Gildan Activewear Inc (GIL) 2017 Q1 法說會逐字稿

Welcome to the First Quarter 2017 Gildan Activewear Earnings Conference Call. My name is Danielle, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

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

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

Earlier, we issued a press release announcing our earnings results for the first quarter of 2017. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements.

These documents will be filed with the Canadian Securities and Regulatory Authorities and the U.S. Securities Commission and are available on our website at www.gildan.com.

Joining me on the call today, we have Glenn Chamandy, our President and Chief Executive Officer; and Rhodri Harries, Gildan's Executive Vice President and Chief Financial and Administrative Officer.

The conference call will start with Rhod, taking you through the results for the quarter and our business outlook for 2017, after which, a Q&A session will follow.

Before we begin, let me remind you that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. 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 U.S. Securities and Exchange Commission and Canadian Securities Regulatory Authorities that may affect the company's future results.

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

Good afternoon, everyone, and thank you for joining the call.

Earlier today, we announced a record first quarter, reporting adjusted diluted EPS of $0.39 and sales of $665 million, in line with our expectations.

Sales grew 12%, and adjusted operating margins expanded 200 basis points, driving strong EPS growth of approximately 39% for the quarter.

And with strong earnings growth, focused working capital management and lower CapEx, we generated just over $40 million of free cash flow in the quarter, up $100 million compared to the first quarter last year.

Operationally, we continue to make good progress on our strategic initiatives, capturing Printwear growth in the Fashion Basics and Performance categories, gaining share in retail, improving our operating profitability in Branded Apparel and progressing well on the integration of our acquisitions, which will enhance our growth and competitive positioning over the long term.

So despite an environment where we continue to see mixed market conditions, including the impact of store closings, we believe our performance during the first quarter positions us well to deliver on our previous guidance for the full year.

Turning to the Printwear segment. We generated sales of $446 million in the quarter, up approximately 14% over last year.

This increase reflected the benefit of the Alstyle acquisition and a small contribution from American Apparel, which together, drove approximately $40 million of sales growth as well as organic sales growth driven by higher net selling prices and favorable product mix, partly offset by the negative impact of foreign currency exchange.

Highlights for this business for the quarter included strong double-digit POS growth in Fashion Basics and continued momentum in international markets, in particular, very strong growth in Asia.

Printwear operating income of approximately $106 million in the quarter increased 24%, while operating margins expanded by 210 basis points over the same period last year, driven by the impact of net -- impact of pricing, manufacturing cost savings and raw material costs, partly offset by unfavorable foreign exchange and SG&A.

In the Branded Apparel segment, sales in the quarter totaled approximately $220 million, up 9.2% from $201 million last year.

The Peds acquisition contributed approximately $21 million in sales during the quarter, while we exited about $7 million in private label programs, in line with the guidance we provided when we reported in February.

Gildan branded product continued to perform well, while Gold Toe continued to deal with softness in the department stores and national chains channel.

We were particularly pleased with our market share performance for Gildan branded men's underwear, which was 11.2% for the March quarter, up 270 basis points from last year.

The total measure of market, as per MPD, showed a slight decrease for the quarter in the men's underwear category. However, Gildan branded men's underwear significantly outpaced the market with point of sales growth of 30% for the quarter.

We were also pleased that the Gildan brand in the men's sock category continued to maintain its leading position during the quarter with market share of 22.6%.

Operating income in Branded Apparel in the quarter was approximately $19 million, up 25% from a year ago.

Branded Apparel operating margins were 8.4%, up 100 basis points over the same quarter last year.

The operating margin improvement was driven both by SG&A leverage and, as in Printwear, the favorable net impact of pricing, manufacturing cost savings and raw material costs, partly offset by mix.

Moving to Gildan's free cash flow performance. We generated $41 million of free cash flow in the quarter, while during the same period last year, we consumed approximately $58 million of cash to support working capital requirements and capital expenditures.

On CapEx during the first quarter, we spent $25 million, primarily investing in our new Rio Nance VI textile facility, our Bangladesh facility and in garment dyeing and distribution investments, which will continue to be the main area of focus for this year.

