Gildan Activewear Inc (GIL) 2013 Q1 法說會逐字稿

Welcome to the Q1 2013, Gildan Activewear earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now like to turn the call over to Sophie Argiriou, Director Investor Communications, please go ahead.

Good afternoon everyone and thank you for joining us.

Earlier this afternoon, we issued our press release, announcing our earnings results for the first quarter for fiscal 2013, and our interim shareholder report containing management's discussion and analysis, and consolidated financial statement. These documents will be filed with the Canadian Securities Regulatory Authorities and the US Securities Commission, and are available on our website at www.Gildan.com. I'm joined here today by Glenn Chamandy, our President and Chief Executive Officer, and Laurence Sellyn, our Executive Vice President and Chief Financial and Administrative Officer. Before Laurence takes you through the results and our business outlook, I would like to remind everyone 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 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 US Securities and Exchange Commission, and Canadian Securities Regulatory Authorities that may affect the Company's future results.

I would now like to turn the call over to Laurence.

Good afternoon.

Today we announced record results for the first quarter of the fiscal year. And re-confirmed our full year sales and earnings guidance for fiscal 2013, which we had provided at the end of November. Our key messages are unchanged since we reported two months ago. The strong recovery in earnings for our core printwear business is continuing, and we are making important progress in 2013, in implementing our strategy to position Gildan as a consumer brand for socks, activewear and underwear. As well as to capitalize on growth opportunities for the Gold Toe portfolio of brands.

Adjusted EPS from the first quarter was $0.32 per share. Slightly higher than the top end of our guidance range of $0.28 to $0.31, and reflected the projected major turnaround from the first quarter of fiscal 2012, when our results were dramatically impacted by the sudden bursting of the bubble in the price of cotton.

The Company incurred a loss in the first quarter of last year, due to a unique combination of factors, including the historically high cost of cotton, and normally high levels of seasonal inventory destocking by wholesale distributors, a special distributor devaluation discount, and abnormally high promotional discount rate in the US distributor channel, as promotional activity was largely tied to sell through from distributors to screen printers, which was significantly in excess of replenishment shipments into the distributor channel, and an extended holiday manufacturing shutdown in order to manage inventory levels.

At that time, we made the decision to lower printwear selling prices even though we recognized that we continue to consume inventories, produced with high cost cotton throughout the first half of the fiscal year. We made this decision in spite of the negative impact on short term results, in order to re-stimulate screen printer demand, give distributors confidence and visibility to plan their business, and replenish inventories and further reinforce our position as the industry leader. At the time, we indicated to investors that we were confident that we would return to a positive earnings trajectory in the second half of the year, as our cotton costs and cost of sales declined inline with the lower selling prices.

Results for the fourth quarter of fiscal 2012 were a record for any fiscal quarter in the Company's history. And as indicated, our results for the first quarter which we reported today, are a record for the first quarter of the fiscal year. The first quarter is seasonally the lowest fiscal quarter in the year for sales of T-shirts.

Printwear industry conditions continue to be strong during the first quarter, and our overall revenues for printwear increased by approximately 65%, compared with the first quarter of last year, due to the recovery in screen printer demand, increased market share, the return to a more normal level of seasonal distributor destocking, the impact of the Anvil acquisition and the non-recurrence of the distributor inventory devaluation in the first quarter of last year. Operating income for printwear was $45.9 million in the first quarter. Versus a loss of $30.8 million in the first quarter of fiscal 2012.

Results for branded apparel were also significantly up from the first quarter of last year. The branded apparel division reported segment operating income of $19.6 million, compared with $2.4 million in the first quarter of last year, due to the impact of lower cost cotton, more favorable product mix, including new branded activewear programs for retailers, and the impact of the acquisition of Anvil. Sales of socks were slightly lower than the first quarter of fiscal 2012, largely due to non-replenishment of programs which are being transitioned to new branded programs and new styles.

On the manufacturing side, the favorable impact of the non-recurrence of the extended shutdown costs in the first quarter fiscal 2012, and the ramp-up of Rio Nance 5, was partially offset by inflationary cost increases and repairs to the Biotop lagoons at the Dominican Republic textile facility, which were required due to hurricane damage.

