Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Gildan Activewear Earnings Conference Call. My name is Mikael, and I will be your lead operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Sophie Argiriou, Director of Investor Communications. Please proceed.

Thank you, Mikael. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued our press release announcing our earnings results for the fourth quarter and for the 2011 fiscal year. During the week of December 5, we will be filing our shareholder report containing management's discussion and analysis and our 2011 audited consolidated financial statements with the Canadian Securities Regulatory Authority and the U.S. Securities and Exchange Commission. These documents will also be available on our website at www.gildan.com. I'm joined here today by Glenn Chamandy, our President and Chief Executive Officer; and Laurence Sellyn, our Executive Vice President and Chief Financial & Administrative Officer. Before Laurence takes you through the results, I would like to remind everyone that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve unknown and known risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S. Securities and Exchange Commission and Canadian Securities Regulatory Authority that may affect the company's future results. I would now like to turn the call over to Laurence.

Good morning. Today, we reported results for our Q4 and the full year, which were in line with our August guidance and initiated guidance for fiscal 2012. We are forecasting a loss of approximately $0.40 per share in the first quarter of fiscal 2012, which will be only the second quarterly loss in our history as a public company followed by an anticipated gradual strengthening in our results during the balance of the year due to assumed significantly lower cotton cost in the second half of the fiscal year as well as increased manufacturing efficiencies. Due to the loss in the first quarter, EPS is currently expected to be approximately $1.30 in fiscal 2012. Adjusted net earnings for the fourth quarter were $0.42 per share compared to $0.48 per share in the fourth quarter of last year and our guidance provided in August of approximately $0.40 per share. Adjusted EPS for the full fiscal year was $2.01, up 20% from fiscal 2010. The decline in EPS in the fourth quarter compared to the fourth quarter of last year was primarily due to the significant increase in the cost of cotton, which was not fully recovered in higher net selling prices, lower unit sales volumes for activewear and the non-recurrence of insurance proceeds and the cotton subsidy received in the fourth quarter of last year. We maintained our market share in the U.S. distributor channel at 62.3%, essentially the same as last year. The lower unit sales volumes for activewear were due to a 6.3% reduction in shipments from U.S. distributors to U.S. screenprinters and inventory destocking. These negative factors were partially offset by the impact of income tax recoveries in the fourth quarter of fiscal 2011, growth in international screenprint shipments, more favorable activewear product mix and the earnings accretion…

Thanks, Laurence. This concludes our formal remarks. [Operator Instructions] Operator, we're now ready to start the Q&A session.

[Operator Instructions] The first question comes from Jessy Hayem from TD Securities.

How much manufacturing downtime are you planning? And can you help me reconcile -- I guess, you mentioned that you're going to be shutting down some capacity in Rio Nance I, so why Rio Nance I? And when you're still also going ahead with the ramp-up of Rio Nance V, granted you say it's going to be done in relation to market demand, so any more color on that would be helpful along with maybe quantifying what that manufacturing downtime -- how it affected your EPS in fiscal '12 or it's expected to affect your EPS.

Okay, well I'll start with the downtime and Laurence will give the EPS number. What we're going to do in terms of our shutdown, we're going to take roughly about 12 days extra based on the normal shutdown in holidays and Christmas time. And as far as the Rio Nance I versus Rio Nance V, well, first of all, just maybe to take us back a little bit is that the Rio Nance V has only started production at the end of September. Objectively, the factory is going to be ramped up during the course of 2012. We're going to continue to run Rio Nance I at a full capacity through Q1 and Q2 for sure. And then we're going to -- as we get to a point where Rio Nance V is going to start excelling and increasing its capacity, we will -- our plans are today is to reduce our capacity somewhat in Rio Nance I, and that's based on our current outlooks. Now the outlook changes, obviously, will deal with the capacity and will provide enough capacity to service the market based on the market demand, and that's something that's a little bit unknown at this point. And as far as the cost, the cost of not running Rio Nance I at its full capacity are embedded in our, obviously, our guidance. And as well as even if we decide to take Rio Nance I down slightly or down at whatever level it is going to be at, Rio Nance I has been operating for almost 10 years. It's our oldest facility, and we're going to take this time to re-energize some of the infrastructure and as well as look at potentially upgrading some of the equipment within the facility. And maybe one last point also is that when Rio Nance V is fully ramped up, just the economics on Rio Nance V relative to the cost structure, and Rio Nance I just set the stage in terms of cost competitiveness in our industry and it's still a very cost-effective plant, but just to give you an idea, the scale of Rio Nance V with 10 years of technology and know-how that's been put into that plant, that the cost of that factory alone in terms of the economics of building it, there's a payback just looking at the difference in cost structure between it running at full capacity and Rio Nance I running at full capacity. So Rio Nance V is going to be, by far, initiative in terms of cost reduction as well for the company as we go forward.

