Gildan Activewear Inc (GIL) 2013 Q4 法說會逐字稿

Welcome to the fourth-quarter 2013 earnings conference call. My name is Loraine and I will be your Operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I would now like to turn the call over to Ms. Sophie Argiriou. Ms. Argiriou, you may begin.

Thank you, Loraine. Good morning, everyone, and thank you for joining us. Earlier this morning we issued our press release announcing our fiscal 2013 earnings results for our fourth quarter and full year and the initiation of our fiscal 2014 guidance. Early next week we will be filing our shareholder report containing Management's discussion and analysis and our 2013 audited consolidated financial statements with the Canadian Securities Regulatory Authorities and the US Securities and Exchange Commission. These documents will also be made available on our website at www.gildan.com.

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

Please note 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 announced our results for the fourth quarter of fiscal 2013, which were at the high end of our previous guidance. Adjusted EPS of $0.83 per share were a record for the fourth quarter of a fiscal year. Q4 was our fifth successive fiscal quarter of record earnings. Today we also introduced our guidance for fiscal 2014, including our outlook for sales, EPS, capital expenditures and cash flow. We will review our Q4 and full-year results for fiscal 2013 and then discuss our outlook for fiscal 2014 as well as some of the factors impacting our ongoing growth strategy and EPS growth objectives.

Compared to a strong fourth quarter of fiscal 2012, EPS were up by 6.4% while net sales growth of 11.5%. Net earnings before income taxes increased by 12.2% compared to the fourth quarter of last year. The effective income tax rate was 3.1% compared to a tax recovery in the fourth quarter of last year. The higher income tax rate was due to the strong performance of Branded Apparel.

Net sales for Printwear increased by 12.5% in the fourth quarter and segment operating income increased by 11.2% compared to the fourth quarter of last year. Unit volume growth in the quarter was 18.7% due to a 37% increase in unit shipments to target international markets, in particular Europe and Asia-Pacific, and continuing sales growth in the US including the non-recurrence of destocking by US wholesale distributors which occurred in the fourth quarter of last year.

We continue to be impacted by capacity constraints in the quarter. In particular, we were unable to fully satisfy seasonal distributor demand for fleece. Also, although shipments to Europe increased by over 30%, we were unable to fully capitalize on our strong momentum in the distributor channel in the European market due to lack of product availability.

The positive earnings impact of strong unit volume growth in Printwear was partially offset by lower average net selling prices compared to fiscal 2012. Net selling prices were gradually reduced during the course of fiscal 2013 to reflect the decline in the cost of cotton. The decline in the cost of cotton compared to Q4 of last year positively impacted EPS by approximately $0.17 per share and was fully passed through into lower selling prices.

Net sales revenues for Branded Apparel in the fourth quarter increased by 9.4% in spite of weak retail market conditions in the fourth quarter. The growth in sales was due to strong sell through of Gildan Branded underwear and activewear programs and increased shipments of Gold Toe socks, partially offset by our strategy to exit certain private label programs and careful management of inventories by certain major retail customers. The Gildan National Branded underwear program continued to perform strongly and in excess of expectations. We also continue to achieve new placement of Branded programs for both the Gildan and Gold Toe brands for fiscal 2014.

In addition, we announced that we have obtained the licenses for Mossy Oak for activewear, underwear and socks. Mossy Oak is a leading lifestyle brand with roots in hunting and camouflage, which is sought after by retailers and all channels of distribution and will command price premiums reflective of its brand positioning.

Operating income for Branded Apparel increased by 19.7% compared to the fourth quarter of fiscal 2012 due to the growth in unit sales volumes, the impact of our higher valued branded product mix and lower cotton costs, partially offset by increased expenses for brand marketing and advertising.

We generated free cash flow of $111.5 million in the fourth quarter after capital expenditures of $74.3 million. As a result, we ended the fiscal year with no outstanding bank indebtedness and cash and cash equivalents of $97.4 million.

For the full 2013 fiscal year, we reported net sales revenues of $2.184 billion, up 12.1% from last year. And adjusted EPS of $2.69 per share, more than double last year when the first half was significantly impacted by the consumption of high cost cotton. We generated free cash flow of $263.1 million after capital expenditures for the year of $167 million.

Turning now to fiscal 2014, we are initiating our guidance with projected sales revenues of approximately $2.35 billion and projected EPS of $3 to $3.10, up 11.5% to 15.2% from fiscal 2013. Our guidance assumes a continuation of current overall economic conditions including current soft retail demand.

Results in the first half of the year are projected to be impacted by sequentially higher cotton costs compared to the second half of fiscal 2013 as we consume cotton which was purchased during the recent spike in the cost of cotton before cotton prices resumed their downward trend.