Consolidated SG&A expenses were 16.5% of sales, compared to 16.7% of sales in the first quarter of fiscal 2012. SG&A expenses increased by $18.6 million over last year, due to increased performance based compensation expenses, increased brand marketing and advertising expenses, and the acquisition of Anvil.

The consolidated income tax rate in the quarter was approximately 4.5%, excluding the impact on the tax rate of restructuring and acquisition related charges. Compared to the assumptions in our November guidance for the first quarter earnings, the positive impact of lower than projected promotional activity for printwear, was partially offset by the $0.02 per share cost of the repairs to the DR Biotop lagoons, which was primarily incurred in the first quarter.

Consolidated sales revenue used for the full fiscal year, are now projected to be slightly in excess of our previous guidance of $2.1 billion. Sales for printwear are now projected to exceed the previous projection of approximately $1.4 billion, including the impact to the more favorable than projected printwear selling prices in the first fiscal quarter. However, the EPS impact of the increase in projected printwear sales is assumed to be offset by higher cotton and manufacturing costs, and we are maintaining our full year guidance range of $2.60 to $2.70 per share.

By the end of January we announced selling price reductions for certain printwear products. And applied the benefit of these selling price reductions to distributor inventories. The inventory devaluation discount amounts to $0.04 per share, and will be recorded in the second fiscal quarter. The full EPS impact of the pricing actions, including the impact of the distributor inventory devaluation, had been reflected in the Company's prior guidance for fiscal 2013. Our full year guidance continues to reflect the possibility of further increases and promotional discounting in the balance of the year, in excess of the recent selling price reductions. We would like to provide some context to the recent pricing activity.

Until the end of January, pricing in the printwear industry had continued to be stable. At that point, one competitor with a relatively small share of the market initiated selling price reductions. We did not directly match the competitors price decreases, but took the opportunity to make selective pricing adjustments to position the Gildan brand for advantage. At this time we believe the industry pricing is in line with future cotton prices. Assuming economic conditions remain stable, we do not intend at this time to initiate further price decreases. However, we will defend our industry leadership if required, and therefore our guidance provides for possible further increases in promotional activity.

We are on track to ship all of the new branded programs which we announced in November. These programs include national underwear, activewear and sock programs, which will provide significant national exposure and visibility for Gildan, as a consumer brand. Some programs are beginning shipment in the second fiscal quarter, although the majority will be shipped in the third quarter. In order to maximize the opportunity provided by these new programs, our guidance continues to reflect an increase in our expenditures for brand marketing and advertising, by over $50 million this year, including our commercial aired during Sunday's Super Bowl game, which has resulted in massive national interest and attention being attracted to Gildan, as indicated by the extent of press coverage, social media commentary, and traffic at our website. Our total expenditures for marketing and advertising in fiscal 2013 in branded apparel are projected to be close to $30 million.

In addition to our reputation for product quality and value for money, our positioning with retailers is also enhanced by our commitment to industry leading labor practices and working conditions in our manufacturing. Retail customers are increasingly enforcing zero tolerance policies with regard to social compliance by their supply chain partners. The cost of cotton has increased since we initiated our guidance in November, and we are assuming that the balance of our cotton requirements for consumption in cost of sales, in the balance of fiscal 2013, which has not yet been fixed will be purchased at approximately current future prices for cotton.

We have provided guidance for the second fiscal quarter of $0.54 to $0.57 per share, on sales of approximately $520 million, compared with EPS of $0.23 per share in the second quarter of last year on sales of $483 million. The projected increase in EPS reflects the impact of lower cotton costs which will continue to decline compared to Q1. Higher unit sales volumes for both for printwear, more favorable product mix for branded apparel and impact of Anvil. These positive factors are projected to be partially offset by lower selling prices for printwear, including the impact of the distributor inventory devaluation discount, the impact of higher manufacturing costs, and higher selling general and administrative expenses.

Manufacturing costs are projected to be higher than the second quarter of last year, due to some short term issues which are not expected to impact future quarters, the timing of Easter holiday shutdown, which will fall in the second fiscal quarter in 2013, as compared with the third quarter of fiscal 2012 and inflation and certain cost elements. These cost increases are expected to more than offset the favorable efficiencies due to the ramp up of Rio Nance 5. Projected results for the second quarter, would again represent a record for the second quarter of the fiscal year.