Okay, so if I understand correctly, the impact of the 12 days of the extra shutdown and the fact that you're reshuffling -- you'll be reshuffling essentially some capacity from Rio Nance I to Rio Nance V once it's fully up and running, given the difference in the cost structure, that should pretty much more than offset the shutdown or the lower capacity of Rio Nance I, is that right?

Yes, it's correct.

Okay. And so as far as the impact of the 12 extra days shutdown that are planned, is that -- how much is that of your, I guess, of the -- how much of that impact your fiscal '12 guidance?

So the impact of the shutdowns that we've planned during the year on EPS is about $0.15.

1-5?

1-5, yes, of which about half is in Q1 and the other half is if that occurs later in the year. And after that $0.15 impact, we're still projecting to generate positive -- including that, we're still generating -- we're still projecting to generate positive manufacturing efficiencies during the year.

Okay. And how much does the guidance bake in as far as contribution from Gold Toe? You had originally mentioned the $0.20 contribution in 2012, does that still hold?

That still holds.

Okay, and then maybe if I can, a final one, just help me understand, I guess, you're exiting the private label business, how are the retailers aligned with you, or the retailers where you do have private label right now lined up with you or supporting you, I guess, going through the Gildan brand or promoting the Gildan brand going forward? And I guess question on that, is that in any way related to the inefficiencies in the sock manufacturing or anything of the sort?

What we're exiting is the non-profitable programs don't meet the criteria of Gildan, which are large volume, basic and within the skill set that can be produced in our facilities, and that's really what we're exiting.

I thought that was pretty much done, though.

Well, it's -- no, there's still -- there has been some more programs within the existing customers. There are still some programs that just don't meet our profit criteria as well. So there's a combination of the product itself and as well as the profit criteria. Now the company's goal is to drive its own brand strategy. I mean at the end of the day, that's what our objective is. We acquired last year Gold Toe, and Gold Toe Moretz is a marketing company. They have no assets into manufacturing assets. They're purely a marketing company. They have a management -- experienced management team in marketing. They have best-in-class merchandising expertise. They have a proven track record in driving brands and licensed products. And they have a huge technical support team that's given them a lot of innovation. What we're doing is we're using and levering this expertise from Gold Toe to help not just drive the Gold Toe brand and lever it into other products such as underwear and activewear products and levering their brands, but as well as to help drive our Gildan own brand strategy, and that's really going to be the focus for us as we continue to drive our strategy. We will not -- we have selective, good private label programs, I mean, that are similar brands, like Starter and Danskin and things that we're providing to drive -- and those private label programs are like brands. We're like the brand manager for those types of brands. So we're going to continue to develop those, and those will be part of our portfolio. And really, that probably will be the major focus of our private label initiative. And then outside of those major opportunities with the major mass marketer in the United States, we're going…

Okay, so just to be clear, you are continuing with the Starter and Danskin brands, those are not...

Are continuing, yes. And we consider Starter and Danskin as brands, and we're the brand manager. So when we go to a customer like Wal-Mart, we're actually developing the product, the packaging. I mean we're really the support engine behind them. So we look at that as one of the brands in our portfolio that we're helping to support them. What we're getting out of is no name or where their volumes are small and we really want to focus on our brand strategy with other certain stores outside of them.

The next question comes from a Nicole Shevins from Goldman Sachs.

I wanted to talk a little bit about your guidance for the year. It's below the Street, but it seems like a lot of the downside or most of the downside is coming through in the first quarter. So just wanted to see how comfortable you are with the pace of recovery coming through in the second quarter and beyond. And at what point do you think that the promotions could stop?

Well, we think that the recovery -- we're planning for obviously the same type of economic sell-throughs, let's say, for example, and not a big recovery in the industry. But objectively what's happened now is that by -- what we've done is by resetting our prices and by making a more aggressive stance, we think that we're: One is we think we're going to create demand and stimulate opportunity. I mean that could be an outcome from this. We're not so sure. We haven't factored that into our guidance. But the reality is, is that we're taking approach that we're going to be a little bit more aggressive on pricing. We're pricing our products based on what potentially the future cost structure will be, let's say, for example in Q2 and Q3. We're just prepricing those products now and flushing through the high costs of inventory through our cost of goods sold. And in light of that, we think that based on this pricing strategy, we hopefully will achieve the guidance we set forth but as well as to create and stimulate new demand in the channel.

