Chris Lee

Chris Lee initially inquired about the updated free cash flow guidance, specifically why it was lowered despite reduced CapEx, attributing it to higher working capital investment. In a follow-up, he asked if Gildan had widened its price gap against competitors due to its low-cost advantage, and if this contributed to market share gains. He also inquired about the higher-than-expected SG&A expenses in Q3, requesting a breakdown of variable compensation and asking if a 10% of sales target for SG&A remains valid for the next year.

Answer

Luca Barile, Executive Vice President and CFO, explained that the free cash flow revision reflects transaction costs for the HanesBrands acquisition, timing of working capital, and tariff costs in inventory, reiterating a working capital target of 37-38% of sales by 2026. He also stated that the Q3 operating margin improvement stems from strong gross margin performance and SG&A cost control, driven by Bangladesh ramp-up, yarn optimization, and Central American capacity. Glenn Chamandy, President and CEO, emphasized that manufacturing optimization will continue to drive margin expansion. Regarding pricing, Chamandy clarified that Gildan's strategy matched tariff impacts, maintaining consistent pricing relationships with competitors. Barile further explained that higher Q3 SG&A was due to increased variable compensation and one-time IT-related expenses, reaffirming a 10% of sales target for SG&A, with Q3's increase being temporary.

Chris Lee inquired about the factors behind the recent decrease in utilization in the Americas region and the underlying assumptions for this segment within the raised 2024 adjusted EBITDA guidance. He also asked for a breakdown of the recent $16 million increase in quarterly operating expenses.

Answer

SVP and CFO Jennifer Whalen explained that lower Americas utilization was due to a non-recurring prior-quarter accounting benefit and the completion of a project in Suriname. President and CEO Christopher Bradshaw added that the outlook for the Americas remains positive, citing demand signals in Suriname, Brazil, Trinidad, and the U.S. Gulf of Mexico. Regarding expenses, Whalen attributed $13 million of the increase to personnel costs, with the remainder driven by fluctuations in repairs and maintenance and other costs tied to new search and rescue contracts.