Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2021 Gildan Activewear Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to hand the call over to Sophie Argiriou, Vice President, Investor Communications. Please go ahead..

Thank you, Michelle. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our earnings results for the fourth quarter and full year of 2021.

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 tomorrow the 24th of February and will be available on our website.

Joining me on the call this morning are Glenn Chamandy, President and Chief Executive Officer of Gildan; and Rhodri Harries, our Executive Vice President and Chief Financial and Administrative Officer. In a moment, Rhod will take you through the results for the quarter and a Q&A session will follow afterwards.

I would like to 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 now, I will turn it over to Rhod..

Than you Sophie. Good morning and thanks for joining us today. This time last year, when we reported our fourth quarter results, we expressed confidence that we were entering 2021 as a fundamentally stronger company. We now believe our results and accomplishments for this year they are strong evidence of that.

We finished the year with record top and bottom line performance in the fourth quarter, leading to record sales, earnings and free cash flow for the full year.

Simply put, thanks to the strong efforts, expertise and focus of our whole team we navigated through a still challenging environment in 2021 to deliver on the core objective of our back-to-basic strategy, which was to remove complexity from our business, so we can better leverage our world class vertically integrated manufacturing system to better support our customers.

By delivering on this objective, we were able to capitalize on improving demand during 2021 at margin levels much stronger than pre-pandemic levels. We also delivered on our capital deployment priorities.

And as you saw from today's earnings announcement, we are now moving forward with the Gildan sustainable growth strategy, with well-defined initiatives to enable us to deliver strong performance over the next three years, which I will cover after I take you through the details of the quarter. So let's get started.

During the fourth quarter, we generated record net sales of $784 million up 14% from last year, with activewear sales of $627 million, up 17%, and hosiery and underwear sales of $157 million, up 3%.

The overall sales increase was primarily due to higher sales volumes and net selling prices in activewear partly offset by product mix due to the timing of fleece sales compared to last year.

Higher activewear sales volumes were driven primarily by higher year-over-year point of sales, and to a lesser extent, by the impact of some distributor restocking in a North American imprintables channel, although I would emphasize the inventory levels in the channel continue to remain well below 2019 pre-pandemic levels.

If we look at sales relative to pre-pandemic levels, total net sales were up 19% above the fourth quarter in 2019, driven by higher unit sales volumes, net selling prices and stronger mix in activewear partly offset by lower sock sales.

Volume growth in activewear reflected the continuing positive trend of higher POS in the North American imprintable channel, higher sales of activewear through retail channels, combined with the positive impact of the non-recurrence of distributor inventory destocking that occurred in the fourth quarter of 2019.

While we continue to see a lag in demand versus pre-pandemic levels was an international sales given the impact of the Omicron variant and lockdowns in various regions. Moving on to our gross margin where performance remains strong. We generated gross margin of 29.2% in the quarter up 670 basis points.

On an adjusted basis, gross margin of 30.6% was up 480 basis points compared to last year. The strong improvement over 2020 was driven by higher net selling prices and manufacturing efficiency stemming from our Back to Basics initiatives.

The positive impact of these factors more than offset inflationary pressure on raw materials and other manufacturing costs. And the mix impact from the timing of fleece sales compared to the prior year. Relative to 2019, we saw a strong improvement in growth, adjusted gross margin in the quarter up 500 basis points.

The increase was due to higher net selling prices favorable product mix and Back to Basics efficiencies, which more than offset higher raw material and manufacturing costs.

Fourth quarter SG&A expenses came in at $80 million, $9 million above the fourth quarter last year, due mainly to higher volume driven distribution expenses and higher variable compensation.

As a percentage of sales, SG&A expenses were 10.3%, which was slightly better than last year, compared to the fourth quarter of 2019, SG&A expenses as a percentage of sales improved by 130 basis points.

Strong sales and gross margin performance, together with our continued focus on SG&A translated into operating income in the quarter of $177 million or 22.6% of sales, a significant increase from $79 million or 11.4% of sales last year.

The increase in operating margin included the net benefit of a $32 million impairment reversal related to our hosiery cash generating unit for which we had recorded an impairment charge last year, and which now has been reversed to the full extent possible, given the significantly improved economic environment and outlook for this category.

On an adjusted basis, which exclude this benefit, operating income of $160 million was up $55 million over last year, and adjusted operating margin of 20.4% in the quarter was up 510 basis points from 15.3% in 2020.

Consequently, we generated record net earnings of $174 million and EPS of $0.89 per diluted share in the quarter, up from net earnings of $67 million and $0.34 in 2020. Adjusted net earnings and adjusted EPS in the quarter totaled $149 million and $0.76 up for $90 million and $0.45 last year.

With another record quarter this year, we also set a new full year record with EPS of $3.07 per diluted share, and adjusted EPS of $2.72 per share up 64% over 2019. Moving on to free cash flow.