And on the demand side, Nicole, as we said in the remarks and in the press release, we're assuming no growth in the distributor channel for the overall industry demand in the second half of the year over what were very low comps in the second half of fiscal 2011, which was down 7% from the second half of the year before. So we're being conservative in our outlook on the market recovery. And also as far as restocking within the channel, we haven't assumed restocking to the same levels as the end of the previous year.

And then can you give us a little more insight into the magnitude of the price reductions that you're taking in screenprint?

Well, the price reduction on -- is basically right now what we announced is on our core basic T-shirts. We have roughly 3 shirts that we sell, which represents a lion's share of our T-shirts. And the price range is anywhere between $3 to $4 per dozen, which would represent about a 13% deduction on those core categories.

Okay, and then just one last question, can you give us a little more clarity on where you bought cotton by quarter for the year since the model is so tied to it?

Sorry, didn't hear the question.

Just where you bought cotton by quarter for the year, how we should think about that in our model.

I don't think we want to give any more specific guidance than what we said directionally in the press release. So cotton in the first half of the year is obviously substantially higher than the first half of last year. And in the second half, we're assuming that cotton is well below the first half and also well below the second half of last year. The first half is in line with the direction we gave on our last call. And the only thing that's different from what we've said before is that some of the cotton -- high-cost cotton will dribble into the early part of the third quarter of this year due to slower inventory turnovers.

The next question comes from Martin Landry from GMP Securities.

Could you provide us with your assumptions for your fiscal '12 guidance on your international volumes? What kind of growth are you expecting there?

I don't think we want to give a specific number on it, Martin. But we are looking at strong growth in our international sales continuing the trend over the last couple of years where we've been achieving strong growth. And the limitation on our international penetration has been lack of capacity. And now with the new capacity coming onstream, we're positioned in having sets and continuing to drive our penetration in that market and also we've been adding new products for the international markets.

And a large percentage -- we're still increasing unit volume in screenprint this year and a large -- the waiting, the percentage of international and other businesses is growing and offsetting somewhat the decline in destocking from the U.S. distributor channel. So we're very bullish with our opportunities in these markets.

Okay. And you're shifting a little bit your strategy to relying on your own Gildan brand. Should we expect any increase in marketing spend to support that brand in 2012?

Well, our objective all along was to build our Gildan brand, which we've been obviously doing from the start. We're definitely going to spend more money this year on developing the brand as we go forward. But I would say that we're still going to be responsible in terms of how much we're going to be spending on advertising. We spent some significant amount of dollars in 2011, and we're going to continue to increase our spending as we get distribution and lever the opportunity basically. But we're definitely going to spend a little bit more money on advertising for sure.

Although having said that, overall, we'd be looking to leverage our SG&A infrastructure that we have in place for our retail business. SG&A as a percentage of sales in retail is higher than the overall SG&A for sales. So we do have an infrastructure in place and as we go forward, we'll be looking to reduce SG&A as a percentage of sales both through the integration plan and through additional volume.

Okay. And then can you just touch quickly on why -- what are the reason why it's been challenging to generate any acceptable profit levels supplying private label programs?

Well, 2 things: One is that last year in retail in general first of all, we didn't raise our prices in line with the higher-cost cotton and the costs going through our cost of goods sold. Secondly, last year, we had a lot of issues with the ramp-up and integration of our U.S. production into our new state-of-the-art facility in Honduras and had some inefficiency there. So that was really more of a last year thing. But in general, when you look at private label, the differences between private label and your own brand is that you're not in control of the product. And at the end of the day, there's more changes to the product, they happen more quickly, it creates inefficiencies in your manufacturing facilities. So when you're driving your brand strategy, you sell what you make and when you're running private label, you make what the customer wants and it changes frequently. So it's much more difficult to create the type of thing that's made Gildan successful. Our wholesale business and our low-cost model has been built on driving our brand strategy. And in wholesale, we sell our brand, we market it and it's what's driven our low-cost manufacturing. So we want to replicate that same opportunity in retail. We are doing that in most of our activewear products today, and our objective is consolidate that as well in our sock facilities.

The other thing as well is that we have been impacted in retail by the high-cost cotton. We only implemented selling price increases at the end of the fiscal year. So what will also enhance our retail profitability is the impact of the selling price increases and selling prices and cotton coming into good alignment due to the selling price increases and cotton coming down.

The next question comes from Vishal Shreedhar from National Bank Financial.

