Gildan Activewear Inc (GIL) 2014 Q4 法說會逐字稿

Welcome to the Q4 2014 Gildan Activewear Earnings conference call. My name is Paulette, 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 Investor Communications. Please go ahead.

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

Earlier this morning, we issued our press release announcing our FY14 earnings results for our fourth quarter and full year, and the initiation of our guidance for 2015. Early next week, we will be filing our shareholder report containing management's discussion and analysis, and our 2014 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.

Before we begin, I would like to remind you that today's conference call contains certain statements which 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 Lawrence.

Good morning. We will review our fourth-quarter results which we reported today, then our rationale for our change to a calendar year end, our strategic pricing actions to reinforce our industry leadership position in Printwear. Our guidance for the December quarter, and the 2015 calendar year. And our use of cash to further enhance our projected EPS growth and return some capital, including our initiation of a normal course issuer bid to repurchase shares. We will also discuss our positioning and EPS growth drivers for calendar 2016.

To begin with the fourth quarter, we reported record results for any fiscal quarter in the Company's history, and EPS growth of 20% compared to Q4 2013. Sales growth in the quarter was 6.4%.

The 20% growth in EPS in the fourth quarter compared to the fourth quarter of 2013 was due to the higher year-over-year sales revenues in both Printwear and Branded apparel; the acquisition of Doris; higher operating margins in both operating segments; and a year-to-date true up adjustment to our income tax provision due to lower than projected sales for Branded Apparel in the fourth quarter.

Sales in Printwear grew by 3% in the fourth quarter, due to higher net selling prices and more favorable product mix, partially offset by slightly lower unit sales volumes, including the impact of inventory destocking by European distributors in spite of strong POS.

Compared to the fourth quarter of last year, the impact on Branded Apparel sales of 60% growth in underwear, and close to 30% growth in activewear, together with the contribution of the Doris acquisition was a partially offset by lower sales in socks. The decline in sales of socks was entirely due to lower sales of private label, and our decision to exit from a licensing arrangement.

Sell through to consumers of underwear and activewear remained strong. And the Company continued to gain market share in men's underwear, reaching 7.5% in the month of September. Market share increased to 7.8% in October.

Sales volumes for Gold Toe brands were also up from last year, in spite of weaker market conditions. And Gold Toe continued its upward trend of gaining market share in men's and ladies socks.

However, although up from last year, sales and earnings were both below our guidance provided at the end of July. The shortfall compared to guidance was due to lower than projected sales growth in Branded Apparel. Shipments to retailers in all product categories were lower than projected, primarily due to inventory destocking by our retailers, and delayed timing of servicing fleece programs.

In addition, overall market demand was a weaker than anticipated. However, we are now seeing good replenishment orders in the December quarter.

In addition, the Company continues to have strong momentum in gaining new retail programs for 2015, as well as additional shelf space within retail stores, and penetration of new retailers. We will later review our assumptions underlying the strong organic sales growth in Branded Apparel, which we are projecting in calendar 2015.

As a result primarily of the lower than forecast shipments in Branded Apparel in the fourth quarter, inventory levels at the end of the fourth quarter were approximately $50 million higher than planned. Consequently, the Company's used approximately $25 million of cash for the full fiscal year, after capital expenditures of close to $300 million.

Before discussing our guidance, we would like to discuss the decision to change to a calendar year end. Our historical September year end has been based on the seasonality of the Printwear business. The September quarter is the end of the annual selling season for Printwear. The December quarter is the lowest seasonal quarter for sales of t-shirts in which wholesale distributors issue their catalogs with their product offerings for the following year.

The reasons for changing from September to December are as follows. Firstly, the seasonality of the overall consolidated sales revenues for the Company is changing due to the increasing importance of the Branded Apparel segment. Secondly, the Company's budgeting and business planning cycle is becoming more aligned with the calendar year, which will provide better visibility on the retail environment and retail program placements. The Company will also have better visibility on cotton fixations. And thirdly, the timing of our financial year and initiation of guidance will be aligned with industry comparables.

For statutory reporting purposes, this FY15 will be a five quarter financial year ending in January 2016. 2016 will be our first fiscal year on a calendar basis. However, we are providing guidance for calendar 2015, and we are providing recast comparators for prior years on a calendar year basis in the Investor Relations section of our website.

Subsequent to the end of the FY14, we have decided to take major strategic pricing actions in Printwear to reinforce our leadership position in the industry. We have decided to significantly lower base selling prices, and reduce and simplify our discount structure in order to be responsive to distributors, and enhance their ability and visibility to plan their business.

In addition, our strategic actions will reinforce our industry leadership position, and stimulate end use demand in order to drive unit sales volume and earnings growth in calendar 2015 and beyond.

We have historically followed a strategy to continue to invest in low-cost manufacturing capacity and cost reduction projects, and passed through a portion of the resulting cost reductions into lower selling prices. The selling price reductions announced today reflect the pass-through of a portion of the expected cost savings from our investments in new yarn spinning facilities into lower selling prices, in order to drive further growth and market share penetration.

The pricing actions are strategic, and anticipate our projected manufacturing cost reductions but also reflect further reduction in the price of cotton futures in recent months.

We are applying the benefit of the reduction in selling prices announced on December 3, 2014 to existing distributor inventories in the form of a distributor inventory devaluation discount projected to be approximately $45 million, which will be reflected as a deduction from sales in the quarter ending January 4, 2015.

As a result of these actions, we are projecting a net loss of approximately $0.30 per share on projected sales revenues of approximately $400 million for the three month period ending January 4, 2015 compared with EPS of $0.35, and sales revenues of $451.4 million in the corresponding calendar quarter of 2013.