As we indicated when we initiated guidance in February, our capital investment requirements for the year are expected to be lower than last year, even though we continue to expand capacity across our manufacturing system to support growth.

Moving to capital return. We repurchased 3.5 million common shares under our NCIB program during the first quarter and another 1.9 million in April, bringing year-to-date repurchases to 5.3 million.

We are making good progress on our total planned program for this year, which covers repurchases of 11.5 million shares.

After closing the American Apparel acquisition this quarter, net debt at the end of the period stood at $713 million or 1.3x adjusted EBITDA, well within our target leverage range.

We are progressing well with integration activities related to our acquisitions, including the recently completed American Apparel acquisition. We continue to be excited about the opportunity for this brand.

Our made-in-the-USA supply chain is in place, and we have started to ramp up production across our manufacturing systems to support overall demand.

On the front end, we have integrated all the order to cash, distribution and marketing functions to support our American Apparel Printwear business, and we are in the process of assessing how to leverage this brand in e-commerce and retail.

So in summary, as I said at the beginning of my remarks, despite mixed market conditions, the first quarter has started us off well and in line with our expectations, setting us on track to deliver our full-year guidance, which we reconfirmed in our press release today.

We reiterated our projection of adjusted EPS in the range of $1.60 to $1.70 for 2017, an overall high single-digit sales growth for the year.

You may recall that when we gave guidance in February, we indicated that the cadence of earnings growth will be weighted to the first half of the year, given the timing of the acquisitions made last year and the impact of higher raw material cost, which we expect later in the year.

We continue to expect adjusted EBITDA to be in the range of $555 million to $585 million, and we continue to project strong free cash flow above $400 million for the year.

Wrapping up. Beyond our good start to the year, we remain very pleased about our prospects and the plans we are putting in place to position the company to drive future long-term growth and strong shareholder returns.

We're executing on all fronts of our strategy, including driving sales growth, generating cost savings, investing in our vertical manufacturing capabilities, expanding capacity, executing accretive M&A and returning capital to shareholders.

Thank you, and I will now turn the call back over to Sophie.

Thank you, Rhodri. That concludes our formal remarks. (Operator Instructions) I will now turn the call over -- back to the operator for the question-and-answer session. Danielle?

(Operator Instructions) We have our first question. Our first question comes from Martin Landry of GMP Securities.

The first thing that stands out for me is your corporate expenses. I think they came in at around $20 million for the quarter, and it looks like it's the lowest it's been in more than 3 years. Wondering if you can talk to that a little bit, give us a little bit more color as to what's driving that decline on a year-over-year basis.

Well, Martin, if you look at the corporate expenses, actually, as with all of our expenses across our organization, we're working hard to make sure that we manage corporate expenses, we manage our SG&A, and we leverage it as best we can. So I think what you're really seeing -- ultimately, if you look at the way that corporate expenses have rolled out in the quarter, really, is all of that activity that we've been working on to really manage those costs to the lowest level possible as we drive all of our businesses.

And don't forget, we've made a -- like we keep saying, particularly in Branded, we put an infrastructure in place to be able to drive sales as well as we've been able to optimize all of the acquisitions from an SG&A perspective as well, which is going to, obviously, going to be where our synergies are coming in from, from these acquisitions. So those combined was really giving us SG&A leverage.

Okay. And the second question I have is on American Apparel. Now that you have a couple of months of post the acquisition, wondering if you can you talk a little bit with regards to your strategy online and also your strategy with department stores?

