Sophie Argiriou - Vice President-Investor Communications Rhodri J. Harries - Executive Vice President, Chief Financial & Administrative Officer Glenn J. Chamandy - President, Chief Executive Officer & Director.

Martin Landry - GMP Securities LP Kenric Tyghe - Raymond James Ltd. (Broker) Sabahat Khan - RBC Capital Markets Mark Petrie - CIBC World Markets, Inc. Anthony Zicha - Scotia Capital, Inc. (Broker) Brian Morrison - TD Securities, Inc.

Stephen MacLeod - BMO Capital Markets (Canada) Chris Li - Bank of America Merrill Lynch David Hartley - Credit Suisse Securities (Canada), Inc David J. Glick - The Buckingham Research Group, Inc..

Welcome to the First Quarter 2016 Gildan Activewear Earnings Conference Call. My name is Katie, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn it over to Sophie Argiriou.

Please go ahead..

Thank you, Katie. Good afternoon, everyone, and thank you for joining us. Earlier, we issued two press releases, one announcing that we have signed a definitive agreement to acquire Alstyle and the second release announcing our earnings results for the first quarter of 2016.

We also issued our interim shareholder report, containing management's discussion and analysis, and consolidated financial statements. These documents will be filed with the Canadian securities and regulatory authorities and the U.S. securities commission and are available on our website at www.gildan.com.

Joining me on the call, we have Glenn Chamandy, our President and Chief Executive Officer; and Rhodri Harries, Gildan's Executive Vice President and Chief Financial and Administrative Officer.

The conference call will start with Rhod taking you through the results for the quarter and our business outlook for 2016; after which, our Q&A session will follow. Before we begin, let me remind you that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S.

Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve unknown and known risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S.

Securities and Exchange Commission and Canadian securities regulatory authorities that may affect the company's future results. And with that, I'll turn the call over to Rhod..

Good afternoon, everyone. Earlier this afternoon, we reported our first quarter results for 2016, which were in line with our expectations. We also announced the signing of a definitive agreement to purchase the Alstyle operations, a division of Ennis, Inc., which we are very pleased about and which I will cover later on the call.

At the same time, we reconfirmed our guidance for the year, with the impact of the acquisition to be provided next quarter after the transaction closes. So let me start with the conditions in the market, which were very much in line with the projections we shared on our last call.

POS growth in the printwear channel continued on a positive trend in the quarter. However, as we anticipated, inventory replenishment in the quarter was lower compared to the higher level of restocking we saw in the first quarter of last year, offsetting sell-through in the channel.

The unseasonably warm weather at the end of last year also had a spillover effect coming into the first quarter, as higher opening fleece inventory levels impacted fleece shipments in the quarter.

In retail, our product sell-through performed well in the mass channel, while we continued see sluggish sell-through in the department store and national chains channel, in line with broader industry performance.

Moving to our results, we reported adjusted EPS of $0.28 for the first quarter, up 17% on adjusted operating income growth of 23%, despite lower sales compared to last year. Our operating margin performance was definitely a key highlight in the quarter.

Adjusted operating margins increased by 310 basis points, driven by cost savings from our capital investments, which are coming in as planned, and from lower raw material and other input costs. Consolidated sales for the quarter totaled $593 million, down 6.7% from the same quarter last year. Printwear segment sales were $392 million, down 9%.

And Branded Apparel sales of $201 million were down 1.8% from a year ago.

As we indicated in February, when we initiated our guidance for 2016, we knew we would be facing headwinds this year from the impact of lower distributor restocking, product mix and foreign exchange, as well as from our decision to exit certain private label programs in our Branded Apparel business.

However, it should be noted that these headwinds are impacting us more in the first half of the year. We expect to see strong sales growth in the second half of the year, as the impact of lower restocking is put behind us and the impact from the exit of private label programs subsides during the course of the year.

In Branded Apparel, we will also start to see a noticeable impact in the latter half of the year from the flow-through of shelf space expansion with existing customers, as well as the benefit of new program gains.

