Gildan Activewear Inc (GIL) 2016 Q3 法說會逐字稿

Welcome to the third quarter 2016 Gildan Activewear earnings conference call. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Sophie Argiriou, Vice President Investor Communications. Please go ahead.

Thank you, Paulette. Good morning to all and thank you for joining us. Earlier this morning we issued our press release announcing our third quarter earnings results and the interim shareholder reports containing management's discussion and analysis and consolidated financial statements, both of which will be filed with the Canadian securities regulatory authorities and the US Securities Commission. These documents are available on our website at www.gildan.com.

Glenn Chamandy, our President and Chief Executive Officer; and Rhod Harries, our Executive Vice President and Chief Financial and Administrative Officer are on the call today. We will begin with Rhod taking us through our third quarter performance and our business outlook, which will be followed by a question and answer session during which Glenn and Rhod will respond to your question.

We would like to remind everyone that certain statements included in this conference call may constitute forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. These 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 (technical difficulty) Securities Regulatory Authorities that may affect the Company's future results. And with that, I will turn the call over to Rhod.

Good morning, everyone, and thank you for joining the call. Today we announced third quarter results reporting adjusted diluted EPS of $0.50 on net sales of $750 million. We delivered print real sales in line with the expectations we had set for the quarter.

Our branded apparel business turned in a solid performance with high single digit growth. It made a tough retail environment. We are making good progress with the integration plans for our most recent acquisitions, Alstyle and Peds. Finally, we were very pleased with the strong free cash flow generation in the third quarter.

With that brief introduction, let me now move on to providing more detail on our third quarter results. Consolidated net sales during the third quarter were up 6% over last year, driven by both organic sales growth in our branded apparel business and the impact of acquisitions.

We achieved strong consolidated gross margins of 30.4%, although the benefits from manufacturing cost-savings generated by our capital investments and lower raw material costs were more than offset by net selling price, mix, and foreign currency exchange headwinds during the quarter, resulting in 100 basis point decline in gross margins compared to the same period last year. Adjusted operating margins in the quarter totaled 18.3%, down 150 basis points compared to last year. Primarily reflecting the temporary diluted impact of acquisition activity, which will moderate next year as synergies start to flow through.

Printwear segment sales in the quarter of $462 million were up approximately 5% compared to the same period last year, in line with our expectations. The Printwear sales increased in the quarter was driven by a $39 million sales contribution from the Alstyle acquisition, continued strong POS growth in the faster growing performance and fashion basic segments in the US with are Anvil Comfort Colors and Gildan Performance brands and sales volume growth of approximately 15% in international Printwear markets, with all regions performing well. Offsetting these factors in part, were lower net selling prices; the impact of distributor inventory destocking, which included the impact of US distributor warehouse consolidation; and the negative impact of foreign exchange compared to last year.

Printwear operating income for the quarter was essentially in line with the same period last year. However, operating margins of 26.7% in the quarter were down 150 basis points, mainly as a result of the transitional diluted impact of the Alstyle acquisition. Excluding Alstyle, operating margins in the quarter were down 30 basis points, as lower net selling prices, mix and currency headwinds offset the benefits from manufacturing cost-savings and lower raw material costs realized during the quarter.

Branded apparel sales of $253 million in the quarter were up 8.2% over last year, driven by organic unit sales volume growth from increased shelf space and new retail programs, and a contribution of $10 million from the acquisition of Peds, partially offset by the approximate $10 million impact in the quarter from exit of Private Label programs, mixed impacts due to weakness in the department store and national store chain channel, affecting higher value product sales and higher promotional spending.

Improved store placement and expanded space for our work Gildan branded underwear translated into double digit sell through and revenue growth during the quarter. We reinforced our market share positioning in both the underwear and sock product categories and made a competitive promotional environment.

Turning to NPD September retail tracking service in the men's underwear category, the Gildan brand maintained it's 9% unit market share in line with the end of June, and an increase of 140 basis points over the same period last year, and we remain confident of reaching our 10% market share target in this category by the end of the year. Gildan branded soft unit market share of 23.3% in September improved from 22.3% at the end of June, and was up close to 400 basis points over last year.