The $160 million we generated in the fourth quarter brought our full year free cash flow to $594 million, also a record level and up from $358 million last year.

The increase reflected strong earnings, improved working capital management, and the timing of insurance collections related to the 2020 hurricanes, partly offset by higher capital expenditures.

At year end, our net debt position stood at $530 million down from $577 million at the end of 2020 and our leverage ratio was 0.7 times adjusted EBITDA below our target range of one to two times.

During 2021, we were pleased to be able to reinstate dividend payments and share repurchases and in aggregate, we returned more than $335 million of capital to shareholders during the year. This morning, we were also pleased to announce a 10% increase in our quarterly dividend.

And with our current share repurchase program now almost complete, our debt leveraged below our target range and strong confidence in our ability to generate free cash flow. Today, we also announced that we are increasing our share repurchase plan from 5% to 10% of our float. So overall, we accomplished a great deal in 2021.

But more importantly, as we look back to the launch of our Back to Basic strategy, we delivered what we envisioned from this plan.

We simplified and focused our business, allowing us to deliver adjusted operating margin expansion of close to 500 basis points, and our RONA, which is return on net assets improved by more than 800 basis points during the 2018 to 2021 period.

It also put us in a position to continue to expand our capacity in Central America and the Caribbean, and resume our expansion plans in Bangladesh where we are now rapidly moving forward with the construction of the first up to large scale, textile and sewing facilities.

In addition, our clear focus allowed us to push forward with reinforcing our vertically integrated supply chain model through broadening our existing yarn capabilities with the acquisition of Frontier Yarns in December.

We are very pleased with this acquisition, which is now allowing us to further internalize yarn production and support our textile expansion plans in Central America and the Caribbean.

So today, thanks to Back to Basics, we stand as a less complex, more focused and competitively advantage organization stronger than we have ever been and well positioned for sustainable growth. This leads me to the last area I'd like to cover in our opening remarks.

During the fourth quarter, we completed a comprehensive strategic planning process to define the underlying initiatives that will support our next phase of growth under what we call the Gildan sustainable growth strategy.

While Back to Basics will always remain at our core under the Gildan sustainable growth strategy, our efforts now turn to building on our strong foundation to drive organic top and bottom line growth through three key pillars; capacity expansion, innovation, and ESG.

Under this revised strategy, we believe that by leveraging our competitive advantage as a low cost, vertically integrated manufacturer and executing on projected capacity expansion plans, delivering superior quality value driven innovative products to our customers and through our leading ESG practices we can drive strong organic revenue growth, profitability and effective asset utilization to deliver compelling shareholder value creation To this end, we announced in our press release today, that under the Gildan sustainable growth strategy our outlook over the next three years, based on everything we are seeing today and assuming a continued global recovery reflects net sales growth at a compound annual growth rate in the 7% to 10% range, while maintaining operating margins in the 18% to 20% range.

Further, to support our long term growth and vertical integration, we're expecting investments in capital expenditures as a percentage of sales to be in the range of 6% to 8% over this period.

Finally, at the same time, as we're investing in our business, we are also planning to continue to return capital to shareholders through dividend growth, and through continued share repurchases in line with our one to two times leverage framework and valuation considerations.

So overall, a complete plan to grow our business and to deliver strong shareholder value and ESG performance, which we plan to provide more detail on at our virtual investor day now scheduled for March 29. So let me close here with how I started my remarks.

Last year, when we reported our year end results, we expressed our confidence that we were entering the New Year as a fundamentally stronger company. Today, we reiterate that sentiment with even greater conviction. And with that, I will now turn it back over to you, Sophie..

Thank you Rhodri. Before moving to the Q&A session, I ask that you limit the number of questions to two. And of course, we will circle back for a second round of question if time permits. I'll now turn the call over back to the operator to start the question and answer session. Michelle, go ahead..

[Operator Instructions] Our first question comes from Paul Lejuez with Citi. Your line is open..

Hey, thanks, guys.

I'm curious on the 7% to 10% sales CAGR over the next three years, how much of that do you think will be sort of consistent growth in that range, versus maybe more lumpy based on when additional capacity comes in? And also, we'd love to know how much of that 7% to 10% you think of as being unit increases versus pricing? And then second, if you could just talk about the pricing environment in activewear just generally and how you look at your price gaps versus the competition rest of the market right now.

Thanks..

Okay Paul, thanks for the question. So if you look at the CAGR, that 7% to 10% over the next three years. And as we look year-on-year, I think we see good growth, right as we go through each of the years. We have capacity coming on in Central America, effectively which will support this year.

And next year, we have the capacity coming on in Bangladesh, which we're working to bring online, basically at the end of this year, beginning of next year, which will support 24. So we have a good cadence a capacity rolling out to support, I would say good growth, as we move through the years.

