Paul Kearney

Paul Kearney inquired about inventory levels in the quarter, specifically asking how much of the increase was attributable to higher tariff costs and the expected inventory position at the end of Q4. He also asked about the organic outlook for Gildan Activewear post-HanesBrands acquisition, including potential shifts in the hosiery and underwear business.

Answer

Luca Barile, Executive Vice President and CFO, stated that inventory levels are slightly higher due to tariff costs and a strategic focus on maintaining strong in-stock levels for customer availability. He expects working capital to be slightly higher than the 37-38% target at Q4's end but remains comfortable with its management. Regarding the HanesBrands acquisition, Barile reiterated Gildan's current mid-single-digit revenue growth and 70 basis point operating margin improvement guidance for 2025. He projected the combined entity's net sales to accrete at a 3-5% CAGR over three years, with CapEx at 3-4% of sales, maintaining a 1.5-2.5x leverage ratio, and EPS growth meaningfully higher than the low 20% range in the first year post-acquisition.

Paul Kearney asked about inventory levels in the quarter, specifically how much of the increase was due to higher tariff costs, and where Gildan expects to end Q4. He also inquired about the organic outlook for the Gildan business after the Hanesbrands acquisition, considering potential shifts in the hosiery and underwear segments.

Answer

Luca Barile (EVP and CFO, Gildan Activewear) stated that inventory levels are slightly higher due to tariff costs and a focus on strong in-stock positions for customer availability. He expects working capital to normalize to 37%-38% of sales in 2026, with Q4 ending slightly higher. Regarding the Hanesbrands acquisition, Barile reiterated guidance of 3%-5% CAGR net sales accretion over three years, 3%-4% CapEx, and maintaining a 1.5x-2.5x net debt to Adjusted EBITDA leverage ratio, with first-year EPS meaningfully higher than the average 20% range.

Paul Kearney of Barclays inquired about the current pricing environment and whether competitors were raising prices to cover tariffs. He also asked how Gildan balances the opportunity to gain market share against taking benefits to its profit margin.

Answer

EVP and COO Chuck Ward noted that pricing has been stable, with Gildan implementing only minimal, selective price increases. EVP and CFO Luca Barile addressed the margin question by reiterating the full-year guidance for a 50-basis-point improvement in operating margin. He explained this will be achieved by leveraging the new Bangladesh facility, increasing utilization in Central America, and other operational efficiencies, rather than significant price hikes.

Paul Kearney asked about the drivers of Levi Strauss & Co.'s wholesale business growth, specifically differentiating between new points of distribution or expanded assortments versus like-for-like stronger sell-throughs. He also sought insight into inventory levels within the retail channel as the company approaches the holiday season.

Answer

Michelle Gass, President and CEO, stated that wholesale growth, up 5% for the quarter, was largely driven by existing accounts responding to fashion fits, women's categories, and lifestyle assortments. She acknowledged some new distribution with Western Wear partners like Cavender's and expanded presence at Boot Barn. Gass did not directly address inventory levels in the retail channel but implied healthy sell-throughs.

Paul Kearney asked about the drivers of wholesale business growth, specifically distinguishing between new points of distribution or expanded assortments versus like-for-like stronger sell-throughs. He also inquired about inventory levels within the retail channel as Levi Strauss & Co. heads into the holiday season.

Answer

Michelle Gass, President and CEO, reported that wholesale grew 5% in Q3 and is expected to be slightly positive for the full year. She stated that growth was largely driven by existing accounts responding to fashion fits, women's categories, and lifestyle assortments. While new accounts like Cavender's and expansion in Boot Barn contributed, the primary driver was execution with existing partners.

Paul Kearney of Barclays requested more detail on the AUR lift drivers (promo, price, or mix), how wholesale retailers are managing inventory, and how the growing lifestyle assortment is creating new opportunities with retail partners.

Answer

EVP & CFO Harmit Singh noted the AUR lift was broad, but slightly stronger in DTC, women's, the U.S., and Europe. President & CEO Michelle Gass added that wholesale inventories are generally in good shape and partners like Zalando and Galeries Lafayette are positively responding to and leaning into the lifestyle and women's assortments. This positive reception is a key reason for the upgraded full-year wholesale guidance.