Branded Apparel operating income of $29.5 million for the third quarter was essentially flat compared to the same period last year. Operating margins, up 11.7%, increased close to 400 basis points sequentially from the second quarter, reflecting the benefit of higher sales volumes combined with manufacturing cost savings and lower raw material costs. Year-over-year operating margins were down from 12.9% last year, primarily due to unfavorable product mix from weakness in higher tier retail channels and higher promotional spending, which more than offset the benefit of higher volumes and cost savings.

Moving to Gildan free cash flow performance in the quarter, we generated $185 million in free cash flow, just over $35 million or 24% above last year's level, driven by strong cash flows from operating activities. During the quarter, we spent $41 million in CapEx, primarily investing in are new Rio Nance 6 textile facility, expanding capacity levels in Bangladesh, and completing the investments for the Mocksville yarn-spinning facility.

As we discussed during the last conference call, in light of the large operations in Mexico, which we acquired as part of the Alstyle acquisition, we believe we can support growth going forward with lower CapEx. As we integrate the Alstyle operations, efficiencies in textile and sewing production costs are starting to flow through, and we are starting to ramp-up production on plan. As a result of our strong cash generation during the quarter, we ended with net debt of $631 million. The Company's leverage ratio at the end of the quarter was 1.2 times adjusted EBITDA.

During the third quarter, we repurchased 1.7 million common shares completing our $12.2 million share repurchase program initiated in February, which we subsequently amended to 20.7 million common shares as announced at the end of July. This gives us good flexibility to continue to buy back shares as we move through the fourth quarter and into early 2017.

Now let me cover our guidance update before we conclude the formal remarks on the quarter. We now expect full-year adjusted EPS of $1.48 to $1.50, compared to our previous guidance range of $1.50 to $1.55. We are forecasting adjusted EBITDA in the range of $530 million to $535 million compared to our previous projection of $545 million to $555 million.

Consolidated sales for the year are now projected to be approximately $2.6 billion compared to our previous forecast of approximately $2.65 billion. Printwear sales guidance of approximately $1.65 billion remains unchanged, while Branded Apparel sales for the year are now projected to be approximately $960 million versus our previous estimate of approximately $1 billion.

We have updated are full-year guidance to reflect sales performance in the third quarter, less moderated sales assumptions for Branded Apparel in Q4, given continued softness in the retail market. In addition, we've also adjusted our estimates for fourth quarter Branded Apparel sales results to reflect the retiming requested by a large national chain retailer of shipments for a new licensed program, which was previously planned for Q4 and which will now be shipped in the first quarter of 2017.

With one quarter left to the year and our strong year to date cash flow performance, we expect to deliver record free cash flow this year in the range of $325 million to $350 million, after projected capital expenditures at the lower end of our previous guidance range of $150 million to $175 million.

As we approached 2017, we're continuing to focus on our strategic growth drivers in both businesses, and we remain excited about our earnings outlook for next year, given visibility on a number of factors that should drive strong earnings growth.

In Printwear, we expect to drive further penetration in the faster growing fashion and performance basic segments with momentum in international Printwear markets remaining strong. We expect some of the headwinds that impacted our business this year, including unfavorable sick and favorable mix impacts not to reoccur next year. In Branded Apparel, the exit from Private Label programs of approximately $65 million will be completed by year-end and we should benefit from the annualization of space gains and new programs, which started in 2016. We also believe the sell through of our brands will support our efforts to grow our space within retailers and win new programs for next year.

In addition, we have made attractive strategic acquisitions this year, which are expected to add approximately $120 million of annualized sales next year, and the progress we have made so far on integration initiatives gives us comfort that we can generate strong synergies from these transactions. Synergies will start to flow through in 2017 and 2018, and as we previously indicated are expected to drive an EPS accretion exit run rate of more than $0.13 by the end of 2018. We also expect to continue to benefit from the balance of our $100 million in manufacturing related cost savings in 2017. Finally, EPS growth next year will also reflect the benefit from the lower share count, due to share repurchases under our NCIB program.

Wrapping up, the outlook for 2017 remains promising, and with our strong free cash flow and balance sheet capacity, we believe we are well-positioned to drive organic growth, pursue complementary acquisitions, while at the same time returning capital to shareholders. This concludes our formal remarks today, and I will now turn now turn the call back over to Sophie.