The decline in Printwear sales for the quarter was mainly due to the anticipated impact of lower inventory replenishment by distributors and lower net selling prices compared to last year. Unfavorable product mix, due to a lower proportion of fleece sales as well as foreign currency impacts, also negatively affected Printwear sales.

These factors more than offset the favorable impact of positive point of sales growth in the U.S. and international printwear channels. It should be noted that we continued to see strong growth momentum in the quarter in our faster-growing segments in Printwear.

Sales of Fashion Basics were up in the mid-teens range, reflecting strong gains by our Anvil and Comfort Colors brands, and Gildan Performance sales were up close to 20% in the quarter. Printwear operating income of $85 million generated operating margins of approximately 22%, up 220 basis points compared to Q1 2015.

At the operating income level, we were able to more than offset the adverse impact of lower volumes and net selling prices, unfavorable product mix and the negative impact of foreign currency with manufacturing cost savings and lower raw material and input costs.

Moving on to retail, Branded Apparel sales were down just under 2% for the quarter, due to the impact of the planned exit of private label programs. If you exclude this impact, our core sales were up for the quarter, reflecting increases in all product (6:35) categories, particularly underwear and activewear.

Sales of Gildan branded products grew strongly in the quarter, driven primarily by market share gains. According to the NPD Group's Retail Tracking Service, our market share for Gildan branded underwear at the end of March increased to 8.4% from 7% at the end of 2015.

Market share for Gildan branded men's socks increased to 16.8% for the March quarter, reinforcing our number two position in men's socks. During the quarter, we also began shipments of a new Gildan branded sheer program to a large retail customer in the dollar stores channel, further leveraging the Doris acquisition.

While we maintained our brand leadership position in the department store and national chains channel for Gold Toe, overall weakness in this channel affected sell-through of Gold Toe products, with the higher value nature of these products also negatively impacting product mix.

We were pleased to see Branded Apparel operating income increasing to approximately $15 million in the quarter, up significantly over the prior-year quarter when we were consuming high cost opening inventories, which included the impact of transitional manufacturing costs relating to the integration of new retail products.

Branded Apparel operating margins increased to 7.4% in the quarter, up 630 basis points from the first quarter of 2015.

The significant improvement in Branded Apparel operating margins reflected the benefit of manufacturing cost savings, driven by the company's investments in yarn-spinning and other capital projects, and lower raw material and input costs.

Moving to Gildan's cash flow performance, due to the seasonality of our business, which has us building working capital during the first half of the year, we consumed cash in the first quarter, which is typical. We consumed $58 million of free cash flow this quarter compared to $108 million in the first quarter of 2015.

The $50 million lower level of cash consumed was primarily due to lower capital expenditures, since our yarn-spinning investments are scaling back as we near completion of our yarn-spinning initiative. The Mocksville facility is the last yarn-spinning facility now ramping up.

We remain on track with our other capacity expansion plans, including the investments we are making for our new Rio Nance VI facility, combined with expenditures for additional sewing capacity. During the first quarter, we also spent approximately $140 million repurchasing shares under the normal course issuer bid program we set up in February.

And we continued to buy shares through April, having put in place an automatic share repurchase plan. As of the end of April, we had repurchased 8.6 million shares under our total $12.2 million share repurchase program. The company ended the quarter with cash and cash equivalents of $53.5 million, and outstanding bank debt of $584 million.

The company's debt leverage ratio at the end of the quarter was one times adjusted EBITDA, in line with our target range of one to two times. So, overall, we had a solid quarter, in line with our expectations. Now, let me address the acquisition we announced earlier today.

We signed a definitive agreement to purchase 100% of the equity interest of Alstyle Apparel, LLC, and its subsidiaries for $110 million. Alstyle manufactures and sells T-shirts and fleece products to decorators and mass-marketers in the U.S., Canada and Mexico.

For the year ending February 29, 2016, the company generated sales of $183 million and EBITDA of approximately $19 million. Alstyle has manufacturing operations in Mexico, which include a large scale textile facility and sewing operations. It also operates distribution facilities in the United States, Canada and Mexico.

