Gildan Activewear, Inc.

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'll also be available on our corporate website. Now joining me on the call today are Glenn Chimendi, our President and CEO, Luca Borelli, Executive Vice President, CFO, and Chuck Ward, Executive Vice President, Chief Operating Officer. This morning 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 MD&A. And now, I'll turn it over to Glenn.

Thank you, Jessie, and good morning, everyone. We're pleased with our third quarter results as we continue to drive profitable growth. especially in a macroeconomic backdrop which remains fluid. We saw strong net sales growth of 5.4% in activewear and adjusted operating margins of 23.2%, which allowed us to deliver record-adjusted diluted EPS of $1 this quarter, an increase of 17.6% versus the same period last year. These are record-setting third quarter results which once again showcase the effectiveness of our Gildan sustainable growth strategy in driving strong financial performance. Our sales in the distributor channel remain healthy and we're seeing sustained momentum in our national account customers which is supported by strong overall competitive positioning. We continue to drive growth in key categories. We're very pleased that our innovation pipeline continues to create excitement, and we have now introduced new brand offerings such as All Pro and Champion. Furthermore, our Comfort Colors brand continues to perform very well. This year, the brand is actually celebrating its 50th anniversary, a great milestone for Comfort Colors whose pigment-dyed shirts are redefining comfort and style. They're crafted from 100% ring-spun cotton grown and harvested in the U.S. using a pigment-pure technology which helps to reduce water and energy and shortens processing time. So as we turn the page to another successful quarter of execution, we are narrowing our adjusted diluted EPS guidance to a range of $3.45 to $3.51, and also updating our full-year adjusted operating margins, CapEx, free cash flow guidance. Luca will detail this in a moment. We believe that this is an exciting pivotal moment for Gildan, and we're enthusiastic about the next phase of our growth journey. We're delivering constant execution of our strategic priorities. We're capitalizing on the largest innovation pipeline in the company's history. And now, we're focused on planning the integration of the proposed acquisition of Hanes Brands, which will broaden our portfolio of retail presence as we look to drive meaningful run rate synergies of at least 200 million by leveraging our best in class, large scale, low cost, vertically integrated manufacturing network. We continue to expect the transaction to close late this year or early 2026. As you can expect, we have put in place an integration team that have begun planning for this combination. At this point, there is no further commentary that will be positioned to provide for the proposed transaction. In conclusion, we continue to execute from a position of strength. We have a solid foundation We're focusing on our GSG strategy with our strong competitive positioning, all of which is putting us in a great position to execute on the eventual combination with Haynes Brands and ultimately drive long-term shareholder value. I look forward to answering your questions after our formal remarks, and now I'll turn it over to Luca for a financial review.

