Gildan Activewear Inc (GIL) 2013 Q3 法說會逐字稿

Welcome to the third quarter 2013 Gildan Active earnings conference call. My name is Clarissa, and I will be operator for today's call. At this time, all participants are in a listen only mode. Later will conduct a question-and-answer session. Please note this conference is being recorded.

And I'd like to turn the call over to Sophie Argiriou, Vice President, Investor Communications. You may begin.

Thank you, Clarissa. Good morning, everyone, and thank you for joining us.

Earlier this morning we issued our press release announcing our earnings results for the third quarter of fiscal 2013 and our interim shareholder report containing management's discussion and analysis and consolidated financial statement. The documents are available on our website at www.gildan.com and will be filed with the Canadian Securities Regulatory Authorities and the US Securities Commission.

I'm joined here today by Glenn Chamandy, our President and Chief Executive Officer and Laurence Sellyn, our Executive Vice President and Chief Financial Administrative Officer. Our call today will begin with Laurence taking you through our third quarter performance and providing an update on our business outlook, after which a Q&A session will follow.

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

Good morning.

This morning we were pleased to report adjusted EPS for our third-quarter of $0.95 per share which represented EPS growth of 44% over the third quarter of last year. EPS were at the top end of our prior guidance range and were a record for any fiscal quarter in history of the Company.

Both of our operating segments reported strong results, and we believe that both segments are well-positioned for continuing growth in sales and earnings as we continue to implement our growth strategies. One of the highlights of the quarter was the initial success of our national branded underwear program with Walmart. Sell-through to consumers significantly exceeded our expectations, and while we recognize that it is still early days, this reinforces our view that our Gildan brand promise of better product design and a better quality features combined with low prices will be a winning formula and successful value proposition in retail as it has been for us in the print wear business over the past 20 years. We believe that we are uniquely positioned to deliver this grand promise to consumers as result of our continuing major capital investments in our vertical manufacturing in support of our brand. In addition to continuing to invest in widening our manufacturing advantage, we are supporting our brands with continuing investments in marketing and advertising. We are continuing to raise our brand awareness and enhance the equity of the Gildan and Gold Toe brands.

We will discuss our results and outlook for print wear and then for branded apparel. Our print wear business is generating record earnings and strong free cash flows. Cotton costs are now generally in good equilibrium with print wear selling prices, and we are continuing to achieve unit volume growth and increased manufacturing efficiencies.

Unit sales volume growth in print wear in the third quarter was approximately 4%. However, although unit sales volumes were up from last year, growth in both the US and international markets was limited by availability of inventory, as a result of which we were unable to fully capitalize on customer demand during the peak selling season in the third fiscal quarter. Shipments to the European market where the Gildan brand currently has very strong momentum in spite of the macroeconomic situation in the region increased by close to 10% in the quarter, but were lower than planned due to lack of product availability. Shipments in Asia-Pacific region were up approximately 80% from the small base in the third quarter of last year.

Last night we announced a restructuring of our print wear pricelist. Selling prices were reduced for certain product lines and we applied the benefits of these price reductions to distributor inventories. The ongoing margin impact of the selective reductions in selling prices will be essentially offset by the elimination of short-term promotions. Although the selling price reductions and distributor inventory devaluations were announced this week, the proportion of the devaluation which is applicable to inventories sold before the end of the third quarter has been accounted for in our third quarter results. The impact of the inventory devaluation on sales and earnings in the third quarter was approximately $6 million. The impact of EPS was $0.05 per share.

We would like to provide some color on our pricing actions yesterday. Firstly, we are using budgeted unspent promotional monies to finance the special distributor devaluation and enhance the profitability of our distributor partners. Secondly, we are realigning product pricing to respond to distributor needs and provide more rational pricing for them. The pricing actions are in line with our objectives for EPS growth and return on investment. Apart from the inventory devaluation, the ongoing impact of the realignment of pricing is expected to be largely EPS and margin neutral for Gildan.

Turning now to branded apparel, we were pleased to report topline growth in sales revenues in the third quarter of 20%. Sales revenues in the quarter grew by 24% before the impact of private label product returned by a retailer which has replaced its private label with Gildan branded socks. Operating margins for branded apparel were 15.1% compared with 9.4% in the third quarter of fiscal 2012. The higher margins in branded apparel reflect the increasingly more favorable mix of higher volume Gildan and Gold Toe branded products as well as the lower cost of cotton compared to last year. The third quarter was an important quarter for Gildan in our continuing development as a consumer brand for basic family apparel. We launched our national Gildan branded underwear program at Walmart. Retailers sale to consumers were significantly in excess of our expectations and as we said at the outset of our remarks, our initial success reinforces that consumers will embrace new brands which offer better designed design and quality features and better value. We are confident that we will be successful in achieving additional growth and new programs in all categories for our branded business for fiscal 2014 and that we will achieve strong sales growth in retail underwear and activewear after including the impact of discontinuing a private-label underwear program.

