Gildan Activewear Inc (GIL) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to the Gildan Activewear year end 2004 results conference call. As a reminder, today's call is being recorded. Our speakers today are President and Chief Executive Officer, Mr. Glenn Chamandy; Executive Vice President and Chief Financial Officer, Mr. Laurence Sellyn. Before turning the call to management, please be advised that certain statements included in this conference call may constitute forward looking statementswithin the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward looking statements include known and unknown risks and 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 Security's regulatory authorities for a discussion of various factors that may affect the Company's future results. And I would now like to turn the call over to Mr. Glenn Chamandy. Please go ahead.

Good morning. This is Glenn Chamandy. Welcome to our fourth quarter conference call. In addition to myself and Lawrence, also participating on the call is our Executive Vice President and Controller, Greg Thomassin, and our Vice President of legal and public affairs (indiscernible).We're very proud to announce extremely strong fourth quarter and full year earnings significantly above the Company's previous guidance. Lawrence will present the formal review of our fourth quarter financials followed by questions and answers. Before he does so, I would like to take the opportunity to discuss three concerns that continue to be raised by the investment community.The first. The impact of elimination of quotas in January of 2005 on textiles and apparel imports from China and other countries. We have stated that due to -- we do not expect the impact of the elimination of quotas. The reason is that we believe that Gildan is a low-cost producer for the North American markets. which we supply from our manufacturing hub in Honduras. Our new hubs in the Dominican Republic and Nicaragua are expected to even have a lower cost structure than Honduras. It is important to remember that in addition that in capacity we are also adding capacity to state of the art technology and will continue to further reduce our costs and be able to deliver our costs below 10 percent of our cost of labor. Our facility in (indiscernible) Honduras now produces fabric, close to 250 million shirts annually, resulting in huge economies of scale and efficiencies. China is likely, in our opinion, to continue focusing on products that are more labor- and fashion-intensive. We have already driven down selling prices below world levels. As we have invested in new manufacturing technology and achieved significant cost reductions, we have flowed the majority of these cost savings into lower prices to our customers. In addition, I do not believe that China can effectively service this (indiscernible) market in North America. They have long manufacturing delivery cycles compared to our strategically located offshore hubs. And we do not have large North American warehouses with vendor management information systems that automatically replenish our customers' inventories. Also they do not have a local presence to respond to pricing promotions nor do they have rents that are recognized by discrete vendors. Our customers have now completed their catalogs for 2005, which are the cornerstones of how they manage their operations; and there are no Chinese imports in their catalogs. Two other important factors. First, duties from Chinese imports will continue at a very high level even after the quotas are removed. Second, we are enjoying immediate success with our expansion in Australia, which has traditionally been served by imports from China. Bottom line, we do not see China as a threat to our existing markets; rather, we view it as a he huge area of opportunity for future growth as it becomes a domestic consumer market and rapidly evolving. The second concern is the progress on our re-entry (ph)to retailers -- the next phase of our strategic growth strategy. Our entry into retail channel will leverage existing core competencies and our existing competitive strengths. We will continue to sell the same basic undecorated apparel products as well as potentially introduce confidentially (ph) new products that will leverage the same manufacturing strengths. We intend to follow the same pricing strategy as in the screenprint market by using our cost efficiencies to lower selling prices and then use lower selling prices to achieve market penetration. The competition in the retail channel is essentially the same as the wholesale. We are far better positioned today to compete successfully in retail than we were when we first entered the screenprint in 1993. Today we are the low-cost producer with large state-of-the-art manufacturing facilities. We have a strong management team, including a sales and marketing group with extensive retail experience. We have the leading brand in the wholesale channel with approximately 300 million shirts being sold this year with the Gildan level label. And we have a strong balance sheet with no debt. Since Doug Leroy has joined the Company in February to spearhead the retail initiative, we have conducted extensive market research which gives us confidence in the consumer acceptance of our brand, based on our pricing strategy. We are managing our entry very conservatively. From the outset we have stated that our objective is to sell 500 to 700,000 dozen in the retail channels for fiscal 2005. We will not have the manufacturing capacity to achieve more significant market penetration until fiscal 2006, when our new manufacturing hubs fully ramp up. In the meantime, we are ensuring the front end of our business is ready when the new capacity comes on stream. In addition to the detailed plans developed by Doug to refine products packaging, etc., we are expanding our North American distribution center and we are further refining our systems to meet the needs of the retailers. The third concern is the progress of our FLA (ph)status. We are currently working constructively with the FLA staff to achieve a mutually satisfying resolution of the outstanding issues as reflected in the conditions set at their board meeting on October 26. We expect the situation to be resolved within the next two weeks and we prefer not to comment while this is under review. Now I'd like to ask Laurence to present the formal review of our fourth quarter results.

