Gildan Activewear Inc

TSX:GIL

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Quarter 1 2021 Gildan Activewear Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to Ms. Sophie Argiriou, VP, Investor Relations. Please go ahead.

[Sophie Argiriou, Vice President of Investor Communications]

Thank you, Rachel. Good afternoon, everyone, and thank you for joining us. Earlier, we issued a press release announcing our earnings results for the first quarter of 2021. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents will be filed with the Canadian securities and regulatory authorities and the U.S. Securities Commission and are available on the company's corporate website.I'm joined here today by Glenn Chamandy, our President and Chief Executive Officer; and Rhod Harries, our Executive Vice President and Chief Financial and Administrative Officer. In a moment, Rhod will take you through the results for the quarter, and a Q&A session will follow.Before we begin, please take note that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve unknown and known risks, uncertainties and other factors which could cause actual results to differ materially from the 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 that may affect the company's future results.And with that, I will turn the call over to Rhod.

[Rhodri J. Harries]

Thank you, Sophie, and good afternoon to all, and thank you for joining the call. We hope everyone is staying safe and keeping well. We were pleased with the company's first quarter performance, which reflected a strong start to 2021. Our Back to Basics strategy is working and is supporting both our sales efforts and our profitability objectives. Operationally, our strategy is making our business less complex, more cost effective, and is helping us drive growth and more efficient use of capital. Further, we are encouraged to see reopenings continue, and combined with the impact of the U.S. stimulus and the strong progress of the vaccine rollout in the U.S., we are optimistic that these factors will continue to help economic activity stay on a steady track of recovery.And finally, given the company's positioning at the end of the quarter, we were pleased to announce in our press release earlier this afternoon that our Board approved the reinstatement of our quarterly cash dividend at the same rate where we left off prior to the temporary suspension of the dividend after the first quarter of last year. The Board's decision to reinstate dividend payments reflects increased confidence from the strong performance in the quarter and the recovery so far, together with the outlook for the company's future cash flow generation capabilities and the reduction of our debt leverage ratio, which I will cover later.Turning to the specifics of the quarter. We delivered net sales of $590 million, up 28% compared to the prior year quarter, with increases in both our activewear and hosiery and underwear sales categories. When compared to the first quarter of 2019, overall sales were down approximately 5%.Activewear sales in the quarter totaled $485 million and were up 30% over last year driven by strong double-digit unit sales volume growth in both our imprintables and retail channels of distribution, together with strong product mix, which more than offset lower average net selling prices in imprintables.The volume growth in imprintables reflected the combined impact of year-over-year POS growth and net restocking by distributors, even though inventory levels in the channel remained significantly below 2019 levels. If we look at imprintables POS compared to pre-pandemic levels in the first quarter of 2019, it was down on average in the range of 10% to 15%, which was in line with what we saw at the start of the quarter.Moving to the hosiery underwear category, where we generated sales of $105 million. The 21% increase was driven by the strength of our underwear sales, with double-digit volume growth over both the first quarter of 2020 and 2019.Looking at gross margin for the quarter. We delivered strong performance, which, in our view, underscores the power of our Back to Basics strategy that is driving and is expected to continue to drive positive results going forward. Our reported gross margin was 32% and adjusted gross margin was 31.1%, up 650 basis points over last year.Our gross margin performance in the quarter was enhanced by an $18 million onetime payment we received in April from the USDA. Even without this 300 basis point benefit, gross margin was still strong at 28.1%, up 350 basis points over last year. This onetime USDA benefit was received under the Pandemic Assistance for Cotton Users, or PACU, program and represents essentially COVID-related government support provided to domestic users of U.S. cotton.Excluding the PACU benefit, the year-over-year increase in gross margin was mainly due to the nonrecurrence of COVID-related charges incurred in the first quarter of 2020, lower raw material costs, favorable product mix and the positive impact of our Back to Basics strategy, partly offset by lower average net selling prices.With respect to SG&A, we kept our expenses for the quarter essentially flat compared to last year despite generating higher sales. SG&A expenses were approximately $73 million or 12.4% of sales compared to approximately $74 million or 16.1% of sales for the same quarter last year. The year-over-year reduction reflected cost savings stemming from our Back to Basics initiatives, offset