Gildan Activewear Inc.

Thank you. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the fourth quarter and full year 2024, as well as our first-time guidance for 2025. The company's management discussion and analysis and consolidated financial statements are expected to be filed with the Canadian Securities and Regulatory Authorities and the U.S. Securities Commission today, and will also be available on our corporate websites. In a separate press release issued concurrently today, the company also announced executive leadership nominations and a CFO transition as part of a multi-year succession planning process, which we'll be addressing this morning as well. Now joining me on the call today are Glenn Chimandi, President and CEO of Gildan, Rod Harries, Executive Vice President and Chief Financial and Administrative Officer, and Chuck Ward, President Sales, Marketing, and Distribution. 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 relief, as well as our MD&A. And now, I'll turn it over to Glenn.

Thank you, Jessie, and good morning, everybody. I'd like to start the call by taking a moment to thank and acknowledge our global team's efforts for their strength and dedication. as well as the loyalty of our customers and the ongoing support from our shareholders. As we highlighted in this morning's release, you can see that Gildan Sustainable Growth Strategy, or GSG, is clearly driving profitable growth, and we are extremely pleased with our progress. We delivered record fourth quarter sales of $822 million, which were up 5% versus last year. This growth rate would have been low double digits when you exclude the phase out of Under Armour. We also delivered record fourth quarter adjusted EPS of 83 cents a share, up 11% year over year. In our 40th anniversary year, we concluded on a high note with record revenues of about 3.3 billion, strong adjusted operating margins, 21.3%, and year-over-year adjusted diluted EPS growth of 17%, fully in line with our guidance, all while continuing to return significant capital to shareholders, with a record $889 million returned in 2024. We are also committed and continuing executing on our GSG strategy across all our three pillars, capacity, innovation, and ESG. We are excited about our ability to deliver on our three-year objectives we have laid out for 2025 to 2027 period, which include net sales of mid-single-digit range, and adjusted diluted EPS growth in the mid-teen range. Now looking at 2025, we believe we're well positioned. We have many strong drivers, which we feel could allow us to deliver on our objectives for the full year. We have new innovation across the board and very good reception of our soft cotton technology, which is driving our basics into continued positive territory. with double-digit POS growth in the fourth quarter of 2024. We are also excited about our plasma print technology and other innovations such as color blasts in our Comfort Colors brand, which we are seeing significant growth. In fact, the brand is up 40% for the full year in 2024. We're also expanding our product line in the distribution through distributors under our champion brand through the license we secured for the Printware channel. So these drivers will allow us to further gain share in the distributor channel in 2025. And remember, we're also benefiting from the changing competitive landscape with players exiting the market. Our international business has seen a 20% increase in sales the last two quarters, as these markets have started to recover, and our ability to service now stronger given the capacity expansion in Bangladesh and our product availability in these markets. Finally, the national account side, we're also seeing great traction. We are expanding our shelf space in underwear with additional product offerings, and we have secured meaningful new programs of activewear, both tees and fleece, with our national count customers. So, these are all the drivers for our growth in 2025, and we are excited about the opportunities ahead. And of course, as always, we continue to focus on further cost and operating margin improvement, ramping up Bangladesh our yarn modernization in the United States, optimizing our Central American operations. I'm looking forward to answering your questions after our formal remarks, and now I'll turn the call over to Rod.

