Gildan Activewear Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 13 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2023 Gildan Activewear Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be 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 Elizabeth Hamoui.

Operator

Please go ahead.

Speaker 1

Good afternoon, everyone. Earlier, we issued a press release announcing our results for the Q1 of 2023. We also issued our interim shareholder report with the Canadian Securities and Regulatory Authorities and the U. S. Securities Commission, which are available on the company's corporate website.

Speaker 1

As a reminder, please note that we will be holding our virtual AGM tomorrow morning at 10 Eastern Time. More information can be found on our Events page. Joining me on the call are Glenn Chamandy, President and CEO of Gildan Rod Harries, our Executive Vice President and Chief Financial and Administrative Officer Chuck Ward, President, Sales, Marketing and Distribution and Jesse Hayam, Vice President, Head of Investor Relations, which Rod will introduce in a moment. Before I begin, please take 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 U.

Speaker 1

S. Securities and Exchange Commission and 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 and A. And now, I'll turn it over to Rod.

Speaker 2

Thank you, Elizabeth. Thank you all for joining us today to discuss our Q1 results. Before I start, I'd like to welcome Jesse Hayham, our new Vice President, Head of Investor Relations at Gildan, who as Elizabeth called out is joining us on the call today. Many of you may know Jessie as prior to her last role, she spent much of her career as a sell side analyst, including 10 years covering Gildan. We are extremely pleased to have Jessie joining the team and I know she is looking forward to meeting with all of you.

Speaker 2

Now moving to the results. The quarter unfolded largely as we anticipated, with sales in line with our expectations and year over year demand trends showing meaningful improvement sequentially across all categories and channels. We did experience some margin pressure during the quarter, which came in slightly higher than we had anticipated due to the timing of fleece shipments, which I'll address a little later. But all in all, we were pleased with our quarterly performance. And even though the economic environment remains uncertain, we remain comfortable reconfirming our outlook today.

Speaker 2

Further and more importantly, I'd like to highlight that we are continuing to make progress with our GSG strategy. And after 1 year of execution, we are pleased with the initiatives we are driving under each of our strategic pillars related to capacity, innovation and ESG, which all are reinforcing our strong competitive position. We also remain committed to our capital allocation priorities, including return of capital to shareholders, supported by our healthy balance sheet and strong annual free cash flow generation. With that, let's now turn to the details of our Q1 results. Net sales for the Q1 came in at $703,000,000 reflecting a decline in activewear sales of 12%, partly offset by 7% growth in the hosiery and underwear category.

Speaker 2

In activewear, as previously communicated, We faced a strong comparative period as we cycled post pandemic inventory replenishment at U. S. Distributors. Overall, although year over year POS trends at North American distributors remain down, they showed notable sequential quarterly improvement. Further, while international sales in the quarter were down 17%, continuing to maintain a positive outlook regarding recovery in international markets for the full year, encouraged by positive POS in the Q1.

Speaker 2

Growth in the hosiery and underwear category for the quarter was mainly driven by socks, both in the mass channel and with global lifestyle brand customers. While industry demand for men's underwear remained down year over year, Year over year POS trends improved sequentially and we are pleased with how our private label underwear programs are unfolding. Additionally, while our retail customers remain cautious on replenishment across all product categories, we were encouraged by improving inventory levels in the first quarter, reflecting what we believe is an improving demand environment for our products. Turning to margins. Gross and adjusted gross margin came in at 26.7 percent 26.2 percent, down year over year by 430 and 470 basis points respectively.

Speaker 2

This is mainly a result of the anticipated flow through impact on our cost of sales of peak fiber costs and higher manufacturing input costs. Margins were also impacted by unfavorable mix related to fleece sales. Specifically, despite strong fleece POS in the quarter, we saw lower fleece shipments than expected as distributors are being careful in this environment to buy as close as possible to their needs, which for this category tends to be more towards the back half of the year. Accordingly, while this impacted our margins for the quarter, The mix impact is expected to reverse throughout the remainder of the year. These factors were partly offset by the favorable impact of higher net selling prices in the quarter, which we implemented and called out last year.

Speaker 2

SG and A expenses for the Q1 of $82,000,000 were largely in line with prior year levels And as a percentage of net sales were 11.6%, which was up from the prior year due to sales deleverage. We generated operating income of 18.2 of sales, which included the benefit of a $25,000,000 gain from the sale and leaseback of 1 of our U. S. Distribution facilities. Excluding this gain, adjusted operating income was 14.6 percent of sales, slightly below our expectations, largely due to the unfavorable mix impact of the lower fleece sales during the quarter.