Just on your branded strategy in the retail segment going forward, Gildan has many brands now. You have the Gildan brand, you have all the Gold Toe brands, SilverToe, All Pro, et cetera, et cetera. Is there a particular brand that you're focusing on, or are you going to focus on all of them? And also talk about the licensed brand as well, Under Armour.

Sure. Well, the brands -- the great thing about what was such attracted us to Gold Toe is that with the brand portfolio they have, we can now sell our brands in every channel of distribution. So Gold Toe is selling in the department stores. We have brands for the specialty stores. We have -- then they are in New Balance obviously for the sports-type stores. Gildan is going to be for the mass market. We have Auro, which is a brand that's in Target. We have GT, which is a brand that's in Wal-Mart. So we have a full range of brands basically, which allows us to maximize our distribution in every channel. And with these brands and levering our product expertise and the products in the low-cost manufacturing, it's going to create opportunities in everyone in the segment. So we have -- sorry, we have Gold Toe underwear already placed today that's coming from our low-cost manufacturing. We're looking to expand and we have all the products and everything expanded for all of our lines already. And now our sales group is out working with retailers to see if we can get placement in some of these brands. So we feel very comfortable. We have the relationships. We have the expertise from the management of Gold Toe and we're going to lever that and drive our strategy.

You talked about de-emphasizing the private label programs, which don't meet the profit criteria. Could you give us of sense of just a percentage in units of what percentage of your business right now doesn't meet the profit criteria?

Well, right now, we have still some programs that don't meet, but it's -- obviously, for the last 2 years, we've been divesting ourselves of these programs, I mean, but we still have some. But the majority of the programs, which don't meet our criteria, I think, have been disregarded already. But there could be another $20 million, $30 million, $40 million worth of business that over time either we're going to need to increase pricing, change product categories to get it to the level or just to survive that business.

Probably also more passing up on new opportunities to drive top line with that kind of unprofitable business and focus more on new sales growth opportunities that are based on the brands.

But the business we have with the major mass market retailers that we consider brands like Danskin and Starter are profitable, and we think that there are big opportunity for us to continue to lever.

One of your large customers in their conference call talked about their expectations a few weeks ago, their expectations that price is going down in the wholesale segment. Do you have feedback from your wholesale customers now on where they think pricing is in the wholesale segment? Do they feel it's where it should be, or is there still a concern in that segment?

Where the price should be is higher than it is today because everybody in our industry is supporting and selling cotton that they bought last year and it's high-cost cotton. So the reality is that the pricing in the marketplace is a function of poor industry demand. The distributors themselves are looking at the future price of garments potentially coming down, so they're destocking their shelves. Our in-stock levels in our distributors, which we track what percent of our SKUs are in stock, in September we were at 98% and now we're in the low 90s because there's actually holes in our customer's inventories because they're waiting to place orders because they weren't sure if we were going to cover the cost of marking down the inventory, so -- and this is going even through to end users. I mean the screenprinters themselves, they basically bought a lot of inventory potentially on the way up and now they're saying, hey, is cotton coming down? I'm going to wait. I'm not going to buy anything more than I need. So the whole channel is basically being destocked all the way, and I think we've seen that even in retail as well somewhat. But overall, we think the pricing that we've got now is relative to where we think the future pricing will be. We're just going to absorb over the next 2 quarters the high cost of cotton going through our cost of goods sold, and then our business should be more normalized. And hopefully, from this whole exercise, what we've seen in the past is that bringing pricing and bring stability to the market has created demand. And the last time we lowered prices in during bad economic times, the market really recovered and picked up and it brought some stability to the market, and hopefully we'll get that same effect.

Great. And one more question, Laurence, just on the health -- the financial health of your screenprinters. I know that was an issue quite a few years ago. How do you feel about the financial health of your screenprinters?

We feel very confident with the financial position of all of our large screenprint customers and partners. And if you look at our bad debt experience over the years, it's been absolutely negligible.

The next question comes from Kenric Tyghe from Raymond James.

Just with respect to the volumes in the quarter, your unit volume declined at 7.6 versus the industry at 6.3. Is that purely a function of the sort of Broder's weight in your mix and a greater-than-expected destocking at Broder relative to the other players or other distributors where perhaps your market share did see a modest increase? Or is there something else in that dynamic that perhaps you could help me help reconcile?

The usual destocking across the distributor channel. Destocking was less than we anticipated in the fourth quarter, but the difference -- we've maintained our market share, so the difference between the decline in the end-use market and the decline in our sales was destocking.

And just on that, with respect to Broder, would you be willing to give any sort of color as to what percent of mix on the back of the destocking Broder represents currently or at least a range around where that has now moved to or from?