We see this acquisition as a strong fit with our strategy and very much aligned with the criteria we set for acquisitions.

The acquisition immediately expands Gildan's penetration in printwear markets in the U.S., Canada and Mexico, and further broadens and complements Gildan's position in the western part of the U.S., where Alstyle has a strong presence.

The acquisition will also allow the company to enhance its competitive positioning in the Mexican printwear and retail markets. And manufacturing in Mexico will allow Gildan to take advantage of preferential trade agreements, which provide duty-free access to markets in South America.

We expect to achieve strong manufacturing and supply chain synergies, as we integrate the Alstyle business into our Printwear segment operations. This includes incorporating our textile manufacturing practices and processes and increasing capacity utilization at Alstyle's large Mexican facility.

In addition, we expect to benefit from enhanced purchasing leverage on raw material and other input costs and logistics efficiencies. Overall, the acquisition fully meets all of our M&A criteria, including generating an IRR well above 20%, based on a favorable acquisition multiple of just under six times EBITDA.

While the acquisition is expected to be slightly accretive to earnings per share in 2016, we expect to achieve strong integration synergies from the transaction in 2017 and 2018. Finally, since we expect to move quickly on integration, we will continue to seek attractive near-term acquisition opportunities. This brings us to our guidance for 2016.

We are reconfirming the guidance we initiated in February. We continue to project EPS of $1.50 to $1.60 for 2016 and consolidated sales in excess of $2.6 billion, comprised of Printwear sales in excess of $1.6 billion and Branded Apparel sales in excess of $1 billion.

Our guidance does not reflect the planned acquisition of Alstyle, which is expected to close before the end of June. Following the closing of the transaction, we will update our guidance. And we'll share with you our revised outlook during our next earnings call.

However, as previously mentioned, we expect the acquisition will be slightly accretive immediately, with anticipated strong synergies to flow-through in 2017 and 2018. In closing, we had a solid first quarter, and we continue to feel confident in our outlook for the year.

We're excited about the Alstyle acquisition, and we believe it will further enhance our positioning in the printwear market and deliver strong value, as we have seen with our prior acquisitions.

We are executing on all fronts of our strategy, including driving sales growth, generating cost savings, investing in our vertical manufacturing capabilities, expanding capacity, executing accretive M&A and returning capital to shareholders.

We continue to feel very good about our prospects and the plans we are putting in place to position the company to drive future long-term growth and strong shareholder returns. And with that, I will now turn the call back over to Sophie..

Thanks, Rhod. That concludes our formal remarks. I will now turn the call over back to the operator for the question-and-answer session..

Thank you. We will now begin the question-and-answer session. And our first question comes from Martin Landry from GMP Securities. Please go ahead, sir..

Good evening.

On the Alstyle acquisition, just wondering what's the certainty level of this acquisition closing? Could we see a counter offer?.

Martin, we signed a definitive agreement with Alstyle. And we believe that there is high certainty the transaction will close. Of course, we have to go through regulatory review, and we'll do that during the period that runs through until June, but we feel very good about this transaction..

Okay. And then, I believe we have a facility in Mexico that's quite recent.

Could you talk about it a little bit? What's the capacity of this facility and what is it being utilized at right now?.

Well, the plant is quite large. In reference point, it's probably the size of a Rio Nance V facility in terms of potential output. And they're running currently at about one-third of its optimal capacity..

Okay.

And then, does it change anything in terms of your tax rate on a go-forward basis?.

No. We expect our tax rate – this year, it's 5%, is what our forecast is. Obviously, we'll give you guidance for next year, but we don't see any major changes from this transaction to the tax rate..

Okay. Thank you very much..

Thank you..

And our next question comes from Kenric Tyghe from Raymond James. Please go ahead, sir..

Thank you and good evening. Just a quick, Alstyle looks like a good fit.

Could you provide some a little bit of color on the seasonality there? I mean, looking at the mix, is it reasonable to assume that seasonality closely mirrors that of your existing business, Glenn?.

