate website. As a reminder, please note that we'll be holding our AGM tomorrow morning at 10 a.m. ET with more information available on the events page of our corporate website. Now joining me on the call today are Glenn Chimandi, President and CEO of Gildan, Luca Barile, Executive Vice President, Chief Financial Officer, and Chuck Ward, Executive Vice President, Chief Operating Officer. This afternoon, we'll take you through the results for the quarter, and then a question and answer session will follow. Before we begin, please take note that certain statements included in this conference call may constitute forward-looking statements which involve unknown and known risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S. Securities and Exchange Commission and Canadian securities regulatory authorities. 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 MDNA. And now, I'll turn it over to Glenn.

Thank you, Jessie, and good afternoon, everybody. As we highlighted in our press release, you can see that the Gildan Sustainable Growth Strategy, or GSG, continues to drive profitable growth, and we are very pleased with our progress and performance. We delivered first quarter sales of 712 million, which were up 2.3% versus last year, driven primarily by strong activewear sales growth of 9%. Our first quarter growth rate would have been mid single digits when you exclude the phase out of our Under Armour business. Our adjusted earnings per share of 59 cents, essentially flat year over year, which includes a negative impact of enactment of global minimum tax and the positive impact of job credits. Despite the rapidly evolving environment, we remain highly committed to continue executing in our GSG strategy across its three pillars, capacity, innovation, and ESG. We continue to be on a path to deliver on our three-year objectives for 2025 to 2027 period, which include net sales growth of mid single digit range and adjusted EPS growth in the mid teen range. Now looking at the current year with the recent tariff announcement and despite the challenging macroeconomical environment, we are maintaining our guidance for 2025. supported by many drivers which should allow us to deliver on our objectives for the full year. As we mentioned in the past, about three quarters of our expected sales growth for 2025 is coming from new programs. And we remain very excited about our innovation pipeline, such as our soft cotton technology, our plasma print, our color blast, just to name a few, which is increasing our competitive advantage and allowing us to continue to drive market share gains. Luca will go over our 2025 guidance in more detail, but I'd like to address the current operating environment and the recent tariff announcement. Although the situation remains fluid with respect to tariffs, the 10% reciprocal tariff now in effect on goods imported into the U.S. from most countries, I'd like to leave you with three points to keep in mind. First, remember, we are a global vertically integrated low-cost manufacturer, which we believe is our competitive advantage as it provides a great deal of flexibility and agility. Second, we have a significant U.S. cotton and yarn content in our products. which should allow for significant tariff savings since a 10% reciprocal baseline tariff does not apply to the value of U.S. content imported products, which puts us in a very strong competitive advantage. Finally, we have other levers which we can use in this environment, such as price. So, in conclusion, we will continue to monitor the situation closely. We are cautiously optimistic as we look ahead. Though we are well positioned to maneuver through a period of uncertainty, thanks to our strong industry positioning, our agility to operate in dynamic environments. However, while we continue to focus on the things that we can control, I'd like to emphasize that regardless of the environment, we will continue to leverage our GSG strategy with a focus on executing long-term shareholder value. I look forward to answering your questions after our formal remarks, and now I'd like to turn it over to Luca for a financial review.