Speaker 2

After reflecting increased net financial expenses of $17,000,000 and higher GAAP income taxes tied to the Sale and leaseback gain and factoring in continued share repurchases, we reported GAAP and adjusted diluted EPS for the quarter of $0.54 and $0.45 respectively. Moving on to cash flow, higher working capital investments and lower net earnings led to 100 And net proceeds of $51,000,000 from the sale and leaseback transaction, we consumed approximately $202,000,000 of free cash flow in the Q1. Higher capital expenditures during the quarter mostly reflected investments in our new manufacturing complex in Bangladesh. In fact, construction of the first facility is in its final stages and progressive ramp up of operations is now underway, which will continue through 2023 into 2024. We also bought back 1,000,000 of shares in the quarter, reflecting our strong commitment to return capital to shareholders under our capital allocation priorities.

Speaker 2

The company ended the Q1 of 2023 with net debt of $1,150,000,000 and a net debt to EBITDA leverage ratio of 1.6 times in line with our 1 to 2 times leverage framework. Moving on to the outlook. Today, we reconfirmed our full year outlook, which we provided on February 23rd, We are dealing with cautiousness on inventory levels with our customers. Our pre OS trends were in line with our expectations for the Q1. Further, we continue to expect incremental sales from the rollout of new program servicing retail end markets to provide growth.

Speaker 2

We also expect continuing recovery in international markets driven by increased availability and depth of product at distributors. So even though the first half of the year will be challenging due to difficult comparative periods related to post pandemic inventory replenishment in 2022 and the impact of peak raw material and higher input costs in our inventories flowing through our cost of sales in the first half of twenty twenty three, We see growth and margin improvement once these headwinds abate. Summing this all up, we continue to expect sales for the full year to be up low single digits compared to 2022. Further, with margin pressures from raw materials easing in the second half, we continue to expect Our adjusted operating margin to fall within our 18% to 20% annual target range for the full year. We expect CapEx And on the bottom line, we expect adjusted diluted EPS in line with 2022, which assumes the continuation of share This is aligned with our capital allocation targets of purchasing approximately 5% of our outstanding public float in 2023.

Speaker 2

So in conclusion, while we are mindful of the economic uncertainty and we are seeing cautiousness and a mixed Thank you. And I will now turn the call back to Elizabeth.

Speaker 1

Thank you, Rod. Before moving to the Q and A

Operator

Your first question comes from the line of Paul Lejuez from Citigroup. Please go ahead.

Speaker 3

Hi, everyone. This is Brian Cheetham on for Paul. Thanks for taking my question. So I just wanted to kind of dig in on the international segment. POS trends seem like they were Positive, the sales down 17%, which would suggest a pretty meaningful destocking.

Speaker 3

I guess like if current trends continue, at what Do you think that they've kind of run through that product and you can start to see that strong POS trend translate to sales?

Speaker 4

Good afternoon. And we think the again, we think most of the destocking has occurred And the inventory is in good position. So again, I think as you said, we saw in international, we saw POS up mid single digits. And we think the destocking is finished and now we will see replenishment along with POS.

Speaker 3

Got you. And where is POS trending currently versus what you experienced in the quarter? Have trends improved at all?

Speaker 4

Well, you were asking before about international, so I'll address that first. International POS continues to be positive. So it's trending as it did in the Q1. From a U. S.

Speaker 4

Perspective, it is was Flat to slightly down, but has started to turn positive now.

Speaker 5

And one thing just to remember maybe is that in Q4, We're sort of like the bottom of our POS and then it started to improve in Q1. And Q1 was slightly down From last year and now we're planning to be flat to slightly down in Q2, I would say more like the flattish level. But what's more important in Q1 is that That's before the market really started to turn. So we're almost we're slightly below where the market started to retract Basically, sometime towards the end of March. So I think that we did relatively good and then that's where we're pretty optimistic that we're seeing Good trends.

Speaker 5

One thing that I think is still affecting POS is the weather. I mean, the weather in April has been terrible. We're starting to see some good days right now, but it's much rather here, it's still winter, but you're reading in the papers, not good anywhere. So I think weather has a little bit to do with it, but we're very, I think, cautiously optimistic as we move into Q2.