by higher variable compensation expenses.Adding this all up, we generated operating income of $114 million compared to an operating loss of $92 million in the first quarter of 2020, which, if you recall, included a goodwill impairment charge of $94 million. Adjusted operating income for the quarter was $110 million, significantly above the $20 million we generated last year. The increase was driven by higher sales and adjusted gross margin and the impact of the nonrecurrence of the $21 million trade accounts receivable impairment charge recorded in the first quarter last year.Consequently, we reported net earnings close to $99 million or $0.50 per diluted share and adjusted net earnings of $95 million or $0.48 per share. Excluding the $0.09 PACU benefit, adjusted EPS for the quarter was $0.39, up significantly from adjusted EPS of $0.06 in the first quarter last year and $0.16 in the first quarter of 2019. So overall, a very strong performance in the first quarter, setting us on a good path for the year.From a cash flow perspective, we generated free cash flow of $38 million in the quarter compared to last year when we consumed $235 million of free cash flow. The increase reflected higher operating earnings, lower working capital impacts and lower CapEx. Free cash flow in the quarter also included a net cash impact of $30 million from insurance proceeds related to the hurricane damages we sustained in November of last year, which is a timing impact related to the replacement of equipment.The decrease in working capital was largely due to a lower inventory build in the quarter, which was driven in part by benefits of our Back to Basics strategy, including our SKU rationalization and distribution initiatives, which are allowing us to manage our inventories more efficiently. At the same time, while our manufacturing ramp-up following the disruption caused by the hurricanes late last year has gone well, we're continuing to ramp back our capacity. And stronger-than-anticipated sales in the first quarter resulted in a lower-than-planned increase in inventory levels in the quarter. Consequently, we ended the quarter with inventories of $736 million, slightly up from $728 million at the end of 2020 and down 38% compared to approximately $1.2 billion a year ago. Given our free cash flow, we reduced our net debt position during the quarter to $542 million, down from $577 million at the end of 2020. Our available liquidity at quarter end remained at $1.6 billion, which was where we left off at the end of the year. Our external debt leverage ratio decreased to 2.1x adjusted EBITDA, down from 3.5x at the end of 2020. However, for debt covenant purposes, after reflecting adjustments, which exclude the impact of the second quarter of 2020, the company's net debt leverage ratio fell to 1.1x.I'd like to highlight that as of April 5, we are no longer required to comply with the restrictions and provisions established in June of last year, and we amended our loan agreements to obtain a temporary COVID-related covenant relief. Further, on April 20, we repaid the $400 million, 2-year term loan, which was due in 2022, which we secured last year as a precautionary COVID measure.Finally, as highlighted previously, given the strength of our recovery thus far, we're very pleased to announce this quarter that we are reinstating our dividend at its pretty pandemic level. Regarding other return of capital considerations, we expect that our Board will assess the potential reinstatement of our share repurchase program when we gain further visibility on the COVID recovery outlook or when the company's debt leverage ratio falls well within its historical target range.This sums up the key highlights of our results for the first quarter. And before we open it up for questions, let me just touch upon the sell-through trends that we are seeing currently. As we move from the first quarter into the second quarter, overall imprintables POS is tracking slightly better than during the first quarter, down approximately 10% compared to pre-pandemic 2019 levels. In retail channels, our sales in all product categories are tracking above prior year levels. Although we're encouraged by these trends, we are monitoring other broader market dynamics that could affect the pace of the overall recovery.Events driven by large gatherings that have historically been a key driver of our imprintables business have not yet restarted. And although reopenings continue and the pace of vaccinations in the U.S. accelerated nicely, we cannot predict with accuracy when large gatherings will fully come back.Further, as I'm sure many of you are hearing, supply chains are being impacted by labor shortages in the U.S., affecting certain industries, including yard spinners. Tightness in raw material supply is also developing, and the impact of backlogs and transportation-related issues are factors that we are monitoring.Consequently, we remain conscious in the near term, particularly with respect to these global factors. However, as it relates to areas we have executed on and continue to drive, including our Back to Basics strategy, we are extremely pleased with the progress and are confident that steps taken to accelerate our strategy last year and the benefits that we are seeing thus far are positioning us well to take advantage of market share opportunities, deliver on our profitability targets and create shareholder value over the long term.And with that, I'll turn it back to Sophie.

