Gildan Activewear Inc (GIL) 2014 Q1 法說會逐字稿

Welcome to the Q1 2014 Gildan Activewear earnings conference call. My name is Bakeeba, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Sophie Argiriou, Vice President of Investor Communications. Sophie, you may begin.

Thank you, Bakeeba. Good afternoon, everyone, and thank you for joining us.

Earlier this afternoon, we issued our press release announcing our earnings results for the first quarter of FY14 and our interim shareholder reports containing management's discussion and analysis, and consolidated financial statement. These documents will be filed with the Canadian Securities Regulatory Authorities and the US Securities Commission, and are available on our website at www.gildan.com.

With me on the call, I am 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 first-quarter performance and our business outlook for the fiscal year, after which a Q&A session will follow.

Before we begin, 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.

And with that, I will turn the call over to Laurence.

Good afternoon. This afternoon, we announced our results for the first quarter of FY14, which were at the top end of our guidance range. Adjusted EPS of $0.35 per share were a record for the first quarter of a fiscal year, which is seasonally the lowest sales quarter in the fiscal year for T-shirts. Q1 was the sixth successive quarter of record quarterly sales and earnings. We also reiterated our prior guidance for sales, earnings, capital expenditures and cash flow for the full fiscal year, and introduced our guidance for the second fiscal quarter.

Compared to a strong first quarter of FY13, adjusted EPS were up by 9.4%. The growth in EPS was primarily driven by growth in sales revenues of 7.3%.

Net sales for printwear increased by 7.4% due to a 5.9% increase in unit sales volumes, and more favorable product mix, partially offset by lower net selling prices and higher seasonal distributor inventory destocking compared to the first quarter of last year. Inventories for the US distributor channel at the end of the first quarter were in good balance in relation to anticipated sales demand from screen printers. International printwear sales volumes, which we have identified as an important growth opportunity for the Company, grew by more than 30%.

Operating income for printwear in the first quarter was $48.3 million. Operating margins were 18.4% compared with 18.8% in the first quarter of last year.

Net sales for branded apparel increased by 7.1% compared to the first quarter of last year. The growth in branded apparel sales was driven by continuing strong consumer demand for Gildan-branded underwear, and continuing market-share penetration by Gold Toe-branded socks. Sales of Gildan-branded programs more than doubled from Q1 2013, as consumers quickly embraced the strong value proposition of our branded products, and we continue to support our brand with advertising. Sales of Gold Toe-branded programs were up by approximately 15% as a result of our investment in marketing and advertising to re-energize the Gold Toe brand, and leverage the brand and brand extensions into other product categories.

The strong growth in Gildan- and Gold Toe-branded programs was partially offset by lower private-label sales mainly due to the exit from a private label underwear program, and lower sales to global lifestyle brands as we transition to new long-term programs with major customers. The sales growth for branded apparel was achieved in an overall macro environment of continuing weak retail sales demand, and careful management of inventory replenishment by retailers.

Operating income for branded apparel was $21.9 million, up 11.7% from last year. Operating margins were 11.6% compared with 11.1% in the first quarter of last year.

The impact on our consolidated results for Q1 of higher sales revenues was partially offset by increased SG&A expenses and higher income taxes. SG&A expenses increased to $72.8 million from $69.4 million last year, due primarily to higher expenses for brand marketing and advertising. SG&A expenses declined as a percentage of sales due to increased sales volume leverage on SG&A expenses in branded apparel. Excluding the impact of restructuring- and acquisition-related costs, the consolidated income tax rate increased to 5.7% from 4.4% in the first quarter of last year, primarily due to the improved operating income for branded apparel.

We have maintained our full-year guidance of adjusted EPS of $3 to $3.10 per share on net sales of approximately $2.35 billion. Compared to the assumptions in our initial guidance, we are now assuming higher cotton costs in the second half of the year due to the recent increase in the cost of cotton, as well as additional inflationary cost increases. These cost increases compared to our prior guidance are projected to be offset by slightly higher net selling prices.

