Gildan Activewear Inc. (GIL) Q1 2013 Earnings Report, Transcript and Summary

Welcome to the Q1 2013 Gildan Activewear Earnings Conference Call. My name is Trish, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Sophie Argiriou, Director of Investor Communications. Please go ahead.

Thank you, Trish. Good afternoon, everyone, and thank you for joining us. Earlier this afternoon, we issued our press release announcing our earnings results for the first quarter of fiscal 2013 and our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents will be filed with the Canadian Securities Regulatory Authorities and the U.S. Securities Commission, and are 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 and our business outlook, 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 Authorities that may affect the company's future results. I would now like to turn the call over to Laurence.

Good afternoon. Today, we announced record results for the first quarter of the fiscal year and reconfirmed our full-year sales and earnings guidance for fiscal 2013, which we had provided at the end of November. Our key messages are unchanged since we reported 2 months ago. The strong recovery in earnings for our core Printwear business is continuing, and we are making important progress in 2013 in implementing our strategy to position Gildan as the consumer brand for socks, activewear and underwear, as well as to capitalize on growth opportunities for the Gold Toe portfolio of brands. Adjusted EPS in the first quarter was $0.32 per share, slightly higher than the top end of our guidance range of $0.28 to $0.31. We've reflected the projected major turnaround from the first quarter of fiscal 2012, when our results were dramatically impacted by the sudden bursting of the bubble in the price of cotton. The company incurred a loss in the first quarter of last year, due to a unique combination of factors, including: the historically high cost of cotton; abnormally high levels of seasonal inventory destocking by wholesale distributors; a special distributor devaluation discount; and abnormally high promotional discount rate in the U.S. distributor channel, as promotional activity was largely tied to sell-through from distributors to screenprinters, which was significantly in excess of replenishment shipments into the distributor channel, and an extended holiday manufacturing shutdown in order to manage inventory levels. At that time, we made the decision to lower printwear selling prices even though we recognize that we would continue to consume inventories produced with high-cost cotton throughout the first half of the fiscal year. We made this decision in spite of the negative impact on short-term results in order to restimulate screenprinter demand, give distributors confidence and visibility to plan their business and replenish inventories and further reinforce our position as the industry leader. At the time, we indicated to investors that we were confident that we would return to a positive earnings trajectory in the second half of the year, as our cotton costs and cost of sales declined in line with the lower selling prices. Results for the fourth quarter of fiscal 2012 were a record for any fiscal quarter in the company's history. And as indicated, our results for the first quarter, which we reported today, are a record for the first quarter of the fiscal year. The first quarter is seasonally the lowest fiscal quarter in the year for sales of T-shirts. Printwear industry conditions continue to be strong during the first quarter, and our overall revenues for Printwear increased by approximately 65%, compared with the first quarter of last year, due to the recovery in screenprinter demand, increased market share, the return to a more normal level of seasonal distributor de-stocking, the impact of the Anvil acquisition and the non-recurrence of the distributor inventory devaluation in the first quarter of last year. Operating income for Printwear was $45.9 million in the first quarter, versus a loss of $30.8 million in the first quarter of fiscal 2012. Results for Branded Apparel were also significantly up from the first quarter of last year. The Branded Apparel division reported segment operating income of $19.6 million, compared with $2.4 million in the first quarter of last year, due to the impact of lower-cost cotton, more favorable product mix, including new branded activewear programs for retailers, and the impact of the acquisition of Anvil. Sales of socks were slightly lower than the first quarter of fiscal 2012, largely due to non-replenishment of programs, which are being transitioned to new branded programs and new styles. On the manufacturing side, the favorable impact of the non-recurrence of the extended shutdown costs in the first quarter of fiscal 2012 and the ramp up of Rio Nance V was partially offset by inflationary cost increases and repairs to the Biotop lagoons at the Dominican Republic textile facility, which were required due to hurricane damage. Consolidated SG&A expenses were 16.5% of sales, compared to 16.7% of sales in the first quarter of fiscal 2012. SG&A expenses increased by $18.6 million over last year, due to increased performance-based compensation expenses, increased brand marketing and advertising expenses, and the acquisition of Anvil. The consolidated income tax rate in the quarter was approximately 4.5%, excluding the impact on the tax rate of restructuring and acquisition-related charges. Compared to the assumptions in our November guidance for the first quarter earnings, the positive impact of lower-than-projected promotional activity for Printwear was partially offset by the U.S. $0.02 per share cost of the repairs to the DR Biotop lagoons, which was primarily incurred in the first quarter. Consolidated sales revenue used for the full fiscal year are now projected to be slightly in excess of our previous guidance of $2.1 billion. Sales for Printwear are now projected to exceed the previous projection of approximately $1.4 billion, including the impact of the more favorable-than-projected Printwear selling prices in the first fiscal quarter. However, the EPS