Gildan Activewear Inc (GIL) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Gildan Activewear first quarter 2005 results conference call. As a reminder, today's call is being recorded. Our speakers today are President and Chief Executive Officer, Mr. Glen Chamandy; Executive Vice President of Finance and Chief Financial Officer, Mr. Laurence Sellyn; and Mr. Gregg Thomassin, Executive Vice President, Corporate Controller and Chief Information Officer.

Before turning the meeting to the management, please be advised that certain statements included in this conference call may constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown 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 US and Securities and Exchange Commission and Canadian Securities Regulatory authorities for a discussion of the various factors that may affect the Company's future results.

And I would now like to turn the call over to Mr. Glen Chamandy. Please go ahead, sir.

Thank you. Good evening. Welcome to our first quarter conference call. Due to the lateness of the hour, we will keep our comments brief. I will discuss the press release issued today regarding the closure of our yarn-spinning facilities. Laurence will cover the press release related to our first quarter earnings outlook and full year. After Laurence's presentation we will be taking your questions.

We have announced that we have made a decision to close our two Canadian yarn-spinning operations located in Long Sault, Ontario and in Montreal, Quebec. The majority of the equipment will be transferred to a new yarn-spinning facility in Clarkton, North Carolina, which will be leased and operated by the Company's yarn spinning joint venture with Frontier Spinning Mills. The Canadian yarn-spinning facilities, which together employ approximately 285 people, are expected to be closed by the end of March 2005. And the Clarkton facility is planned to be in full operation by the end of Gildan's 2005 fiscal year.

Gildan is expanding its textile operations in Central America and the Caribbean basin, utilizing its textile operations in Canada to produce short run, high value added products. This has resulted in lower requirements for commodity yarns from the Canadian yarn-spinning facilities. US trade legislation does not allow duty-free access for goods using Canadian yarn from offshore manufacturing hubs. Gildan will utilize our joint venture and strategic partnership with US yarn-spinners to meet the requirements of our three offshore manufacturing hubs in order to ensure duty-free access.

Going forward we intend to focus our capital and human resources on managing top line growth and textile and sewing expansion. We anticipate that the annual cost savings from the relocation and consolidation of its yarn-spinning operations will be on the order of US $4 million after tax, or US 13 cents per diluted share. The one-time costs arising from the closure are expected to amount to approximately US $7.8 million after tax, or US 26 cents per diluted share. A special charge will be recorded by Gildan in its second quarter of fiscal 2005. The special charge includes write-offs in respect of original installation costs and assets not being transferred to the new yarn-spinning joint venture, as well as severance cost. Our estimated severance cost reflects our commitment to be fair to our employees impacted by the plant's closure.

And now Laurence will present our first quarter earnings.

Good evening. Our Q1 results reported today were a record for the first quarter of a fiscal year, which is seasonally the lowest sales quarter of the fiscal year for the T-shirt industry. Sales were first quarter record at US $109 million, up 39.8 percent from the first quarter of last year. Diluted EPS were a quarterly record at US 28 cents per share, almost triple our reported EPS for the first quarter last year, and up 64.7 percent on a comparable basis to last year, after adjusting last year's results to add back the US 7 cents per share impact on cost of sales of revaluing opening inventories required by the change to the US dollar as our functional currency.

Our EPS of US 28 cents per share was above the top end of our previous guidance of US 20 to 25 cents per share. The higher than expected results were primarily due to more favorable than anticipated selling prices, partially offset by higher than projected SG&A expenses.

Compared to last year, our EPS increase of US 11 cents per share, or 64.7 percent, was due to 27.5 percent growth in unit sales volumes, the higher selling prices and favorable mix, together with the impact of the continuing ramp-up of Rio Nance since the first quarter of last year.

These positive factors were partially offset by increased SG&A expenses, higher costs on energy and transportation costs and the impact of lower capability utilization in the Canadian yarn-spinning operations.

Our positive sales performance reflects continuing strong overall market conditions, combined with the momentum and the success of the Gildan brand in the distributor channel. Inventories in the channel are in very good balance and are also tight at the mill level. As you can see from the STARS data, Gildan is continuing to achieve sales growth in all product categories, well in excess of overall industry growth. And we are continuing to increase market share.

In addition to building in our leading position in T-shirts, we are now clearly in the number one position in sport shirts brands and in the month of December our share in fleece in the US distributor market was 19.9 percent. During the quarter we also experienced strong growth in the non-STARS distributors. As we go through the year, we expect our market share to reflect the sell-through to screen printers from our two major new distributors.