The higher cotton costs in the first half are not currently assumed to be fully passed through into higher selling prices as cotton prices have now declined significantly from the recent peak. Our guidance includes provision for additional promotional discounting in excess of current levels if required as lower cost cotton is consumed in cost of sales. On this basis, adjusted EPS in the first quarter is projected to be $0.33 to $0.35 per share on projected sales revenues of approximately $450 million. Compared to EPS of $0.32 in the first quarter of fiscal 2013 on net sales revenues of approximately $420 million.

The positive earnings impact of projected unit volume growth in both Printwear and Branded Apparel in the first quarter is assumed to be largely offset by lower Printwear net selling prices and higher selling, general and administrative expenses. Average cotton costs for the full fiscal year are currently expected to be comparable to fiscal 2013 based on current cotton futures. Cotton costs in Q2 and Q3 are expected to be higher than last year and lower in Q4 compared to Q4 2013.

The projective growth in earnings in fiscal 2014 is driven by projected unit volume growth in both operating segments and projected manufacturing cost reductions, partially offset by lower Printwear net selling prices, inflationary cost increases and a further projected increase in the income tax rate.

As a percentage of sales, selling, general and administrative expenses are projected to decline to approximately 12% in fiscal 2014 compared to close to 13% in fiscal 2013 as we leverage our investment in our SG&A infrastructure in Branded Apparel with higher unit sales volumes, while continuing to invest in marketing and advertising expenses to support the continuing development of our brands.

We are projecting growth in unit sales volumes of approximately 5% in Printwear in fiscal 2014, including approximately 20% growth in international markets.

We have repositioned the Anvil brand in the US and internationally to focus on contemporary ringspun niche products. These products include fashion styles for ladies and for younger more contemporary end-use markets. We're also expecting to benefit from last years' introduction of performance T-shirts. However, projected volume growth is assumed to be partially offset by lower selling prices.

Consequently, net sales revenues for Printwear are projected to increase to slightly in excess of $1.5 billion. Net sales revenues for Branded Apparel are projected to increase by an excess of 15% to in excess of $825 million due to the impact of new branded programs, increased retail shelf space and increased sales to global lifestyle brands partially offset by the discontinuation of a private-label underwear program.

We are continuing to obtain new retail programs and are expanding our brand presence across all channels of distribution through our brand extensions such as Gildan Platinum and G by Gold Toe, which have both been placed in department stores and national chains.

We are firmly committed to our brand value proposition for consumers which combines better quality and design features, durability and low prices, which is made possible by our continuing major capital expenditures in product technology and global low-cost manufacturing. We are very excited about the potential of our new Mossy Oak license and are generating strong interest in this brand with retailers across all distribution channels.

We expect to end fiscal 2014 was strong momentum in sales and earnings growth as the fourth quarter is expected to benefit from new branded retail programs, increased manufacturing cost reductions from new capital investment projects and projected lower cotton costs. We are projecting capital expenditures of $300 million to $350 million in fiscal 2014. Approximately $150 million is being spent in fiscal 2014 for our previously announced investments in new greenfield yarn spinning facilities. In addition, we are ramping up Rio Nance 1 and completing the modernization of the former Anvil textile facility in Honduras.

We also confirmed our plans to proceed with a further new textile capacity expansion. We are currently completing an analysis of two sites on which our manufacturing team have been doing due diligence. The new facility will not be located in Honduras but will still be located in Central America. This will ensure that we continue to leverage our existing manufacturing infrastructure and best practices and that our manufacturing facilities continue to be strategically located to service our target markets in North America including supporting the penetration of our brands with US retailers. The location of the new facility will be finalized in the second quarter of fiscal 2014, and investment in the facility is expected to begin early in the second half of the fiscal year. The facility is expected to be constructed in fiscal 2015 and ramp up in fiscal 2016.

In addition to adding new low-cost capacity, we are continuing to invest in major manufacturing cost reduction projects in Honduras, including further investments in biomass and a power plant to generate electricity and further reduce energy cost. We are also continuing with the construction of our new distribution center in Honduras. We're expecting to realize approximately $100 million in further annual cost savings from these manufacturing projects by 2017 which will phase in gradually over three years starting in fiscal 2015. These savings are net of depreciation expense.

We are projecting that we will generate free cash flow of $50 million to $100 million in fiscal 2014 after capital expenditures and increase working capital to support our ongoing sales growth. We were pleased to announce today a 20% increase in our quarterly dividend, which reflects our confidence in our outlook for continuing strong free cash flow generation.