We were pleased with the market share performance of our high-value Gold Toe men's sock programs. Gold Toe has industry-leading market share in men's and ladies socks in department stores and national chains and further increased its market share in men's socks to just over 24% in the June quarter following our recent advertising and support of the brand. We are also gaining traction with the Gold Toe G brand for underwear and activewear which has been targeted to younger consumer demographic and is gaining additional distribution in national chains and department stores. Another important breakthrough is our success in placing the premium Gildan Platinum brand in national chains and department stores.

We are continuing to invest in media advertising. We have launched new commercials to support our men's underwear programs and our activewear programs and are preparing a major creative campaign for the beginning of calendar 2014. We are confident that we can pursue our marketing initiatives at the same time as continuing to increase the operating margins for branded apparel. In addition to our focus in developing Gildan as a consumer brand, we are continuing to build Anvil's business as a long-term strategic supply chain partner to global athletic and lifestyle brands. These brands are seeking to consolidate their sourcing with supply chain partners in the western hemisphere which are geographically located to service large replenishment programs and which can be relied upon for consistent high product quality and adherence to strict standards of corporate social responsibility. During the third quarter, we announced the acquisition of New Buffalo in order to be able to provide a more streamlined sourcing solutions for these brands, and we announced in our release today that we have been successful in obtaining further important new programs for fiscal 2014.

We reiterated our full-year sales and EPS guidance for fiscal 2013 and further narrowed our guidance to the top end of the previous range. EPS for the full year is now projected at $2.67 to $2.70 per share and EPS for the fourth quarter is projected at $0.81 to $0.84, up 4% to 8% from the very strong comparative adjusted EPS of $0.78 per share in the fourth quarter of last year which was the previous record for quarterly EPS for the Company prior to the third quarter which we reported today. Sales revenues in the fourth quarter are projected to be in excess of $600 million, up over 7% from last year. Gross margins in the fourth quarter are projected to slightly decline on a sequential basis compared to the third quarter due to the impact of the recent increase in the cost of cotton. Our projected EPS and gross margins in the fourth quarter also include the impact of the balance of that distributor inventory devaluation announced yesterday.

We are now projecting capital expenditures for the full year of approximately $175 million compared to our previous forecast of approximately $200 million due to the later timing of some equipment deliveries. Free cash flow after capital expenditures is now projected to be approximately $225 million. Free cash flow in the third quarter amounted to $150 million and we ended the quarter with essentially no net indebtedness as amounts outstanding in our bank facility were offset by cash and cash equivalents.

The ramp-up of Rio Nance V is completed, and our results in the third quarter reflected the benefit of manufacturing efficiencies from the new facility. We are now in the process of beginning the ramp-up of Rio Nance I in order to support our projected sales growth. In addition, the ramp-up of Rio Nance I will allow us to better rationalize our product mix of the Rio Nance V facility and generate further manufacturing cost efficiencies. We are upgrading and expanding the former Anvil textile facility in Honduras and further expanding our biomass facilities. We are currently analyzing options for construction of our next major textile facility in order to support our projected sales growth. We are also making good progress with the construction of our new distribution center in Honduras.

Our new ring-spun yarn manufacturing facility in Salisbury, North Carolina is currently under construction and is on track to begin production early in a second quarter of fiscal 2014. The ramp-up of the new facility is expected to be complete by the end of next year with material cost savings projected to be realized in fiscal 2015. Ring-spun yarn will be utilized to further differentiate our branded product offerings. The refurbishment and modernization of open end facilities at Clarkton and Cedartown will be complete by midyear 2014. We will provide details of our capital spending plans for fiscal 2014 when we initiate our guidance for next year at the end of November.

Finally, we are also continuing to monitor potential acquisition opportunities to compliment our organic growth. Our goal is to reinvest our free cash flow in complimentary acquisitions which will lever our competitor strengths, further enhance our topline sales growth for the long-term, provide meaningful synergies and provide IRRs which on a risk adjusted basis exceed the returns from repurchasing our own shares.

Thank you, Laurence.

Before moving to the Q&A session of the call, I ask that you limit the number of questions to two in order to give everyone the opportunity to ask a question. Time permitting, we will circle back for a second round of questions. Thank you.

Clarissa, we are now ready to begin taking questions.

(Operator Instructions)

The first question is from Martin Landry from JMP Securities.

Good morning. You've won the new programs to supply global athletics and lifestyle brands, can you give us an order of magnitude of these programs?