Good morning. This morning we reported our audited results for the full fiscal year ended October 3rd, 2004, together with our results for the fourth fiscal quarter. The fourth quarter results showed very strong top line growth combined with margin expansion and were a record for the fourth quarter of the fiscal year. Earnings and earnings per share reflect a very strong growth over solid prior year comparatives. And we are well ahead of the guidance we had most recently updated in August. As reported, EPS for the fourth quarter was 56 cents U.S. per share, up 16.7 percent from the fourth quarter last year. Before the 11 cent U.S. per share after-tax charge to record the cost of our contractual obligations to H. Gregg Chamandy, 1 1/2 cents continuing impact of the functional currency charge -- the currency change in depreciation expense, EPS for the quarter was 69 cents U.S. per share, up 43.8 percent from last year. On the same basis as the 69 cents we have provided guidance in August of U.S. 55 to 60 cents per share.Our strong earnings for the quarter, relative to our most recent guidance reflected higher selling prices, combined with more favorable product mix against a background of strong overall market conditions. In spite of our incremental capacity expansion at Rio Nancy (ph) we did not have sufficient capacity available in the quarter to fully satisfy demand for our products. As far as practical, we maximized the value of our available capacity by limiting selling price promotions and discounting and by focusing on higher volume products within our sales mix. The impact of our higher than projected sales was partially offset by higher than anticipated charge in relation to the closure of the L. Progresso sewing plant in Honduras in September. We made a sincere effort to be as fair as possible in managing the closure and, consequently, severance costs were higher than planned. Also we wrote off inflation cost and leasehold improvements and decided to liquidate some of the equipment that we had intended to transfer to other sewing plants. The charge for the El Progresso closure reflected in the quarter were 7 cents U.S. per share versus approximately 1 cent in our August guidance. Comparing our fourth quarter results to the fourth quarter of last year, the main drivers of our EPS growth were higher unit sales, together with more favorable selling prices. Dollar sales were up by 33.3 percent over last year. The impact of the higher sales and continuing manufacturing efficiencies were partially offset by the effect of higher cotton costs, increased SG&A and depreciation expenses and the charge for the El Progresso plant closure. Our tax rate for the quarter reflected a tax recovery in our Canadian legal entity because of the charge for the departure of Gregg Chamandy.On a pro forma basis without this item, our tax rate in the quarter would have been 5 1/2 percent. Unit sales from the fourth quarter increased by 20.4 percent over the fourth quarter of last year with growth being capacity constrained, ending the further expansion of capacity in the startup of our new manufacturing hubs. The value of the STARS report for sales from U.S. distributors to screen printers must be viewed more cautiously since it currently accounts for only approximately 60 percent of the total U.S. distributor population. With this caveat, the report showed modestly positive overall industry growth for T-shirts and sport shirts, and 13 percent growth for fleece, reflecting strong demand growth during the peak season for this product line. Corresponding growth rates for Gildan unit sales from distributors to screen printers were 17.8 percent for T-shirts, 19.9 percent for sport shirts, and 19.2 percent for fleece. Our marketshares were 30.1 percent for T-shirts compared to 29.6 percent in the fourth quarter a year ago; 23.3 percent for sport shirts, up from 20.7 percent in the fourth quarter a year ago; and 17.3 percent for fleece compared to 16.9 percent last year. We have added a second major new distributor to our U.S. distributor network, States and wholesale, and in addition to the large distributor announced at the end of our third fiscal quarter. The addition of these two new distributors is expected to result in further substantial market share increases as we go forward. In Europe, we achieved a 39.2 percent increase in unit sales in the quarter; and we continue to be excited by our immediate success and future growth opportunities in our new market region in Australasia and the Pacific Rim.Excluding the El Progresso charge which impacted both gross margins and SG&A in the fourth quarter, gross margins were 31.9 percent compared to 30.4 percent in the fourth quarter last year. The increase in gross margins reflected the higher selling price realizations and more favorable product mix in the quarter, combined with further manufacturing efficiencies. Rio Nancy achieved an annualized production rate of approximately 19 million dozens of T-shirts in the fourth quarter of fiscal 2004 and accounted for 68 percent of our overall textile production, compared to 52 percent in the fourth quarter a year ago. These favorable variances were partially offset by the impact of increased cotton cost compared with the fourth quarter of fiscal 2003. For the full fiscal year EPS was $2.30 U.S. per share before the Gregg Chamandy charge and the functional currency adjustment up 28.5 percent from fiscal 2003 and at the top end of our original guidance range for fiscal 2004 of U.S. $2.25 to $2.30 before we lowered guidance in May. After including the special charge and the functional currency adjustment, EPS was still a record at U.S. $2.02 per share, up 12.8 percent from last year. Return on equity in fiscal 2004 was 21 percent, including the impact of the special charge as well as the impact of the functional currency adjustments on both net earnings and shareholder equity. Before these items, return on equity was 25 1/2 percent. Overall, market conditions continue to be positive. Inventories to the mills and in the channel are in good balance and our brand continues to have momentum. We have initiated guidance for fiscal 2005 with a projected EPS of approximately $2.60 U.S. per share on sales of approximately U.S. 2 (ph) 620 million. This guidance maintains our objective of minimum 15 percent EPS growth over the comparable EPS base in fiscal 2004, even with a higher than projected fiscal 2004 earnings. Our fiscal 2005 guidance is also higher than consensus market expectations for fiscal 2005 EPS. Our fiscal 2005 guidance assumes sales units of approximately 32 million dozens and the possibility of sequentially lower industry selling prices in the second half of the year, reflecting the flowthrough of lower cotton pricing.EPS in the first quarter of fiscal 2005 is projected to be in the range of 20 to 25 cents U.S. per share versus a comparable EPS base of 17 cents U.S. in the first quarter of last year. Because this is seasonally the lowest quarter of the fiscal year, the projected EPS growth rates for the first quarter range widely from 20 percent to 50 percent. Our capital investment in our two new manufacturing hubs is not expected to materially benefit our peak season sales or our financial performance in fiscal 2005. The new textile factory in the Dominican Republic is running slightly behind our accelerated startup schedule due to delays resulting from extended torrential rain storms, which impacted the pouring of the foundation and the construction of the building. Production of cotton products is now expected to begin at the end of the second fiscal quarter. And end year production from this facility is now projected at approximately 3 million dozens. Nicaragua is still on track to begin production by the end of the 2005 fiscal year. Our objective is to produce 33 million dozens in year fiscal 2005 and exit the year at an annualized running rate of approximately 38 million dozens.The two new wholesale distributors, together with the planned growth to support our existing distributor network, will require the majority of our incremental production in fiscal 2005 and we expect to be able to supply approximately 1/2 million dozens to support our initial penetration into the retail channel. The ramp up of the new textile facilities in the Dominican Republic and Nicaragua are expected to significantly increase production capacity and further lower our cost structure in fiscal 2006, as we continue to implement the next base of our strategic plan. Moving from earnings to cash flow, we generated $23 million U.S. of free cash flow in the quarter and 5 million U.S. for the full fiscal year after 55 million U.S. of capital expenditures. Net capital expenditures in the fourth quarter were lower than previously indicated due to timing and a slight delay in the Dominican Republic project. We ended the fiscal year in an extremely strong capital position with approximately 60 million U.S. of cash and cash equivalents which more than exceeded our debt outstanding. In fiscal 2005, we are projecting capital expenditures of 85 to 90 million U.S. which is expected to be approximately equivalent to our cash flow from operating activities. We intend to utilize 17.5 million U.S. of our surplus cash in fiscal 2005 to finance the scheduled second principal repayment of our senior notes. We will continue to have significant unused debt financing capacity, including our committed bank credit facility if we wish to pursue any further growth opportunities beyond our planned capital expenditure program. I would like to conclude by briefly commenting on the shareholder rights plan which we've introduced. This plan, which will take effect immediately but which must be ratified by our shareholders at our annual meeting, is a plan which has been adopted by other major Canadian public companies and which has been reviewed and excepted by Fair Vest (ph). It is not designed to prevent a takeover but merely to ensure that our Board of Directors has adequate time and opportunity to evaluate any unsolicited acquisition bid and investigate alternatives to maximize shareholder value. The plan has not been adopted in response to any currently anticipated bid for which -- for the Company of which management or the board is aware. And, operator, we're now ready to take questions. Thank you.+++ q-and-a