During fiscal 2014, we will evaluate our plans to utilize our unused debt capacity and the cash which is beginning again to accumulate in our balance sheet. Our organic growth strategies, which are in place and being successfully implemented, are expected to continue to drive strong organic growth in sales and EPS. However, our objective is to complement our organic growth strategies and manufacturing investments by acquisitions, which will provide risk-adjusted returns that are superior to repurchasing our own shares.

The integration of both the Gold Toe and Anvil acquisitions is now complete. Therefore, the focus of our next internal annual strategic planning cycle in 2014 will be in strategic acquisition opportunities and utilization of our cash to further enhance shareholder value and EPS growth.

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. We will circle back for a second round of questions if time permits. Thank you. Loraine we are now ready to begin the Q&A session.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Martin Landry, GMP Securities.

You are saying that you expect to finish securing the location for your new textile facility in the middle of 2014. Has it taken longer than you expected to secure a location?

Well first of all, we're pretty close in our decision-making process, and we're probably in the final stages of our due diligence in terms of our location. So we're just not prepared at this time to make an announcement exactly where it is. But by our Q1 our conference call it will definitely be in place and we'll begin our process of investment in the new site, so we're pretty far down the path at this point to answer your question.

And will start up in line with our original expectations.

And why is construction not starting in 2014 but only in 2015, can you --?

No construction will start in the later part of 2014. And the plant will be fully built during '15 and we will support our forecasted production requirements out of that facility in 2016. So one of the big advantages of obviously staying in this hemisphere is speed to market and levering our Management resources and all of our talent in Central America basically. So we're very comfortable that we're still on track in our positioning. The only thing is, is that for us the sites we're looking at, we're just making sure that we have all of our due diligence complete and we're very, very close to finalizing and we're pretty well on track to our original forecast.

Okay so construction in fiscal year 2014 to start?

Yes, it will start in 2014 yes.

Okay, thank you very much.

Taposh Bari, Goldman Sachs.

You had made reference to this $100 million for those cost savings by 2017. It's a pretty material improvement in your operating margin potentially, so what we'd like to know is how are you planning to flow that through to the bottom line? Is that a cost savings that you ultimately plan to reinvest in other parts of the business or should we expect the majority of that to actually flow through?

Well historically you look at the strategy of the Company is always to reinvest in terms of growing our top line. At the same time, there's still a lot of inflationary factors that are occurring in the marketplace. So we don't -- we're not sure at this point, but part of this could be used to drive top line, some of it used to offset inflation and some to obviously increase our margins and our operating earnings. But it's premature at this point. But I think the most important part is that the Company continues to invest heavily. We're widening the gap against all of our competitors in terms of the amount of capital we're putting to work in our capital expenditures and our low-cost manufacturing which is we think strategically located to service all of our functional markets.

And as we continue to make these investments, we'll reapply these investments into delivering lower cost, better quality features. So a lot of our investment like the yarn spinning is not just going to be in terms of costs but it's also going to be in the quality and the types of yarns we're going to be making to drive our top line growth. So I think the most important thing for us is that it strategically places us further ahead from our competition and allow us to generate top line sales and increase our earnings potential as we go forward.

Okay, and then you mentioned the inflationary cost pressures in the press release and also in your prepared remarks. Can you help -- despite the fact that cotton seems to be structurally stable, can you talk about where those inflationary pressures lie, what the magnitude of that is and if that's changed from years past?

Well the pressure inflation is everywhere. There's labor, there's transportation, dyes and chemicals, you see it everywhere today. But I think as far as we're concerned, we're not planning -- obviously we're planning for a price decrease in our Printwear business and flat pricing in retail. So part of what's even happening and occurring this year is that we have continued manufacturing savings that are offsetting a lot of the inflationary items which is historically what we've done. So again we're positioned to continue growing the earnings of the Company despite inflation, but it's definitely a factor.

Okay, thanks, good luck.

Stephen MacLeod, BMO Capital Markets.

I'm wondering with your 2014 Branded Apparel revenue forecast of 15%, is there anyway you can break it down between how much is coming from new branded programs, increased shelf space and global lifestyle brands?

Sure, well maybe just take a step backwards. What we said last year is that in 2013, we achieved new programs of about $100 million. And we said that $50 million of those programs were going to occur in 2013 and as we annualize them in 2014, $50 million would flow into 2014. The reality is, is that because of the success of the programs we've launched in 2013, we achieved higher sales growth in 2013 which is more like a $70 million in 2013 and about $30 million split -- spin off into 2014.

