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Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2022 Gildan Activewear Earnings Conference Call. All participants are in a listen-only mode. After the speaker’s presentation, we will conduct a question-and-answer session. Please be advised that today’s conference is being recorded. . I would now like to hand the conference over to Élisabeth Hamaoui. Please go ahead.

Élisabeth Hamaoui: Good morning, everyone. This morning, we issued a press release announcing our fourth quarter and full year 2022 results. Please take note, the company’s MD&A and financial statements will be filed tomorrow and made available on our website. Joining me on the call this morning are; Glenn Chamandy, President and CEO of Gildan; and Rhod Harries, our Executive Vice President, and Chief Financial and Administrative Officer and Chuck Ward, President, Sales, Marketing & Distribution. In a moment, Rhod will take you through our results, and a Q&A session will follow. Please note that certain statements included in this conference call may constitute forward-looking statements, which 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 the Canadian securities regulatory authorities. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable IFRS measures are provided in today’s earnings release as well as our MD&A. And now, I’ll turn it over to Rhod.

Rhod Harries: Thank you, Élisabeth, and good morning, everyone. I’d like to start the call by thanking the entire Gildan team for everyone’s excellent work and dedication during 2022. This put us in a position to be able to deliver record full year results with sales up 11% and adjusted EPS of 14% and 573 million of capital return to our shareholders during the year through a combination of share repurchases and dividends. We are now one year into the Gildan Sustainable Growth strategy or GSG strategy. And we are extremely pleased with our progress executing on all three of the key strategic pillars we laid out early last year, focused on manufacturing capacity, innovation, and ESG. And even though the environment has been challenging, with fourth quarter net sales coming in softer than we originally expected.

We believe our strong fundamentals and competitive advantages are positioning us to be able to navigate through near-term macro headwinds and capitalize on future growth. I’ll provide a detailed update on our GSG strategy and our financial outlook later in my remarks. But first, let me take you through our fourth quarter results. We reported total revenue of $720 million, down 8% versus the prior year quarter, due to a 5% decrease in Activewear, where we generated $595 million of sales, while sales in the hosiery and underwear category of $125 million were down 21% in the quarter. More specifically, the decrease in Activewear sales during the quarter reflected continued POS softness in retail end markets, as well as some slowing in printables combined with the impact of the non-recurrence of post-pandemic restocking, which occurred in the same quarter last year.

Highlighting a few bright spots, the quarter included strong sell through of ring spun and fleece products, where we believe our market share continues to grow. And we saw higher year-over-year shipments in international markets as distributors in Europe replenished inventory levels, showing some confidence in the outlook ahead. And as in previous quarters during 2022, higher net selling prices were also a favorable factor for Activewear during the fourth quarter. In hosiery and underwear, we generated sales of $125 million in the quarter, reflecting weak category level demand for these products and the ongoing impact of tight inventory management by retailers. We also saw this reflected in the numbers reported by NPD with demand for men’s underwear and hosiery in the total measured market down again for the quarter without any sequential improvement from Q3.

Moving on to margins, excluding accrued insurance recoveries of $26 million recognized in the fourth quarter, adjusted gross margin came in at 29.1%, down 150 basis points compared to 30.6% last year. The decline was primarily due to higher raw material and manufacturing costs, which more than offset higher net selling prices and favorable product mix. Our SG&A expenses for the fourth quarter were $76 million, down 6% from last year, reflecting lower compensation expenses as well as ongoing cost containment efforts. As a percentage of sales, SG&A expenses were 10.5%, 20 basis points above the prior year, reflecting the impact of lower sales in the quarter. As part of annual impairment testing requirements, we recorded a non-cash impairment charge in the fourth quarter of $62 million, with the charge tied to current market conditions and related to intangible assets acquired in previous sock and hosiery business acquisitions.

You should note, this charge follows a net reversal of impairment for these assets recorded in the same quarter last year in the amount of $32 million. Excluding this charge, and given our combined gross margin and SG&A performance, adjusted operating margin in the fourth quarter came in at 18.8%, down 160 basis points from 20.4% last year, but in line with our expectations for the quarter, despite lower than expected sales. Overall, adjusted net earnings for the December quarter totaled $117 million or $0.65 per share, down 14% from adjusted net earnings of $149 million or $0.76 per share last year. This broad adjusted net earnings per share for the full year to $3.11, a record for Gildan, and we think a testament to the strength of our overall business model.

Turning to free cash flow, for the quarter we generated $131 million, up from $160 million in the prior year quarter, mainly driven by focus working capital management efforts, which combined with insurance recoveries, more than offset the impact from inventory built in the quarter and higher capital investments during 2022. Full year cash flow totaled $198 million, down from $594 million in 2021, mainly due to significant investments in inventories and the impact of higher capital investments. On inventories, you may recall, we were running below optimal levels last year due to the impact of hurricanes in Honduras in 2020 and a tight yarn supply environment in 2021. Our inventory levels now put us in a strong position to service our customers as we move through 2023.

