Good morning. My name is Jeanie and I will be your conference operator today. I would like to welcome you to the Q4 2023 Gildan Activewear Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Jessy Hayem, Vice President, Head of Investor Relations. You may begin your conference.

Thank you, Jeanie. Good morning, everyone. Earlier we issued a press release announcing our results for the fourth quarter and full-year 2023 as well as our first time guidance for 2024. The company's management discussion and analysis and consolidated financial statements are expected to be filed with the Canadian Securities and Regulatory Authorities and the U.S. Securities Commission today and will also be available on our corporate website. Joining me on the call today are Vince Tyra, President and CEO of Gildan; Rhod Harries, our Executive Vice President and Chief Financial and Administrative Officer and Chuck Ward, President, Sales, Marketing and Distribution. This morning, we'll take you through the results for the quarter and a question-and-answer session will follow. Before we begin, please take 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. And now I'll turn it over to Vince.

Thank you, Jessy. Good morning everyone, and welcome. I've been looking forward to engaging with you all, and I'm thrilled to address you today in my first earnings call as the newly appointed CEO of Gildan Activewear. As for the results, we delivered a solid Q4, thanks to the outstanding operational execution by our highly skilled team of employees across our global footprint. In fact, 2023 was a year of strong progress on Gildan's sustainable growth strategy, despite an overall challenging macroeconomic backdrop and tough year-over-year comparative periods. This foundation, together with a solid balance sheet puts us in an enviable position, enhance upon it as we go forward. In my early weeks with the company, I witnessed firsthand the incredible talent and dedication of the Gildan team. I've been a participant in this industry for several decades as an operating executive and in other capacities, and Gildan's powerful manufacturing engine is truly a key differentiator. I look forward to leveraging Gildan's strengths, our incredible team and my experience to drive this organization's long-term growth and create value for shareholders. And I'm working closely with the leadership team and the Board to find opportunities to further leverage our strong foundation and drive strong and durable growth in the future. Finally, as I've been onboarding with our great company, I've had the opportunity to visit with 100 of employees in Montreal and Honduras and have recently met with many of our key customers during the recent Industry Trade Shows in Las Vegas, Nevada and Long Beach, California, which is fueling my excitement for the future. It was great to reconnect with many familiar faces in the industry as well and gain their perspective on our company as well as the industry. And I'm personally looking forward to sharing my views with you in the months ahead as we leverage our strong capabilities and innovation to create further opportunities going forward. I look forward to taking your questions a little later during the Q&A session. And with that, I will turn it over to Rhod.

Thank you, Vince. Good morning to all and thank you for joining us today. I'd like to start the call by thanking the entire Gildan team for everyone's excellent work and dedication through 2023 leading us to a strong finish to the year. We delivered sales growth of 9% in the fourth quarter, adjusted operating margin at the high-end of the company's target range, double-digit EPS growth and we generated robust cash flow allowing us to execute on our capital allocation priorities. We are now two years into the Gildan Sustainable Growth Strategy or GSG Strategy and we are pleased with the progress made across our three key strategic pillars, but also excited to capitalize and further enhance all of the work that has been done in 2023 as we enter 2024. I will expand on this shortly along with our outlook for 2024, but for now let's shift our focus to the fourth quarter results. Net sales for the fourth quarter came in at $783 million, up 9% with activewear sales at $644 million, up 8% and hosiery and underwear sales at $139 million, up 11%. The increase in activewear sales was fueled by higher volumes driven by POS as well as higher levels of customer replenishment than the prior year. We specifically benefited from healthy POS levels and continued strong performance in key growth categories such as fleece and ring spun T shirts, which translated into favorable mix versus last year. Finally, our international sales were down 24% in the quarter despite some POS recovery as difficult macroeconomic conditions in these markets led to lack of inventory replenishment compared to the prior year. Turning to the hosiery and underwear category. The sales increase was fueled by higher volumes driven by a combination of POS with pockets of strength…

Thank you, Rhod. Before moving to the Q&A session, I'd ask you to limit the number of questions to two and we'll circle back for a second round of questions if time permits. Finally, please note as the purpose of today's call is to discuss Gildan's results for the fourth quarter and year ended December 31, 2023, we will only address questions relating to our financial results and guidance and related operational matters. Jeanie, you may begin the Q&A session.

[Operator Instructions]. Your first question comes from the line of Paul Lejuez with Citigroup. Your line is open.