Also at the same time we're going to be -- you're starting off with a base. If you take the base case of 2013 and you flow the annualized programs we won in 2013 into 2014, you got about $30 million of sales growth. And that's actually going to be -- at the same time we are going to be exiting approximately $30 million of private label sales, particularly the underwear program, Starter program at Walmart and some other small programs. So we have lost about $30 million when negative and we've achieved over $100 million in season. So we're planning to have about $100 million in new programs that are going to flow through our cost of goods in 2014. So we'll have some flow over even into 2015. And we also have about $50 million from the new Buffalo acquisition.

So that's really -- so we've got a lot of new opportunities and new wins. And really where we see this going right now is that it's all over the place, it's not one specific area. We've launched our Gildan Platinum, where we placed our socks in 2013. We've expanded into underwear and we'll expand into activewear in 2014. We're expanding our Gildan brand in underwear -- in mass and underwear, socks and activewear. And we're expanding our smart basics in the dollar channel. So we've got growth in Gildan in every single channel of distribution going forward and this all makes up these new programs.

As well as that we're continuing to lever our Gold Toe brand, we've seen a lot of great excitement in Gold Toe as we've invested and reinvigorated that brand with our advertising last year. Our Gold Toe ladies is going to be a big driving force for us in the department stores. Our G brand has expanded into activewear and it's also expanded significantly in underwear. So we're seeing huge success from all of our Gold Toe brands and portfolio.

And also we are really excited about Mossy Oak. Mossy Oak is the number one camo hunting brand in the United States and we're -- with having the rights to sell this around the world, we're very excited. It's going to be in underwear, socks, activewear, in all categories. It's just becoming a lifestyle brand and it also is going to sell in again every channel of distribution that we sell to. All of our retail customers are very excited about the brand and it's going to allow us to sell a premium product and it demands a premium.

So all this together is really what's driving our top line. So we'll have $100 million of programs that will flow through our cost of goods sold this year and there'll be a spillover of sales into 2015 as we go forward and as well as we'll continue to drive and lever our brands into 2015.

Okay, is that the $100 million of incremental new retail program wins in 2014, is that right?

Yes.

Okay, and then on Mossy Oak as a segway, can you give us a sense of what could represent in terms of magnitude?

It's going to be big. I'd rather not say right now, it's early stages for us. But we've projected this to be a big part of our forecast as we go forward. We're very excited about it and the reception we've received from all of our retailers across the boards and every channel of distribution has been fantastic. So it's going to be good. And I'd rather at this point in time it's early days and as we go forward, we'll give you a little more insight into that.

Okay, great, thank you.

Keric Tyghe, Raymond James.

Laurence you highlighted the capacity constraints in your prepared remarks and I'm trying to reconcile that with the very, very conservative or what appears to be very conservative guidance on your Printwear segment for fiscal 2014. If you have that sort of demand pulling the channel you have to be making I think some fairly aggressive assumptions on the level of promotional activity given what your guidance is in Printwear. Could you try and help us better understand the Printwear dynamics given that you have demand in excess of what you can satisfy and some sort of pent-up demand going into fiscal 2014?

It's Glenn. Maybe just to go back to the lack of capacity in 2013, it was specifically in I think two areas. One is in our fleece demand, because our fleece demand really outstripped what our initial thoughts were in terms of what we were going to sell. So sales exceeded our expectations tremendously. So we were chasing that all season. So that's where really we left the fleece opportunity in 2013. And we're expanding rapidly our fleece production as we speak. We're actually building a new sewing facilities to keep up because it's not necessarily a textile capacity restraint because our plants are really versatile. It's more the ability to get all the operators in place to sew the product, which we're in the course of doing right now.

And the second is that in Europe we basically again exceeded our expectations there. We had a 37% increase in sales and we just didn't have the product at the right time to be able to service the demand in that market. So again, we're bringing a lot of new product and we're front loading our distribution centers in Europe as we go forward into 2014. And we're going to drive that piece of business.

And as far as the pricing is concerned, we're planning to have obviously 5% unit growth in our US market in 2014 with a 3% growth in sales. So we're projecting negative selling prices around 2%. That 2% is reflected really in discounts, promotional discounts. So that is not 100% all been committed to. So some -- and that's also in reflection of what the future price of cotton will be as we go through the course of the year. So we may spend that, we may not spend it all, we may spend a portion of it, but it will all just dictate in terms of how the market -- what the market conditions are et cetera. To be prudent as we see the price of cotton coming down we've reflected additional discounting during the course of the next couple quarters and that's how we positioned at this point to answer your question.

Great, thanks. And then a follow up on cotton. Could you provide some color how far through fiscal 2014 you are currently covered? I know it's only some six, six plus months or thereabouts, is that fairly consistent or has there been a change in the strategy with respect to your forward cover?

We just don't want to commit to where we're covered. I think that we've got pretty good visibility at this point. We feel comfortable with our guidance number, and which cotton is reflected in our guidance, and I would just leave it at that for now if you don't mind.