We generated free cash flow of $21.3 million in the first quarter, after financing a seasonal increase in inventories and capital expenditures of $25.3 million. We ended the quarter with net indebtedness of $95 million. We are continuing to project free cash flow in excess of $200 million for the full fiscal year. Capital expenditures for the full year are still projected at approximately $200 million. Approximately $85 million is projected to be spent on our yarn spinning strategy, including the modernization of our existing US yarn spinning facilities, and a new ring spun facility at a building purchased in January, in Salisbury, North Carolina.

The balance of the fiscal 2013 capital expenditure program is for the completion of Rio Nance 5, the modernization of Rio Nance 1, the construction of our new distribution center in Honduras, and continued investments in further expanding our Biomass facilities in Honduras. We are considering the option of increasing the utilization of the former Anvil textile facility in Honduras for performance activewear products to support our Gildan branded performance activewear programs, in both branded apparel and printwear which will allow Rio Nance 1 to be configured to focus increasingly on large scale, high volume manufacturing of ring spun underwear and activewear.

Due to our strong cash flows and strong balance sheet, we announced a 20% increase in our quarterly dividend in November, and we were pleased today to announce our quarterly dividend of $0.09 per share, payable to shareholders of record on February 21, 2013.

I will now pass you back to Sophie.

Think you Laurence.

Before moving to the Q&A session of the call, I ask that everyone please respect our request that you limit the number of your questions to two, given the timing of the call, and in order to give everyone the opportunity to ask questions. Time permitting, we will definitely circle back for a second round of questions. Thank you.

Operator, we're now ready to start the Q&A session.

(Operator Instructions)

Martin Landry, GMP Securities.

You mentioned that your printwear sales are expected to be higher than what you had anticipated previously, and I am just trying to get a little bit of sense as to what is driving these higher sales? Is it pricing, is it volume related, is it market share gains or any color around that would be appreciated?

You're talking relative to the previous forecast?

Exactly.

This is really only a slight increase, we were maybe a little conservative with our rounding in the original forecast in November. Plus we did have higher sales and higher pricing in the first quarter. So, it's a slight increase over the growth that we had already projected in our original guidance.

Okay. And you are talking about an increase of utilization at the former Anvil facility. If you could share with us maybe what rate is the capacity utilized right now, and what extent are we talking about in terms of capacity increase that you are contemplating right now?

Well, this is Glenn. The Anvil facility right now is really producing basic knit products and our plan right now is to convert that plant to produce performance and some of our specialty projects. Originally, we had thought we were going to move some of these projects into our Rio Nance facility, but with the reaction we have had with her new product line in performance and the demand we have in our sales, we feel that we can dedicated factory just specifically for these types of performance fabrics. As we go forward into next year, we have considered a considerable amount of product that would be launched in new styles, new fabrications, et cetera. So, we are really going to focus the plant on producing the performance, poly type products which are wicking and antimicrobial and the different varieties of stretch and things that we need to really drive what we think are the performance features in the market place today.

So, this will allow us really to expand more in depth the product because in Rio 1 we would have been still limited to more the commodity side and now we can actually add quite a bit of product that will enhance I think overall sales opportunity in the category, with all these different fabrications. And then consequently, it would also allow us to streamline Rio Nance 1 and keep it consistent with the rest of the type of Rio facilities we have producing large runs in ring spun underwear and activewear type products. So it becomes a win, win. And also combining all the capacity together net, net to increase our capacity of the Company as we go forward, to service what we think will be the demand in all of these product categories.

I guess if you're talking about it, it's probably something material. Are you contemplating doubling the capacity of that facility?

Well, not necessarily doubling the capacity, but the capacity will be reconfigured into making more of the polyester performance. It's a little bit different type of fabric, let's say production requirements I'd say for example. We might get some production increases in the facility, but mostly it would really drive a lot of the specialty performance. Where we are really going to gain is by not having any type of specialty in the other facilities in which we are running. So we are going to get efficiency pickups in Rio 1, in Rio 2 for example where we're producing some of these items there, will be moved into Anvil and net, net we'll get a better efficiency overall in Gildan's production. But also allow us, more importantly, to have a diversity of product that will continue to drive sales growth both for the retail and wholesale markets.

