Gildan Activewear Inc

TSX:GIL

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Q4 2022 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 Elisabeth Hamaoui. Please go ahead.

[Elisabeth Hamaoui, executive]

Good morning, everyone. This morning we issued a press release announcing our fourth quarter and full year '22 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. Rhodri Harries, our Executive Vice President and Financial -- 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, conciliations to the most directly comparable IFRS measures are provided in today's earnings release as well as our MD&A.And now, I'll turn it over to Rhod.

[Rhodri Harries, executive]

Thank you, Elisabeth, 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 1 year into the Gildan Sustainable Growth strategy or GSG strategy, and we are extremely pleased with our progress executing on all 3 of the key strategic pillars we laid out early last year, focused on manufacturing capacity, innovation and ESG.And 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. But 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. And we saw higher year-over-year shipments in international markets as distributors in Europe replenished inventory levels, showing some confidence in the outlook ahead. And 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, 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 the margins. Excluding accrued insurance recoveries of $26 million recognized in the fourth quarter, adjusted gross margin came in at 29.1%, down a 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 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 gross 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. But 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 $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 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.Further, 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 2 buyback programs to 13.1 million shares or 7% of our float at an overall costs 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 1.1x at the lower end of our target range of 1x to 2x.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 Sustainable Growth strategy focused on capacity driven growth, innovation and ESG. We are pleased with the progress we've 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% to 20%, we believe our business model is positioning as 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 and 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're 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 serve as retailers, our business continues to be impacted by soft demand in retail and markets and ongoing tight inventory managed by retailers.However, 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.Finally 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 '23.Moving to the margin front. In the first part of the year, we're expecting increased margin pressure due to higher raw material and input costs, which are currently in our inventories. As we moved past the first quarter, we expect these headwinds to start to abate and to deliver strong margin performance during the remainder of the year.So, 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% to 20% target range, despite expected margin pressure in the first quarter, driving us 200 to 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.Finally, 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% to 8% range, and with significant working capital investments behind us, we expect to drive strong operating and free cash flow generation for the year.So overall, you can see we entered the second year of our GSG strategy excited. And 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 Elisabeth.

[Elisabeth Hamaoui, executive]

Thank you Rhod. Before moving to Q&A session, I ask that you limit the number of questions to 2 and we will circle back if time permits. Operator you may begin the Q&A session.

[Operator]

[Operator Instructions]. The first question comes from Paul Lejuez from Citi.

[Paul Lejuez, analyst]

I'm 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 2 segments. You gave the EBIT margin, but hopefully if you can share a little bit more on that on the top line assumption.And then 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? And then I might have one follow-up.

[Rhodri Harries, executive]

Okay. I'll start with the top line, and then I'll turn it over to team for pricing, Paul.So if you look at top line for Q1 '23, I think we called it out that it is a -- first of all it is a tough quarter from a comp perspective, but we had a strong quarter in in Q2 '21. And we are calling the quarters down from a sales perspective.And if you look at what's driving that, if you look at where we were in 2022, we were getting prices, we were effectively moving price -- we had started moving price in '21 and we were seeing the benefit of in that in '22. But as we move into '23 that really diminishes, so we're not getting much price from a top line perspective in overall sales as we move into '23.From a POS perspective, effectively, what you'll see is that we have -- we do have weak POS in the first quarter. It's soft POS, so you have POS in the distributor side probably down low-single digit, you have retail down double-digit. So, whatever price that we had in the first -- sorry that we're getting in the first quarter of '23 is for the most part probably being offset by weaker POS.And then if you look at the overall sales number, it'll be impacted by not being able to comp Q1 '22, the restocking that we saw. And then also some -- so we do expect to see some destocking in Q1 of '23. The total impact of that, because of -- again what's going on in the inventory environment and how customers are managing inventory title -- tightly sorry, is probably around $75 million in Q1.So 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. But then, 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, executive]

And I'll jump in 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 2 quarters. And the main drivers of, I think stable pricing in the market is inflation is still relevant.Just to refresh your memories, as we increased prices to cover inflation, particularly raw material, we never raised prices high enough to cover the peak raw material costs. So it was more in the in the -- just over $1 range, let's say. And today with content 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 inflation is a factor, materials, energy are all inflations as we go forward. So I think inflation is still here and we believe that pricing will be somewhat stable as we go through the year in '23.

[Paul Lejuez, analyst]

And then what's the average unit cost increase do 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?