Okay. Well, I mean, look at -- for us, we couldn't be more excited about American Apparel. I think we -- this is going to be a great, great acquisition for us. It's still obviously early days. We've -- we're in the process of ramping up our manufacturing for U.S. and as well as our overall manufacturing to support the demand for the product. We have a lot of demand in the Printwear area, not just in the United States, but we have a lot of demand in every one of our markets. So this is really a brand that we think that we can definitely leverage quickly through all of our markets, Europe and Asia, et cetera. So once we get it up and running in capacity, that will really be impacting -- we'll see -- start seeing some of that impact in Q4. But really in 2018, we're very excited about how we can position once we get the inventory online. We're also really -- spent a lot of time, and it has been 2 months, and we -- what we've bought in this company was the brand and a little bit of inventory. So basically, from a ground starting start, basically, we've integrated all of the styles, the products, the product development, the order to cash, the distribution, the IT systems. This is completely integrated into our systems. There are some things that -- distribution that still needs to be finalized as we consolidate from some of the distribution centers. But all intents and purposes, we're ready to roll, once the product gets rolling. The real focus right now, obviously, is to get delivery, get our customers and stock to a level that we need to be, which will materialize in Q2, and then roll this thing out to new customers internationally as we go forward into '18. And simultaneously to that, I think the -- our real focus in the short term, in terms of planning, will be to leverage what we think is going to be an online business. Part of our investment this year in capital is to invest in our distribution strategy, and that distribution strategy is a combination of investing and moving some of the American Apparel, but it's also investing in our e-commerce strategy, which will allow us to support, not just American Apparel, but all of the Gildan family of brands in the future. And so we think that this is a good catalyst to really support a direct online e-commerce strategy. At the same time, we also think that there's runway to support direct-to-consumer through retail. We haven't decided our strategy totally on that yet, but that's something we'll define over the next couple of months. So all in all, like every one of the acquisitions that we've made, starting off with Doris, Comfort Colors, Peds, Alstyle, we're continuing to buy, I think, great acquisitions at very favorable prices that can give good synergies, create long-term shareholder value, give us something that will support our business, either a niche, a product, a channel, so we're really excited about American Apparel. It fits perfectly into our sweet spot, and we think this one's going to be a big home run for us.

And our next question comes from Kenric Tyghe of Raymond James.

Glenn, it would appear, given your organic growth, that the retail at door closings in the quarter had very limited impact on your Branded segment performance. Could you speak to how you manage to mitigate those pressures in the quarter, or rather, how you mitigated them so successfully? And where the winds were in the quarter that allowed you to offset those pressures that seemed to have created headwinds for some competitors?

Well, we definitely had the headwinds because, I mean, our Gold Toe business basically was down, relative to where it was last year. So -- but the real thing, I think, for us is that what we're doing is we're mitigating, obviously -- mitigated the exposure by investing heavily in our Brand strategy. And the success of what we see in our underwear strategy has proven to offset the negative decline of some of the closing in the -- I think, in the department stores. Our underwear business is up 30% over last year. We've gained to 270 bps in market share, and that's where our brand strategy is working. And it's like anything else, we've put in position, we've made the investments, we're spending the capital consistently each year. And if you're consistently [spending] the money, it pays off over time. And it's just a matter of time until we keep continuing our momentum in Branded, and we're very pleased with our performance. And we think we can still do better, and we're looking forward to the balance of the year.

And then just on the balance of the year, could you provide some sort of update, I realize just a little early, but on the back-to-school discussions and perhaps the pricing around those discussions?

Well, I mean, look, as far as we're concerned, we don't really want to discuss that, but I'll tell you that one of the things we're excited about back-to-school is 2 things. One is our market share has done very well, but this does not include any of the new products or shelf space we've gained in 2017. So we will see continued momentum in our market share and our growth in underwear, and hopefully, socks, as we go through the balance of this year. We did do a price increase in underwear during the quarter, and obviously, we didn't see any effect in our POS. So we're very excited about the fact that we were able to take a modest price increase. And at the same time, continue our strong POS.

And we have our next question from Sabahat Khan of RBC Capital Markets.

So just first one on the NCIB. You've bought back about roughly half of the amount. Can you maybe comment on your plans for the rest of the year and if it's possible that you might increase it similar to last year?

Look, I think what we're very pleased about is our strong free cash flow, the fact that we have the ability to focus on all of our priorities. The buyback is one of those priorities, and we are pleased with the progress that we've made in the first quarter in April. We're looking to execute the remainder of the program over the rest of the year, and then we'll go from there. So right now, we're -- I would say, we're pretty happy with, effectively, our ability to focus on all our priorities. And we really have a number of priorities: growing the business; obviously, we continue to be focused on M&A when it comes available to us; and buying back stock also is the third priority in our capital return program.

