Gildan Activewear - Q4 2022
February 22, 2023
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by, welcome to the Q4 2022 Gildan Activewear Earnings Conference Call. All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press Star followed one on your telephone keypad. Please be advised that today's conference is being recorded. If you require operator assistance at any time, please press Star zero. I would now like to hand the conference over to Élisabeth Hamaoui. Please go ahead.
Élisabeth Hamaoui (Conference Host)
Good morning, everyone. This morning, we issued a press release announcing our fourth quarter and full year 2022 results. Please take note the company's MD&A and financial statements will be filed tomorrow and made available on our website. Joining me on the call this morning are Glenn Chamandy, President and CEO of Gildan; Rhod Harries, our Executive Vice President, Chief Financial and Administrative Officer; and Chuck Ward, President, Sales, Marketing, and Distribution. In a moment, Rhod will take you through our results and a Q&A session will follow. Please note that certain statements included in this conference call may constitute forward-looking statements which 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. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable IFRS measures are provided in today's earnings release as well as our MD&A. Now I'll turn it over to Rhod.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Thank you, Élisabeth, and good morning, everyone. I'd like to start the call by thanking the entire Gildan team for everyone's excellent work and dedication during 2022. This put us in a position to be able to deliver record full year results with sales up 11% and adjusted EPS up 14%, and $573 million of capital returned to our shareholders during the year through a combination of share repurchases and dividends. We are now one year into the Gildan Sustainable Growth strategy, or GSG strategy, and we are extremely pleased with our progress executing on all three of the key strategic pillars we laid out early last year, focused on manufacturing capacity, innovation, and ESG.
Even though the environment has been challenging with fourth quarter net sales coming in softer than we originally expected, we believe our strong fundamentals and competitive advantages are positioning us to be able to navigate through near-term macro headwinds and capitalize on future growth. I'll provide a detailed update on our GSG strategy and our financial outlook later in my remarks. First, let me take you through our fourth quarter results. We reported total revenue of $720 million, down 8% versus the prior year quarter due to a 5% decrease in activewear, where we generated $595 million of sales, while sales in the hosiery and underwear category of $125 million were down 21% in the quarter.
More specifically, the decrease in activewear sales during the quarter reflected continued POS softness in retail end markets, as well as some slowing in imprintables, combined with the impact of the non-recurrence of post-pandemic restocking, which occurred in the same quarter last year. Highlighting a few bright spots, the quarter included strong sell-through of ring-spun and fleece products, where we believe our market share continues to grow. We saw higher year-over-year shipments in international markets as distributors in Europe replenished inventory levels, showing some confidence in the outlook ahead. As in previous quarters during 2022, higher net selling prices were also a favorable factor for activewear during the fourth quarter. In hosiery and underwear, we generated sales of $125 million in the quarter, reflecting weak category level demand for these products and the ongoing impact of tight inventory management by retailers.
We also saw this reflected in the numbers reported by NPD, with demand for men's underwear and hosiery in the total measured market down again for the quarter without any sequential improvement from Q3. Moving on to margins. Excluding accrued insurance recoveries of $26 million recognized in the fourth quarter, adjusted gross margin came in at 29.1%, down 150 basis points compared to 30.6% last year. The decline was primarily due to higher raw material and manufacturing costs, which more than offset higher net selling prices and favorable product mix. Our SG&A expenses for the fourth quarter were $76 million, down 6% from last year, reflecting lower compensation expenses as well as ongoing cost containment efforts.
As a percentage of sales, SG&A expenses were 10.5%, 20 basis points above the prior year, reflecting the impact of lower sales in the quarter. As part of our annual impairment testing requirements, we recorded a non-cash impairment charge in the fourth quarter of $62 million, with the charge tied to current market conditions and related to intangible assets acquired in previous sock and hosiery business acquisitions. You should note this charge follows a net reversal of impairment for these assets recorded in the same quarter last year in the amount of $32 million. Excluding this charge, and given our combined growth margin and SG&A performance, adjusted operating margin in the fourth quarter came in at 18.8%, down 160 basis points from 20.4% last year.
In line with our expectations for the quarter, despite lower than expected sales. Overall, adjusted net earnings for the December quarter totaled $117 million or $0.65 per share, down 14% from adjusted net earnings of $149 million or $0.76 per share last year. This brought adjusted net earnings per share for the full year to $3.11, a record for Gildan, and we think a testament to the strength of our overall business model. Turning to free cash flow. For the quarter, we generated $131 million, up from $116 million in the prior year quarter, mainly driven by focused working capital management efforts, which, combined with insurance recoveries, more than offset the impact from inventory build in the quarter and higher capital investments during 2022.
Full year cash flow totaled $198 million, down from $594 million in 2021, mainly due to significant investments in inventories and the impact of higher capital investments. On inventories, you may recall we were running below optimal levels last year due to the impact of the hurricanes in Honduras in 2020 and a tight yarn supply environment in 2021. Our inventory levels now put us in a strong position to service our customers as we move through 2023. On capital spending, we spent approximately $80 million on CapEx in the quarter, bringing total capital investments for the year to approximately $245 million, with most of the spending related to optimization and expansion projects.