Okay, and in terms of, where exactly is that facility in terms of level of efficiencies and stuff like that, is that comparable to your Rio Nance facilities?

It's a good facility, it's obviously not the same level and size because you know, partly what drives our efficiencies is the size and scale of our facilities. But it's in an industrial park that's in Honduras. About 45 minutes away, maybe an hour away from Rio Nance. But it's a good facility, we will spend a little bit of capital on it to get its cost structure down and note the things we do to enhance our cost structure, we'll implement in this facility, but obviously because the fact that it's going to be producing a wider variety of different products, it will have somewhat of a higher cost structure, but the margins in these products will be very good.

Okay, thank you very much.

Kenric Tyghe, Raymond James.

I wonder if I could circle back firstly just on the modest increase in your total marketing spend in year, I (inaudible) once commented, one of your competitors made yesterday with respect to their increased marketing spend. And also just the dynamics that play in the retail channel we're seeing a competitor mentioned and are pushing new branded underwear offerings et cetera into the market. I'm just curious on your take on competitive dynamics, some of the dislocation would be -- it would appear your early stage initiatives are causing, and how you would sort of characterize your thinking?

Like we said in the last quarter this year we made significant inroads in our branded apparel sales, branded sales. If we take you back to 2011 our branded sales were only 35% of our volume, they're going to be almost 60% plus this fiscal year. And part of our advertising spend is obviously to promote our brand in the channel. And to make sure that we have successful sell through. As you saw last week we had the Super Bowl ad which was first for the Company, and we are very excited about it. We've had significant placement of new product placement this year of T-shirts, sweatshirts, socks, underwear and all categories in both national and regional chains. So, we are very excited about the opportunity. And what we are in the process of doing is making sure that we see ourselves through the channel.

So, we have set up a media campaign where we had the Gildan ball, our Super Bowl ad, we are sponsoring AAA baseball, we're going to have national print, we're going to have TV commercials in the Fall back-to-school, digital, social media, I mean we are going to spend the money to continue the brand awareness at Gildan, and to make sure that we have good sell through. And the other thing I think the important point here is that the programs that are going to be sold in this fiscal year, are going to be sort of back ended. Which is going to allow us to generate about $50 million in revenue but on an annualized basis these programs are about $100 million. And encompassing all this will allow us not only to have a good year this year, but with our advertising spend and the momentum we have, we think that we are going to have significant top line growth in branded apparel as we go into 2014.

Great, thank you gentlemen and just a follow up on another line with respect to your stock performance in the quarter. Could you just walk us through the dynamics there? Is it looking as if you guys have a challenge again in this quarter?

What happened this quarter is two things. One is that we are in the process of taking one of our largest programs in socks and converting it from private label into Gildan brand. So, and that's happening as we speak. So we reduced the shipments out our door because we are changing the program, that was one of the causes and the second is, we had a little bit of negative POS in our infants area, which is a very small part of our mix which is private label again. But the biggest change in year-over-year sales was the fact that we are resetting the floor for all of our Gildan brand that will hit the market as we speak. It is actually hitting the stores now. So, we short shipped the market in Q1.

Thank you and just I apologize I realize this is an absurd question but Laurence would you give us some color on the realized cotton inventory in the quarter? The cost of that inventory in the quarter?

The cotton and cost of sales in Q1 was low to mid 90s.

Low to mid 90's. Great, thanks very much I'll leave it there.

Anthony Zicha, Scotiabank.

We mentioned in the press release that Gildan's position to secure further new programs for both the Gildan and the Gold Toe portfolios or brands, now if you are successful in securing those new programs, could we anticipate a change to your current projections for 2013? Could there be some upside?