(OPERATOR INSTRUCTIONS). Dennis Rosenberg, Credit Suisse First Boston.

Good morning and congratulations. Terrific quarter. Could you talk about -- ?

Can you just talk a little louder?

Yes I said good morning and I congratulated you. Could you talk about what is driving the strength in the industry in the quarter and why you think it will continue into next year? And also how much were average price selling price -- selling prices up by category in the quarter and do you think that is sustainable?

(technical difficulty) driving the sequential, what is driving the industry on this is the same growth drivers that have been driving it year-to-date where the industry is tracking around 10 percent year-over-year. This, basically -- it is the -- it's all the different segments of the market, particularly the promotional side, tourism, hot (ph) events, it is all the growth drivers basically that are maintaining the momentum. And we believe that the market is very bullish right now and we believe that the momentum so far into Q, our first quarter October, November, is still running at the same pace. We experienced roughly between 5 and 6 percent increase in price year-over-year for the fourth quarter. In the fourth quarter of last year was, really, was the bottom of the pricing of 2004. And then we started having pricing firming up as raw materials started to increase last year. We believe that for the next quarter -- at least for sure this quarter and potentially into next quarter pricing will be at similar levels. And then maybe as cotton starts being reduced in the second half, we anticipate and forecasted a slight reduction in pricing. But there potentially could be some upside if the pricing remains at the same level it is today.

One other question. In T-shirts in the fourth quarter on the S.T.A.R.S you were up 18 percent versus the industry up 2 percent and yet the market share numbers don't seem to reflect that. You said the market share was up 50 basis points to 30.1 percent? That doesn't seem to equate.

These are exactly the numbers from the S.T.A.R.S report, Dennis. The numbers for the industry growth, for Gildan growth and for market share. They are all data that comes from the S.T.A.R.S report.