We repurchased approximately 1.2 million common shares in the fourth quarter for approximately $37 million, bringing our share repurchases for the full year under two buyback programs to 13.1 million shares, or 7% of our float, at an overall cost of $444 million. We did this while maintaining a strong balance sheet with our net debt on January 1 totaling $874 million and our net debt to Adjusted EBITDA leverage ratio at 1.1 times at the lower end of our target range of one to two times. This brings me to our update on our GSG strategy and our outlook for the year ahead. A year ago, we provided an overview of Gildan's Sustainable Growth strategy focused on capacity driven growth, innovation, and ESG.
We are pleased with the progress we have made with our strategy, which is reflected in our strong 22 results. With our 2022 revenue base of over $3.2 billion and our full year adjusted operating margin of 19.7% coming in at the higher end of our target range of 18%-20%, we believe our business model is positioning us well to deliver on our long term profitability and return targets. Specifically, by executing on our strategy, we have shifted gears from a year ago when we were capacity constrained. Today, our capital investments have translated into increased manufacturing capacity and flexibility throughout our supply chain. This has allowed us to invest in inventory and improve product availability, which, together with leadership in pricing and ESG, is enabling us to adapt to the current environment and take market share in key product categories.
Turning to 2023. We feel cautiously optimistic despite ongoing uncertainty. In the first part of 2023, we expect continued headwinds tied to the demand environment and to strong comparative periods, particularly as we cycle post-pandemic inventory replenishment in the first quarter. In this regard, while we continue to see momentum in the imprintables market driven by the return of large gatherings and the shift of consumer spending to experiences, including travel, we are also seeing macro uncertainty weighing on buying patterns as some of our customers are placing orders closer to their needs and managing their inventory levels more tightly. Nonetheless, we believe we are well positioned to gain share even in a softer demand environment, and we have recently seen this in the strength of our distributor POS, which is now running better than the fourth quarter.
With regard to our national accounts business, where we service retailers, our business continues to be impacted by soft demand in retail end markets and ongoing tight inventory managed by retailers. Despite this current tightness, we expect demand for replenishment type products to start to normalize as we move through the year, given the nature of the products we sell. In international markets, we started to see improvement in Q4 with positive sell through trends in certain regions, together with healthy demand for inventory to support a stronger outlook for 2023. Moving to the margin front. In the first part of the year, we are expecting increased margin pressure due to higher raw material and input costs, which are currently in our inventories.
As we move past the first quarter, we expect these headwinds to start to abate and to deliver strong margin performance during the remainder of the year. Summing it all up and looking at our 2023 financial performance and providing additional color given the current circumstances, we expect revenue growth for the full year to be in the low single-digit range following what will be a slow start to the year in the first quarter given the demand environment and tough comps. On margins, we expect our full year adjusted operating margin to fall within our 18%-20% target range despite expected margin pressure in the first quarter, driving us 200-300 basis points below the low end of our target range.
As we translate this into earnings, we expect to achieve adjusted diluted EPS in 2023 in line with 2022, assuming the continuation of share repurchases aligned with our capital allocation targets of purchasing approximately 5% of our public float annually. We plan to stay the course on our new capital projects while managing our existing capacity carefully, demonstrating our confidence in the long term outlook for our business. Capital expenditures are expected to come in at the lower end of our previously stated 6%-8% range, and with significant working capital investments behind us, we expect to drive strong operating and free cash flow generation for the year. Overall, you can see we enter the second year of our GSG strategy excited.
As we prepare to launch production at our new manufacturing facility in Bangladesh in late March, which we will ramp up through the year, providing us with new capabilities and opportunities ahead. Our in-stock levels are in great shape. We have significant flexibility in our manufacturing system and a healthy balance sheet. In closing, although the current environment presents its challenges, we remain excited and focused on our long-term strategy. Favorable industry trends remain intact, including the casualization of apparel, the interest in private label, the growing creator economy, and ongoing developments in digital printing, as well as the appeal of nearshoring and sustainable practices, all of which are creating long-term growth opportunities for Gildan, given our strong competitive advantages. With that, I will now turn the call back over to Élisabeth.
Élisabeth Hamaoui (Conference Host)
Thank you, Rhod. Before moving to Q&A session, I ask that you limit the number of questions to two, and we will circle back if time permits. Operator, you may begin the Q&A session.
Operator (participant)
Thank you. As a reminder to ask a question, please press star followed by 1 on your telephone keypad. To withdraw your question, please press star 1 again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Paul Lejuez from Citi. Please go ahead. Your line is open.