impact of the increase in projected Printwear sales is assumed to be offset by higher cotton and manufacturing costs, and we are maintaining our full year guidance range of $2.60 to $2.70 per share. At the end of January, we announced selling price reductions for certain Printwear products and applied the benefits of these selling price reductions to distributor inventories. The inventory devaluation discount amounts to $0.04 per share and will be recorded in the second fiscal quarter. The full EPS impact of the pricing actions, including the impact of the distributor inventory devaluation, had been reflected in the company's prior guidance for fiscal 2013. Our full-year guidance continues to reflect the possibility of further increases and promotional discounting in the balance of the year in excess of the recent selling price reductions. We would like to provide some context in the recent pricing activity. Until the end of January, pricing in the printwear industry had continued to be stable. At that point, one competitor with a relatively small share of the market initiated selling price reductions. We did not directly match the competitor's price decreases, but took the opportunity to make selective pricing adjustments to position the Gildan brand for advantage. At this time, we believe that industry pricing is in line with future cotton prices. Assuming economic conditions remain stable, we do not intend at this time to initiate further price decreases. However, we will defend our industry leadership if required. And therefore, our guidance provides for possible further increases and promotional activity. We are on track to ship all of the new branded programs, which we announced in November. These programs include national underwear, activewear and sock programs, which will provide significant national exposure and visibility for Gildan as a consumer brand. Some programs are beginning shipment in the second fiscal quarter, although the majority will be shipped in the third quarter. In order to maximize the opportunity provided by these new programs, our guidance continues to reflect an increase in our expenditures for brand marketing and advertising by over $15 million this year, including our commercial air during Sunday's Super Bowl game, which has resulted in massive national interest and attention being attracted to Gildan, as indicated by the extent of press coverage, social media commentary and traffic in our website. Our total expenditures for marketing and advertising in fiscal 2013 in Branded Apparel are projected to be close to $30 million. In addition to our reputation for product, quality and value for money, our positioning with retailers is also enhanced by our commitment to industry-leading labor practices and working conditions in our manufacturing. Retail customers are increasingly enforcing zero-tolerance policies with regard to social compliance by their supply chain partners. The cost of cotton has increased since we initiated our guidance in November, and we are assuming that the balance of our cotton requirements for consumption and cost of sales in the balance of fiscal 2013, which has not yet been fixed, will be purchased at approximately current future's prices for cotton. We have provided guidance for the second fiscal quarter of $0.54 to $0.57 per share on sales of approximately $520 million, compared with EPS of $0.23 per share in the second quarter of last year on sales of $483 million. The projected increase in EPS reflects the impact of lower cotton costs which will continue to decline compared to Q1; higher unit sales volumes for both -- for Printwear; more favorable product mix for Branded Apparel; and the impact of Anvil. These positive factors are projected to be partially offset by lower selling prices for footwear, including the impact of the distributor inventory devaluation discount, the impact of higher manufacturing costs and higher selling, general and administrative expenses. Manufacturing costs are projected to be higher than the second quarter of last year, due to some short-term issues which are not expected to impact future quarters. The timing of the Easter holiday shutdown, which will fall in the second fiscal quarter in 2013, as compared with the third quarter in fiscal 2012 and inflation in certain cost elements. These cost increases are expected to more than offset the favorable efficiencies due to the ramp up of Rio Nance V. Projected results for the second quarter would again represent a record for the second quarter of the fiscal year. We've generated free cash flow of $21.3 million in the first quarter, after financing a seasonal increase in inventories and capital expenditures of $25.3 million. We ended the quarter with net indebtedness of $95 million. We are continuing to project free cash flow in excess of $200 million for the full fiscal year. Capital expenditures for the full year are still projected at approximately $200 million. Approximately $85 million is projected to be spent on our yarn-spinning strategy, including the modernization of our existing U.S. yarn-spinning facilities and the new ring-spun facility at a building purchased in January in Salisbury, North Carolina. The balance of the fiscal 2013 capital expenditure program is for the completion of Rio Nance V, the modernization of Rio Nance I, the construction of our new distribution center in Honduras and continued investments and further expanding our biomass facilities in Honduras. We are considering the option of increasing the utilization of the former Anvil textile facility in Honduras for performance activewear products to support our Gildan-branded performance activewear programs in both Branded Apparel and Printwear which will allow Rio Nance I to be configured to focus increasingly on large-scale high-volume manufacturing of ring-spun underwear and activewear. Due to our strong cash flows and strong balance sheet, we announced a 20% increase in our quarterly dividend in November, and we were pleased today to announce our quarterly dividend of $0.09 per share, payable to shareholders of record November 21, 2013. I will now pass you back to Sophie.

