John Zamparo

John Zamparo asked about the nature of the CapEx guidance update (from 5% to 4% of net sales), specifically whether it involved deferring projects or if some spending areas were less compelling, and if it was linked to supply chain uncertainty. He also inquired about the competitive landscape, asking if there had been meaningful changes, if competitors were behaving rationally, and if they were passing on costs as expected.

Answer

Luca Barile (EVP and CFO, Gildan Activewear) explained that the CapEx reduction primarily reflects a shift in the timing of projects, while maintenance CapEx (two-thirds of total) remains consistent. Glenn Chamandy (President and CEO, Gildan Activewear) stated that the entire market has consistently passed on tariff-related costs. He believes Gildan is widening the gap against competitors due to its brand portfolio, technology, innovation, and leveraged large-scale, low-cost manufacturing, which he sees as superior to undercapitalized competitors.

John Zamparo asked about the nature of the updated CapEx guidance, specifically whether it involved deferring projects or if certain spending areas were less compelling, and if supply chain uncertainty influenced this. He also inquired about recent changes in the competitive landscape, including whether competitors are behaving rationally and passing on costs as expected.

Answer

Luca Barile, Executive Vice President and CFO, explained that the CapEx reduction from 5% to 4% of net sales primarily reflects a shift in project timing, while maintenance CapEx remains consistent. He reiterated that the free cash flow guide adjustment accounts for HanesBrands transaction costs, working capital timing, and tariff costs in inventory. Glenn Chamandy, President and CEO, stated that the entire market has consistently passed on tariff-related costs. He asserted that Gildan continues to gain market share in the printwear market due to its strong brand portfolio, technology, innovation, and large-scale, low-cost manufacturing, widening the gap against weaker, undercapitalized competitors. He clarified that Gildan's pricing strategy matches tariff impacts, maintaining consistent pricing relationships with competitors.

John Zamparo of Scotiabank asked about the capital cost of the Central American capacity expansion and its impact on future CapEx. He also requested color on the weakness in international markets and the outlook for the second half.

Answer

President & CEO Glenn Chamandy clarified that the expansion would occur within the existing CapEx guidance (5% of sales) as it leverages current infrastructure. Regarding international markets, he noted they are smaller and have different dynamics. EVP & COO Chuck Ward added that Q2 faced tough comps and UK economic challenges, but POS has improved in early Q3, and the company remains confident in its long-term international growth targets.

John Zamparo of Scotiabank inquired about the path to growing Burger King U.S. franchisee profitability amid cost inflation and whether current initiatives like extended hours and modernization are sufficient to reach 2026 targets.

Answer

CFO Sami Siddiqui acknowledged the pressure from beef inflation but described it as a manageable and cyclical issue, drawing a parallel to the recent normalization of coffee prices. He expressed confidence that this cycle will reverse and that, combined with top-line initiatives and cost management, the company remains on track to improve franchisee profitability, with franchisees aligned with the long-term plan.

John Zamparo from CIBC inquired about the performance of the Tim Hortons supply chain and CPG businesses, asking when the supply chain margin is expected to stabilize at previously guided levels.

Answer

CFO Sami Siddiqui explained that Q1 is a seasonally low quarter for the supply chain, resulting in a 17.5% margin, which was also impacted by a bad debt expense. He clarified the normalized Q1 margin was closer to 18% and reiterated the full-year 2024 margin target is expected to be around the 2022 level of 19%.

John Zamparo of CIBC World Markets asked about the performance of the Tim Hortons supply chain and CPG businesses, specifically seeking an update on when supply chain margins are expected to stabilize.

Answer

CFO Sami Siddiqui explained that Q1 is a seasonally small quarter for the supply chain, and the reported 17.5% margin was impacted by a bad debt expense. He clarified the normalized Q1 margin was closer to 18% and reiterated the full-year 2024 margin is expected to be around the 19% level achieved in 2022.

John Zamparo of CIBC asked about the performance of the Tim Hortons supply chain and CPG businesses, and specifically when the supply chain margin is expected to stabilize at previously guided levels.

Answer

CFO Sami Siddiqui explained that Q1 is a seasonally low-margin quarter for the supply chain business due to fixed costs. After accounting for a bad debt expense, the normalized Q1 margin was closer to 18%. He reiterated that the full-year 2024 margin is expected to be around the 2022 level of 19%.

Asked about the remaining opportunity in automated route optimization (ARO) and whether it's separate from other cost-saving programs, and questioned the conservative nature of the long-term net leverage target of sub-2.5x.

Answer

Automated route optimization (ARO) is an ongoing benefit of growth and is separate from the $20 million business optimization program. The sub-2.5x leverage is a long-term ceiling, not a near-term target, intended to maintain balance sheet strength and flexibility for future M&A.

Inquired about the M&A market for tuck-in deals, asking if opportunities have increased, and about the company's pricing strategy for 2024, including whether they have seen any customer pushback.

Answer

The company confirmed their M&A pipeline is very robust, partly due to market conditions affecting smaller operators, and noted their scale gives them a competitive advantage over private equity for these deals. On pricing, they stated that the high customer retention rate (86%) indicates good acceptance, and they plan for 'normal course pricing' in 2024, not accelerated hikes, unless inflation or fuel costs spike.