There may be a little. But I think our big focus right now is to continue driving -- and in the retail environment you're working 9 months in advance, so there might be some opportunities in back-to-school, some promotional sales we could get. But I would say that our big push right now is for 214, and that's where we are really looking to drive the top line based on everything we have in place, momentum we have behind our brand, our advertising, and the product extension. We have a lot of product extension not only in the Gildan brand, but we also have in Gold Toe where we have products going into T-shirts, [G T-shirts], we have some underwear being sold into retail this year. So all these will hopefully materialize into bigger and better things as we go into 2014.

Okay great and my other question is Glenn can you give us an idea about pricing at the retail level? (inaudible) have already been set for the year, the programs?

All our pricing is set in retail and we think that we have a good competitive benchmark. Just to your -- going back to retail, we never raised our price points during the whole cotton crisis relative to the price of cotton, so we have always been positioned well in pricing. And all our prices are fixed for this fiscal year.

Okay excellent, thank you.

Brian Morrison, TD Securities.

Just on the branded side, looking at the competitive price gaps recently it looks like they have been narrowing in recent weeks and months, and if so if that's the case, how do you adjust or do you need to adjust when this dynamic takes place when you are obviously trying to increase market share substantially?

We think two things. One is that we price our products not only to have the best price, but also to have the best quality product. So what we're going to be bringing to the market for example in our underwear category, is going to be a far superior product inside of the market, better elastic, better fabrication, better packaging, at better prices. So, we just don't really know, that's been the whole success of Gildan is adding as much value at the best possible price, and that has what's been so successful for the last 15 years in wholesale, and we're just applying the same dynamics into our retail strategy. So we are very comfortable with our pricing positioning, and the features of our garments will sell them through, and as well as we are committed to making sure that from an advertising point of view that we support all of our retailers.

Thanks and then just a quick follow up on Rio Nance 1. I presume there is no change to the time of the start up on that. I think you mentioned the start up on it will be over a 12 month period. Will it be as needed or would you take it right to full capacity upon ramping it up?

To be honest with you there may be a slight delay in Rio Nance 1. Only because what we're doing is we're bringing some of the equipment there to Anvil. And it will start probably in early fourth quarter. Instead of the third quarter. And it will still be ramped up over the 12 months. So, we were basically on track. We think we can be back where we need to be to service in 2014.

Thank you.

Mark Petrie, CIBC.

Just wanted to confirm, so the higher printwear sales that's really all pricing, it is not a change in your volume assumption?

It's minor changes in both.

Okay. And then in terms of the Anvil facility ramping up and increasing capacity, what does that mean for your exit rate on capacity for '13 and '14?

The thing about Anvil is that the facility basically is operating this year was in our projection, it was going to be wound down and then eventually migrated into Rio Nance 1. So, by maintaining Anvil at its current level let's say for example, will have slightly higher exit rate but net, net, we will have more capacity as we go forward into the future. And the capacity at Anvil, we're not necessarily planning to increase it significantly, there might be some increases, but more importantly it's going to be the type of product fabrications that we will have in Anvil, that will help us to drive new opportunities, new sales opportunities, particularly in performance, and some of the specialty areas where it would've been maybe a little more complex that we needed to have in Rio Nance 1. So, we will have more capacity, so if you look at some of the numbers we've published in the past, Anvil probably represents anywhere between $8 million to $10 million of volume on an annualized basis.

Thanks that's helpful. In terms of SG&A going forward, this quarter was slightly down as a percentage of revenues. How should we be thinking about that? I don't think that trend is sustainable for the balance of the year, but how should we be thinking about that in terms of progression through the quarters or into next year even?

We gave you in November we gave you our guidance for full year SG&A, which was about 13%.

Just sticking with that?

Yes.

Okay, thanks.

Tal Woolley, RBC Capital Markets.

Just wondering if you can talk about the top line performance this quarter? You were running ahead of your guidance previously. Was that lower than expected pricing that drove that? Just pricing cuts were expected we were just surprised to see retailers stocking up? Or distributors stocking up?

I'm not sure if we understand your question Tal, sorry.

The top line beat this quarter versus your guidance. That was all realized pricing?

Yes, I will give you the breakdown of the increase in sales, revenues for printwear compared with the first quarter of last year. Which went from $147 million to $244 million. $85 million of that increase was volume. $65 million of it, -- $85 million was Gildan branded products. The rest was the impact of Anvil. Then $20 million was the non recurrence of the deval and pricing mix was slightly negative and accounts for the rest of the difference.