A lot of the data is the distributors that aren't reporting, who cease to report, basically their data has been extracted year-over-year. So, basically, this year in the T-shirt category our share's over 30 percent and we are up basically, from last year, 18 percent, roughly.

Claude Proulx from Nesbitt Burns.

First question is if we look at the SG&A and we remove El Progresso I guess there was a little impact there and we also hold the end of the (indiscernible) with the former CEO we still get a pretty sizable increase in SG&A. Can you explain? I mean is this related to your pushing to retail? Is it part of the improvement in your system?

Compared with the fourth quarter of last year close, there is about $2 million increase attributable to other factors. A majority of that is our variable compensations. Our Scores (ph) program for variable compensation is very results-driven and was adjusted in the fourth quarter of this year to reflect the higher performance. And in addition to that we had some significant cost in this quarter that related to senior level recruitment and to compliance with the FLA Project.

And, obviously, those things should (indiscernible)themselves, I suppose. Or I guess compensation will be better spread next year I suppose?

Compensation will be better spread, well it depends. We try and accrue, based on our guidance as we go along through the year this year as you saw, we have significantly exceeded our guidance and our full year results in the fourth quarter. We will continue to try and exceed our guidance, Claude.

Second question is on this China issue, you said that none of the products in the catalog are made in China.

T-shirt products, T-shirts, sweatshirts, and the basics of what we make.

For the part that you compete in.

Yes.

What's preventing, for instance, some of your competitors, traditional competitors from going to China and starting to source over there and bring those products this year, I mean in '05?

Because at the prices we are selling our shirts for today, Claude, in that North America I mean our white T-shirt is between 85 cents to $1.05 all year-long. The price of the white T-shirt 185 grams from China, today, is roughly about $12 a dozen. Add freight around 70 cents, add 16 1/2 percent duty that takes about $15 where our goods are being wholesaled at $12. So I mean if somebody wanted to buy them land them at 15 and still have to make money trying to resell them and this is just not effective. The thing is that people have to understand that we have been able to leverage our low-cost manufacturing, pass those savings through and we, as an industry today, are selling products at much more competitive prices than anywhere else in the world, believe it or not. In fact, our information tells us that, actually, in China, which I'm heading to next week, that the selling prices in China for T-shirts are anywhere is for a white T-shirt anywhere between $1.45 to $1.50 a unit for a heavyweight cotton shirt. So we don't view it as necessarily even realistic that they can actually bring their products into North America at levels we're currently selling but what we feel, honestly, is that the potential for us is can we sell our products there? And that is what we're going to try and evaluate.

Lastly, this Australian business I mean, how significantit is in terms of volume?

You want me to just get the numbers first of all. We have done about $2 million of sales in Australia since we started out during the course of this year.

We started off this year, Claude, but the potential in the Australian and New Zealand market is similar to what the potential is in Canada. Today, we are supplying roughly 2 million dozens in the Canadian market. That is because -- 13 years of development to get to that level. So that is really what the potential is if you look at the population mass and the amount of shirts that they actually wear. So it is more of a North American type of marketplace and buying habits. So we believe there is a lot of upside in opportunity. And we just sort of learning our way in developing our distribution and we plan for further expansion.

Thank you very much.

Monica Logani from Foresight Research.

Congratulations on a great quarter. Wanted to just get a little bit of insight about how fleece is progressing. How's the number of SKUs that you are carrying this season vs. same time last year? Are you carrying a larger amount of variety? Just give us some flavor of how that market is progressing?

Well we introduced a whole 'nother level of sweatshirts because last year we only sold two of the three categories that are available to, in the marketplace and basically this year we are a full line distributor with three different qualities of fleece at a full product range. Our sales are -- have been very successful. We are actually have been in a sellout position believe it or not and short on inventory in that category, particularly in hooded sweatshirts which have a lot of demand in the marketplace. And our market share has grown significantly. And we are roughly 19 percent year-over-year and the market has actually grown as well over 13 percent. And we are just now beginning to gain momentum as we go forward and we are a little bit short of inventory, so we feel we could have even actually achieved higher marketshares numbers if we would have had the inventory available to properly service the market. As we eventually bring on our Nicaraguan capacity, we will basically give us the ability to further increase our market share but also significantly reduce our costs and that is what we are really looking forward to.

So the fleece impact will be stronger and stronger for every fourth quarter that comes in future years. Correct?

Yes. We are going to continue to grow our share in the fleece category. And we believe that there is an opportunity for further expansion from where we are today. Our current share is around 18 percent and we believe we have a significant increase from next year.

In the retail market you just mentioned that you are still expecting about .5 million for the new year. Do you have any thing to tell us about different types of outlets that you have, maybe, struck deals with recently? Is there anything that you can tell us about that space?

Right now, we are, for the spring season we have sold first program. It is going into a -- actually into a private label program in the sporting goods chain in the United States. As well as we have the opening price of T-shirt program as part of our sales in Australia under the Gildan brand. We are continuing to work with these retailers and develop, as we go forward, we believe that the number that we have outlined between 500 and 700,000 dozen will definitely be obtained by this fiscal year. But from a program basis we are definitely looking for 2006 to make our major launch.