Sure, thanks then, I'll leave it there.

Mark Petrie, CIBC.

I was wondering if you give a bit little more color on the SG&A guidance, the bridge from fiscal 2013 to 2014 and the outlook on your advertising spend?

Well I'll do the advertising and I'll have Laurence give you the bridge. As far as our advertising for next year, we're increasing our advertising spend. Last year obviously we did our Super Bowl commercial which was a big spend for the Company. We're going to be reallocating those dollars into more productive -- it was a great event for us and it was -- it really paid dividends but we're going to spend that money in various ways to continue driving our brand as we go through the year. And we're most likely going to spend another 20% over the last year on advertising on a year-over-year basis. You want the bridge?

Well as we said in the prepared comments, we're not projecting any material decrease in overall SG&A dollars in 2014. And we've guided that it will come down as a percentage of sales from close to 13% this year to approximately 12% and that will be because we are leveraging the big investment we've made in setting up our Branded Apparel as a separate standalone operating division and driving our branding strategy with additional volume growth.

Okay, thanks. And in terms of the pace of the growth in the Branded segment, you highlighted Q4 as a time when you thought we'd see particularly notable growth in Branded. Will it be fairly flat throughout the first three quarters and then accelerate in Q4? Is that how we should look at that?

Well we have a lot of our new programs, usually when you get shelf space, some of them are skewed into the back half of the year similar to I think 2013. But the ones that occurred on a year-over-year basis, we're going to continue to obviously flow through. So I would say that they'll be -- more of them will be back ended as obviously it's back-to-school holidays so forth and also new sets for new programs that we're going to be receiving. And I guess maybe just a way to look at it.

Yes, that's helpful. Thanks.

Anthony Zicha, Scotiabank.

Glenn, could you give us some color in terms of the new hub facility for 2015? What kind of production levels we're looking at and could you also give us some color on how production would be geared to? Are you getting some retailers that are switching suppliers from Bangladesh going into Central America? Will it be more dedicated to lifestyle brands? Is it existing retailer demand or also I would like to know why not Honduras and is related to risk diversifications? Thank you.

Well first of all, our capacity on our new facility will come on stream at the end of 2015 really to support 2016. So that's when the big ramp-up will come just to clarify that. Right now we're in the position we started Rio Nance I in August, end of August, September. That plant is being ramped up during the course of this year. Rio Nance I will support our requirement build for 2014 and as we ramp it up and utilize that facility for fiscal 2015. So we really -- Rio I will support both 2014 and 2015 as it ramps up during the course of this fiscal year and then we will utilize the capacity from this new facility in 2016.

Partly obviously Central America for us is an area where we're making the investment like I said earlier. Partly the strategic rationale is the closest most effective way to support all of our replenishment programs for all of our divisions and all of our customers. Secondly, we can lever all of our Management and our resources and our talent to build it up quickly. We have a huge infrastructure in Central America. Central America is not that big a place at the end of the day. It is a small country, it's linguistically the same everywhere you go. So it gives us the ability to really move people around to be able to set the facility up.

And to answer your question in terms of diversification, yes we are looking to diversify. We've -- it's part of our strategy as a Company. We're very comfortable with our assets we have in Honduras but the same time to be prudent we're building another hub also that will be able to expand. So we're not just building a site to put one textile factory, we're putting a site up to build a multitude of textile factories so that we can support not just the growth for 2016 and 2015 beyond that. So we -- if you look at where we're positioned today, we can continue growing in Honduras, we're building a new hub that's going to have growth opportunity and we still have growth opportunities beyond in the Dominican Republic. So as part of our strategy, we think that this hemisphere is the place to produce for our customer needs and this will allow us to have a good diversified portfolio of manufacturing and also continue to lower our cost structure and also be able to bring speed to market this capacity as it comes on.

And to answer the question with reference to retailers switching suppliers, are you seeing some flow of business orders coming from Bangladesh back to Central America?

Look we -- definitely it's going to happen. If you look at really I would say that the profile as retailers look going forward, a lot of energy has been spent on compliance of labor. Not a lot of effort has been based on compliance of other aspects of building structures, wastewater treatment, et cetera. So I think as there's more scrutiny in terms of dealing in these countries, I think it's a lot of reputational risk let's say for example. And I think that the answer to your question is people are going to continue to look to produce more goods in this hemisphere. Again that's why we're positioned right. We're investing in manufacturing, and this is really what our key core competency is, is having low-cost manufacturing combining it with quality brands and providing value to all of our customers.

Okay and the last question related to your lifestyle brands, where do you see your potential at in terms of that niche going forward?