Thank you, Glenn. Good morning, everyone, and thank you for joining us today to discuss our third quarter results. Let me start with the specifics of the quarter, then turn to our 2025 outlook and guidance. First, the quarterly results. We reported third quarter sales of $911 million, up 2.2% year-over-year, in line with previously provided guidance of low single-digit growth. The 5.4% increase in activewear sales was driven by favorable product mix and higher net prices. As Glenn mentioned, we continue to drive growth in key categories and are experiencing robust demand for comfort colors while supplementing our portfolio with the addition of All Pro and Champion. Sales to North American distributors were solid, complemented by sustained momentum at our national account customers, driven by our strong overall competitive positioning. Sales in the hosiery and underwear category were down 22% versus last year, which reflect, as expected, a timing shift of shipments into the fourth quarter and to a lesser extent, unfavorable mix as the category experienced continued broader market weakness during the quarter. Turning to international markets, sales were down by 4 million or down 6.1% year over year, primarily reflecting ongoing demand softness across markets. We don't typically spend time on our year-to-date results, but just a brief comment that on a year-to-date basis, our consolidated revenue growth is at mid-single digits, excluding the impact of the exit of the Under Armour business in 2024, setting us up well for the full year. Shifting to margins for the quarter, our gross margin was 33.7%, a 250 basis point improvement over the prior year, primarily due to lower manufacturing costs and favorable pricing which reflect price increases implemented to offset the initial impact from tariffs. To a lesser extent, we also benefited from lower raw material costs. SG&A expenses were $95 million versus $84 million last year. Excluding charges related to the proxy contest and leadership changes and related matters, which were almost entirely incurred in the prior year, adjusted SG&A were still 95 million or 10.4% of sales compared to 78 million or 8.8% of sales in the same quarter last year, reflecting higher variable compensation and IT related general and administrative expenses. As we bring these elements together and adjusting for restructuring and acquisition related costs, primarily related to the proposed Haynes Brands acquisition, as well as the costs related to the proxy contest and leadership changes and related matters, which were almost all entirely incurred in the prior year. We generated adjusted operating income of $212 million, up $12 million, representing a record 23.2% of net sales. This reflects an 80 basis point improvement year over year, which came in ahead of guidance we provided. Net financial expenses of $44 million were up $13 million over the prior year due primarily to fees related to the committed financing that we obtained for the proposed Haynes Brands acquisition and due to generally higher borrowing levels. Furthermore, in connection with the proposed acquisition, as you may have seen, we announced on September 23rd a private placement offering of US $1.2 billion aggregate principal amount of senior unsecured notes across two series. The proceeds from this offering will be used to fund the proposed acquisition of Haines Brands, refinance its debt and cover related transaction costs. Taking into account all these factors and adjusting for restructuring and other costs and the financing fees in connection with the proposed Haines Brands acquisition, we generated Record adjusted diluted EPS of $1 up 17.6% compared to $0.85 in the comparable period. Now turning to cash flow and balance sheet items for the first nine months of 2025. Operating cash flow was $270 million compared to $291 million last year, primarily reflecting higher working capital investments. After accounting for capex of $82 million, we generated approximately $189 million in free cash flow in the first nine months of 2025, of which $200 million was generated in the third quarter. During the first nine months of the year, we returned $286 million in capital to shareholders, including $102 million in dividends, and repurchased about 3.8 million shares under our NCIB program. Finally, We ended this quarter with net debt of about $1.7 billion and at a leverage ratio of two times net debt to trailing 12 months adjusted EBITDA, at the midpoint of our targeted range of 1.5 to 2.5 times. Now turning to our strategy and outlook. As Glenn highlighted earlier, we are pleased with the team's continued execution as we approach the end of a very solid year. We continue to tap into the largest innovation pipeline in the company's history with more product launches to come in 2025 and into 2026. Now turning to the outlook, we remain focused on operational agility and committed to executing on our GSG strategy in order to drive strong financial performance as we navigate a fluid macroeconomic environment. We are updating our 2025 guidance as follows and expect revenue growth for the full year to be up mid single digits in line with previous guidance. Full year adjusted operating margin to increase approximately 70 basis points compared to previous guidance of up approximately 50 basis points. Our capex to come in at approximately 4% of sales compared to previous guidance of 5% of sales. Adjusted diluted EPS to be in the range of $3.45 to $3.51, which is up approximately 15% and 17% year over year, compared to our previous guidance of $3.40 to $3.56. And free cash flow to now approximately $400 million compared to our previous guidance of above $450 million. The assumptions underpinning this outlook are the following. Firstly, we continue to reflect the impact of tariffs currently in place in conjunction with mitigation initiatives available to us, including pricing and our ability to leverage our flexible business model as a low-cost, vertically integrated manufacturer. The higher tariffs are also embedded in our inventory costs. Furthermore, the outlook continues to reflect growth in key product categories driven by recently introduced innovation, the favorable impact from new program launches and market share gains, and the various incentives from jurisdictions where we operate. We've assumed no share repurchases for the remainder of 2025, as indicated at the time of the announcement of the proposed Hanes Brands acquisition. We've taken into account acquisition-related costs incurred thus far, and we anticipate that our adjusted effective tax rate for 2025 will remain at a similar level to what we saw for the full year in 2024. Finally, we've assumed no meaningful deterioration from the current market conditions, including the pricing and inflationary environment, and the absence of a significant shift in labour conditions or the competitive environment. So in summary, we are pleased with the quarter, and we remain confident in our ability to deliver continued strong financial performance as we look ahead and get ready to welcome Haynes Brands. 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. As usual, before moving to the Q&A session, I would like to remind you to limit your questions to two, and we'll circle back for a second round if time permits. Jeannie, can you please begin the Q&A session?

Thank you. At this time, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. And your first question comes from Paul LeJouet with Citigroup. Please go ahead.

Hey, thanks, guys. A couple questions. One, can you just talk a little bit more about the weakness in the underwear business, where you think that market share might be going? Maybe you can quantify how much was the shift versus overall market weakness, and what's your view on when that business stabilizes? And then second, just curious what you're seeing at point of sale overall. Maybe if you could talk to pockets of strength and weakness at point of sale. Thank you.

Good morning, Paul. It's Chuck.

Thank you for the questions. A couple quick things, I guess. First, on the underwear and the innerwear business. What we're seeing, the innerwear business was impacted by a few things for the quarter. There continues to be some delays in some floor sets by a large retailer, so we're continuing to face that a bit. Also, some of it is retailers managing inventory investments and balances due to the impacts, if you think of what they now have, impacts of tariffs in their inventory, and some cautiousness overall. We did see during Q3 the retailers starting to manage inventory a little tighter. And also we talked previously about some ongoing product and program resets that are happening within the space with some customers. So all those things kind of drove the quarter results that you see here. I think as we think about it going forward, we expect to see a return in the interwear of growth in Q4. So we expect Q4 to be back to a growth perspective. Overall on POS and what we're seeing in the market, I mean, what we're seeing is a stable market. We have seen it stabilize over the year. We think that we'll continue to see that through Q4 as well. And I think if you think about categories and how they're performing, I mean, we're seeing strong performance. Performance, obviously, with our Comfort Colors brand, we're continuing to see very large growth in net. Fleece has performed well. Glenn mentioned in his comment some about some new active wear programs and national account growth that we're seeing as well. So we're capitalizing on those things as we go. And then, you know, obviously we feel good about our brand portfolio and where we are to address the market going forward.