Well, we -- no. We don't want to look at -- the answer to that question is no. And at the end of the day, the whole channel has been destocked. And when the industry report comes out, CREST, I mean you'll be able to validate and see what type of inventories are in the channel. But the inventory has been destocked pretty consistently. There's no change in our relationship with Broder, which is still our largest customer.

Has there been an increase or change though in the sort of the share from the #2 and 3 players in the market? I mean are you seeing and moving more product through the #2 and 3 players in the market, particularly perhaps the third largest in the market?

Our share is pretty consistent amongst all of our customers. So if you look at the share that we have, which is roughly about 65%, I think if you looked at how we feel the share overall, how it's distributed, it's distributed based on the size of the customers themselves. So obviously, Broder Bros is the largest distributor in the industry, but our share varies a little bit. But generally, we have a pretty good balanced share, our share being, what, 65%, let's say, for example is pretty consistent amongst the customers. Just the size of the customers varies from customer to customer, and we have very good relationships with all of our customers. And that's why Gildan is a leader in our industry because we always take the initiative to be more proactive in the market. Even though our customers all had great years last year, they basically had probably one of the best years in the industry. As pricing was going up, a lot of our customers were very -- made a lot of money successfully on their inventory by buying low and selling high, but Gildan is committed to the channel and committed to our customers. And the fact is, is that by lowering our prices and covering the customers devaluation, it's just reconfirming our commitment to our customers as well as the channel and our leadership position.

The next question comes from Ken Stumphauzer from Sterne Agee. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: I just had a couple of quick ones and you guys kind of already talked about it, but I wanted to follow back up. The retail business you're saying unprofitable this year, is that purely attributable to gross margins or is it a component of kind of an infrastructure, which is larger than the sales base right now?

Well, we have put the infrastructure in place to support the growth of the business and as we said, we would plan to leverage that in infrastructure as we grow the business and develop the brands. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: Okay. So said differently, for that business to retain kind of parity margins with the wholesale business, how large would the retail business have to be in sales volumes?

The retail business in sales volumes, which we've guided to roughly about $600 million, at that level we should be able to get margins acceptable, equal to our wholesale business. The reality is that what happened this year is that in retail, it's much more difficult to raise prices. We had -- and plus the fact is the difference between us and some of the other people in the market is that we turn our inventory much quicker and that again has affected us somewhat in fiscal 2011. So as we received all this high-cost cotton, it actually started flowing through our cost of goods sold as we turn our inventory in 3 months, which is relatively quick compared to industry standards. So the high cost of cotton was a major factor in margin pressure in retail as well as the fact that we had a lot of inefficiencies from the start-up of our Rio Nance IV facility and moving all of the production from the balance of our U.S. high-cost manufacturing into Rio III. Now some of that is still on our balance sheet in terms of negative cotton cost in manufacturing efficiencies in retail. And as that flows through into fiscal 2012, we'll see towards the -- as we gradually see retail margins improve during the year in profitability. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: And then I just had one last question regarding kind of the activewear wholesale channel and what you guys guided to for unit declines in 1Q. The number is pretty surprising to me given that you've essentially rescinded 75% of the pricing you've taken over the course of the year, and you implied that inventory levels at the distributors is not aberrantly high. So what is causing that magnitude of unit declines? Is it that people are expecting further price declines? Or is it alternatively that there's just too much uncertainty for them to commit to any level of inventory? What do you -- what is the delta there between kind of industry unit demand and actual what you're guiding to for sell-in?

Well, they look at if -- what's happening is that the promotional pricing in the markets -- so what's happened is that as we exited 2011, we've had extensive -- more extensive discounting of products. So people can see in the industry that the price has already gone to market. So during the month of November, we've been discounting our products through incentives to the end user at relatively similar prices to what we've now adjusted our everyday low price to, so the market's already conditioned to these lower prices, so -- and based on that fact, the distributors themselves are saying, look, the price is going to come down. Do I want to buy T-shirts to know that the price is coming down, and I'm not sure if I'm going to be covered on devaluation of my inventory. So they're taking exposures. So if you look at the distributors, if there's, let's say, for example, 7 to 8 million dozens in the channel or 10 million dozens in the channel and the price has come down by $4, that's a $40 million exposure for the distributors on their physical inventory. So what's happened is that they're worried and they're bringing down their inventories and we basically have taken that equation out. So there's been destocking, but at the same time, as we've brought this to prices to market, our POS has not been that bad. I mean in the month of October, although the market was down 6% or so, we still feel pretty comfortable with our sell-through to the end user and our market share within the channel. So our objective right now is to take the uncertainty out of the market not just for the distributor, but also for the end user, set a floor for pricing at this point in time and hopefully we'll see some activity and also to stimulate new business because people can now go and sell products at a lesser cost than they had last year.