EPS in the second quarter of FY14 are projected at $0.61 to $0.64 per share, up 3.4% to 8.5% from the second quarter of last year. Gross margins in Q2 are projected to be lower than the second quarter of FY13, as higher cotton costs compared to last year are not currently projected to be recovered in higher selling prices. Gross margins in the second quarter are also expected to be impacted by short-term transitional costs being incurred as a result of projects to further improve the efficiency and product capabilities of the former Anvil textile facility and the Company's soft manufacturing operations. These cost inefficiencies and higher year-over-year cotton costs are also expected to impact gross margins in the third fiscal quarter, which is a peak Summer selling season for T-shirts.

As stated in our call in November, we expect to end the year with strong momentum in sales and earnings. Fourth-quarter sales are expected to benefit from new retail programs, and gross margins in the fourth quarter are expected to be favorably impacted by increased manufacturing efficiencies. In addition, cotton costs in the fourth quarter are expected to be comparable to the fourth quarter of last year. Consequently, gross margins and EPS are expected to increase sequentially in successive fiscal quarters during the balance of the current fiscal year.

On our November call, we indicated that the end-year impact of new retail programs in FY14 is expected to amount to approximately $100 million. New retail programs, which will impact sales and earnings in the second half of the year, include new underwear and activewear programs, and an increase in shelf space for our major national Gildan-branded underwear program, expanded distribution of Gildan platinum underwear for national chains and department stores, and a new fleece program for Gildan smart basics. We have also secured programs for G brand activewear in national chains and department stores in 2013, and further new placements have been obtained for FY14, including a new fleece program in a major national chain. We have secured a national program for the Mossy Oak brand for underwear, and are continuing to attract a high level of interest for Mossy Oak in multiple channels of retail distribution.

We are also continuing to introduce new high-valued products in the US printwear market. In particular, we have repositioned the Anvil brand based on contemporary ringspun products, and the market is excited about the introduction of Gildan's core performance product line. Our brands in both printwear and branded apparel are underpinned by our continuing major capital investments in our vertical manufacturing, for capacity expansion, new product technology, and major cost-reduction projects.

As we indicated when we initiated our FY14 guidance in November, we are investing $300 million to $350 million in capital expenditures this year for new yarn-spinning facilities, including the Salisbury, North Carolina, ringspun yarn facility, which will begin to ramp up production in the second quarter; the ramp-up of Rio Nance 1; the reconfiguration and upgrading of the equipment in the formal Anvil facility in Honduras; new sewing facilities; further investments in energy-saving projects; the new distribution center in Honduras; and the initial investment in our planned mixed greenfield textile facility in Central America. We expect to finalize our decision on the site for this facility, and complete the purchase of the land, by the end of the current fiscal quarter.

These capital investments will further reinforce our position as a global low-cost producer of basic family apparel, as well as further differentiate our product quality, and further reinforce the value proposition of our brands, which is to provide better value for money, lower cost to consumers, better product quality and design features, and better product durability. Our superior value proposition is reflected in our current momentum in achieving new retail distribution, and the strong performance of our brands in selling through to consumers.

We indicated in November that we expect to generate $100 million of further annual cost savings, net of depreciation expense, from these manufacturing projects. The savings are expected to phase in gradually in this period, 2015 to 2017.

The three main drivers of our long-term growth and share value are the positioning of our brands to drive continuing top-line sales growth in both printwear and branded apparel, our continuing investments in manufacturing and cost reductions, and the utilization of our free cash flow and unused debt capacity.

We believe we have opportunities to complement our organic growth with acquisitions. We ended the first quarter with significant unused debt capacity, and we are projecting to continue to generate free cash flow after self-financing our capital investments in capacity expansion and cost reductions, including $50 million to $100 million of free cash flow in FY14.

As previously discussed, the focus of our 2014 strategic planning will be on strategic acquisition opportunities and utilization of cash in order to further enhance shareholder value and EPS growth.

Thank you, Laurence. That concludes our formal remarks on the first-quarter results. Before moving to the Q&A session of the call, I ask that everyone please limit the number of their questions to two, in order to give everyone the opportunity to ask a couple of questions. We will circle back, as time permits, for any additional questions.