Sales revenues for Printwear are expected to decline compared to the corresponding quarter of last year, due to the impact of the distributor inventory devaluation and anticipated slightly higher than a normal seasonal distributor destocking in the quarter, due to the changes in the Company's incentive programs. The December quarter is normally the lowest sales quarter of the year for t-shirts.

We are projecting strong organic growth in sales and Branded Apparel for the quarter ending January 4, 2015 due to new programs, and the resumption of inventory replenishment by retailers after the retailer inventory destocking, which impacted sales in the fourth quarter of FY14 and continued into the beginning of the current quarter.

Sales for the first quarter also include the impact of the acquisition of Doris. However, margins for Branded Apparel in the quarter are projected to be negatively impacted by inefficiencies in the manufacturer of retail products related to the consumption of inventories produced during FY14.

In addition, higher brand marketing and advertising expenses in Branded Apparel are projected in the quarter to support holiday sales programs. Margins in both operating segments are projected to be negatively impacted by slightly higher cotton costs than the corresponding quarter of last year.

Our initial EPS guidance for calendar 2015 is for EPS of $3 to $3.15 on sales of close to $2.65 billion. Printwear sales for calendar 2015 are projected to go up by approximately 3%, after reflecting the impact of lower selling prices. And sales revenues for Branded Apparel in FY15 are projected to grow by approximately 30%. Consolidated EBITDA in calendar 2015 is projected to be approximately $525 million to $545 million.

Compared to FY14, the projected growth in EPS in calendar 2015 is due to projected sales volume growth in both operating segments. Lower manufacturing costs resulting from capital investment projects, and declining cotton costs in the second half of the fiscal year.

These positive factors are projected to be largely offset by the impact of lower Printwear selling prices, the impact of transitional manufacturing costs in Branded Apparel as we consume inventories in the first half of the year, inflationary cost increases and higher SG&A expenses, including the impact of increased investment in Brand advertising and marketing and higher income taxes.

We would like to provide more detail on some of these assumptions underlying our guidance. Firstly, we are projecting a strong recovery in Printwear unit volume growth due to our pricing actions which were expected to result in improved end use demand, and increased market share penetration in the US Printwear market.

In addition, sales growth in Printwear will be driven by the continuing development of Anvil product line for fashion basics, which is performing strongly. And other new high-valued products, such as performance Polo shirts. As well as continuing penetration in all of our international markets in Europe, Asia-Pacific and Latin America, partially offset by fewer shipping days compared to FY14.

Secondly, our sales assumptions for Branded Apparel include only existing programs, the annualization of new programs obtained for 2014, and further new programs which have been confirmed.

Our projected sales growth in 2015 on this basis is driven by increased penetration in Gildan branded underwear and activewear, growth in Gold Toe and Gildan branded socks, and increased sales for our licensed brands. We have recently further expanded our license relationship with Mossy Oak.

The EPS impact of volume growth in Printwear and Branded Apparel in calendar 2015 compared to FY14 is projected to be approximately $0.60 per share. Selling prices in Printwear reflect the pricing actions in the December quarter.

The projected EPS impact of lower Printwear selling prices is projected to be approximately $0.70 per share. No change is assumed in selling prices in Branded Apparel.

The EPS benefit of lower cotton costs in calendar 2015 compared to FY14 is projected to be approximately $0.35 per share, including the impact on Branded Apparel, as well as the impact on Printwear.

Because of our high level of opening inventories, it will take longer than previously planned to consume high cost cotton. Cotton costs will start to decline in the March quarter, and we will increasingly benefit from low cotton futures in the second half of calendar 2015.

We are projecting manufacturing efficiencies in calendar 2015 from capital investment projects, including the impact of increased depreciation, to be partially offset by inflationary cost increases and continuing manufacturing inefficiencies in Branded Apparel due to consumption of inventories in the first half of the fiscal year. The net effect of these factors on EPS in calendar 2015 is projected to be approximately $0.20 per share.

We are on track to achieve our projected three-year target of $100 million in annual cost savings from our manufacturing investments, which are currently underway. All of our new yarn spinning facilities are projected to be in operation by the end of calendar 2015, and benefit our results in FY16.

The other important factors impacting our projected results for calendar 2015 compared to FY14 are increased SG&A and income tax expenses. As a percentage of consolidated sales revenues, SG&A expenses in calendar 2015 are expected to be comparable to FY14.

The higher income taxes are due to the protected higher operating income and in Branded Apparel. The projected effective income tax rate in calendar 2015 is 4.5%.

Finally, our guidance for calendar 2015 includes the full year of EPS accretion from Doris. We are continuing to pursue further acquisitions to complement our organic growth strategies.

Earnings in the first half of calendar 2015 are expected to be flat or slightly lower than the first half of FY14 due to the margin pressure resulting from lower Printwear selling prices, before the Company has completed the ramp-up of yarn spinning facilities, and while still consume higher cost cotton.

Earnings growth is projected in the second half of calendar 2015 compared to the second half of FY14 due to the impact of unit volume growth, manufacturing cost reductions, and declining cotton costs.

During FY14, the Company has essentially completed its capital investments in the refurbishment of Rio Nance E1. The upgrade of a former Anvil textile facility, the Honduras distribution center, and the new [Southwest] North Carolina ring-spun yarn-spinning facility.

The Company plans to spend $350 million to $400 million in capital expenditures in the 15-month FY15 year, and approximately $250 million to $300 million in calendar 2015. The $100 million which is being invested in the December quarter is primarily for our new yarn spinning facilities, which will be ramped up during calendar 2015.