Thanks, Rhod. Before we move to the Q&A session, I ask that you limit the number of questions to two in order to give everyone the opportunity to ask a couple of questions, and we will circle back for a second round if time permits. I will now turn the call over to the operator for the question and answer session.

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

(Operator Instructions)

Kenric Tyghe, Raymond James.

Thank you and good morning.

Glenn, I wonder if you could give us a little more color on the new program and the shipment delay into the first quarter. Is this simply a function of retailers looking to be very judicious in their management of inventory, and inventory in the apparel category specifically? And that's really what the timing delay is, it's not a function of any challenges on Gildan's end and it's certainly more just a function of very careful management by the retailer, and that's simply what the timing shift is? And any other color you could perhaps give us around the request from the retailer for that shipment delay into the first quarter?

I would say, look, I really don't want to comment on the retailer. I can tell you that we have the product ready and available to ship, so it's not a delay on our behalf. I think it's more combining the whole rollout of this program because it's quite large, and we have a part of the program because we manage the soft piece of it, and it's in the conjunction with the overall rollout. So it's just a question of the launch earlier in the year, which we anticipated originally was going to be in December, and which we have the inventory in our warehouse and ready to be shipped at this point, or we will within the fourth quarter.

Great, thank you. And then just switching gears to cotton market dynamics. Can you just confirm for us how far out you are hedged and covered with respect to 2017 at this point?

I really don't want to give that information out, to be honest with you, but I would say in terms of cotton, there's definitely cotton pressure going forward. During the last call there were still questions on where cotton was going; it has remained high. I think at this point in time that $0.10 a pound over 2016 as people go through 2017. So there's definitely going to be need to cover this cotton, I would say, with price increases as we go through if cotton remains at these types of levels. So, definitely there is no downward pressure on price. I think that the realities with cotton at the range and where it is trading right now, for the period of time it's been trading, there is definitely upward pressure on price as we go through into 2017.

Great. Thanks, Glenn. I'll get back in the queue.

Thank you.

Vishal Shreedhar, National Bank Financial.

Thanks for taking my questions.

Just on the sales backdrop, given slowing sales, and I understand that some of it is the market, but is growing capacity next year the right thing to do? And if so, will promotional activity or increased promotional activity be one of the tools that you use to drive volume?

First of all, I would say that when you look at the sales, you've got to combine them in two different groups. One is the Printwear. We'll start there first. Our Printwear business is good. It's not robust but our POS is still positive. What's really doing well for us is our Fashion Basics, our Anvil brand, our Comfort Color, our Performance. The little area of disappointment is, obviously, fleece. It's slightly negative over last year but we think that's due to weather and hopefully that's going to correct itself. Overall, we think that Printwear will continue to grow, and take share.

Another thing we're really doing in Printwear as we go forward into 2017 is we have some major product launches and innovation in our product. We are coming out with a whole line of performance fleece. We are revamping our performance [pulls] and adding new products, and adding new styles and performance T-shirts, as well as we are significantly expanding our fashion basic segment in terms of the product offering. So, we believe that we are well-positioned in Printwear to continue to grow organically with our products, our Fashion Basics, and obviously, our international businesses has done very well.

So, on that side, and as well as we will have the full impact of Alstyle and the benefit of over $70 million of sales on that side of the business as we go forward into next year. In Branded, our story is quite simple, is that the market is challenged, but if you look at this year, really the big disappointment for us is obviously the department stores and national chains, really. I think we are winning in a very bad market. Our POS is up in underwear 22%. Our sock POS is up. We have got 23% market share in socks versus 20% of last year. We feel comfortable that we will hit our target of 10% market share in underwear this year. As we go into next year, we are going to get the benefit of these new programs we have in 2016 that will annualize in 2017, and we are definitely going to be gaining more shelf space in Branded in 2017 as we go forward. We're very comfortable. Obviously, we can't dictate how the market conditions are going to go, but I think if you look at the way we are teed up today in terms of top line sales, we're definitely in a position to keep growing as we go forward.

Now, with the market pricing in Printwear has been very stable. Cotton is a big driver of our Printwear business, and not just us but all of our competitors. If you take the increased price to cotton, it's gone up about $0.10 a pound from, let's say, for example from 2016; and what we said is it's almost at $0.02 of EPS for each pound. Obviously, it's a big impact for us, but it is also a big impact for everybody in the industry, and that definitely would provide an opportunity, I think, to see prices moving upward versus having promotional and price pressure from the downside.