Well it's a big potential. One of the things that we're doing right now is we're actually utilizing the Anvil facility. We're spending a lot of money on that plant right now to gear up to produce the required materials to support them. So the big opportunity for those lifestyle brands is going to come in 2015 as because the plant is being ramped up. We got new technology and equipment coming in to support them. And that will be installed during the course of this year. And as we develop these products and proved products with these brands, that's really going to drive our sales in 2015 and that will be a big opportunity for us. And let's face it, if everybody is looking to move product back to this hemisphere and I think we're positioned perfectly and we're very excited about the opportunity.

Excellent, thank you very much.

Tal Woolley, RBC Capital Markets.

Glenn, I'm wondering if you can give your longer term views on the price of cotton here? Obviously it's started to trend back down again. I think in your prior comments you said somewhere between $0.80 to $0.90 was your long-term view, do -- is that changing at all?

No, I think that's still a good view and the one thing that people also have to realize is that it's not just the price of cotton but it's also the price of buying the physical, which is the basis for example that we need to pay the merchants to get the physical cotton to us. And if you combine those two, even though we've seen a little bit of a decrease in the price of cotton, some of those other cost have gone up at the same time. So -- but I would say that if you took a long-term average, I think $0.85 is probably a pretty good place to be.

Okay. And on the acquisition front, obviously it seems like something you're keen on moving forward with next year, are you favoring trying to find new brands and licenses? Is it international platforms looking for other opportunities to boost capacity utilization? Can you give some thoughts to that?

Well look our strategy is obviously to continue to grow and complement our organic growth. So it could be one of -- all three of what you mentioned basically. We're looking to continue driving brands and investing in brands that will drive our top line sales. We're looking to maybe go into new product categories that we're currently not servicing today and we're driving our international platform. All of these are areas of growth for Gildan. And if we can acquire a company that can help support or expedite that opportunity, and that's what we're looking to do.

And from our perspective is that even though we're investing obviously significantly in CapEx with a $300 million to $350 million capital expenditure, we still have sufficient cash flow as we go forward to look at investing in some of these opportunities, and that's -- it's a great place to be. And not saying that -- and one thing for sure is that -- and we have tons of runway even on our organic strategy as well. So it's really -- I think we're really well positioned. At the end of the day, this will always continue to lever our SG&A and continue driving the growth of the Company and earnings and EPS.

Okay, thank you.

Chase Bethel, Desjardins.

My first question it's on yarn spinning. Could you provide a bit more color on post the investments that you're making where you think you'll be in terms of meeting your internal yarn needs? And then Laurence, can you maybe elaborate on what the partial year impact of yarn spinning is in 2014? Like cost savings?

I won't break down the composition of the impact to manufacturing efficiencies that we're projecting in 2014. But the total EPS impact of manufacturing efficiencies from our capital investments that's reflected in our guidance for the year is about $0.25 per share. And then that is partially offset by cost inflation, which negatively impacts EPS by about $0.10 for a net of $0.15.

And the big savings from our investments in 2013 on yarn are really going to flow through in 2015. So a lot of the investments and cost reductions are due to other manufacturing efficiencies like biomass and et cetera and things that we've invested in, because we're not just investing in yarn obviously, we're investing in a whole portfolio of investment strategies to lower our cost which is our CPU, our biomass, et cetera. So we're continuing to invest heavily in all aspects of our business.

And if you take the CapEx of this year, only 50% of it obviously is going to be utilize for the yarn spinning and the balance would be used to ramp-up Rio Nance I which is going to be coming on stream at a much lower cost. Our new textile facility, we're looking to do some initiatives in the Dominican Republic to lower our cost there. Our energy savings plants still continue reducing our energy cost. Our new distribution center in Honduras, which will reduce cost for us. So there's various areas where we're continuing to spend and yarn spinning just happens to be a strategic initiative for us. And that initiative is not only going to lower our cost but at the same time is going to allow us to have I think different quality type products that will allow us to grow the top line. So it's really a win/win in terms of where it's going to benefit the Company.

As far as your question in terms of our capacity utilization, one thing about the Company is we're growing our capacity. We're bringing on Rio Nance I, we're starting with our new hub. So as we continue to grow even our textile capacity, obviously we're bringing on these yarn plants. So a lot of this is going to support our incremental growth and bring on new types of yarns like ringspun where we see that as a big opportunity for us to continue levering our sales in all the channels of distribution.

Okay, thank you. And then on the CapEx, I was wondering if you could provide a bit more information on what the total second leg of yarn spinning investment was? I believe some of the media reports suggested around $250 million. And then how much of the CapEx on the new textile facility will actually be spent in 2014?