[Rhodri Harries, executive]

So, it's -- if you look for a 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 at the full year.If you look at our low-single digit increase in sales, that's and very little of it really is coming from price. I would say some of it is coming from mix and volume is sort of staying in there. It's not, obviously, because if we look at the comp versus last year from a volume perspective, it's -- we're not a forecasting major volume.Actually, we're being quite conservative, really, when you look at it, when you think about the year. Because 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. And 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, very weak over the last number of years, but we started to see some strength as we moved out of the fourth quarter.And then we, also assuming that we'll get the benefit of new retail programs which we can also talk about. So effectively if you look at the full year, not much from price really. If you look at the real drivers, it's these 2 factors that we talked about and we are assuming a down market in the U.S. So if the market is stronger than we ultimately expect currently effective, we will see the benefit on a go forward basis.

[Operator]

Our next question comes from Luke Hannan from Canaccord Genuity.

[Luke Hannan, analyst]

I just want to focus on the inventory for a second here -- your owned inventory. Curious to know how the composition shakes out across each of your product lines, how you feel about that? And 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 if we look at some of the other peers in the industry, it looks like they've scaled back capacity. So I'm curious to know your thoughts there on your position going forward.

[Glenn Chamandy, executive]

We'll start off on the inventory. And like anything else, we continue to invest in our business and inventory for us is an investment. We believe that our inventory is well positioned, it's in historic levels. It's -- we're running around 34% working capital today which is in line with historic levels.And we have the balance sheet really to support this level of inventory. But inventory we think is going to be a strategic advantage. It's going to allow us to why we believe gained market share in this market as we see weak competitors that can't afford to finance high levels of inventory. And so we think we think that's going to be a competitive advantage.And 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 into DR in Central America. Like Rhod said [indiscernible] will start at the end of March, but really be a slow ramp up during this year and into 2024.And this capacity is, we've got everything in place we believe to really support our GSG strategy. And one point on the -- I think on our capacity, we've got flexible capacity and flexible utilization. So, although, our forecast this year, obviously we're not utilizing 100% of our capacity, we're very comfortable with our operating margins in the 18% to 20% range. So the underutilization of capacity in our system will not materially affect our margin profile.And at the end of the day, look at the Gildan historically has built capacity. And we've sold that capacity and we're very confident that as we drive through this year and to next year, that our GSG strategy, our positioning, our investments will occur and we'll utilize all the capacity that we've got on in the process of developing.

[Luke Hannan, analyst]

Okay. I appreciate that. And then for my follow-up here. The international markets, Rhod, you had touched on, you guys saw strength there during the quarter. Curious to know which particular markets where you saw strength in growth? And where -- which markets rather are still lagging, and what the trends have been so far earlier in the year?

[Glenn Chamandy, executive]

Chuck will handle that.

[Rhodri Harries, executive]

Yes, I'll turn it over to Chuck. Yeah.

[Chuck Ward, executive]

Thanks for the question. I think, as we look at the international markets, the Asian markets, parts of them continue to be more challenging as there continue to be certain restrictions in those markets. And so 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 U.K. and European distributors. So we're seeing potential upside from an international perspective in Europe and continued challenges in Asia.

[Operator]

Our next question comes from Stephen MacLeod from BMO Capital Markets.

[Stephen MacLeod, analyst]

Just wanted to start with -- I just 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, executive]

Well, what we'll do is we'll just -- I just want to reiterate, I guess, the -- our forecast where we're planning to have low single-digit growth, right? And particularly in the U.S. market being down, and all of the growth coming from new programs, both in our retail and our GLB categories.And so for us, I guess, 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. And maybe I'll let Chuck just talk about the POS and the position today in the market.

[Chuck Ward, executive]

Okay. Thank you, Glenn. I mean, I think, Stephen, the way we see it, as Glenn said, with the low-single digits, how it's going to mix is North America down. And as he said, we'll probably -- 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.And then really, the growth is kind of, as Rhod said in his opening remarks, is around some of the new programs. And that's going to drive the sales growth that's going to deliver the low-single digits. That will 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 brand partners as they continue to look at nearshoring.And then finally, within that North American imprintables market, you've probably seen we've continued to launch more and more Ring spun product, both in the fleece and the tee area. And so we think that will be a positive area to help drive growth to cover some of the downside on the North American market.

[Glenn Chamandy, executive]

Maybe just one more point is that, in the Printwear market, particularly in Q4, we saw some negative POS basically. So if you look at the year last year, we started January, February, things were booming and then sort of we saw it 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 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, relatively strong 2 months before we had the [ Teespring ]. So that's an encouraging sign.So hopefully, we're cautiously optimistic and -- but we can only forecast conservatively in this macro type environment. But so far, in the beginning of this year, POS has been a little bit better than we anticipated.