Okay, and, Glenn you gave us some early indications of 2017 already and you told us some of the growth drivers. But if you look at your uncertainties, as you look at the market today, obviously we are going to lap the weakness that we experienced in 2016, what are those uncertainties? Is it FX? Is it market conditions? Help us understand.

We are very bullish on 2017. If you look at starting off with the headwinds we had in 2016, we had distributors destocking, which was significant in the Printwear market. We had a foreign exchange impact. We had mix. And in Branded we had the $65 million divestiture of our private label business. Those were pretty significant headwinds we had in 2016. As we go into 2017, we are going to have new products in our Printwear market segment. We are going to continue to expand on new programs. We are going to have the wind from the programs in Branded from 2016 going to 2017, but at the same time we are looking to get more shelf space and new programs launched in Branded.

We just launched a new underwear program for stretch cotton underwear. So, we're constantly looking to, and we feel comfortable we will win new programs and have also the benefit of the programs from 2016. We have $120 million of overall sales between the two acquisitions that will impact 2017. We have accretion of the acquisitions in terms of EPS accretion in 2017. We have the balance of the $100 million in manufacturing and savings, which is over $30 million that will flow through in our cost of goods sold in 2017. We have the impact of our share buybacks in [NCIB] in 2016 which will help drive EPS in 2017. We have higher cotton costs, which I think will definitely make room for upward pressure in prices as we go forward. We are definitely stabilized and not see any price reductions in 2017.

I think most importantly is we have very strong free cash flow. You're going to see a reduction somewhat from our historical CapEx. We're definitely focusing on our working capital reduction, and we are going to have increased earnings in 2017 as well, which will generate free cash. What we have been pretty successful in over, not just in 2016 but in 2015, is investing our free cash in complementary acquisitions. The last two acquisitions, which is Alstyle and Peds, will be fully-integrated in Gildan by December 31 of this year. So, we're ready to look for new opportunities to continue complementing our organic growth. Additionally, we will have enough free cash not only to do acquisitions but as well as to continue with our NCIB and returning capital to shareholders.

So, even in a bad market, we're going to win and we will continue to grow as we go into 2017. I think we're very bullish and feel very comfortable with our positioning at this time.

Thanks.

Martin Landry, GMP Securities.

Good morning.

It's pretty clear that brick-and-mortar retailers are suffering, and to that end I was wondering if you could talk to us a little bit about your online strategy. Just wondering, are your online sales progressing as well as you would expect?

Yes, look at it, like I said in previous calls, that the e-commerce is a big focus for the Company. This year our e-commerce business is going to be significantly up. It's going to be about 5% approximately of our retail sales. We are in the process of actually investing in our e-commerce. We're launching new websites in our branded group this year. We are building new distribution capacity, and we are relighting our sales force to continue to drive and penetrate future opportunities. So, it's definitely still on the small base relative to our overall size of our business, but it's definitely a growth opportunity. And we're definitely going to capitalize on it as we go forward.

Okay. Can you comment on the growth of your online sales 2016 over 2015, year to date?

It's up significantly. It's up over 50%.

Okay. And just on the retail side, looking at next year. How is your pipeline for bidding for new programs? Are the programs, for example, for spring 2017, have they already been decided by retailers?

Most of 2017, I would say, is put to bed. Look, we are excited about our positioning right now. Our products are selling very well. We are the fastest-growing underwear brand in the United States, and we think that we are poised to continue to expand our products and expand our placement within the retailers. So, we're pretty excited about our placement. Look, we are in a tough market, so we are cautiously optimistic, but we think that we are well-positioned in this environment. And we will bring you more guidance when we come to, obviously, give you our guidance in February.

Okay, thank you.

Sabahat Kahn, RBC Capital Markets.

Good morning.

Could you maybe talk a little bit about you mentioned some of the warehouse consolidation in the Printwear segment by distributors is having an impact. When do you think we will kind of cycle through that? Is it still a couple of more quarters into 2017? Is that having an impact on margins in addition to sales, in your view?