Well the yarn spend this year basically is a small flow up from the existing plants we announced in 2013 prior to the big announcement. And then there's going to be a spinoff in 2015 where there will be continued investment as we finalize the plants because obviously when the plant gets built and it gets ramped up and they're putting clothes in. So there'll be continued investment on the original investment thesis that we went out, which is in excess of $200 million, that will flow into 2015. And for this year and the new CapEx for the --

We're talking about the $150 million in 2014 for the yarn spinning.

The new textile facility? The new, let's call it, (inaudible) how much of that is in 2014?

So the new yarn spinning this year is about $150 million and that's basically going to be also -- from our original investment, some of that will flow into 2015. And as far as the textile facility is concerned it's going to be about $15 million to $20 million.

Okay great, thank you.

[Megan Amet], TD Securities.

As you expand your global athletic and lifestyle business, which we presume is higher margin given the value add put into those products, could you give some color on what the impact would be on the overall margin going forward?

Well we don't want to really necessarily separate our margins. And one way to look at it is that it's not necessarily going to be an incremental margin but it's going to be basically a margin on a much higher selling price. So you'll get the same incremental margin but obviously the margin contribution is going to be much greater because of the added value on the higher selling price. Maybe that's just a different way of looking at it.

Thank you.

Vishal Shreedhar, National Bank.

I was hoping you can give me a little more context on the private label reductions in fiscal 2014? I think Glenn, and I might have misheard you, but you mentioned Starter and my prior understanding was these WalMart private label brands were something that you were still interested in.

Yes, but Starter discontinued the underwear brand in 2014 forward. So on a go-forward basis, we won't have that program. And but at the same time, our overall business is very strong in underwear. We're going to be going for pretty significant increases which is driven through obviously our Gildan brand strategy as well as we're very excited about the introduction of our Mossy Brand. So even though we're going backwards a little bit on the Starter private label business, the fact is that net net we have a significant increase and a large chunk of our $100 million will be underwear sales as we go forward into 2014.

Okay, is that -- your private label reductions, is that all at the Starter program, the majority of it?

In underwear, yes. But we still have private label sock which is still a significant portion of our overall volume today.

Okay, and in terms of these line extensions that you're noting in Printwear in terms of more fashion type apparel, more technical apparels and Mossy Oak as well, it seems like these products are becoming more technical to manufacture. There's more product features. Does that impact the efficiency of your operations? And particularly with regards to your strategy of basic low-cost low fashion apparel, how do you think about these more technical type of apparel products?

Well everything that we do is pretty well mass market in the sense of even though that's the strategy with Gildan how we invest in our technologies. So for example maybe take performance as an item. What we've been able to do with the development of our Gildan performance that's sold in our Print business and as well we're going to get placement in some of our retail space. The fact is, is that we took an item and we developed a new technology and how to mass produce these products and bring them to market. So the fact is, is that we're the only Company that's actually making what they call a spun yarn because most of the yarn that's being made in performance today is really filament.

And that yarn is knit on the same machine that we make a basic t-shirt or basic underwear. And then what we did is during our process, we designed some unique things that are really exclusive to us in terms of how we're going to finish those products so that we can make them as a commodity type product. So if you look at where we're pricing in the Printwear division, our performance shirts, they're $3 basically relative to what you see $40 performance shirts being sold in most of the retail channels. So our strategy is combining what we think is low-cost manufacturing, but it's not just the low-cost manufacturing, it's the technology that we use to bring to market with better product features and then allowing a better proposition for the end user and that's really what has driven our market share.

So -- and that's what's driving our share growth this year in our Printwear markets in the United States. A lot of the growth is going to come out of our performance, our Anvil ringspun. So we're really driving basically our volume and we're not giving up any of our low-cost manufacturing because we're going to be committing to $100 million worth of cost reductions over the next three years. So that's part of our DNA, is lowering cost by making better quality products that will continue to drive the top line of the company, I think that's the key.

Thank you.

Chris Li, Bank of America.

This might be a bit too early to ask, but wanted to get your thoughts on CapEx for 2015. Is it reasonable to assume the level will be similar to what you're spending this year?

I think it's too early to ask, but I would say that we're going to have a spillover obviously from our big yarn investment. So we'll be going off a pretty significant base, but it's a little bit early to ask right now.

And then in terms of the corresponding depreciation expense for this year, I think there was $95 million in fiscal 2013. How should we think about the ramp up in D&A expenses for 2014?

Let me -- it's not really significant. It's not a significant factor, the depreciation it's going to start to kick in after 2014. And the depreciation that goes with the $100 million of cost savings is about $40 million, I think that's really what you're trying to get at.

So maybe just take the --

$14 million of additional depreciation.