We can't give you really a magnitude at this point in time, but I can tell you that we -- with the purchase of New Buffalo, we are very confident that we could sell that capacity and pretty well committed to in terms of its growth. And these programs and commitments will be for utilizing the capacity at the Anvil facility, and it will grow over the next two to three years. It's something that's going to be really long-term growth strategy and it is a business that we are working in conjunction with these brand companies to build a long-term relationship. And it is going to be quite meaningful to us over the long run.

Okay. And with regard to the revision of your price list, if I understand correctly, you are say that this is going to be margin neutral. So, if I understand correctly, you are going to reduce dramatically your promotions and you are going to apply that money to a permanent price reduction, is that the case?

Yes, so, what happened was, we have a lot of different types of promotional spending going on. And some of this promotional spending was short-term quarterly spending which will really created, what we think, irrational pricing amongst our customers in order for them to obtain their pricing on these promotions. And by eliminating the promotions and just having a, what we call a lower permanent price on certain basic products which they really use to drive their business, it will allow them to have more stable -- eliminate the irrational pricing and increase their profitability and margins.

This is something for -- with -- Gildan has done consistently in the industry, and it's what really positioned us to be an industry leader and focusing on our customers and their profitability.

Does that include your -- what people call your growth incentive program?

Yes, well, there's different elements of it, so part of our growth incentive program which was more quarterly and as well as some of the account recounts will be eliminated.

Okay. All right, thank you very much.

Thank you. The next question comes from Anthony Zicha from Scotiabank.

Hi, good morning. Glenn, could you give us some more details relating to the new 2014 programs? Relating to Global Athletic Lifestyle Partner Brands, is this Bangladesh related? And could you give us some color in terms of potential capacity expansion plans, like what's your current capacity and will you have to look any manufacturing now?

Okay, well maybe we'll just look at -- we'll start with new programs. First of all, just going to this year, a lot of the new programs, and I will start with retail first because in retail we obtain quite a few large programs this year. And just to refresh your memory, the programs in near this year are only going to be representing about $50 million of incremental sales in 2013. But on an annualized basis, we'll exceed the $100 million in these new programs.

In retail, we are definitely confident. We have a lot of options and programs in the pipeline now that we'll be able to bring to our December call in both -- on all categories, in underwear, socks and activewear that will materially increase our revenues in 2014.

And as far as the private-label sales with these branding companies, these are programs that basically we had ongoing with Anvil when we acquired the company. And we're going to definitely expand on them as we go forward. And partly through enhancing the opportunity with the purchase of New Buffalo, but as well as the types of products which we are going to develop in the Anvil facility as we reconfigure it.

So, as we go through next year, we will start seeing significant increases in sales through the commitments that we are working with these customers. That piece of business will be growing steadily over the next three years. These companies plan 15 months in advance, so it will be something that will be constant growth for us and it should be quite material by the time we finish.

Okay, and how does that impact our current capacity, and will be looking at new manufacturing hub, maybe Vietnam?

We'll look, first of all, our capacity, just to go through with it, is that we are running full out right now. Our DR, Rio II, Rio V, Anvil is still running only around 80% because we're still in the process of refurbishing its facility, and it will be complete by our Q1 and then ramped up to 100%. And we are ramping up Rio Nance I. We're actually going to start production this month in August, and it's going to be ramped up over the next 12 months. Rio Nance I will add significant capacity to us next year.

During 2014, we will start construction of another textile facility that will bring incremental capacity. We are very comfortable and confident in all of the initiatives that we have that we're going to need more capacity, because we have got a lot of great opportunities in every aspect of our business. And that facility, I would not like to say where it is today, but we will be in Rio complex for sure. It will be somewhere outside our Rio facilities. Hope that answers your question.

Okay, thank you very much.

Thank you. The next question comes from Taposh Bari from Goldman Sachs.

Hi, this is Chad on for Taposh. The first question I have is on capital allocation.

You guys had -- obviously, you reduced the CapEx for this year, and as we move into next year with free cash flow, how are you guys thinking about it? You obviously mentioned acquisitions on the call, but given your cash position, are you thinking about additional leverage? Or just anything more on that would be helpful.

I'll answer the CapEx piece. We didn't reduce any of our projects. What happened was some of them slid into Q1 just because of timing of some of the equipment and installation, et cetera. So, all the projects are still committed.

The major projects obviously are ring spinning, expansion of our biomass, our distribution center, refurbish in Rio I, Anvil and as well as we are building a new corporate office in Honduras. All these projects are still ongoing but just slid into -- a little bit into Q1.

As far as continuing to spend in capital as we go forward, 2014 will be also a large capital expenditure year for us. We have a lot of other big cost reduction projects that we are going to bring to the table, including the construction, obviously, of the new textile hub. You want to answer that?