The next question comes from Mark Petrie from CIBC World Markets.

Just following up on that last question. Can you talk a bit about the timing of the destocking and over the last -- I would imagine over the last few weeks? And what gives you confidence that this sort of pricing level will be able to address that?

Well, the destocking has happened -- it really started significantly towards the first week, second week of October and has followed through, so a lot of destocking is actually behind us now. Distributors' inventories at -- are levels at they're probably not able to service somewhat even at the levels they're at now. There's holes in the distributors' inventory. So the destocking piece is sort of, I think, behind us right now. And as we now have clarity in the market, I think that the inventories will at least be in line with what the sales should be and how much inventory should carry on a go-forward basis. As far as the pricing is concerned, look, we don't have a crystal ball. I can tell you that even the pricing based on what we've set today is not representative of what the cost is in most of the manufacturers because everybody in the industry has high-cost cotton. I mean, there's no way to avoid it. And so at the end of the day, the question is how much money are people willing to lose? Gildan is the global low-cost producer. We set the bar typically on pricing and cost structure and for us to not be making a return in this environment is just going to be equal to or worse than most of the people in the industry. So you got to sort of got to take that as a benchmark, but what we've guided to and we put some sensitivity is that if there is additional pricing decrease, obviously, it would be negative. But we also planned for some lower prices gradually during the year. We have, in our guidance, put some thought into potentially a gradual -- some slight decreases in prices as the year goes on. But anything significant would be negative to earnings for sure.

Okay, that's helpful. And just in terms of the CapEx, can you just give a bit of a breakdown on that guidance and how much, if any, of that spending is going towards Rio Nance VI?

That money is all going towards the completion of Rio Nance V as the lion's share of that. It's also going against the balance of our biomass project for steam, which is we have a lot of cost initiatives that we set forth this year. And our biomass, which is going to be a huge cost initiative for Gildan, is going to be starting in January in our second quarter and will be fully ramped up. So as we even get to Q4, we're going to see some of the impact from a lot of the cost initiatives. Despite the fact that we're closing our factories and losing about $0.15 of EPS, we're still going to generate a significant amount of manufacturing variances above and beyond the $0.15. We also are looking at other projects. We're in the process of investing in electrical plant to continue having sustainable cost of power as we go forward. So we have the money in there for the beginning stages of our electrical facility that will give a sustainable electrical costs and continue to lower costs. The one thing about the cost in Central America, cotton is a big mover, but there's been also other input costs during the last 12 months. I mean, there's been labor costs as well as electricity is going up significantly in Central America, and that's something we're trying to get a handle on by developing our own power plant, but it's a significant part of our cost structure. We're also looking to expand some distribution capacity in Eden and put a -- sorry, in Charleston to put some systems into support the Gold Toe integration. And there's other various projects. But overall, look, we're going to continue to reinvest in spending and developing our low-cost model. That's what's made Gildan successful. We feel comfortable with all of our expansion plans, and we feel comfortable with all our cost initiatives that will help us not just continue to drive market share in our wholesale market as well as develop all of our retail initiatives and drive the top line growth of the company. So we're in a very good position, we think. And we're only going to continue to widen the gap as we go forward.

The next question comes from Tal Woolley from RBC Capital Markets.

Just wanted to confirm on the pricing side just to make sure I've got this clear that effectively the permanent list price reduction you're taking today puts like is equivalent to some of the discounting action that you've already been taking. It's not an additional 13% on top of prior discounting?

It's based on the existing pricing action give or take roughly about that amount, yes.

Okay, great. I guess my next question would just be about the activewear capacity. It sounds to me like basically this year that there will effectively be no net activewear capacity increase this year, is that a fair statement?

Well, what we're doing and one of the reasons for taking downtime in managing inventories is that we're actually building our capacity. So there's 2 ways you can handle capacity reductions, I'd say, for example, is one is just to take the capacity down, or two is to take time out. So the money we're spending theoretically in taking time out is allowing us to increase our capacity to have a run rate to support future sales and because it takes a long time to train and build things up, so our capacity this year is still building. But what we're doing is we're taking time out to bring it down to a normalized level, let's say, to support our sales, but the actual capacity is growing. So in the event that our business grows next year and you got to understand next year is that we're going to have a good growth year. As we exit 2012, there's certain things are not -- like the non-recurrence of destocking alone, let's say, for example, is going to be positive to unit volumes as we go forward into next year. So with all the initiatives we have in place, with our retail initiatives, our wholesale initiatives, where we're going to -- we feel that we're going to continue to keep all our markets growing and market share, market recovery, international, other markets, product expansions, all the capacity is really geared and is in place to support this. So as we go forward and build capacity, we will be in the position to capitalize on sales growth in 2013.