In addition to the continuing investments in yarn spinning, the other main capital investment projects in calendar 2015 are for our two new textile facilities. The new Rio Nance E6 facility and the new Costa Rica facility, as well as a new cost reduction project to further significantly reduce energy costs. The expansion of sewing facilities to support growth in retail, and the expansion of our Eden North Carolina distribution center.

We are projecting a reduction of inventory levels in calendar 2015. Although our intention is to maintain inventories at higher than historical levels, in order to ensure that we're in a strong position to service replenishment demand throughout the year in both Printwear and Branded Apparel. Our investment in inventory will also be reduced by the declining cost of cotton and lower manufacturing costs.

The earnings momentum in Q4 of calendar 2015 is expected to continue into calendar 2016. The drivers of earnings growth in FY16 are expected to be the following.

Firstly, sales unit volume growth in both operating segments. Secondly, further significant manufacturing efficiencies from capital investments in new facilities and cost reduction projects, including the benefit of ramping up our new yarn spinning facilities. And thirdly, we currently expect better alignment between Printwear selling prices and cotton costs in calendar 2016.

Due to our confidence in our outlook and long-term strategic growth drivers, we announced today that the Board has approved a 20% increase in our quarterly dividend. We've also announced that we have reinitiated a normal course issuer bid to repurchase up to 5% of our outstanding shares.

We would consider a further increase in our share repurchase program if we believe that the long-term drivers of growth in our share value are not reflected in the stock price, while still continuing to pursue further complementary acquisitions. In order to ensure that we have financing flexibility to pursue acquisitions and undertake share repurchases, we have increased the amount available under our bank credit facility to $1 billion.

In summary, we are confident that we will regain a positive trajectory in EPS growth in the second half of calendar 2015. And that our businesses are well-positioned for strong, organic sales and earnings growth in 2016. In addition, we will continue to use our free cash flow and unused debt capacity to further increase our EPS growth, and further enhance our returns on capital.

We are confident that our pricing actions in Printwear will reinforce our strong leadership position in this business, as in the past. And that we will maintain attractive operating margins and returns in capital in this business as a result of our continuing major investments in our vertical manufacturing and our commitment to our brand positioning and our customers, which we are reinforcing with our pricing actions today.

Also, we have continued and are continuing to generate strong momentum in our branding strategy in retail with new retail programs, continuing market share gains, and increasing brand equity. And expect to continue to improve our writing margins, as we complete the integration of new retail products into our manufacturing, and leverage our SG&A infrastructure with continued growth in sales revenues.

Before opening Q&A, we believe we are close to appointing a new CFO. The extra time has been helpful to Glenn, and our new CFO should be in place for our Q1 call. I will stay on after December 31st to support my successor, and ensure a smooth transition of responsibilities.

Thank you, Laurence. This concludes our formal remarks.

Before moving to the Q&A session of the call, I ask that you limit the number of your questions to two in order to give everyone the opportunity to ask a question. We'll circle back for a second round of questions if time permits. Thank you. Operator, we're now ready to start the Q&A session.

(Operator Instructions)

Kenric Tyghe, Raymond James.

Thank you, good morning. Laurence, I wonder if you could help me reconcile the conversation in terms of inventory as impact on your realizing lower cotton costs?

I think what I'm try to reconcile is you had I think you highlighted inventory from $50 million higher than expected. But that because of that, you would only be realizing lower cotton costs in the fourth calendar quarter. I'm just trying to reconcile for the enormity of that gap against your normal hedging position. And the fact that your carry-on inventory wouldn't appear to supports a push of some two plus quarters on your realized cotton costs.

What I said is that we would be expecting to absolutely max out in our cotton costs in the fourth calendar quarter. But we expect to be in very good shape in the third quarter as well, in line with cotton futures and our cotton costs will start to decline after the March quarter. We did cover cotton on the way down.

Great, and thank you. And just a follow-up on your comment with respect to maintaining high average inventory going forward. Could you give us some indication on that, as to was this year a reasonable proxy of what would be higher average as a percent of sales? Or do you think that there is still further increase to the upside looking forward by way of what will be your normalized inventory or commitment to inventory in any given year?

This is Glenn. Look, we're planning to have a reduction of inventory this year, and the reduction is going to come through obviously a reduction in costs, and as well as reduction in some categories. But overall, our inventory is in line with our growth at the same time as, as we exit this year and we increase our sales into 2016, it will normalize the inventory level that we need to operate on a go forward basis. And it's definitely paying dividends in terms of our service, and the ability to increase market share in both segments.

Thank you. I'll leave it there.

Thank you.

Sabahat Kahn, RBC Capital Markets.

Thanks. Are you able to provide some additional color on the various components of your $0.70 impact to pricing? Like how much of did that did you give back in cotton, and how much is maybe perhaps competitive action, or anything on those lines?

I'm not sure if I really understand the question. But as we said on the call, the reduction in selling prices and the resulting distributor valuation is more driven by our anticipated manufacturing cost reductions that will generate from our capital investments, and particularly the ramp-up of our yarn-spinning facilities, more than declining cotton costs.

So what we said is, that the decrease in pricing in calendar 2015 is $0.70 a share in Printwear, and we said that the cotton benefit is $0.35. And then as we go forward into calendar 2016, of the $100 million of savings that we project in our manufacturing, we obtained about $25 million of those savings so far. The balance of the savings, the larger impact of them, will come from our yarn-spinning initiative and will be benefited in 2016. So when all those pieces align, that will sort of tell the tale in terms of our positioning in pricing and our cost position in the market.

Thanks. And on the Branded side, can you maybe highlight some new programs that you have in place that you said, some of the ones you have secured for 2015 calendar year?