On capital spending, we spent approximately $80 million on CapEx in the quarter, bringing total capital investments for the year to approximately $245 million, with most of the spending related to optimization and expansion projects. Further, we repurchased approximately 1.2 million common shares in the fourth quarter for approximately $37 million, bringing our share repurchases for the full year under two buyback programs to 13.1 million shares or 7% of our float and an overall cost of $444 million. We did this while maintaining a strong balance sheet with our net debt on January 1, totaling $874 million, and our net debt to adjusted EBITDA leverage ratio at 1.1 times at the lower end of our target range of one to two times. This brings me to our update on our GSG strategy and our outlook for the year ahead.

A year ago, we provided an overview of Gildan sustainable growth strategy focused on capacity driven growth, innovation and ESG. We are pleased with the progress we’ve made with our strategy, which is reflected in our strong ’22 results. With our 2022 revenue base of over $3.2 billion and our full year adjusted operating margin of 19.7% coming in at the higher end of our target range of 18% to 20%, we believe our business model is positioning as well to deliver on our long term profitability and return targets. Specifically, by executing on our strategy, we have shifted gears from a year ago when we were capacity constrained. Today, our capital investments have translated into increase manufacturing capacity and flexibility throughout our supply chain.

This has allowed us to invest in inventory and improved product availability, which together with leadership and pricing and ESG is enabling us to adapt to the current environment and take market share in key product categories. Turning to 2023. We feel cautiously optimistic despite ongoing uncertainty. In the first part of 2023, we expect continued headwinds tied to the demand environment and two strong comparative periods, particularly as we cycle post pandemic inventory replenishment in the first quarter. In this regard, while we continue to see momentum in the principles market, driven by the return of large gatherings, and the shift of consumer spending to experiences, including travel, we’re also seeing macro uncertainty weighing on buying patterns, as some of our customers are placing orders closer to their knees, and managing their inventory levels more tightly.

Nonetheless, we believe, we are well positioned to gain share even in a softer demand environment. And we have recently seen this in the strength of our distributor POS, which is now running better than the fourth quarter. With regard to our national accounts business, where we service retailers, our business continues to be impacted by soft demand in retail end markets, and ongoing tight inventory managed by retailers. However, despite this current tightness, we expect demand for replenishment type products to start to normalize, as we move through the year, given the nature of the products we sell. Finally, in international markets, we started to see improvement in Q4, with positive sell through trends in certain regions, together with healthy demand for inventory to support a stronger outlook for ’23.

Moving to the margin front. In the first part of the year, we’re expecting increased margin pressure due to higher raw material and input costs, which are currently in our inventories. As we move past the first quarter, we expect these headwinds to start to abate and to deliver strong margin performance during the remainder of the year. So summing it all up, and looking at our 2023 financial performance, and providing additional color given the current circumstances, we expect revenue growth for the full year to be in the low single digit range, following what will be a slow start to the year in the first quarter, given the demand environment and tough comps. On margins, we expect our full year adjusted operating margin to fall within our 18% to 20% target Range, despite expected margin pressure in the first quarter, driving us 200 to 300 basis points below the low end of our target range.

As we translate this into earnings, we expect to achieve adjusted diluted EPS in 2023, in line with 2022, assuming the continuation of share repurchases aligned with our capital allocation targets of purchasing approximately 5% of our public float annually. Finally, we plan to stay the course on our new capital projects, while managing our existing capacity carefully, demonstrating our confidence in the long term outlook for our business. Capital expenditures are expected to come in at the lower end of our previously stated 6% to 8% range. And with significant working capital investments behind us, we expect to drive strong operating and free cash flow generation for the year. So overall, you can see we enter the second year of our GSG strategy excited and as we prepare to launch production at our new manufacturing facility in Bangladesh in late March, which will ramp-up through the year providing us with new capabilities and opportunities ahead.

Our in stock levels are in great shape. We have significant flexibility in our manufacturing system and a healthy balance sheet. In closing, although the current environment presents its challenges, we remain excited and focused on our long-term strategy. Favorable industry trends remain intact, including the casualization of apparel, the interest in private label, the growing greater economy and ongoing developments in digital printing, as well as the appeal of nearshoring and sustainable practices, all of which are creating long-term growth opportunities for Gildan given our strong competitive advantages. With that, I will now turn the call back over to Elizabeth.

Élisabeth Hamaoui: Thank you, Rod. Before moving to Q&A session, I ask that you limit the number of questions to two and we’ll circle back if time permits. Operator, you may begin the Q&A session.