Speaker 3

Got you.

Operator

Your next question comes from the line of Martin Landry of Stifel GMP. Please go ahead.

Speaker 6

Hi, good evening. Hi. I was wondering if you could discuss the inventory levels at your distributor. How many days do you have currently and How does that compare to your historical levels?

Speaker 5

Well, historically, the inventory level is, I would say normal, except for we think we're on the low end of the fleece as Rod called out. We We had a little bit more destocking than we anticipated in fleece, but the levels are pretty well in line with historic levels moving into the season.

Speaker 6

Okay. And in your outlook, you mentioned the contribution that you

Speaker 5

Well, what we said earlier in our last call, if you look at the guidance we set out for the year, We said that the U. S. Overall market was going to be down around 3 of our low single digits. And we said that our overall sales volume was going to be up low single digits and the delta between those two is the new programs And also some growth in Europe.

Operator

Your next question comes from the line of George Doumet, Sociabank.

Speaker 7

Yes, guys. Good morning.

Speaker 8

Yes, thank you. You mentioned improving inventory levels at retail, The retailers, can you maybe give us some color there perhaps the magnitude and maybe how long you think it will take to get normalized levels? And Rod, on the last call, you mentioned that the impact of managing inventories tightly was around $75,000,000 for Q1. So just wondering if you have a similar estimate for Q2?

Speaker 2

Yes. If you look at retail inventories and where we are, I mean, obviously, through the back half of last year, Effectively, there was a lot of destocking going on. And then as we moved into the Q1, I would say we saw that stabilize somewhat. So It was a little bit variable across the different channels, but I would say it was stabilizing. And as we're moving into Q2 On the retail side, I would say we mostly believe the destock is behind us.

Speaker 2

If you look at Q2 sales overall and the way we think about it. And maybe this is a good opportunity just for me to run through kind of where we are on that. Effectively, and I've called this out in prior Calls, we do expect that we still will get some price in Q2. Effectively, we get the wraparound from price from last year. We saw that in Q1.

Speaker 2

We're going to see it in Q2 probably around low single digits. And then volumes will be down from that. If you look at the distributor POS, as Chuck and Glenn called out, we are seeing an improving environment as we moved into Q2. If you look at Q1, we were down low single digits what we expected on the distributor side, but then as we move into Q2, it's improving as we said. And we're looking at more like a flattish type of environment.

Speaker 2

If you look in the retail side, the POS effectively is improving also versus what we saw in Q1. Q1, it was more like down, I would say, double digits. Now we're probably down high single digits. And so we have all of these factors together plus we have the fact that we will not be able to comp the restocking that we saw in Q2 of last year. Last year, very definitely in Q1 and Q2, we saw a lot of restocking.

Speaker 2

This year in the first half, we won't be able to comp that. So If you think about where we're going to be on net sales for Q2, I would say it's going to look a lot like Q1 Probably from a percentage perspective as to what we're going to see for the quarter and that sort of wraps it all together so you can get a sense of You know where we're going to end up. There will be difficult to comp the restocking, but then that will all be behind us and in many respects that turns into a headwind in the back half.

Speaker 8

Appreciate your color there. And just maybe my last one. Looking at that 4 70 basis point And adjusted gross margin, can you maybe break that down for us? I'm just curious how much of that impact was fleece, the negative mix I guess what gives you confidence that we could maybe recover some of that margin, I guess, as the year progresses?

Speaker 2

Yes. Look, our confidence is driven by the POS on the fleece, right? So the fleece has been a very strong category for us. It Continues to be a very strong category in Q1. We saw a very strong POS, so we know that effectively the demand will come through.

Speaker 2

We were expecting stronger demand in the Q1 than we saw and the impact of that was probably about 100 basis points. So our margins came in About 100 basis points lower than we were expecting as a result of that. But then of course that will turn into a positive tailwind as we move Through Q2 and more into Q3 and Q4 because ultimately that fleece will come through because of the again the strong POS and ultimately the demand We'll drive the sales.

Operator

Your next question comes from the line of Jay Sole, UBS. Please go ahead.

Speaker 9

Great. Thank you so much. Would it be possible to maybe talk about the T shirt business, how the ring spun tees performed Versus open end and any trends that you're seeing in that business? Thank you.