I will now turn the call back over to the operator to begin the question-and-answer session.

Thank you. Will now begin the question-and-answer session.

(Operator Instructions)

Our first question is going to come from Anthony Zicha from Scotiabank.

Good afternoon, Glenn, can give you give us a bit of color in terms of retail initiatives and with reference to your prospects, potential new contract wins? Also, if you could give us some comfort in terms of sharing with us the NPD data in terms of market share and shelf space?

Okay. I mean as far as the prospects in new wins, Laurence covered quite a few of our opportunities for this year. We have about $100 million of obviously new business in year, which means these programs are an annualized basis will be more than $100 million because most of them are back ended and will flow into next year. We have expanded our underwear space at mass under Gildan.

We expanded significantly our regional accounts in all categories, underwear, activewear, and socks. Our platinum Gildan is now going to be rolled out in both socks and underwear for this year. We're getting more expansion in the smart basics in the dollar chains, and our GoldToe business is really doing well.

We've seen a really resurgence in GoldToe. Our number one brand in departments stores again, and we are levering that strength into not just socks, but we are successful and underwear, and now we have actually have some underwear programs, some activewear programs in which we have T-shirts and now we are expanding into fleece. And Mossy Oak for us is -- way exceeded our expectations in terms of this potential. We have lined up significant program at mass in underwear, and we have well -- I think at all channels of distribution big opportunities to place the brand.

It is now one thing, and that is what is great about our strategy. I think that as we go forward, our momentum is accelerating, and we think that as we move in -- into 2015, not only are we going to benefit from the spillover from 2014, but we will have significant greater opportunities with all momentum we have developed over the last two years. As far as MPD, we are not prepared to share that right now, but as we go forward into future calls, we will start providing information, but at this point in time we prefer not to give that information out.

And my second question relates to -- can you give us some details in terms of costs that are related to improved operating efficiencies, which facilities have been impacted?

Well, the inefficiencies for us, which some of them were planned. What ended up happening is we had slightly more negative efficiencies that we anticipated. But slightly -- and it is mainly due to the development of our sock. When we went on our tour, we had some sock machines that were still coming in. They were late, so we lost a little bit of capacity, and also in that plant we reconfigured it to make more added value products, which is just taking a little bit more time than anticipated, but nothing significant.

Also in the Anvil facility, we are modernizing that plant and putting in new technology to support our global lifestyle brands, and we had a slight inefficiency there. There is not a huge amount, but we anticipated some inefficiency, it was just a little bit greater than we anticipated

Martin Landry, GMP Securities.

Good evening, your EPS growth seems to be quite back end loaded, a little more than I expected previously, and you mentioned that your Q4 is going to be quite strong with strong sales momentum and strong margins. I'm wondering how much visibility do you have on your Q4 numbers.

Maybe I'll answer the first part of your visibility because most of this programs are basically locked in now for the full year. Our pricing is locked in for the year in retail, and basically we feel very comfortable at this point with our programs. I mean -- and we are still driving to obviously get additional programs, which most may come towards the end of year, but basically everything is locked and ready.

I think we have pretty good visibility in all of the factors that will drive the EPS and the margins in the fourth quarter in addition to the retail sales programs. Our cotton costs for the balance of the year are pretty well fixed, and we have good visibility on the manufacturing efficiencies. That will be the other factor significantly impacting the margins and EPS.

Maybe just on the printwear segment, I was just looking at your operating income margin. It seems to have decreased on a year-over-year basis and despite the fact that you have lower cotton costs and better product mix. How comfortable are you that that pricing will stay sustained this year in that channel?

It is a very marginal decrease that relates to lower selling prices.

What is your level --

Slightly higher SG&A, as well.

What is your level of confidence in terms of pricing because in the past we have seen that this is a channel that is a little bit price sensitive. How are conditions right now and how is the outlook?