Thank you, Laurence. Before moving to the Q&A session of the call, I ask that everyone please respect our request that you limit the number of your questions to 2, given the timing of the call, and in order to give everyone the opportunity to ask questions. Time permitting, we will definitely circle back for a second round of questions. Thank you. Operator, we're now ready to start the Q&A session.

[Operator Instructions] Our first question comes from Martin Landry from GMP Securities.

You mentioned that your Printwear sales are expected to be higher than what you had anticipated previously. And I'm just trying to get a little bit of sense as to what's driving the higher sales. Is it pricing? Is it volume related? Is -- or is it market share gains? So any color on that would be appreciated.

You're talking relative to the previous forecast?

Exactly.

Yes. This is really only a slight increase. We were maybe, at a whole, conservative with our rounding in the original forecast in November. Plus, we did have higher sales and higher pricing in the first quarter. So it's a slight increase over the growth that we'd already projected in our original guidance.

Okay. And you're talking about an increase of utilization at the former Anvil facility. If you could share with us maybe at what rate is the capacity utilized right now and what extent are we talking about in terms of capacity increase that you're contemplating right now?

Well -- it's Glenn. Well, the Anvil facility right now is really producing basic knit products. And our plan right now is to convert that plant to produce a performance and some of our specialty products. Originally, we had thought we're going to move some of these products into our Rio Nance facility. But with the reaction we've had with our new product line and performance and the demand we have on our sales, we feel that we can dedicate a factory just specifically for these types of performance fabrics. As we go forward into next year, we're have -- we have considered a considerable amount of product that will be launched in new styles, new fabrications, et cetera, so we're really going to focus the plant on producing the performance quality type products, which are waking [ph] and antimicrobial and all the different varieties of stretch and things that we need to really drive what we think are all the performance features in the marketplace today. So this will allow us really to expand, more in-depth, the product because at Rio I would have been still limited to more the commodity side. And now we can actually add quite a bit of product that will enhance, I think, overall sales opportunity in the category with all these different fabrications. And then, consequently, would also allow us to streamline Rio Nance I and keep it consistent with the rest of the type of Rio facilities we have, producing large runs and ring-spun underwear and activewear type of products. So it becomes a win-win. And also, combining all the capacity together, net-net, to increase our capacity of the company as we go forward the service, we think will be the demand in all these product categories.

Okay. I guess, if you're talking about it, it's probably something material. Are you contemplating doubling the capacity of that facility?

Well, not necessarily doubling the capacity. But the capacity will be reconfigured into making more of the polyester performance. It's a little bit different type of fabric, let's say, production requirements, let's say, for example. We might get some production increases in the facility. But mostly, it would really drive a lot of the specialty performance. Where we're really going to gain is by not having any type of specialty in the other facilities in which we're running. So we're going to get efficiency pickups in Rio 1 and Rio 2, for example, where we're producing some of these items there, will be moved into Anvil. And net-net, we'll get a better efficiency overall in Gildan's production, but also allow us, more importantly, to have a diversity of product that will continue to drive sales growth both for the retail and wholesale markets.

Okay. And in terms of where exactly is that facility in terms of level of efficiencies and stuff like that? Or is it -- is that comparable to your Rio Nance facilities?