Guys, when you say stable market, are you saying stable for last year, like PLS is flat for last year, or stable at a low single-digit or mid-single-digit rate?

Yeah, more in line with Q2, what we were talking about in Q2, the market's kind of been stable at that same rate going forward.

Your next question comes from the line of Chris Lee with Desjardins.

Please go ahead.

Hi, good morning, everyone. Just maybe a first question on your guidance update. On your free cash flow guidance, you are guiding a little bit lower despite lower CapEx. It looks like it's mostly coming from higher working capital investment. Can you please elaborate a little bit of what's driving the change in the guidance for this year? Thank you.

Yeah, sure. Thank you, Chris, for your question. From a free cash flow perspective, a few things. One, very good free cash flow performance in the quarter. We generated $200 million, which is right in line with our own internal expectations. The revision to the guidance from a free cash flow perspective, there's a few things that drive that. One is just taking into account the transaction costs incurred to date with the proposed Haynes Brands acquisition. The second is there's a bit of timing with respect to working capital. I'd reiterate that our view on working capital as a percentage of sales is really to be around 37% to 38%. We'll get there as we move into 2026. And right now, there's also some tariff costs that are incurring in our inventory. So that's really the main drivers from a cash flow generation perspective that we're still generating healthy elements of free cash flow. That's really driven by the fact that we have really strong margin performance coming through, and that's expected to continue into next year.

Great. Okay. That's very helpful. And then maybe just another one on the guidance update. The operating margin expected to increase by 70 basis point this year. As you look out into next year, what are some of the key puts and takes? And maybe directionally speaking, do you think 70 basis point improvement again next year is achievable? Thank you.

Well, starting with the guidance for this year, the one thing that we're very pleased with, and that is it starts with the performance that we've seen sort of quarter over quarter, and specifically in the third quarter, is strong margin performance. And the strong margin performance is twofold. One, from strong gross margin performance, but also really good cost control around SG&A. And the reason why we've upped the guidance there in terms of up to 70 basis points improvement year over year versus the 50 that we previously guided to, is because the elements that we control that have been driving the margin expansion are things that are foundational to the way the company is running today and will continue to run. Those things are really embedded in the ramp-up of Bangladesh. Our investment in Bangladesh and the cost differential that that's bringing us is contributing to that margin. That's expected to continue. The investments we made into our yarn operations, our optimization of our yarn footprint, and those costs are coming through. Those will continue. The optimization of our Central American capacity and, quite frankly, overall, our network overall, that's coming through. So there are elements that when you take a look at the gross margin in the third quarter, we do have some impact from favorable pricing. There's a little bit of timing versus Q4. But the way to think about the margin, it's strong and it's sustained and it's driven by things that we control and that are foundational to the business model. So that's how I would think about heading into next year.

Okay, great. Thanks, Luca. All the best.

Thank you.

Your next question comes from the line of Jay Sol with UBS. Please go ahead.

Great. Thank you so much. Two-part question for me. First is just on the fleece business. Glenn, if you can just talk about how the fleece business trended maybe in September if the weather's a little bit warmer and maybe what you've seen in October as the weather's gotten a little cooler and just how inventory in that business is looking overall and how demand is looking. And then secondly, With all the tariffs now, it's been a couple quarters since April 2nd. What kind of conversations are you having with companies? What kind of opportunity do you see maybe to capture some new business from companies maybe looking to move some of their production out of Asia, maybe to your factories with your company, whether it's in Bangladesh or in Central America? Thanks so much.