First of all, it is price sensitive, but also it has been price sensitive relative to inflation and deflation, and so the reality is that conditions right now in the market are stable. We have mid-single digits growth and pricing is relatively stable, and there is a headwind of inflation that have a little higher cotton costs. The other types of inflation in the market, we think that with inflation pricing will be relatively stable as we go forward. The only thing I would say is January is sightly off to a little slower start, but we think that is a little bit weather-related. Is pretty cold out there, but we're feeling pretty good about business overall, and we're pretty comfortable with our pricing positioning and the overall macroeconomics of the market itself.

Okay. Thank you very much.

Stephen MacLeod, BMO Capital Markets.

Hi. Good evening, I just wanted to follow up on some of the branded apparel. You mentioned that you had lower sales to global lifestyles brands. Is that just as sort of hiccup in the quarter or what was the driver of that decline in the quarter.

That's just a timing thing basically. It is not a significant amount, but it's a function of timing and we're very comfortable the full year. Will achieve our goals there.

Okay, great. And then with respect to the outlook, Laurence, in your prepared remarks you mentioned that acquisitions would continue or maybe even more so than previously be a strategic focus for 2014, 2015. Can you just remind us what sort of targets you looking for and what is currently going on in that side of the business.

Right now what we said in the past is that any acquisition would support most likely our organic growth through product brands, channels of distribution. There's various ways we could look at acquisitions, but obviously it's top of mind for us right now, but we are going to continue to focus on the best opportunities to keep supporting and developing our long-term growth strategy.

Right. Do sort of new licenses count as acquisitions or is that in addition to the acquisition strategy?

That is in addition to the acquisitions. I mean we will continue to look at brands. One of the things -- if you look at a case of Mossy, we are levering our manufacturing and infrastructure and find ways to bring the product to market in various channels of distribution. Mossy is a pretty good examples of a real win for us. A, because you when you are getting a license basically you do not have the risk of an acquisition, but at the same time it's going to lever all of our manufacturing, all of our skill sets and its a plug and play for us. So we are really excited about Mossy. We think it is going to contribute significant earnings starting this year, but as we move into next year, it is going to be pretty big.

Okay, that is great. Thank you very much.

Taposh Bari, Goldman Sachs.

This is Chad Sutherland on for Taposh. Just starting in the printwear business, last we heard talking about the business up low-single digits to mid-single digits with 5% unit growth and 2% deflation. It sounds like with prices coming up in the back half maybe we won't see that deflation, so how are you thinking about kind of the composition of growth in printwear for 2014?

Well, we don't think that the difference between in 1% or 2% on price is not going to really affect growth. At the end of the day the growth will be a function of the underlining economics of the market to be perfectly honest with you. It is not price that is going to drive the difference in the growth in the markets also as we see the market today, we're very comfortable with the market and the conditions in the market, so therefore we feel comfortable with our positioning.

Our growth in every quarter is primarily driven by our unit volume growth from our --

And forget a large part of our growth also in printwear is driven by our 30% growth in international and the international businesses is fine right now. One of the things we have done this year is obviously we've added capacity to our international markets, which is always something that's been an achilles heel for us. At the same time we've always had a very limited product offering in these markets, so as we expand more product into these markets, it's a direct relationship towards how well we are doing. Our European business is moving really well, our Asian business is flying, and we are also entering new markets this year, so international is definitely going to continue to drive, as well, at these types of incremental increases.

Great. Thank you. One follow-up just on inventory. It's obviously up a little over 15% in the quarter. Does that have to deal with a particular program you are rolling out in Q2 could you just provide some context?

It has to do with never having enough inventory in season (technical difficulty) part of plan to add capacity is to add inventory in the height of the season. So we are going into the season with inventory both for our retail customers and are wholesale customers, and we're very excited, and a lot of that inventory is also moved to our international markets, which we didn't support before, so our inventory is a commitment for us to make sure that we maximize our sales opportunity.

Great. Thank you.

Kenric Tyghe, Raymond James.

Thank you. Good evening. Glenn, with respect to your performance apparel, could you speak to how the performance is trending within that category for you relative to your expectations? And also remind us on what your performance apparel focused exit capacity will be on the year, please?