Well, right now and look at the -- to start off wit, is that maybe just looking at the big pictures and the moving pieces is that based on the programs we obtained last year, about $50 million of that will be annualized or anniversaried in 2015. We have about $70 million of sales coming from the acquisition of Doris, and we have new confirmed programs of $120 million that will flow through in calendar 2015, which are obviously greater in size than that. Because that's a portion that will flow through our calendar 2015.

We've actually expanded and obtained programs in every category. We're expanding our underwear, we're expanding in socks, activewear, in all of our brands. We are getting expansion in Gildan, Gold Toe, even our Secret Silks [brands] are expanding. And we've expanded our Mossy Oak license which we've just now increased the genders in which we are able to sell from socks and underwear to activewear and other product categories. And we've expanded the license agreement with Mossy Oak to have an exclusive for the next 10 years based on the performance and the commitment we're working together with the Company.

We've also expanding in every single channel of distribution. Our mass is expanding, national accounts, department stores and food and drug. And even in genders, and not just in men's underwear, but we're expanding in other categories like ladies and boys and girls. So all of our expansion plans in terms of being a family brand of supplier in both all categories, we're seeing expansion. And the programs that we have in place, the $120 million, are really all in place today. We have a significant opportunity we think, in terms of still obtaining new programs for calendar 2015 that we're actively pursuing, and we're very excited about our momentum.

And one other thing I think is important from our overall branding strategy, and particularly as we expand in our Gildan and Gold Toe brands, is that we're making a major commitment to increase our advertising spend. And that's really not -- it's partly to support the existing programs, but it's really to support the future programs which we're going to obtain as we go forward and our commitment to build our brand strategy and position ourselves, and to be a leader in market share.

We've seen huge growth in our underwear segment. We went from 0% to 6.5% from our first program launched through July. We're seeing continued improvement through this fourth quarter. Our market share at the end of September in underwear was 7.5%. We see another tick up in market share to 7.8%. We've expanded and doubled our production during 2014 of our underwear. So we're well-positioned both in inventory, as well as manufacturing capacities to support future sales. And we have aspirations to see that market share continue to grow through calendar 2015 in excess of 10%. So we're very excited about our whole retail branding strategy, and we're committed and we're all in.

Thank you.

Stephen MacLeod, BMO Capital Markets.

Thank you. Good morning.

Morning.

Just wanted to get a little more color around the deval that you took in the or that you will be taking in the Printwear segment. And I'm just trying to really get a sense of what was the driver of that? Was there a demand impact, was demand slowing down, was it -- were you seeing push back from distributors based on the cotton price declining?

Well, first of all, look, we've always reinforced our leadership position in the channel. And our decision to deval was a combination of a couple of things. One, is that we've realigned our discount structure and how we're going to market with our customers.

The way we go to market today is that we have a price list, and we have significant discounts that we offer our customers that they need to obtain for various incentive programs that we have for them. And that discount structure has grown over the years, and it's encouraged a really lack of visibility and our customer's ability to plan their business, to manage their working capital. And it did well in it's time, but right now we think it's time to actually change that and support it.

And this is something that we've worked with our customers and communicate with them as we've gone through this year in listening to them. And it's our commitment to reignite our leadership position, and our support to them. We're combining this with really the strategy that's made Gildan successful is to reinvest and leave our low-cost manufacturing position. We're making significant capital investments. And we spent $300 million in 2014, we're planning to spend $400 million approximately in the next 15 months.

And these capital investments are basically allowing us to lower our costs, add value in our garments because there's a big part of that why we're developing our whole ring-spun strategy and other product categories in our line. And what we historically have done is pass these savings onto our customers, and it allowed us to benefit from gaining market share and making it difficult for competitors to energize in this industry.

So we're very committed to making sure that we continue to drive our leadership position. We're not happy with our POS in Q4 and so far into the beginning of Q1, and we think that this is going to energize and allow us to continue to drive market share. As our yarn-spinning comes on next year, we're going to have a significant reduction in our cost structure. And as we align the future cotton, both those elements are going to continue to give us very good returns in this division as we go forward, despite the reduction in pricing. Even in this calendar year, we're still going to have a very good returns in our Printwear business.

Okay. And in terms of realigning the discount structure, is that something that was -- were you getting a lot of push back from distributors about the current discount structure?

Sorry I didn't understand the questions (multiple speakers). Our distributors definitely did not feel comfortable with the old discount structure. I think that what we've done right now is more in line with what their aspirations are in terms of going forward, and allowing them to be able to have more visibility in planning their business.

One other key point is that now we have what we consider maybe more of an everyday low price, so that they can actually determine what their markup structure needs to be, so they can better plan their business on a go-forward basis. At the same time, we think that they will make our brand and our customers more competitive in the industry.

Right. Okay. That's great. Thank you.

Thank you.

Derek Dley, Canaccord Genuity.

Hi, guys. Can you talk -- just switching up a little bit. Just in regards to your guy's balance sheet.

Are you going to be, with the big capital investment again this year, are you going to be free cash flow positive? And then in terms of looking at potential acquisitions, what would be a comfortable leverage level that you'd be willing to carry?

We'll use cash in the December quarter. And calendar 2015, we indicated on the script that we're going to generate very strong EBITDA. And that should result in a very strong cash flows after the capital expenditures that we indicated. And we're also, in addition, looking at generating cash from inventory reductions including the impact on inventory values of our manufacturing cost reductions and lower cost cotton. So we should -- our strong EBITDA should translate into a very strong cash flow in calendar 2015.