Yes, it definitely does. And really, the big benefit to this acquisition, it helps us to really access probably the weakest part of our distribution, which is the West Coast of the United States. And at the same time, it also allows us to more effectively service our Mexican customers with having made in Mexico product.

We do some of it, obviously, from Honduras today, but for logistics and supply chain reasons, this will allow us to increase our product offering and increase, ultimately, our sales to our printwear customers in Mexico.

At the same time, this will really allow us to aggressively pursue retail in Mexico as well in all of the products categories that we currently are servicing in the U.S. and Canada. So there is also a lot of capacity.

It's early days, and we need to do a little bit more work to assess ultimately what the opportunity is, but we think that there is good opportunity here to expand capacity, expand markets, as well as have significant synergies as we Gildanize the facility with purchasing, logistics, and integrate the acquisition to the front end of Printwear..

Thanks.

And then, just a quick follow-up on that excess capacity in Mexico, is there an opportunity, capacity back-filling in the shorter term as new opportunities come on before your capacity expansion ops have ramped with these in Honduras?.

Yeah, there is idle capacity right now, so the answer is is that this will help us definitely to support more volume internally at Gildan once we take possession of the facility. The products that they make today are very similar in nature to Gildan's, so there is really not any types of major complexities in terms of what they're doing.

There's a little bit different and older equipment, but in overall, it's very compatible to Gildan. So, yes, and then truthfully is, we need the capacity. One of the things is we're tight right now, and this will be a big opportunity for us to maximize our sales opportunity as we go through the balance of the year..

Thank you. Just a quick last one for me, if I could, could you give a little context on that Fashion Basics mid-teen growth Gildan Performance? I think Rhod mentioned close to 20%.

Could you give a little context to us in terms of how the market is performing and whether those growth rates actually translated into the increased share that you thought your past investments would drive?.

Well, look it, the market's performing well. You know, it's not gangbusters in any way, shape or form, but it's definitely positive POS, for sure. It's within line with what we expected.

But, you know, one of the things that I think we explained to investors is that in the Fashion Basic and Performance categories, we have much smaller, you know, market share, and that's really a growth opportunity for Gildan. So we are still performing well on Basics and continue to go take market share.

But the area where we think we have a lot of growth potential is in Fashion Basics and Performance, Anvil. Comfort Colors, is doing very, very well. We're bringing on very new capacity in Comfort Colors, which will continue to support the growth development of that brand. But it's still growing at the rate of 20%, 25% this year.

And as we bring on more capacity, we can further see growth from that point. So it's an area which is growing in the market and it's where we're underdeveloped, so it's a good place for us to be right now, and we got the right products at the right price and we're very excited about the opportunity..

Great. Thank you. I'll leave it there..

And our next question comes from Sabahat Khan from RBC Capital Markets. Please go ahead..

Thanks. Just back on the Alstyle acquisition, in terms of synergies, can you maybe talk about what the biggest buckets you think might be in terms of raw material processes. And secondly, you've noted significant improvement in 2017 and 2018 from this acquisition.

Can you maybe talk magnitude or how much you expect to drive over the next couple of years?.

I'll talk to synergies and Rhod will talk the finance side.

But look it, you know, one of the big, obviously, benefits of the synergies will be the volume, because volume is a major contributor to driving synergies from, you know, Gildanizing the facility, which is standardization, and our practices, the purchase input costs that we put in, all of our raw material costs, et cetera.

So as we look at the facility, we believe that the facility cost structure will enable us to be equal to or good as our plants in Honduras. So, that's how we'll drive these synergies as we go forward.

And also part of the synergies will come not just from just the textile, but will come from the sewing facilities as we continue to do the exact same thing as produce more effectively and efficient in their sewing factories like we do in the Gildan plant.

So all of these above will allow us to obtain the synergies, and they should happen relatively quickly because this is not really broken; it just needs the volume and some Gildan processes, I would say, to really be able to capture the synergies. That's why we're pretty comfortable that we will obtain them in the next 24 months..