Of this year, we will see I would say strong growth overall, because we will have got volume growth. And to a certain extent, we have a bit of price coming through.

But I would say our whole plan is to expand our capacity and effectively be able to use that in the marketplace in a market where we do see strong demand for our products over the next number of years. If you do look at the breakdown between unit volume and price, really its volume that's driving the plan over the three years.

That's what we're really focused on. And I think you know that effectively competitively we think that if you look at the way we run our business model, we really are focused on volume, we're really focused on share versus price.

And if you look at overall, our activewear business is very, very strong over this period, we're seeing across all of the different areas that we sell in the marketplace in the -- if you look at the imprintable side, you'll look on the retail side really in all areas activewear growth is very, very strong through that forecast period.

And regarding the pricing in the market, two things I think are relatively important one; we did not raise price to cover the total inflation because we're leveraging our low cost manufacturing which has been the backbone to our success is making sure that we're leveraging our cost structure.

So the price that we did take was really a function of reducing the amount of promotional spending that we do. So we have quite a lot of typically promotional spending fall in, in incorporated in our pricing strategy. So by reducing that that's what really is allowing us to get more price offsets.

We did take some price increases but the bulk of all the price we're taking in 2022 was by reducing promotional spending. We continue to widen the gap for SaaS versus the competition. I think there's a bigger gap where our products are being sold today, that's obviously some portion our unit volume and leveraging our low cost manufacturing.

And the bulk of our, our core T-shirts are just north of $2 still, even after all the inflation, so we look at where we're competitively priced. We think that we're poised to continue to take significant market share, and that's why we're so bullish on the next three years..

Great, thank you. Good luck, guys..

Thank you..

Next question comes from Vishal Shreedhar with National Bank. Your line is open..

Hi, thanks for taking my questions.

Wondering if you could provide us with insights on trends, quarter-to-date, and maybe the impact of Omicron and how that's led into the restocking situation for the dealers?.

Okay, well, let me just first of all clarify the restocking because that's a little bit of a misnomer, because we did have a little bit of restocking, but the truth is that none of that inventory is actually in our distributors warehouses, because when we look at the inventory, and the channels including, once we build it, it's in the channel as far as we're concerned.

And today, the lead times to get product into the channel has taken a lot longer because of freight disruption and labor restraints in our customer. So our actual inventory in the four walls of our distributors is probably lower on a year-to-year basis, but the actual channel has a little bit more inventory, supporting, coming to them basically.

So because product is selling relatively quick, and POS is very strong. I mean, so those two combinations basically in our distributors are selling as fast as they received the product..

Okay, and the quarter to date trends and the impact of Omicron, maybe the current trend….

Yes, there's the trends or look, are remaining pretty strong. We didn't have Omicron, it’s probably made somewhat of a little effective, more to be honest with you. Our manufacturing, we'll be able to can be a lot of people out, both in the U.S.

and Central American, but I think that's behind us right now, it was probably about a month in January, just not for Christmas, that was somewhat away. But I would say in where we stand today, it's pretty much behind us, except for International, which is still lagging North American..

Okay.

And in the past, there was thoughts on this online market and how this if this online, online market, which grew substantially during COVID, if that didn't fade away, substantially, it may suggest market size expansion, just wondering if you can give us some updates on the online market and what you're seeing there?.

So look at what we said in our last call is that we believe that the market has grown substantially since 2019. We continue to believe that and there's -- our POS is very strong, I mean, and so that, that will online aspects of the market continues to excel.

And really, what we're starting to see now was the benefit of social gatherings and our basic products coming back to the market. So, as we see the POS, even on our basic started to really grow, the combination of these two things is really put us in a good position to significantly increase our POS as we move into 2022 and 2024..

Thank you..

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

Hey good morning. Actually, Glen, I just want to follow up on your comment with regards to promotions and pricing for this year, and going forward, we've seen some industries that are sort of exiting the pandemic with higher gross margins as a result of sort of strong demand and, and structural or semi-permanent shifts away from promotional spending.

I'm just curious if you think that's something that that will sort of structurally remain in the industry for the foreseeable future, or in your business, maybe not the industry, but your business?.

Well, as long as business remains robust, obviously you're going to yield the best return your camp to your shareholders, which is what we're doing. A lot of the promotional lack of promotional spending is really offsetting the higher cost of raw materials.

So and that's how we send our pricing so we wouldn't have to really adjust our pricing in the future.

So we have a net good price list and then it was based on, what we thought would be a certain price of cotton and then as cotton moves up this way, we reduce the amount of promotional spending and then part must move down again we will just increase the amount of promotional spending if needed.