[Stephen MacLeod, analyst]

That's great color. And 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% to 20% target range?

[Rhodri Harries, executive]

Yes. That's the way we've got it modeled out. So Q1, as we called out, we will be 200 to 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. And then as we get into the second quarter, third quarter, fourth quarter, we do see strength back in our margins.So effectively, the second quarter will be significantly stronger than the first quarter and back on our range. And then obviously, as we continue to go through the remainder of the year we expect to run well within our range. So 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 our -- on the cost structure. And so I think we can speak with confidence really around margin performance for 2023 on the back of what we've delivered in '22.

[Operator]

Our next question comes from Vishal Shreedhar from National Bank.

[Vishal Shreedhar, analyst]

I just want to get a bit more color on mix, and management suggested that mix would be a favorable factor again in 2023. And 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, executive]

Well, as far as fleece is concerned, it's still growing rapidly. In fact, it's accelerating as we speak. So we've -- what's driving our POS so far in Q1 is actually even more robust fleece sales. So it's been a contributor and as well as the fashion T-shirt segment. So both of those continue to drive both top line mix and performance.

[Vishal Shreedhar, analyst]

Okay. And is -- 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, executive]

Well, I think it's a lifestyle thing. People are wearing more -- it's more casualwear, it's greater economy. It's all the factors really. I mean people are still casual, even now they are getting out of the house now, right? So it's just -- it's definitely a lifestyle thing.

[Vishal Shreedhar, analyst]

Okay. And 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, executive]

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 globally to be honest with you. So inflation is a factor and energy is a factor and materials and so all of these factors are supporting inflation still. I mean the only relief a little bit is cotton has sort of normalized back down to the levels it is today. But definitely, inflation is there. And I think at the end of the day, it's going to continue to support long-term pricing.

[Vishal Shreedhar, analyst]

Okay. And with respect to getting the bodies you need in your yarn spinning facilities, that issues have -- is under control?

[Glenn Chamandy, executive]

Sorry, say again?

[Rhodri Harries, executive]

Yes. No. So Vishal, you're asking about the labor in yarn. I mean as we -- Yes, it was an issue for us in '21, in '22 we started to get our arms around that, the environment improved. And now as we move through '23, availability of labor is not a concern for us. We have the labor that we need. And that -- we don't see that as being a constraint.Actually, we see our yarn operations are in very good shape, really with the -- after the acquisition of Frontier and we've been integrating and optimizing. And so we feel very good about the supply chain and our ability to run the yarn, textiles sewing in -- as we go forward, and that really puts us in a position of strength.

[Operator]

Our next question comes from Brian Morrison from TD Securities.

[Brian Morrison, analyst]

So potentially for Chuck or for Glenn here. You talked about these new program opportunities, and it sounds like private label and GLB. Can you just give us some more details like if these contracts has been awarded, how should we think about magnitude? And then you did talk about them a bit in Q1. Is it still in the same time frame or have they been pushed out at all?

[Chuck Ward, executive]

Yes, 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 are things that we have been awarded. So we kind of have a good feel for those and when they'll come through.From our Q1 perspective, I think as Glenn said, it has been -- POS has been a little bit better than we would have expected, especially going off a strong comp from Q1 2022 in the imprintables and distributor channel. Still some challenges there, but definitely better than we had maybe expected. January a little worse, but then February, we're starting to see it pick up.

[Brian Morrison, analyst]

Okay. And specifically, are these new programs, are they private label or are they GLB or are they Nikes, Adidas at the world?

[Chuck Ward, executive]

Yes. They're across the board. So you hit them all. So we have some private label, some are in the global lifestyle brands as well and some are Gildan.

[Glenn Chamandy, executive]

And as you'd recall on our last call, we mentioned that we had -- we picked up quite a few underwear programs, additional shelf space in underwear, and these are all the driving factors of our growth in new programs.

[Brian Morrison, analyst]

Okay. Thanks for that clarification Glenn. And then maybe for Rhod. I just want to circle back to the corporate inventory. I know you say you're comfortable with it. It's up about 17% from 2019, I knew that was a bit high. So is it really volumes are somewhat flat and its inflation and mix with much more fleece in there?And 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?