Perfect. And I am wondering if you in the Q2 guidance, if you are possibly able to quantify the impact that you are anticipating from manufacturing efficiencies, and the shift in the timing of your Easter shutdown?

You are wanting to quantify the impact. The cumulative effect of all of these things was about $0.06 negative to EPS.

Exclusive of the devaluation?

The devaluation was another $0.04.

Perfect. Okay, thank you very much.

Jim Duffy, Stifel Nicolaus.

My two questions first is the pricing move from the small printwear competitor out of character from what you have seen from that competitor in the past? And then secondly does your guidance for printwear sales growth in 3Q and 4Q, does that imply growth, or will the pricing adjustments you have taken offset the volumes? Thank you.

Just repeat your questions will you?

I will give them one at a time maybe that's easier. First question, pricing move from the small printwear competitor is that out of character from what you have seen from the competitor in the past?

Yes, I would say so.

Okay.

It's a small competitor but big player.

I understand.

And you can get color on this from your channel checks at distributors.

Okay, thank you. And then the second question the guidance for printwear for 3Q and 4Q, does that presume growth? Or will the price adjustments you have taken offset the volumes?

We are not giving guidance by quarters. We are looking for the full year at something like --.

1.4?

We're looking at something like $135 million of increase in our Gildan brand and printwear channel, about 30% growth in the international markets. And about $40 million from Anvil.

Think you, that is helpful.

Justin Mara, Lord Abbett.

Laurence just trying to get a little color on the price. The cotton price. You said you guys were looking at the futures -- which correct me if I'm wrong is about $0.80. But I think you mentioned -- and I know you've said in the past that it is not perfect in terms of what you guys pay relative to what that market shows. But just looking, if you guys turn your inventory three times a year that would imply that you are selling through stuff, correct me if I'm wrong, that you had in inventory you manufactured six months or nine months ago. So that would have been at the much lower levels. So, I'm just trying to reconcile your point about what you're doing with pricing and bringing it down relative to costs coming up, relative to inventory that you are currently selling through?

I'm not sure if we completely understood the question. The cotton that is going through cost of sales in the first quarter, is the cotton that was bought when cotton was middle 90s for a long time. Cotton in Q2 will be lower than Q1 and then we are not really prepared to talk about our cotton in the back half of the year, other than to say that we have a small amount of cotton that is still open and we're assuming that, that will be -- that will reflect the current futures for cotton.

Okay, but I guess I'm looking back I see the price of cotton precipitously dropped Spring of last year. So you're saying that, that inventory you guys just sold was stuff that you manufactured in the Spring of last year?

No, what we're saying is that what we sold in Q1 was manufactured in our Q4 basically which is July, August, September. If you look at it.

Yes but that raw material was procured when? I guess that's what I'm --?

That's when it's procured, when you buy July cotton, we fix cotton there's different periods, so at July 25 is the deadline to buy all of our cotton for our fiscal Q4, and roughly the average price was in the '90s let's say for example. So we assumed that cotton in July, August and September and our cost of goods sold are only pushing it through the inventory in fiscal 2013.

Okay. And just last question, on the distributor you are making them whole in their inventory again. When you guys did that a year ago for the first time, I know it was probably a tough decision, but how did you think about the risk reward of that relative to setting a precedent that now and maybe talk about that relative to doing it again? Is that something that will become more commonplace do you think going forward?

Well first of all, it's not the first time we have done it, and it is our way of taking a leadership position in the market. So if you go back to last year when we actually did the deval, with brought our prices to market, we created significant market demand, we increased our market share and we partnered with our customers to make sure that they are still competitive to sell Gildan on a go forward basis. So, I think it is something that we will be committed to do is to make sure that our distributors are whole with their inventory so that they can sleep at night, that Gildan is a partner of theirs. On a footnote, I think that pricing, we're very comfortable with the pricing as it is today. We think it reflects the future price of cotton. We don't intend to lower our prices at this point. And we are very comfortable with our positioning. So in the event that we did, we would most likely have to keep our distributors whole once more.