To be honest with you, for us we're excited about it. It is going very well. One of the things we did last year is we dropped the ball a little bit in terms of bringing it to market on time, to be perfectly honest with you, so we're just starting to get reads on right now so its a little bit premature for us to really get a total handle on how well it is going to do. But it is meeting our expectations for sure.

As far as capacity is concerned, you really don't have a capacity restraint in making performance because it is made on the same exact equipment as we make all of the activewear type products, so it's going to be a function of really the demand for it in the marketplace. It is positioned perfectly. It is an item that is going to be selling for approximately $3 dollars for the type of performance futures that we have, so we really think it's going to be very, very, very lucrative for us, and we're looking to expand product as we go forward. Is just a little bit of a early days for us in terms of where we are today to get a full outlook.

Fair Enough. Glenn, if I can just switch gears back to international for a moment. You've highlighted the traction you're having there with your having capacity to service that market. Is of the sort of traction you're seeing causing you to rethink what is the end game by way of market share? I know going way back in time you commented on what you thought was reasonable levels of market share given the competitors you are up against and given what your capabilities were. Is the traction you're seeing now that is causing your to rethink what that range is or what that end game target is?

Are you talking about the US markets or international markets?

International markets specifically.

I think international markets, our market share is very small. We have a huge runway in front of us. If you look at the size of the market, in Europe basically we have a relatively small market share even today, even though that's our second largest market. So we think by adding product -- we had explained in our investor trip that if you look at these functional markets relative to the US, how immature we are in terms of the product offerings in those markets, and as we add product, we will continue to grow share.

And not just grow share, but we also going to grow margin at the same time which will make these market more lucrative to us. It is a double whammy. We're going to grow in terms of unit volume, but we're also going to grow in terms of margin. I think that we have a huge runway in front of us. I think some of the markets are -- we're trailblazing.

Europe as always been a little bit more of a structured market, maybe not the same size of the US, but we're still immature in that market; we have huge runway. But other markets -- they just don't have the same infrastructure as we see in North America and part of what is happening in is that as we're developing those markets and making those markets have structure and giving an opportunity to actually create an opportunity for ourselves which has proven to be quite lucrative, and we're pretty excited about it. We are entering the new markets this year. Our objective is to enter two to three new markets a year, and all of this combined is going to fuel future growth and earnings.

Thanks, Glenn. I will leave it there.

Andrew Burns, Davidson.

Thanks. Good afternoon. Could you talk about the pricing environment in the branded apparel side? It seems your competitors are taking the pricing. I'm just curious about your appetite and ability to take price increases in 2014 and going forward?

All I can say is look at the sort of -- we're pretty happy with our I think price positioning as we speak today. However, like everybody else in the industry there is huge headwind in terms of inflationary factors, raw materials, so we are going to continue to assess a pricing strategy, but as we are today, we haven't planned any pricing -- retail pricing in our guidance as we speak.

In branded apparel you had a few years now here where you been adding new programs, but also upgrading your existing private labels, switching over to branded programs. At this point, how much of your mix in that segment is still private label which would potentially go away or be upgraded in the coming years?

It is about 25% still, mainly in socks, and we've done a great job going from 100 down to 25, and obviously if you look at what we've done as a company, is we've increased top line sales, eliminated a huge amount of private label and replaced all that with our Gildan. So net net that was a huge sales swing in terms of divesting ourselves of private label an increase in that business with our branded business, which just goes to show the strength of our brand on how well it is selling. But we will continue to see the brand become a larger portion -- obviously of our overall sales as we go forward and private label continues to diminish

Thanks and good luck in Q2.

Thank you.

Mark Petrie, CIBC

Good afternoon. Just to follow-up on those last couple questions. Margin expansion on the branded apparel side, I mean is that all SG&A? And then can you just talk about the outlook for gross margins kind of through the balance of the year on the branded side given -- I think you described it as a soft retail environment?

I will answer one question before Laurence gets to margins, but the retail environment for us, I mean we see it somewhat choppy and managing our inventory levels, but in our case is -- I mean our performance is very strong. We have doubled our Gildan sales. Our Gold Toe sales were up 15%, so we're pretty excited to be honest with you. I think the over all environment is choppy, but we are outperforming and doing very well within a choppy environment. And Laurence will answer your margin question.