[Rhodri Harries, executive]

Glenn gave the explanation on where we are in the inventories. And we -- if you look at -- 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, and 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.So 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. It was driven by higher costs. But again, we needed those units effectively in order to service the business.And now we're in a very good position to service customers. It is -- again, you got to remember, we're all basic sell replenishment products. And 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. So if you look at our broader working capital, we're in -- we finished the year at 34% right in our range of 30% to 35%.And so now at that -- with 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. And so we don't see significant investments in our inventories required as we go through '23.Actually, that's what drives the strength of our overall free cash flow because if you look at our free cash flow in '22, we had $200 million in total, and we had working capital, not inventory, but a working capital bill of around $300 million, which we're not expecting in 2023.We also had higher CapEx in '22 than we're expecting in '23. In '22, we were more in the higher end of our range, our target 6% to 8% range that we've said that we were going to be in through this type of period. And this year, we expect to be in the lower end of that range.So 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. And then that obviously ties into the fact that we've announced the dividend increase, and we're planning to do the share buybacks. So all in all, we feel set up very well for '23.

[Operator]

Our next question comes from Jim Duffy from Stifel.

[Peter McGoldrick, analyst]

Hi, this is Peter McGoldrick on for Jim. 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, executive]

Well, we don't think there's going to be a big mix change in private label versus our brand products. I mean the margin profile is relatively the same. And as we said earlier, I mean, these programs have been awarded and they're basically part of our forecasted plan for '23. So we're continuing to look at obviously new opportunities. It's not -- one of the things we said last call was that as we entered '22, we were really pedal to the medal in our existing business, we really weren't focusing on new programs.And then 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.So our objective is just to continue driving our GSG strategy. And all of the elements are going to be to obviously take market share with our great inventory position that we have in the Printwear market, continue to utilize and drive near-shoring opportunities, private label, international sales. So these are all parts of our growth initiatives, and I think we're going to continue to stay focused on our core competency and making sure that we achieve our targets.

[Peter McGoldrick, analyst]

And then switching to the print business. How big -- 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, executive]

I would say it's pretty difficult for us to give you a number on it. But I would say that one of the big drivers of growth during '21 was partly the greater economy, digital printing, online selling, which is also the part that I think that has come down a little bit in '22 as we saw e-commerce sort of leveling off.But replacing that was people getting out and all the events, rock concert, sporting events, different things. So 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 because people were home.But we forecasted and as we went to our investor conference last year, and we sized the size of the market, we did a recap refresh on that. And basically, 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.

[Operator]

Our next question comes from Jay Sole from UBS.

[Jay Sole, analyst]

Glenn, you made some comments earlier in the call just about the competitive landscape and how the current environment has made it difficult for some competitors. Can you elaborate on that a little bit? Maybe just talk to us how 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, executive]

Well, I think that if you look at the landscape, not just here in North America, but I would say 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. So that's a big factor.One of the things we see is that there's 2 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, the carrying cost and the capability for manufacturing expansion is going to be difficult for a lot of companies. And 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.And you can look at anybody who basically has high debt, high leverage. And as this leverage comes due, either private equity or companies that have leverage, their ability to support inventory, I think on a go-forward basis will be limited. And they'll manage those inventories down and will be difficult for them to service the market, particularly when the market rebounds. But I think even -- and it takes time to restart your engines, right?So we look at us, it took us almost 1.5 years from the hurricane in '21, the pandemic, just to get all that capacity coming online. And 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. So for both those reasons, we're very optimistic about committing and achieving our GST strategy targets as we go forward.

[Operator]

Our next question comes from Chris Li from Desjardins.

[Christopher Li, analyst]

Maybe just a first question for Rhod. Just maybe a 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 1x to 2x target range by the end of this year? And then when can we expect you to resume buying back shares again?

[Rhodri Harries, executive]

So 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.And 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 2022, we bought back 7% and effectively, so we were above our 5%. And as we finished up the year, effectively we lightened off a little bit. But as we move through '23, you'll see us pretty well on a steady cadence, effectively delivering the buyback of the 5%.And again, 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, and we're well positioned to do all the things that Glenn just talked about. So 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.

[Christopher Li, analyst]

That's very helpful, thanks Rhod. And maybe one for Chuck or Glenn. You mentioned earlier that you believe your low single-digit revenue growth for this year, it 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 -- like how much is down? Like is it low-single digit, mid-single digit, how -- what's the magnitude so we can get a sense of how conservative your forecast might be?

[Glenn Chamandy, executive]

Rhod?

[Rhodri Harries, executive]

Yes. So 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. So if you listen to sort of all the commentary about what we're forecasting, we are -- we know that we will not be able to effectively comp some of the restocking that we saw in the early part of 2022. And that ultimately will come out of our forecast in '20 -- and has come out of our forecast in '23 for North America.So effectively, if you make that adjustment and look at where we are from an overall perspective where it's sort of down low-single digit is the way to think about North America. But then again, it's -- it will be offset by the -- and that's excluding the new programs. Then we have the new programs that we layer on and then we have the international.So again, I think it's a pretty conservative setup for the year. And again, the first quarter is softer as we've called out. But given the strength of 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.But 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 forecast.