It's a good facility. I mean, it was obviously not the same level and size because partly what drives our efficiencies is the size and scale of our facilities. But it's an industrial park that's in Honduras, about 45 minutes away, maybe an hour away from Rio Nance. But it's a good facility. We will spend a little bit of capital on it to get its cost structure down and the things that we do to enhance our cost structure we'll implement in this facility. But obviously, because of the fact that it's going to be producing a wider variety of different products, it will have somewhat a higher cost structure. But the margins in these products will be very good.

Our next question comes from Kenric Tyghe from Raymond James.

I wonder if I could circle back, firstly, just on the modest increase in your total marketing spend in the year. It seems to dovetail with comments that one of your competitors made yesterday with respect to their increased marketing spend. And also just the dynamics that play in the retail channel. We're seeing -- a competitor mentioned pushing new branded underwear offerings, et cetera, into the market. I'm just curious on your take on competitive dynamics, some of the dislocation would be, it would appear, your early-stage initiatives are causing and how you've sort of characterized your thinking at least?

Well, I mean, we said in our last quarter -- I mean, this year, we've made significant inroads in our Branded Apparel sales and our branded sales. If we take it back to 2011, our branded sales were only 35% of our volume. They're going to be almost 60-plus percent this fiscal year. And part of our advertising spend is obviously to promote our brand in the channel and to make sure that we have successful sell-through. As you saw last week, we had the Super Bowl ad, which was first for the company, and we're very excited about it. We've had significant placement -- new product placement this year of T-shirts, sweatshirts, socks, underwear in all categories, in both national and regional chains. So we're very excited about the opportunity. And what we're in the process of doing is making sure that we see ourself through the channels. So we've set up a media campaign where we -- we had a Gildan Bowl, a Super Bowl ad, we're sponsoring Triple-A Baseball. We're going to have national print. We're going to have TV commercials in the fall, back-to-school, digital, social media. I mean, we're going to spend the money to continue the brand awareness of Gildan and to make sure that we have a good sell-through. And the other thing I think to -- important point here is that the programs that are going to be sold in this fiscal year are going to be sort of back-ended which is going to allow us to generate about $50 million in revenue. But on an annualized basis, these programs are about $100 million. And encompassing all this will allow us to not only to have a good year this year, but with our advertising spend and the momentum we have, we think that we're going to have significant top line growth in Branded Apparel as we go into 2014.

And just as a follow-up on another line with respect to your stock performance in the quarter. Could you just walk us through the dynamics there? It certainly appears you have challenges again in this quarter.

Well, what happened this quarter is 2 things. One is that we're in the process of taking one of our largest programs in socks and converting it from Private Label into Gildan brand. So -- and that's happening as we speak. So we've reduced shipments out of our door because we're changing the program. And that was one of the causes. And the second is we had a little bit of negative POS in our infants area, which is a very small part of our mix. It's just Private Label again. But the biggest change in year-over-year sales was the fact that we're resetting the floor for all of our Gildan brand that would hit the market, as we speak. It's actually hitting the stores now. So we short shipped the market in Q1.

And just -- sorry I realize this is a third question. But Laurence, would you give us some color on the realized cotton and inventory in the quarter in terms of the cost of that inventory in the quarter?

The cotton and cost for sales in Q1 was low- to mid- 90s.

Our next question comes from Anthony Zicha from Scotia bank.

You mentioned in the press release that Gildan's position to secure further new programs for both the Gildan and the Gold Toe portfolios of brands. And now if you're successful in securing those new programs, could we anticipate a change to your current projections for 2013? Could there be some upside?

There may be a little, I mean, but I think our big focus right now is to continue driving retail environment, and we're working 9 months in advance. So there might be opportunities in back-to-school from promotional sales we could get. But I would say that our big push right now is for 2014. And that's where we're really looking to drive the top line based on everything we have in place, the momentum we have behind our brand, our advertising and the product extension. We have a lot of product extension, not only in the Gildan brand, but we also have in Gold Toe where we have products going into T-shirts, G [ph] T-shirts. We have some underwear being sold into retail this year. So all of these will hopefully materialize in the -- to bigger and better things as we go into 2014.

Okay. Great. And my other question is, Glenn, can you give us an idea about the pricing at the retail level? Like has it been already set for the year, the programs?

Yes, all our pricing is set in retail. And we think that we have a good competitive benchmark. I mean, just to your -- going back to retail, we never raised our price points during the whole cotton crisis relative to the price of cotton. So we've always been positioned well in pricing. And all our prices are fixed for this fiscal year.