And we mentioned, if I'd add anything to this, but we mentioned that our uses of cash would be in addition to the increase in the dividend that we announced today, we will continue to explore further acquisitions that complement our organic growth strategies, and we've initiated a normal course issuer bid to repurchase shares.

Okay. And then can you maybe just comment on your comfort leverage level?

We've always said that we're comfortable to go up to 2 times or maybe a bit higher if we felt that we had good visibility on our free cash flows. We're going to generate a lot of free cash flow, particularly once we finish our major investments in yarn-spinning. So even if we were to lever up beyond 2 times, we'd have a lot of confidence in reducing our leverage very quickly based on our free cash flow generation.

Okay, great. And then just sorry, one more. Just on the retail pricing environment. The price the devaluation discounts you guys are implementing are on the Printwear, how do you see the retail pricing environment? Is it stable, are you comfortable with the current pricing level?

Yes, our pricing in retail is still very aggressive out in the markets. We're significantly priced under any of the other national brands, and we're very comfortable with our positioning to date. And we're going to continue to drive market share.

We are going to continue to price aggressively, and we're very comfortable with continuing expansion, new programs. I can't tell you how excited we are with our development of our retail strategy. It's all coming together right now, and we're going to see major shelf space gains as we go through in calendar 2015.

Okay. Thank you very much.

Vishal Shreedhar, National Bank.

Thanks for taking my questions. Just on the strategic initiatives in Printwear, will the pricing reductions result in a permanent impairment in economics relative to where you were prior? And then you'll require these ongoing efficiency initiatives to stabilize economic levels to where they were in the past? Is that the way to think about it?

The whole basis for the pricing reductions was our anticipated manufacturing cost reductions of $100 million over three years that we projected. So based on these material significant manufacturing efficiencies, we expect to maintain very high returns on capital in Printwear aligned with our historical returns.

Okay. So the efficiency initiatives, we should think of them as covering the pricing initiatives, and then you'll get some benefit as cotton declines as well.

That's exactly it. And the fundamentals of the business have not changed. And one of the things I think that is important is that we're not stopping to invest in our low-cost manufacturing basically. We've committed to have $100 million of savings over the three-year period. But we're continuing making other strategic investments to further enhance those savings and our low cost manufacturing basis. So that's the strength of our Company. And we'll just take those savings and we'll reinvest part of them into better lower prices, better quality products for our customers in order to drive share. And we're very committed. We think that structurally the division is in good form, and operating margins will continue to be as good as they have in the past.

Okay. And in terms of buyback, just to be clear, you intend to execute on that?

Yes.

Okay. So the entire 5%?

Well, I'm not going to commit to that, but we'll definitely start to buy back.

Okay. And just lastly, in terms of the cadence of ramp up for these new facilities, that's unchanged, right?

Unchanged. Yes. Everything is on track. We completed the Rio Nance I expansion. We're in the process of building VI, which will come online in 2016, and Costa Rica will come online on 2017.

Thanks very much.

David Hartley, Credit Suisse.

Thanks. Just curious about the marketing cost commitment. What type of increase are you projecting there?

Well, the increase is pretty significant for us. It's in the range to about $10 million to $15 million. We think it's relative. And part of the increased marketing spend for us really is partly to support the programs we have now, but is really to invest in the brand's future. A large portion of the spending is going to come from our Gildan initiative, and we think it's going to pay huge dividends. Not only to support the sell through of our existing products, but as well as to allow us to continue to generate more market share in every single one of our market segments as we go forward.

Is there some kind of pressure as you move into dealing more and more with the mass channel or larger accounts that you step up your marketing even further over the coming years?

No. Look, like anything else, we invest in manufacturing. We're investing in our brands. And that's the one great thing about our Company is, that we're always prepared to make investments for the long-term. And I view this and our Company views of this as basically making a strategic investment to support our future opportunity. And as we lever our success, we will then build distribution and build our brand strength. And it's paying dividends, and we're excited about the placements we have today. We have a lot of placements that we think that we're going to obtain during the course of this year that are not in our forecast. And we're going to continue to drive success in our Brand group.

Okay. And you mentioned in the remarks, in the release, about a bit of a softening of demand. Could you characterize that in terms of product categories, or Printwear versus Branded, et cetera?

Well I think that in both cases, our POS in Printwear was softer than we wanted it to be, to be perfectly honest with you. And that's part of our rationale is to continue to look at ways to increase our unit volume, which we think we will accomplish through our new structure and pricing initiatives, and the structure as we go forward into the channel. Our retail environment, back-to-school wasn't robust. We performed well in our POS. The fact is, that our market share has gone up pretty good over the last three or four months.

But overall, in the retail climate has not been robust. Black Friday was mixed. Mass was up. We've done, again, very well I think in the products that we sell. But it's not as robust obviously as it should be. You can see that from the retailers and the ones that have given guidance and earnings. And so, the most important thing I think from our perspective is that we're taking share. Our share is going up. We're getting new programs, and we are very excited about the opportunity in 2015, and we're continuing to look for new programs that we haven't obtained yet.

And we're not just getting our programs and our shelf space from the existing customers. We're getting new programs from new customers in all product categories. So we're expanding our brand strength. Both Gold Toe, our Gildan brand, our Mossy brands, we're expanding in every single channel of distribution in all segments, all genders. So it's -- we're very excited about the outcome as we go forward into calendar 2015.

And last question, if I may. Just price gaps in some of your key categories in Branded, how do you see them versus some of your key competitors? Have they expanded, tightened up, with or without promotional activity?