Now that's also a function of depending on how strong demand is in the market. Or do we get margin expansion, but I think we're in a very good position to adapt to, raw material, because that's really the only thing that fluctuates in our cost of goods sold. In fact, your manufacturing costs are going down this year.

I mean, we're leveraging our Back to Basics, what we're producing more volume in the four walls.

All the things that we've done to simplify our business is actually improving our cost structure, which is offsetting a lot of the labor costs, inflationary areas, but the raw materials, the one that we really don't control, and you can see what raw material -- got. So I think we're in a good position.

So if raw material does come down, we'll just promote a little bit more. And if it's, where it is now, we're very happy with our strategy..

Okay, thanks.

And just to follow up, I guess on that, do you think this shift in approach with regards to sort of navigating the volatility are ups and downs in cotton pricing potentially reduces the risk of, sort of revaluations and volatility and distributor ordering patterns as cotton moves up and down?.

Correct. I mean, that's, that's why when we set our pricing, we set it in a -- at a range where we have that flexibility, really. So the answer is that we don't foresee any devaluations, cotton comes back down to the normalized level..

And just add to that, Mark, I would say is we've given our outlook and we've reflected what we're thinking, that does reflect obviously, that over three years, it could be a change, ultimately, in underlying commodity prices.

But we've reflected that overall, in our, in our view, given the way we're running the business and the things that Glenn said..

Understood. And I just wanted to sneak in one more.

Just regarding the EBIT margin range of 18% to 20% what sort of pushes you up or down in that range in any given period? Is it-- is it sort of sales leverage over time? And we think that margin can increase over the three year period? Or do you expect it to be pretty stable, and it's more just about short term factors like, mix or raw material costs that could affect you in any given year?.

I would say its mix in raw material costs that could affect this over a year. And then the timing of those events..

Yes, it's the things that will move, within the quarters, effectively. I mean, a good example of that is if you look at, at the comps that we have this quarter, for example, coming into Q1 versus last year, we had a sort of big benefit from a cotton assistance payment that we received $80 million, that's 250 basis points.

So you have things moving through your numbers as you go quarter-to-quarter Mark. But I think given the bottle that we're running, we've been very clear about our ability to effectively run in this range. And so I would say we feel good about delivering on that over the three consistently over the three year period..

Understood. Appreciate it, and all the best..

Our next question comes from Luke Hannan with Canaccord Genuity. Your line is open..

Yes, thanks. Good morning, Glen. I just had one for you under the Back to Basics program; you guys have made a lot of progress under that. And clearly it's being reflected in your financial results now.

But how do you ensure that you avoid becoming overly complex from a skew perspective going forward while also making sure that you're innovative enough to meet your customer’s needs?.

Well, that's the secret sauce that I think as you know, we've rationalized our brand. So we have two or three brands going forward, which we think we can cover the market with. And that's down from five.

So that's a good example of SKU rationalization and focus, right? So and that allows us to run with less working capital to support better service and everything else to go with it. So I think we have it dialed in.

And when you have less SKUs, you can provide better quality and what's -- what are key to success has been is always to improve our quality and which we're doing right now, we have a lot of new innovation that's happening right now to prove our products, printability of them. And softness, mean, whatever we take.

So we're focused, and that's the key of our Back to Basics. So you're focused on what you have to do to make it the best and not to be all over the place.

So we're really continuing to, I think, leverage our strategy and we'll, we're going to stay tight on what we do and we're pretty comfortable in our unit growth projections and our outlook over the next few years..

Okay, thanks. And for my follow up, we did see inventory pick up both sequentially and year-over-year and I'm curious to know how much of that was higher volumes versus higher cost and then what are your expectations near term as far as building inventory? I know, the distributors are chasing inventory right now.

So I'm just curious to know what's that's going to look like in terms of your own books..

Yes, they look at inventory. And that was a bit of a build. And you would expect that, right? If you look at what's going on from a cost perspective, overall. I mean, a bit of the unit volume, but we're running tight on inventory.

As we run through the various quarters, as we get through this year, as we bring on capacity, as we effectively bring on yarn production, really, as it comes up, we'll have the opportunity to build our inventories a bit. But I think as you can assume, inventories are staying tight as we run through 2022 into 23.

And that's, inventories everywhere maybe as a way to think about it..

Okay, appreciate the color. Thank you very much..

Our next question comes from Stephen MacLeod with BMO Capital Markets. Your line is open..

Thank you. Good morning, guys.

Just wondering if you could give a little bit of color on what you're seeing in the activewear segment as it relates to some of the end markets, particularly some of the summer markets is sort of lagged, like corporate travel, stuff like that, wondering if you can give an update on how those markets have trended in Q4, and on a year-to-date basis?.

Well I think that they're starting to pick up. I mean, other than the wave of Omicron that happened in towards the end of last year, beginning of the year, I mean, things were somewhat picking up. I mean, there was a lot of trade shows cancelled in early January that would have probably affected business. But overall, we're very bullish on the outlook.