Okay, thank you.

Eric Tracy, Janney Capital Markets.

I guess if I could follow up a little bit on the pricing. You mentioned that embedded within the guidance there is still some room for incremental promotions as the year progresses. Are you able to sort of quantify that? And secondarily, beyond this competitor acting irrationally, it obviously seems like demand is still strong, but are there any sort of things from a macro prospective that are giving you a little bit of concern? Just on the demand side and on the pricing side.

On the pricing side we feel comfortable with our pricing like we said. We definitely projecting potentially further discounts. We will not quantify obviously that amount. And as far as demand is concerned, Q1 was a very good strong quarter. We had a period in November where we got a little bit worried because of the weather which was Sandy but as December came through we really came out of the quarter fine. Over the last couple of weeks of January we have felt a little bit of softness in T-shirts, but our fleece business is doing very well. We think what we have found from talking to our customers, is a little bit weather related. But I think that overall we're very optimistic, our customers are optimistic. We just went through our major trade shows in January, the industry's upbeat, so we think that we are on a good trajectory to have a good year.

Okay. And then if I could switch to the branded apparel side, how much of the 13% increase in the quarter was Anvil?

Anvil really accounted for the growth, and then the slight decrease that we mentioned in socks and branded apparel was offset by increased activewear into the retail channel.

And that's typically our lowest quarter because what is happening is that all of our new products and most of our new programs are going to be shipped in potentially Q3, as we go forward into the year. Which will be a much, a bigger significant driver to our branded sales.

And if I could just squeeze in one last one in terms of the marketing spend to support that branded apparel. Correct me if I'm wrong but it seems like, roughly $3.5 million to $4 million on the Super Bowl ad suggest, call it $11 million for the balance of the year. You mentioned some of the incremental national ads, print and TV. Can I look for some in store fixturing and point of sale and if so what the timing on that might be?

First of all the 15 is over last year so the total spend this year will be close to $30 million, and of that, $3 million just over on the Super Bowl ad which is public knowledge I guess. We have a lot of money still to spend through TV, as I said, print, media and in store displays. So it will be a function of all of the different elements of our advertising as we go forward.

Okay, great, thanks.

Susan Anderson, Citi.

I know you talked a little bit about the industry trends but maybe if you could just touch overall like what the performance has been year to date? I guess because just looking at last year you guys had some really good -- really good January and then really very good February. So just concerned a little bit about the tough compares.

You are talking the data for industry growth in printwear?

Yes, since we don't get the press data anymore.

We don't get the press data anymore either. But, like I said before is that the T-shirt side in the last couple weeks has been a little slower than we wanted it to be. But not too bad. But fleece has been doing very well. And based on talking to our customers, we feel like it's weather related. And like I said, is that we just finished all the trade shows in January, all things are a go. People are very excited, the attendance was fantastic. So, we are pretty excited about as we go forward, and we are excited about this season.

Great, and then maybe if you can give us an update on the Anvil acquisition, and the synergies there and then maybe the same with Gold Toe?

I guess obviously the acquisitions in both cases are going very well. Anvil and Gold Toe have been fully integrated. We haven't got all the synergies. There will be synergies that will continue to flow through part of this year, but into next year as well. And we are on track with all our plans.

Okay great, thank you.

David Glick, Buckingham Research.

Laurence I was just wondering if you could give us a little more details on other than the Easter timing and that shutdown what the manufacturing inefficiencies are going to be for the quarter and why they won't recur? And then secondly, any help you can give us on how the gross margin flows as the year unfolds, the numbers are just a little bit lower than we had been expecting, in Q1? I'm just wondering how that plays out over the balance of the year, and how your higher mix of branded apparel is going to impact your gross margin mix going forward?

I'll just do a couple manufacturing things. There are two small issues we had, one which was we stopped our Biomass boilers due to the heavy rains in Honduras, which we now mitigated in the future so that we would not have that issue by having storage capacity and so forth. So, that cost us a bit of money, and at the same time we also had a little bit of problems during the crop change this year. With additional cost to dye the cotton due to the quality nature of the cotton coming in, in Q1 during the crop change. So, both of those are nonrecurring as far as we're concerned. And those were the two big items besides Easter shut down.