So '06 will be the big year and you expect capacity to be online sufficiently to cover whatever retail demand there is?

Correct. Right now we are stretched for capacity and we will leave this year in 2005 by September at an annual run rate of 38 million dozen, which is significantly higher than our current capacity rate. And a portion of that production will definitely be allocated to penetrate the retail market. And that is really only the launch of our Dominican Republic facility; and just, simultaneously, as we enter to 2006, Nicaragua will also come on as additional capacity for us and significantly increase us even from that level. So capacity after this yearwon't be an issue for us. Our main thrust will be focusing on driving market share and building new markets of growth.

If you could just outline for me exactly how many cents came from the Gregg charge vs. closing down the selling facility versus the functional currency. If you could lay that out for me?

Yes, the Gregg charge had an impact of 11 cents. The functional currency had an impact of 17 cents.

That was for the year, correct?

For the full year, yes. 11 cents for the inventory component that was consumed in the first half of the year and 6 cents for the depreciation which was evenly spread throughout the year so 1 1/2 cents in this quarter for the depreciation impact.

And what about Gregg for the quarter?

All of Gregg's charge was in the fourth quarter-- the entire amount.

Okay. That's a lot and then the functional currency that's --

It was only 1 1/2 in the quarter for the depreciation, the inventory part was all consumed in the first half of the year.

It was about 12 1/2 cents just for the quarter, correct?

It was 12 1/2 cents for the quarter. Right.And then you also asked for ElProgress, did you?

Yes.

Yes. So that was 7 cents all in the fourth quarter.

Thank you.

(OPERATOR INSTRUCTIONS) Andrea McReynolds from Sprott Securities.

I was wondering if you could give us your Q4 volumes in dozens and also what is the average for the year and what your exit was for the year?

Our Q4 sales in dozens is what you are asking for?

Yes.

It was approximately 7 million dozens.

Okay and then can you tell me what you averaged for the year and what the exit rate was at the end of the year?

You are now talking capacity.

Our exit rate was roughly about 30 millionon an annualized basis.And will produce this year roughly about 33 millionand we'll exit this year around 38.On an annualized basis.

Okay. Can you split that production by your various facilities? I think you said, you're not expecting Dominican to be 3 million and you were expecting it to be 5. So what do you expect Rio Nancy to do this year?

You're looking for the breakdown of the 33 milliondozens in '05?

Yes.

Okay so approximately 19 million dozens from Rio Nancy. 11 from Canada and 3 for DR, with Nicaragua having small contributions.

Could you just talk about, you've mentioned this a bit -- the cotton pricing. I think you said that you don't expect to see your overall selling prices come down until the fourth quarter when you start to see the impact of lower raw material cost. So -- .

I said that we had assumed in our guidance that we have assumed that prices will come down in the second half of the year. So the third and fourth quarters, if lower cotton costs are passed through into lower selling prices.

So you are expecting that, in the first half of the year that cotton pricing is -- or cotton prices are roughly running about the same as they were last year?

Correct.

Laurence, can you just give us the actual dollar amount of El Progresso that was in SG&A and in cost of goods sold and in the actual dollar amount from Gregg's charge that was in SG&A?

I can, yes. As far as El Progresso there was 1.4 million in gross margin and 800,000 in SG&A. Adding up to 2.2 and for Gregg's charge there was 4.9 million, I believe, in SG&A. (MULTIPLE SPEAKERS)4.6.

4.6. One last thing on pricing. You talked about pricing in Q4 vs. Q4 last year. And maybe I missed this but can you talk to us about what pricing did vs. Q3 levels?

About 1 percent worse in Q4 vs. Q3. Andrea McReynolds: That's all. I had. Thank you very much. Great quarter.

Sara O'Brien from RBC Capital Market.

Just wondering if you could give us a percentage breakdown of your units into fleece polo and T-shirts.

What I will do, Sara, is I will give you growth rates by product. I'm not really comfortable giving out the actual (MULTIPLE SPEAKERS)

I am just trying to get at your favorable product mix and what kind of impact that had? So --

Well the product mix -- if that is what you are doing I had rather just cut to the thrust of your question, which was, there were two things that drove the favorable product mix. One was higher proportion of fleece, which grew by 50 percent compared with the fourth quarter of last year and within the T-shirt category we had a higher proportion of longsleeved T-shirts. You want to add anything to that?

And a higher proportion of colors, as well.

A higher proportion of colors.

Okay great. Also just wondered did you name the new distributor that you have added in the quarter? Laurence Sellyn:We did. It is a distributor called Staton (ph) Wholesale. Glenn, you were talking about China and that Gildan is still the low-cost producer. Just wondering in the retail side of things. I mean when you are talking just plain white T-shirts do you see more of a threat coming from China, and let's say India as well, going into the retail sector if it really is plain white that you can stock in a warehouse for months?