Thank you, Glenn, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter results. Let me start by saying that I'm very pleased to be here today and to have the opportunity to take you through our company's first quarter performance. Before we begin, I'd like to take a brief moment and thank Glenn, Rod, and the rest of the management team for their continued support as I step into this role. Let me begin by covering the specifics of the quarter, and then I will comment on our outlook and guidance for 2025. So let's begin with the quarter's results. We reported first quarter sales of $712 million, up 2.3% year over year. If we exclude the impact of the phase-out of Under Armour, net sales for the quarter are up mid-single digits. This was driven by a strong performance in activewear, up 55 million, or 9.3%, driven by higher sales volumes, which reflected a favorable product mix in North America with a higher proportion of fleece and ring-spun products. Although the quarter started slower than expected, we observed an improving trend as we moved through the second half of February and into March. We continued to experience a strong market response to our recently introduced products which feature key innovations, including our soft cotton technology. We also saw continued momentum with national account customers driven by our competitive positioning and the ongoing benefits from recent changes in the industry landscape. Looking at international markets, sales decreased by 2% year-over-year following two strong quarters of growth. Europe, our largest market, performed well in the quarter but was offset by softness in Asia, which persisted due to the macroeconomic backdrop and a tougher year-over-year comp in Latin America. Turning to hosiery and underwear, this category was down 38% versus the prior year, mainly due to the phase-out of our Under Armour business. along with unfavorable mix within this category. We also continued to see broader market softness in hosiery and underwear in the category in Q1, though we are encouraged to see some pickup in momentum for underwear in the current quarter. Turning our focus to margins for the quarter, our gross margin was 31.2%, a 90 basis point improvement over the prior year, primarily due to lower raw material costs. SG&A expenses decreased by $18 million to $87 million versus $105 million last year, which included significant proxy contest and leadership charges. Excluding these charges, adjusted SG&A for the quarter was $86 million, or 12.1% of sales, and essentially flat year over year. As the positive benefit of the jobs credit introduced by Barbados in the second quarter of 2024, was largely offset by higher variable compensation and higher distribution expenses. As we bring all these elements together, and after adjusting for restructuring and acquisition related items in both years, we generated adjusted operating income of 135 million, or 19% of net sales, up 100 basis points year over year, well ahead of guidance provided, driven primarily by higher gross margins. Moving on to taxes, the company's adjusted effective income tax rate for the quarter was 15% compared to 3.6% last year, reflecting the enactment of global minimum tax in Canada and Barbados in the second quarter of 2024 as previously communicated. After reflecting higher net financial and income tax expenses and our lower outstanding share base, we reported gap diluted EPS of 56 cents in the first quarter, up 19% versus the prior year. Whereas adjusted diluted EPS of 59 cents came in flat year over year after adjusting for the negative impact of proxy costs in 2024. Now turning to cash flow and balance sheet items. Cash flows used in operating activities totaled 142 million compared to $27 million in the first quarter of 2024, primarily due to an increase in non-cash working capital, largely in line with the company's expectations. After accounting for CapEx of $23 million, the company consumed approximately $166 million in free cash flow. We also returned $62 million to shareholders by repurchasing 1.2 million shares in the quarter. Finally, we ended the quarter with net debt of about $1.8 billion and a leverage ratio of 2.2 times net debt to adjusted EBITDA, well within our targeted range of 1.5 to 2.5 times. So overall, and concluding on the results, we're very pleased with the quarter and we remain confident in our ability to deliver this continued financial performance despite a dynamic macroeconomic environment. Now turning to our strategy and outlook. As Glenn highlighted earlier, we are pleased with our execution and the progress made on the three pillars of our GSG strategy. First, our new manufacturing complex in Bangladesh continues to ramp up and is well on track. Moreover, on the innovation front, we continue to tap into the largest innovation pipeline in the company's history, with more product launches to come in 2025, as detailed by Glenn. And lastly, with regards to ESG, we remain fully on track with our next generation objectives. In this regard, we are pleased to have been included in SMP's 2025 Sustainability Yearbook for the 13th consecutive year. Moreover, Gildan was also included in CDP's Leadership Band for its 2024 Climate Change Disclosures for the fifth time, highlighting our strong commitment to sustainable practices. With regards to our outlook, we continue to feel cautiously optimistic. As Glenn detailed, we are committed to executing on our GSG strategy. And despite an evolving and challenging macroeconomic backdrop, we believe that our low-cost, vertically integrated business model, along with our industry positioning and our demonstrated agility in operating in dynamic environments, underscore our confidence in reconfirming our guidance metrics for 2025, which include revenue growth for the full year to be up mid-single digits, full year adjusted operating margin to increase approximately 50 basis points, capex to come in at approximately 5% of sales, adjusted diluted EPS to be in the range of $3.38 to $3.58, up between approximately 13% and 19% year over year. And free cash flow is expected to come in above $450 million. Further, the outlook that I just laid out is underpinned by some key assumptions, including the following. Firstly, based on the information available at this time, we have considered the impact of tariff measures in place on our operations, as well as on industry demand. in conjunction with mitigation initiatives that are available to us and our ability to leverage our flexible business model as a low-cost, vertically integrated manufacturer. We also continue to expect growth in key product categories driven by recently introduced innovation, a favorable impact from new program launches, and continued market share gains. We expect ongoing benefits from the jobs credit program that took effect in Barbados in 2024, and we anticipate that our effective tax rate for 2025 will remain at a similar level to what we saw for the full year in 2024. Lastly, we expect to continue repurchasing shares under our NCIB program, given the strength of our balance sheet, our expected strong free cash flow, and our leverage framework target of one and a half to two and a half times net debt to adjusted EBITDA. Finally, we have also provided guidance for our second quarter. With net sales expected to be up mid single digits year over year and adjusted operating margin expected to be in a similar range as the second quarter of 2024, which included the significant positive benefit from the jobs credit introduced in May 2024 by Barbados, and which was retroactive to January 1st, 2024. We also expect our adjusted effective income tax rate in the second quarter of 2025 to be at a similar level to the full year 2024 adjusted effective income tax rate. In summary, while we are mindful of the uncertain economic environment, our solid foundation our resilient, low-cost, vertically integrated business model, and our operational and financial discipline provide us agility, confidence, and the foundation to navigate through this environment. Thank you. And now, I'll turn it over to Jessie.