No, because first of all it's complete in Q3, so it's over now. The fact is, that is just a reflection of the amount of inventory that we have on the channel. So, our inventory got reduced because there is a consolidation of warehouses. It didn't affect our POS. Our POS is still positive. It's just a question of, last year we had X amount of dozens in the channel. This year we have less than X because there is less warehouses supporting the product as the consolidation occurred.

Okay. And then on the branded segment you mentioned some unfavorable mix shift at department stores. Can you tell me what products that was? And is that what you expect into Q4 as well, in terms of the lower sales that you expect?

Well, it is typically a product that we sell to the national department stores and national chains, which is relatively and mainly our Goldtoe, as well as the big license program, which is also going through that channel as well, which was moved into 2017.

All right, thank you.

Mark Petrie, CIBC.

Good morning.

A bit more on the branded side. Is it fair to say that the retail environment, particularly in national chain and department store, deteriorated over the last few months and was in worse shape than when we spoke at the Q2 results?

Well, it's a little worse than we thought it was going to be, I can tell you that. Obviously, that's part of the reasons why our sales are a little weaker. And I would think even the overall back to school -- every category is down. Underwear unit shipments are down. Sock shipments are down. And I think the overall apparel segment is down. The market is not robust, but we are continuing to be, I think, doing very well in a bad market with 22% share gain in underwear and a share gain in socks and our Goldtoe is maintaining its number one leadership position, but just in a down market. So, that's really what we have to look at it.

Okay, thanks. So, the reduction in the branded revenue guidance for this year, how much of that is the deterioration in the market? How much of it is the deferral of the program from Q4 to Q1?

So, Mark, if you look at the reduction, the softness that Glenn was talking about, again, hit us in Q3, right? It was about $10 million that hit us in the third quarter, and then as we look forward to Q4, we think about $30 million out and there's a decent portion of that is related to retiming, and then the balance is related to the softness in the market in the mid-tier channel.

Okay. And then, I also just wanted to ask about the progress in the Mexico facility in terms of what percentage capacity or effectiveness you are at, in terms of total capacity? And then your expectations for capacity in 2017, is it still Rio Nance 6 in the second quarter?

The Mexican plant is running as we scheduled. We have increased capacity there, and also have, I think, really got a great cost structure, which is the most promising part of about everything in that acquisition, to be honest with you. It has turned out to be very good. And we have Rio Nance 6 will come on in the second quarter of 2017. We are still putting in the capacity that we originally planned. Obviously, we will manage our volume growth based on our sales opportunity, but we are in a very good position right now to capitalize on all of the opportunities. Our new product launches, our international growth, and continue to drive share in our retail.

And the Alstyle acquisition for us and the Mexican facility has not only brought as additional capacity, we think at a very favorable cost structure, but it's also allowing us to further expand our sales in Printwear in the Mexican market, which we are focusing on as we go forward in 2017, and as well as look at retail opportunities in Mexico. And also it opened doors to other international markets outside of our current capabilities. So, it's going to bring us, we think, significant synergies, and it's going to, hopefully, drive top-line growth for us. It's been a great acquisition all in all.

Okay. Thanks very much.

Stephen MacLeod, BMO Capital Markets.

Thank you, good morning.

I just wanted to circle in on some of the bridge that you put between 2016 and 2017 in terms of sales growth. Can you just remind us what the Printwear destocking impact was in 2016? And also what the new product and program wins are, how it splits out between 16 and 17?

Do you want to do the destocking piece?

Yes, if you look at the overall 2016, right, and effectively, what we've shown, we've effectively you've got the impact of the -- we took prices down. We've got mix and FX that is flowing through, and we've got destocking that's rolling through our numbers. If you look at the overall impact of that in 2016, it is probably about $70 million in total being driven by all of those different factors. Mix and FX is a pretty big impact. We talked about that on previous calls. We provided guidance as to what the impact would be for the full year. We are really seeing that flowing through as we move quarter to quarter.

On the branded side in sales there's about $60 million of wins in 2016 that will annualize in 2017.

Okay.

Plus you are going to have the full year of the acquisitions, which is approximately $120 million annualized as well.

Okay. And, did I understand correctly when you said that, is most of 2017 already in place in terms of potential new program wins? Or should we expect that there could potentially be some upside in terms of additional programs?