Paul Lejuez (Managing Director)
Hey, thanks, guys. Curious if maybe you could just share a little bit more detail about your first quarter top line plan and how that breaks down between the two segments. You gave the EBIT margin, but hopefully you can share a little bit more on the top line assumption. Second, I'm wondering if you can talk about the pricing environment within the printwear channel and how you view your price gaps relative to what you would typically see. Then I might have one follow-up.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Okay. I'll start with the top line, then I'll turn it over to the team for pricing, Paul. If you look at top line for Q1 2023, I think we called it out that it is a tough quarter from a comp perspective, we had a strong quarter in Q2 2021, and we are calling the quarter down from a sales perspective. If you look at what's driving that, if you look at, you know, where we were in 2022, we were getting prices. We were effectively moving price. We started moving price in 2021, we were seeing the benefit of that in 2022. As we move into 2023, that really diminishes.
We're not getting much price from a top line perspective in our overall sales as we move into 2023. From a POS perspective, effectively, what you'll see is that we do have weak POS in the first quarter. It's soft POS. You have POS in the distributor side probably down low single-digit. You have retail down double-digit. Whatever price that we had in the first, sorry, that we're getting in the first quarter of 2023 is for the most part probably being offset by weaker POS. If you look at the overall sales number, it'll be impacted by not being able to comp Q1 2022, the restocking that we saw, and also we do expect to see some destocking in Q1 2023.
The total impact of that, because of, again, what's going on in the inventory environment and how customers are managing inventory tightly, sorry, is probably around $75 million in Q1. Effectively, you will see a softer Q1, we've called it out, as we effectively move through these effects that we have to comp and as we work our way through the current environment. Obviously, as we move into the remainder of the year, we do see strength from a number of different areas, which we can talk about in more detail as we get into the call.
Glenn Chamandy (President and CEO)
I'll jump on the price one. Well, first of all, pricing in the market is stable. It's relatively the same as it has been in the last two quarters. The main drivers of, I think, stable pricing in the market is inflation is still relevant. Just to refresh your memories, we, as we increase prices to cover inflation, particularly raw material, we never raise prices high enough to cover the peak raw material costs. It was more in the, you know, in the just over a $1 range, let's say. Today with cotton and basis, we're not far off from where we set pricing. The other factors are there's still other inflation we're seeing. I mean, labor is labor inflation is a factor.
Materials, energy are all inflations as we go forward. I think inflation is still here, and we believe that pricing will be somewhat stable as we go through the year in 2023.
Paul Lejuez (Managing Director)
Yeah. Thanks. What's the average unit cost increase that you expect as we move throughout the year when you take into account those cost pressures, labor, raw materials? How does that look in first half versus second half?
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
It's, you know, if you look full year, it's actually pretty low, Paul, right? Again, we're not really calling out much from a price perspective as we look at the full year. If you look at our low single-digit increase in sales, that's very little of it really is coming from price. I would say, some of it is coming from mix, and, you know, volume is sort of staying in there. It's not obviously, because if we look at the, at the comp versus last year, from a volume perspective, it's we're not forecasting major volume. Actually, we're being quite conservative, really, when you look at it, when you think about the year.
The way that we've set up the assumption is that we are assuming the U.S. market is down effectively for the full year. Really what we've assumed is that effectively the sales bump that we get, the low single digit increase, that that's really coming from some recovery in the international markets, which have been very weak over the last number of years, but we started to see some strength as we moved out of the fourth quarter. We're also assuming that we'll get the benefit of new retail programs, which we can also talk about. Effectively, if you look at the, at the full year, you know, not much from price really. If you look at the real drivers, it's these two factors that we talked about.
We are assuming a down market in the U.S. If the market is stronger, than we ultimately expect currently, effectively, we will see the benefit on a go-forward basis.
Paul Lejuez (Managing Director)
Got it. Thank you. Good luck, guys.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Thank you.
Operator (participant)
Our next question comes from Luke Hannan from Canaccord Genuity. Please go ahead. Your line is open.
Luke Hannan (Equity Research Analyst)
Thanks. Good morning, everyone. I just want to focus on the inventory for a second, your own inventory. Curious to know how the composition shakes out, across each of your product lines, how you feel about that. Then also how you feel about capacity, moving into this early part of the year where presumably demand is going to be a little bit weaker and, you know, if we look at some of the other peers in the industry, it looks like they've scaled back capacity. Curious to know your thoughts there on your positioning going forward.
Glenn Chamandy (President and CEO)
Well, I'll start off on the inventory. You know, like anything else, we continue to invest in our business, and inventory for us is an investment. You know, we believe that our inventory is well-positioned. It's in historic levels. We're running around 34% working capital today, which is in line with historic levels. We have the balance sheet really to support this level of inventory. Inventory, we think, is gonna be a strategic advantage. It's gonna allow us to, we believe, gain market share in this market as we see weak competitors that can't afford to finance, you know, high levels of inventory. So we think that's going to be a competitive advantage. As well as even on the manufacturing front, I mean, we're continuing to invest into the future.
We're continuing to invest in capital investments. We've completed all of our ramp-up in the DR in Central America. Like Rhod said, uncertain will start at the end of March, but really be a slow ramp-up during this year, and into 2024. You know, this capacity is we've got everything in place, we believe, to really support our GSG strategy. One point on there, I think on our capacity, we've got flexible capacity and flexible utilization. Although, you know, our forecast this year, obviously we're not utilizing 100% of our capacity, we're very comfortable with our operating margins in the 18%-20% range. Un-utilization of capacity in our system will not materially affect our margin profile.