[Sophie Argiriou, Vice President of Investor Communications]

Thank you, Rhod. That concludes our formal remarks. [Operator Instructions] I will now turn the call over back to the operator for the question-and-answer session. Rachel?

[Operator]

[Operator Instructions] Our first question comes from the line of Paul Lejuez from Citi.

[Brandon Babcock Cheatham, Analyst]

This is Brandon Cheatham on for Paul. I was just wondering, how do you feel about your inventory position now? I think last time we spoke, manufacturing was outpacing POS. So I'm just kind of curious about the dynamic there. Did sales come back stronger than expected? Or were there some impacts from some of the things you mentioned on the supply chain side that constricted things there?

[Glenn J. Chamandy, Founder, President, CEO & Non]

It's Glenn. Well, our inventory position is -- it's rightsized. It's lower than we originally anticipated, obviously, mainly because sales were stronger than we anticipated in Q1. However, we're still running at a good run rate relative to '19 levels. Our current run rate is around 90% of what we ran at '19 levels, and we're going to continue to ramp up.It's not -- it's been challenging, I mean, to say the least, because of the things that Rhod mentioned in his commentary. But we're well positioned. And as we continue to execute on our Back to Basics strategy, what we're focusing on is obviously less product, less use, less complexity, so it gives us a very good opportunity to [ serve ] in what we need. So we should be able to operate at inventories that were lower than historical levels, and yet still improve our service as we go forward. So we're not back up to full capacity yet, and that will happen as we move through at the end of the year. But I think we're going to go through Q2 at around 90% of '19 levels.

[Brandon Babcock Cheatham, Analyst]

Got it. And then on the labor shortages, ultimately, do you think it's higher wages drive people back? Or are people just not there? And what's your outlook on that abating?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, our outlook is they're going to spend the money from the stimulus package, really, to be honest with you, I think that's the answer, right? So that's -- we pay account wages on our facilities, but the -- I think that's -- sorry, Rhod?

[Rhodri J. Harries]

Yes. It's -- I think if you look at -- it's really -- it's the wages, it's effectively the stimulus, the $300 a week, right, that we're seeing out there. But it's also COVID as well. It's also, I think -- I mean there's a number of factors. People coming back into the workforce are being impacted with a number of pressures, the number of stresses. And so I think, ultimately, the stimulus will work our way through that, and we'll work our way through COVID. And so ultimately, that will abate. But it will take a bit of time. And we do see these pressures over the next number of months.

[Glenn J. Chamandy, Founder, President, CEO & Non]

And this is mainly in our U.S. operations. I mean in terms of our [ out of U.S. ] operations, they're running well. We have ample people. Other than supplies and other things that could affect us, it's not a people issue in Central America.

[Operator]

Our next question comes from the line of Sabahat Khan from RBC Capital.

[Sabahat Khan, Analyst]

In your release, you noted some distributor restocking. Can you maybe give us some context on where in the restocking cycle you're at? Is it broad-based? Is it just people kind of testing the waters? Just some context on where we are in the cycle.

[Glenn J. Chamandy, Founder, President, CEO & Non]

Typically, the inventories at our distributors carry our go-forward inventory. So normally, they would increase their inventories as they go into season. But to put this in context, our inventories are about 40% below levels in 2019, even though we had some restocking. So they were very low at the end of Q4. And they're still significantly below where we were in 2019 levels. And they're lower than -- I would say, the level had really gone below than it should be at this time of the year. So the stocking that we did have, I think, would be a relatively -- stock overstocking is tracking as required to support the seasonality of the business in Q2.

[Sabahat Khan, Analyst]

And just a quick follow-up on that. I guess, what are distributors, I guess, kind of waiting -- is this improved visibility? Or is it -- maybe they'll just do a bit more just-in-time going forward? Demand obviously looks like it's picking up. I'm just trying to understand that it will be more of a gradual rebuild this time versus some of those large restocking quarters we've historically seen.

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, I mean, look, partly, sales are strong. The U.S. is starting to improve. I mean one thing we're starting to see is we're starting to see basic products come back. I mean our sales have been driven really by fashion t-shirts and fleece, which are actually positive in POS. And where we really see the drag so far on our minus 15% to now minus 10% is more on the basic side, and we're starting to see some literally larger orders, typically, you see floating around. We're starting to see some of that come back. So we think as we go through this and the market continues to open up, sales will continue to improve. We're tight on capacity, so those inventories were going to stay tight until we exit Q2 and move into Q3 and Q4.