We are still finalizing our plans for 2017 right now, and when we give guidance in February we will bring everybody up to date.

Okay. And then going back to 2016, that $70 million price decline due to destocking, are you fairly confident that you cycle that heading into 2017?

Yes. I think that Glenn talked about the upsides, I talked about the upsides, and Glenn reinforced the upside for 2017. You can see that we see that a lot of those headwinds, will largely be behind us as we go through 2017. So --

Maybe the same, but the only one that's probably, really, we don't have visibility on right now is FX (inaudible - multiple speakers). As we get closer to the selling period.

Right, okay. And then, you did say, for the Printwear distributor inventory destocking in the quarter, is that related to consolidation that's going on in the channel? Or is there some other impact on fleece or other categories?

No, that's strictly consolidation.

Okay, that's great. Thank you.

Thanks.

Derek Dley, Canaccord Genuity.

Can you just talk about your priorities in terms of capital allocation? Your balance sheet here is very healthy. It is at the lower end of your leverage target range. What are some of the priorities for that capital in 2017?

I would say, look at, our number one priority is to continue to look at complementary acquisitions like Peds and Alstyle that really help support our organic growth strategy. That's really, I would say, is the number one priority and use of cash for the Company. And depending on the size of any type of acquisition, we also will repatriate cash to our shareholders through additional share buybacks to balance our capital structure as we go forward.

I think we see strong cash flow and we've got good leverage availability within our framework. I think we have the ability to do, as Glenn said, focus on acquisitions and return of capital as we move into 2017.

Okay, that's good for me. Thanks.

Thanks.

David Hartley, Credit Suisse.

Thanks, good morning. Just three questions for me. I will list them off. You can answer them as you go.

First, on the new doors. You've expanded your -- doubled your doors late last year, early this year. I just wanted to get some color on how those new doors are contributing, and maybe you can give some color as to some doors being more important than others? And how those particular channels are doing? The second question, I just noticed online that one of your, would-be a major customer, if not now but in the future, the pricing of your product tends to be higher than that of your competitors where they look elsewhere in the channels. Your pricing is definitely lower on some of your key products. Maybe you can provide some color there? And then, third, in terms, you mentioned about a reduction in your historical CapEx numbers, maybe going forward. Could you provide, maybe some color there as well? Thanks.

I think the expansion of our doors is a reflection, obviously, of our POS growth. The net impact of the expansion in 2016 is driving a 22% share in underwear business and is also driving our share in socks. So, under the Gildan brand, which is what we are talking about here, that's really the result of these new doors or shelf-space gains that we had in 2016. As far as the pricing is concerned, our pricing -- we are price leader in both those categories. There are time to time you'll see a roll-back or a promotional activity in the market, but every day we have a significant price advantage and value proposition relative to anybody else in the market. So, we're very comfortable with our positioning.

As far as CapEx is concerned, what I referred to there is that historically we had a range which is, we spent a lot of capital, $1 billion in the last three years. As we go forward, mainly because of the acquisition of Alstyle, that it was able to bring on additional capacity virtually at no capital cost for the Company. We will have a reduction in CapEx next year, lower than 2016.

Great, and so just back to the pricing issue, you're saying that in that one particular channel then maybe it's just a promotional-type event and just keep an eye on that and that should normalize?

Was it brick and mortar or was it online?

It was online.

Yes. Okay. So it's promotional.

Okay, thank you.

Yes.

Brian Morrison, TD Securities.

Good morning, Glenn.

I just want to understand your 2017 comments about cost savings vertically are in integration. You restated it is a $30 million benefit next year. Sounds like Printwear pricing may offset cotton, but I really want to understand. Is it your view that this benefit should flow right through to the bottom line in 2017?

Right now we think or we feel very comfortable that, just like this year we've got significant cost savings going through. Historically, a lot of the cost savings were offset by price and other factors. You know we think that price is going to have more upward pressure than downward pressure. So there's a very good chance that this will flow through and be a benefit in 2017.

Okay, and then second question, I just want you to talk maybe a little bit about the opportunities with the Premium Global sports brand. We are down in Charlotte. We discussed that we are going to have suppliers on certain programs. I want to know how this opportunity is progressing and could it be meaningful?