Okay, well, I would say, look, Fleece is still performing well for us. We're in a good position with Fleece this year. It's really early. I mean, the season really only starts early. kicking off like, you know, we ship, we ship a lot of our fleece and, you know, the end of Q2, Q3 basically. And then the season really sell through period is starts now and, you know, moves into, um, the fall and winter really. So, um, you know, so I think we're, you know, it's early days in terms of weather, but so far the, the sales are, are meeting our expectations, I would say, in terms of fleece so far for this year. Regarding tariffs, I would say to you that, look, there's a lot of uncertainty in the market today. And I think that we're seeing a lot of people looking to reorient their supply chain. But at the same time, there's a little bit of I would say hesitation because people don't understand our tariffs off, the tariffs are on. They're making a deal, they're not making a deal. They're going to court, they're not going to court. So shifting your supply chain is never something you want to do in a knee-jerk type of reaction. And even ourselves, to be honest with you, there's ways for us in our own manufacturing to further optimize, I would say, our supply chain relative to the way we're set up, but we're sort of waiting to see how all of these things materialize. So overall, I would say that there's definitely going to be a rethink in terms of how people are trying to reorient into their supply chain. And there's also going to be specific areas where I think the opportunity is going to allow us to look at other product categories. So, for example, if you look at the 100% polyester product category, that's an area where the tariffs are are the highest, and duties are the highest. And that's an area that we have, you know, our Rio Nancy 6 facility, for example, has got a lot of capabilities of producing polyester. And there's been trade legislation changes in that category. So we think that that's something that we can capitalize on, and that's probably one of the areas where we have actually the lowest market penetration. So we're working quickly now on building product innovation, things that we're doing to look at that category. And one of our brands, which is all pro, I mean, it's really focusing on all polyester type products. And as well as a lot of the big brands that are looking maybe potentially near shore, that's a category which is really important to them. So overall, look, we think there's going to be an opportunity. I think it still has to come to fruition, I would say, as we move into the future. But I think we're well positioned with our manufacturing footprint to take advantage of any type of opportunity.

Got it. Thank you so much. Your next question comes from the line of Vishal Sridhar with the National Bank.

Please go ahead.

Hi. Thanks for taking my questions. Luca, when you mentioned that the market was stable, my understanding was that the market was – I'm talking about the wholesale market was under pressure at least for the last several quarters. So were you talking on a volume basis – or on a sales basis, and are you including national accounts in that as well, when you're saying it's stable?

When we look at the market, we look at the whole market in its entirety, and I would say to you that the Q3 was similar to Q2, and what we said in Q2, it was down low single digits, basically. So we're seeing the same type of, you know, comps as we move into Q3. So it hasn't really improved and it hasn't gotten any worse. So it's more stable relative to Q2, but still... negative year over year. You know, obviously, we're doing well in the market because of our, you know, our soft cotton technology, our comfort colors, you know, our AA basically is continuing to grow, our launch of our All-Pro and Champion. And remember that, you know, three quarters of our sales growth this year in 2025 was projected coming from new programs. You know, our fleeces in retail, you know, a big major program we had is doing very well. So, All those things are driving the sales growth for us to have our mid-single-digit growth for the full year, which we're on track for. But I would say that the market, it was down probably low to mid in Q1. We said low in Q2, and it's probably in the same level Q3, and we're expecting that type of scenario in Q4 in our assumption.

Okay, and that's on a sales basis, right? Not on a units basis. Yeah. Yeah. Okay.

Okay. And with respect to the gross margin, and I know you chatted to this a little bit earlier, but it improved quite a bit sequentially. Is that mainly related to the manufacturing initiatives or was there pricing in there as well?

Yeah, Vishal. So again, the gross margin was strong in the quarter. It's a combination of things, but really what's driving the foundation of the margin at the end of the day is the contribution of the lower manufacturing costs. There is some impact from pricing, but really the lower manufacturing costs is what's foundational. And that is what's going to carry forward, not only into the fourth quarter, but that's foundational to the business as we move into next year.

Yeah. And maybe just add one thing to that, I would say, is that look at the fundamentals of Our strategy of optimizing our manufacturing and scaling and generating scale in our operations is going to continue as we move into 2026 because we've expanded in Central America, like we said this year, which we've added another 10% capacity. in our facilities and our four walls at a limited capex and the capex is coming even below our expectations. So as we leverage that capex as we move into 2026, obviously that's going to continue to help us with additional cost reductions and margin expansion as we continue to optimize our facilities. And we're actually in the process now of looking to expand within our Bangladeshi facility within the four walls of that as well. And we believe that we actually can expand that facility by probably another 50% as we look at the four walls of that building by utilizing some space that we have within our park and allowing us to drive additional capacity. So these are all the things that's built into Gildan DNA is looking at ways really to optimize space you know, our manufacturing, particularly as we look at, you know, our overall planning as we move into 2026 and bringing on Hanes. And as far as we continue to plan our integration strategy. So scale is going to be a key driver of continued margin expansion. And we think we're well positioned to be continued to grow our margins as we move forward and lower our costs.

Thank you.

Your next question comes from the line of Brian Morrison with TD Cowen. Please go ahead.

Hey, good morning. Glenn, I want to follow up with that what you just talked about. So how much capacity, you talked about the increase in Bangladesh and in Honduras throughput. How much available capacity in dollars is within your existing infrastructure? It sounds like there's another $200 to $250 million in Bangladesh One. And What is your view for a go ahead for a second facility at Bangladesh? I know you already have some of the pieces already in place there.