Paul Kearney asked about the rationale for the conservative flat outlook for the wholesale channel in 2025, given recent positive trends, and questioned the key drivers behind the margin improvement in the Direct-to-Consumer (DTC) channel.

Answer

President and CEO Michelle Gass explained the flat wholesale guidance is a prudent stance due to historical volatility, despite Q4's strength and positive European order books. CFO Harmit Singh detailed that DTC profitability, up 380 basis points for the year, was driven by a streamlined selling model, refined labor models, upgraded systems for inventory management, and improved e-commerce profitability, which is now in the low double digits.

Paul Kearney inquired about the anticipated impact of tariffs and the company's mitigation strategies for the upcoming year (2026), specifically asking if a step-up in mitigation efforts is expected in the spring season and over time.

Answer

Tony Spring, Chairman and CEO, stated it was too early to forecast 2026 tariffs or their magnitude, emphasizing the team's focus on controllable improvements like customer experience, assortments, and business balance. Tom Edwards, COO and CFO, reiterated the lack of clarity for 2026 tariffs but noted that more time would allow for increased mitigation efforts, with further details to be provided on the Q4 call.

Paul Kearney of Barclays asked about the extent to which pricing has already been affected by tariffs in Q2 and the consumer's willingness to accept these increases. He also questioned the company's pricing expectations for the fall season and whether negotiations with vendors on cost-sharing were largely complete.

Answer

Chairman & CEO Tony Spring stated that pricing changes are working into the system slowly, with limited impact in Q2, which informs the cautious outlook. He emphasized a shared approach with suppliers, not a one-size-fits-all increase. COO & CFO Adrian Mitchell added that the company is being surgical, not just broadly increasing prices, by renegotiating or canceling orders, securing vendor discounts, and selectively raising prices where the value proposition remains strong, while also absorbing some costs to gain market share.

Paul Kearney of Barclays asked about the degree to which Q2 pricing has already been impacted by tariffs, the consumer's willingness to accept higher prices, and the status of cost-sharing negotiations with vendors for the fall season.

Answer

Chairman & CEO Tony Spring explained that tariff-related pricing is being introduced slowly and cautiously, with a limited impact in Q2. COO & CFO Adrian Mitchell added that the strategy is surgical, involving renegotiating or canceling orders, securing vendor discounts, and selectively raising prices only where the value proposition remains strong, while also absorbing some costs to protect market share.

Paul Kearney from Barclays Capital asked for details on inventory levels, specifically requesting how much of the year-over-year increase was driven by tariff mitigation strategies, any color on inventory by region, and the expected timeline for inventory levels to align with sales.

Answer

CFO Justin Picicci clarified that the 18% inventory increase includes a 5-point headwind from foreign currency and strategic pull-forwards of core products to mitigate tariff impacts. He stated that excluding these factors, inventory growth is in line with revenue trends and is expected to moderate and align with demand by the end of the fiscal year.

Paul Kearney requested more detail on North American comp store sales, particularly the performance of outlet stores, and asked about the specific drivers behind Europe's significant outperformance relative to expectations.

Answer

CFO Justin Picicci detailed that North American brick-and-mortar comps were up high-single-digits, with both full-price and outlet stores accelerating, the latter driven by strong traffic. Regarding Europe, he noted the guidance was raised due to strong execution and healthy underlying trends across key markets, despite a dynamic environment.

Paul Kearney of Barclays sought clarification on the tariff impact calculation, asking to reconcile the current $30 million figure with the previously mentioned $50 million unmitigated impact. He also asked about the Wrangler business, specifically regarding conversations with retailers, channel inventory levels, and the outlook for the brand.

Answer

EVP, CFO & Global Head of Operations, Joe Alkire, clarified that the $30 million impact in the outlook consists of a $15 million net tariff impact (after mitigation) and $15 million in incremental demand creation investments. President, CEO and Chair, Scott Baxter, stated that the Wrangler business is thriving due to coordinated efforts in branding, product, and marketing, leading to strong retailer relationships and demand. Alkire added that Wrangler's Q2 outperformance was driven by improving POS trends that have continued into July, even after pricing actions were implemented.