And then we think this is all behind us right now. And for us, I mean, that's really the key; because we've seen a large growth in the market and the market has grown and the pieces have grown are sibling very well.

And then, once we get packed up, promotional, corporate promotional, and tourism and all the other things that go with it and social gatherings, which have come back but not back fully. I think that's going to be a big part of our success.

And one of the other areas that we've seen significant growth is our fleece category, which is lifestyle change of people wearing more sweatshirts. And that's also been a big driver of our overall revenues, as during 2021. So we're feeling very comfortable with the, our outlook, activewear is growing.

And it's not just in the premier [ph] market; obviously, we know we're seeing a lot of near-shoring coming back. For people, servicing retailers, our global lifestyle, customers are looking to grow with us.

So we're poised to think in every one of the areas that we really, service except for International, which is probably the only one that's a little bit at this point disappointing. But that's, I think, will take care of itself once, once on the sort of beige. So everything is running on full cylinders..

That's great. Thank you. And then I just wanted to pick up a little bit on the innovation comment, you sort of cited as a key pillar of, of your sustainable growth strategy.

Can you just talk a little bit about sort of what that means in terms of the product that you're that you're offering, considering, you've also embarked have embarked on a strategy to reduce the SKU count..

Right, so the innovation is going to be as for every product that we sell, we're going to sell the best product in the market by definition. I think that's the way to look at it. So if you look at a competitive product in the market, we're going to make sure that our products are better quality and features than anything else being sold.

So we have different categories. We have our basics, we have fashion, we got etcetera. So our fleece, so we're going to continue to, to reinvest in our low cost manufacturing, basically, to support what we think is innovation.

And also innovation is also involved in our manufacturing processes, which will allow us to continue reducing costs, really, because that's also been the key pillar in terms of what we're doing. And that's, new ways and that's also embedded in our ESG strategy. In terms of consumption of milk, obviously, we consume less water, we consume less energy.

So that's also part of our innovation strategy. So innovation is not just about product, but it's also about our whole footprint of our manufacturing..

Okay, that's, that's very helpful. Okay. Thank you, look forward to the investor day..

And next question comes from Jay Sole with UBS. Your line is open..

Great. Thank you so much.

Wanted to ask about the share buybacks, bought back a lot of stock in 4Q, it looks like you've bought back quite a bit of stock already here in Q1, raised the amount of shares you can buy back, what's the plan going forward for the rest of this quarter in this year?.

Yes, so Jay, like we talked about the strong, free cash flow generation that we've had as a business and the strong balance sheet that we have. And we've been very clear that we, when we look at our balance sheet, we do want to run in that one to two times leverage range.

So effectively, as we go forward, we'll look at managing our share buyback program, in line with our framework, as we have done for many, many years now really, when you when you look at it. So I think as you as you go forward, we sell the opportunity; our leverage is low as we as we finished the year at 0.7 times below the low end of that range.

And we did make good progress in the program that we put in place, we started midyear last year. And so now we're really upping that program. And that's, what I would say you can consider is our program for 2022. Again, we expect to execute on that program, given where our balance sheet is and what our free cash flow generation is.

And then as we go forward into 2023 and 2024 we’ll obviously continue to manage that in line with, with what we see. But given our free cash flow generation, we feel like we're in a very good position to invest in organic growth, which is the driver of the business, which is really everything that we do.

While at the same time though, keeping a strong eye on return of capital funding, we feel good about all of that..

Got it. Okay, thank you. And if I can ask one more is elaborate a little bit about how, Port congestion is impacting the business, obviously company probably doesn't use a whole lot of West Coast ports for delivering goods.

But can you just explain that dynamic and elaborate on what you're seeing there, and if it's been an issue at all?.

Well, we have a small portion of our business, obviously that, but it comes from Asia, but we don't necessarily use West Coast ports. But it's -- freight costs have gone up. And we've seen quite a bit of inflation from we do bring in from Asia.

But the bulk of our production is really almost domesticated, which is yarn coming from United States, goes to Central America and comes back. So we've -- we haven't seen any real issues, except for lack of truckers, things like that, which is basically, trucking in United States is very tight.

It's -- I've mentioned earlier that our lead time to our customers, I mean, although our inventory and channel has gone up a bit, but now that inventory is in fact, our inventory, and our distributors for wall has actually gone down.

So, that's, that's a good indication of the types of the freight issues, let's say, for example, that are happening right now. But and the labor market still remains very tight in the United States, which is also the other factor. So, but overall, I think look at where we're managing our costs.

I think we're in relatively good shape we don't rely on outside factors. We're vertically integrated, obviously, and we're able to measure supply chain..

Got it. Okay, thank you so much..