I don't believe so. I think that when it comes down to the commodity products, they are service-driven even at retail channels and retailers need their vendors to basically supply and replenish them at the time of inventory. And they are also structurally, the way they are manufactured, they are manufactured in a structured environment, which will allow even domestic manufacturers to have the economies and efficiencies that are required to have a low-cost position. So we don't believe that that will be the case. We think that China will be focused on small run, high variable fashion-oriented type products. And more fashion forward styling would be, I would say, where the focus would be from China.

Okay.

In the knit category, to be specific.

In the knit category.

Yes.

Do you give any credence to quotas not coming off January 1st just by all the pressure groups going on?

We can't say. One way or the other it is irrelevant to us now (MULTIPLE SPEAKERS).

Okay. Also, Laurence, you mentioned price selling prices coming down in the second half of '05 due to cotton costs coming down. I guess hedge cost. Do your hedging costs come down as well in Q3. Are you ahead or behind that?

Yes they do.

Then, also, you gave us a pro forma tax rate of 5.5 percent. Is that sort of where you expect to be or are you back up around 7, 8 percent for next year?

I would continue to use somewhere in between, closer to the 7.

Jessy Hayem from Desjardins Securities.

Congratulations on a good quarter. Just to sit --

Louder, Jessy, please.

Yes thank you again. I just congratulated you on a good quarter. Just circling back on the favorable on the pricing in the fourth quarter. Typically, it is a promotional time for T-shirts and yet you mentioned a more favorable pricing. Is it just that there were less promotional activities than you had expected? Can you maybe qualify that a little bit more?

It was twofold. We sold a lesser percentage of white T-shirts. We were at capacity restraint in this quarter. In fact we left probably about 750,000 dozens of orders unfilled in the quarter. So what we did was, we just maximized as best we could our pricing and our profitability, because of the shortage of capacity.

I see. I guess trying to understand where the incremental, if we take the top end of the range you are guiding at 60 (ph) cents the additional the incremental was in mainly the higher unit growth. Is that growth is that what's in I guess favorable margins?

Relative to our guidance the biggest difference was pricing. We had assumed a higher level of discounting as you suggest in the fourth quarter, but we were able to avoid that. So favorable pricing, relative to our guidance, contributed about 8 cents. And then product mix contributed about 4 cents and this was partially offset by the higher charge of Rio Progresso.

I guess could you break down the gross margins in the different components, the differentials this quarter versus last year?

Yes. I can do that for you. So excluding El Progresso we had about a 1 1/2 percent improvement. And the components of that would be approximately selling prices contributed about 4 percent of margins improvements. Product mix and manufacturing efficiencies, each contributed about 1/2 percent with the manufacturing efficiencies being a combination of pluses and minuses, more favorable efficiencies from Rio Nancy, plus lesser efficiencies as we downsized our Canadian production including the yarn spinning side of it, and higher freight and transportation costs. Then cotton costs reduced -- higher cotton costs reduced margins by about 1 1/2 percent and 4x (ph) reduced margins by about 1 percent. Jessy Hayem: I guess moving on. You gave us a breakdown of what you are going to produce in the year by the facilities. Can you give us the capacity at the end of the year you expect to be out at about 38 million. Can you break it down by facility as well?

All the additional capacities are going to come out of Dominican Republic. (MULTIPLE SPEAKERS) Yes so if you look at this year, 5 million under DR. So DR's will go from 3 to 8.

And you are at maximum capacity at Rio Nancy. Is that correct?

Right now we are at maximum capacity, yes.

Laurence, on your CapEx level, being lower than anticipated for the year you mentioned that it is mainly the delays in the DR. Is it all related to that, the torrential storms, the fact that you delayed your production in the DR and the fact that you had the lower CapEx as well?

Yes. The shortfall will fall (ph) in DR and the rain came at a particularly critical time in the construction when we are pouring the foundations and once the walls are up we can work inside on the construction. So if there is rain next year, it wouldn't have the same kind of impact.

Okay. Sorry, just circle back on the facilities. You mentioned that you expect DR and Nicaragua to have an even lower cost structure than Honduras. Can you give us some color on that and where you are expecting incremental? Better costs (inaudible).

I would say it was going to come from a combination that the fabric in the Dominican republic which the garments will be assembled in Haiti, which is -- has a significantly lower cost structure than the cost of assembly in Honduras. And the cost structure in Nicaragua generally is less expensive than the cost structure in Honduras, as well.So, relative to most of it is coming from the labor components and there is a slight portion that is going to come from the textile proportion from new initiatives that we put in the new facilities going forward.

One final question on the shareholders rights to try and understand. You mentioned particularlyit is not a response to any particular interest, but why now? Again if you are just seeing your performance where you are and where you expect to be or --?

We just thought it was an appropriate thing to put in, particularly we've now converted, eliminatedthe multiple voting (ph) class of shares and during the year, we felt that for various reasons, our share price did not reflect the financial performance of the Company.

Martin Goulet of National Bank Financial.