At the end of the day, look at the Gildan historically has built capacity. We've sold that capacity. We're very confident that, you know, as we drive through this year into next year, that our GSG strategy, our positioning, our investments will occur. We'll utilize all the capacity that we've got in the process of developing.
Luke Hannan (Equity Research Analyst)
Okay. I appreciate that. For my follow-up here, the international markets. Rod, you had touched on that you guys had saw strength there during the quarter. Curious to know which particular markets where you saw strength and growth and where which markets rather are still lagging and what the trends have been so far earlier in the year?
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Chuck will handle that.
Luke Hannan (Equity Research Analyst)
Yeah, I'll turn it over to Chuck. Yeah.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Please.
Chuck Ward (President, Sales, Marketing, and Distribution)
Good morning, Luke. Thanks for the question. I think as we look at the international markets, the Asia markets, parts of them continue to be, you know, more challenging, you know, as there continue to be certain restrictions in those markets. They're lagging as we see the return. I think what you're seeing is a little more optimism in the European market from our both UK and European distributors. We're seeing potential upside from a from an international perspective in Europe and continued challenges in Asia.
Luke Hannan (Equity Research Analyst)
Okay. Thank you.
Operator (participant)
Our next question comes from Stephen MacLeod from BMO Capital Markets. Please go ahead. Your line is open.
Stephen MacLeod (Managing Director and Senior Equity Research Analyst)
Thank you. Good morning. I just wanted to start with, I wanted to see if you could give a little bit of color around your visibility around the top line as you move beyond Q1, just sort of what you're seeing in terms of puts and takes on your improved outlook beyond Q1?
Glenn Chamandy (President and CEO)
Well, maybe what we'll do is, I just wanna reiterate, I guess, our forecast where, you know, we're planning to have low single digit growth, right? Particularly in the U.S. market, you know, being down and all of the growth coming from new programs both in our retail and our GLB categories. You know, for us, I guess, you know, the opportunity for us is that if there's more market recovery in the U.S., I think we've taken a very conservative approach to our forecasting, and that potentially could be upside. Maybe I'll let Chuck just talk about the POS and the positioning today in the market.
Chuck Ward (President, Sales, Marketing, and Distribution)
Okay. Thank you, Glenn. Yeah, I mean, I think, Stephen, the way we see it as Glenn said, with the low single digits, how it's gonna mix is North American down, and as he said, we're probably, you know, we're cautious there. We're watching the North American market. As Rhod said, we think international will be slightly up as we go through the year. Really the growth is kind of, as Rhod said in his opening remarks, is around some of the new programs. That's gonna drive the sales growth that's gonna deliver the low single digits. That'll be new programs sort of across the board, whether it be expansion in our underwear space, we have some new programs in the underwear space.
We also have some new programs with some Global Lifestyle Brands partners, you know, as they continue to look at nearshoring. Finally, within that North American imprintables market, you know, you've probably seen we've continued to launch more and more ring-spun product, both in the fleece and the tee area. We think that'll be a positive area to help drive growth to cover some of the, some of the downside on the North American market.
Glenn Chamandy (President and CEO)
Maybe just one more point is that in the print wear market, particularly in Q4, we saw some negative POS, basically. If you look at the year last year, we started January, February, things were booming, and then sort of we deteriorated our POS as we went through the year, and Q4 was somewhat a little bit more disappointing, to be honest with you. We factored the same types of levels of POS that we saw in Q4.
The good news is, I think that as we've sort of gone through January and February, we're actually seeing, in our distributor business at least, POS picking up, almost flat to last year, which is, I would say, you know, relatively strong two months before we had the tailspin. That's an encouraging sign. You know, hopefully, we're cautiously optimistic. We can only forecast conservatively in this macro type environment. So far, in the beginning of this year, POS is has been a little bit better than we anticipated.
Stephen MacLeod (Managing Director and Senior Equity Research Analyst)
Okay. That's great color. Thanks, guys. Then maybe secondly, on the gross margin, obviously, seeing some pressure in Q1. Do you expect that once you get past Q1 into Q2 and beyond, on a quarterly basis, you'll be within that 18%-20% target range?
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Yeah. That's the way we've got it modeled out. Q1, as we called out, we will be 200-300 basis points below the low end of the range, right, as we effectively deal with the factors that I highlighted in the opening remarks. As we get into the second quarter, third quarter, fourth quarter, we do see strength back in our margins. Effectively, the second quarter will be significantly stronger than the first quarter and back on our range. Obviously, as we continue to go through the remainder of the year, we expect to run well within our range. We feel good about margins as the year unfolds.
I think if you look at our manufacturing system and what we control, our supply chain, we know what we have in inventory. I mean, all of these things, we've got, I think, a very good handle on the cost structure. I think we can speak with confidence really around margin performance for 2023 on the back of what we've delivered in 2022.