Q – Paul Lejuez: Hi. Thanks, guys. I’m curious if maybe you could just share a little bit more detail about your first quarter top-line plan and how that breaks down between the two segments. You gave the EBIT margin. But hopefully, can share a little bit more on that — on the top-line function? And then second, wondering if you could talk about the pricing environment within the print wear channel? And how you view your price gaps relative to what you would typically see? And then I might have one follow up.

Glenn Chamandy: Okay, I’ll start with the top-line. And then I’ll turn it over the for pricing, Paul. So if you look at top-line for Q1 2023 I think we called it out that it is a — first of all, it is a tough quarter from a comp perspective, but we had a strong quarter in Q2 2021. And we are calling the quarter down from a sales perspective. And if you look at what’s driving that, if you look at you know where we were in 2022, we were getting prices. We were effectively moving price. We’d started moving pricing in 2021 and we were seeing the benefit of in — that in 2022. But as we move into 2023 that really diminishes. So we’re not getting much price from a top-line perspective in overall sales as we move into 2023. From a POS perspective, effectively, what you’ll see is that we have — we do have weak POS in the first quarter.

It’s soft — POS. So you have POS in the distributor side probably download well single-digit. You have retail down double-digit. So whatever price that we had in the first €“ sorry that we’re getting in the first quarter of 2023 its — for the most part probably being offset by weaker POS. And then if you look at the overall sales number, it’ll be impacted by not being able to comp Q1 2022, the restocking that we saw and then also some — so we do expect to see some destocking in Q1 of 2023. The total impact of that, because again, what’s going on in the inventory environment and how customers are managing inventory tile — tightly, sorry, it’s probably around 75 million in Q1. So effectively, you will see a softer Q1, we’ve called it out, as we effectively move through these affects that that we have to comp and as we work our way through the current environment.

But then obviously, as we move into the remainder of the year, we do see strength from a number of different areas, which we can talk about in more detail as we get into the call.

Rhod Harries: And I’ll jump in the price one. Well, first of all, pricing in the market is stable. It’s roughly the same as it has been in the last two quarters. And the main drivers of I think stable pricing in the market is inflation is still relevant. Just to refresh your memories, we €“ as we increase prices to cover inflation, particularly raw material. We never raised prices high enough to cover the peak raw material cost. It was more than the €“ in the just over $1 range, let’s say and today with content and basis. We’re not far off from where we set pricing. The other factors are there still other inflation, we’re seeing the labors, labor inflation is a factor, materials, energy are all inflation’s as we go forward. So I think inflation is still here. And we believe that pricing will be somewhat stable as we go through the year in 2023.

Paul Lejuez: And then, Glenn, what’s the €“ the average unit cost increase? Do you expect as we move throughout the year when you take into account those cost pressures, labor, raw materials, as I look in first half or the second half?

Glenn Chamandy: So it’s €“ if you look full year, it’s actually pretty low, Paul, right? Again, we’re not really calling out much from a price perspective, as we look at the €“ at the full year. If you look at our low single digit increase in sales, that’s very little of it really is coming from price, I would say, some of it is coming from mix. And volume is sort of staying in there. It’s not, obviously, because if we look at the comp versus last year, from a volume perspective, we’re not a forecasting major volume. Actually, we’re being quite conservative, really when you look at it, when you think about the year, because the way that we’ve set up the assumption is that we are assuming the US market is down effectively for the full year.

And really, what we’ve assumed is that effectively, the sales bumped that we get the low single digit increase. That’s really coming from some recovery in the international markets, which have been very, very weak over the last number of years. But we started to see some strength as we moved out of the fourth quarter. And then, we’re also assuming that we’ll get the benefit of new retail programs, which we can also talk about. So effectively, if you look at the at the full year, not much from price, really, if you look at the real drivers, it’s these two factors that we talked about. And we are assuming a down market in the US. So if the market is stronger than we ultimately expect currently, effectively, we will see the benefit on a go forward basis.

Paul Lejuez: Got it. Thank you. Good luck, guys.

Glenn Chamandy: Thank you.

Operator: Our next question comes from Luke Hannan from Canaccord Genuity. Please go ahead. Your line is open.

Luke Hannan: Thanks. Good morning, everyone. I just want to focus on the inventory for a second, your own inventory. Curious to know how the composition shakes out across each of your, – your product lines, how you feel about that? And then also how you feel about capacity moving into this early part of the year where presumably demand is going to be a little bit weaker? And if we look at some of the other peers in the industry, it looks like they’ve scaled back capacity? So I’m curious to know, your thoughts there on your positioning going forward?

Rhod Harries: We’ll start off with the inventory and like anything else, we continue to invest in our business and inventory for us as investment. We believe that our inventory is well positioned, it’s in historic levels. It’s — we’re running around 34% working capital today, which is in line with historic levels. And we have the balance sheet really to support this level of inventory. But inventory, we think is going to be a strategic advantage. It’s in — allow us to, we believe gain market share in this market, as we see — we competitors that can’t afford to finance high levels of inventory. And so we think that’s going to be a competitive advantage. And as well as even on the manufacturing front, I mean, we’ll continue to invest into the future.