Okay. So it's merely a question of in the short run that I think probably the Street was banking on there being more volumes in play for next year but that you're going to be taking more downtime this year reducing your effective capacity, but you expect to see it increase in the years beyond.

Yes, but the unit per dozen per week is increasing during the year, but the capacity in dozens total for the year would support to sales level and managed inventories so that as we go into 2013, we'll be prepared to have a capacity to support our 2013 initiatives as well as we'll have the ability that if business picks up, either the market grows or we develop more retail programs or more market share or whatever area of opportunity for us to grow is, we'll be able to capitalize then as we go forward. Everything is installed. So there's nothing stopping us now like in the past where we were sold out and we had back orders and -- so right now, we're sort of in a different type of position, but it's almost an easier position to deal with because now we're aggressively going after ways and opportunities to go and sell our capacity, and this has probably been the first time in the last I don't know how many years we've had capacity to sell, so the shoe is on the other foot, but it's exciting times and we're really looking forward to it and there's lots of opportunity out there for us.

So you don't sound any less confident about your ability to sell that full $30 million down the road.

No, not at all.

Okay. I guess my last question would just be just to be clear, so if we're thinking about sock volumes x the incremental contribution from Gold Toe, that would still probably be negative throughout the year as you wind down private label programs?

Well, what's going to happen is that the profitability in retail is going to come through in -- the lack of profitability is caused by high cost of cotton, manufacturing efficiencies and the fact that price increases were only effective towards the end of our fiscal year. So as we go forward and we -- just on a stand-alone basis, the existing business and what we're running and planning for, for 2012 will gradually become profitable as we go through the year as we shed our -- as we get these new price increases, reduce our high-cost cotton and manufacturing efficiencies, the minimal effect in terms of disregarding programs that we won't have next year, there are still some programs, like I said, in our portfolio of potentially $30 million to $40 million that we're still questioning on a long-term basis, but we're evaluating. But overall, as you take what we have today, we will definitely be in a gradual profit mode and as well as, as we go into Gold Toe and we look at the consolidation of Gold Toe, there's a lot of synergies and accretion from the Gold Toe acquisition that's not factored into a lot of our numbers as those have materialized during the year. So as we exit, we're going to gradually get some of those as we go through 2012. But as we exit this fiscal year, we're going to be in much better position in retail to have substantial earnings power in 2013.

So you're still on track to bring in in-house some of those Gold Toe volumes this year?

Correct.

The next question comes from David Glick from Buckingham Research Group.

Just a couple questions about the retail business. I just kind of have an overview question in terms of how retailers are looking at this dramatic decline in the cost of cotton versus the distributor screenprint channel. What gives you the confidence that retailers may not behave in the same fashion and attempt to get gross selling price decreases given the decline in cotton costs?

We're not planning on it. In fact, the way we positioned our own pricing, we feel comfortable because the products in which we're selling at retail on our retail price points are still significantly lower than I would say the benchmark in the market because we didn't bring our prices up as much as, let's say, for example, a lot of the national brands did. So that's the first thing. And I think that what's going to end up happening just like in any other business is that in my opinion is, is that what will end up happening is that you'll see a lot more promotional activity in back-to-school and other areas, let's say, for example, to -- and other ways to bring price to market. But where we're positioned, we feel comfortable ourselves that our pricing is in line with the future price of cotton. And that we didn't go up all the way, and we're feeling very comfortable and we're very optimistic that as we go into lesser cost cotton in the back half of the year and looking at ways to drive new business and new opportunities.

And you didn't talk much about the underwear business. What's been happening with your programs at retail? And what are kind of the puts and takes in terms of programs you've been gaining or losing? What's the outlook on the underwear side?

Right now, our business is pretty stable. We're planning right now a stable year-over-year business relative in underwear. We are planning on launching a lot of new programs under the Gold Toe and Gold Toe brands. We're working on levering those, like I said before, in underwear and as well as other product categories. And we're also aggressively finding and looking for ways to -- and customers to lever our Gildan underwear as well. So we're actively pursuing programs today. The existing programs are pretty well online on a year-over-year basis, and we're excited for new opportunities right now.