All right. And then just on the Branded side. You mentioned earlier that you had 30% POS on the underwear side. Just trying to understand, I guess, the sell-through seems to be very strong. But in terms of selling, I guess, were the retailers not replenishing to that extent? Or was the pullback in the Gold Toe business maybe offsetting some of that? I guess...

No, we didn't have any destocking this quarter, so we basically -- we sold all of our POS. Our inventories are basically in -- beginning in closing quarter were basically the same in those categories, and that was strictly POS. We definitely lost a little bit of underwear -- I'm sorry, of a private label that we forecasted earlier in the year for about $7 million. And we had a slight decrease in Gold Toe in the department stores and national chains, but that was all offset by the strong growth in our underwear.

All right. And then just one last one, just a follow-up on the commentary about, I guess, online channel. Do you have like, I guess, a time line of when you expect to have like a direct-to-consumer site up? And in the interim, I guess, are you still pursuing to the same extent with your strategy with brick and mortar and online guys with regards to those sales?

Well, look, I mean, we're -- part of our capital spend this year is going to be really to focus on our e-commerce. We're spending our capital in 2 areas. One is we're gearing up a dedicated e-commerce group that's going to focus on driving our sales for e-commerce. That's through our customers, like SVS service people, who are investing to service Amazon to get our products listed there as well as our other customers. And we're going to be investing in capital investments and distribution capacity because that's a real distinction in terms of being successful in e-commerce, is being able to ship, because it's a different skill set to ship to a consumer by the piece, consumer-ready versus shipping brick-and-mortar retailers. So that's something that we're investing in. We're going to be leading that investment, but, obviously -- which we really think is a big opportunity in our American Apparel, e-commerce opportunity. We just launched a brand-new Gold Toe site for e-commerce, and we're also going to be updating our Gildan site very shortly in the next coming months. A lot of our advertising spending is being spent on digital and social. You can look and basically Google some of the new advertising that we have this year. We're really focusing on the millennial. So all of this is all part of what's driving our e-commerce and how we're continuing to drive a strategy that's not just focused on e-commerce but is focused on our brand to support our e-commerce growth, our brick-and-mortar's growth and also to be able to just support the overall growth of all of our brands to consumers down the road.

And we have our next question from Anthony Zicha of Scotiabank.

Rhodri, could you give us a bit of color in terms of what was the organic growth rate during the quarter? And what part of that was due to price increases?

Yes. I mean, if you look at the quarter, our sales were up 12%, right, $72 million. Effectively, $60 million of that was related to acquisitions. If you look at the balance, then it was related to organic growth. But don't forget, we exited $7 million of private labels, and we had some foreign currency headwind also. So if you look at the quarter, effectively, our organic growth did come through. I think we were very happy with the double-digit growth in Fashion Basics, very happy with the momentum in the international markets. And obviously, on -- in Branded Apparel, very pleased with what went on underwear. So overall, we did see that organic growth coming through in parallel with the acquisitive growth.

And the price increase was negligible in the quarter in terms of revenue. This was part of his question right?

Yes.

It was negligible.

Okay. And Glenn, when we look at the price inflation, we've seen cotton going up, how quickly can you pass on a price increase in the Printwear versus the Branded channel or the retail channel?

Look, in Printwear, we can continue to pass price on as we see cotton moving forward. So we'll continue to increase our prices in Printwear, need be, based on the future price of cotton. I mean, that's a given for us.

Okay. And then in the retail channel?

The retail channel, look, we've -- look, we are so far below the competition in price. We just did a price increase. We think it was successful. We'll continue to look at them as we evaluate next year and our cost structure based on future cost of cotton. And look, there's still room for price increases in retail as well, based on our positioning in the market today.

And we have our next question. Our next question comes from Stephen MacLeod of BMO Capital Markets.

Just on the Branded Apparel business. As you look through 2017, and obviously, you came up a strong Q1. And I just wanted to get a sense as to what you're expecting in terms of further private label exit. And potentially also, any new program wins you expect to impact, either the first half or the second half of the year?

Well, for the full year -- we had $7 million in the quarter. For the full year, it's $20 million, the impact to the private label. And all the programs that we have, so far this year in our shelf space, are factored into our guidance that we issued back in February. Obviously, we're continuing to look at new opportunities, but they're not in our forecast. But what we had in-house is in our forecast as of our time we issued guidance.