Paul Kearney of Barclays requested clarification on the assumptions within the $50 million unmitigated tariff impact and asked about the capacity to increase production in Mexico to leverage its tariff advantages.

Answer

CFO Joseph Alkire clarified the $50M total impact comprises $35M for the core business (revised down due to Mexico's USMCA exemption) and ~$15M for Helly Hansen. CEO Scott Baxter stated that Kontoor's Mexico plants are already running very efficiently and near full capacity, particularly after absorbing production from Nicaragua, leaving little room for further expansion.

Paul Kearney requested insights from the consumer research on the Lee brand, asking about the current versus target customer. He also asked about the timing of potential tariff impacts on the P&L and the subsequent mitigation efforts.

Answer

COO Thomas Waldron explained that for the Lee brand, they are shifting from a 'too aspirational' consumer to a 'very smart consumer interested in fashion,' which will better halo the core customer. CFO Joe Alkire stated that due to inventory on hand, tariff impacts would likely hit the P&L in late Q2, with mitigating actions beginning to take effect in the second half of 2025 and into 2026.

Paul Kearney asked about the balance between reinvesting savings from Project Jeanius versus letting them flow through to earnings, given the 15% operating margin target is in sight. He also inquired about the capital allocation strategy, noting the recent acceleration in share repurchases.

Answer

CFO Joseph Alkire stated that while they are on a path to their prior targets, Project Jeanius creates an opportunity for those targets to move higher, with specifics to be shared in a new long-term plan. On capital allocation, he confirmed priorities are unchanged: reinvesting in the business, growing the dividend, and then share repurchases and M&A. He emphasized that strong cash flow and low leverage provide significant flexibility.

Paul Kearney of Barclays inquired about the expected promotional environment in the second half given planned price increases. He also asked for a ranking of SG&A shifts aimed at improving store productivity and sought confirmation on the timeline for fully mitigating tariff impacts.

Answer

CFO Richard Westenberger acknowledged the market remains promotional but noted that Carter's is seeing competitors begin to raise prices as well. He explained that SG&A savings will be driven by closing 100 underperforming stores, with reinvestment prioritized for marketing to drive demand. CEO Douglas Palladini emphasized that increasing store traffic is the key unlock for productivity. Finally, CFO Westenberger confirmed the company's intention is to fully offset the tariff impact in fiscal 2026.

Paul Kearney asked about the expected promotional environment in the second half and how Carter's planned price increases align with competitors'. He also requested a ranking of SG&A initiatives for improving store productivity and sought confirmation that the company aims to fully offset tariffs in 2026.

Answer

CFO Richard Westenberger stated the market remains promotional but noted competitors are also raising prices, giving Carter's room to adjust while remaining competitive. He identified closing underproductive stores as a key SG&A lever and highlighted reinvestment in marketing to drive demand. He confirmed the organizational goal is to fully offset tariff impacts in 2026. CEO Douglas Palladini added that driving traffic is the key unlock for store productivity.

Paul Kearney of Barclays questioned the outlook for Q2 ending inventory levels, considering the production disruptions and subsequent restarts due to tariff volatility. He also asked if G-III anticipates a more promotional environment for the remainder of the year given broader consumer uncertainty and rising industry inventories.

Answer

CFO Neal Nackman stated that inventory has been lean and is expected to align with future sales growth. Chairman & CEO Morris Goldfarb elaborated that they are accelerating shipments to mitigate future tariff risks, which could cause an unusual but positive build in Q2 inventory. Regarding promotions, Goldfarb asserted that G-III is not feeling significant pressure, attributing this to the high demand and strong sell-through of their quality products, and noted that inventory levels are currently slightly too low for the existing demand.

Paul Kearney of Barclays asked about G-III's expectations for Q2 ending inventory levels, given the tariff-related production disruptions. He also inquired whether the company anticipates increased promotional activity for the remainder of the year in response to broader industry trends of consumer uncertainty.