We’ll continue to invest in capital investments we’ve completed all of our ramp up into DR in Central America. Like Rhod said, Coronado will start at the end of March, but really be a slow ramp up during this year and into 2024. And this capacity is we’ve got everything in place, we believe, to really support our GSG strategy. And one point on the RFP is on our capacity, we’ve got flexible capacity and flexible utilization. So our goal, our forecast this year, obviously, we’re not utilizing 100% of our capacity, we’re very comfortable with our operating margins in the 18% to 20% range. So — utilization of capacity of our system will not materially affect our margin profile. And at the end of the day, look at the Gildan historically, has built capacity.

And we’ve sold that capacity. And we’re very confident that as we drive through this year into next year that our GSG strategy, our positioning, our investments will occur and we’ll utilize all the capacity that we’ve got on — in the process of developing.

Luke Hannan: Okay, I appreciate that. And then for my follow up here, the international markets Rhod, you touched on — you guys saw strength there during the quarter, curious to know which particular markets where you saw strength and growth and where which markets rather, are still lagging and what the trends have been so far, early in the year.

A €“ Rhod Harries: Chuck will handle — I’ll turn it over to Chuck. Yes.

A €“ Chuck Ward: Good morning, Luke. Thanks for the question. I think as we look at the international markets, the Asian markets, parts of them continue to be more challenging, as there continues to be certain restrictions in those markets. And so they’re lagging as we see the return. I think what you’re seeing is a little more optimism in the European market, from our both UK and European distributors. So we’re seeing potential upside from an international perspective in Europe and continued challenges in Asia.

Luke Hannan: Okay, thank you.

Operator: Our next question comes from Stephen MacLeod from BMO Capital Markets. Please go ahead. Your line is open.

Stephen MacLeod: Thank you. Good morning. Just wanted to start with — I just want to — give a little bit of color around your visibility around the top line as you move beyond Q1. Just sort of what you’re seeing in terms of puts and takes on your improved outlook beyond Q1?

A €“ Glenn Chamandy: Well, there it — it was just — I just want to reiterate, I guess the forecasts were, we’re planning to have low single digit growth, right, and particularly in the US market, being down and all of the growth coming from new program, both in our retail and our GLB categories. And — so for us, I guess sort of the opportunity for us is that if there’s more market recovering in the US, I think we’ve taken a very conservative approach to our forecasting. And that potentially could be upside. And maybe I’ll let Chuck, just talk about the POS and the position today in the market.

Chuck Ward: Thank you, Glenn. I mean, I think Stephen, the way we see it, as Glenn says, with the low single-digits, how it’s going to mix as North American down and as he said, we’ll probably — we’re cautious there. We’re watching the North American market. As Rhod said, we think international will be slightly up as we go through the year. And then really, the growth is kind of, as Rhod said in his opening remarks is around some of the new programs. And that’s going to drive the sales growth, that’s going to deliver the low single-digits. That’ll be no new programs sort of across the board, whether it be expansion in our underwear space, we have some new programs in the underwear space. We also have some new programs with some global lifestyle brand partners as they continue to look at nearshoring and then finally, within that North American imprintables market, you’ve probably seen we’ve continued to launch more and more ring-spun product both in the fleece and the T area.

And so we think that will be a positive area to help drive growth to cover some of the some of the downside on the North American market.

Glenn Chamandy: Maybe just one more point is that, in the Printwear market, particularly in Q4, we saw some negative POS, basically. So, if you look at the year, last year, we started January, February, where things were booming, and then sort of we sort of deteriorated our POS, as we went through the year and Q4 was somewhat, a little bit more disappointing, to be honest with you. We factored same types of levels of POS that we saw in Q4. The good news is I think that as we’ve sort of gone through January and February, we’re actually seeing in our distributor business, at least POS picking up almost flat two last year, which is I would say relatively strong two months before we had to tell us that. So, that’s an encouraging sign. So, hopefully, we’re cautiously optimistic and — but we can only forecast conservatively in this macro-type environment. But so far, in the beginning of this year, POS has been a little bit better than we anticipated.

Stephen MacLeod: Yes. Okay. That’s great color. Thanks guys. And then maybe secondly, on the gross margin, obviously, seeing some pressure in Q1, do you expect that once you get past Q1 into Q2 and beyond, on a quarterly basis, you’ll be within that 18% to 20% target range?