Okay. That's great. And then on the price increase that you took in Branded segment, was that on a -- was that a price increase that was coincided with the launch of a new value-add product? Or was that a price increase that was put through on existing product that's on the shelf, like your sort of entry-level product in the mass channel?

Existing product in the entry-level mass.

Okay, okay. Great. And then just finally, on the private -- sorry, on the Printwear business. Can you just talk a little bit about what you're seeing in terms of market conditions? I mean, in Q4, you decided them as being okay. Has that changed at all as you've gone through the first quarter?

No, they're just okay. They're not robust, I would say. The Fashion Basics performance are doing well. Our core basics are not doing as well as them. But overall, it's still driving slight gains. But it could be better, I can tell you that. That's for sure.

And our next question comes from Mark Petrie of CIBC.

I just wanted to follow up, actually, on the U.S. retail landscape, and wonder if you could just provide a little bit more color. Sounds like mass has stabilized. Department stores remain weak. But what about other channels for you guys like Dollar, national chains, sporting goods and specialty?

Well, Dollar is doing good, and the off-price is doing very well as well. I mean, those are the areas. I mean, its mass off-price basically are still doing quite well. And obviously, e-commerce is growing, and I think those are the engines that are moving the market today. So the good news for us is that, that's really where our focus is. And -- but I think if you look around, I mean, I don't think -- my personal opinion is that consumer spending is as weak in general right now as we're pretty cautious in terms of how we see things, to be perfectly honest with you. And that's not just in the apparel space, but it's iPhone sales, car sales. I mean, it's just not sort of us. It's a little bit everywhere. So we're cautiously optimistic. We think that we're positioned right, and we're going to continue to execute with all of our opportunities. There's the new shelf space we're getting, the better placement we're going to have. I mean, so we think we're comfortable with our guidance. If a business was better, we would do better. I mean, I would be sort of like, I think, the way to look at it. I mean, I think we feel comfortable with what we guided to. If the markets improve, hopefully, we'll exceed our forecast.

Okay. That's helpful. And I guess, with that landscape in mind, could you just sort of revisit and elaborate on how you look at M&A today? What segments do you find attractive within your existing business maybe to fill in? And then, how would you prioritize that versus, perhaps, a new category that could expand your footprint?

Well, sometimes, with acquisitions, you can't necessarily get picky because it's just what comes available at a given time and point, right? So if you look at the strategy, I think that we're consistent looking at either a brand, a channel, a product, something that will give us opportunity to support our organic growth. So every one of the acquisitions that we've done in the last 5 of them, they're priced right, they get high IRRs, they're a limited risk, they're easy to integrate. So we basically set a criteria up for us that basically -- that will allow us to drive top line sales, drive bottom line earnings, generate free cash flow and continue to grow the business. So if any one of these materializes, they'll meet our criteria. And we're investing, not just in one of our market segments, we're investing in both. I mean, Peds is, today, fully integrated. If you look at the SG&A in Branded this year, it's flat year-over-year compared to last year because we integrated The Peds brand completely into our organization. So those are the types of things, and we put the product below cost manufacturing and then, et cetera, et cetera. So as long as we keep looking for the right deal, the right acquisition that fits our criteria, and we stay true to our course, I think that we we'll continue to deliver a long-term shareholder value.

And we have our next question. Our next question comes from Derek Dley of Canaccord.

Just a question on some of your larger retailer partners on inventory destocking. Have you guys seen any movement on that to a more normalized buying pattern?

Well, no, I think our inventory is pretty well normalized. And basically, what we sell, we replenish as we go forward. And I think we got -- and the inventories have come down to a level that are sufficient with our large customers' requirements. And now basically, we're on a "as you sell, you replenish" basically basis for going forward.

And our next question comes from Tal Woolley of Eight Capital.

Just wanted to talk about inventory returns. You're up about $100 million -- or sorry, about $80 million year-over-year, 10% or so in line with your sales. You've done a couple of acquisitions. Are there any opportunities on the working capital side for you to take that number down?