Answer

CFO Neal Nackman indicated that inventory has been lean and is expected to move in line with future sales growth. CEO Morris Goldfarb elaborated that the current environment is unusual, and the company is accelerating shipments to mitigate tariff risks, suggesting a Q2 inventory build would be a strategic positive. Regarding promotions, Goldfarb stated that G-III is not feeling significant pressure, attributing this to strong product performance and demand, even for the exiting PVH brands. He concluded that inventory levels are currently slightly too low for the existing demand.

Paul Kearney questioned the inventory position of the go-forward brand portfolio, the potential to further reduce manufacturing exposure to China, and how the company is planning inventory for next year if new tariffs are implemented.

Answer

Chairman and CEO Morris Goldfarb expressed high confidence in G-III's ability to manage potential tariffs, highlighting the company's success in reducing China production from over 80% to just over 30% (around 20% excluding outerwear). He emphasized their agile global sourcing network and experienced team's ability to pivot production quickly. Executive Neal Nackman added that inventory levels are in 'excellent shape' across the entire portfolio and that future inventory growth is expected to align more closely with sales growth.

Paul Kearney inquired about the strategic opportunity presented by the new Converse license, the outlook for future brand additions, and the composition of the company's clean inventory levels.

Answer

CEO Morris Goldfarb described the Converse license as a 'huge opportunity' for global distribution that leverages existing company talent and its partnership with Nike. Executive Neal Nackman stated that inventories are in 'great shape' with favorable aging and are well-balanced between owned and licensed brands, with levels expected to rise slightly in the second half to align with sales growth.

Paul Kearney inquired about the current market environment, conversations with retailers on inventory management, competitive pricing actions, and sought clarification on whether new revenue opportunities involved producing private label goods.

Answer

CEO Stephen Bratspies stated that discussions with retailers are positive, with many approaching Hanesbrands to fill anticipated supply gaps. He confirmed these opportunities are for the company's own brands, not private label, and that they expect to gain incremental space. He noted that while significant market-wide price moves haven't occurred yet, Hanesbrands has a surgical pricing plan ready as part of its tariff mitigation strategy.

Paul Kearney from Barclays inquired about Hanesbrands' confidence in achieving positive sales growth in 2025, the specific revenue opportunities driving this outlook, and the visibility into the drivers of margin expansion towards the long-term 15% target.

Answer

CEO Stephen Bratspies expressed high confidence in the 1% organic growth target, citing Q4 momentum, innovation, brand investment, and new revenue streams like scrubs and Printwear. CFO Markland Lewis detailed the path to margin expansion, noting a 125 basis point operating margin increase in 2025 driven by SG&A reductions and stable brand spend, viewing it as a significant step toward the 15%+ goal.

Paul Kearney inquired about the optimal long-term level for brand investment, currently above 5% of sales, to drive above-market growth. He also asked for commentary on retail partner inventory levels and visibility into holiday replenishment orders.

Answer

CEO Stephen Bratspies stated that the company targets a brand investment level of roughly 5% of sales, which they believe is appropriate, though it may fluctuate quarterly. Regarding inventory, he expressed confidence, noting that holiday programs are fully shipped to retail partners. He added that while Hanesbrands' own inventory is down 13% YoY, retail inventory is up slightly, and the company has gained incremental space and programming for the holiday season.

Paul Kearney asked for clarification on inventory rationalization plans, the expected cadence of inventory levels through year-end, and whether competitors are expected to raise prices in the fall.

Answer

CFO Jim Swanson confirmed that inventory is being rationalized on both a dollar and unit basis, with a key focus on accelerating inventory receipts ahead of potential tariff hikes. CEO Tim Boyle and CFO Jim Swanson both noted it is too early to know competitors' pricing actions but reiterated their confidence in being able to compete effectively and gain share, particularly against those with high China exposure.

Paul Kearney asked about the drivers of the 30% growth in EMEA, the outlook for Q4, the breakdown of the inventory increase between China and in-transit, and the timeline for normalizing inventory in China.

Answer

CFO John Vandemore attributed the strong EMEA growth to robust consumer demand for the brand's comfort technology products, supported by advertising. On inventory, he confirmed China was the largest driver of the increase, followed by in-transit goods. He stated the timeline for normalizing China's inventory depends heavily on sales performance during the upcoming holiday season. Executive David Weinberg added that the company has the capability to move this inventory to other global markets to mitigate risk.