It's meaningful now. We are continuing to expand and develop those customers. We have very few of them and we have narrowed down our customer base. It's a growth part of our Company. That area hasn't been robust, I would say. If you look at the earnings of some of the big national brands, basically, it's all going into the better higher-end department stores and specialty, which has really suffered this year a little bit. So, it's not robust right now in terms of our sales in 2016. Really what's driving our volume this year is our Gildan brand strategy, our underwear, our sock market share gains, but we still think that's obviously a longer-term, viable, big opportunity for the company. Thank you.

Neil Linsdell, Industrial Alliance.

Good morning, guys.

Just wondering if you could comment on the international side. You talked about Bangladesh as far as increasing the capacity there, expanding the facility. Can you talk about timing or potential capacity improvements there through building the building or any kind of acquisitions that you would be doing? And how that might influence internationals, European, Asian growth either from a revenue side or efficiency side?

Starting off with Bangladesh, Bangladesh supports a big chunk of our European and all of our Asian business. What we are doing is, we're expanding the plant there. We're doubling the capacity because we need that Bangladesh at capacity really to service those markets in terms of the supply chain. Our business is very strong. We are growing -- we grew again 15% this quarter. And one of the things that will continue to expand our sales will be as we introduce new products.

So, like we discussed in Charlotte is that we have very few product -- our product offering is limited in some of these markets like China, Japan, and so forth. And China today is our third-largest market, so it's growing very fast, and there's a big opportunity there for us and we will support that through capacity expansion.

We are definitely looking to grow. Acquisitions could be a part of our opportunity to grow and to accelerate the growth in our international space. And that's one of the things that we will continue to look at as we look at ways to invest our free cash as we go forward in 2017.

Could you remind us what the SKU availability is in those international markets right now? And is that going to increase as you get -- (multiple speakers)

Europe is our largest market and most mature, and today it is half of what we have in the United States. And the other markets are less than half of what we have in Europe at this point in time. So, we have a long way to go to continue to add new products in each one of these functioning markets.

I'm just wondering how much of that Bangladesh expansion is going to help that, or is it really just a matter of -- (multiple speakers).

It's going to help huge, because we didn't have the capacity, right, so the plant has been sold out and by doubling the capacity, it's going to help us to put and expand our product offering, which we're doing in conjunction with the expansion of the plant. So, we'll have definitely more product in our line, and available in 2017 in all those markets.

Okay, thanks.

Great.

Keith Howlett, Desjardins Securities.

Thanks.

I had a question on the Printwear market in the United States. First thing, I am wondering if the total unit volume of that market is still growing? At what sort of rate? Secondly, I was wondering if the basic T-shirt component of that market is growing or flat or is it going down?

The overall market is still positive. It's not hugely positive, but we're in positive territory; it has been driven by the Fashion Basics segment, which is our Anvil brand, our Comfort Colors and our Performance, which are doing extremely well. That's been partially offset by the Basics, which are down somewhat, and fleece, which is a little bit negative in terms of POS because of the weather. But overall we take the total POS of all products and we're still in positive territory.

And is the POS measured in dollars or units?

No, units.

Units. Okay.

Obviously, we know when we have less POS, it becomes a dollar percentage and a mix issue, you know?

Great. Thank you.

Just a question on the promotion in the branded channel. Was the promotion larger than you originally anticipated, given the weak conditions? Or was the promotion about as you had planned entering the year?

It was a little more than we anticipated, because -- and it's different in each market, so the promotional spending in department stores and specialty channels is more than at once -- you go as you play type thing a little bit. Whereas the promotional spending in the mass is usually providing value to consumers by additional pack sizes, et cetera. One is more planned and one is basically a function of the weakness in the market.

Thank you.

You bet.

Anthony Zicha, Scotiabank.

Yes, good morning, Glenn.

Considering that next week a new US president will be elected, are you concerned that there may be a change or risk that may be tied to Central American Free Trade Agreement with the basic initiative and the Trans-Pacific Partnership legislation?

Well, obviously, nothing has been said so far about CAFTA in terms of this race, this presidential race. We think that even if there is an impact in our category and our segment of labor, and we are in the labor business, we are not in the industrial, auto type scenario, even in NAFTA. I don't think we would be impacted because I don't think the US could provide consumers with product. So, we're neutral at this point in time in terms of what we think the impact will be on us. TPP basically is really not an impact for us one way or the other.