Stephen MacLeod (Managing Director and Senior Equity Research Analyst)
Great. Okay. Well, thanks, guys. Appreciate the color.
Operator (participant)
Our next question comes from Vishal Shridhar from National Bank. Please go ahead. Your line is open.
Vishal Shridhar (Equity Analyst)
Hi. Thanks for taking my questions. I just want to get a bit more color on mix. Management suggested that mix would be a favorable factor again in 2023. I understand fleece was a contributor in 2022, and fleece may have been a contributor due to work from home. As work from home unwinds, would you expect that fleece contribution to similarly unwind and place some pressure on gross margin? How should we think about that?
Glenn Chamandy (President and CEO)
As far as fleece is concerned, it's still growing rapidly. In fact, it's accelerating as we speak. We've, you know, what's driving our POS so far in Q1 is actually even more robust fleece sales. It's been a contributor and as well as the, you know, the fashion T-shirt segment. Both of those continue to drive both top line mix and performance.
Vishal Shridhar (Equity Analyst)
Okay. Does management understand the drivers behind fleece? Is it still work from home demand, or is there some other driver that we should contemplate?
Glenn Chamandy (President and CEO)
I think it's a lifestyle thing. You know, people are wearing more... It's more casual wear. It's creator economy. It's all the factors, really. I mean, people are still casual, even though they're getting out of the house now, right? It's just a, you know, it's definitely a lifestyle thing.
Vishal Shridhar (Equity Analyst)
Okay. Just switching gears here with respect to labor across your various manufacturing platforms, how does management feel with regards to labor in your facilities?
Glenn Chamandy (President and CEO)
Well, labor is a factor. I mean, we've seen, we're seeing inflation both last year, we see continued inflation in labor across our manufacturing, you know, globally, to be honest with you. Inflation is a factor and, you know, energy is a factor and, materials. All these factors are, you know, supporting inflation still. I mean, the only relief a little bit is, you know, cotton has sort of normalized back down to, you know, the levels it is today. Definitely, inflation is there, and I think at the end of the day, it's gonna continue to, support, you know, long-term pricing.
Vishal Shridhar (Equity Analyst)
Okay. with respect to getting the bodies you need in your yarn spinning facilities, is under control?
Chuck Ward (President, Sales, Marketing, and Distribution)
Sorry, say that again.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Yeah, no, it's so, Vishal, you were asking about the labor in yarn. I mean.
Vishal Shridhar (Equity Analyst)
Oh, that's right.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Yeah, it was an issue for us in 21, in 22. We started to get our arms around that, the environment improved. Now as we move through 23, availability of labor is not a concern for us. We have the labor that we need, and we don't see that as being a constraint. Actually, we see our yarn operations are in very good shape, really, after the acquisition of Frontier, and we've been integrating and optimizing. So we feel very good about the supply chain and our ability to run yarn, textiles, sewing as we go forward, and that really puts us in a position of strength.
Vishal Shridhar (Equity Analyst)
Thank you.
Operator (participant)
Our next question comes from Brian Morrison from TD Securities. Please go ahead, your line is open.
Brian Morrison (VP and Director)
Hey, good morning. Thank you. Potentially for Chuck or for Glenn here. You talk about these new program opportunities, and it sounds like private label and GLB. Can you just give us some more details? Like, have these contracts been awarded? How should we think about magnitude? Then you did talk about them a bit in Q1. Is it still in the same timeframe, or have they been pushed out at all?
Chuck Ward (President, Sales, Marketing, and Distribution)
Brian, I think from the new programs perspective, the ones I was speaking to are all things that we have been awarded and that we're moving forward with. The timing of the launch of different ones takes effect throughout the year, but those are programs that aren't speculative. They're things that we have been awarded. So we kinda have a good feel for those and when they'll come through. From a Q1 perspective, you know, I think as Glenn said, POS has been a little bit better than we would've expected, especially going off a strong comp from Q1 2022. And in the imprintables and distributor channel, you know, still some challenges there, but definitely better than we had maybe expected.
January a little worse. February, we're starting to see it pick up.
Brian Morrison (VP and Director)
Okay. Specifically, are these new programs, are they private label? Are they GLB? Are they the Nikes, adidas of the world?
Chuck Ward (President, Sales, Marketing, and Distribution)
Yes. They're across the board. You hit them all. We have some are private label, some are in the Global Lifestyle Brands, as well, and some are Gildan.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
As I recall, in our last call, we mentioned that we picked up quite a few underwear programs, additional shelf space in underwear. These were all the driving factors of our growth in new programs.
Brian Morrison (VP and Director)
Okay, thanks for that clarification, Glenn. Maybe for Rhod. I just want to go circle back to the corporate inventory. I know you say you're comfortable with it. It's up about 17% from 2019. Admittedly, that was a bit high. Is it really volumes are somewhat flat, and it's inflation and mix with much more fleece in there? I guess, maybe how should we think about corporate inventory balance as we look out to year-end? Is it going to be a source or use of working capital?