With respect to manufacturing costs and production capacity, we are in a transitional year in fiscal 2005. Our Rio Nance facility in Honduras is now operating at full capacity and maximum efficiency and we will not materially benefit from our two new manufacturing hubs in the Dominican Republic and Nicaragua until fiscal 2006.

The Dominic Republic starts off as slightly behind schedule. But even with this delay in the startup we believe our overall production capacity will be sufficient to support our sales growth projections for the peak summer selling season. In the fourth quarter we do not expect to be capacity constrained, as the DR production ramps up and flows through inventory.

As Glen explained and as stated in our earnings release, our first top (ph) results are also impacted by inefficient capacity utilization in our Canadian yarn-spinning facilities, which will be addressed by transferring this production to our joint venture with Frontier Spinning in the US.

Our higher than anticipated increase in SG&A expenses in the first quarter primarily reflects further additions to our organizational structure to manage our growth, the strengthening of the Canadian dollar, the timing of professional and consulting fees and increased volume related selling and distribution costs. We expect full year SG&A to be in line with our original budget.

We are maintaining our EPS guidance of approximately US $2.60 per share for the full fiscal year, before the special charge for the closure of the Canadian yarn-spinning facilities. This guidance continues to assume unit sales volumes of approximately 32 million dozens and sequentially lower selling prices in the second half of the year, if lower industry-wide cotton prices are passed through into lower selling prices. On this basis, full year sales for fiscal 2005 are projected at close to US $640 million.

The one-time charge for the closure of the two Canadian yarn-spinning facilities will be approximately US $7.8 million, or US 26 cents per share after tax. This charge reflects the expected write-off of original installation costs and the estimated loss and disposal of assets not transferred to the new US joint venture facility, together with severance costs arising from the closures.

The closure and consolidation of our yarn-spinning facilities is being undertaken to support the expansion of our offshore textiles manufacturing capacity and ensure their duty-free access into the US market. But in addition, it is also expected to result in annual cost savings estimated at US 13 cents per share.

In the second fiscal quarter we expect to generate US 60 to 65 cents per share on a diluted basis, up 15 to 25 percent from last year on a comparable basis, before the special charge.

We used US $8.3 million of cash during the first quarter, after financing 22.1 million of capital investments on our seasonal buildup of inventories for the peak summer selling season. The main capital investment projects in the quarter were for the Dominican Republic project and the expansion of our US distribution center lead (ph) in North Carolina, to prepare for our entry into the resale channel. At the end of the first quarter we had on a cumulative basis expended approximately US $30 million for the Dominican Republic and Nicaragua projects.

Inventories increased by US $25.8 million from the year-end, but were at similar levels to the end of the first quarter a year ago, reflecting our tight inventory and capacity situation. Receivables were reduced by US $36.2 million in the quarter, reflecting seasonal fluctuations in sales and a reduction of trade DSO in the quarter to 34 days, compared to 47 days at the end of fiscal 2004, and 42 days a year ago.

We continue to have a very strong balance sheet with cash and cash equivalents of US $52.4 million and significant unutilized debt capacity. We continue to expect to finance our major capital expenditures for capacity expansion in fiscal 2005 out of our internally generated operating cash flow.

The second scheduled installment of the principle repayment of our US notes, amounting to US $17.5 million, is due in June and will be financed out of our surplus cash position.

And now we're ready to take questions, operator.

(OPERATOR INSTRUCTIONS.) Dennis Rosenberg, DSR Consultants.

I'm a little curious about your guidance for the year. The 640 million of sales looks like it's about 20 million higher than the prior sales guidance and you beat the first quarter earnings estimate, so why are you looking at that earnings just being what you had previously guided at?

We've slightly increased pricing from our previous estimates in the latter half of the year, Dennis. Although still sequentially lower than where we are today.

Okay, so that would account for the sales difference, but why wouldn't the earnings go up, given that you beat the first quarter and now you're looking at higher sales?

Well we've assumed slightly higher manufacturing costs as well, reflecting higher energy costs.

Okay. And the cost savings from the Canadian spinning next year, do you look for all of that to flow to the bottom line or do you think part or all of that would get passed on?

In fiscal 2006?

Correct.

Well typically we have flow through the majority of our cost reductions as we've invested in new low-cost capacity and generated cost reductions and over the long-term I think that we would continue to pursue that strategy. And as far as specific assumptions for 2006, we haven't yet provided any guidance on that.