Improvement in margin was volume leverage and SG&A, the gross margins were comparable to the first quarter of last year.

Okay. Thanks. Can you just update us on the status of Anvil facility? And you talked about some minor issues there, but what the capacity is now and you expect that to evolve?

We really did a big job there in reconfiguring the facility, not only in putting in new dying equipment, but we also put in a whole new type of finishing, and that's really where the part that slowed us down a bit. (technical difficulty) where we needed to be. We projected to have obviously some integration issues and inefficiencies. They were slightly in excess of our expectations so it's not like we didn't plans it. It was just -- cost us a little more because of a little less capacity and a little longer to get the equipment up and running. What we figure is it will cost us maybe a nickel of inefficiencies in Q3 was as these inefficiencies run through the cost of goods sold. Between that and the socks

And so you're still targeting 10 million dozens of capacity there?

Yes. At the time we finish it would be close to10 million. Yes.

Okay. Thank you.

Chase Bethel, Desjardins Securities.

Hi. Good afternoon. A follow-up on the question earlier around Mossy Oak. So when you initiated your guidance and you talk about the $100 million of new programs in the year, at the time I believe you had just signed a license agreement, but you mentioned on this call that you secured significant contracts. So I'm just going to get my head around why the end year impact isn't really materially changing. Is it because they hit late in 4Q or was that already presumed in the $100 million when initiated your guidance?

Well, we assumed that very little bit, a very small amount, and then obviously when we issued our guidance in December, we still had a couple of open programs, which is completely right solidified now, so the whole $100 million is confirmed and solid at this point in time. So we projected a slight sales probability for Mossy, but the fact is we're going to achieve that and exceed it, but definitely coming in the fourth-quarter, so it's going to make a big impact on us as we go into 2015.

Okay. Thank you. And then I just wanted to follow-up on the branded apparel side of the business. You've broken out what Gold Toe did, but can you talk more broadly around the volume changes year-over-year in socks versus activewear and underwear year-over-year?

I don't think we want to provide the information.

Okay. Can I sneak another question in? Maybe on Anvil at the time we did the tour in Honduras you were thinking about perhaps moving that into the Rio Nance complex. Has your thinking evolved at all on that or are you still looking at that possibility?

We are always looking at possibilities, but about right now our focus is to get plant up and running, get our efficiencies back to normal and take advantage of the huge opportunity we have to service the global lifestyle brands with the equipment we're putting in that facility. So I think that's right now short-term our first goal, and as we go forward, we will look at ways to reduce cost because obviously the big savior for us is within our park is the reduction cost of levering the infrastructure that we have in Rio.

Okay. Thank you.

Molly Iarocci from Stifel Nicolas.

This is Molly on for Jim. Just have a couple of questions for you. First you had mention in your last call that you expect international printwear to grow about 20% in FY14. Are you guys still expecting this or have your forecasts increased after this first-quarter's performance?

We expect to be a bit higher than 20% at this point. Based on the results of our Q1 and the momentum we have.

Can I ask what percent of your printwear is international?

This year it will be about $200 million.

$200 million? Okay.

Yes.

And then my last question is on the inventory destocking in the quarter, was this something you guys were anticipating coming into this quarter, and if not, what's the risk of more of this going forward?

That's seasonal. We always anticipate destocking into one because obviously that is are lowest quarter. It was slightly more in excess than what we expected, but nothing significant.

And then looking forward, I know you said inventories are pretty clean, so Q2 --

The good news is that when you have less inventory in the channel you sell more going forward, so I feel very comfortable with our inventory position.

Okay. Alright. Thank you.

David Glick, Buckingham Research.

I just wanted to get your perspective on the cotton price movement, If you look at 2013, it kind of ended where we started, but it was fairly volatile and obviously you lived through and folks that follow the company lived through a big bubble. I'm not suggesting that we are anywhere near that, but just wanted to get your sense of what you think is going on.