Our next question comes from Brian Morrison with TD Securities. Your line is open..

Thanks very much. Good morning. Glenn, you mentioned that the average price of a shirt was now $2.

I just want to clarify where it is the price level relative to the pandemic? Are we pre-pandemic? Are we significantly above or are we in line, where is where do we compare?.

Well, our pricing on our like our basic pricing, let's say for example, tees have gone from they were in the highest single dollar and let's say $1.75 or something $1.90 and they're just north of $2 today. So the pricing has gone up, but hasn't gone up significantly.

Really, I mean, if you look at the end user price, that could be absorbed, our price increases could be absorbed quite easily in the market. And fashion T-shirts have moved up a little bit too on our side.

But I mean, our competitors have taken a lot more price than we have in our GAAP relative to us and the competition has grown substantially relative as pre-pandemic levels. So for us, I think we're in a pretty good position leveraging our low cost manufacturing.

We could take more price if we wanted to, I would say but, what we're going to do is we're going to continue to focus on unit volume growth and bring on a wave of capacity really and as we leverage the acquisition of frontier and we move into the back half of this year, we're going to have a substantial increase in our volumes, really as we move into 2023.

So we're pretty excited about our position..

Okay, and then changing gears when I look at your 7% to 10% growth outlook, has this got phase one of Bangladesh and the equipment transfer to Honduras.

Are they both operating at 100%? And do you see any outsized growth from any of your key verticals through this forecast, whether it be private label or fashion basics?.

Well, the forecast I think we have right now is based on the capacity that we communicated to you before, which is the Bangladesh 1, and then the repurposing of all the equipment we had in Central America that we said, we're bringing on approximately a billion dollars in revenue, this is what we stated in previous call.

So that capacity is being in place, the capacity that's in Central America is in place today. And Bangladesh is going to be complete sometime towards the end of this year. And it starts in the beginning of Q1 next year. So that's all on in place.

I think and going and what we refer to as our CapEx, which is the 6% to 8% that CapEx is really going to support the next big incremental approach.

So some of that CapEx will be the bring on obviously, Bangladesh, but it will be supporting really the next wave of our capacity expansion, at the same time, allowing us to continue driving our vertical integration, not just in North America, but as well as in Bangladesh. So, our goal right now is to continue.

I mean, we've got line of sight on the next three years and questions, what happens after that. And that's, the bulk of our spend is basically going to be supporting additional capacity expansion, and vertical integration..

Okay, just squeeze one more into just in terms of yarn supply since the acquisition of Frontier.

You did have some while the industry in general had some notable labor shortages and was impacting production across the board? Are you still seeing this since the acquisition of Frontier for the industry? And if so, is it leading to market share gains?.

Well, I think that the, the thing is, is that there's capacity is tight, right? So there's and that's just not in North America, that's globally. I mean, I think that the business is tied to during the pandemic, a lot of facilities closed down, not just in North America but I think globally. So the global tightness of raw material is there for sure.

We acquired Frontier, we're just no phasing out of our sales that they had, which will happen sometime by Q2, and then as we enter into Q3, Q4 we'll have all that volume available to us to continue wrapping up our capacity, basically, to support incremental revenues in the back half of the year and as we move into 2023.

So things are still tight for us. But I mean, we've are producing more today than we did this time last year, obviously, because our plants are producing better. But we're in a position, I think that we'll have to see continued growth, and optimizing our manufacturing. And we're also looking at continuing increasing our capacity as we speak.

So all that combined, we feel very comfortable with the availability of our yarn. And I think of our growth as we move into the back half of this year into 2023..

Thanks very much..

Our next question comes from Sabahat Khan with RBC Capital Markets. Your line is open..

Great. Thanks and good morning. Just I guess a bit of a high level question on the industry outlook. You've addressed the TAM in the past that somewhere between kind of call it $4.5 billion to $6 billion. And then with the additional demand that we've seen through the pandemic, and I think you called out that work from home demand is still there.

And you have an updated view on what the TAM looks like today. And presumably, it's gotten significantly larger given top line growth that you're targeting is above kind of historical levels; just want some color on that..

Right. Well, what we said in previous calls that pre-pandemic, we thought that the market size was $6.5 billion. And we think that that market has grown substantially since then. We've had a lot of research, and that's something that we're going to call out in our investor day is really to bring more insight into the size of the market.

We've done a lot of market research and, which confirm that the market has grown substantially. So we'll discuss that on our in our investor day..

Okay, great.

And then, as we look, I guess in terms of the kind of the fashion basic side and historically, I think the number you quote in the past or something like that 25% market share, and I guess within the margin guide that you're providing over the next year is on the top line and what role is fashion basics going to play in both the top line and on the margin side, and maybe any goals you have for market share capture on that side of the business?.