Yes, and throughout our whole history, we've always made significant investments in capacity expansion and cost reduction projects to support our growth. And have been able to finance that out of our internally generated free cash flow. In 2014, we are going to continue to make major investments in capital expenditures. We will provide the details of that when we initiate our guidance at the end of November, but we've talked about ramping up Rio Nance I, we've talked about starting construction of a new facility.

We are making major investments in yarn spinning, we are doing cost-reduction projects. But we expect to continue to generate free cash flow after our investments in capital expenditures. And what we've always said is that our first priority use of excess free cash flow will be to continue to do complimentary acquisitions like Anvil in Gold Toe which compliment one or the other aspect of organic growth strategies. And provide -- that lever our competitive strengths and that provide IRRs which, on the risk adjusted basis, exceeds the returns from repurchasing our shares.

Great, thank you. And then one follow-up, just on inventories. Obviously up about a little over 9% versus sales up a little over 2%, any color on that?

Our inventories are up because of a lot of the geographic markets that we're doing business in now because we've expanded quite a bit in Asia and Europe and as well as other product categories. We have a lot of new styles in our line this year. We've increased our SKU count significantly this year with all of our performance products, et cetera. So, a lot of that inventory basically is built into the new products or new markets in which we are penetrating.

Where we are short on inventory right now and where we missed a little bit this year, is in basic color T-shirts. And the reason why we had somewhat a lack of capacity is because of what the mix in which we are selling as we sold much more proportion of color T-shirts versus white, they take longer to make and to utilize equipment. As well as we had a little bit of downtime in our Bangladesh facility during all the different political scenarios that affected a little bit of our availability in Europe.

But overall, we feel that as we go into this quarter, we will be caught up probably by the end of August. And we continue to build capacity to support next year and as we bring on Rio Nance I, we are very comfortable of having a great year in terms of increasing our capacity and sales into 2014.

Great. Thank you, guys, and good luck.

Thank you.

The next question comes from Kenric Tyghe from Raymond James.

Thank you, good morning. Glenn, just on the closing comments there, with Rio Nance I ramping and Rio Nance V now fully ramped, am I characterizing it correctly to say that you are very comfortable, both with the new program wins that you are anticipate announcing at the end of November and with your current sell through on your capacity through 2014? And that it is not likely to see a repeat in '14 of any capacity constraint considerations or concerns?

You know what, we're going to bring on quite a significant amount of capacity, so I hope that's our problem, to be honest with you. But that's always a good thing to have. But we are very comfortable that we will have a good increase in sales in 2014 based on the capacity we are bringing on.

When you look at really the opportunities for Gildan, we really, as Company, have really four growth initiatives. Really, our print wear business in the US is still going. Although it is in low single-digits but it is on quite a large base, we have a lot of new products that were going to bring to market in 2014 again in the US print wear market. And we've really, like in international businesses that we've been capacity strained, not this year, but somewhat we've been capacity strained since we started. And we're going to allocate a lot of the market capacity to grow our international markets, which are doing very well.

We actually had a pretty good breakthrough in our Chinese business this year where we've seen some pretty good POS. And our Asia business is up about 80%, and most of that being in China which is quite -- it's on a small base, but we are quite excited about that as well.

And when you come to retail, we look -- we have a lot -- the success of our underwear rollout at Walmart has been phenomenal. Exceeds our expectations. We were pretty aggressive in terms of what we projected in terms of initial rollout and we've exceeded it between 30% and 40%. It is only been out now for a couple months, but it is early days, but it has been fantastic.

All of our programs, either be it the programs with the Gildan Platinum, a rollout of a Smart Basics, we really -- Gildan this year increased in terms of its brand about 300% this quarter versus last year, and it is close to one-third of our business in branded apparel. So, we are going to lever this as well as the Gold Toe brand, and we think that we are very comfortable with ongoing programs for 2014 and expansion of all of our categories which is underwear, activewear and socks.

And with the non-retail and private label, that's a program that's going to be steady as she goes. We will see good increases year by year, and we are very comfortable with our position. The good thing is that we have four real growth areas still in the Company. And that's why we are confident not only to ramp up Rio I as quick as we possibly can, but also to put invested capital in building a new textile facility to support even future growth from this point on.

Great, thank you. And then switching gears briefly on the underwear program and successes there. A recent competitor making acquisition in this space, is that in your mind about shoring up defenses, given the success you've had in the early goings? Is that about filling a gap in their offering? How would you characterize the recent competitor actions in the underwear space?

We don't really want to talk about our competitors, to be honest with you. I think that in our case is, is that when you look at our proposition and really what's driving Gildan, at the end of the day, what's made Gildan successful is making huge capital investments in manufacturing which enables us to add better quality features, better products and most importantly, better pricing to our customers. And we are priced to sell right now, and we are doing a fantastic job, our products are flying off the shelf.