Yes, look, I mean, we're working diligently on our inventory. One of the things, obviously, through acquisitions, they bring more SKUs and more product. But as -- at the same token, we think that there's still room to continue working on our working capital. I think it's top of mind for the management of the company this year. In fact, all of our business units have incentives to make sure that they maximize their working capital, so there's definitely room to bring down our inventory levels. They may not come down in a lower number, but the absolute number will maybe stay the same as we continue to grow our sales basically and just be more efficient on the inventory that we do have on hand. That might be just a different way of looking at it as we go forward.

Okay. And then just secondly on the moving cotton. Have you seen any evidence of prebuying or stocking up by the distributors, given the run-up in the price?

Well, I mean, first of all, the price hasn't run up tremendously. That's number one. Two, the inventories in the channel are pretty much in balance right now, so we feel comfortable with the levels of inventory. I mean, typically, this time of the year, they do go up because what -- distributors carrying inventory at the end of Q2 to support April, May and June which are the largest POS months of the year, and then as they go towards the end of the year. So if you measure the inventory in the market in March versus you measured in December, historically, it always go up and always comes down, and it's in line with last year.

And we have our next question from Andrew Burns of D.A. Davidson.

Just a higher-level question. Now that you have your U.S.A. supply chain built out for American Apparel, just wondering what that could look like in the coming years. I believe you're using contracted manufacturing now. Would you think about investing directly beyond the yarn facilities? And did you leverage the made-in-the-U. S.A. component to maybe some of your other Fashion Basics brands over time?

Well, I think right now, look, I mean, first of all, we have a large U.S.A. component in general in all of our cost of goods sold because of the huge amount of yarn-spinning we do have in the United States. So that's first and foremost. Secondly, look at -- we've established a requirement for Maine, U.S.A., which, in the case of American Apparel, is large, but it's not necessarily large in the scale of Gildan. I mean, so we've been able to hook up with partners for the assembly of the American Apparel product in the U.S.A., which we're very comfortable with, and we see that being a good partnership. At the same time, a lot of the growth that we will have with American Apparel will come from other markets outside the United States, like for example, Europe, Asia, and for those markets we use a support -- the product that of -- more of the Central America, their regular manufacturing facility. So depends on where it goes. We've got a lot of flexibility. I think foremost, I mean, we're very excited about the brand. We think it's got a lot of legs. And that combining, not just from the Printwear perspective, but we think that there's a huge e-commerce and retail opportunity here as well. So we'll see how it goes, and we'll address our manufacturing. I mean, the most important thing, I think, you can take out of this acquisition, there's no company in the world that can buy a brand with the amount of product SKUs that they have in February and be fully in stock with it 3 months later in a cost structure and manner to support a major launch of the product. I mean, there's just nobody else in the world that can do that, right? So that just pulls to the strength of what we've been able to deliver in our manufacturing with all the investments we made and the skill set that we've been able to develop, it's just phenomenal. So we're very excited about it, proud of the people in our organization, and we're looking forward to the good sales in American Apparel as we go forward.

We have our next question from Keith Howlett of Desjardins.

Just in terms of the 30% POS growth of men's underwear. How is that 30% breakdown between sales at same doors and new doors? I mean, is it an ongoing growth in existing doors? Or is there...

Well, most of it is -- we didn't really open new doors. We just took more space and more product in the existing doors we were in. So it's just a constant development of the retail partners that we have, that's really driving the opportunity and the sales increase.

And then just in terms of the Alstyle manufacturing facility. Could you update us on whether you've Gildanized that at this point? And what you're going to deploy it for?

Well, we Gildanized it for sure because it's running really well, and it's producing good returns for us. It's not fully ramped up. We have room to still grow, obviously, as we support the growth of the company, but the cost structure of the plant is performing very well. Right now, it's supporting some product that we're supporting into the Mexican market. We're looking even to expand into Mexico as we speak. It's one of the reasons why we were interested in the opportunity. From Mexico, we can also service other markets in the Central American region through other trade legislation that Mexico has with these other countries. We're supporting, obviously, our West Coast opportunity that we originally bought the business. So it's going well, and we have lots of growth potential. And again, it's just another one of those acquisitions, I think, that just was perfect. We got a -- for $110 million, we bought a manufacturing asset that is the size of one of our Rio Nance facilities. It gave us diversification, another geographical diversification for our textiles. We picked up sales, working capital. So look at -- this is a very lucrative acquisition for Gildan, and we're going to continue to grow it as we go forward, just like the other acquisitions we made.