Well, I think two things. One, look, we'll articulate some of our plans as we move into Q1 and report because we'll have good visibility on our total integration plan with HBI. So I think that will sort of give you a little bit of context. But the increased capacity that we can get out of Bangladesh right now doesn't preclude us from putting up the second facility. So we still have that optionality. what we're going to do is we have space available to us in Bangladesh where we can add additional knitting equipment and we're putting in some more dyeing and finishing equipment in the facility and in the existing facility will allow us to get the first level of expansion. And then we'll also, obviously as we move forward, evaluate phase two. Phase two would be a much bigger, longer project. It's going to take 12 to 18 months to develop. So that's something that will be down the road. But trying to get incremental capacity, and also looking to optimize our cost structure and reduce the amount of capital we've got to spend. That's our first priority as we bring on HBI. So with all of that and looking at the ecosystem of what they're doing, the products, the mix, and all the different things, we're building, I think, a cohesive integration plan that ultimately is going to continue to lower our costs and bring us scale, which is what we called out before, But more importantly, we think that there's a lot of room in terms of the margin improvement and operating margin improvement on the other side because we believe that Haynes should be operating in the same type of operating margins as Gildan does today. So that's our long-term goal, let's say, for example, as we drive into the future. So everything being equal, I think we're in a very good position. We're very comfortable with our positioning. And we're going to continue to leverage our best in class, vertically integrated, large scale manufacturing as we build our plans into 26, 27 and 28.

And Glenn, to follow up, how long would it take you to expand Bangladesh One and have tariffs on Bangladesh made you alter any of your logistics or supply chain in order to optimize your cost structure?

I would say that even with tariffs, Bangladesh is very competitive. What we said before is that it had a 25% cost advantage relative to what we're doing in Central America and the products that we're producing. The tariff impact with U.S. cotton obviously is a lot lower than that. As we continue to scale the thing up and lower our costs, therefore, we'll be offsetting some of that tariff cost even further. That's all part of the strategy, how we're going to continue to drive efficiencies in our system. So, look, we think that we're in a good place. You know, we're continued. We feel comfortable. And you can see it's pulling through in our operating margin expansion this year. And all we're saying to you is that, look, we've got further room to continue to expand our manufacturing footprint, reduce our costs, and make us more competitive and continue to innovate our products. And don't forget, one of the things that you can take into account is that even though that we've you know, we've seen margin expansion, don't preclude us that the fact that we've reinvested significantly in our product and innovation, because the things that we're doing in our soft cotton technology, for example, have, you know, we're putting more value into these garments, so more cost in terms of, you know, like for like type thing. But the fact is, is because we're optimizing, we're offsetting those costs with lower manufacturing costs, which is, you know, in improving our operating margins. So, You know, it's a win-win scenario in our ecosystem. And by bringing in, I think, as we move forward into 26 and, you know, taking in the big volume that we have from Hanes, that's when we're going to continue to allow us to scale up even further. And we're really excited about the opportunity.

Thanks very much. Good luck.

Your next question comes from the line of Stephen McLeod with BMO Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Just a couple of questions. Just looking at the printable channel in Q3, and you sort of called it out as being similar to Q2, can you talk a little bit about sort of what you're seeing within each segment of that market, fashion basics, basics, and fleece?

Well, I would say to you that, look, our soft cotton technology continues to drive our basic strategy. Comfort Colors is doing really well again, similar to last year. AA is actually coming back. We're seeing good growth in AA. And we have our new brands, All Pro, Champion, and all the new programs we have. So we're doing well in a bad market. I mean, that's the truth of the situation. I mean, the market conditions, like we said, are bad. are down a little single digits. And, you know, we're doing well. So, you know, I think that we're well positioned and, you know, they're good to hopefully, and we'll see a big improvement in market conditions in, in 2026. And, you know, with the momentum we have, I think we'll be, we'll see a good strong 2026. Okay.

That's, that's great. Thank you. And then just turning to the cotton cost environment, obviously it's been very benign over the last sort of year or so. And I'm just curious, how much does that play into your gross margin outlook? And do you see incremental upside from this sort of more benign cotton cost environment?

I would say that, look, it's sort of going sideways right now, so there'll be no impact one way or the other on

Yeah, and I would say, just to complement that, I would say that, look, if you look at the strong, starting with the Q3, the strong margin performance, it really was driven by lower manufacturing costs. There was a little bit of, you know, lower raw material costs that did come through. And we do have visibility of that as we move forward. But the real driver of the sustained margin moving forward is from the manufacturing cost.

Thank you. Thank you.

Your next question comes from the line of Martin Landry with Stifel. Please go ahead.

Hi, good morning, guys. Glenn, I want to come back on the market dynamic. You're saying that the market has been weak in Q1, Q2, and Q3, and you also expect the market to be down in Q4. I'm just trying to understand why is the imperturbable market down? The economy is doing well. GDP is growing nicely. So what explains the fact that the industry is in decline?