And on the financial impact, Sabahat, I mean, we will give guidance there when we release in the second quarter, give you a better outlook on what we see. And what we said is it will be slightly accretive this year. As we move into 2017 and 2018, we will be realizing the benefit of the synergies that Glenn has talked about.

And we do see the opportunity to push up the gross margins on this business very definitely as a result of that. So, I'll give you an update then. I mean, I think the one thing that we did highlight clearly is that this will be a strongly accretive transaction for us. We'll see an IRR well above 20%.

And that just reflects the synergies that Glenn has talked about. So, we'll give you an update when we can..

All right. Thanks. And just on the Branded segment margins.

There is a significant improvement versus last year obviously, but do you think maybe the tough retail environment limited some upside? And also, just going forward, do you expect sequential improvement in the next couple of quarters in light of your kind of earlier comments on the retail space?.

We are improving in Branded. We're going to continue to leverage the infrastructure and the opportunity. So we definitely will see continued margin improvement as we go forward. And as we go forward through the year, we should have better margins as we go through on Branded. But ultimately, on a year-over-year basis, we'll see continued improvement..

And that'll be in line, very much within line with the guidance that we gave at the beginning of the year. We said very definitely that the Branded margins would be increasing and we see that, as Glenn said..

Okay.

And then, just one last one in terms of the additional capacity at the Mexico facility, would you potentially look to move some of your Basics products or what kind of products is that facility made to handle?.

The product, mainly makes cotton T-shirts in all different shapes, sizes, pretty much everything that we produce in Gildan. So we have a lot of flexibility here to incorporate really anything from our Gildan product line in the facility..

All right. Thank you..

And our next question comes from Mark Petrie from CIBC World Markets. Please go ahead..

Yeah, thanks. Actually, just one follow-up on the Alstyle deal, what do you expect the reaction will be from your customers? I mean, obviously this just further consolidates the Basics category..

Well, we don't think that there is going to be any concern. I mean, at the end of the day, the benefit for us is to continue driving business that we're not getting in the West Coast, which they have been in a dominant position, particularly in L.A.

And, supporting really the growth into Mexico for both wholesale and retail is really going to be the focus for us in terms of the acquisition.

So we don't really see an obstacle and what it brings us right now is additional capacity that we need really to support our overall broader business, which is pretty well capacity-restrained right now as we go into the summer season. So I think it's going to be a big windfall..

Okay. Thanks.

And then, maybe just following up on that, could you just talk a bit about the inventory levels within the printwear channel distributors, and any reaction to the price changes earlier this year and whether the ordering patterns have normalized?.

Yeah. Look it, inventories are obviously in line. That was one of the issues in terms of sales in Printwear this year. So we've normalized all of the inventories and the area where we had some higher fleece inventories at the end of Q4 have also been flushed through in Q1.

So the answer is at the distributor level, the inventories are in very good balance. I think at the middle level, (25:55) inventories are a little tight relative to last year..

Okay.

So the impact that you guys talked about in terms of business mix on the earnings in 2016, you're comfortable with what you've put out there already?.

Yes..

Okay. Thank you very much..

Thank you..

And our next question comes from Anthony Zicha from Scotiabank. Please go ahead..

Yes. Hello.

Glenn, considering the Alstyle acquisition or potential acquisition, does it change anything for the plant rollout of the Costa Rican hub?.

No. What we're going to do is we'll update you in July. I guess the one thing that we're still in the process of doing is we're marching along with our over-capacity expansion plans. Right now, Rio Nance VI is being constructed.

We may change a little bit the mix in that plant, depending upon the projected capacity in the Alstyle facility, but that will be decided on in the next month or two. And we'll bring that in July in our conference call. But we're definitely continuing to go forward with Costa Rica.

And we're also in the process this year of expanding Bangladesh to support our Asian opportunities. So, we're not changing our capacity expand plans. We're moving forward. And just the question is going to be mix might change a little bit as we go forward..

Okay, great.

And one more question with relation to the printwear channel, could you give us some color on the European market competitive environment? Is there any pricing inflation occurring?.