Rhod Harries : Yes, that’s the way we’ve got it modelled out. So, Q1, as we called out, we will be 200 to 300 basis points below the low end of the range, right, as we effectively deal with the factors that are highlighted in the opening remarks. And then as we get into the second quarter, third quarter, fourth quarter, we do see strength back in our margins. So, effectively, the second quarter will be significantly stronger than the first quarter and back on our range. And then obviously, as we continue to go through the remainder of the year, we expect to run well within our range. So, we feel good about margins as the year unfolds. I think if you look at our manufacturing system and what we control, our supply chain, we know what we have in inventory, I mean, all of these things, we’ve got, I think a very good handle on our — on the cost structure.

And so, I think we can speak with confidence really around margin performance for 2023 on the back of what we’ve delivered in 2022.

Stephen MacLeod: Great. Okay, well, thanks, guys. Appreciate the color.

Operator: Our next question comes from Vishal Shreedhar from National Bank. Please go ahead, your line is open.

Vishal Shreedhar: Hi. Thanks for taking my questions. I just want to get a bit more color on mix. And management suggested that mix would be a favorable factor again in 2023. And I understand fleece was a contributor in 2022. And fleece may have been a contributor due to work from home, as work from home unwind, would you expect that, fleece contribution to similarly unwind and put some pressure on gross margin. How should we think about that?

Rhod Harries: Well, as far as fleece is concerned it still growing rapidly. In fact it’s accelerating as we speak. So we’ve — what’s driving our POS so far in Q1 is actually even more robustly sales. So it’s been a contributor and as well as carry over fashion T-shirts, segments, so both of those continue to drive both top line mix and performance.

Vishal Shreedhar: Okay. And does management understand the drivers behind fleece? Is it still work from home demand, or is there some other driver that we should contemplate?

Rhod Harries: Well, I think it’s a lifestyle thing. You know, people are wearing more smart casual wear or its creator economy. It’s all the factors really, I mean, people are still casual, even though they’re just getting out of the house and so. It’s just, — it’s definitely a lifestyle thing.

Vishal Shreedhar: Okay. And just switching gears here, with respect to labor across your various manufacturing platforms, how does management feel with regards to labor in your facilities?

Rhod Harries: Well, labor factor in we’ve seen, — we’re seeing inflation both last year and we see continued inflation, in labor across our manufacturing globally, be honest with you. So, inflation is a factor and energy is a factor and materials and materials and so all of these factors are supporting inflation. So, the only some relief a little bit is cognitive sort of normalized back down to levels it is today. But definitely inflation is there. And I think at the end of the day, it’s going to continue to support long-term pricing.

Vishal Shreedhar: Okay. And with respect to getting the bodies you need in your yarn-spinning studies that issues have is under control.

Glenn Chamandy: Yeah. No, So Vishal you’re asking about the labor in yarn. Yeah, it was an issue for us in 2021. And in 2022, we started to get our arms around that. The environment improved. And now as we move through 2023, availability of labor is not a concern for us. We have the labor that we need. And that we don’t see that as being a constraint. Actually, we see our yarn operations are in very good shape, really, with the after the acquisition of frontier. And we’ve been integrating and optimizing. And so we feel very good about the supply chain and our ability to run, yarn, textiles sewing. And as we go forward that really puts us in a position of strength.

Vishal Shreedhar: Thank you.

Glenn Chamandy: Thank you.

Operator: Our next question comes from Brian Morrison from TD Securities. Please go ahead. Your line is open.

Brian Morrison: Hi. Good morning. Thank you. So potentially for Chuck or for Glenn here, you talk about these new program opportunities. And it sounds like Private Label and GOB. Can you give us some more details like deep contracts and award? How should we think about magnitude? And then, you did talk about some update in Q1? Is it still in the same timeframe, or have they been pushed out at all?

Glenn Chamandy: Yeah, Brian, I think from the from the new programs perspective, the ones I was speaking to are all things that we have been awarded, and we’re moving forward with. The timing of the launch of different ones takes it takes effect throughout the year. But those are programs that aren’t speculative. They’re the things that we have been awarded. So we kind of have a good feel for those and when they’ll come through. From a Q1 perspective, I think, as Glenn said, it has been — POS has been a little bit better than we would have expected, especially going off a strong comp from Q1, 2022. And in the — in printables and distributor channel, still some challenges there. But it’s definitely better than we had maybe expected. January, a little a little worse, but then February, we’re starting to see it pick up.

Brian Morrison: Okay. And specifically, are these new programs, are they private label or are the GLB, the Nikes, Adidas of the world?

Rhod Harries: Yes, they’re across the board. So you hit them all. So we have some — some are private label, some are in the global lifestyle brands as well, and some are Gildan.

Glenn Chamandy: As you recall, in our last call, we mentioned that we had — we picked up quite a few underwear programs, additional shelf space in underwear, and these were all the driving factors of our growth in new programs.