[Operator]

Our next question comes from the line of Vishal Shreedhar from National Bank.

[Vishal Shreedhar, Analyst]

I guess you've already hinted at it in your remarks, but broad-based inflation seems to be topical. Wondering how much latitude Gildan thinks it has to increase price if need be? And did Gildan take any pricing or promo action in the quarter?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, we're still taking our price leadership position in the market. So we're pricing as we've been pricing for the last 3, 4 quarters. And yes, and look, we think that our industry is capable of taking price increases. But one of the things that's also occurring as we leverage our Back to Basics strategy is that we're lowering our cost structure. Our manufacturing costs, believe it or not, despite inflation, are coming down as we streamline our operations. Our SG&A is coming down as a percentage of sales.So overall, what we're targeting is to drive ourselves to what we think is the 18% operating margins, and we'll do that in combination of -- we'll see how we get there. But we have room, we think, to continue to price aggressive and offset some of the inflationary costs with our manufacturing cost savings and our SG&A leverage to still achieve our goals as we move into the future. But we also have the opportunity to raise prices if we think it's required. But we have a lot of flexibility as we move into the balance half of this year into next year.

[Vishal Shreedhar, Analyst]

Okay. And given that there's a lot of room for -- also to restock and given that Q2 POS is tracking down about 10%, is the subtext there that Gildan's trends should exceed POS in the interim as these wholesalers restock given optimism about large gatherings coming back, call it, in a few months?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, I don't think that we're going to have that opportunity to restock inventory in the channel. I mean we think that our own inventory levels will be pretty similar at the end of this quarter as they are in the beginning of the quarter. And like I said before, we're running at a rate of about 90% to 2019 level. So we work it that way. And so we're tight on capacity as we move into Q2. If you look at where we are now in April, plus the supply time it takes to produce goods in the quarter, it's going pretty quick, right?So we have pretty good visibility to where we are. And we're going to continue to ramp up as we move through the year. And I think that's the more important thing, is that we're very comfortable with the way we're seeing the market evolving. We're pretty much tracking in line with the market in terms of where our capacity currently is and where the market POS is. So that's a good thing. And as we move into Q3, we should be able to continue to take opportunities as the market recovers and our capacity continues to increase. So that's where we're looking at as we move through the year.

[Operator]

Our next question comes from the line of Chris Li from Desjardins Securities.

[Christopher Li, Research Analyst]

Just maybe first question on the gross margin. Obviously, very strong in the quarter. Can you maybe talk about your gross margin outlook for the remainder of the year? Do you expect to build on that margin improvement from Q1?

[Rhodri J. Harries]

Yes. Look, our gross margin was very strong, right? If you look at the $31.1 million, if you took the -- if you exclude the PACU, $28.1 million, I would say we're very pleased with the margin. I think as we go forward through the year, there'll be some puts and takes, right? So effectively, we'll probably see a little bit stronger mix coming through as we continue to push forward with the overall recovery. But at the same time, as we noted, right, it is an environment where there are some inflationary pressures. As we get to the back end of the year, we'll have to see what we do with raw material costs.And so there are a little -- some things that will drive margin up. There's some things that we have to work with as well. So I think, overall -- I think what we'd like to do probably is try to hold at levels which are close to where we are in Q1 as we move through the year. We'll see.

[Christopher Li, Research Analyst]

Okay. That's very helpful, Rhod. And another question. I know this is a very tough one to answer because nothing has been decided yet. But the concept of the global minimum tax is very topical these days. If it does get implemented, it could potentially cause tax rates to rise across the board. I guess my question is, what are your thoughts on this? And what levers does Gildan have to mitigate the impact if it does get implemented?

[Rhodri J. Harries]

Well, I would say, Chris, I think it's very early in the overall discussion of the -- if you look at a minimum tax from a global perspective. I mean we're like everybody else. We're just monitoring what's going on. We'll see how that unfolds. Right now, we don't see any significant impact based on what we're aware of, but also monitor the situation as we go forward.