Okay, but we should not add 13 cents to whatever we were using before?

Oh, sorry, I didn't realize you were talking about the savings from the yarn-spinning, although I --.

Yes, that's what I'm talking about.

I guess the same answer would apply.

Ron Schwarz, CIBC World Markets.

Thank you. Two questions, Laurence, Glen. Laurence, could you just maybe give us a sense or breakdown a little bit on the pricing side -- you gave us the volumes -- what the spread was mix, versus better pricing, that 12 or 13 percent, is it split equally or a little more on the mix side?

Sorry, what 12 or 13 percent are we talking about?

In terms of top line growth, if you strip out volumes, the 28, you're left with the 12 or the 13, kind of gets you up 40 percent. So how much of that was kind of mix, versus better pricing?

You're talking on the top line?

Yes.

Okay. Hold on. We're looking at volume was about 20 million, and the selling price was about 5, and product mix was about 5.

Okay. And second question, I guess, the $8 million charge is that relatively all cash or -- for the shutdown of the spinning facilities?

On the shutdown of the spinning facilities we're looking at a total charge, as we said, of 26 cents; 10 cents of that is severance cost, which is cash and the balance is essentially non-cash relating to the write-off of equipment installation costs.

Okay. Now it looks like you're getting, I guess, roughly a two-year payback on that shutdown and I guess one of the main reasons is as well is you moved capacity down in Canada to kind of call it 7 million dozen or whatever the number will be. Are there going to be any implications for the dying facilities that we should be thinking about, I guess, over the next six to 12 months?

This is to support the expansion that we've announced of our offshore manufacturing and we currently plan to continue to operate our Canadian textile facilities on the basis that we said, we're sure to run more specialized products.

These yarn facilities were commodity facilities and we cannot manage at this point in time the capacity per facilities based on what type of value added products are going to our same facilities today.

Jessy Hayem, Desjardins Securities.

Thank you. Laurence, just to start I guess, can you give us a breakdown on the gross margins, I guess in the different components?

I heard you Jessy, but you were very faint. So I'm not sure if everyone would have heard your question. So you're asking for the analysis of the gross margin change from the first quarter last year?

That's right.

Okay, so after adjusting last year for the functional currency impact on opening inventories, the margin is essentially the same. And on the positive side we have selling prices improving margins by about 3.5 percent and product mix improving margins by 1 percent, for a combined 4.5. And then that's offset by cotton negatively impacting margins by 3 percent. And these factors impacting cost like the yarn-spinning and energy negatively effecting cost by 1.5 percent.

Okay, thank you. I guess my next question is on the pricing side. How much was it up in the quarter?

Compared with the first quarter of last year or sequentially?

If you have both it would be great.

Compared with the first quarter of last year it was up about 5 percent and sequentially it was actually down about 1 percent from the fourth quarter of last year, due to higher growth incentive, as our distributors increased -- reached new volume thresholds.

Okay. And I guess pricing is holding firm at that point in time. We still haven't seen any passing through of any lower cotton costs?

No, we haven't. Last January was the actual time when we took our initial price increase. So we're looking at -- we're comparing against our first quarter of last year only as through January did actual prices start going up last year in terms of the price increases in 2004.

Okay. Can you give us an update on first off the Dominican Republic and the delays that you're seeing there? You mentioned storms and just general conditions related to weather in the previous quarter. Is there any additional delays to be expected or maybe you can expand on that?

Well, there's the same delays actually as we talked about last quarter. It was a function of the amount of rain and the lost time in terms of building the foundation, because of the amount of water that was -- because of all the rainy season that's continued through most of the summer. But basically we're beginning production in the end of February and Dominican production will start at the end of February and dying will start some time in April. So most of the delays are behind us now, because the facility is actually built.

Okay. Can you remind us what your exit capacity rates will be at the end of the current fiscal year for each of the facilities, if that's possible?

Well, we're still looking roughly between 37 to 38 million at this fiscal year, because as we ramp up the DR, it's going to come on relatively quick. So this year we're going to produce roughly about 33 million dozens annually. We'll end the year around 37 million dozens exit capacity and ramp up in 2006 accordingly.

What do you estimate the DR would be at, at the end of the year?

At the end of the year on an annualized basis it would be roughly about 8 million dozen.

Okay. Quick question on the sports shirts. Are you seeing improved momentum there, demand, or is it a combination of both that and you taking share away and if so, who are you taking share away from?