Well, no. I mean, the good thing is is that the market's been strong on POS. It's up 15%. And as we move into Q2, we know we're going to have some big sell-through, obviously, because of some of the issues we had last year in our Q2 and beginning of Q3. So things are going well. And I think everything is in line with our expectations..

And any new markets that you're entering in Europe, any progress?.

Well, not on Europe. I mean, we're in most of the markets today. Obviously, with the acquisition of Alstyle, we now have more markets that we can go into in South America that Mexico had trade agreements with, which will provide opportunity for us as we go forward. And we're continuing to expand aggressively in Asia.

I mean, Japan is going to be a big hot spot for us. We've put a big infrastructure in there this year. We're still growing in China quite significantly. So and that's the main reason for our commitment in expanding our Bangladesh facility is because we're completely sold out in Bangladesh.

So, we need to continue to expand it to support the growth in those countries..

Excellent. Thank you very much..

Thank you..

And our next question comes from Brian Morrison from TD Securities. Please go ahead..

Hi. If I can just follow-up on Alstyle, Rhod, you said that you expect an IR well north of 20%. And I know you'll get into the anticipated synergies later in the next quarter, but back of the envelope math, the operating margin here looks to be in the mid to high single digits.

Is it fair to say, based on your comments, that your target is going to be low 20s%, much like the current Printwear business?.

Well, I mean, we're integrating this business into the Printwear business. Obviously, we're driving all of those synergies and we will be looking to obviously drive that margin and just get the benefits that we see in our broader Printwear business.

So, again, I'll give you guidance when we're ready to give the guidance, but we do see a good ability to drive those margins up as we go forward..

Okay. And then, second question is on the balance sheet. You said that the current leverage is now one times, but you also said there is the potential for other near-term acquisitions. If I just run through your guidance, even if you utilize the full buyback, you're still not quite at the minimum or the lower end of your one times EBITDA target.

Is it fair to say that you're fully committed to getting there by the end of this year or are you fine with just being close enough?.

Well, we've given the target that we're going to run in that range. And so that's effectively where we plan to focus as we run the balance sheet. And, you know, obviously, we'll see where we get to. We'll give you guidance..

Well, the answer is, look, we've made a commitment to – we hit a target. You know, we're not going to break our heads because we are $50 million off of our target. It's not the plan. We think that we are committed to using our balance sheet. We're aggressively looking for other acquisitions that we can provide value to Gildan.

I mean, we're looking for a company, obviously, acquisitions that make sense to us that, like Doris, that gave us new products, new channels of distribution, Comfort Colors. This is another acquisition that gives us basically new markets, capacity expansion, you know, West Coast.

So all these acquisitions that we've and companies we've acquired over the last three, four years have all helped with our organic growth strategy. And if we don't have acquisitions, we'll buy back shares. That's what we said and committed to. So we'll be close, for sure..

That's very helpful. Thank you..

And our next question comes from Stephen MacLeod from BMO Capital Markets. Please go ahead..

Thank you. Good evening. Just had a question, I wanted to follow up on Alstyle.

Do you have any indication as to what investment will be required in order to "Gildanize" the manufacturing processes at the Alstyle Mexico facility?.

Well, right now, we've done some preliminary analysis, but we'd rather wait until July and we do our full due diligence. But it's not significant, I can tell you that. So it's a big plant. It's in good shape. All the infrastructure is in place. It is very large.

There are certain pieces of it that need a little bit of work, but overall, the investment will be minimal relative to the opportunity and the capacity..

Okay, great.

And did I understand correctly that you said the facility is about the size of Rio Nance V running at about a third of its capacity?.

Yeah. The building is actually quite larger than Rio Nance V, but the capacity that's capable in terms of its install capacity, is about the size of a Rio Nance V..

Okay, great. Thank you. And I always understood Alstyle to be more focused on the national accounts segment of the market.

Is that still the case? And does this give you more of a presence in that specific segment of the printwear market?.

Well, their focus is really in the West Coast and it's almost like a unique market. They have warehouses in Downtown L.A. They have a distribution center in L.A. And that's really where the bulk of their business comes from. So this is really like a West Coast play.