[Christopher Li, analyst]

Okay. And maybe just a quick follow-up. I think you also mentioned that in February, you've seen the Gildan POS is starting to increase versus a year ago. Is that mainly driven by your ability to gain market share or are you actually seeing some resilience in the -- on the demand side of things?

[Glenn Chamandy, executive]

Well, we think it's -- I personally believe it's our positioning and taking market share. 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. And like I said before, the fashion side of the business is the big drivers, obviously, of our growth. So I think we're just well positioned in general to continue to take care of the market.

[Operator]

[Operator Instructions]. Next question comes from -- our last question will come from Mark Petrie, from CIBC.

[Mark Petrie, analyst]

Just a couple of follow-ups. Within retail in Q4, how much of the weakness was sort of at shelf with your programs versus national accounts or demand?

[Rhodri Harries, executive]

So if you look at Q4, really we saw the retail environment down, if you look at the POS generally, it was down double digit, I would say, on the retail side. But it was across all of the retail end markets, Mark.So if you look at national accounts, if you look at the sales to the big retailers because a lot of the sales of the national accounts end up in retail, right? So we see sort of similarities on the national accounts and when -- this national accounts in the print were talking about because we call everything, including retail national accounts as well. But it was pretty, I would say, similar across all of the different channels and in retail customers. I mean it was a soft quarter in retail, and we saw it pretty well everywhere.

[Mark Petrie, analyst]

Okay. And with regards to sort of end market demand 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, executive]

It's pretty balanced.

[Mark Petrie, analyst]

Okay. And then do the account wins in retail impact the EBIT margin at all or are they consistent with the overall profile?

[Glenn Chamandy, executive]

They're consistent with the overall profile.

[Mark Petrie, analyst]

Okay. And then last one. I'm just curious about your views or any commentary you can provide about the competitive dynamics within the Printwear channel, particularly as if volume does flow through the course of the year, how you expect that? And I know you were talking, Glenn, about sort of inventory positioning and the challenges for people there. But I'm specifically curious about views on price and how that might play out?

[Glenn Chamandy, executive]

I would say that maybe the view on price another way to look at it is that 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.So I think that and 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. And those costs of those inventories are very high, which is going to continue to support the price in the market.I mean it's just price is not going to drive this market at all. I mean there's no -- it's not like in the past where what drove the price in the market was big user and user events that basically somebody when went and bought 500,000 shirts and everybody chased that program basically and use price to be able to go get it. I mean, those programs are still not there.So when you started looking at what's out in the marketplace today, I think that price is never going to move the needle in terms of volume. So you take that in account, I think with people's high cost and the fact is that most manufacturers in our segment are significantly cutting down inventories and manufacturing capacity and I think they're running maybe at 50 if they're lucky.So we're in a good position. We came off obviously very low inventories in '21 to support our build, and we're running at a relatively good rate. And our cost structure, I think, is in good shape, both from raw material as well as input costs. So I think we're well positioned, and I think we're very comfortable with our forecast.

[Operator]

And we have another question from Sabahat Khan from RBC Capital Markets.

[Sabahat Khan, analyst]

Just a clarification question. I think when you were talking about POS being somewhat better during the early months of 2023. I guess, should we read that as that will 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 the guidance that you're already providing in terms of you might be able to ship more to that than you initially thought or is that just -- that's what you expected for them to be able to do deplete their inventories over the next few quarters?

[Glenn Chamandy, executive]

Well, what we're saying is that we're comping really -- we had negative, let's say, POS in Q4, which is our worst quarter of '23. So we took -- we've taken our forecast in that light. January and February were very good months in terms of POS in 2022.So 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. So therefore, we should be in a pretty good position to potentially have some upside. So we're cautiously optimistic, and we'll see where the market goes as we move forward.

[Sabahat Khan, analyst]

Okay. And then just a quick clarification on Q2, I guess when 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 as the year-over-year?

[Rhodri Harries, executive]

Yes, if you look at Q2 effectively, I would say that we do see weakness in Q1, as you said, Sabahat, I think as you -- we go to Q2, I think that will be -- again, it was a tough quarter when we looked at Q2 '22, we did almost $900 million of revenue. So it is a big comp. So I think there -- I think it will be a little tougher. But again, as we move through Q3, Q4, we see real strength. So I think that's probably about as much color as I want to give you on the way the quarters unfold.

[Operator]

We have no further questions in queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.