Well, I would say that there's different things overall when we look at the market. You know, our GLB customers are basically, you can follow them. I mean, they're not performing as they were before. in previous years, so that's one. We're seeing large retailers managing inventory a little bit on maybe the national account side. You have corporate promotional products, companies worried about tariffs and spending money basically, which is affecting potentially some of the print wear market. The travel, the tourism, I think that part is still going good. People are still moving around and spending. There are different pockets of things, I would say, that are affecting the market. It's hard to say, really, because there are so many... there's so many different avenues of market growth, let's say, for example, or market consumption really at the end of the day. So we really don't have a total handle on it, to be perfectly honest with you. But we get the results, obviously, and it's a little bit here, a little bit there, and it all adds up to maybe Chuck, you want to add into that?

Yeah, no, I think, Martin, again, I think to be clear, that's the market overall. As Glenn said, it's all the you know, it's not just imprintables. It's across the whole market. We're talking about the way it looks at that. And we talked about inventory and retailers and so forth. I mean, when you're talking about the imprintables market, Martin, we feel great about our positioning when we look at our brand portfolio, what we have and the ability to address the market. Glenn's talked about our soft cotton technology, things we've done there that's really driving our basics category. Plasma print, which we've talked about, which is been testing with DTG printers. It's going great. It's going to be launched in Q4. It looks good. We're expanding the Gildan line with the new HammerMax heavyweight that takes on the workwear, streetwear side. He talked about Comfort Colors. It's our fastest growing brand. We've doubled our manufacturing capacity with that. We're seeing a lot of organic marketing coming out of that. CNBC had an article recently. New York Times had one. GQ had something. We're just getting a lot of organic marketing through that brand. And we're capitalizing on that brand strength and going to expand it into premium bags and hats. We're doing a women's fleece collection. So, you know, Glenn talked about AA. And really, when you think about it, Martin, one of the things, if you look back at our investor presentations and what's on our website, we had said that we really participated in the core of the imprintables market, which is about 60% of that market. And we've said we really don't play in the 40%. overall. But now we're looking, for example, I just talked about comfort colors going into hats and bags. We hadn't historically played in hats, outerwear, teamwear, bags, accessories. And we're working to now try to reach into that 40%. We're investing in innovation in our polyester fibers and the printability of poly and poly yarns to maybe benefit going forward, as Glenn was talking about, bringing in poly product. And so that brings me to All Pro, where you know, that's hitting new white space categories with performance and corporate ID, uniforming markets, you know, outerwear, some outerwear jackets in that. Champion, obviously going off the heritage of the Champion brand with authentic sports team colors or fan wear or team wear, coaches' jackets, shorts, different things. So I would say we feel very good about our ability to address the imprintables market. And, you know, as we go forward, And again, to play in areas maybe we hadn't played in the past.

So just to summarize is that despite the could be some negativity in the market, we're well positioned for growth regardless. And despite the market being down, you know, we're still seeing mid single digit growth from all these factors that Chuck just mentioned. And hopefully as we move into 2026, we'll see some positive momentum in the market, which will even accelerate our growth further.

Okay, that's great color. Thank you. And just to be clear, you said, Chuck, that you're entering into hats. Are you entering into other categories like bags and workwear or just hats?

No, no, hats. We're doing hats. We're going to do some bags. You know, things like our, you know, Hammer Max will probably play a little bit in workwear, as I mentioned. You know, we're going to do some outerwear jackets, things in All Pro. And Champion has Coach's Jacket. So, yeah, we're playing in areas that if you go back to that investor presentation into areas where we said we didn't play in the past, we're reaching into.

Super. Thank you for all the color.

Your next question comes from the line of Paul Kearney with Barclays. Please go ahead.

Hi. Thanks for taking my question. First one is just looking at inventories. Can you comment on levels in the quarter? How much of the increase was from the higher tariff costs and where do you expect to end Q4? Then I have a quick follow-up.

Yeah, thanks for your question. So we're comfortable with where inventories are. The inventory levels are slightly higher and there's a few reasons for that. One, yeah, there are some costs related to tariffs that are in our inventory, but it's better, it's more that we're really well positioned from an in-stock level. And if you remember that, when we have really good in-stocks, that drives really good availability. And that's what's really important from the market's perspective and the perspective of our customers. So as I did comment earlier, look, we've got a strong focus on working capital, a strong focus on generating cash flow. Our target is to bring that working capital down towards the 37%, 38% as we're in 2026. We'll be slightly higher than that as we end Q4, but we're well positioned and we're in control of our working capital. So I would think of it as good inventory.

Okay, thanks. And that was great color on the innovation and the growth outlook for the activewear for next year. I guess my follow-up is I'm curious, after the Hanes brand acquisition, is there anything that we should be considering for the organic outlook for the Gildan business as you kind of roll in those brands and those customers? How should we think about the hosiery and underwear part of the business or any kind of shifts as you combine the businesses?