We'll take the $90 million base and -- $95 million base, call it $100 million for this year and then add the $40 million as it close in over the next couple of years.

Okay great. And my last question is, as Glenn as you continue to gain shelf space at the retail channels, what have you been seeing, how have your key competitors been reacting to your taking share?

I really don't want to respond to my competitors. You can ask them to be honest with you, but I think from our perspective is that we've positioned ourselves for the long run. We have the best value proposition offered at retail in every single channel of distribution where we sell our products from the mass to the department stores. We're continuing to invest heavily in our low-cost manufacturing and our quality value relationship that we offer in terms of our products. So we don't just have the best pricing, we also have the best products. So if you go to every single channel distribution, you look where Gildan is positioned and where it's competitors are positioned, we'll have the best pricing but we'll also have the best quality product because at the end of the day, that's what's going to win the war.

And to top that off, we're going to continue to invest heavily in our brand strategy. One point of reference I think is that with our Gildan brand, with Gildan as a brand in fiscal 2014, we're going to sell close to 1 billion units. That's just an amazing number that we're putting on the market between our activewear, our underwear and our pairs of socks which is under the Gildan brand. So 1 billion units of Gildan label will be out in the market this year and that's a compounding thing. So as we support our brand, our advertising and our value proposition, we think that there's lots of runway and we're very excited about the future.

Okay, thank you.

Scott Rattee, Stonecap Securities.

Getting back to the CapEx, I guess it really does sound like strategically you've moved from establishing yourself more in Bangladesh to looking to establish the hub in -- or second hub in the Caribbean Basin. You hadn't mentioned in the CapEx if there is any allocated to Bangladesh this year and should we expect any of that -- any CapEx allocation into the Bangladesh area over the next couple years?

To go back to Bangladesh, when we went to Bangladesh not to support our North American markets but to support our international markets. So what Bangladesh is doing for us right now, it's really the engine that's supporting our Asian markets, where we're growing. Asia is a huge opportunity for us. We've seen huge growth in China this year. We finally had I think a pretty big [bake through], we've been talking about it for a long time but that market is actually performing very well. For peoples' reference, we don't talk about it too much, but we're in China, Japan, Australia, New Zealand, Taiwan, Malaysia, Thailand, Indonesia, we have distribution in every one of those markets.

Asia is actually going to be our third largest market for us in fiscal -- by the end of fiscal 2014. So as we continue to expand our international growth, we'll look at future investments maybe. But right now we have enough capacity in Bangladesh to support the required sales for 2014 and I would say even 2015. But beyond that, we'll relook at it.

Okay so then sorry to backup then, a point of clarification on the I think you noted 37% unit growth into the international market. I think a lot of that had to do with Europe. Europe comes from the Caribbean Basin as opposed to Bangladesh for the Asia-Pacific group, is that how we should think about where the actual product is coming from to supply each of those different markets?

Well from Bangladesh we can support Europe if we chose to do it, but the bulk of the European production still comes from Central America. Some of it does come from Bangladesh. But of our 37% increase, actually a large chunk of that increase was still coming from Asia. So a small portion was coming from Latin America. And I would say the balance was half and half between Europe and Asia. So Asia has really grow this year significantly and we're on a pretty good clip there right now and it's a huge market. So we're supporting all of our international markets.

Latin America is going to grow significantly for us next year. And where so many markets that we haven't even got to yet. There's -- that we have on our list to continue growing and we're still in the early stages of all these markets. So our model is good. We're actually -- even in Europe as part of our structure this year, we set up a retail division in Europe as well. We have our Gildan brand being placed in retail stores in Europe which was a small scale but it's -- we have all the added value services, we have our distribution, all the things are in place to continue driving our brand. So as we expand globally, we're very comfortable and optimistic about the future and a lot of our capacity expansion in Central America will support Europe. But Asia still has a runway to use the Bangladesh facilities.

Okay and one final one on -- you had mentioned that some of the cost initiatives there's the biomass, but then there's also an electricity plant. I presume -- or is it fair to presume that those cost initiatives will also be the type of CapEx projects that will also bleed into 2015?

Yes.

Okay, that's great, thanks very much.

Thank you. We have no further questions at this time. I will now turn the call to Sophie for closing remarks.

Thank you, Loraine. We'd like to thank you again for joining us this morning. Before ending the call, we'd like to remind you that in just over a week on December 2 to the 4, we'll be hosting our investor trip. So the Gildan Management team is looking forward to welcoming you in Honduras where we'll have the opportunity to show investors and analysts our extensive manufacturing infrastructure and to discuss our business strategies and opportunities with you. So we look forward to seeing you there. And once again I thank you for joining us and have a great day.

Thank you. And thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating, you may now disconnect.