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

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure you are not on speakerphone and that your phone is not on mute when called upon. Thank you. Your first question comes from Paul Lajoyas with Citigroup. Your line is open.

Hey, thanks, guys. Two questions. One, can you talk about POS trends in each of your major channels and whether you're seeing any signs of destocking amongst your major customers? And then second, can you talk about what specific tariff pressure you bake into guidance from a cost perspective and what sort of mitigation you build in on the pricing side? Thanks.

Okay, well, Chuck, we'll start off with the POS.

Yeah, hi, Paul. You know, we had, as Glenn mentioned in his comments, we had a very strong quarter from an activewear perspective, and we're really happy with where we landed there. We continued to gain share in a market that was down low to mid-single digits, but we gained share capitalizing on the same drivers that we have talked about the last few quarters, our innovation in tees and fleas with our soft cotton technology, our copper colors and American Apparel were both up double-digit again as well. And then Luca mentioned, obviously, we had a strong momentum in national counts. One, we had wraparound effect of business that we picked up from Delta in the closure last year. But also, we started to ship some of the new programs that we've been talking about. So, again, we performed better than the market, and we're happy with the activewear side and what we saw. He did mention also on the interwear, we did see we were down in interwear, but largely driven by underwear.

And as far as the inventory in the channel, it's in good balance and we haven't seen any sign of destocking. And Luca?

Now with respect to the guidance and the assumptions with respect to tariffs, I think it's important to understand that when we maintained our guidance, our guidance is based on elements that we can control. What we've done is we've taken the impact of the current measures that are in place and we've factored in how that impacts our operations. we factored in what that means in terms of demand, and we factored in those mitigating factors that you alluded to. So again, in terms of our guidance for the full year, revenue is up mid-single digits. And if you peel back the onion and you take a look at the market assumption, we're a bit conservative there. And we're saying, look, the market is going to be flat to down low single digit based on the uncertainty that's in the market and the impacts of tariffs more broadly. With respect to tariffs, I think the headline that you have to remember, is that with respect to Gildan, tariffs impact before any mitigation strategies is well below the 10% of the headline number that you see in the overall environment. And the reason for that is because we benefit from the amount of US content that is in our product. So we know that US inputs make up a meaningful percentage of our cost of sales. And so we've baked that into our guidance assumptions. And in terms of the mitigation factors, we've taken a little bit of price That assumption is in there. And we also take a look at, let's not forget, we're the low-cost manufacturer, and we have flexibility within our supply chain. So there's elements that we've already put in place within our supply chain using that flexibility to mitigate some of those factors. So in summary, we're very comfortable, we're confident in the guidance that we've maintained. We've given you a little bit of the assumptions behind the curtain, and it takes into account the measures that are in place today.

Thank you. Good luck.

The next question comes from Brian Morrison with TD Cowan. Your line is open.

Thanks very much. Evening, Glenn, and welcome, Luca. First question, in the MD&A, you note benefits from national accounts due to changes in the industry landscape. I just want to make sure I understand this. It sounds like competitor weakness, new product success, and I assume vertical integration and widening your cost advantage. Can you confirm that? And then the question is, is this leading to nearshoring? And if so, are you seeing further incomings, including GLB?