Our next question comes from Brian Morrison from TD Securities.

Just on the branded side. If looking at the competitive price gaps recently, it looks like they have been narrowing in the recent weeks and months. And if so, if that's the case, how do you adjust or do you need to adjust when this dynamic takes place when you're obviously trying to increase market share substantially?

Well, look, we think that -- 2 things: one is that we price our products, not only to have the best price, but also to have the best quality of products. So what we're going to be bringing to the market, for example, in our underwear category is -- are going to be a far superior product that's out in the market, better elastic, better fabrication, better packaging at better prices. So we just don't really -- that's the whole been -- the whole success of Gildan is adding as much value at best possible price. And that's what's been so successful for the last 15 years in wholesale. And we're just applying those same dynamics into our retail strategies. So we're very comfortable with our pricing positioning. And the features of our garments will sell them through. And as well as that we're committed to making sure that, from an advertising point of view, that we support all of our retailers.

And then just a quick follow-up on Rio Nance I. I presume there's no change to the time of the start up on that? And then I think you've mentioned the startup on it will be over a 12-month period. Will it be as needed or would you take it right to full capacity, you're going to ramping it up?

Well, to be honest with you, there may be a slight delay in Rio Nance I, only because what we're doing is we're bringing some of the equipment there to Anvil. And it will start probably in early fourth quarter instead of the third quarter. And it will still be ramped up over the 12 months. So we were basically on track when we said we can get back where we need to service 2014.

Our next question comes from Mark Petrie from CIBC.

I just wanted to confirm. So the higher Printwear sales, that's really all pricing, it's not a change in your volume assumption?

It's -- minor changes involved.

Okay. And then, in terms of the Anvil facility ramping up and increasing capacity, what does that mean for your exit rate on capacity for '13 and '14?

Well, the thing about Anvil is that the facility basically is operating this year -- was, in our projection, it was going to be wound down and then eventually migrated into Rio Nance I. So by maintaining Anvil at its current level, let's say, for example, we'll have slightly higher exit rate. But net-net, we'll have more capacity as we go forward into the future. And the capacity at Anvil, we're not necessarily planning to increase it significantly, there might be some increases but more importantly, it's going to be the type of product fabrications that we will have in Anvil that will help us to drive new opportunities, new sales opportunities, particularly in performance and some of the specialty areas, where would have been maybe a little more complex that we needed to have in Rio Nance I. So we will have more capacity. So if you look at some of the numbers that we've published in the past, Anvil probably represents anywhere between 8 million and 10 million dozens, let's say, of volume on an annualized basis.

Okay. That's helpful. In terms of SG&A, going forward, this quarter was slightly down as a percentage of revenues. How should we be thinking about that? I don't think that trend is sustainable for the balance of the year. But how should we be thinking about that in terms of progression through the quarters or into next year even?

Well, we gave you -- in November, we gave you our guidance for full year SG&A which was about 13%.

So you're just sticking with that?

Yes.

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

Just wondering if you can talk about the top line performance this quarter. You were running ahead of your guidance previously. Was that lower-than-expected pricing that drove that? Because just -- just if pricing cuts were expected, are you surprised to see retailers stocking up? Or sorry, if the Printwear distributor is stocking up?

I'm not sure if we understand your question, Tal, sorry.

The top line beat this quarter versus your guidance, like that was all realized pricing.

Yes. I'll give you the breakdown of the increase in sales revenues for Printwear compared with the first quarter of last year, which went from $147 million to $244 million. $85 million of that increase was volume. $65 million of the $85 million was Gildan branded products, the rest was the impact of Anvil. Then 20 million was the non-recurrence of the deval. And pricing mix was slightly negative and accounts for the rest of the difference.

Perfect. And I'm wondering if you, in the Q2 guidance, if you could possibly be able to quantify the impact that you're anticipating for manufacturing efficiencies and the shift in the timing of your Easter shutdown?

You're wanting to quantify the impact, was about...

Yes.

The cumulative effect of all of these things was about $0.06 negative to EPS.

Exclusive of the devaluation?

The devaluation was another $0.04.

Our next question comes from Jim Duffy from Stifel, Nicolaus. Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division: I have 2 questions. First is the pricing move from the small Printwear competitor out of character from what you've seen from that competitor in the past? And then, secondly, is your guidance for Printwear sales growth in 3Q and 4Q, does that imply growth or will the pricing adjustments you've taken offset the volumes?