Well look at just two, fundamental huge areas of growth, obviously, one is fashion and the other is fleece, which is our fleece business is growing substantially as we speak. The capacity that we're bringing on in Bangladesh, which is two large state of the art facilities, will be geared and dedicated to 100%, making fashion T-shirts.

So we have a huge wave of capacity coming on, which would be on the low side of the cost curve, basically. So that's our commitment to grow our fashion basics.

And then as we look at the growth of our fleece production, we're reorienting our existing facilities here in Central America, to basically take on the demand and capabilities to support it incrementally. So I think we're in a pretty good position to capture the two large drivers of what we think is industry demand.

Our basics, our typical basics, I mean they'll grow at a slow clip. But we've got quite a large market share there so we don't really see big growth in the basic category is really going to be a function of, our fashion basics and our fleece that will drive the top line growth over the next few years..

Okay, and then, I guess just on the inventory among the distributors that you noted in the press release being below pre-pandemic levels, do you foresee a bit more of a restocking event or sort of is this just in time temporal punishment, something you expect will continue, and what should we expect over the course of 2022?.

Well, we think definitely for the short foreseeable future, I mean, inventories are going to remain tight. So that's that's a fact. I mean, I what I said is that although we've got more inventory, what we call the channel but a lot of inventory is on actually physically in our distributors, four walls right now.

So their four wall inventory is probably half of what it was in 2019. So, it's inventory is relatively tight.

There will be some probably ultimately catch up just because we think that A, the number one the market is growing and inventories are relatively low, which, has affected service a little bit, but I mean, the point is, is that it's almost a good problem, but we will definitely be a small catch up towards the end of the year probably..

Great. Thank you..

Our next question comes from Jim Duffy with Stifel. Your line is open..

Hey, good morning. This is Peter McGoldrick on for Jim, thanks for taking my question. I was curious on the Frontier Yarns acquisition, could you help us better understand the income statement influence across line items, and how this contributes to the new multi-year outlook..

So if you look at Frontier Yarns, and the acquisitions that Glenn said, we're very pleased about it and really drive our capability on a go-forward basis. From a yarn perspective, effectively, it just gets rolled into our, into our asset base, right. It's the manufacturing assets that effectively show on our balance sheet.

We pick up some inventory, actually, there's an inventory question earlier in the call, and you'll see some of the increases are reflected, is related sorry to Frontier. And then as we go forward, effectively, we still have some third party sales, that the effect will come from Frontier through the first half of the year.

But generally, that will be reflected in our cost of goods, not going to go into our into our revenue line.

So I would say Frontier, we really have to think about from a Frontier perspective is its ability to provide us with the yarn, to provide us with the ability to support our textile facilities, and ultimately, where you – we’re taking Frontier to drive volume.

And also we are improving Frontier to reduce cost as we go forward, so that we can drive that volume, but also maintain the margin profile that we want. So….

And also and also to support the growth in like our fleece category, for example, technology that we use that they have a large footprint than that, which is, [Indiscernible] which makes loco fleece, which is not readily available. So we're expanding that.

We're doing what we can so and it's also going to help us integrate our others other facilities as well, because we now we operate nine large textile plants.

So we consume almost half of the domestic economy in the United States and allow us to basically leverage our existing facilities by streamlining them even further and leveraging our Back to Basics. So we had three SKUs in our plant where we probably got one SKU because we'll just move some of the SKUs at our plants.

So overall, and also there's room for a little bit of investment in some of the things that they were doing in terms of automation.

But overall, look at that, their plants will equally yield very good returns to us, it will help us to grow our top line basically and support everything that we need to, to continue growing and hit our objectives over the next few years..

Okay, thank you. And then just switching to more near term oriented. I was curious on the gross margin outlook within the context of the cost increases, rolling through and price positioning, how this progress is directionally.

And then how does that fit in within the new multiyear outlook for 18% to 20%, given your achievement of 30% gross margin in 2021?.

Yes, I mean, if you look at the gross margin as we go forward, as we look at where we were, and what the various impacts are. I mean we're really running the business on is our operating margin, right. I think that's maybe the first place to start. And we've been very clear about what we can deliver with respect to the 18 to 20.

I think when you look at that 18 to 20, then you look at gross margin, and you look at SG&A. Our SG&A performance has been very good. And you can see that now we're running down, sort of 10%, 10.5% levels. And then you obviously you back up from there to what we expect from a gross margin perspective.

So, there will be some pressure on gross margin as we, as we move through the year. We look at effectively what's happening with raw materials, what's happening with inflation.

If you look at them on a price that that we're taking, I mean, if you look in 2022, for example, the amount of price that is unfolding for us probably in the sort of mid-to-single digit range of sorry high single digit range. And we are seeing inflation and cotton prices coming through that effectively are reasonably significant.