We think that there's a lot of huge opportunity for us. And one thing about our businesses is that as we add up all this capacity, we are going to fill it with all these forward growth drivers and we're going to fill this organically. And then we're going to use our capital to continue to spend and do more of the same.

So, the other piece of our -- I think of, which is really relatively important to us, is that I think that people viewed our Company as really being great at manufacturing. But you can see as we change and reinvest not just our capital in manufacturing cost reductions and better quality, but we are also going to significantly invest our capital into our brands. And those two things combined, we think it's going to be a winning formulas.

We are not one-dimensional; we are not just a marketing Company and were are not just a manufacturing Company. Combining low-cost manufacturing, big investments with brand strategy, that's a winning formula that's been so successful for us in wholesale over the 15 years, and we're pretty excited about it.

The one thing we didn't mention is in our CapEx is that all of our CapEx requirements, we have pretty tough thresholds in terms of returns on investments, and our returns are you usually between 25% to 30%. And if you look at the type of investment we are making this year, $175 million to $200 million as we complete these investments, that will continue to roll into future cost reductions which we'll reinvest into better quality, better products in more market share, basically. So, it is not something that is stagnant. We're going to continue doing more of the same, and we are very comfortable that the future of Gildan is quite bright.

Great, thank you. I will leave it there.

Thank you. The next question comes from Stephen MacLeod from BMO Capital.

Thank you. Good morning. I apologize if you've already answered the question, I got on a little bit late. But I'm just wondering if you could talk a little bit about the capacity constraints that impacted the quarterly results and whether that something that will continue into the fourth-quarter and then into fiscal 2014?

What sort of went through it, but I would just give you a quick recap is that, capacity constraint was twofold, was one is mix terms of us selling more color T-shirts which take more dyeing capacity. And some disruption in our Bangladesh facility basically because of some of the political unrest there. But that's all -- it will behind us by August, and we should be in a good position going forward from that point.

Okay, great. And then can you just talk a little bit about your M&A outlook? I know, Laurence, you talked about it with respect to complimentary acquisitions. Do you expect to have to do more M&A in order to grow your business with global and lifestyle brands?

This is Glenn. Look, right now we feel very comfortable with all the growth opportunities we have that we don't necessarily have to acquire or do an acquisition to have a pretty good growth as we go forward into next couple of years.

Any type of acquisition would be something that would either adds value in brining in a new channel of distribution or other product categories that we are currently not selling. But within the core space we are today, we feel very comfortable that everything is in place to grow ourselves in the four drivers that we have in place today and terms of growth initiatives.

Just to add to what Glenn is saying, the driving force behind continuing to do acquisitions is to utilize our excess free cash flow that we are generating to create value for shareholders. And not because we need to do it to drive topline growth, which we can achieve organically.

Okay, great. Thank you very much.

Thank you. The next question comes from Vishal Shreedhar from National Bank.

Thank you and good morning. Glenn, I was hoping you could help us understand the process of evaluating and installing new capacity and what kind of process management follows to know that the capacity is required. For instance, do you have contracts in place that if you install new capacity you will get certain orders or soft indications from customers? How do you go about that?

Well, starts off with obviously good long-term planning. We just finished our strategic planning session which we have at our Board every year looking out five years. We put together what we think our growth objectives, looking at each one of the different growth drivers which is print wear US, adding product, our international markets, our branded opportunity and success we've had in every one of our product categories, underwear, socks and activewear. Our Gold Toe brand and obviously the non-retail private-label.

So, when you look at all the different four growth drivers and we project out what we think are realistic shelf space gains that we are going to get and the momentum we have within the marketplace, we can pretty well project what type of capacity we need it when we need it. And that's why we are pretty confident of bringing on new capacity during 2014 to support the future growth of the Company.

Okay, and just on these wins without license brands. I was hoping -- and I know you've stayed at a private-label and certain programs in the past, I was hoping to better understand what the distinction is between these global brands and the private-label programs that you phased out in particular. Like, would these new license brand have bigger contract sizes, longer contract durations, superior margins? Any color there would be helpful.

Most of these brands, first of all, don't make anything. They basically source out their products, and typically they source a lot of their products from Asia, which you can see, there's a lot of issues there in terms of social responsibility, et cetera.

And also, that's a big requirement of these brands is in bringing product back to this hemisphere to be more responsive to consumers. It is a different business, it's then retail or private-label. Because in retail or private-label, it is more price sensitive and mass driven and more replenishment where this is a different part category and different type of business.