Well, the market's consolidated. There used to be a lot of smaller niche players in the sports shirt category, which we've seen their share erode from 32 percent three years ago, down into the low teens right now. So it's been a combination of consolidation within the market and our ability to take that share basically.

Okay. And just one final one. Are you still expecting CapEx in the 85 to 90 million for the year?

Yes.

Sara O'Brien, RBC Capital Markets.

Laurence, can you just give us the exact volume in dozens sold during the quarter?

Yes. It was 5.1 million dozen.

Okay. And just getting back to Dominican Republic. So the knitting is only going to start in February, so the 3 million that you were expecting by the end of this quarter is now pushed out. Do you still think the ramp-up is going to be able to happen in the next three quarters? The 3 million came from last quarter when you said that you expected capacity to be up to about 3 million dozen.

We said it would be 3 million for this year and the capacity this year will be about 2 million and change, of the 3 million. We've lost about 700,000 dozen on the annualized production of that facility.

Okay, but you're still expecting to exit --?

We're still exiting at 18 (ph) million dozen though.

Okay, great. Also, there's been some news on Gildan's reinstatement with the Fair Labor Association and agreed upon actions. I just wondered if any of these actions are going to cost -- if there's any additional SG&A costs we should expect going forward because of these agreements?

No, there's nothing that would change the way we normally operate our business.

Okay. And have you selected a location for the new sewing facility?

Yes, we have.

Okay. And all that capital expenditure is already within your plan of --?

Correct, it's already in the budget, yes.

Where is the facility?

It's in Honduras, in a town called Choloma, which is about 15 minutes our of our way from Rio Nance.

Great. I also wondered, Laurence, can you tell us what is your percentage of offshore production right now, versus Canadian?

It's around 33 percent today.

Sorry, 33 percent Canadian?

Yes, this fiscal year it's going to be about 33 percent Canadian.

Okay, sorry, for the full year?

For the full year, yes, in fiscal 2005.

Okay. And right now are you --?

Well right now it's a little bit higher than that, but not significant.

Okay. And also I just noticed your inventories have come down quite a bit in terms of days from Q1 last year. Are you comfortable with the position that you have right now with your inventories or do you feel you have to beef up certain categories over the next few quarters?

Well, inventories are obviously tight, there's no question about that. We feel comfortable that we can deliver the forecast set out and we're managing against that forecast basically. So we're comfortable with the inventory levels and we're managing them efficiently.

Okay, great. And I just wondered if the transition to the North Carolina operations will cause any additional costs this year in addition to the severance and the write-offs? I mean just sort of a ramp up, would you expect your margins to be affected by that in the next few quarters?

No, we actually plan on benefiting from it (indiscernible).

Okay, even in F'05?

Yes in the back end, the later half of F'05.

Monica Logani, Foresight Research Solutions.

Hi. First of all I want to congratulate you on a very solid quarter. And I wanted to get some insight into the fleece market. It looks like you had a really good quarter and I understand that you have a larger selection of SKUs now than you have in the past. Is that what helped you in the quarter or was it gaining share or what was going on there, why were you so successful?

Well just to remind everybody, this was our first year where we really had the full product line, where we had all the three categories within the fleece market segment. And that obviously helped drive our volume within the consumers that buy fleece.

And we also focused in on the hood category, which was a driving portion of our business and actually I think it was helping fleece sales right now. We sold a significantly greater amount of hoods this year than we sold last year. And it's the overall brand penetration within the marketplace and the acceptance of Gildan and people wanted to buy our product. I mean, the combination of all those three things has helped our category. And we still see lots of upside and lots of demand going forward.

Although we were so successful in our market share, we were actually very tight on inventory on one of the new categories that we introduced this year. We were actually short on inventory, starting in August-September and through the busy time of the fleece season. So we actually lost opportunity, which we plan to rebound in opportunity for next year.

Is there any update on the retail front that you can share with us?

Well, we're on track for this year. We're limited in our capacity as everybody can see from our inventory levels and the strength of our business. We're on track to sell roughly 500,000 dozens, which is planned for fiscal 2005, which is nothing significant in any type of program, and we're still preparing ourselves for a major launch in 2006. We're putting in all the infrastructure, the systems, the distribution, more marketing assumptions and we're going to really make a major initiative in the Spring for 2006 selling.

Is there any contracts or any retail stores that you have had conversations with or that you could --?