The first -- just repeat your questions. Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division: Sure. The first question -- I'll give them one at a time, maybe that's easier. First question. Pricing move from the small Printwear competitor, is that out of character from what you've seen from that competitor in the past?

Yes, I would say so. It's a small competitor, but big player. And you can get color on -- based from your channel checks with distributors. Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then the second question. The guidance for Printwear for 3Q and 4Q, does that presume growth or will the price adjustments you've taken offset the volumes?

Well, we're not giving guidance by quarters. We're looking for the full year at something like 6 -- sorry. Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division: The 1.4 [ph]?

No. We're looking at something like $135 million of increase in our Gildan brand in the Printwear channel, and about 30% growth in the international markets, and about $40 million from Anvil.

Our next question comes from Justin Maurer from Lord, Abbett. Justin C. Maurer - Lord, Abbett & Co. LLC: Laurence, just trying to get a little color on the price -- cotton price. You said, you guys are looking at the future's curve, which I believe, correct me if I'm wrong, it's about $0.80. But I think you mentioned -- and I know you've said in the past that it's not perfect in terms of what you guys pay relative to what that market shows. But just looking -- if you guys turn your inventory turn -- turn your inventory 3x a year, that would imply that you're selling through stuff, correct me if I'm wrong, that you had an inventory you manufactured 6, 9 months ago. So that would have been at a much lower level. So I'm just trying to reconcile kind of your point about and what you're doing with pricing and bringing it down relative to costs coming up, relative to inventory that you're currently selling through.

Well, I'm not sure if we completely understood the question. I mean, the cotton that's flowing through cost of sales in the first quarter is the cotton that was bought when cotton was in the low 90s for a long time. Cotton in Q2 will be lower than Q1. And then we're not really prepared to talk about our cotton in the back half of the year other than to say that we have a small amount of cotton that's still open and we're assuming that, that will be -- that will reflect the current futures for cotton. Justin C. Maurer - Lord, Abbett & Co. LLC: Okay. But the -- I guess, when I'm looking back, I see the price of cotton precipitously dropped, spring of last year. So you're saying that, that inventory you guys just sold was stuff that you manufactured in the spring of last year?

No, what we're saying is that what we sold in Q1 was manufactured in Q -- our Q4, basically, which is July, August, September is the way you should look at it. Justin C. Maurer - Lord, Abbett & Co. LLC: Right. Yes. But that raw material is procured when? I guess, that's -- I guess that's what I'm talking about.

Well, that's why it's procured. So that's why. So when you buy July cotton, when we fix cotton there's different periods. So at -- July 25 is the deadline to buy all of our cotton for Q -- our fiscal Q4. And roughly, the average price was in the 90s, let's say, for example. So we can assume that cotton in July, August and September in our cost of goods sold, but are only pushing it through the inventory in fiscal 2013. Justin C. Maurer - Lord, Abbett & Co. LLC: Okay. And just last question on the distributor. You're making them haul in their inventory again. Is that -- when you guys did that a year ago for the first time, I know it was -- probably a tough decision. But how did you think about the risk reward of that relative to setting a precedent that now and maybe talk about that relative to doing it again. Is that something that will become more commonplace, do you think, going forward?

Well, first of all, it's not the first time we've done it. And it's our way of taking a leadership position in the market. So if you go back to last year, when we actually did a deval, we brought our prices to market, we created significant market demand, we increased our market share, and we partnered with our customers to make sure that they are still competitive to sell Gildan on a go-forward basis. So I think it's something that we're -- we'll be committed to do, is to make sure that our distributors are whole with their inventories so that they can sleep at night that Gildan is a partner of theirs. On side -- on the flip note, I mean, I think that our pricing, we're very comfortable with the pricing as it is today. We think it reflects the future price of cotton. We don't intend to lower our prices at this point. And we're very comfortable with our positioning. So in the event that we did, I mean, we most likely have to -- would keep our distributors whole once more.

Our next question comes from Eric Tracy from Janney Capital Markets.

I guess, if I could follow up a little bit on the pricing. You mentioned that embedded within the guidance, there is still some room for incremental promotions as the year progresses. Are you able to sort of quantify that? And I guess secondarily, beyond this competitor acting irrationally, it obviously seems like demand is still strong. But are there any sort of things, from a macro perspective, that are giving you a little bit of concern just on the demand side and on the pricing side?