Well, I think what's really important is if we take this kind of step-by-step is we look at what we're putting out in terms of guidance for this year, right? So when we take a look at the top line, we're reconfirming our guidance there on the top line of revenue up mid-single digit, right? We've seen this year very strong performance there, which is really fueling that top line growth. So revenue up mid-single digits, right? Then when we take a look at the margin profile, we're calling up our operating margin guidance to 70 basis points year over year. This is a reminder, 2024 was at 21.3%. And then this all feeds into an adjusted EPS guidance range that we've now tightened, right, at 345 to 351, which is up 15% to 17%. As you think of the go forward, right, in terms of the proposed acquisition, what we've gone out to the market with, right, is a view of that net sales are going to accrete over the next three years at a rate of 3% to 5% CAGR. So that's the way you have to think of the top line. In terms of how much we're going to continue to invest in the business is 3% to 4% of that top line into CapEx, which is going to be really important. We're going to be doing this within a leverage framework of always with our target between 1.5% to 2.5% times. It's really important to us to maintain that. If you notice where we are right now, we're actually at the midpoint of our range going into the closing of the of the transaction. And then from an EPS perspective, really jumping up to the low 20% range off the midpoint of what we're guiding to in terms of 2025. So that's the profile of how you have to think about the coming together of the two entities. And then the first year, what we've articulated as well is that the EPS will be meaningfully higher than that average of the 20% over the next three years. Hopefully that's helpful, but that's the way you should be thinking about the coming together of the two entities. Thank you.

Your next question comes from the line of Luke Hannon with Canaccord. Please go ahead.

Thanks. Good morning, everyone, and thanks for all the commentary thus far. I wanted to follow up on the topic of there being delays in floor sets by large retailers. I know it was mentioned in the past that you have a large fleece program that's either already in place with their large retailer customers or is set to, has the timing of that been impacted at all by the fact that retailers are being a little bit more diligent in managing inventory?

No, Luke, that has set, and on the floor it is doing well. It's performing well. Early reads on it are very good. They definitely wouldn't want to miss that fleece season, so no, it's been placed on the floor. It was more in the innerwear categories.

Got it.

Thanks.

And I would just add, Luke, I would just add that, again, from a growth perspective this year, 75% of our growth is coming from new programs. That includes the T-shirt and fleece meaningful programs within our national accounts, and so that plays into that piece right there.

And then for my follow-up, I wanted to ask, so on that same sort of topic or dynamic of customers being a little bit more diligent in managing inventory, it sounds like distributors overall seem to be okay with their inventory balances. What's your view on why that sort of dynamic would impact distributors but retailers seem to be a little bit more impacted?

Well, I think when you look at it, again, distributors have always known that availability is their number one purchase criteria. So they have to have the product available, and they found as they do that, they have a better chance of servicing the market. So there's been an appetite to make sure they're well-balanced and well-stocked to service it. And again, I think when you look at the retailers, I think they're a lot wider in what they're dealing with. It's not just Interwear that we talked about or Activewear we talked about. It could be everything else in the store, fashion goods, electronics, everything across the store that they're running into, and they're really uncertain about tariffs and so forth going forward. So I think they look at it probably a little differently than the distributors have to look at their supply chains.

Got it. Thanks.

Your next question comes from the line of John Zamparo with Scotiabank. Please go ahead.

Thank you. Good morning. I wanted to come back to the free cash flow guide, but related to the CapEx. Apologies if I missed it, but what is the nature of that update? Are you deferring projects or are some areas of spending no longer as compelling as they were prior? And if it's the former, is that based on the supply chain uncertainty from some customers that you referenced?

So two things, starting with the CapEx guide, right? So going from 5% to 4% of net sales, I mean, still that's a healthy number, number one. One thing that we do not move off of, I think it's important to understand, is how we reinvest in the maintenance of our assets. There's always, think about almost around two-thirds of what we spend in CapEx goes through maintenance and reinvesting into our assets to make sure that we maintain our competitive advantage. That doesn't move. And there is a little bit of shift in terms of timing of projects. which is effectively the difference between the 5% and the 4%. That's the way I would think of the CapEx. And again, you touched upon free cash flow. I think, again, free cash flow is very important to us, and we're comfortable in terms of our free cash flow generation. The difference in the guide, again, comes down to we've reflected the transaction costs incurred to date. There's a bit of timing of working capital. We have a little bit of tariff cost that's in our inventories, but we're comfortable where we are, and we're comfortable that where we're going There's nothing really major. It's timing.

Okay, understood. And then I wanted to ask about the competitive landscape, and I wonder if you've seen any meaningful change in that over the last quarter or so. Do you think your competitors are behaving rationally? Are they also passing on costs as you'd expect?