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
No, you know, Glenn gave the explanation on where we are in the inventories. You know, if you look at that, and again, I called it out, right? I mean, we've the last number of years, we ran with low inventories, and we needed to get back to optimal levels, more optimal levels. We've been working away, and we've been able to do that as we've really built out our supply chain and from a number of factors. If you look at where our inventory levels are right now in the fourth quarter, it was $1.2 billion. It was up year-over-year. That was driven by higher units, and it was driven by higher costs. Again, we needed those units effectively in order to in order to service the business.
Now we're in a very good position to service customers. Again, you gotta remember, we're all basic, it's all replenishment products. As Glenn said, what we've done is we worked very hard from an overall working capital perspective to actually be in a position to be able to invest in this inventory. If you look at our broader working capital, we finished the year at 34%, right in our range of 30%-35%. Now at that inventory level, we do see as we go through the year pretty well, I would say, flat inventory levels, as we move through, Q2, sorry, Q1, Q2, Q3 to Q4.
We don't see significant investment in our inventories required as we go through 2023. Actually, that's what drives the strength of our overall free cash flow. If you looked at our free cash flow in 2022, we had $200 million in total, and we had a working capital, not inventory, but a working capital build of around $300 million, which we're not expecting in 2023. We also had higher CapEx in 2022 than we're expecting in 2023. In 2022, we were more in the higher end of our range, our target 68% range that we've said that we were going to be in through this type of period. This year, we expect to be in the lower end of that range.
You know, I would say we feel very, very good. Our inventory position is good. We can service our customers, and we do expect to generate a significant amount of cash as we go through the year. That obviously ties into the fact that we've announced the dividend increase and the share buybacks. All in all, we feel set up very well for 23.
Brian Morrison (VP and Director)
All right. Very good color. Thanks very much, Rhod.
Operator (participant)
Our next question comes from Jim Duffy from Stifel. Please go ahead, your line is open.
Peter McGoldrick (Equity Research Analyst)
Hi, this is Peter McGoldrick on for Jim. Thanks for taking our questions. First, I wanted to get an idea of your expectations for private label into 2023. Can you add some perspective on growth in private label relative to branded products? How should we think of mix contribution into 2023 net of new programs, et cetera?
Glenn Chamandy (President and CEO)
Well, we don't think there's gonna be a big mix change in private label versus our brand products. I mean, the margin profile is relatively the same. As we said earlier, I mean, these programs have been awarded, and they're basically part of our forecasted plan for 2023. You know, we're continuing to look at obviously new opportunities. It's not, you know, one of the things we said last call was that, you know, as we enter 2022, we were, you know, really pedal to the metal in our existing business. We really weren't focusing on new programs. As we sort of saw the downturn happen in Q2, Q3 last year, we aggressively started going after new business, which we've obtained, and we're continuing to look for other opportunities as we move forward.
You know, our objective is to continue driving our GSG strategy and, you know, all of the elements are gonna be to, you know, obviously take market share with our great inventory position that we have in the printwear market, continue to utilize and drive, nearshoring opportunities, private label, international sales. These are all parts of our growth initiatives, and I think we're gonna continue to, you know, stay focused on our core competency and making sure that we achieve our targets.
Peter McGoldrick (Equity Research Analyst)
Thanks. Switching to the print business. Could you give us an update on how big the digital printing business is and how this area of the business has progressed relative to the traditional print business?
Glenn Chamandy (President and CEO)
I would say it's pretty difficult for us to give you a number on it. I would say that, you know, one of the big drivers of growth during, you know, 2021, was partly the, you know, the creator economy, digital printing, online selling, which is also the part that I think that has come down a little bit, in, you know, in 2022, you know, as we saw e-commerce sort of leveling off. Replacing that was, you know, people getting out and all the events, rock concerts, sporting events, you know, different things. I don't think that's structural because I think that that will continue to be a growth driver. I think it just peaked during the pandemic 'cause people were home.
We forecasted and, you know, as we went to our investor conference last year and we sized the size of the market, we did a recap refresh on that. Basically, you know, everything is still intact other than I think the economic market has sort of contained the growth rate a little bit as we move, but I think all of the pieces are still heading in the right direction on a longer term basis.
Peter McGoldrick (Equity Research Analyst)
Thanks.
Operator (participant)
Our next question comes from Jay Sole from UBS. Please go ahead. Your line is open.
Jay Sole (Managing Director)
Great. Thank you. Glenn, you made some comments earlier in the call just about the competitive landscape and how, you know, the current environment has made it difficult for some competitors. Can you elaborate on that a little bit and maybe just talk to us how, you know, you're seeing the competitive landscape shift versus maybe a couple of years ago and what that means for your ability to take market share?