In back-to-school, there definitely was promotional activity and pricing action from our competitors. But the good news is, is that we continue to take market share. And that's I think is really from our case the most exciting thing about our whole retail strategy is that, we've been typically priced relatively aggressive against our competitors. And during back-to-school I would say, that our competitors pricing actions were probably aggressive, but we still grew share, which is the power of our brand, the quality of our products. And we're really excited, and this is what's leading us to new opportunities and more market share gains.

Great. Thank you.

Taposh Bari, Goldman Sachs.

Good morning, this is Chad on for Taposh. My first question is on the price cut again. I guess I wanted to get a sense, obviously you're not happy with the POS. Are these price cuts defensive in any way? What are you guys seeing in the competitive environment? Because you're obviously the market share leader here, so if you could touch on that, that would be really helpful.

Okay. Well, look the deval and the reason why we are going to market is strategic in nature, reinforcing our leadership position with our customers, and making it easier for our customers to do business and have more visibility. So that's part of it. The second part is, is that we arep, like I said earlier, is that our POS is just not what we want it to be. And the way we go to market today by having a higher price, so let's say for example, allows for I would say people to make deals. Our other mills and our buyers let's say, our competitors actually to move and cut deals with other customers, and what we're doing is we're actually taking our price down to an everyday low price.

So we flush anything out of the market that people can afford to do. So what's going to end up happening is that our pricing actions are going to -- they're aggressive and they'll allow our customers to have an everyday low price with our products. But it will deter any competitor from trying to undercut our pricing strategy in the market. At the same time, as we continue to make our investments in yarn-spinning and other manufacturing efficiencies, we can afford to be more price aggressive and to continue to consolidate or take share in the market. And we feel comfortable that we will continue to see a trajectory in growth.

Not only in probably our basic category which has the largest decrease in price, but also as we reinvest in our technology and our yarn-spinning and the new products that we're bringing to market, we're also looking at enhancing our sales through new product extensions, our Anvil brand. So it's not just one dimensional. It's really -- what we're doing is we're making sure in the basic segment that we're priced to win. And then we're reinvesting in our low-cost manufacturing to support product expansion and innovation for our customers to give them a full package, and to really develop our brand strength within the channel.

That's helpful.

Just one last thing I think is also, is at the same time, we're reinforcing our position as well in all of the other markets. Our international businesses have grown by 20% this year. We're growing significantly in Latin America. We're expanding and adding product in Europe, and our Asian business basically is growing at a much greater clip. So we're continuing not just to focus on our US market, but our US market is our largest market, and we are reinforcing our leadership position here. And we will lead in every one of the markets in Gildan sells in.

That's helpful. Thank you. One follow-up, just on the Doris acquisition. Is there anything embedded in the guidance in terms of the expansion of the Gildan brand into retail in Canada?

There's nothing in our guidance except for the historic sales of Doris. But through the Doris acquisition, we believe that we will have significant new opportunities for us as we go forward that are not embedded in our guidance today.

Thank you.

And that's -- maybe just to qualify that, that's going to be in expanding share into the US, expanding their brand strategy and other product segments, and as well as developing and driving our existing Gold Toe and Gildan brands into Canada.

Okay, great. Thanks for all the color.

Andrew Burns, D.A. Davidson.

Good morning. Just a couple of questions in terms of 2015 guidance. Is any sort of share count reduction factored into the 2015 guidance provided? And then additionally, the $125 million in new programs that you talked about that's less than the annualized rate, is that a half-year contribution, a nine-month contribution? What's the magnitude there? And then lastly, you talked about the potential for unconfirmed programs, could that be material given your capacity ramp? Thank you.

As far as share repurchases, what's included in there is negligible. A couple of pennies from some immediate actions that we're planning to take. Could you go through the other two questions, please? What are your two questions again?

Sorry, in terms of the new programs that are confirmed for 2015, $125 million impact. Didn't know if you could characterize that as a half-year contribution or nine-month contribution, what the full annualized benefit of those new programs would be? Secondly, the unconfirmed programs, given your capacity ramp, could that be material for 2015 if you do get more unconfirmed programs?

Well, I would say that typically about 70% of the programs we get in the year. So I would say of the $120 million, they would represent annualizing their 70% of the total annualized opportunity. And as far as the unconfirmed, look, we don't want to speculate on things we don't have today. That's why we didn't put it into our guidance. But we have the capacity to support, obviously, and the inventory to support additional programs, both in Branded as well as if our Printwear POS exceeds our expectation, we have room to enhance our sales opportunity through these two avenues.

So we're going to be very aggressive to pursue new programs. We're committed to driving the strategy, all of the stars and aligned are in place, and we're making the right investments. Not just in our manufacturing, but we're investing our brand strategies. And we think that the capacity is in place, and hopefully we'll achieve and exceed the sales guidance.

Thanks. And then just a quick question in terms of Printwear market share. Not sure if you're willing to provide current, but either way in terms of with the price changes, is there potential for material market share gains from current levels, but in your order of your priorities when making this decision, how important was market share gains in that decision?

We look at the overall market. And one of the things that we're going to do is by having our price strategy the way we've structured it today, one of the things that we're going to benefit from is allowing our distributors to reach out to markets that they weren't able to reach out to before. And that's a fundamental change, I would say, a little bit. Because they're going to be more competitively priced with our products, and there are other factors and other competitors outside of our distributor channel today that we've always measured.

So now our customers are going to have a product and a price from Gildan really to reach out to new customers they weren't able to reach out to before. So indirectly, that should increase our share with our existing customers, provide them with better earnings power, and better sales. So it becomes a win-win. It's win for them, and win for us.

Thanks, and good luck.

Thank you.

Mark Petrie, CIBC.