On the pricing side, look at, we feel comfortable with our pricing, like we said. We're definitely projecting potentially further discounts. We will not quantify, obviously, that amount. And as far as demand is concerned, Q1 was a very good strong quarter. We had a period in November where we got a little bit worried because of weather, which is Sandy. But as December came through, we really came out of that quarter fine. We've -- over the last couple weeks of January, we felt a little bit of softness in T-shirts. But our fleece business is doing very well. So we're thinking what we found from talking to our customers is this is a little bit weather-related. But I think that overall, we're very optimistic, our customers are optimistic, we just went through major trade shows in January. The industry is upbeat. So we think that we're on a good trajectory to have a good year.

Okay. And then if I could switch to the Branded Apparel side. How much of the 13% increase in the quarter was Anvil?

Yes. Anvil really accounted for the growth. And then the slight decrease that we mentioned in socks and Branded Apparel was offset by increased activewear into the retail channel.

And that's typically our lowest quarter because what's happening is that all of our new products and most of our new programs are going to be shipped in, potentially, Q3 as we go forward into the year, which will be as much a bigger, significant driver to our branded sales.

And if I could just squeeze in one last in terms of the marketing spend that support that Branded Apparel. Correct me if I'm wrong, so it seems like roughly $3.5 million to $4 million on the Super Bowl ad suggest, call it, $11 million for the balance of the year. You mentioned some of just the incremental national ads, print and TV. Can we kind of look for some in-store fixturing and point-of-sale? And if so, kind of what the timing on that might be?

Yes. Well, first of all, the $15 million is over last year, so the total spend this year will be close to $30 million. And of that, we have 3, just over -- on the Super Bowl ad, which is public knowledge, I guess. But -- so we have a lot of money still to spend through TV, like I said, print, media and in-store displays. So it will be a function of all of the different elements of our advertising as we go forward.

Our next question comes from Susan Anderson from Citi.

I know you talked a little bit about industry trends. But maybe if you could just touch, overall, like what the performance had been year-to-date? I guess, because just looking at last year you guys had some really good January and then really very good February. So just concerned a little bit about the tough compares.

You're talking the data for...

Industry trend.

Industry growth in Printwear.

Yes. Yes. Since we don't get the press data anymore. Yes.

Yes. We don't get the press data anymore either, though. But like I said before, is that the T-shirt side, in the last couple weeks, has been a little slower than we wanted it to be, but not too bad. But fleece has been doing very well. And based on talking to our customers, we feel like it's weather-related. And like I said, is that -- we just finished all the trade shows in January. All things are a go. People are very excited. The tenants was fantastic. So we're pretty excited about -- as we go forward. And we're excited about the season.

Okay. Great. And then maybe if you can give us an update on the Anvil acquisition and the synergies there, and then maybe the same with Gold Toe.

Well, I guess, the -- obviously, the acquisitions in both cases are going very well. Anvil and Gold Toe have been fully integrated. We haven't got all the synergies. There are supposed to be synergies that will continue to flow through part of this year, but into next year as well. And we're on track with all of our plans.

Our next question comes from David Glick from Buckingham Research.

Just 2 quick questions. Laurence, I was just wondering if you could give us little more details other than the Easter timing, that shutdown, what the manufacturing inefficiencies are going to be for the quarter and why they won't recur? And then secondly, any help you can give us on kind of how the gross margin flows as the year unfolds. The numbers are just a little bit lower than we have been expecting in Q1. I'm just wondering how that plays out over the balance of the year and how your higher mix of Branded Apparel is going to impact your gross margin mix going forward.

So I'll just do a couple of manufacturing things. There were 2 small issues we had. One which was -- we stopped our biomass boilers due to heavy rains in Honduras, which we now mitigated in the future. So we would not have that issue by having storage capacity and so forth. So that cost us a bit of money. And at the same time, we also had a little bit of problems during the crop change this year with additional costs to dye the cotton due to the quality nature of the cotton kit coming in, in Q1during the crop change. So both of those are non-recurring as far as we're concerned. And those were the 2 big items besides Easter shutdown.

And also this short shut down of the DR because of the...

Oh, yes, and the short shutdown of the DR because of the storm.