Well we've contacted most of the major retailers in the United States, so we are in contact with them. We've made initial meetings with them. But really as we go forward and we bring on all this capacity, that will be the major thrust when we really sit down and push hard to lock up some programs.

And can you give us an update just where your cost per dozen is right now? Obviously, as you add more capacity that cost per dozen goes down, but do you have a round figure that you could give us?

I think we'd prefer not to disclose specific cost data, Monica.

Andrea McReynolds, Sprott Securities.

Hi, guys. Just to follow-up on the yarn-spinning closure and transfer of production to the joint venture, to be clear, in the interim between when you close your Canadian yarn-spinning operations and when you expect the new plant to be up and running, where will you be sourcing yarn from and can you sort of quantify any cost savings that you'll be getting out of that in the back half of the year?

Well, we're going to source yarn from the United States. We signed another long-term agreement with another yarn-spinner in the United States called Parkdale. And which will supply us the additional yarn and bridge the gap between the time that this facility closes down and the new facility is opened and running.

Okay. So, I think you said on an annual basis when the new facility's up you expect 13 cents. Can you give us a sense of what you expect that to be in this year? Obviously the new -- just from the agreement with Parkdale, what the cost savings you expect?

Probably around 5 cents.

Okay. And then once the new facility is up and running, how much of your yarn requirements will be supplied out of your joint venture with Frontier, versus long-term supply agreement such that you have with Parkdale?

Well, right now we're going to be roughly, I would say 33 percent -- for fiscal 2006, let's say, probably be about 33 percent will be through our JV with Frontier and the balance will be through supply agreements.

Okay. And you also have -- on top of the JV with Frontier, do you also have just a straight long-term agreement with them?

Yes, we have also a supply agreement with them as well.

Okay. So, getting back to an earlier question about your guidance, given the increase in your revenue and then the expected savings that you have from the yarn-spinning, what are you seeing on the energy front that is making you not change your numbers here, or sort of what level of conservatism are you building in there to not change your EPS guidance?

Well we believe that any additional cost (indiscernible) will be offset by other efficiencies that we'll generate in our operations.

Sorry, I didn't understand that, Laurence.

We believe that we will generate other manufacturing efficiencies that will offset any --.

Why don't you ask your question again, sorry.

Yes. If you're expecting revenues to be about 20 million higher than you originally expected and now with the Parkdale agreement and closure of the yarn-spinning you expect about 5 cents cost savings in the back half of this year from that new agreement --?

The answer is that we anticipated in our forecast, lower selling prices in the back half, and we all assume that the savings that we generate from manufacturing efficiency get passed into lower prices. And that's just something that we made based on the forecast.

Okay. And then just to be clear on what you were talking about earlier with Dominican and with Nicaragua, are you saying that the 3 million past the contribution from Dominican that you expected on your Q4 conference call this year, is now going to be more like in the 2.3 million dozen range?

Yes, that's around where it will be.

Okay. And just two housekeeping type questions for you, Laurence. What is your target tax rate for this year? I think before you'd said about 7 percent. It was a bit lower than that in Q1.

We're looking at about 6.5.

Okay. And then, I was just a little bit surprised to see the drop in your depreciation from Q4 levels and can you just talk about that a little bit? Was that -- it just seemed low to me in the quarter -- it's 5.9, it was like 6.6 in Q4.

I think there was some additional license that flowed through depreciation in the fourth quarter that related to El Progreso.

Okay, so it was artificially inflated in Q4?

Yes.

(OPERATOR INSTRUCTIONS.) Martin Goulet, National Bank Financial.

When you mention better product mix, I'm sure part of it is the introduction of your new fleece lines, but is there also sort of a better mix via colors that have been introduced? And two, is that demand for better product mix driven by Gildan, sort of with the introduction of colors, or driven by market demand for certain SKUs?

It's a combination of both. The answer to your question is yes, yes and yes. We're selling more colors in our mix. What's happening, the industry is actually shifting more to colored products in general, so if you look at the industry information that we pick up, it's basically there's more colors being sold than there used to be a year ago. And because we're less promotional on our white selling prices, it's probably driving more of our color business at the same time. So it's all three events there driving the mix.

Okay. Regarding the industry growth, T-shirts, sports shirts being relatively flat, is that mostly because of seasonal nature or is there any other structural issues may be at play here?