[Operator]

Our next question comes from the line of Mark Petrie from CIBC.

[Mark Robert Petrie]

Sorry, Glenn, could you just clarify your comment with regards to distributor levels? It wasn't clear to me what you were referring to, but something was about 40% below levels seen previously. Could you just clarify?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Yes. So the inventories in the channel are roughly 40% below '19 levels and pretty much same, below '20 levels, too, because it didn't really move between '19 and '20.

[Mark Robert Petrie]

Okay. And I guess, just broadly, you're not seeing large-scale events resume, at least just quite yet. But can you just sort of walk us through what you're seeing or hearing with regard to other end markets, including some of the pockets of demand or markets that accelerated or developed through the pandemic?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, I think those markets developed through the pandemic, the online, the casual at home, leisure, all those things that have driven share, I think, during the pandemic are continuing to drive share. I think as we see to pick up right now from Q1 into Q2, I think it's a little bit more of the recovery of gatherings. I mean if you look at the Kentucky Derby, there was 130,000 people, we had 50,000 people. We're seeing some baseball games with large crowd. So definitely, things are starting to open up. And I think that will only continue to improve as we move through the balance of the year.I don't see the other part of that business going away. I mean, I think that's the net-net that we discussed last quarter, is that I think that the overall market is going to expand, our universe is going to expand as we really have a full recovery because we've created new opportunities and new channels of sales through online selling. So we're hopeful that as the recovery comes, we'll see a better market and more opportunity.

[Mark Robert Petrie]

Okay. And then just a follow-up, I think it was Chris' question with regards to the gross margin. Rhod, thanks for the comments for the expectations for -- through the balance of 2021. I'm just thinking back to sort of your 30% gross margin target, and I know that you're sort of pivoting to focus people more on the 18% operating margin target. But nonetheless, should we think about upside from that gross margin as revenue rebuilds to a 2019-type level? Or what is the lever to see further upside from gross margin today?

[Rhodri J. Harries]

I think -- you said it actually, Mark, and we're really focused on that 18%, right? So I think that's what we're really driving to deliver with the Back to Basics strategy. And I think if we get back to 2019 sales levels, we like our chances to be able to deliver the 18%. So I think as we go forward, we will see it come from gross margin, we'll also see it come from SG&A, but that's what we're really working effectively to deliver. And it also goes -- it's also combined together with the growth and the volume. It all plays together.So I think -- look, I think we're happy with the progress that we're making with our overall strategy. I mean if you look at what Back to Basics is delivering for us, both in gross margin and SG&A, I mean, we really are seeing very strong benefit, and we'll see it, I think, in both areas as we go forward, and that will flow through to operating margins. And again, we get back to 2019 levels, I think we feel very good about hitting that 18%.

[Glenn J. Chamandy, Founder, President, CEO & Non]

And plus we're going to leverage that for top line growth as well because I think that's the point here, is that we're focused more on all of those factors but as well as make sure that we have top line growth. So -- and we can leverage our low-cost manufacturing, these cost savings still achieve our previous operating margins targets and grow sales. That's really what the Back to Basics is all about.

[Operator]

Our next question comes from the line of Jay Sole from UBS.

[Jay Daniel Sole]

I just want to follow up on some of the margin questions, talking about SG&A. The SG&A dollars were down pretty significantly versus not just 1Q of '20 but also 1Q of '19. As we get into the second quarter, obviously, the comparisons get a little bit different because the SG&A was down so much last year. But how should we think about the SG&A dollars in Q2 versus Q2 of '19? I mean, can we really see them down as much as they were in terms of just total dollars versus 2Q '19? Or is there going to be more like a bounce back, so the dollars would be a lot closer to the 2019 level?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Look, I mean, if you look at 2019, we hadn't really seen the benefit of Back to Basics really flowing through in the SG&A side. So if you do look at where we're running in the first quarter, I think as we go into Q2, we'll see a little bit of -- some increase with respect to distribution costs. But look, we have the SG&A well under control as we work towards that 12% target. So the delta which you've seen between 2019 and where we currently are in the first quarter, I mean, that's all Back to Basics. It's all come out of the system. I think we've done a great job on the SG&A side to reduce it. And so we -- I mean, again, we feel very good about our ability to deliver on our target this year.