Well, the change in the competitive landscape on a year-over-year basis is really some of the competitors that left the channel. Delta, who closed down last year, other competitors have vacated the channel. And a combination of as well as potentially nearshoring and other activities coming back to to this atmosphere. I think that things are changing now rapidly, particularly with the tariffs. The one thing maybe from a nearshoring perspective, when you look at the imports into the United States, maybe to put things in perspective, China represents around over 20% of the products being sold into the United States today. Obviously, with their tariff levels, that's prohibited for them to supply products into the market. Then if you take the ASEAN-type countries, which is Vietnam, Indonesia, Cambodia, Thailand, Philippines, Myanmar, those are also countries which still have to negotiate their tariff levels but had high tariff levels in the first go-around. They represent another 31%. I would say that when you look at the overall structure, particularly in retail, because you have a lot more Asian-type product in the retail, servicing retail markets than you would in the wholesale, I think we're going to see a lot of people thinking about their supply chain, and that could be a positive impact for us on people looking to a near shore. And maybe just to add one last thing on that is that the CAFTA, region only represents around 9% of total power of the United States. So I think we think that there's a lot of opportunity with the way the landscape is changing and our competitive positioning, particularly on how we're positioned globally today.

That's great, Glenn. My second question is, and I noticed you left out Bangladesh from your comment there. From a strategy perspective, you know, Bangladesh is being built as a ring-spun hub for the U.S. The tariff is 10% now, and I understand you source cotton and yarn from the U.S. and you're agile, but how do you adjust to meet growth if Bangladesh tariffs are reinstated at that higher rate? Is there capacity in Honduras? How should we think about this?

Well, first of all, we've got a lot of flexibility in our supply chain, number one, which is the first thing you have to understand is, you know, how we can maneuver things. So, but I would say to you is, look, first of all, from Bangladesh, 50% of the, you know, it was a $500 million and we're running at full, I mean, the thing's running full. I mean, today, just put things in perspective. And, you know, of the 500 million we're running out of the plant today, 50% of that's servicing international markets in Canada, which, you know, we still provide product into these countries. The other 50% is producing, you know, ringspun products, which are coming back to the U.S. Now, to put things in perspective, what we said is that the cost, once the factory is fully ramped up, will have a 25% reduction in cost relative to our Central American cost. So if you look at the 10% minus the input of U.S. component, you know, that's still not moving the needle and still very viable for us to produce goods in Bangladesh and particularly in the ringspun category. In the same breath, I would say to you is that we have the capabilities of maneuvering within our supply chain if tariffs do come back at a higher rate. Bangladesh, to answer your question before, it represents around 9% of the apparel going back into the U.S. just for that perspective. And at the same time, one thing I would tell you is that we're actually in the process now of looking. Our capacity today is running around 90%, so we do have available capacity. Most of our capacity that's available is in Central America because of the way we've optimized our capacity and we ramped up Bangladesh to 100% of its utilization. But within our footprint in Central America, we're also looking to actually increase the capacity as well because we think that there's going to be a lot of opportunity as we go forward, particularly with the way the tariffs are evolving and the The fact is that we think we're going to be at a cost advantage relative to other geographical areas. So all things put in place with our supply chain, I think we've got a very effective opportunity here to take advantage of the situation. Thank you very much.

The next question comes from Chris Lee with Desjardins. Your line is open.

Oh, hi. Good afternoon, everyone. My first question is I just want to confirm just your answer to an earlier question about what's embedded in your guidance. Does it now incorporate a more conservative outlook in terms of industry demand? I think it was mentioned it's now flat to down low single-digit. I think it was flat last quarter. So have you kind of tweaked your outlook to flat sort of down low single-digit for industry demand?

Yes, thank you for your question, Chris. Yeah, absolutely. So look, when you take a look at the guidance for the full year, revenue up mid-single digit, okay? So the first element is the market. So we did add that element of conservatism, and the market is now, the assumption is that it will be flat to down low single digit. But then you have to go one step further, and we have to say, okay, we're in a great position to take share, and we have the assumption that we're going to continue to take share on our core business. And then, let's remember that around 75% of our growth going forward is based on new programs. And those new programs, there's meaningful T-shirt and fleece programs in the national account business, as well as the champion license in our printware channel. So those are the elements you have to keep in mind. And definitely what we did factor in is some of that conservatism when it comes to the market assumptions.