There's a lot written about China having a positive and negative impact on cotton prices, and just curious kind of at this level is this a good staple level that, given the cost savings initiatives that you guys have, that continues to be manageable to sustain the kind of gross margins that you are achieving.

The good news is we average the same averaged on a year-over-year basis or relatively close to it. We have a consistent cotton price year-over-year, good or bad. I think the long-term prognosis of cotton this type of range is probably realistic. The big question mark is not, like I said, in one of our calls, it's not just the price of cotton, is also the physical basis and other factors that affect the price of cotton that increase the cost or decrease the cost, which are functions of supply and demand and the amount of cotton that is available for using US cotton.

But the big wildcard at the end of the day is obviously China because the inventories have continued to increase there, but we don't know, so we have to be cautious, but yet you got to be careful. Careful in terms of what it can do on the up side, so we have always taken the approach to be conservative, and we've now covered ourselves for this year, and we will develop our strategies as we go forward into 2015.

Thanks. And also in terms of your branded apparel strategy as it relates to retailers and clearly you have made a lot of progress at the largest mass retailer and not much as -- at the other large national mass retailer, and certainly you've made good progress in dollar stores and starting to make progress in department stores. If you look at the growth opportunities in retail, where do you see the biggest wins from a channel perspective?

I think we can win in all the channels. We are just in the beginning stages of our development in retail. The only area where we really have any significant saturation is -- or volume I would say, for example, is our sock business, which we probably have a 30% share of the US market. So objectively the other categories like underwear and activewear, we achieved the same type of penetration like we had in socks, which we're levering to get that type of market share we will be a different company in a couple of years, and that is really our objective.

And last one for Laurence. The original guidance that SG&A rate at 12%, is that still -- are you guys to sticking with that given the puts and takes you talked about today?

Yes.

Okay. Thank you very much, good luck.

Derek Dley from Canaccord Genuity

I just wanted to touch on acquisitions. What type of multiples are you guys willing to pay for some of these bolt on acquisitions? And then can you just talk about your leverage level, as well, where would you guys be comfortable taking that to given the healthy balance sheet that you have right now?

We've communicated and reiterated the same acquisition criteria consistently. As far as pricing, we don't -- we haven't given that in terms of EBITDA multiples, we only talked about IRRs. And the IRRs we would seek from acquisitions would in a risk-adjusted basis in excess of our weighted average cost of capital and better than the returns from buying back our own shares. And in terms of debt leverage, we want to continue to be conservative, closer towards debt leverage. We're not going to overly breach our balance sheet to do acquisitions and that is one of the criteria that we have communicated.

Would that be sort of one times or two times? Is that going to be the max threshold for you guys?

We do want to answer right now because we don't want to box ourselves in a corner because obviously look, we're also a growth company, but we always maintain somewhat of a very conservative balance sheet and we're looking to grow the company. And it depends on the opportunity that we're looking at, and -- but we would just rather not commit ourselves at this point.

Okay. Fair enough. And then just finally in regards to cotton, are you guys bought out for the full year?

We have covered our costs of FY14. Yes.

Okay. Thank you very much.

Brian Morrison, TD Securities.

Good evening. When you take a look at the $100 million cost cutting exercise, should we assume that this is a straight line from 2015 through 2017 and we can look where the capital is being spent, but what are the initial items where savings are going to be realized in 2015?

What's happening in 2015 basically is really we're going to see the effects of all the initiatives from really this year are going to flow into 2015 and so forth and to 2016 and 2017. But I would say that it's pretty much going to be -- pretty well going to be even I would say across the threshold maybe a little less in the first year, but more even in 2015, 2016, and 2017. That's when the big plants some on; the big $300 million investment that we're making in 2014. The money we're spending this year will complete next year, and by the time he gets to our cost of goods sold it will be 2016 --

What we said previously was they would phase in equally over the three years so I'm comfortable with that.

Yes.

And then just to follow up, you covered the prospects in great detail earlier, but I missed some on the global lifestyle you did follow-up with the huge opportunities. Down in Honduras there was some discussion about material increases in this segment called $400 million to $500 million revenues over a certain timeframe. Is there any progress report with your key corporate customers on that front?