And can you clarify what's going on with your Starter underwear program at Wal-Mart? It looks like you may have lost some space there. Just if you can help us understand what's happening there.

Well, that happened, we lost 2 feet of space, but we actually didn't lose any volume because our square foot space is actually producing well. And what Starter wanted to do is they actually put in a real performance underwear, which has got stretch and so forth. And it didn't perform very well to be perfectly honest with you. And within the existing space that we have based on the performance of our brand, we actually are selling equally what we had with the more space. So Wal-mart is excited, they've got the brand priced right, and we're looking through another good year in 2012. And if you look at the quality relationship between what we're offering today and even in the Starter brand relative to what's out in the market for the price, it's the #1 selling -- at least the #1 product on the floor, that's for sure. So the loss of space didn't affect our sell-through.

Okay, and then just last question. Just to clarify, the gross selling price decrease that you just announced, that was around 13% and that basically rescinds about half of the price increases that you put through? Or could you just -- I just want to make sure I understand that correctly.

We reduced our prices roughly about $3 to $4 on our basic cotton T-shirts, and that is in line with roughly a little bit more than half of the price increases, yes.

The next question comes from Susan Anderson from Citigroup Investment Research.

So just a quick question. I may have missed it, but if you could maybe touch a little bit on what you saw at retail. I know there were some competitors talking about destocking in some of the essential business, and so maybe if you could give us some color on that and how it impacted your business and then what you're seeing now.

Yes, there was some destocking in retail in the fourth quarter, but right now, I think that's behind us. And like everybody have seen during this weekend, last weekend, sell-throughs were pretty good. I walked the stores myself and there's a lot of holes in the stores and if you look around, I mean the shelves are pretty empty, at least in the mass market and the ones I went to visit. So I would say that the destocking has occurred. Retailers are obviously skeptical themselves about managing their own inventories and their own cash flow. And that's sort of behind us now and I think that as we go forward, they'll stock the shelves as based on the demand for the end user, which seems to hopefully have picked up.

Okay, great. That's really helpful. And then just really quick, a follow-up on the capacity question earlier. Maybe if you could talk about once we see a return to a better macro environment, better screenprint environment, your expectation for Rio Nance V and then I, I guess, and VI and where you see that capacity going. Should I think about it in terms of U.S. taking more market share there or is it going to be mainly international and retail?

Well, what we said in our growth drivers are continue hopefully taking more market share in our screenprint channel, levering the market recovery and the market share that we have today. The market, itself, is retracted from the highs of 2007 by almost 10 million dozen as we speak today. So if our 60s, whatever percent share that we do have, those are -- that's an opportunity for us as the market recovers, and lowering price will help that recovery. We're going to have a large growth in international and other markets this year. A large part of that growth is actually offsetting the decrease in the U.S. distributor market. But again, that's an area where we think we have continued opportunity to lever. And we're going to continue to add new products in our line not just in the North American markets, but as well as our international market where we don't have as many -- don't offer as extensive product line in Europe, for example, as we offer in the United States. And there's still a lot of product we can offer in our U.S. market. This year, we've gone and added about 20% more product offering even within our U.S. channel, and that should help generate more market share. So we're very comfortable that the capacity we're bringing on and our business plans to support our wholesale growth and you align that as well as the ability for us to lever our retail, and primarily all of our retail sales today and the brands we're selling are in the -- and the products we're selling are mainly in socks. So as we lever these opportunities and these brands into activewear and underwear, that will use up capacity that we have installed as well. So we feel comfortable with all our growth initiatives with our capacity. That's why we're taking time out and not just reducing our capacity, that we're continuing building so the actual run rate at the end of the year will be significantly higher than it was in the beginning of the year, and hopefully we'll be able to capture the opportunities as we go forward in 2013.

Okay. And then just one last question on the guidance. It seems like the first quarter is taking a big portion of the hit for 2012 guidance in terms of where the consensus was. Can you maybe give a little bit more color on how you see each quarter changing from the first quarter, like what sequentially gets better?

We're not going to give quarterly guidance. We'll give each quarter at a time as we report the previous quarter, but what you can see from the math is that the cumulative of the next 3 quarter is EPS of $1.17, so obviously, that's what's reflected in our guidance for the balance of the year.

We are now at the end of the allocated time for the call. I will now return the call to Sophie Argiriou for some final remarks.

Thank you. Thank you, all, for joining us once again. I'd also like to take the opportunity to wish everyone all the best for the holiday season, and we look forward to speaking to you in the new year at our next earnings conference call in February. Have a good day.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line, and have a great day.