The shutdown of the DR because of the --.

The short shutdown in DR because of the storm.

Okay, and then just help us think about how the gross margin flows as the year unfolds and then how the mix of branded apparel might impact the gross margin going forward?

We don't provide margin guidance David but Q1 is impacted by seasonality which you will see if you go back over the years, and then also we will benefit from the further reductions in cotton as we go along, plus our manufacturing efficiencies.

Maybe one last thing to add to that in terms of the efficiencies in manufacturing is looking at this year but if you look at the investment that we're spending this year which is $200 million, on all the various projects we have, a lot of the savings, these are all cost saving initiatives like the balances and ramp of Rio Nance 5 it's is not at full maturity at yet. Reinvesting in our second expansion of Biomass will come online and give us another significant savings as we go forward. Our distribution center in Honduras will reduced significantly our distribution cost to various markets. And our yarn spinning which is going to have a fantastic return. So, all of these projects that we have going forward, if you look at the amount of capital we are spending, at the end of the day, these projects will deliver savings way in excess of cost of capital and drive earnings growth in 2014.

Great, thank you very much for the color and good luck.

Scott Rattee, Stonecap Securities.

You had mentioned that one of your major private label programs you are in the midst of moving to branded. I guess I was wondering just conceptually if you think down the road, will there be a point in time when you don't have any more private label programs that it will be all branded?

Our strategy is to continue to drive our brand strategy. And that's our goal, but we will definitely support all of our customers that we're still providing private label for on a go forward basis. And our objective is to position Gildan as the brand of choice that will outperform their private label, and if we can convince other customers to drive Gildan instead of private label and then that becomes a win, win because we think we can offer them a better value, we can support the brands through advertising, allow them to get better margins, and better product offering through the Gildan brand. We are here to support all of our customers and never turn business away.

Glenn, would it be fair to say that, that discussion is something that you are having with each of our private label customers?

Like I said, the focus for my sales division is to basically continue driving our brand strategy. We've gone from 65% to just around 30% over the last two years. At the same time, we've allowed us to have a better mix and increasing our margins in our division. So that's really our focus and our goal. It becomes a win, win, we had a better value, and the thing is in most private label cases, a lot of those products don't get advertised and we are committed to spending and developing our brand to be a major consumer brand in the United States basically of family apparel over the next couple of years. And that's our commitment.

Okay. Bit of a housekeeping, you haven't really touched on international as a sort of a stand alone. I know you sort of talk about it just in general. Could you maybe just provide some color there? I think we had sort of a 20% growth last year. Has it trended sort of along those lines or how was it developing this year?

We are trending -- we projecting this year honestly to have 30% growth. Last year was our first year we started having available capacity, so that's really what our focus is, and this year we are going to grow by 30%. We are growing in all the different markets, Europe, Asia, and Latin America. In Europe through the acquisition of Anvil we have now inherited a retail sales force which is something that we are going to be -- in international we have been focusing strictly on our wholesale sales, and now we are going to start focusing as well on our retail sales. So some of the -- through the acquisition of Anvil we are going to leave their relationships they have with some retailers and start to sell our Gildan products into retail.

We have opened up a couple new distributors in China this year, which is exciting for us and we have two really good distributors. We just opened a sales office in Columbia. So we are continuing to look at all -- explore other new markets, and we're excited. We're going to -- the Gold Toe brand as well into our European markets as we go forward into next year. So, overall international will continue to grow. It's been a function of our capacity, but with Rio 1 and all the capacity we have coming on and our objective is to push the sales guys now and that's our plan.

That's great, thanks for the color.

We have no further questions at this time. I would now like to turn the call back over to Sophie Argiriou.

Thank you. I'd like to thank everyone for joining us. I would like to remind everyone that tomorrow we are holding our annual shareholders meeting. So we won't be available to take calls in the morning. Our meeting will be held here in Montréal at the Centre Mont-Royal, at 10.00 am. But we will remain available for you to take any follow up questions this afternoon -- sorry, this evening right after the call. I would like once again to thank you all for joining us, and we look forward to speaking to you again in the next conference call that we hold for our earnings. Thank you.

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