No. We're very excited about that, and nothing has changed obviously in the eight weeks we have been on the investor trip, but we're very comfortable with our positioning, and the -- we're making the right investments in order to support this business, and we're very comfortable that -- of the prospects and opportunity.

[Saba Hakkan] RBC Capital Markets.

The first question is, you talk to some of your various retail accounts and mass merchants, discounters, sporting good retailers or some of the department store guys, is there a difference in their sense of optimism or pessimism about their respective businesses in the year ahead?

Look, everybody is cautiously optimistic. I mean business was a little bit choppy at holiday. I think the season was a little bit shorter during the holiday season because where the holidays landed, so retailers lost a little bit of sales. They're managing inventories, but really we're off to a new start to the new year right now because most retailers are obviously -- loosen up their buy periods after January, so I think people are cautiously optimistic. The weather is not helping much. I mean nobody knew what a vortex was until this year, but apparently it's been pretty cold.

So I think -- but that's where I think we see it. One thing for sure is that they are looking for people to create great opportunity and that is really the big opportunity for Gildan because of value proposition by offering better quality products at better prices and delivering superior quality is just what they're looking for, especially in a choppy market. Which was proven by our sales and with Gildan being up 100% percent and our Gold Toe business being up 15%, even in a pretty weak market has proven that our advertising, our brand positioning, levering our low-cost manufacturing and the relationships we've been able to build with these mass-market retailers is paying off and we're very excited about not only 2014, but we are really excited about how we are going to enter 2015.

And my second question, should we be thinking about CapEx running at $300 million to $350 million level, just given the savings you talked about going through 2015 and to 2017?

I don't really want to guide to CapEx but 2015 will obviously be still a significant year for us because a lot of the projects that we announced will flow into 2015, so 2015 will be -- and we have a new hub and so we have quite a bit of capital that we will be deploying in 2015, but I don't want to give a number at this point in time, and we'll wait until we give guidance.

Bridget Weishaar, Morningstar.

In the past you mentioned that the results were impacted by capacity constraints specifically in fleece and in the international markets. I think you mentioned earlier that international capacity was easing a little bit. How much of an influence is the capacity still in your international expansion plans?

We don't have a separate capacity for international or fleece. We have one total capacity, and what's been our issue is that we've never really had the -- enough capacity to support all of our markets and the growth of those markets. As we bring on additional capacity what the buildup of Rio 1, we now have more capacity available to support the real true demand of these markets. And that's what we see right away right away when we projected in Europe that we would have a 20% increase and that is already gone to 30%, and hopefully we will continue to see bigger increases as we have more product in that marketplace.

At the same token, we're doing the same thing in fleece as we continue to make sure we ramp up fleece so that we can support the season this year. We have the capacity to generate the volume that is in our guidance, and we are very comfortable with the positioning, and that's a reflection also of the level inventory that you'll see on a year-over-year basis. We're carrying more inventory, which is a function of building the capacity, build the inventory, because the height of our season basically comes in June and July basically, so we need that inventory now to support the height of the summer season, so we are in good shape and we are excited.

And is the Bangladesh still mostly being used to support your Asian business and are you pretty comfortable with the capacity there to meet that need?

Yes. And also supported a little bit of a European business, but as our Asian business grows, it is going to support more of it. And as we build up Rio Nance we are producing a lot of ringspun products that we can also ship from the Rio Nance 1 facility. So we now have an ability to ship those products out of not just Asia, but we have the ability to produce them all of our Rio facility, and also we're bringing online our Salisbury plant which is basically going to be a very large ringspun plant making the yarns we need to services those markets. From a supply chain perspective, we are in a much better shape now than we ever have been.

And thank you. We have no additional questions at this time.

Thank you. Before ending the conference call, I would like to remind you that building will be holding its annual shareholders meeting tomorrow at 10 AM Eastern at the Centre Mont-Royal in Montreal, and therefore, we won't be available for questions tomorrow morning. However, we will be available this evening for the next little while to take any follow-up questions you may have. Once again, thank you for having joined us tonight, and we look forward to speaking with you soon. Have a good evening.

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