Good morning. Just a few follow-ups. I wonder if you could just talk a bit about the manufacturing efficiencies, the $100 million, and what you expect to achieve in 2015? And then how much is still to come in 2016? I understand the yarn-spinning isn't until 2016, but if you could just put some dollar numbers on it, that would be great.

We're going to have about $25 million of the $100 million are going through in 2015. And then of the balance, a large portion of that will flow through in 2016, and then the balance of that will go through into 2017. The majority of the savings we have so far are from the energy projects and other things that we've invested in, and the big yarn-spinning initiative will really impact us in the 2016 and the balance in 2017.

So the yarn spinning is really a flip of a switch at the end of 2015?

Well, right now we've -- what's happened in yarn-spinning is that we've ramped up 100%, our Salisbury I ring-spun plan. We modernized our two other facilities, which is Clarkton and Cedartown. That's what we did this year. But the major new capital investments that are really going to drive the savings for us is our Salisbury 2 plant, which is the largest yarn facility probably in the world. It's being ramped up as we speak, and will be fully ramped up over the next probably six to seven, eight months.

And then our Mocksville plant, which is going to be probably one of the largest ring-spun plants is going to start in our calendar first quarter, and basically be ramped up through 2015. So both these initiatives are going to make a major impact on our cost structure, and as well as allow us to continue to add value in our garments, and drive our sales in ring-spun yarns, for example, as we go forward into the future.

Sorry, and which one is ring-spun? Are they both ring-spun, or is one open end and one is ring-spun?

Salisbury 1 is ring-spun. Salisbury 2 is a open end facility, and our Mocksville facility is going to be the largest ring-spun facility in this hemisphere.

Okay. Perfect. Thanks a lot.

Thank you.

Chase Bethel, Desjardins Securities.

Good morning.

Good morning.

On the CapEx side, Glenn, can you just maybe tell us about just the discipline you have, given your in the middle of a multi-year CapEx program that's the biggest in the Company's history to see the dollars invested well? And then also, I think so you mentioned the $250 million to $300 million being mostly the balance on the textile facilities. But then, Laurence, in your comment, you talked about possibly new energy savings programs. So how much is there maybe allotted for new energy savings programs that you may not have really spoken to yet?

The large part of our capital is in yarn-spinning, as well as the big projects that we mentioned are the yarn-spinning projects. We're expanding our two major new initiatives in textiles, which is Rio Nance VI and Costa Rica. We're expanding our distribution centers in the United States, and then in Eden. At the same time, we're investing in energy. But that energy position is, it's completing the programs that we have put together in terms of our biomass and also part of our electrical saving program that we put together. But the bulk of the investment is going to be in yarn-spinning and textiles, I'd say, it would be the bulk of the capital that we're going to be investing in from this point on.

Okay, great. Thanks. And then on the Branded Apparel side, I was hoping that you could maybe help me with -- what would be the private label mix exiting calendar 2015? And then you mentioned the $10 million to $15 million of marketing spend. If I put roughly a 12% SG&A on rate of $2.65 billion, it looks more like $35 million incremental SG&A. So maybe, Laurence, can you talk to where the balance is going?

(Multiple Speakers). Sorry. I'm not sure if I understand the question.

Okay. So if you're going to have a similar rate of say 12% SG&A rate and your guidance is $2.65 billion, the difference that I'm coming to is around $35 million year-over-year. And there's $10 million to $15 million earmarked for marketing.

There's the Doris acquisition, and we paid low bonus -- there was lower incentive compensation this year that will be more normal next year.

Okay. And private label mix exiting 2015 in terms of the portion of Branded Apparel?

As far as the private-label is down 15%, probably will be our rate. Our focus is, is to divide, divest ourselves of private-label. And part of that also is we have stopped selling one of our licenses. We gave up a license that we had in socks under the New Balance license. But our whole focus is obviously to continue driving our brand strategy, and we basically are pushing to sell Gildan and Gold Toe products. So we've given up some private-label.

Okay. If I can sneak one more in. Laurence, you used to give a sensitivity of a 1% change in Printwear pricing. Do you have a number like that today?

Well, it's 1% of the Printwear sales. Are you talking about pricing, or are you talking to cotton, what are you talking about, pricing?

A 1% change in Printwear price, the EPS impact of that. I think last time it was around $0.11 or so.

(Multiple Speakers). It's more like $0.15 today.

Okay. All right. Thank you.

Jarrod Feinstein, Buckingham Research.

Hello, Laurence. This is Jarrod Feinstein on for David Glick. Can you help us bridge the gap between the consensus EPS of $0.42 for Q1, and the $0.30 loss that you're are looking for? I know the inventory devaluation was like $45 million, I believe. So if you could break out the balance of the difference? How much was marketing, how much was price reduction, manufacturing efficiencies, et cetera? Thank you.

Well, the deval, as you mentioned is $45 million. We also mentioned the Printwear destocking, which is about $0.10. The impact of higher cost cotton and the consumption of inventories with the transitional manufacturing inefficiencies between the two of them, that would be another $0.10. SG&A, including the brand advertising and marketing to support holiday sales, would be maybe $0.03 or $0.04. And then on the positive side, we have growth in Branded Apparel sales volumes, and the accretive impact of Doris. So these are the positives that will drive the Branded Apparel growth in earnings in the December quarter.

Okay, great. Thank you very much.

Jim Duffy, Stifel.

Thank you. A couple questions. Glenn, if cotton costs go higher, could the Printwear market accept a price increase?

Well, look we didn't -- our pricing actions are really not a function of cotton. That's a byproduct of it. Right now, we're focusing on changing our discount structure to our customers and driving our low-cost manufacturing. Obviously, cotton is a big component of our costs of goods sold, and if it was going to be materially going up there would definitely -- prices would follow in the future. But really, that's not the driving force behind what's made our decision to be more aggressive on price.