So I would say you would expect some gross margin pressure as we move forward from that high level that we finished in 2021. And so you will see some pressure as we move through the year, but then that'll be offset with some SG&A leverage.

And again, I think we feel very confident about our ability to deliver margins inside the 18% to 20% range we've given you..

Thank you..

And next question comes from Patricia Baker with Scotia Bank. Your line is open..

Thank you. And good morning, most of my questions have been asked and answered. But just wondering if you could talk a little bit about what you're seeing in retail in Q4 and maybe going forward..

Well retail is continuing to be strong. There's been a little bit of say slowdown from stimulus tax. I mean, may probably be the only thing I would say is in retail, where, it was very robust that we're spending money. But we saw Walmart's earnings report. I mean, they did very well. I mean, so overall retail is continuing to, to do well..

Okay, and then just on the softness in international. And I fully understand that Omicron had an impact there.

Just curious before the onset of Omnicom, were you starting to see any slight improvements in that market? Or was it was, pretty much where it had been in Q3 and Q2?.

Well, it was growing at a rate of double digits basically, every year up until COVID, right. So that's the start there. And then once COVID hit, it basically was similar to the U.S. and then it really never recovered.

So it's down 25%, depending on which market it is relative to, 90 levels still, probably China being a little bit worse, because of stricter lockdown than Europe. But still, both of them..

Yes, if you look at the numbers, Patricia, they, as Glenn said, I mean it has been down pretty significantly. That was a little bit of improvement in Q3, but not much. It was still down pretty heavily and effectively. Then when the Q4 came along, and then the Omicron, we saw sort of a reversion back to where it had been.

So it really there has been a big – it’s very divergent, I would say between what we're seeing in the U.S. and we're seeing internationally. The U.S. has been certainly obviously has recovered progressively strong, getting stronger and international. Really, we just haven't seen that that uptick yet..

So just looking at your three year plan, have you assumed that sometime in that three year period that international gets back to where it was. I think it's kind of a permanent lower base..

No, I think it's going to come back but look you got to remember international is still low base to start with, right. So, it's none as relevant. And so we think it's going to come back. And the fundamentals of our core business and international markets is really revolves around travel, tourism.

I think it’s pretty much what drives a lot of those markets. So when that happens, I think the markets will 100% bounce back. We think, shorter term in the U.S.

right now, I think we have, obviously, we're very bullish about the outlook for the North American market, because it's not only -- we're relying on the consumer spending and consumer demand side of it. It's also the on-shoring. And people, trying to get closer to the market and just in time, etcetera, etcetera.

So, which is related around our retail customers, and as well as our GLB customers. So, I think we are in relatively good shape. But I think [Indiscernible] will come back eventually, as a young society..

Excellent. Thank you for that..

Our next question comes from Chris Li with Desjardins. Your line is open..

Hi, good morning, everyone.

Glenn, I was wondering if you can share with us, roughly, what percentage of your activewear sales are fleece and fashion basics? And what does that mean in terms of your market share in the expanded term?.

I don't think we really give that information out, Chris. But I would say that look at fleece and fashion basics are the two fastest growing categories. I mean, obviously, basics are we have, we've always had a large share of basic, so it's not growing at the same clip, because, we have, I think at one time 85% share of the basic category.

So but our fashion basic and our fleece are both big growth drivers. And in fleece, there's, there's not a lot of competition, right? I mean, you need to be vertically integrated manufacturer and probably have a pretty good capital structure to be able to support fleece.

So there's really nobody in our industry that really has the capabilities of substantially growing up like we are. So I think we're in a good position. We're kept capitalizing on a large portion of the market growth, and we see a bigger growth in front of us..

Okay, now that's helpful. And then my other question is, in the past you've mentioned that if the distributor inventory, which will be coming back to pre-pandemic level that will translate into roughly $150 million to $200 million of incremental revenue.

Is that still a fair assessment?.

Well, that will happen. I think, eventually, over time. I mean for two reasons. One is that inventories are so low today that they have to continue to replenish and bring product back into their channels. But the second thing is I think the market is growing. So you need more units to support the growth of the market.

So for both of those reasons, I will say 100%, that inventory eventually will come back into the market. The question is when? I mean, I don't think it will be fully happened in this year. I mean, maybe next year that could be something that could happen..

Okay, great. And thanks, and good luck..

Thank you..

There are no further questions. I like to turn the call back over to Sophie Argiriou for closing remarks..

Thank you, Michelle. Once again, we would like to thank you for your participation today. And we look forward to speaking to you soon. I would also like to remind you that as Rob mentioned, we will be holding our virtual investor day on Tuesday, March 29.

And in the coming days, we'll be issuing a press release to provide you with the details for the registration of the event. So once again, thank you and have a wonderful day. Thank you..

This concludes the program. You may now disconnect..