Speaker 4

Good evening, Jay, and thanks for the question. I guess To your question around kind of the difference between the ring spun and the open end, we did see the open end was down during the quarter High single digits, whereas we saw the ring spun up high single digits. So we're continuing to see a mix shift there as to the ring spun T shirts. And that trend has kind of continued Through Q1, it continues from last year as well.

Speaker 9

Got it. And then maybe is it

Speaker 3

possible to check-in?

Speaker 5

Maybe just add one more thing on that because a lot of the Promotional products basically, the corporate promotional side of the market hasn't really come back to its full potential. And I think that's where we're still feeling a little bit more on the basics where we're not getting the traction, which is pretty much upside, I think, as we Continue to move into the future.

Speaker 9

Got it. And then can you talk about sort of the ramp up of the new facilities About Bangladesh and in Central America, like and is that connected to your ability to deliver these new programs that are servicing retail that Rod talked about in the prepared remarks?

Speaker 5

Well, look, we have obviously, the ramp up is going to help us to continue to develop our ring spun portfolio, including underwear and activewear type products. But, we're in a relatively good position from a capacity We have all of our capacity installed in Central America in the Doctor like we said we're going to do. We're currently running around 85% to 90% of our capacity in Central America. So we've got ample capacity there to support these programs and other programs. We're building up Bangladesh to start started and it's going to ramp up slowly during the year and really build up during 2024 for continued growth.

Speaker 5

And so we're pretty optimistic. And look, the key thing for us is look, we've got the capacity in place Really to support the growth as we move into 2023 and into 2024. And we're well positioned both from a product perspective and a capacity

Operator

Your next question comes from the line of Stephen MacLeod, BMO Capital Markets. Please go ahead.

Speaker 7

Thank you. Good evening. Just wanted to circle around on the SG and A. I know it was came in a bit higher as a percent of sales. I just want to confirm, is there anything in there on higher costs or is it just a matter of deleveraging from the top line?

Speaker 2

It's just deleveraging. We've got our SG and A, I would say, well under control. And I think as you go through the year, For a full year and we've called it as out, we're basically running to a target of around 10% of sales and we have it Well dialed in, Stephen. So if you look at what went on in the quarter, it was basically just deleveraging.

Speaker 7

Okay. That makes sense. Thank you. And then just as you think about the gross margin for the rest of the year, You talked about some of that fleece headwind turning into a tailwind, but it sounds like that's mostly Q3 and Q4 weighted, if I understood that correctly. So if you could just confirm that, that'd be great.

Speaker 7

And then I guess secondly to that, how does cotton price deflation That we've seen, we've seen some comp prices come off. How does that impact your margin and your cost base going forward?

Speaker 2

So if you look at effectively the cotton prices, I mean, I would say that Yes, we have high cotton prices coming through, our cost of sales flowing through as I called out in Q1 and to a certain extent in Q2. But then once we get past that, it will effectively be behind us. And We know that effectively that in the back half, I mean, we have a lot of our inventory already in place now, right? So as we move into the back half, we will see the benefit of that. And we do expect our pricing will hold up well effectively because If you think about the way we priced, we never took our prices up to reflect peak cotton prices.

Speaker 2

And so our prices are, I would say, very much Aligned with where cotton in our cost of goods is going to, not where it currently is, Because right now we're seeing the pressure on our margins, but where it's going to, I think I would say we're very well placed. So if you look at Q1, there was a fair amount of pressure on our overall margins as a result of cotton. And then if you and also was related to And then if you move to Q2, That is still going to be in our cost of goods, but it's going to start to abate. And so if you look at on a sequential basis effectively, What the change in our margins are going to be probably in Q2 versus Q1, we're going to see 100 basis points, 150 basis points Uplift as a result of effectively the, I would say, improved cost position flowing through and then it really improves as we move into And again, we have a lot of that in inventory already, so we can see it coming. So that effectively is how it's all rolling through.

Operator

Your next question comes from the line of Luke Hannan, Canaccord Genuity. Please go ahead.

Speaker 10

Thanks. Good afternoon. Glenn, if we think back to last quarter, one thing that you had brought up was that Your balance sheet being better equipped to handle financing more inventory than peers would be something that would help you capture share from those competitors. How has that played out through Q1 and then thus far into Q2? Are you seeing that play out and how is that playing out versus expectations?