Regarding the 4X. Laurence, you mentioned a 1 percent negative impact in gross profits since you still have a good chunk of your costs in Canadian dollars, what is the exchange rate that is sort of embedded into your guidance scenario?

Well we continue our guidance, basically, reflects the current exchange rate and it shouldn't really be sensitive to 4X. Because to the extent that the euro and the Canadian dollar move in tandem, one should offset the other.

Regarding your shipments in Canada, you mentioned they were only slightly higher. I guess the fact that the currency swings were not as favorable might have helped but was there -- might not have helped I should say but was there also some structural weaknesses in the Canadian market this year?

No but Martin, we are dealing in a mature market here and we have over 70 percent market share. So there's only -- the growth rate in Canada, basically, is we believe we did achieve a pretty good goal even growing from our existing base.

Okay and despite the currency fluctuations still.

Yes currencies were an issue.

That is all for me. Thank you.

While we're on the subject of market growth I just want to come back for a second to the question Dennis asked earlier about the S.T.A.R.S. numbers not appearing to compute. I mean if there is anything that we'd would question there in the S.T.A.R.S. data, it would be the growth rate they are showing for the overall industry. Intuitively based on what we see in the marketplace it would appear to be stronger than what is reflected the S.T.A.R.S.

(OPERATOR INSTRUCTIONS) Cynthia Rose-Martel from Jennings Capital.

Lovely results. Very well done. Just two questions. Could you flesh out your European sales? Dollars or units or however you want to do it?

Sorry I didn't understand the question (MULTIPLE SPEAKERS)

The European performance. Unit sales there. You mentioned that they are up very strongly but --

Our European sales for the year were about 40 million U.S.

40 million.

Yes. 4, 0.

Thank you and total unit sales for the year. Just to ensure I've got the right number.

We were just under 27 million dozens.

Just under 27 million dozens. Thanks very much. Well done.

Brad Artanamar (ph) from Greenlight Capital.

Congratulations. My questions were already answered.

Marilyn Brophy from UBS Asset Management.

I had a few questions. Just first of all on the hedging. Can you talk about that the hedging for cotton for 2005, the amount and at what price? And also after that, if we could talk about gross margin. Whether it's -- in your forecast you are predicting a pretty well flat growth margin for '05 relative to what you posted in the current year '04.

I'm sorry, I didn't hear your last question.

On the gross margin for your forecast for 2005. If you could comment on what even with pricing coming down in the second half of the year, are you looking for flat gross margins in '05 over '04 or slight improvement? What's your outlook for margins?

In our guidance, we've assumed that the margins for the full year in '05 are similar to the full year margins for '04. So they're running at a higher level than that now in the fourth quarter and the first quarter but that is what we've assumed for the full year next year based on our assumption on pricing.

And then on the hedging for cotton?

As far as giving up the numbers that is part of our competitive cost structure, Marilyn, that we prefer not to disclose. But we'd be looking at cotton prices for '05 based on where we are hedging being lower than for '04.

And what about a comment on the tax rate? What should we really be looking for in '05?

Somewhere between 6 and 7 percent.

Another question is could you talk about what the competitors did in the quarter that just passed the fourth quarter on pricing? Specifically, Fruit of the Loom.

Fruit of the Loom hadn't moved their prices all year in the fourth quarter. They announced a price increase in November; and their price increase was probably about 4 something percent. But they are still priced underneath our existing pricing. All along, we have been promoting our product rather than having our price off our price list we have been using promotions to drive our pricing within the marketplace. Which we have been doing and to the extent of depending on our level of capacity will be a function of how much we decide we are going to promote within a specific quarter.

And on to another question on capacity. When you're building out your capacity plans, why aren't you a bit more aggressive in adding more capacity? It just seems that you keep bumping up against it quite quickly. Based on (MULTIPLE SPEAKERS)

Because of the growth in our sales, Marilyn, that we had thought we had capacity which we have been doing in significant increments ever since we have become a public company. Our growth in sales has required all of the capacity as fast as we can add it.

My question is why aren't you more aggressive when you add it, instead of -- like 38 million -- I mean, I'm just curious as to why you're not more aggressive in your capacity additions?

Because the first thing is that -- just to refresh your memory there we went to Honduras to put up the first state of the art textile facility. This plant is producing huge volumes, as we speak. The lead time to go in and build up one of these plants from the time you find the location and get that plant ramped up to its capacity could be a four-year window. Okay.

A four-year window. Okay.

Correct. So what happens if you look at where we are today that one hub, basically, is producing 19 million dozens' worth of fabric, okay? We are building two hubs similar to that size and scale, simultaneously as we speak. So as the Dominican Republic comes on and just after (indiscernible) Nicaragua those plants are the same size as our plant in Honduras. So, really, we have got one-third of our offshore expansion. And we are only expanding in what we call capacity in the low side of the cost curve. So all this new capacity is not only giving us additional capacity it is also reducing our cost structures significantly from our existing facilities. So, basically, we are going to have significant capacity. And the capacity we are going to have, once the other two plants are fully ramped up, will be in excess of 50 million dozens on an annualized basis. So the (MULTIPLE SPEAKERS)

7?