Got it. Okay. And my follow-up question is that in terms of that 75% coming from your programs, how much feasibility do you have? How secure are they? Are they dependent on market conditions, i.e., if the economy does take a sort of downturn, are those programs at risk? And if they are, would you be compensated somehow by the customers? Like, how much protection do you have?

on those new programs? We're going to launch these programs. We look at what the opportunity is and the POS or the point of sale of these programs once they get launched. Let's say you take a program, you put it in retail. These are all replenishment, no fashion risk type of programs. You know, if the market, you know, is slightly down, yeah, maybe we can lose a couple percentage points on the overall program in anticipation, which we factored into our forecast. But overall, I would say to you that they're pretty secure because, you know, we're taking space to spaces quantified into markets. you know, sales per square foot, and that sales per square foot should yield the three-quarters of our sales guide that we laid out. Does that answer your question?

Okay, yeah, perfect. Thanks, and best of luck.

The next question comes from Luke Hannon with Canaccord Genuity. Your line is open.

Thanks. Good evening. Good evening, everyone. Glenn, you talked about some of the innovation that's going to continue within 2025. Just curious if we can get a little bit more granularity on it, specifically if it's going to be concentrated, if at all, across any of your main channels being, you know, basic spring spun or fleece. And then secondly, what about the cadence of that as well? And, you know, is it going to be filling white space within the portfolio? Is it going to be more about revamping some of the existing SKUs that you sell? Thanks.

I'll start off by saying that, look, what we did in 2024, after two years of a lot of work, is we really revamped almost all of our product lines, our basics, our fleece. I mean, basically, we touched almost every product line with our soft cotton technology, but our fleece basically with the MVS yarn, et cetera. So we also changed the way the fabric is constructed. It's softer. It pills less. So there's all kinds of different things that we've done, you know, through the innovation of our yarn spinning, et cetera, et cetera. But we also have, you know, a pipeline of other product categories. And, you know, Chuck, maybe you want to just.

Yeah, sure. Look, and, you know, as Glenn said, we've touched a lot of product, if not all the product over the last two years. But as he was talking, we also have something called plasma print technology that's that's coming online that will come on later this year, early next year. that really improves the printability from a direct-to-garment printing perspective. We did showcase it at the ISS show in Long Beach earlier this year, and the reception to it has been outstanding. And so we're going to continue to innovate across all of our product lines. We have some additional programs coming out in interwear as well. We're moving into different fabrications, that sort of thing, where we're picking up space. And so we're really taking innovation throughout our product, and picking up new programs across all categories.

And we also have innovation and quite a few new products that we're offering in our Comfort Colors brand as well. So we're constantly, we just got a whole pipeline of innovation that's going to continue to roll out through 2025 and into 2026. That's great.

Thanks. And then as a follow-up to the tariff conversation, you mentioned that Even the product that you're creating in Bangladesh, that does use U.S. cotton. I believe you do most of your yarn spinning within the U.S., but in Bangladesh, you do use third-party spinners. You can correct me if I'm wrong. But if that is the case, do you envision setting up more yarn spinning facilities of your own to support your operations in Bangladesh? Sure.

Well, we have a vested interest in all of our yarn spinning facilities in Bangladesh. We use U.S. cotton, so we ship the cotton, we purchase the cotton, we ship it to Bangladesh and, you know, it gets spun into yarn and produced. So, we do have, you know, cotton is a large component of our total cost structure, particularly on, you know, basic t-shirts. So, you know, it's important, part of our ESG strategies, let alone, you know, our whole manufacturing process. So, In the States, you know, obviously we have a little bit more U.S. content in the U.S. because of the yarn spinning in this hemisphere. But we're well positioned, I think, from a tariff perspective. You know, you can do the math and, you know, cotton and spinning is a large proponent of our cost structure.

Okay. Thank you very much.

The next question comes from Stephen McLeod with BMO Capital Markets. Your line is open.

Thank you. Good evening, everyone. Lots of great color so far, so thank you. But I just had two follow-up questions. One is I'm just wondering if you can provide any color on what you've seen on a second quarter to date basis with respect to the North American distributor channel in terms of sales trends. And then secondly, Glenn, you talked a little bit about the opportunities to increase capacity in Central America today. which I think is particularly interesting. So I'm just curious if you could, if you can provide just even a little bit of color around, you know, would that be potentially something expansion within your current re-inventing facility or, or is there something, something new that you're potentially contemplating?

Well, I always tell you, look at like, like everything else, we have a lot of flexibility in our system. And, you know, we're continuing to look like, like, Like everything else, when we build our plants, we build them and we are capable of expanding them quickly. We always give ourselves a little bit of room to maneuver. So our objective is that we don't want to spend a lot of capital to expand and we need to expand quickly. So most likely working with existing structure basically is the best way for us to do it. It's going to maximize our cost and efficiency, keep us within our capex range. and allow us to maximize output. I would say that we're very optimistic that we can increase our capacity in this hemisphere and it's part of what we think is a big opportunity. One of the things I would say to you is that As I mentioned earlier in terms of the imports from Asia, we're already seeing customers coming and looking for filling shelves at the end of the day. There's definitely going to be, we think, potentially a shortage of product because it's prohibited to bring product in from China. So, you know, we think we need to take advantage of it and we're cautiously optimistic. So, you know, we can put in the line our capacity without really sticking our neck out, but giving us, you know, all the flexibility that as we go forward, if, you know, things, you know, materialize and, you know, we have opportunity, we can take advantage of it. And I would say to you on another front is that, you know, we have a lot of, you know, I would say momentum as we already move into 2026 in terms of building, you know, new business. And I think that that's also because it takes time to do these things. But we're starting to see, you know, retailers, you know, allocate or work with our team. And we know we're pretty excited about that, too. So our pipeline is strong. for 2026. And I think that, you know, we even have a chance to do some, you know, some fill in, you know, for this year. And that's really why we're excited and really focusing on, you know, expanding our capacity.

And on the quarter to date Q2 POS sprint and business sprint, you know, we've kind of seen the trend as we talked about last few quarters where, you know, a quarter would start out a little slower and then accelerate, but we're actually seeing So in January, we saw it start off a little slower, impacts of weather, fires, different things happening. It improved sequentially in February. It improved again in March. Well, the good news is it's going ahead and improving again in April. So we're continuing to see consistent improvement through April. So we feel good about how this quarter has started out.

Yeah, and I would say just to end off on the second quarter, is that we've put the guidance right that our revenue is up mid-single digits, and we feel comfortable with the outlook that we've laid out. We remain cautiously optimistic, but for the second quarter, you should see some of the same trends as we finish the first quarter, right, where there's market share gains across the channels and key product categories, and we start to see some of the impact of the new program. So second quarter, revenue up mid-single digit. We're quite pleased. It's still very early in the quarter, but we're quite pleased with what we see.

Yeah, okay. That's great, guys. Thanks so much for the color.

The next question comes from Paul Kearney with Barclays. Your line is open.

Hey, good evening. Thanks for taking my questions. Can you talk about what you're seeing in terms of pricing in the market? Have prices in your key categories already started to rise for tariff costs? And my second question is, given your relative advantage, how do you balance accelerating the potential market share gains versus taking some benefit on margin?

Thank you.

Thank you, Paul. On the pricing front, I mean, we've seen pricing remain fairly stable through Q1 and into early Q2, so not a lot of price changes at that point. We have taken selective minimal price so far to offset inflation and some of the tariffs. Some of that will begin taking effect later in Q2. But again, we're not seeing that, as both Glenn and Luke have mentioned, with our ability, with our vertically integrated supply chain, our flexibility, you know, we think that'll continue to be selective minimal price offsetting that tariff and not large price changes as you may have to see from other regions or other suppliers.

And I guess just to round out the question from the margin perspective, for the full year, we're guiding to an improvement in the operating margin by 50 basis points versus 2024. And if you boil it down to the levers that we need in order to achieve the expected operating margins, which underpin our guidance, the first is fully leveraging our greenfield project in Bangladesh, right? And that flow through in cost of sales. The second is improving the utilization of the Central American capacity, produce more fleece, high growth products, right? And the third is benefiting from the yarn modernization investments and other strategic initiatives that optimize our supply chain. And finally... we'll successfully navigate the tariff situation with the levers that are available to us, which is we went over, but the flexibility in our operations, as well as a little bit of price.

Okay, thank you very much.

The next question comes from Vishal Sridhar with National Bank. Your line is open.

Hi, thanks for taking my questions. With respect to the industry trends in Q1, when you talked about the declines, was that in sales or units?

We're speaking mainly in units from a unit perspective, but I think sales perspective tracks the same.

I see. And with respect to Gildan, what were your units year over year?

Our price is neutral and our active wear sales were up 9% basically driven by our innovation, basically our soft style technology, our fleece, our comfort colors, our AA. Basically, I think we had a good quarter. We're taking share. We have a little bit of revenue from our new programs. But basically, all in all, there was no real price moving in the quarter.

Right. But given that mix was favorable... presumably units with something less than nine, but still positive?

No, mixed was slightly the same.

I don't think mixed was... Well, I think, again, if we take a look, you have to start with the market assumption, right? Or how the market performed. The market was down low to mid single digit in the first quarter. And for the reasons that Glenn went over, we were taking share and we saw strength in our national accounts business, the categories that are touched by innovation, like Glenn mentioned, comfort colors, American Apparel, those were up double digits. So those really underpin the 9% growth in activewear. And we're quite pleased with that performance. That's a good performance in our quarter. And the first quarter is usually the lowest quarter, and we have to remember that. Now, on the underwear and hosiery side, that's where we did have lower sales, 38%. But that's because of the phasing out of the Under Armour business.

Okay. And when do you anniversary the introduction of the soft cotton technology?

The soft cotton technology, well, it's hard to say, though, because you know why? Because it takes a long time for it to constantly get out to the marketplace. So, like, if you look at last year, you know, we started being flat in sales and we were a slight Q2. We were, you know, flat, slightly up one. And then as we moved through the quarters, it got a little bit better. So it's hard to say, to be perfectly honest with you. But I would say to you that it's resonating with end users. It's a product of choice. And I would say particularly when you look in a market where inflation is a factor, people look to trade down. And our soft cotton technology is a great trade-down product. And maybe one other point that we haven't crossed today is that people don't realize that the wholesale cost on our cost, what our customers are selling to end users, our basic bread-and-butter T-shirt is selling for $2.30. Yes. So there's two important points here. One is that even if there's a slight price increase on $2.30, it's not going to even move the needle because by the time our products get sold to end users and end up at either a souvenir store or somewhere else, they're selling for between $20 and $25. So that couple cents of shirt is never going to move the needle. And secondly, because of our price point is so favorable, You know, we think that we have a good chance in trade down, et cetera, et cetera. So I think we're well positioned overall to continue our momentum and continue taking share. And we're better positioned than anybody else in the market, which I think is an important part because not everybody can offset the tariff costs like we do because of our, you know, vertically integration, our low-cost manufacturing, our flexibility, our agility, and everything else we have working for Gildan. And we're pretty excited about the opportunity.

Thank you.

The next question comes from Martin Landry with Stiefel. Your line is open.

Hi, good evening, everyone. My question is on your Q2 guidance for margins, for operating margins. You're guiding for operating margins to be stable year over year. Last year, it was your highest quarter, I think, at 22.7%. So... This would be in last year, you had the Barbados tax credit for six months. That was a significant help. So this year, you're going to have the highest gross operating margin you've had in a long time. So the question is, how sustainable is that margin level? And where could margins go next in the long term? You know, is there upside to your 2025 level or are you maxed out?

Well, thank you for your question, Martin. I think when you take a look at the operating margin and you take a look at the evolution of the business, right? And like you said, last year, the operating margin was 22.7%. We've guided to a similar operating margin for the second quarter of this year. You're correct. that last year included the positive benefit of the jobs credits. It was introduced in May by Barbados. It was retroactive to the first quarter. And in our disclosures, you see that there was $17 million of that benefit now. So that we have to take into account. But nonetheless, it is like you say, it's a strong operating margin. And we're comfortable with the guidance that we've given for the second quarter. Given... you know, the trends that you see exiting Q1, right? When you take a look at where the growth comes from, coming from categories such as comfort colors, right? American apparel, fleece. So these are categories that really do benefit the margin. And then with respect to the future view, we've given the guidance for the full year, right? 50 basis points versus 2024. And then again, if you peel back the onion there, when you look at the assumptions, we are cautiously optimistic. but at the same time, we're comfortable with the guidance that we gave. So similar to last year in Q2 and 50 basis point expansion for the full year. That's the way I would think about it.