Okay. And then just help us think about how the gross margin kind of flows as the year unfolds and then how the mix of Branded Apparel might impact the gross margin going forward.

We don't provide margin guidance, David. But Q1 is impacted by seasonality, as you'll see, if you go back over the years. And then also, we'll benefit from the further reductions in cotton as we go along. Plus, our manufacturing efficiencies.

And maybe one last thing to add to that in terms of the efficiencies and the manufacturing is -- I mean, looking at this year. But if you look at the investment that we're spending this year, which is $200 million on all the various projects we have, a lot of the savings are -- these are all, I think, cost-saving initiatives, like the balance of the ramp-up Rio Nance V is not at full maturity yet. Reinvesting in our second expansion of biomass which will come online and give us another significant savings as we go forward. Our distribution center in Honduras will reduce significantly our distribution costs to various markets. And our yarn-spinning, which is going to have a fantastic return. So all of these projects that we have, going forward -- I mean, if you look at the amount of capital we're spending, at the end of the day, these projects will deliver savings way in excess of our cost of capital and will drive earnings growth into 2014.

Our next question comes from Scott Rattee from Stonecap Securities.

You'd mentioned that one of your major private label programs, you're in the midst of sort of moving to branded. I guess I was wondering just conceptually if you think down the road, will there be a point in time when you don't have any more private label programs that'll be all branded?

Well, look at, I mean, our strategy is to continue to drive our brand strategy, and that's our goal. But we will definitely support all of our customers that we're still providing private label for on a go-forward basis. And our objective is to position Gildan as the brand of choice that will outperform their private label. And if we can convince other customers to drive Gildan instead of private label, then that becomes a win-win because we think we can offer them better value, we can support the brands through advertising, allow them to get better margins and better product offering to the Gildan brand. So -- but we're here to support all of our customers and never turn business away.

Glenn, would it be fair to say that, that discussion is something that you are having with each of your private label customers?

Like I said, I mean, the focus for my sales division is to basically continue driving our brand strategy. We've gone from 65% to just now 30% over the last 2 years. At the same time, we've allowed it to have a better mix and increasing our margins in our divisions. So that's really our focus and our goal. Because it becomes a win-win. We add better value. And the thing is, is that in most private label cases, I mean, a lot of these products don't get advertised, and we're committed to spending and developing our brand to be a major consumer brand in the United States, basically, a family apparel over the next couple years, and that's our commitment. So...

Okay. And a bit of a housekeeping. You haven't really touched on international as a sort of a stand-alone. I know you sort of talked about it just in general. Could you maybe just provide some color there? I think we had sort of a 20% growth last year. Has it sort of trended along those lines? Or how is it developing this year?

So we're trending -- we're projecting this year honestly to have 30% growth. Let's say -- we've never -- last year was our first year. We started having available capacity. So -- and that's really what our focus is. And this year, we're going to grow it by 30%. We're growing in all the different markets, Europe, Asia and Latin America. In Europe, we've, through the acquisition of Anvil, we've now inherited a retail sales force, which is something that we're going to be -- we never -- we've -- in international, we've been focusing strictly on our wholesale sales, and now we're going to start focusing as well in our retail sales. So with some of the -- through the acquisition of Anvil, we're going to lever their relationships they have with some retailers and start to sell our Gildan products into retail. We've opened up a couple new distributors in China this year which is exciting for us. And we have 2 really good distributors. We just opened a sales office in Columbia. So we're continuing to look at all -- explore other new markets, and we're excited. I mean, and we're going to lever the Gold Toe license -- Gold Toe brand as well into our European markets as we go forward into next year. So overall, international, will continue to grow. It's been a function of our capacity. But with Rio I and all the capacity that are coming on and -- our objective is to push the sales guys now, and that's our plan.

And we have no further questions at this time. I would now like to turn the call back over to Sophie Argiriou.

Thank you. I'd like to thank everyone for joining us. I'd like to remind everyone that tomorrow, we're holding our Annual Shareholders Meeting. So we won't be available to take calls in the morning. Our meeting will be held here in Montréal at the Centre Mont-Royal at 10:00 a.m. but we will remain available for you to take any follow-up questions this afternoon -- sorry, this evening, right after the call. I'd like, once again, to thank you all for joining us. And we look forward to speaking to you again in the next conference call that we'll hold for our earnings. Thank you.

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