And if you ever go to California, you really don't see a lot of the traditional products, even ours, in a lot of the souvenir stores, because a lot of it's driven by brands that are more West Coast-driven. So, that's the way I would view this as an opportunity for us to really penetrate in the western part of the United States..

Oh, okay, great.

And then just finally, Rhod, I know you reiterated your 2016 guidance, but is it safe to assume that implicit in that is no change to your previous EBITDA guidance and your expectations for Printwear and Branded margins through the year?.

That's right. Yes. You should assume the same for now and, again, we'll give a good look at this in the second quarter..

Yep. Okay. That's great. Thank you very much..

Thank you..

And our next question comes from Chris Li of Bank of America. Please go ahead..

Oh, good afternoon. Just you mentioned I think last time that you expect lower cotton costs to be one of your drivers for next year.

Just curious for the Printwear division specifically, is it reasonable to assume that most of those benefits from lower cotton costs next year will more or less absorbed by lower Printwear pricing, or do you expect actual net benefits from lower cotton costs for next year on the Printwear side of the business?.

Well, we don't really want to give guidance now for next year, so I think that we should defer that to when we give guidance, at this point in time. Because there is always moving pieces and I think it's a little bit premature to speculate on that now..

Okay. That's fair. And then, just on the Branded Apparel business, the operating margin, just curious to see if there is any seasonality related to that business. It was obviously strong year-over-year, but it was down sequentially versus Q4.

Is there any seasonality with that business from a margin perspective?.

Well, yeah, because, look it, our margins will increase obviously as we go through the year, and it's a combination of volume, mix and other factors, basically, that drive the margin from one quarter to another quarter..

Okay, great. Thank you..

And our next question comes from David Hartley from Credit Suisse. Please go ahead..

Hi, thanks.

Just following up on the Mexican operating, the plant there and the facilities you own, how does it compare on a cost per unit basis relative to the rest of the network that you own?.

Well, right now, their cost is obviously significantly higher than our internal cost.

But we believe that as we Gildanize the facility, with the infrastructure that's in place, we can get that cost very close to our standard costs when we apply our processes, our purchasing power, our management in terms of expertise in engineering and developing the skill sets in order to get the volume that they need to run the plant more efficiently.

So the plant is good. It's a very nice built plant. It's in a great place. Utilities are attractive. So there's all of the pieces are there to generate significant synergies, which we'll commit to and have a better idea as we report in July, and we just need a little bit more time really just to quantify those. But it's going to be significant..

Okay, great. Thanks. And I'm just wondering if you can talk a little bit on the retail side of things, what the ordering patterns have been. What's your read so far looking out to the second half? I know you have expansive plans there should be a better part of the year.

But is there new programs being put in place that maybe give hope that you can actually beat your numbers? If you can give some color, that would be great..

Well, look it, I mean, we're totally excited about the second half of the year, obviously, because we're going to have a significant increase in business in revenue, and that's going to be driven by programs in almost every single channel. What we said is that for this year, we've obtained about $70 million of new programs.

We have about $60 million that flowed-through from last year. And we divested about $65 million of private label. So the new programs are, you know, new Gold Toe sock programs. We just picked up a large sheer program in the dollar chain. We have Mossy Oak going into multi-tier channels of distribution.

We've got space gains in underwear in almost all of our customers in better placement, which will drive more traffic. We have new programs in off-price. You know, we have increased our e-commerce sales this year significantly. So, you know, we have a whole opportunity where things are really driving and it's a function of really our success in milling.

And in the case of Gildan, you know, we have already (38:27) seen our branding strategy continue to work. Our Brand sales are up 46% from last year. Our market share in underwear being up significantly so far this quarter and that's before all the placement that we're going to have in underwear, which is being set in May and June.

So as we go into July, August, September, we should see a major lift in our market share with all the programs, shelf space and placement that we have. And our socks are doing very well. I mean, we've gained two percentage points in socks. So, we're excited.