Okay, that's helpful.

And Glenn, just coming back to the dynamic at play here, it seems like your competitive advantage is improving. It seems like you could increase your capacity utilization. I mean, I would assume that gives you a bit more flexibility to pick and choose, you know, which program you want to play in and maybe potentially improve your margin. Is that a fair assessment?

Well, I would say to you is that obviously that's our goal is always to return, you know, focus on shareholder value. So I would say, yes, that would be the answer. But you look at, you know, there's strategic, opportunities for us right now. We're going to continue to focus on the long term for the business and making sure that we work with our customers for the long term. And I think that's really going to be the most important decision that will drive our decision making.

Okay, thank you and best of luck.

The next question comes from Mark Petrie with CIBC. Your line is open.

Yeah, good afternoon. Thanks for the question. Just a couple follow-ups. I guess first, with regards to price, have you observed any price activity or price increases from your competitors?

We have seen selective pricing out by some competitors as well. So I think we're going to continue to see that dynamic play out through the rest of this quarter. I think it was early days. It took some people time to assess their supply chain. I think we could do so quickly due to our vertically integrated manufacturing, our ability to control what we do. And so we've moved accordingly. But I think we'll continue to see that happen over the coming weeks and months.

And would you characterize your moves as being roughly in line with the competitive set or lagging or leading?

Well, it's early days still, so I would say to you that, look, I mean, we have, I think, an advantage because of our U.S. content, both our cotton and our yarn, versus some of the competitors in the market. So we'll see what happens. I mean, they might just sacrifice their margin. We'll see. But I think we're being cautious on how we maneuver in the market on price, and we're going to leverage our infrastructure and our low-cost manufacturing.

Yeah, understood. Okay, thanks. And then just on the cash flow, working capital, is that just sort of typical seasonality or is there something else there and we should just sort of expect it to continue to normalize throughout the balance of the year? And then also related to that, I suppose, a bit of a slower pace on buybacks for you in Q1 versus, you know, obviously being more aggressive on the re-leveraging in 2024. But how should we think about the pace of buybacks through the balance of the year, you know, assuming the 5% to 6% sort of general target is still the right number.

Yeah, Mark, thank you for your question. So for the first part, in terms of the working capital, look, the working capital is under control, right? So like heading into season, it's normal that the working capital as a percentage of sales will be higher. But in terms of our projections and really our target, that would moderate back to something around, let's say, 37% of sales towards the end of the year. And the components of that, in terms of the receivables and the inventory, will both moderate. So we feel very comfortable there. We're also well-positioned. When you look at working capital at this juncture, working capital is a good thing because, don't forget, number one purchasing criteria for our customers is availability. So that comes with a working capital cost up front, and then you monetize. So by the end of the year, normalize back to 37%. And in terms of the return of capital to shareholders, that's of utmost importance for us. We've laid that out in our capital allocation strategy. First quarter, 62 million, 1.2 million shares. And the way to think about our NCIB program is that we will continue to buy back shares in a sustained cadence, and 5% to 6% over the course of the year is the way to think about that. And really important to us is that as we provide capital back to shareholders. And as we meet our objectives, we have to maintain a healthy balance sheet. And our leverage framework of one and a half to two and a half times is what we're comfortable with. And so you'll see that also be monitored in conjunction with the way we buy back stock. So I think that should answer both of your questions.

Yeah, yeah, it does. Thank you. And maybe actually just one quick one. I think I'm hearing you say that the account wins for 2025 were maybe slightly in place for Q1, but obviously getting much more material throughout the year. Is that right?

Yes, that's right. I mean, we feel most of those will continue through the back half, and you'll see it accelerate there. And also, as Glenn mentioned, we also have line of sight of new programs into 2026 that we think will also give us the same level of, sustained growth as we look through and support our mid-single-digit growth going into 2026.

Yeah, understood. Okay, thanks for all the comments. All the best.

Thank you.

This concludes the question and answer session. I'll turn the call to Jessie Ham for closing remarks.

Thanks, Sarah. Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great evening.

This concludes today's conference call. Thank you for joining.

You may now disconnect. It was two for one and four for two at Christmas lights in the middle of June. I hung up like I was on you. I said, hey, hey, baby, do you want to