Okay. And then, Glenn, what's the probability that the new CFO comes in and has a different view of margin structure, and feels the need to take a more conservative view on the outlook?

The margin structure at our Company is still very successful. I think that even despite our pricing actions, we're getting returns in -- probably one of the best returns in the whole apparel segment as a Company if you look at our forecast for calendar 2015. So I think he's going to be pretty happy working for a Company that is growing it's top line sales at the rate we are, is investing heavily in manufacturing, and investing in their brand strategy, and still making these huge returns, generating huge amounts of cash flow. Great place to come work. We're on -- if he wants to be on the winning team, come work for Gildan. That's the way I would look at.

Well, that make sense. But just, the way I interpret this, this is Laurence's guidance. Is it also your guidance, and you're going to stand behind this?

This is my guidance. I am the one who --

I work for him.

He works for me.

Right, right.

I'm totally responsible for making the strategies, setting the strategies of the Company's, setting the strategy on our pricing, working with our Branded group on our advertising, making our capital investments. There's probably not a CEO in our industry that is as involved in the day to day the operations as I am. So I stand 150% behind our guidance. I'm committed to delivering the guidance to the market, not myself. And that trickles down to every one of the Gildan employees.

It's a team effort here at Gildan, and everybody wants to be on the winning team. So we're excited about the future. And one thing for sure, is that we're never scared to make the decisions to drive with the long-term shareholder value. I'm a shareholder of the Company. I still have a significant stake in stock in this Company, and I'm committed to making sure that we succeed in the future, and that all of the employees at Gildan are successful and happy working at our organization.

Thank you for that.

Thank you.

Chris Li, Bank of America.

Hey, good morning. Sorry if you said this already, what is your 3% sales target for Printwear imply in terms of unit volume growth for calendar 2015?

I don't want to give that. But I can tell you, we said that we have about a $0.70 decline in pricing, and our unit growth is [3%], so you can do the math.

Okay, that's fine. And my second question is, you mentioned you're going to see about $0.35 of EPS benefit from lower cotton cost in calendar 2015. But it's only partial, because you're still cycling through some higher cost inventory. If you assume cotton stays where it is right now, what would be the incremental EPS benefit in calendar 2016? Should we expect it's going to be higher than $0.35?

Yes.

Okay. That's fine for now. Thank you.

And just to go back to the first part of your question. We mentioned on the call that our projected impact of higher volume between the two divisions, on our projected earnings growth in calendar 2015 compared with FY14 is $0.60 a share. So we're looking for good growth in Printwear, as well as in of course, Branded Apparel.

Okay. Thank you.

Brian Morrison, TD Securities.

Hello, sorry, good morning. I have just a few follow-up questions. Just on that cotton question with respect to 2016. Is it fair to say that the $0.35 benefit that you get in the back half of 2015, that you should another $0.35 benefit in 2016, assuming cotton prices stay constant?

Yes, that's the math.

Okay. That's fine. And then in terms of --last year when we were down in Honduras, we talked about global lifestyle, major customers and the potential for $400 million to $500 million incremental revenue over the next three to five years. And I wondered if we're progressing as planned on that front?

Yes we are. We're growing that business. It's projected to be up about 25% next year.

Fair enough. And then, Glenn, just the last question in terms of acquisitions. You've said for a few quarters now, it's a strategic priority. You've increased your credit facilities here for the NCIB and potential acquisitions. Is it fair to say that an acquisition, it's a necessity rather than an option just to enhance your brand position just based on your relative size?

No, I would not say that. I think that where we are today, we can grow significantly in every single one of the categories. We've made a huge investment over the last couple of years in building our brands and our distribution, our relationship with our customers. So there's a lot of opportunity for us for organic growth. You can see this year, we have a lot of organic growth to the tune of over 20%-something, 23%, 24% of just organic growth with still the possibilities to obtain new programs that we haven't solidified yet.

So our organic opportunity -- and that is continuing to accelerate. Because as we get more placement and our stronger brand presence, we're going to continue to grow organically. The market is so large and branded, there's a huge opportunity. Now saying that, we did an acquisition with Doris. Although the acquisition is relatively small, it's opening up huge doors for us. It's giving us doors in the US where we're going to place sheer. And it's not just going in and let's say for example, saying I've got sheer. It's actually selling the full product category to our customers, which allows them to have more confidence in growing the other things that we really want to grow like our underwear and our socks and our activewear products.

So the acquisitions don't have to be large in size. They have to be strategic in nature, and I think that's the key. So it's got to be something that will give us a product category, a brand strategy, a channel of distribution, a new market. We're always going to be very tactical about how we approach acquisitions. We don't want to do acquisitions just for the sake of looking for top line growth, because we think we can do that with better returns by driving organic sales than we can just by buying companies for top line sales.

So everything is strategic. And I think so far, if you look at every one of the acquisitions we've done over the last five, six years basically, that's sort of our M.O. So we'll continue to look. We obviously have some things that we continue to look at, but nothing is embedded in our guidance today. And we're excited about our balance sheet, and the ability for us to continue to look at these opportunities.

Appreciate it.

Thank you.

Stephen MacLeod, BMO Capital Markets.

My questions have all been answered. Thank you.

Thank you.

I will now turn the call back over to Sophie Argiriou for closing remarks.

Thank you, everyone, once again for joining us. This concludes our call today, and of course, we look forward to speaking to you very soon. And we'd also like to wish you the very best for the holiday season. Have a great day.

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