Speaker 5

Well, I think we're playing we're right where we want to be. I mean, think we're gaining share in every category. I mean, to be perfectly honest with you, I think we're outperforming the market. We're giving you our POS. I think the market is below our results significantly.

Speaker 5

So we're actually outperforming the market right now and I think we're well positioned. The inventory is in good shape. And our inventories are high right now, mainly because we have a lot of fleece We're gearing up for it to ship in the as we get into the season and we also gear it up to supply the new programs that we have. But at the end of the year, Our inventory should be equal to or slightly below where we started the year in 2023 or we ended in 2022. But everything is in line, our capacity is in line, our inventory is in line, our products are in line, Our POS is performing and we're out working hard to build new programs and are very optimistic as we continue to move into 2024.

Speaker 10

Okay. And then for my follow-up, Rod, correct me if I'm wrong, but I think I heard you correctly in that there will be A low single digit benefit from price in Q2 from price that the carryover effect the price that was taken last year. What do you see playing out for the balance of this year as well, that carryover effect? How should that plan to result?

Speaker 2

If you think where we were in the Q1, where it was mid single digit second quarter, low single digit, Full year, I think I called out on the prior call, it's about low single digits. So we're not assuming price in the back half effectively. And we'll have worked our way through the wraparound by the end of the second quarter and then that'll be the full year effect, Luke. So I think we're trying to be Very balanced in the way that we think about price. Again, I think it's going to hold up well as we move into the back half because of the reasons that we outlined, But effectively, it's low single digit for the full year.

Operator

Your next question comes from the line of Chris Lee of Desjardins. Please go ahead.

Speaker 11

Hi, good afternoon, everyone. Hey, Glenn. I just wanted to dive a bit deeper into the POS You mentioned that it's up slightly or positively in Q2 so far. Just curious, when you look at your end user demand, which sort of segments are driving that growth. And it sounds like also from your earlier comments that you are gaining share because the market Is this down below where you are trending?

Speaker 5

Well, I would say that in the distributor market, there's different Categories, travel, entertainment, rock concerts, the experience, I mean, those are the things that are continuing to drive, I think the momentum in distributor channel and then when it goes to T shirts going into the retail channel, which was A big boom that really slowed down last year. We're starting to see that pick up again as well, as inventories subside and retailers start They're open to buy and start buying more products. So I think overall everywhere we're feeling pretty comfortable with the POS And it's really more of the same. There's nothing that's changed. It's just a question of in our distributor business taking share.

Speaker 5

And I think in our business and services, t shirts to retailers, making sure that the retailers are starting to place orders and work through their inventories.

Speaker 11

Okay. That's helpful. And then my other follow-up question just on sales again. Just looking at your hosiery and underwear segment, Is there much seasonality with that business? And if not, is the $150,000,000 of revenue that you did in Q1, is that a good run rate For the rest of the year with perhaps some upside in the second half as the new retail programs start to kick in?

Speaker 5

Well, the only thing exactly, that's the point. So I think that On a constant basis is one thing, but as we go into the back half, we're going to have all the new programs, so we should get a big lift in sales.

Operator

Your next question comes from the line of Brian Morrison, TD Securities. Please go ahead.

Speaker 12

Hey, good evening. Rod, I just want to circle back to the color on the Q2 margin. Last and input prices. But can you just maybe provide some color on the decline since the call, The Q1 pardon me, the Q4 call and your outlook. Is it the fleet mix that's taken that margin down a little bit?

Speaker 11

Yes, it is. I mean,

Speaker 2

we're being a little bit cautious. As I called out, what we're seeing is people are effectively taking the product We want to take the product a little bit closer to the season this year. So based on what we saw in Q1, we want to be a little bit cautious as we look at Q2. Again, it's going to come through. We know absolutely it will.

Speaker 2

So I would say effectively that's what was driving, I would say, A little bit more cautious view on Q2 versus where we were when we reported Q4.

Speaker 12

Okay. So the input prices will still be a headwind, but that had been anticipated previously, correct?

Speaker 2

That had been anticipated, correct.

Speaker 12

Okay. And then just following up on the pardon me, on the fleece, It's a big part of the story in terms of margin profile. POS for the industry, is that up or is it up for Gildan because you're taking so much market share?

Speaker 5

We don't have all the information in this industry market share data, but I would say that as far as we're We're seeing good signs, good POS and it's high single, low double digit growth so far.

Operator

Your next question comes from Sabahat Khan of RBC Capital Markets. Please go ahead.