I'd say overall the whole market has passed on, you know, costs associated with tariff. I mean, that's pretty consistent across all categories, all markets, all channels. I would say that, you know, in the, you know, in the printware market, we're continuing to win our strength, like Chuck mentioned, and all the brand portfolio, the technology, the innovation, it's all a function of the capital that we've been spending in leveraging our large scale, low cost manufacturing. And so, you know, It takes a long time to put that in place, and then we're really capitalizing it in this type of market where our competitors, we think, are weak, undercapitalized, and don't have really the brand strength, the innovation, the manufacturing to really grow their businesses. So we're continuing to lead and widen the gap against the competitive landscape in most of the cases where we operate.

Understood. Thank you.

Your next question comes from the line of Chris Lee with Desjardins. Please go ahead.

Oh, thanks for the follow-up, Glenn. I just want to follow up your last answer to your last question. I just want to confirm, so have you seen a widening of your price gap versus your competitors given your low-cost advantage? And is that also allowing you to gain more market shares? Thanks.

No, we've taken price equal to whatever tariff impact. We did it in stages too, so we didn't really go out and price at one time. So we slowly took prices up to cover the impact of tariffs so they would be aligned. And basically, you know, the market had to follow because everybody has that same type of cost. So I would say to you that, you know, the pricing, I would say relationship before and after tariffs is probably pretty consistent in the market. and everybody had to react to the tariff costs, and everybody really reacts to our pricing because we're the price leader.

Okay, that's helpful. And maybe, Luca, just a follow-up for you. Just on the SG&E expense, sorry if you answered this already. It was a bit higher than what we were expecting in Q3. You know that there's some increase in variable compensation. Are you able to kind of break out for us just how much of that was from variable comp And then maybe a follow-up to that is, as you look out for next year, your SG&A rates, should we be kind of anchoring around 10% of sales for next year? Is that still a good soft target? Thank you.

Yeah, thanks for your question. So look, in the quarter, I mean, slightly higher. I think there's two things. The drivers are some higher variable comp, but there was also some IT-related expenses that were more one-time in nature. The way you have to think about the target for SG&A, and specifically for this year, right, we've given the operating margin guidance of 70 basis points higher year over year. And when you look at the composition of the gross margin and the SG&A, our SG&A is always targeted to be around 10% of sales. So there's a couple of one-timers here in the quarter, but we're comfortable with that target. And then with your question with respect to next year, I would point you towards the guidance that we've given in terms of the two companies coming together, the combination which really yields really strong adjusted diluted EPS CAGR over the next three years, with the first year being meaningfully higher than that low 20% range. So, you know, 10% is what we're looking at for this year in terms of what we control on our end.

Okay, that's helpful. Thank you very much.

Thank you.

Your next question comes from the line of Ryland Conrad with RBC. Please go ahead.

Yeah, thank you. Good morning. Just on the three quarters of expected growth from new programs this year, I'm just curious how long of a line of sight or how much visibility you have on incremental program wins in national accounts into 2026.

Yeah, Rylan, thanks for the question. We have similar, as we've mentioned, we have similar line of sight on our growth for next year. So similar percentages. that we're looking at, as we said, for this year of growth that we see and have line of sight for next year.

Okay, great.

And just on comfort colors, I guess, could you talk a bit about the performance year to date and just the underlying drivers there? And then on the plans to expand that brand into additional product categories, like is there anything that you could share additionally there on that front, whether it be kind of timing or... just expectations on how that will benefit the brand.

Sure. I mean, again, the brand is, again, it's our fastest growing brand with double digit growth. It's been very strong all year long. We haven't seen it falter at all. It just keeps growing. I mentioned we doubled our manufacturing capacity for that brand and we're going to invest additional in 2026 to grow that capacity more. And so that's the reason we think it has brand strength to move outside of just where we have been, which is, which is cheese and police. We're adding more women's collections, which will be very strong. Uh, we're going to go into caps and bags, as I mentioned, uh, again, I think that'll be well received because then people can, when they're, when they're putting this product out, uh, in the print where, you know, could go to fraternities, sororities, resorts, uh, you know, I see it in bars where they're, they're putting their things. They want to sell a hat and a t-shirt. They don't, you know, we're actually seeing it picked up quite a bit in band merch, uh, And, you know, when people go to a concert, they may pick up a shirt, but they also want a hat. So we're trying to put out things that will go well with the core product, and a lot of it will move together.

And just for your reference, even though there's hats and bags, these are all going to be cotton-based. They're going to be basically dyed in the same process as we make the T-shirts, so it's going to give a nostalgic look in terms of the pigment-type technology that we use on all of the comfort colors. products that we sell. So it's really going to be enlightening and stay consistent with the brand's heritage and focus.

Great. Thank you very much.

There are no further questions at this time. I will now turn the call back over to Jessie Hayham for closing remarks.

Thank you everyone for joining us today and attending our call and we look forward to speaking with you soon. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining.

You may now disconnect. We had a patio with a view of the parking lot. It was two for one and four for two. Had Christmas lights in the middle of June. All hung up like I was on you. I'd say, hey, hey, baby, do you want