Brian Morrison: Okay. Thanks for that clarification, Glenn. And then, maybe for Rhod, I just wanted to circle back to the corporate inventory. I know you say you’re comfortable with it. It’s up about 17% from 2019, admitted that was a bit high. So is it really volumes are somewhat flat and its inflation and mix with much more fleece in there? And, I guess, maybe, how should we think about corporate inventory balance as we look out to year end? Is it going to be a source or use of working capital?

Rhod Harries: Glenn gave the explanation of where we are in the inventories. And we — if you look at — and again, I call it out, right, I mean, we’ve — the last number of years, we ran with low inventories and we needed to get back to optimal levels, more optimal levels, and we’ve been working away. And we’ve been able to do that, as we’ve really built out our supply chain and — from a number of factors. So if you look at where our inventory levels are, right now, and the fourth quarter was 1.2 billion, it was up year-over-year. That was driven by higher units; that was driven by higher costs. Again, we needed those units effectively in order to service the business. Now we’re in a very good position to serve as customers.

It is — again, you have to remember, we’re all basic replenishment products. And as Glenn said, what we’ve done is we’ve worked very hard from an overall working capital perspective, to actually be in a position to be able to invest in this inventory. So if you look at our broader working capital, we’re in — we finished the year at 34%, and right in our range of 30% to 35%. And so, now, at that inventory — with that inventory level, we do see, as we go through the year, pretty well, I would say, flat inventory levels, as we move through Q2 — sorry, Q1, Q2, Q3 to Q4. And so, we don’t see significant investment in our inventories required as we go through 2023. Actually, that’s what drives the strength of our overall free cash flow. Because if you looked at our free cash flow in 2022, we had $200 million in total and we had a working capital — not inventory, but a working capital build of around $300 million, which we’re not expecting in 2023.

We also had higher CapEx in 2022 than we’re expecting in 2023. And 2022, we were more in the higher end of our range, our target 6% to 8% range, that we’ve said that we were going to be in through this type of period. And this year, we expect to be in the lower end of that range. So, I would say, we feel very, very good. Our inventory position is good. We can service our customers. And we do expect to generate a significant amount of cash, as we go through the year. And then that, obviously, ties into the fact that we’ve announced the dividend increase and we’re planning to do the share buybacks. So, all in all, we feel, set up very well for 2023.

Brian Morrison: All right. Very good color. Thanks very much, Rhod.

Operator: Our next question comes from Jim Duffy from Stifel. Please go ahead. Your line is open.

Peter McGoldrick: Hi. This is Peter McGoldrick on for Jim. Thanks for taking our questions. First, I wanted to get an idea of your expectations for private label into 2023. Can you add some perspective on growth in private label relative to branded products? How should we think of mix contribution into 2023 net of new programs, et cetera?

Glenn Chamandy: Well, we don’t think there’s going to be a big mix change in private label versus our brand products. I mean the margin profile is relatively the same. And as we said earlier, I mean, these programs have been awarded and they’re basically part of our forecasted plan for 2023. So we’re continuing to look at obviously new opportunities. It’s not — one of the things we said last call was that as we entered 2022, we were really held to the metal in our existing business, we really weren’t focusing on new programs. And then as we sort of saw the downturn happen in Q2, Q3 last year, we aggressively started going after new business, which we’ve obtained and we’re continuing to look for other opportunities as we move forward.

So our objective is to continue driving our GSG strategy. And all of the elements are going to be to obviously take market share with our great inventory position that we have in the printwear market, continue to utilize and drive near-shoring opportunities, private label, international sales. So these are all parts of our growth initiatives, and I think we’re going to continue to stay focused on our core competency and making sure that we achieve our targets.

Peter McGoldrick: Thanks. And then switching to the Print business. How big — could you give us an update on how big the digital printing business is and how this area of the business has progressed relative to the traditional print business?

Glenn Chamandy: I would say it’s pretty difficult for us to give you a number on it. But I would say that one of the big drivers of growth during 2021 was partly the greater economy, digital printing, online selling, which is also the part that I think that has come down a little bit in 2022 as we saw e-commerce sort of leveling off. But replacing that was people getting out and all the events, raw-concert, sporting events, different things. So I don’t think that’s structural because I think that, that will continue to be a growth driver. I think it just peaked during the pandemic because people were home. But we forecasted. And as we went to our investor conference last year, and we sized the size of the market, we did a recap refresh on that.

And basically, everything is still intact other than I think the economic market has sort of contained the growth rate a little bit as we move. But I think all of the pieces are still heading in the right direction on a longer-term basis.

Peter McGoldrick: Thanks.

Operator: Our next question comes from Jay Sole from UBS. Please go ahead. Your line is open.

Jay Sole: Great. Thank you. Glenn, you made some comments earlier in the call just about the competitive landscape and how the current environment has made it difficult for some competitors. Can you elaborate on that a little bit? Maybe just talk to us how you’re seeing the competitive landscape shift versus maybe a couple of years ago and what that means for your ability to take market share?