Well I think you have to look at it sometimes from an all-in year. The year grew by 7 percent in fiscal 2004, in T-shirt category, which is quite significant. And sometimes, depending on when there's promotional activities, printers will buy more and inventory more goods, because of pricing and opportunity. So, I think you have to be consistent and look at really the whole year approach. Right now we feel that business climate is still very strong.

Okay. And finally, in your SG&A, how much can you attribute to more cost being incurred because of your retail initiatives? Can you isolate that line?

That would be minimal.

It's very minimal at this point.

Sloane Proulx, BMO Nesbitt Burns.

Okay, it's Claude Proulx. My question is very simple, I mean, I think that in your last conference call you said that you were supposed to go to China, I guess to look at some potential opportunities over there. What did you find out and what can you tell us about your trip?

Well, we went there just to evaluate the opportunities in the marketplace. And basically from our visit we believe there's a, like everybody else, there's a huge future in China. And we're still in the process of properly doing our evaluation and we really don't have much to tell you at this point in time.

But I suppose the idea would be to take your product from Central America and ship it over there?

The idea for us is that we believe there's a market there, a consumer market, and we're going to try and evaluate the best way and opportunity to develop the Chinese market. If it makes sense for us to bring our products from Central America we will. And that's -- we're in the process, just trying to understand how does the market function and what are the dynamics. But one things for sure is that there's a huge opportunity that we believe is there and we're just going to evaluate for the next month to come what's the best way for Gildan to take advantage of it.

Bill Webb, Gluskin Sheff & Associates.

Claude Proulx asked my question, gentlemen. Congratulations on the quarter and look forward to hearing your findings as you do more research on China. Thanks.

Cynthia Rose-Martel, Jennings Capital Incorporated.

Hi, good afternoon, gentlemen, lovely quarter, well done. I know it's picky at this stage. Can you just flesh-out a little bit what happened in Europe and Australia?

In Europe we continued to experience very strong growth, as we have all along. And our sales were up by 20 percent compared with last year. And in Australia our sales in the quarter --.

First, it was our first quarter selling in Australia this time last year, so it was all -- there's no comparison.

Right. But I'm asking more the direction they're going.

The direction is going very well. This year we're planning in Australia to have over 300 percent increase this year over last year, and we're planning in Europe to be up in the 35 percent range for fiscal -- even close to 40 percent, for fiscal 2005.

Sara O'Brien, RBC Capital Markets.

Hi, guys, just a follow-up. Given that you've been focusing really on the higher price point color items and fleece, once you have your full production ramped up in Dominican Republic, would you expect that your pricing power then, if it's really going -- would you be veering back towards white T-shirts, which are far lower price points? So should we expect top line to really come down significantly going forward?

Well, we're going to manage, obviously, our business and try and obtain the highest price possible for our products in every category. There's definitely an opportunity in white T-shirts. It's not representative of our total market share today, if you look at the percentage of color market share that we have. Market share in color is in excess of over 40 percent and our white market share is in the 23 to 24 percent range. So there's definitely opportunity in white T-shirts.

But one thing for sure is that as we bring on this Dominican Republic capacity, we're going to make sure that we manage also our capacity to allocate some of it to entrée (ph) into retail and other segments that we're continuing to grow. We're planning to grow our business not only in North America, but we're looking to expand in Europe, Australia, potentially Mexico and other international markets as we go forward. So, the answer is there's opportunity and we will evaluate as the capacity comes on line.

Okay. Do you feel you're getting to a point where you're sort of tapping out the market share for colored T-shirts and you have to get into white in a much greater proportion?

No, I think we can keep the mix we have now and still achieve the 40 percent share that we targeted for 2009. And if we increase the amount of white share in the future, we'll actually increase our share over the 40 percent range.

Okay, great. And I just had a question, just specifics on the Canadian yarn-spinning, the fact that it affected your margins, is that because you were running at sort of half capacity or what exactly was the issue besides the conversion of the Canadian dollar?

That was the main reason.

Okay. So as it stands it's still running at full capacity, it's just that --?

No, the plants are running at half capacity right now basically, because we can't fully utilize the yarn, because the yarns that we're actually producing in Canada are being brought in from the United States. It's heather (ph) yarns and all kinds of specialty yarns that we're actually producing in Canada, so we can't fully utilize the Canadian facility, so they're running 50 percent idle today.

Okay. And in Q1 they were running at full capacity or 50 percent?

No, 50 percent.

(OPERATOR INSTRUCTIONS.)

If that's all, we'd like to thank you very much for attending our conference call and we'll see you next quarter. Thank you.

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