Glenn Chamandy (President and CEO)
Well, I think that if you look at the landscape, not just here in North America, but I would say, you know, globally, the running capacity rate of the apparel industry, and I refer that to yarn and textiles, et cetera, is relatively low throughout the globe right now. That's, that's a big factor. You know, one of the things we see is that there's two elements I think that are going to be big opportunities for us as we move forward, is that as the cost of capital continues to increase, you know, the carrying cost and the capability for manufacturing expansion is going to be difficult for a lot of companies.
The strength of our balance sheet allows us to do both, is to carry the inventory as well as to continue making those capital investments because we can afford to do them. You know, you can look at anybody who's basically has high debt, high leverage, and, you know, as this leverage, you know, comes due, either, you know, private equity or, you know, companies that have leverage, their ability to support inventory, I think as on a go-forward basis, will be limited. They'll manage those inventories down and will be difficult for them to service the market, particularly when the market rebounds. I think it takes time to restart your engines, right?
You know, we look at us, it took us almost a year and a half from the hurricane in 2021, the pandemic and all, you know, just to get all that capacity coming online. We think that this is a real opportunity for us right now, and that's why we're very confident in carrying the inventory levels that we are carrying and continue making the CapEx that we've committed to. For both those reasons, we're very optimistic about, you know, committing and achieving our GSG strategy targets as we go forward.
Jay Sole (Managing Director)
Got it. Thank you so much.
Operator (participant)
Our next question comes from Chris Li from Desjardins. Please go ahead. Your line is open.
Chris Li (Managing Director of Equity Research)
Hi. Good morning, everyone. Maybe just a first question for Rhod, just maybe follow up to your answer to Brian's question. I was wondering, do you expect your leverage to remain in the lower end of your one to two times target range by the end of this year? When can we expect you to resume buying back shares again? Thank you.
Glenn Chamandy (President and CEO)
The answer is that, yes, we do expect the leverage to be at the lower end of our target range, as we move through the year and definitely by the end of the year again, given the strong cash flow generation. As I said, we do plan to buy back, we called out 5% of our shares. You'll see us do that on a consistent basis as we go through the year. I think if you look at, 2020-
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
Two, we bought back 7% and effectively, you know, we were above our 5%. As we finished up the year, effectively, we lightened off a little bit. As we move through 2023, you'll see us pretty well on a steady cadence, effectively delivering the buyback of the 5%. Again, I mean, what we're really excited about is that our balance sheet is in great shape. Our leverage, we are forecasting will be at the low end of the range. We're well-positioned to do all the things that Glenn just talked about. I think we're in a strong position to drive the organic growth, and we're in a strong position to return capital to shareholders.
Chris Li (Managing Director of Equity Research)
Okay. That's very helpful. Thanks, Rhod. Maybe one for Chuck or Glenn. You mentioned earlier that you believe your low single digit revenue growth for this year could be a bit conservative because you expect the North American market to be down. Can you quantify or maybe give us details? Like, how much is down? Is it low single digit, mid-single digit? What's the magnitude so we can get a sense of how conservative your forecast might be?
Glenn Chamandy (President and CEO)
Go ahead.
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
If you look at effectively what we're planning, Chris, for North America down, it's sort of in the low single-digit range, right? When you look at it. If you listen to sort of all the commentary about what we're forecasting, we are, you know, we know that we will not be able to effectively comp some of the restocking that we saw in or the early part of 2022, and that ultimately will come out of our forecast. Has come out of our forecast in 2023 for North America. Effectively, if you make that adjustment and look at where we are from a, you know, an overall perspective, we're sort of down low single-digit, is a way to think about North America.
Again, it'll be offset by the new. That's excluding the new programs. We have the new programs that we layer on, we have the international. Again, I think it's a pretty conservative setup for the year. Again, you know, the first quarter is softer, as we've called out. Given the strength of, you know, overall end consumer demand, obviously we'll have to see what people do with their inventories as we go through. Glenn just talked about it. You know, given the strength of the consumer, I think it's a good setup really as we look forward into the year.
We've been conservative, and, we'll see how it plays out, and, we hope to see a stronger outcome than, what we forecasted.
Chris Li (Managing Director of Equity Research)
Okay. Sorry, maybe just a quick follow-up. I think you also mentioned that in February, you've seen the Gildan POS starting to increase versus a year-ago. Is that mainly driven by your ability to gain market shares, or you're actually seeing some resilience on the demand side of things?
Glenn Chamandy (President and CEO)
Well, we think it's, you know, I personally believe it's our positioning and taking market share. You know, I think the market is somewhat still down, but I think that we're seeing ourselves with positive comps because of our positioning, and driven by mainly fleece. Like I said before, the fashion side of the business is, are the big drivers, obviously, of our growth. I think that we're just well positioned in general to continue to, you know, to take care of the market.
Chris Li (Managing Director of Equity Research)
Great. Thank you, and all the best.
Glenn Chamandy (President and CEO)
Thank you.
Operator (participant)
As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from... Our last question will come from Mark Petrie. Please from CIBC, please go ahead. Your line is open.
Mark Petrie (Equity Research Analyst)
Hey, good morning. Thanks, for all the comments so far. Just a couple follow-ups. Within retail in Q4, how much of the weakness was, you know, sort of at shelf, with your programs versus national accounts order or demand?