Glenn Chamandy: Well, I think that if you look at the landscape, not just here in North America, but I would say, globally, the running capacity rate of the apparel industry length and I prefer that to yarn and textiles, et cetera is relatively low throughout the globe right now. So that’s, that’s a big factor. You know, one of the things we see is that there’s two elements, I think that are going to be big opportunities for us as we move forward is that, as the cost of capital continues to increase, the carrying cost and the capability for manufacturing expansion is going to be difficult for a lot of companies. And the strength of our balance sheet allows us to do both is to carry the inventory, as well as to continue making those capital investments because we can afford to do.

And you can look at anybody who’s basically has high debt, high leverage, and as his leverage comes due, either private equity or companies that have leveraged, their ability to support inventory, I think as on a go forward basis will be limited. And they’ll manage those inventories down and will be difficult for them to service the market, particularly when the market rebounds, but I think even and it takes time to restart your engines, right. So, you know, we look at us, we took us almost a 1.5 year, from the hurricane and 2021, the pandemic, and, you know, just to get all that capacity coming online. And we think that this is a real opportunity for us right now. And that’s why we’re very confident and carrying the inventory levels that we are carrying, and continue making the CapEx that that we’ve committed to so for both those reasons, we’re very optimistic about committing and achieving our GSG strategy targets as we go forward.

Jay Sole: Got it. Thank you so much.

Operator: Our next question comes from Chris Li from Desjardins. Please go ahead. Your line is open.

Chris Li: Hi, good morning, everyone. Maybe just a first question for Rhod, just maybe follow-up to your answer to Brian’s question. I was wondering, do you €“ would you expect your leverage to remain in the lower end of your one to two times target range by the end of this year? And then when can we expect you to resume buying back shares again? Thank you.

Rhod Harries: So the answer is that yes, we do expect the leverage to be at the lower end of our target range as we move through the year and definitely by the end of the years, again, given the strong cash flow generation. And as I said, we do plan to be able to buyback, we called out 5% of our shares. You’ll see us do that on a consistent basis as we go through the year. I think if you look at 2022, we bought back 7%. And effectively, so we were above our 5%. And as we finished up the year, effectively, we lightened off a little bit. But as we move through 2023, you’ll see us pretty well on a steady cadence, effectively delivering the buyback of the 5%. And again, what we’re really excited about is that our balance sheet is in great shape, our leverage we are forecasting will be at the low end of the range.

And we’re well positioned to do all the things that Glenn just talked about. So I think we’re in a strong position to drive the organic growth, and we’re in a strong position to return capital to shareholders.

Chris Li: Okay, that’s very helpful. Thanks, Rhod. And maybe one for Chuck or Glenn. You mentioned earlier that you believe your low-single-digit revenue growth down for this year could be a bit conservative, because you expect the North American market to be down. Can you quantify or maybe give us details, how much — like how much is down? Is it low-single-digit, mid-single-digit? How — what’s the magnitude so we can get a sense of how conservative your forecast might be?

Glenn Chamandy: Rhod?

Rhod Harries: Yes. So if you look at effectively what we’re planning, Chris, for North America, down, it’s sort of in the low-single-digit range, right, when you look at it. So, if you listen to sort of all the commentary about what we’re forecasting, we are — we know that we will not be able to effectively comp some of the restocking that we saw in the early part of 2022. And that ultimately will come out of our forecast in 20 — and has come out of our forecast in 2023 for North America. So effectively, if you make that adjustment and look at where we are from an overall perspective, we’re sort of down low-single-digit is the way to think about North America. But then again, it’ll be offset by the excluding the new programs then we have the new programs that we layer on, and then we have the international.

So, again, I think it’s a pretty conservative setup for the year. And again, the first quarter is softer, as we’ve called out. But given the strength of overall end consumer demand — obviously, let’s see what people do with their inventories as we go through. Glenn just talked about it. But given the strength of the consumer, I think it’s a good setup really as we look forward into the year. We’ve been conservative and we’ll see how it plays out and we hope to see stronger outcome than what we forecast.

Chris Li: Okay. Sorry. And maybe just a quick follow-up on, I think you also mentioned that, in February you’ve seen the Gildan and POS is starting to increase versus a year ago. Is that mainly driven by your ability to gain market shares or are you actually seeing some resilience on the demand side of things?

Glenn Chamandy: Well, we think it’s still — I personally believe that it’s our positioning and taking market share. I think the market is somewhat still down. But I think that we’re seeing ourselves with positive comps, because of our positioning, and driven by mainly fleece, and like I said before, the fashion — the fashion side of the businesses are the big drivers, obviously, of our growth. So, I think we’re just well positioned in general to continue to take care of the market.

Chris Li: Great. Thank you and all the best.

Glenn Chamandy: Thank you.

Operator: Our next question comes from — our last question will come from Mark Petrie from CIBC. Please go ahead. Your line is open.

Mark Petrie: Hey. Good morning. Thanks for all the comments so far. Just a couple of follow-ups. Within retail in Q4, how much of the weakness was sort of at shelf with your programs versus national accounts order or demand?

Rhod Harries: So if you look at Q4, really, we saw the retail environment down. If you look at the POS, generally, it was down double-digit I would say on the retail side, but it was across the all of the retail end markets, Mark. So if you look at national accounts, if you look at the sales to the big retailers, because a lot of sales of the national accounts end up in retail, right. So, we see sort of similarities on the national accounts, and the national accounts in Printwear I’m talking about, because we call everything, including retail national accounts as well. But it was pretty, I would say, similar across all of the different channels and retail customers. I mean, it was a soft quarter in retail and we saw pretty well everywhere.

Mark Petrie: Okay. And with regards to sort of end market demands within the distributor channel, I know you’re saying industry volume down for 2023. But is that driven by one market more significantly than another in terms of the end markets, or is it pretty balanced as well?

Glenn Chamandy: It’s pretty balanced.

Mark Petrie: Okay. And then do the account wins in retail impact the EBIT margin at all? Are they consistent with the overall profile?

Glenn Chamandy: It’s very consistent with the overall profile.

Mark Petrie: Okay. And then last one, I’m just curious about your views or any comments or you can provide about the competitive dynamic within the Printwear channel particularly as if volume does blow through the course of the year, how you expect and I know you were talking about sort of inventory positioning and the challenges for people there. But I’m specifically curious about views on price and how that might play out?

Glenn Chamandy: I would say that, maybe the view of price underwear of looking at is that our cost structure I think is in far better shape than the industry’s cost structure, both from our cost of carrying raw material as well as our manufacturing costs. So I think and the inventory levels in general and the lack of capacity being utilized today. People need to sell down their inventories and they’ve stopped producing product and those costs of those inventories are very high, which is going to continue to support the price in the market. I mean, it’s just price is not going to drive this market at all. I mean, there’s no — it’s not like in the past where — what drove the price in the market was big user and user events that basically somebody went and bought 500,000 shirts and to be chased that program basically, and use price to be able to go get it.

I mean, those programs are still not there. So, when you started looking at what — what’s out in the marketplace today, I think price that is never going to move the needle in terms of volume. So you take that into account, I think, with people’s high costs. And the fact is that most manufacturers in our segments are significantly cutting down inventories and manufacturing capacity and think they’re running maybe at 50%. They’re lucky. So, we’re in a good position. We came off obviously very low inventories in 21 to support our build, and we’re running at a relatively good rate. And our cost structure, I think, is in good shape, both from raw material, as well as input cost. So I think we’re well positioned. And I think we’re very comfortable with our forecasts.

Mark Petrie: All right. Appreciate all the comments, and I wish you all the best.

Glenn Chamandy: Thank you.

Operator: And we have another question from Sabahat Khan from RBC Capital Markets. Please go ahead. Your line is open.

Sabahat Khan: Great. Thanks. So just a clarification question. I think when you’re talking about POS being somewhat better during the early months of 2023, especially, that will help you kind of get the distributors in better inventory position, so they can order later, or do you think there is sort of upside to a guidance they are already providing in terms of you might be able to ship more to them than you initially thought, or is that just that’s what you’re expected for them to be able to do deplete their inventories next few quarters?

Glenn Chamandy: What we’re saying is that we’re comping really, you know, we had — negative, let’s say, POS in Q4, which is our worst quarter of 2023. So, you know, we’ve took — we’ve taken our forecasts in that light. You know, January and February were very good months in terms of POS in 2022. So we’re able to comp those as we go through the year, as we saw a deterioration in POS during the year and we’ve forecasted negative POS for the full year. So therefore, you know, we should have been in pretty good position to potentially have some upside. So we’re cautiously optimistic. And we’ll see where the market goes as we move forward.

Sabahat Khan: Okay. And then just quick clarification on Q2, I definitely call up some of the tough comps, et cetera for Q1. For Q2, I guess, do you expect sequentially improvement if look for some top-line growth in Q2 here as well year-over-year?

Glenn Chamandy: Yeah, if you look at Q2, effectively, yeah, I would say that we do see weakness in Q1, as you said, , I think, as you we go to Q2, I think, that’ll be again, it was a tough quarter when we looked at Q2 2022. We did almost $900 million of revenue. So it is a big comp. So I think there I think it will be a little tougher but again, as we move through Q3, Q4 we see real strength. So I think that’s probably about as much color as I want to give you on the way the quarters unfold.

Sabahat Khan: Okay. Thanks very much.

Operator: We have no further questions in queue. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.