So, where we shine in the mass area is really driving our own brand strategy, because that's where we can add the best value to our customers. Because in order to have the best possible prices you need to be consistent, you need to sell a brand strategy. And we can add better features, better quality, better prices with Gildan, let's say, for example, than we could with private-label.

So, the value proposition that we have, which is proven in underwear. As we displace some of the retailer private label, we've seen in the same shelf space a significant increase in sales during our brand strategy because of our proposition with better quality and better prices. That's two distinct types of business, I would say, if that answers your question.

Thank you.

Thank you. The next question comes from Andrew Burns from D.A. Davidson.

Hey guys, this is Devon Prater on for Andrew. Just a quick question, you guys had mentioned those new 2014 programs. We wanted to know if those programs are directly tied to the New Buffalo acquisition or do they occur because of new capabilities on your end?

Well, see, the way it works is that we are working with strategic long-term relationships, so part of our development these relationships is to make sure we provide a full-service to these customers. Our commitment to them is to, through New Buffalo, was to make it easier for them to do business with Gildan and conjunctionally, we are going to get more business and grow our sales.

As we go forward into 2014, we will continue to get more and more business, and that could be in every product category. So, it's a step-by-step process, but we are doing it obviously because we feel comfortable with the commitment of these customers. We didn't just go out on a limb and purchase the Company.

Okay, great. And then also just quickly, you guys mentioned the sell through at the new program at Walmart has been great. We were just wondering how much data or sell through data that you have for that program that's been -- how long it is been completely rolled out?

Well, we only have our own data right now because it is early days. So, what we did is we put together a plan and objectively -- which we thought was pretty aggressive at that time, but we've exceeded our expectations and it is going very well. As we go forward, we will continue to -- we'll be able to start measuring our share and look at -- we expect that within 2014 to be the number three brand and underwear in the United States. That is where we see our positioning.

We are probably today the largest sock provider in the US. And as we continue to grow all of our other product categories, just like we did in wholesale, we will start to, one share point at a time. And hopefully in 25 years from now or 20 years, whatever time it takes, we will be number one in every single category, and that's really our objective, if that answers your question.

Okay, thank you very much.

Thank you. The next question comes from Mark Petrie from CIBC.

Good morning. I just had a quick follow-up in terms of the capacity. The new facility that you are looking at, is a reasonable to think of it as being probably on par with Rio Nance V in terms of cost and capacity?

And then also, just in terms of capacity, can you remind us what the capacity of the Anvil facility is? And how we should think about capacity at New Buffalo?

Okay, well, first of all, Rio Nance I is a little smaller plant then Rio Nance V. But we have to look at it the way we are aligning is that one of the big advantages with these facilities we are bringing on is the fact that we are moving certain products from certain plants. So, Rio Nance I will produce ring-spun underwear, certain categories. The objective is, and the Anvil plant will produce some of our performance items, so what's happening is that we are, not only are we increasing our capacity. But we are actually going to streamline more production and have a pretty good synergy in terms of cost reduction by managing more facilities.

Rio I in Dominican Republic are more basic T-shirts. And their big plants that produce more pounds, just because of the nature of the simplification of the product that will go in those facilities. Some will go -- it will actually probably -- Rio Nance V actually will go up in capacity when we start Rio Nance I, to be honest with you. So, there's just -- it all depends on mix and what goes on, but at the end of the day, we are going to manage it to maximize our capacity in our cost structure.

Answering your question on Anvil. Anvil will be roughly between 10 million dozen, the capacity expansion plans will be about $50 million to retrofit the facility which will be complete in December, and it will be a run rate of about 10 million dozens a year.

And New Buffalo, you can't really look at that the capacity like that because it is more of an embellishment type thing. So, it is basically -- it won't give us incremental sales textiles, it's just basically going to give us added value as we go forward because of it is really an embellishment facility and not necessarily a textile facility.

Yes, no, I understand that about New Buffalo. So, that's what I'm trying to understand. How do you think about capacity there? Like at what point would you need to add screen printing capacity, how much product could you actually put through New Buffalo as it is now?

It is quite large now, but based on our commitments that we have on the longer-term basis, we are probably going to need to double the facility for sure. Right now, our first objective is to take over the acquisition, again, work with these brand companies, fill the existing capacity we have. And then as we go into phase 2, the way we projected, we think most likely over next couple years we will double the size of the plant.

Okay, thanks. And my first question, I guess, wasn't so much about Rio Nance I or Rio Nance V is, the new facility that you are considering. Should we think about it as on par with Anvil and that 10 million dozens or something much larger scale like you've done in the past like Rio Nance I or Rio Nance V?

Much largest scale, because we are going to -- we won't be in the same complex. So it will be a bigger, larger scale facility basically that will again -- every time we build one of these plants, it will be the biggest, largest low-cost facility in probably our arsenal at that time by the time we get it up and running.