Speaker 6

Okay. Thanks very much. There's a lot of commentary earlier that you shared on the inventory position of the distributors. I guess big picture, what kind of, I guess, demand environment are the distributors generally preparing for? Are they expecting Moderation in POS through the back half of the year or are they kind of expecting flat?

Speaker 6

Just what's your perspective on the demand uptake and what are they preparing for from what you're hearing?

Speaker 5

Well, look, I think that everybody is cautiously optimistic, I think is the way to position it. Inventories are in good shape now. I mean, obviously, we've called out The year over year impact, but as we go through, I think that people are optimistic or cautious about Moving forward in this environment, and it's the macro environment that is uncertain a little bit. But I'd Say that when we were early on in the year, I think people were more pessimistic than I think the tone is today. So I think that things are improving and just a vibe of the way people We're thinking about the market and the opportunity.

Speaker 5

So it leaves us with optimism. We're optimistic, but cautious about what we're doing as we go forward. Think that's a general consensus amongst our customers and end users.

Speaker 6

Great. And then when I think about the EBIT Margin range that you're providing for the year, given that you've got pricing sort of in place already, whatever you're going to see flow through, is it really volume or POS or Demand, I guess, determines whether you're at the low end or high end of that range from here on forward?

Speaker 2

Look, we do have our cost structure, I would say, well under control. So as we go through the year, yes, I mean, we are It's going to be driven by what we've said on from a sales perspective what we've highlighted with respect to the Low single digit growth and what's going on in the various areas, including the rollout of the new programs, international. I mean, there's a lot of good things that are occurring as we move through the year. And that will And I would say that, yes, that's why we do feel good about our margins and delivering between the 18% and the 20%. So It's I would say we've got good line of sight on a lot of it.

Speaker 2

And of course, we don't control the macro environment, but there are a lot of positive things happening across the business. So we, as Glenn said, are cautiously optimistic.

Speaker 6

Okay. Thanks very much.

Operator

Your next question comes from the line of Mark Petrie of CIBC. Please go ahead.

Speaker 3

Thanks for all the comments so far. I just had one question actually just on the corporate inventory levels. Obviously, there's some normalization And you've already called out the impact of fleece, but I'm just trying to understand where You think the inventory levels will normalize as we progress through the course of the year or by the end of the year?

Speaker 2

So if you look at the inventory levels, Mark, yes, if you look at where we were in the Q1, we were up a bit versus the end of the year. I You expect that to a certain extent from a seasonal perspective, but also because of what went on with fleece, the rollout of the new programs, So all of these things were playing in. But I think the way we see it, we've seen peak inventory levels. And as we move into Q2, we would see some progress on that. As we get to the end of the year, I think Glenn called it out, we expect our inventory levels to be below where we started the year.

Speaker 2

So I would say overall from an inventory perspective, I mean the good news is we've got great, I would say, depth and ability to service and that's very important in the business. And we are seeing that there'll be areas to take advantage of that. So I think we feel good about inventory. Because of that, We do expect to have strong free cash flow for the full year. I called this out on the last call, but if you look at effectively what Our free cash flow was last year.

Speaker 2

If you look at what we the build that we had in working capital last year, If you look at CapEx, where it was last year and this year, we are expecting it to be down a bit from 2022. We do expect to see strong free cash flow for the full year. So if you run through the numbers and you compare it to last And you take inventory that's going to be slightly down, you can really see that our free cash flow could be North of $450,000,000 for the year, a very good and strong delivery, as a result of effectively we've made that investment in inventory and now we're going to benefit from as we move through the year.

Speaker 3

Okay, thanks. And actually just one more, just to clarify the comments with regards to The progression for gross margin into Q2, I think you had said 100 to 150 basis points uplift From Q1 on cotton sequentially, is that right? Were you saying that specifically for cotton or were you saying overall that's what you

Speaker 2

No, it's a combination of what's going on overall and it's being driven by cotton, it's being driven by Other manufacturing costs as well. And then you get some movements as well in price and mix. But I think it's a good estimate of effectively what's going on. But Look, cotton is improving for us and effectively manufacturing cost is improving for us as we go through Q2 and then very definitely as we go to Q3 and Q4.

Operator

There are no further questions at this time. This concludes today's conference call. You may now disconnect. Thank you.

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Earnings Conference Call
Gildan Activewear Q1 2023
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