[Operator]

Our next question comes from the line of Luke Hannan from Canaccord.

[Luke Hannan, Associate]

Just first one for me is on the competitive environment. Glenn, I know you touched on it earlier. You're still sort of the price leader in the imprintables channel. But I'm curious to see, are you seeing anything from your customers in terms of how they are reacting? Are they choosing to compete on price as well? Or what are you seeing there?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, I mean, look, we're continuing to take the price leadership in every category. So we are the -- I think, the low price in the market. But at the same time, look at we -- there's also other suppliers and competitors that don't have availability of product. And I think that, in general, the inventory in the marketplace is relatively tight amongst all users, all suppliers. So people are skeptical to lower pricings when they're tight on inventory.So we're taking a strategy of every day low price, and we're going to continue to do it. We're seeing market share growth. Even though we're down in the 10% to 15%, we're down 10% now, we know from statistics within the market that we're actually gaining share. So I think that's sort of our strategy. We're going to be consistent in our approach and focus on top line growth and driving market share.

[Luke Hannan, Associate]

Okay. And one more for me. Just -- you've all seen the headlines on how COVID is playing out overseas. So I'm curious to know on the build-out of Bangladesh, is there -- do you see any risk on maybe there being a labor shortage for -- continuing to build out that facility? Or do you see any risk maybe on the time line for that being pushed or when that might be completed?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, right now, we're still on time with Bangladesh to support 2023. We started the construction of the project, was moving along. Bangladesh does not have the same type of COVID environment that India does, so we know that [indiscernible]. They've had a much greater percentage of vaccines in Bangladesh than they have in India. I think about 8% of the population has been vaccinated already.So it's a little bit different environment. Things were getting a little bit worse last month, but -- during Ramadan, and things shut down right now and things are improving. So we were -- the environment there is stable and improving, I would say, as we see it today. Obviously, there's no crystal ball and this is a pandemic, so -- but so far, things are so good, and we're on track to support 2023.We're also in the process of reconfiguring our Mexican capacity into Central America, which we dismantled at the end of last year. So we're still on track to put incremental capacity in Central America as well. So we feel that we're well within the shape to support future sales as we go forward.

[Operator]

Our next question comes from the line of Stephen MacLeod from BMO Capital Markets.

[Stephen MacLeod, Analyst]

Just a couple of questions. You've covered a lot of ground here, but a few things that I want to dig in on. You mentioned -- in previous quarters, you talked about sort of your underwear market share gains. And I'm just curious if you think that based on how the underlying market performed, whether you continue to gain share in Q2 on the underwear side at retail.

[Glenn J. Chamandy, Founder, President, CEO & Non]

We definitely gained share in retail. We're up 20-plus percent in underwear. So it's going very good. I mean, I think that underwear is on track and ahead of expectations.

[Stephen MacLeod, Analyst]

Okay. That's great. And then just -- I just wanted to clarify some commentary on the gross margin. You're clearly well on the way to exceed your 12% SG&A target, and you talked a little bit about the 18% operating margin target. But with gross margin expected to continue to trend sort of in line with the adjusted Q1 through the balance of this year, do you think it's achievable to meet your 30% target in 2022?

[Rhodri J. Harries]

Again, Stephen, I mean, what I would say is we get back to the 2019 sales levels, I think we feel very good about that 18%. So I think, as we said earlier, right, working both the gross margin and the SG&A, effectively, we feel very good about it. So I think we have -- again, because Back to Basics is driving both sides of the equation. Bottom line, we do feel good about gross margin and SG&A, and as Glenn said earlier, about our ability to drive volume, that's key.With the Back to Basics, we can -- we get the cost reduction, we keep the prices down, we get the volume, we get the operating leverage, we get better gross margin, we get better SG&A., everything works. So we're very pleased with the whole strategy.

[Operator]

Our next question comes from the line of Brian Morrison from TD Securities.

[Brian Morrison, Research Analyst]

A couple of follow-up questions. Glenn or Rhod, are you able to quantify -- you said the channel is 40% below 2019, 2020 levels. Are you able to quantify that amount?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Just over $100 million.

[Brian Morrison, Research Analyst]

Okay. And then in terms of the underwear commentary and specifically private label, I think, last time, you had mentioned that opportunities were somewhat on hold during the pandemic. I'm wondering as the social restrictions start to ease or the pandemic gets a little less in the U.S., in particular, if you're seeing any progress with respect to opportunities in this vertical.