Thank you, Glenn, and good morning, everyone. And thank you for joining us today to discuss our fourth quarter and four-year results. I'd also like to begin the call by thanking the entire Gildan team for their outstanding work and dedication throughout 2024. Echoing Glenn, three years into our GSG strategy, we're extremely pleased with our execution as we continue to reinforce our core competencies and our overall strong competitive positioning. Let me start by going over the specifics of the quarter, and then I will comment on our outlook and guidance for 2025. So let's begin with the fourth quarter results. We reported fourth quarter sales of 822 million, up 5% year-over-year. If we exclude the impact of the phase-out of Under Armour, net sales for the quarter are up low double digits. This was driven by a strong performance in activewear, up 70 million or 11%, driven by higher sales volumes. We saw positive POS across channels and product lines and continue to capture market share in key growth categories. with 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 as we continue to benefit from recent changes in the industry landscape. Looking at international markets, sales increased by 20% year-over-year for the second consecutive quarter. Growth stemmed from positive POS in Europe, our largest market, as well as inventory replenishment by distributors. With our improved in-stock levels supported by our global manufacturing footprint, we have improved our ability to service these markets. Turning to hosiery and underwear, as expected, this category was down 23% versus the prior year, mainly owing to the phase out of the Under Armour business. Excluding this phase out, our hosiery and underwear sales would have been up high single digits year over year, highlighting strong underlying growth as we continue to gain traction with other national account customers. And finally, a quick note regarding our full-year net sales for this category. If we exclude the impact of the Under Armour phase-out, sales for the hosiery and underwear category would have increased by mid-single digits year over year, in line with our full-year activewear growth. Turning our focus to margins for the quarter, our gross margin was 30.8%, a 60 basis point improvement over the prior year, primarily due to lower raw material costs. As for SG&A, expenses were $78 million in the quarter compared to $88 million in the prior year. If we adjust for charges related to the proxy contest and leadership changes, which were meaningful in the fourth quarter of 2023, Adjusted SG&A expenses were 78 million versus 82 million last year. Adjusted SG&A as a percentage of net sales were 9.5%, down 100 basis points, reflecting the positive benefit of the jobs credit introduced by Barbados earlier this year, partly offset by higher variable compensation expenses and higher distribution expenses. As we bring all of these elements together, and after adjusting for restructuring and acquisition related items in both years, as well as non-recurring items in the prior year's quarter, we generated adjusted operating income of $175 million, or 21.3%, up 160 basis points year over year. Briefly commenting again on the full year, adjusted operating margin was 21.3%, up 400 basis points versus the previous year, and in line with guidance. Moving on to taxes. As expected, the company's adjusted effective income tax rate for the quarter was 13.4% compared to 3.1% last year, reflecting the enactment of global minimum tax in Canada and Barbados earlier this year. After reflecting higher net financial and income tax expenses and our lower outstanding share base, we reported GAAP diluted EPS of 86 cents in the fourth quarter, down 3% versus the prior year, whereas adjusted diluted EPS were 83 cents versus 75 cents last year, which represents an 11% increase. Now, commenting on the full year, after adjusting for non-recurring items and taking into account the significantly higher year-over-year income tax expenses due to the enactment of GMT, as well as the benefit of our lower outstanding share base, adjusted diluted EPS were up 17%, closing the year at $3, fully within the guidance range we had provided. Note that the net impact of the jobs credit and the higher tax rate related to the enactment of Barbados tax reform and GMT was 23 cents per share for the full year, implying that our year over year adjusted EPS growth rate would have been closer to 25% without these impacts. Now, turning to cash flow and balance sheet items. Looking at the full year, cash flow from operating activities totaled $501 million compared to $547 million in the prior year, with both years impacted by non-recurring items as mentioned earlier. After accounting for capex of $150 million, and lower year-over-year proceeds from sale and leaseback activities and asset disposals, the company generated free cash flow of approximately 390 million for the full year, essentially in line with the prior year. This cash flow generation, along with our strong balance sheet, enabled us to deliver on our capital allocation priorities and return a record 889 million to shareholders, including dividends, and share repurchases of about 18 million shares, or 11% of our float in the year. And finally, even with the significant return of capital during 2024, we ended the year with net debt of about $1.6 billion and a leverage ratio of 1.9 times net debt to adjusted EBITDA, well within our target debt range of 1.5 to 2.5 times net debt to adjusted EBITDA. So overall, and concluding on the results, We accomplished a great deal in 2024 by remaining focused on execution of our GSG strategy against a somewhat mixed macroeconomic backdrop, which resulted in record revenues, strong operating margins, and putting us in an outstanding position to deliver on our capital allocation priorities, including share buybacks and a 10% increase in our dividend for 2025 that we were pleased to announce this morning.