Yes, okay. Thanks. And just terms of print work, can you talk about volume trends through the last quarter and how you see that through the balance of the year?

Things were pretty good. Our POS and the way we see it so far was low single-digit. So, it has been pretty steady.

I think it could have even been better, to be out to be honest with you. I think we still got hit with a little bit of weather here and there because of the rain and so forth, but the US was single low digits, which is really what we planned.

Our European business, and I think we lost opportunity, so it is hard to tell for us, to be honest with you, because we missed sales because we didn't -- we went -- we didn't have all the product we needed. But that's where we ended up with what we did ship. And then European in business, despite all the economical issues they have there, we were up 10%, but it would've been a lot more than that if we would have had product.

And Asia, like I said earlier, I think we, to be honest with you, I don't want to get ahead of ourselves, but on the small base in Asia we had a big increase. And that was mainly in China where we now have good distribution and we're seen pretty good POS. So, things are, I think overall, good. Not knock yourself -- shoes off, however you want to look at it, but pretty well steady as she goes, so pretty confident that we are going the right direction.

That's great. Thanks a lot.

Thank you. The next question comes from Chase Bethel from Desjardins Capital Markets.

Hi, good morning. Thanks. I was wondering first of all, on the -- just on the investments you've made in brand building in the year, whether you could share some measures in terms of how you move the needle maybe with regard aided, unaided awareness or (inaudible), anything that you would deem relevant, just showing how those, ultimately, I guess, the grade measure of how that's doing is translating to sales. But anything else that you could share on how things are going on that front?

You know what, look, we have quite a bit of information on of our awareness as we spent today. Rather than telling you today, I think that when we come to December we are going to have really more of a full year of all of our marketing initiatives put together. We are planning to have an investor trip in Honduras in December which will be the time for us, really, to show where we stand and what we are doing in terms of all of our initiatives. But put it this way, like I said before, our Gold Toe piece has gone up to number one position, up 100 -- couple basis points. Our Gildan is going off the charts basically because of that investments we are making and the distribution we have.

I'd rather not get ahead of myself and throw a number one with you, but we will substantiate these numbers in December. But we are growing hockey stick type of growth in terms of our awareness, and that's part of what we are going to continue to do.

Like Laurence mentioned this script, is that we are putting another major campaign for 2014. We are going to continue to spend on developing our brand strategy, at the same time, making sure that we continue to increase the returns. And our profitability, not only do we get big sales increases in our branded segment of 20% but we've also seemed the operating margins grow despite the fact that we are spending heavily on advertising. And we continue -- we will continue to see margin expansion, though I can tell you we will continue to invest heavily on our brand strategy at the same time to develop Gildan to be what we think is a major consumer brand and continue to drive our Gold Toe business.

Okay, great, thanks. I look forward to hearing more in December.

Just a question for Laurence. I was just hoping you could maybe, as you have done in the past, bridge the year-over-year change in branded apparel's sales? Just trying to get at what might have come through by way of affecting those receivables on New Buffalo.

And then I know you had been resetting the sock program based on the clients earlier in the year. Just try to get at the moving pieces year-over-year, if you can help with that?

The 20% growth in sales was all driven by volume growth and by our enhanced mix with the development of the branded programs. So, all of the growth was driven by these two factors.

All right, thanks, and just lastly, what was realized cotton in the quarter?

It was slightly over $0.80 and it will be a bit higher in Q4.

Okay, thank you.

Thank you. The next question is from David Glick from Buckingham.

Yes, good morning. Glenn, just to follow-up on marketing. Obviously, you're going to get into more detail in December when you present your plans.

But from a leadership perspective, can you talk to us about the team you've built on the branded apparel side from a marketing perspective, just to give us some understanding? Obviously, you're spending a lot more on marketing, you want to spend it effectively. The product is off to a great start, so obviously it appears to be working.

But can you help us understand the team you've built, the experience, the expertise around the marketing side so that we get a sense for how you are evolving the Company which has its history as an expert manufacturer and more of a branded company? That would be very helpful, thank you.

Okay, well thanks. But I guess two things I would say, number one is that you'll have a chance to meet everybody in December when we have our investor trip. I think that's -- meeting and hearing from them will speak for itself.

Obviously, the Company's invested heavily in our retail strategies since we started it in really 2008 when we started with our first small acquisition, the building of our first major sock facility in Honduras. We spent the last five years developing the resources, the skill set through the acquisitions that we have and as well as some type of -- and hires and organic. And like I said before in my last call, everybody wants to work for Gildan, so we've been able to recruit what we think are the best talents in the industry to help us to drive our strategy.