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
If you look at Q4, really we saw the, you know, the retail environment down. If you look at the POS, generally it was down double-digit, I would say, on the retail side. It was across all of the retail end markets, Mark. If you look at, you know, national accounts, if you look at the sales to the big retailers, 'cause a lot of the sales to the national accounts end up in retail, right? You know, we see sort of similarities on the national accounts. It's national accounts in the print wear I'm talking about because we call everything including retail, national accounts as well. It was pretty, I would say, similar across all of the different channels and end retail customers.
I mean, it was a soft quarter in retail, and we saw it pretty well everywhere.
Mark Petrie (Equity Research Analyst)
Okay. With regards to sort of end market demands, within the distributor channel, I know you're saying industry volume down for 2023, but is that driven by one market more significantly than another, in terms of the end markets, or is it pretty balanced as well?
Glenn Chamandy (President and CEO)
It's pretty balanced.
Mark Petrie (Equity Research Analyst)
Okay. Then, do the account wins in retail impact the EBIT margin at all, or are they consistent with the overall profile?
Glenn Chamandy (President and CEO)
They're consistent with the overall profile.
Mark Petrie (Equity Research Analyst)
Okay. Last one. I'm just curious about your views, or any commentary you can provide about the competitive dynamics within the print wear channel, particularly as you know, if volume does slow through the course of the year, how you expect that? I know you were talking, Glenn, about sort of, you know, inventory positioning and, the challenges for people there. I'm specifically curious about views on price and how that might play out.
Glenn Chamandy (President and CEO)
I would say that, you know, maybe the view on price, another way to look at it is that, you know, our cost structure, I think, is in far better shape than the industry's cost structure, both from our cost of carrying raw material as well as our manufacturing costs. The inventory levels in general, and the lack of capacity being utilized today, people need to sell down their inventories, and they've stopped producing product. Those costs of those inventories are very high, which is gonna continue to support, you know, the price in the market. I mean, it's. Price is not gonna drive this market at all. I mean, there's no.
It's not like in the past where, you know, what drove the price in the market was big user, end user events that basically, you know, somebody went and bought 500,000 shirts, and everybody chased that program, basically, and used price to be able to go get it. I mean, those programs are still not there. You know, when you started looking at what's out in the marketplace today, I think it, price is never going to move the needle in terms of volume. You take that into account, I think, with people's high costs. You know, the fact is that most manufacturers in our segment are significantly cutting down inventories and manufacturing capacity. I mean, I think they're running maybe at 50%, if they're lucky.
You know, we're in a good position. You know, we came off obviously very low inventories, in 2021, to support our build, and we're running at a relatively good rate. Our cost structure, I think is in good shape, both from raw material, as well as, input costs. I think we're well-positioned, and I think we're very comfortable with, our forecast.
Mark Petrie (Equity Research Analyst)
All right. Appreciate all the comments and, wish you all the best.
Glenn Chamandy (President and CEO)
Thank you.
Operator (participant)
We have another question from Sabahat Khan from RBC Capital Markets. Please go ahead, your line is open.
Sabahat Khan (Managing Director)
Great. Thanks. Just a clarification question. I think when you're talking about, you know, POS being somewhat better during the early months of 2023, I guess, should we read that as, you know, that'll help you kind of get the distributors in better inventory position so they can order later? Or do you think there is sort of upside to, you know, a guidance that you're already providing in terms of, you know, you might be able to ship more to them than you initially thought? Or is that just, you know, that's what you expected for them to be able to do, deplete their inventories over the next few quarters?
Glenn Chamandy (President and CEO)
What we're saying is that we're comping really. You know, we had, you know, negative, let's say, POS in Q4, which is our worst quarter of 2023. You know, we've taken our forecast in that light. You know, January and February were very good months in terms of POS in 2022. If we're able to comp those as we go through the year, as we saw a deterioration in POS during the year, and we've forecasted a negative POS for the full year, therefore, you know, we should be in a pretty good position, to potentially have some upside. We're cautiously optimistic, and we'll see where the market goes as we move forward.
Sabahat Khan (Managing Director)
Okay. Then just a quick clarification on Q2. I guess, I mean, you called out some of the tough comps, et cetera, for Q1. For Q2, I guess, do you expect a sequential improvement, or should we look for some top-line growth in Q2 here as well year-over-year?
Rhod Harries (Executive VP, Chief Financial and Administrative Officer)
If you look at Q2 effectively, I would say that, we do see weakness in Q1, as you said, Sabahat. I think as we go to Q2, I think that'll be, again, it was a tough quarter when we looked at Q2 2022. We did almost $900 million of revenue. It is a big comp. I think there, I think, it will be a little tougher. Again, as we move through Q3, Q4, we see real strength. I think that's probably about as much color as I wanna give you on the way the quarters unfold.
Sabahat Khan (Managing Director)
Great. Thanks very much.
Operator (participant)
We have no further questions in queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.