Okay, thank you.

Chris Li, Bank of America.

Good morning.

Your biggest underwear competitor recently said that they were stepping up their investment in marketing advertising for their new technology. I guess, two questions on that. First, in light of this, what is your level of confidence of achieving your 10% market share target by year end? Second is, how do you factor this increase in competitive intensity in your 2017 guidance in terms of maybe having to potentially step-up your investments to continue to grow share over the longer term?

We continue to make investments, and we have made significant investments in our value offering even this year. So, and that's a reflection of the growth we have in underwear. Our growth rate is at 22%. We're out by far stripping any initiative from any one of the other two manufacturers in terms of actual unit growth in the market. So we are winning. I guess, they are reacting, obviously, because we are successful. We like to be in a position of leadership. We have the leadership position in value, quality, and price, and we are going to continue to invest like we did this year in terms of continuing to grow our share as we go forward to next year. And we're very comfortable that we will be at our 10% target in Q4.

Okay, that's great.

Maybe just a question on clarification, Glenn. You expect -- you commented about the upward pressure on Printwear pricing next year. Do you expect some of that to flow through to the earnings line? Or would most of that going to be absorbed by the higher cotton costs?

I don't want to it say now, but I think, if you look at all the other aspects, the manufacturing savings, the mix, the destocking, the thing I would think we would look at is that what's deteriorated Printwear this year is also negative pricing. So, if we have all of these positive factors going in without having negative pricing, that in itself will be a big windfall for us next year, and depending on the market conditions, we will see how much of that pricing will actually be a benefit in 2017. I also would say that these headwinds are not just a Printwear phenomenon, because obviously, every underwear that's sold or most of them are sold are 100% cotton. There's also going to be price pressure in retail in all categories as cotton continues to go up, and inflation continues to materialize. So I think that's not just a reflection of our Printwear business but that's going to be the overall broader, overall apparel space in general.

Okay, that's helpful. And one quick one for Rhod.

On the share buyback, I noticed there was quite a slowdown in terms of share buyback activities from Q2 into Q3, and I think into this quarter so far. Despite the fact obviously that share price has been sideways to down. Can you explain to us the rationale for the slowdown in the last few months, why haven't you stepped up your buyback to take advantage of your under-levered balance sheet?

Look, we bought shares in the quarter. We bought 1.7 million shares. Obviously, as we go forward we've got strong free cash flow. We've got the balance sheet capability, and as we said, we have got the ability to focus on the various parts of our capital allocation framework. Basically, as we go through the year, it's a big area of focus for us, and I think you will see that time to time we put different focuses on different parts of the framework, but over time, we are really focused on all of the legs, and you will see that come through.

And also, we are also, the acquisitions are still our priority. We are going to balance the RNCIB with the opportunities of doing acquisitions, so we are managing these two pieces working together at the same time.

Okay, thanks guys.

Stephan MacLeod, BMO Capital Markets.

I wanted to follow up on the last line of questioning around the NCIB. Does your guidance for 2016 currently assume that you are active through the balance of the year?

Yes, we've given guidance based on where we are as far as what we've done so far. So I think you can presume that's upside as we go forward.

Okay. Thank you very much.

Keith Howlett, Desjardins Securities.

Yes, I just had a question about rationalization within the department store channel. Macy's would be a large customer of yours. I'm just wondering how you factor their store closures or closures by others into your expectations?

Well, our expectations have been reduced due to the weakness in the department and special channels, right, so that's the first thing. What we're doing now is, we're obviously looking at ways to offset that decline. But, anything else, the overall market is down. And I think that's more the issue. At the end of the day, consumers will continue to buy product and find product available. The question is, which outlet or which retailer they purchased the products at. There might be a change in the distribution, but at the end of the day, we think that we will be well-positioned one way or the other. So, they are down within the broader market as well, so I guess that's how I would look at it. We are moving and we are looking at ways to continue to improve and renew innovation and expand with all of our retailers to offset any negative impact.

Thank you.

I am showing no further questions. I will now turn the call back over to Sophie Argiriou for closing comments.

Thank you. Once again I'd like to thank all of you for joining us this morning. This concludes our call, and we look forward to speaking to you soon. Thank you and have a great day.

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