The way you can evaluate it is probably if you go to the stores and just look at the Gildan positioning, our packaging and underwear, how our products are positioned you can see that the brand is positioned, we think -- and that's one of the reasons why we think the brand is positioned we think uniquely amongst its peers in the underwear area. And that's one of the reasons why we are seeing the type of sell through we have. It is really the branch strategy, it is our marketing, its our packaging, it's our price strategy.

So we have a great team of people. That's what makes Gildan successful, it is all about team. Anybody can buy equipment. You could have a lot of money, but at the end of the day, it is all about the people, and that what drives Gildan. We have great team and we are proud of it, and we will be able to show it off in December.

Great, thank you. I had just one quick follow-up for Laurence. Just very quickly, Laurence, if you can take us through Rio Nance I, II and V and give us a lot of detail on Anvil capacity. But just the annualized capacity for each of those and the relative product specialization within those facilities, that would be very helpful.

(Multiple speakers) The capacities of the existing facilities are the same as what we've always said. Obviously, as Glenn said, it is impacted by the different product mix. But if you look at it all in T-shirt equivalents, Rio Nance I, Rio Nance II and DR are all equivalent to about 20 million dozens a year of annual capacity. The Rio Nance V is our largest facility which is about 30 million dozens, and then as Glenn said, the Anvil facility is about 10 million dozens and then about 5 million from Bangladesh.

Okay. And then Rio Nance I you said was ring spun and underwear and DR was basically T-shirts? Is that accurate, and --

Dave, look, there's a whole thing about capacity, things move around, mix changes and as we continue that, more products and plans and things. But just generally, DR and V are basics and then II makes our fleece and some golf shirts and one makes underwear and some ring spun and Anvil makes a specialty performance, and that's sort of the way to look at it. But everything works on mix, but what's important is we have a lot of capacity coming online with Rio I, and we will continue to build capacity as we see fit to grow ourselves, and that's the most important thing.

Great, thank you very much. Good luck.

Thank you. The last question comes from Tal Woolley from RBC Capital.

Hi, good morning. Just wondering, Glenn, if you could speak to the sock business and the performance there and what your production plans are there? Is the sock capacity within Honduras being fully utilized? Do you need to build more there, are you looking at outsourcing more with the Gold Toe team? How are you thinking about that business in total?

It is going well. First of all, our sock sales were up over 6% this quarter and we are projecting sales to be up in the same type of range next quarter. So, I think what's happened is that we divest ourselves quite a bit of some of the private label programs we have had in the past.

And we filled in our facilities up with Gildan brand and as well as we are bringing Gold Toe products into our facility. Everything in terms of socks we think is pretty good right now. And look, we continue to look at new opportunities to grow in the sock category, particularly in the Gildan brand as we go forward.

Okay. Then just my last question, I'm just -- your implied guidance for Q4, you are running at about 4% to 8% EPS growth. What are the key factors as we look out beyond that that are going to be the real drivers to boost that -- to boost that number?

Volume growth and cost reduction as a result of our investments in our capacity expansion and cost reduction projects.

And then -- they're quite significant. If you look at -- first of all, if you look at our growth strategy, we are able to obtain pretty good topline growth with all these initiatives we have. As a said before, we've got basically the print wear growing, you've got international, our retail is just basically in its beginning stages, and we have huge momentum in every product category.

And with our non-retail or private-label basically with the commitments we have, we're going to see significant growth as we go forward. That's why we are comfortable bringing on all this capacity.

Combine that with really the cost reductions. And what I said before was you look at 25% to 30% returns, we just haven't started spending this year. We've been spending every year. So, each year we have incremental cost.

We're just -- so as we spent any 2011, 2010 and 2012, those cost savings basically hitting our P&L now as we drive them and as we spend now. We are continuing to spend as we go, and we will see cost reductions and 2014, 2015 and 2016 and continue driving it. The long-term growth strategy of the Company is to grow topline sales and reduce our cost basically, increase our margins and our operating margins and EPS.

Okay, that's great. Thank you very much. Thank you.

Thank you. I will now turn the call over to Sophie Argirou for final remarks.

Thank you. Before ending the call, we would like to announce, and as we alluded to during the call, we are in the process of planning an analyst and investor trip to tour our facilities in Honduras and meet the management teams of our print wear and operating segments which is expected to take place early December, shortly after we release our fourth-quarter results and provide our guidance initiation for fiscal 2014.

We will be communicating to the investment community more specific details about the trip in the coming months. The Gildan Management team looks forward to welcoming you in Honduras where we will have the opportunity to show investors and analysts our extensive manufacturing infrastructure and to discuss our business strategies and opportunities with you.

Thank you again for joining us, and we look forward to talking to you at our next call in November. Thank you.

Thank you, ladies and gentlemen. This concludes this conference. Thank you for participating. You may now disconnect.