And then just on the performance segment in Printwear. Are you satisfied with your brand line-up in Performances?

Am I satisfied? I'm never satisfied. That's -- otherwise, there would be no opportunity, right? So the answer is, no. But I mean, I think one of the things we've been able to do is build a good product line. This year, we're launching polyester fleece for the first time, so -- and some other new core styles that are in our Performance segment. So it's growing. The only caveat, I would say, with that is that polyester in the Printwear market is not as relevant as cotton because it's much more difficult to screen print on. But at the same breadth, I think that what's happening is that there's new technology that's coming out, digital printing, for example, versus traditional screen printing, that will allow printing on polyester to be more cost effective. So when you digital print, for example, to polyester, you have to put it on a piece of paper and then put the sublimation on the polyester or use screen print. I mean, it's a very difficult process. So once that happens, it will -- I think it will continue to grow. I think where polyester is being used today is more in the little league baseball, things that have more performance, jog runs, et cetera, et cetera. So it doesn't have the everyday lifestyle yet in the Printwear market like it may have in some of the sporting goods segments.

And our next question comes from Brian Morrison of TD Securities.

Can I just get a little bit more color on the 210 basis point gross margin improvement in Printwear? Can you maybe just allocate what was the pricing for manufacturing and raw materials and what would be operating leverage? And just subsequent to that, were the realized cotton costs down year-over-year?

Yes. I mean, if you -- if we take a look at Printwear and we look at the impact, I mean, really, as we've said -- really, we saw it in both business units, right? We saw the -- really, the net impact of pricing, of manufacturing cost savings, and we also saw the impact of raw material cost. So the net of all of those, we saw driving the margin improvement. We also, to a certain extent, saw some mix. So if you look at that, we had said that, effectively, that would be coming through in the first half. And then as we move into the back half of the year, obviously, that really starts to diminish, and you start to see the impact of raw material cost really pushing up overall so that we have a neutral -- sort of more of a neutral impact. So it's the combination of those things that were really driving the gross margins in the first quarter.

But sorry, did I hear Glenn correctly earlier saying that pricing was negligible?

Well, we try to sort of -- if you look at it, we bucket it together. We saw some small impact of price. We also saw manufacturing cost savings, and then we obviously saw some cotton costs coming up. So all of that together really was driving the gross margin improvement.

Okay. Maybe I can come at this -- maybe this question is a little unfair, Glenn. But in terms of your guidance, your EPS is up $0.11 this quarter. If we just look at your guidance last year, you add that up, that's $1.62 for the year. If you're active with your buyback, you're probably midpoint of your guidance. So if I listen to some of the commentary in the call, you've got continued market share momentum, you've got potential for price increases relative to headwind of raw materials. But if I look at your guidance, is your expectation really for little or no growth in earnings for the remainder of the year?

Well, again, it's our growth to our earnings is weighted to the first half Q1. Very definitely. Then as you -- if you look at Q2, we see some of that growth. And obviously, it becomes more difficult in the second half. And then obviously, we do have a mixed market environment that we're working within as well. So I think we have said very definitely, higher first half, then obviously a much lower second half as you see those higher cotton costs coming through.

And then the environment is not great. So I mean, truthfully is, that if the environment is better than -- and picks up from relatively where it is today, obviously that will be a positive to our earnings for this year.

And I am showing no further questions at this time. I will now turn the call back over to Sophie.

Thank you. Before ending the conference call, I would like to remind you that Gildan will be holding its Annual Shareholders Meeting tomorrow at 10 a.m. Eastern Time here in Montreal at the Windsor. Therefore, we'll be -- we're not going to be available for questions tomorrow morning. However, we will be available this evening for the next little while to take any follow-up questions that you may have.

Once again, I'd like to thank everyone for joining us today, and we look forward to speaking to you very soon. Have a good evening.

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