Sorry? Marilyn Brophy: 50 million would be when?

Well the 50 million could be as fast as we can ramp it. Now it takes about 18 to 24 months to ramp up these plants so the DR is going to start in February, March this year. And Nicaragua will start in September, October of calendar 2005. (technical difficulty)And by 24 months, point in time if we chose we would have 50 million dozens of overall capacity. So now it is going to be a function of our sales and that is why we're going to really focus on two fronts. One is, our strategic growth opportunity from the retail side and expanding retail. And just so you understand in the retail category in the activewear market, the biggest selling item is actually not T-shirts. It's sweatshirts. And we are going to utilize our Nicaraguan facility to be able to build that plant to be significantly increased in the amount of sweatshirts we are currently producing. Also we are going to look to expand geographically, using these three hubs to look at new markets. For example, like Mexico, other parts of South America and other parts of the Asian continents.

Sara O'Brien.

Just wondering for the El Progresso closure, is that completely finished and have you been able to reallocate the selling operations, elsewhere, without any problems?

Yes.

And also, Glenn, just wondering to what sort of capacity do you think you could grow in the wholesale channel? Is there a limit where you sort of maximized your market share and then it is really up to retail to take off?

Well I think the thing that we have to understand is twofold, is that we will always be very conservative when we set our expectations to the marketplace. There have been companies in the past that have had close to 50 percent market share. We have set our target in our five-year plan to go to about a 40 percent share. So there's definitely, we believe, upside. Also we didn't count on any private label to those companies that produce consumer products. That is not really in our five-year plan within the North American market. Also from a wholesale market where we see really a big opportunity is other marketplaces that we think we can penetrate from our existing manufacturing. For example, Mexico could be an opportunity for Gildan which is not currently even in our five-year plan. And we believe that marketplace could be potentially even bigger than our Canadian marketplace. So we are right now evaluating still, from even from a wholesale point of view, all of the possibilities in areas. Just to give you an idea this year we actually start shipping into the Philippines. We are actually competitive even supplying product into Asia, even though we in that country have to pay 15 percent duty because of our low-cost manufacturing position. So we are not going take our eye off the wholesale market. Our sales team is focused on making sure they look at the sales and opportunities from a global perspective. At the same time, we believe that the retail initiative is a huge opportunity for a company which is under tap and we are positioned in our low-cost manufacturing to have the same success factors in retail as we have in wholesale. And that will be really the thing that will take us and we're not sure how far that will go and what actually the potential is. But it is huge. The market is twice the size of the wholesale market.

Again, Laurence, remind me when you guys look at the growth factor in the industry for wholesale, what is the sort of growth rate you're looking at?

The long-term growth rate?

Right.

Well, in our five-year projections we have been assuming 3 percent which is considerably lower than the current growth rates of the market this yearand last year.

And again you're seeing this yearthat it is roughly around the 10 percent mark for the overall industry?

Correct. According to the S.T.A.R.S. number, it was only up around 2 percent in the third quarter, but the market is still very strong.

And the year-to-date number is just under 10 percent.

(OPERATOR INSTRUCTIONS). Claude Proulx.

One quick question. If I understand well, you said that if we exclude those onetime items but not the depreciation you would have done like $2.30 per share. Is that it?

If we add back the impacts of the charge for Gregg, which was 11 cents and all of the functional currency adjustments, we come to $2.30 which was the same basis on which we provided our guidance. That does not include -- that includes the charge for El Progresso. So that is included in the $2.30 it would've been $2.37 without that.

Now you are looking at 260 in fiscal '05. I look at your growth rate in terms of sales. It is like 16 percent. You are looking for margins to go down. You are looking for your profitability to go down. As a percentage of sales.

Well, I told you that it is lower than our current margin rate. But for the full year, it's about the same. I can walk through any detailed questions you have later on.

The EPS growth is less than 15 (ph) percent.

Sorry?

The EPS?

The EPS growth is 15 percent on a comparable basis Claude, because you have to take the depreciation impact, the functional currency will continue in '05 vs. '04. So if you just add back the functional currency impact on inventory, plus the charge for Gregg Chamandy, that gives you a base of 224, 224 plus 15 percent comes to exactly about 260.

But you are including in there the El Progresso clothing. That won't happen again --

We didn't add that back and inflate our EPS number, Claude. You have to assume as you are growing and changing, there will always be non-recurring costs and we don't -- we considered the cost with Gregg was a clear onetime item and the functional currency thing was just more an accounting quirk. It wasn't even a charge where the initial revaluation was right to our shareholder equity and the impact flowback through P&L. So we isolated these two items but we are not really -- our philosophy is not really to pro forma every adjustment because there's always going to be ongoing items. Of an operating nature.

Thank you.

(OPERATOR INSTRUCTIONS)

Okay, if that's all, I'd like to conclude our conference call and thank everybody for attending. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect.