Brian Morrison: Okay. Thanks for that both Rhod and Chuck. I want to follow-up with my second question, which is for Vince. I want to circle back to your creation of long-term shareholder value in your prepared remarks. Again, it’s early days. It sounds like you’re content with GSG, but high level, what are your initial thoughts on growth drivers or avenues as we look beyond the execution of the near term GSG strategy? You mentioned international, you mentioned the cost advantage, but does anything stand out that requires a material shift from the current strategy?
Vince Tyra: No. I think I’m quick to answer that. I don’t see a material shift in our Gildan sustainable growth strategy. I think it’s pretty down in terms of what, like I said, there’s coming off the back to basics, the SKU rationalization, where manufacturing is today with certainly you can see the plan in Bangladesh where we want to the DNA is to be a low cost producer. And I think just leveraging the Bangladesh investment is going to be important as well. That also avails us opportunities in Europe and international that maybe strengthens our opportunity to expand there. So, no, I don’t see anything material that we need to — we just need to enhance upon what we have.
Brian Morrison: Thanks very much.
Operator: Your next question comes from the line of Luke Hannan with Canaccord Genuity. Your line is open.
Luke Hannan: Thanks. Good morning. I wanted to ask about product innovation, which has come up a number of times on this call and specifically on the new products that were introduced last month. Can you give us a sense of directionally what roughly are we talking about in terms of the magnitude of sales that will — this will impact or even the percentage of SKUs? And where else do you see opportunities for innovation within the portfolio?
Chuck Ward: Hi, Luke. This is Chuck. So I’ll take that. A few things. One, as we think about innovation, we think about innovation across not only product, but also our manufacturing and our ESG. So we continue to innovate throughout. And so we’re continuing to constantly focus on where we can innovate in the product. As you said at the show, we were excited about the innovations we put out around our core basics. We really touched each one of the basics our Style 2000, our Style 5000, our 8000 and our fleece. So we wanted to make some changes there to give it better features of [indiscernible] better printability. I think it was well received in the market and we’ll start seeing that product come through the market midyear.
And then from an impact perspective, we think it shores up our base OE product, and then we’ll continue to grow in that fleece area. We’ve seen drastic growth as I was mentioning double-digit growth before in fleece that’s going to continue. And so it just shores up that base and will continue to drive growth across the category.
Luke Hannan: Okay, understood. Thanks. And then for my follow-up here, I just wanted to ask about, I guess, where both retailers and distributors are sitting as of today when it comes to inventory? Where does that stand versus pre pandemic levels, maybe in terms of weeks of supply or otherwise? I know it was mentioned that it seems like everyone is ordering a little bit closer to their needs. But I guess is the overall thinking that these parties feel like can they do less or — sorry, can they do more with less inventory on hand?
Rhodri Harries: If you look at where we are from an inventory perspective with our customers, Luke, I would say we’re at good levels. We’re at a normalized level. And as I called out earlier in my remarks, over the last few years, we’ve been working to build back our inventory so that we can effectively get our customers to normalize levels. So I would say if you look across the Board, we feel like inventory is in good shape and where it needs to be. And for the most part now, we’re passed all of the pandemic impacts, right, of inventories going down and then going back up again to a certain extent and then coming down particularly on the retail side. So printwear inventory is in good shape, normalized levels, and I think that’s great from a POS perspective because you have to have that inventory to drive the POS.
That’s how we see the strong growth in fleece and in ring spun and across the Board, because were everybody is effectively well replenished. On the retail side, if you look at inventory levels there, if you recall in ’22, we had the impact of destocking going on in ’23 that moderated a bit as we move through the middle of the year. But as we’ve gotten to the end of the year and as we move into ’24, on the retail side, we are again seeing tight inventory levels. I think people are being very careful in the way that they manage their inventory in this environment. And so on the retail side, I would say probably there we see it a little bit more tighter than on the printwear side where that’s a little bit more normalized. Whereas if you look on the retail side, people may not necessarily be replenishing to POS.
They might be going a little bit lower than that in order to keep levels at, I would say, for them very well positioned, I suppose, against for the macro backdrop.
Luke Hannan: Okay. Thank you very much.
Operator: Your next question comes from the line of Mark Petrie with CIBC. Your line is open.
Mark Petrie: Hey, good morning. Thanks. Vince, just given your background both with brands and distributors, can you talk about your views on Gildan’s positioning as a brand portfolio? And if you see any holes or opportunities? You mentioned the American Apparel specifically, I’m hoping you could just expand on that and the broader topic.
Vince Tyra: Yes. I mean, obviously, the Gildan brand is even stronger than when I left the industry. The market share is enviable, as I mentioned, to be in this position. So I think that part of it is strong in terms of what we’re doing in the market share. I think Chuck’s hinted at the ring spun and fleece where we feel like there’s still a lot of opportunity to grow and we’d love to see those categories reach the open end market share dominance that we have. But I think when you look at the American Apparel and Comfort Colors both, I mean, I can remember buying Comfort Color from Barry Chouinard years ago and seeing where the brand is today and how it was merchandised at in the trade shows was, frankly, terrific. And even talking about the innovation behind the scenes with use of water and how we wash the garments and so forth.
So it’s what we do from there. As I said, tweaks and enhancement maybe in the marketing side of things. Don’t want to get into a lot of SG&A. That’s not the driver of this brand, nor in American Apparel. So I don’t want to make you believe that we got big plans around that. But the heritage of the brand with the customers, I think is strong. These distributors appreciate what the brand brings about much like I did in the early 90s and through the early 2000s. And if anything, that’s been accentuated over the years. So I just think there’s opportunity still within the Gildan brand, but also in the ancillary brand of American Apparel and as we continue to enhance that and reenergize it. And then with Comfort Colors, it’s still got a great place in resort wear, it’s got a great place in the Greek wear, if you will, on college campuses.
And what we do is if we here, we’ll be a lot of fun to play with.
Mark Petrie: Okay. I appreciate that. Thank you. And I wanted to also just ask about retail shelf space. How much of the programs that you won were reflected in Q4? Was that sort of fully embedded there? Is there further gains embedded in the guidance for 2024? And would you say that there’s potential upside based on what you’re seeing in the market today?
Chuck Ward: Mark, I would say we did have some programs in 2023 that were launched and are in our results for 2023. But in the guidance Rhod gave, we also have some new retail programs in both activewear, some changes in some underwear programs that are reflected going forward as well as I think we talked about — Rhod talked about some of the 2024 growth, I mean that we’re going to see. We’re going to see it in retail again through the underwear, some activewear. We’re also going to see it in the hosiery side, because despite the UA license non-renewal there, we are filling up that capacity with margin enhancing programs from some other brands. So we feel good about that. And then obviously some of our global lifestyle brand partners on the activewear side, we see recovery there. So there’s definitely new programs and recovery built into our 2024 guidance kind of across each of the channels.
Mark Petrie: Okay, thanks. And I guess maybe just to follow-up, Chuck, the other than the sock replacement program, because obviously the UA program doesn’t expire until end of next month. But other than that, are those programs already in place in general or can you just give us a sense of how that plays out through the year?
Chuck Ward: Yes. Well, they’re in place and they’re in the plan. They’re not things we’re still having to go chase. They are locked in. Now we’re just as we brought down manufacturing of some of the UA product, we filled it up with other product along the way. So we’re able to switch that out and basically replace that with again margin accretive programs going forward.
Rhodri Harries: And Mark, some of these programs are doing very well in the marketplace, right? When we think about the — Chuck called out on the GLB side. So in some respects, we’re very pleased with our positioning. The programs that we’re running with on the GLB side are winning, are gaining market share. The program that we’re getting out of, the license that we’re getting out of, in many respects, we see that as almost a back to basics initiative. So if you look at the complexity, if you look at the cost of the program, you look at the as Chuck and I have mentioned, the margin is very, very low associated with that profitability in the very end. So I mean, we’re very excited actually in the way things are shifting because we get to use our capacity, I would say in a more productive way and the programs that we’re behind in supporting the GLB partners are doing very well.
They’re taking share. And so our positioning on the hosiery side, I would say is good as we build through ’24 and ’25 as we move forward longer-term.
Mark Petrie: Understood. Appreciate the color.
Rhodri Harries: Thank you.
Operator: Your next question comes from the line of Chris Li with Desjardins. Your line is open.
Christopher Li: Hi, good morning, everyone. Maybe I have a two part question on capital allocation. At first, you mentioned obviously very strong free cash flow and leverage is very solid expected for this year. I’m just wondering in terms of your share buyback, Rhod, do you expect to spend about the same amount of money on share buyback this year as you did last year?
Rhodri Harries: Yes. If we look at the share buyback, Chris, as you said, we feel very much that we are positioned to continue with our share buyback as we move through ’24. I mean, we’ve got, I think a strong record of returning capital to shareholders. And I do want to start by also just calling out the dividend increase that we’re doing, right. So we’re excited about our ability to do the 10% dividend increase. That’s a third year in a row where we’ve increased our dividend. And then as we think about running out return of capital to our shareholders, we very definitely think about the share buyback program. And if you think about what we’ve been able to do over the last few years, last year we did 7%. And we do have, I would say a baseline positioning of being able to do about 5%.
And I would say this year again, because of our overall strength of our balance sheet or free cash flow, I wouldn’t be surprised if we wouldn’t be able to do a little bit more than that throughout the full-year. That’s how we’re thinking about NCIB as we start the year.
Christopher Li: Okay, that’s helpful. And then maybe related to that is on M&A, I apologize if you made comments maybe earlier, but just what’s your view on M&A overall from a capital allocation perspective?
Vince Tyra: Yes, and this is Vince. I think I’ll take that one. I mean the company had a kind of history in the mid-teens at 2013 to ’17 time frame where there was acquisitions. But right now, our capital is focused on organic. I think that’s when we think about what we have next related to late M&A, I don’t foresee that as our plan this year as we think about it. And I think our allocation is geared towards Bangladesh, more towards innovation and organic play, not in the inorganic area.
Christopher Li: Great. Thanks very much, guys.
Vince Tyra: Thanks Chris.
Operator: Your next question comes from the line of Martin Landry with Stifel. Your line is open.
Martin Landry: Hi, good morning guys. I would like to dig into the Q1 guidance. You’re talking about a margin which is going to be coming in at the lower end of your 18% to 20% range for Q1. But you’re also talking about cotton being a tailwind in 2024. So I’m just trying to reconcile the two and trying to understand why your operating margins are going to be a little soft at the start of the year?
Vince Tyra: Yes. Thanks, Martin. So if you look at Q1, I mean the primary reason that the margins are going to be a little bit lower is because it’s a smaller quarter, right? So if you think about Q1 compared to Q2, Q3, Q4, effectively gross margin is in good shape as I said, right as we leave 2023. And then from an SG&A perspective, you tend to see our SG&A — because our SG&A is reasonably consistent quarter-to-quarter other than distribution expense. You normally see our Q1 is a little bit higher from an SG&A perspective. So if you look last year, we were at 11%, 11.5% of sales. And so as we think about Q1 this year, effectively probably around the same range, is the way to think about that. And as a result of that, you end up with operating margin a little bit towards the lower end of the range.
But again, we feel like our operating margin for the full-year is in great shape. We’ve called it out as being slightly above the high end of our range. And you’ll definitely see that as we move into Q2, Q3, Q4.
Martin Landry: Okay. And cotton prices have spiked up a little bit recently, and I was wondering how much have you covered of your needs for 2024?
Vince Tyra: Yes, cotton has come up a little bit as of late. We see that. I mean, it’s interesting when you look at the cotton markets, it’s little bit like everything else. I mean inflation is still out there. And I would say that effectively, if you look at what’s going on and to a certain extent that provides price stability, right as we move through ’24 and as probably as you think about moving into ’25. But overall, I would say we have good visibility on our cotton position. We’ve called that out last quarter. We generally have good visibility on our position as we move through the years. And we feel very good about, again what we’re going to have in cost of goods sold for ’24 and our ability to basically drive that gross margin.
Again, our pricing is I would say, in good shape, very much aligned with our cost structure. And again, we’ll see what happens with cotton and what that does to prices in the marketplace as we go forward. Maybe again in some places puts upward pressure on it, but overall we’re in good shape.
Martin Landry: Okay. Thank you.
Operator: Your next question comes from the line of Vishal Shreedhar with National Bank. Your line is open.
Vishal Shreedhar: Hi. I was wondering about volume growth in 2024. Should we think it’s in line with sales? And if not, what are the puts and takes there? And is the expectation that as Bangladesh ramps up, we should anticipate that volume growth to accelerate through the year and accelerate through 2025?
Vince Tyra: Yes. If you look at — if you assume or you think about volume growth through the year, I mean yes, we definitely expect to have volume growth as we move through 2024. If you heard earlier, we said we’re being cautious on mix and we also said there are areas — we’ve assumed price stability, but there are some areas where we see a little bit more competitiveness. So if you put all of that together, Vishal, you can see that we are assuming good volume growth and volume growth fundamentally a little bit better than our sales growth, right, in order to deliver on that. And then as we move through the year, I would say that effectively, we do expect it to come through. In Q1, as I said we’ve got to be a little bit careful because of what’s going on with the lower level of replenishment because of the strength of Q4.