[Glenn J. Chamandy, Founder, President, CEO & Non]

Well, yes. I mean, look, we're working with all our partners for future opportunities. So there's -- I don't want to say anything concrete, but we're definitely looking and working on future growth opportunities to align ourselves to as we move forward into 2022. And we're very comfortable that all of the 4 pillars of our growth point to creating -- growing in our North American underwear or international sales as well as both our private label and our own brands in retail. We think that all these areas are going to see significant growth as we move into 2022. We're pleased in all areas.

[Brian Morrison, Research Analyst]

Okay. And then last question, and it's high level, Glenn. Just your POS is tracking down 10%, yet the imprintable drivers, you look at tourism or sporting events, they're still very limited. So I just want to understand like what is filling this void? Is it -- I understand some of it's going to be online and some of it's got to be national accounts. But what's filling that void?And then in terms of national accounts, are you seeing more movement towards onshoring? And is this something that could be permanent market share gains?

[Glenn J. Chamandy, Founder, President, CEO & Non]

Look, the retail in general, retailers are selling more t-shirts probably than they sold pre-pandemic because people aren't going to the fairs. So some of that is maybe double dipping a little bit, I would say, because people are going to buy so many shirts a year, right? So -- and they have to buy them because they're staying home and there's more leisure, et cetera. So they're looking for places to go get them, They're buying online or buying them at retail outlets. So that's what's happening.So -- but net-net, I would say that the overall market has grown because of the onset of online availability. People that buy pre-printed t-shirts, digital printing has given an opportunity for people to buy onesies and twosies that they can never get before. So the market has grown. And as I said earlier is that when it recovers, we just don't know how much will come back and how much will recover, but it's definitely going to be very opportunistic for us because we moved in.And as far as the supply chain, I guess, more domestic supply, I think that's also going to be a key factor. Look, a lot of the products that we sell are [ at once ]. They're in our warehouses. We carry the inventory. So taking the risk to go buy from Asia, you've derisked this whole thing. And all of our shirts regardless of what plan you're buying them, basically, we have products for every outlet. We have fashion shirts, basic shirts. So -- and they all have [indiscernible] label. So it's very easy for any fashion brand to basically take one of our products, care to label them, put their brand and resell it to consumer. So we're more positioned, I think, even from the supply chain to continue growing both from a regular printwear perspective and as well as to support our global lifestyle and our region partners.

[Operator]

And our next question comes from the line of Jim Duffy from Stifel.

[James Vincent Duffy, Managing Director]

A couple of questions for me. Rhod, to start, revenues in the first quarter relative to the first quarter of '19, activewear down 2%; hosiery and underwear, down high teens. Do you expect that rate of change relative to 2019 will continue to improve? Or was there some benefit from restocking that may have made that artificially high in the first quarter?

[Rhodri J. Harries]

We did talk a little bit about the restock in the first quarter, right? So from a distributor perspective, we saw about a $50 million restock impact in the quarter effectively. If we look at Q2, I'm not so sure that we're going to see that given the way things are unfolding. So I think that's one benefit I would call -- or one difference, I would call out, Jim.

[James Vincent Duffy, Managing Director]

Okay. And then a question on the channel partner inventories. You guys have spoken about the printwear market, 40% below 2019. Can you comment on where it stands with retail channel partners? Are retail channel partners yet restocked to be up with demand? Or are there more quarters, you think, of supply chasing demand in the retail channel for the hosier and underwear business?

[Glenn J. Chamandy, Founder, President, CEO & Non]

I would say they're imbalanced relative to the size of the business we have because, obviously, our underwear business is much larger today than it was in '19. So there's a little bit more inventory to support those larger sales, thus imbalanced.

[Operator]

There are no further questions at this time. I will now turn the call over back to Sophie. Please go ahead.

[Sophie Argiriou, Vice President of Investor Communications]

Thank you, Rachel. Before we leave you off, just a quick reminder that we will be holding our virtual Annual Shareholders' Meeting tomorrow at 10 a.m. Eastern Time. So with that, I'd like to thank you again for joining us today, and we look forward to speaking to you very soon. Have a good evening.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.