Look, all the things are in place now to continue driving our strategy in Branded and we're going to continue doing more of the same. Capacity has always been an issue. We've now done an acquisition to increase our capacity quicker and continue growing the top-line of the company, and utilizing our balance sheet for continued growth.

So, we're overall excited..

Yeah, definitely, a lot of good stuff going on. And just one small question to finish up, Canada, I mean, now there has been a new trade agreement in place with Honduras. I guess there is an agreement in place with Mexico, as well. I was just wondering. I think we talked a little bit about opportunities down in South Carolina (39:52) for Canada.

Could you maybe kind a fill us in on what's happening there? What the prospects look like?.

Well, I mean, in Canada, we have a pretty significant business, which we've been servicing, so obviously, we're privy to the trade agreements, which we've taken advantage of through our Honduras production.

And with Alstyle now, that just gives us a little bit more opportunity to continue servicing and taking advantage of the trade agreements between Canada and Mexico and now Honduras. So it's been baked into our plan. We've benefited from it. And we will continue to benefit as we go forward..

That's great. Thanks a lot, Glenn..

Thanks..

And our next question comes from David Glick from Buckingham Research. Please go ahead..

Thank you. Just a follow-up on the guidance, if I could, just wondering if you can give us a little help on how you expect the revenue trends to improve as the year unfolds.

Obviously, they were down in Q1, very good margin performance, but should we expect sales growth in the second quarter? And obviously, you have some improved placement in the second half and new distribution. But how should we think about sort of that pace of improvement as the year unfolds? Thanks..

Yeah, I think if you look at the trends, I mean, we start in Printwear. As Glenn said, we've had got good positive POS in the U.S. and in our international markets. We had to deal with the lower inventory replenishment, which was impacting us in the first quarter. That impacted us in the U.S. It impacted us to a certain extent in Europe.

And so we'll be working our way through that. And so as we really look at the trends, obviously, we build as we move through the year. On the Branded side, the exit of the private label programs effectively is more weighted to the first half of the year than the back half of the year.

And so as we go through the year, we'll see that growth and it really will kick in the second half..

Okay. Thank you very much..

Thank you. And our next question comes from Jim Duffy from Stifel. Please go ahead..

Hi, this is Molly (42:16) on for Jim.

Just a couple quick ones, with regard to your guidance, what is giving you the confidence to reiterate your guide today? And what would have to happen for you to realize needed some upside to that guide heading into 2H?.

Well, I mean, we started out. We had a good, very good, first quarter, very pleased with the way it unfolded. And we really see things unfolding in line with the way that we thought the year would unfold when we gave guidance earlier in February.

So first quarter played out in line with our expectations and nothing has really changed from that as we move through the year. Obviously, we have the impact of the Alstyle transaction, which would be and we'll reflect as we move forward.

But I think if you look at the way that the market conditions are unfolding, the way our programs are unfolding, we're comfortable..

And pretty much a lot of the programs and in particularly in Branded, are firm programs. So we have attained these programs. They're being produced. So it's not like we're in a position with unaccountable sales. So we're very comfortable with our positioning..

And there is still opportunity maybe for some even if smaller program wins in the second half, that would be incremental?.

Anything we can obtain in the second half would be incremental to our forecast..

Okay.

And then, my second question is can you just speak at all to any of the programs that you're starting to secure for next year? Are they coming into plan or are you seeing any resistance from retailers, given the more difficult environment out there?.

Well, we're focusing on this year right now. We're very excited. We have a lot of new programs. Our sales will be up significantly in the back half of the year as we continue to set these new programs.

And based on our performance, we're very comfortable that we'll get new shelf space as we go forward into next year and leave our success from 2016, which we've done in subsequent years..

Okay, great. Thank you..

Thank you..

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

Thank you. Before ending the conference call, I would like to remind you that Gildan will be holding its Annual Shareholders Meeting tomorrow at 10:00 AM Eastern Time here in Montréal at Le Windsor. So therefore, we will not be available for questions tomorrow morning.

However, we will be available this evening for the next little while to take any follow-up questions that you may have. So once again, thank you for joining us and we look forward to speaking to you very soon. Have a good evening..

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