Gildan Activewear Inc. (NYSE:GIL) Q3 2019 Earnings Conference Call - Final Transcript

Oct 31, 2019 • 08:30 am ET

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Gildan Activewear Inc. (NYSE:GIL) Q3 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question comes from Sabahat Khan of RBC Capital Markets. Your line is open.

Analyst
Sabahat Khan

Yeah, thanks. Just a first one on the demand weakness that you're talking about. Can you maybe talk about your line of sight as we head into kind of late this year and early next year into some of that demand coming back? What would drive that? And also as the demand is weakened, what kind of competitive intensity or has that changed at all? Have competitors taken pricing? If you can maybe talk about the industry environment and how the competitive environment's changed amidst that?

Executive
Glenn J. Chamandy

Okay. It's Glenn. Well, in terms of the demand, it's hard to tell because we don't have control of the overall environment. But typically, when we see demand softness, it never persisted for more than two to three quarters. So that's typically -- historically, I think when we've seen a downturn in POS, that's sort of the length of time that we've seen it last for. We never really comped negative POS on an annualized basis.

As far as the pricing in the market, I mean there is slight promotional pricing today, but I would say that it's pretty normalized and there hasn't been aggressive pricing. On the flip side of -- in terms of the overall cost structure, although we see raw materials coming down on a year-over-year basis, there's still a lot of other inflationary areas putting pressure on cost structure in terms of labor, dyes, chemicals, transportation. So I think things are in balance. There is a little bit more promotional activity, but nothing significant.

Analyst
Sabahat Khan

Okay. And then on this direct to kind of screen printer business that you're thinking about potentially exiting, I'm assuming this $35 million to $45 million charge is maybe a write-down of that business, but can you maybe give some color on the magnitude of the sales or EBITDA contribution of that business? And also kind of the thought process behind why you're looking to exit that channel, what it means for brands like Comfort Colors. Would you kind of exit those brands as well, just maybe some thought process and what this means for those brands?

Executive
Glenn J. Chamandy

Okay. So I'll answer the commercial side, and Rhod will answer the financial side. When we've acquired these businesses, obviously the acquisitions of Comfort Colors and et cetera, so what we -- we acquired these businesses -- and this restructuring will be real -- as a function of the acquisitions themselves mainly. And these businesses really had two types of revenue. One is where they sold products directly to small screen printers, and the second is where they support the distributors on low-volume selling products that basically they dropship. As we go forward, we're going to consolidate this and take the best-selling products and have our distributors commit and service the end user of these products, and then we're going to exit the dropship and the sales to the smaller distributors. This is