Hey, thanks guys. Just a couple quick ones. On the GMT, curious what tax rate you guys are assuming and also the assumed SG&A offset that you got built into guidance? And then can you also talk about the pricing environment? You mentioned lower cost, but also lower pricing. So what are you seeing from the competitive landscape? Do you expect those decreases all year on the pricing side? And any sense of magnitude that you can share and how it might differ by category? Thanks.

Okay, Paul. I'll start and I'll turn it over to the team to answer the question on pricing. But if you look at effectively what we've assumed with on the tax side, as I indicated in the comments, we've assumed the enactment of the global minimum tax and that will occur retroactive to January 1, 2024. Currently, there's draft legislation out there. It hasn't been enacted yet, but it's our expectation that it will be enacted in Canada this year. And so what we've assumed from a tax perspective is that in parallel with the enactment of GMT, our effective tax rate will move up to just below 18%. That will be the consequence of GMT rolling through Canada and other jurisdictions. However, there are other benefits that we expect to see related to tax reform that are expected to yield credits that will flow through our SG&A line. And the simplest way to think about that is that the quantum of those credits will probably reduce our SG&A as a percent of sales by about 80 basis points. So that effectively will bring down the net impact of GMT on our P&L, it will also boost up our operating margin. And so that is reflected in our EPS guidance. If we move to the question on pricing and what we've assumed in the price environment, effectively, if you look at prices overall, we do see stability as we move into 2024. We've seen it in '23 and we do see it as we move into '24. There are pockets where we do see real competitiveness in pricing, I would say. And if you think about our national accounts business there, it's -- I would say it's very competitive. And then if you look at the international markets as well, we've seen price -- some price pressure there, although we do see that abating I would say as we move into '24 and partly because from our perspective, we're going to be very strong on the product side. But overall, we are expecting a -- I would say a stable price environment with a little bit of, I would say, downward pressure overall on net price, but very manageable as we move through 2024.

Thank you. Good luck.

Thank you.

Your next question comes from the line of Jay Sole with UBS. Your line is open.

Great. Thank you so much. I have two questions. First for Vince, as you've gotten acclimated in the company, what do you see as the biggest long-term growth opportunities? Just from a sort of a big picture qualitative perspective? And then secondly for Rhod, well, if you think about the fiscal '24 margin guidance, how are you thinking about gross margin versus SG&A within that guide? Thank you.

Thank you, Jay. This is Vince. Yes, I mean, obviously, that's a great question. I think that's getting developed. I can talk about my initial impressions in the first month or so here. But in terms of nail it down the long-term strategy, I think that will come as 2024 develops. Certainly, my experience with the industry is helping, hopefully shortcut that time frame. But with that being said, I mean, I think the reasons I'm here, or what I've been able to validate in terms of what we have and the manufacturing capacity and the agility of that capacity. Obviously, the brands that we have when you think about American Apparel, Comfort Colors, and Gildan itself are powerful in this industry, and we're reenergizing the American Apparel brand as most know. But the leadership team, there's a number of things that go into it, but I think we'll be focusing on what our capabilities are in the manufacturing, obviously, looking at how we can enhance upon the GSG, which I think is a pretty strong approach. I mean, this back to basics that I've watched and look and see what's happened in the last couple of years has led to the GSG and what's happening internationally. I think it was going to avail us some nice opportunities. And the end of probably the biggest surprise I saw and just being in Honduras for a week is just how much innovation is going on inside the plant and what it avails us in long-term opportunities.

Okay. Thanks, Vince. And so if I go to the second part of your question, Jay, on gross margin, SG&A, and maybe I'll also talk about it from an operating margin perspective. But look, we think we're in a very good shape as we move into '24. If you look from a gross margin perspective, if you look at where we were in Q4, our gross margin came in just a little above 30% and that was in line with what we had anticipated. And we have been saying all through '23 that effectively we expect to see the tailwind associated with fiber costs are really kick in as we get into Q4 and as we move into 2024. You may recall that caused pressure in the early part of '23. We did not price for that. We knew it was effectively going to flow through. And now we're seeing it in Q4, and you can expect our gross margins to stay strong as we move through '24. And we'll continue to improve upon that, right, because there are other things that we're doing from a manufacturing perspective. We continue to optimize our structure. We have Bangladesh ramping up, which we're incredibly excited about. And so we believe that we have gross margin very well under control as we move into '24. Same thing from an SG&A perspective, I think we're very disciplined on SG&A. We've been very focused on effectively making sure that the front end of our business is very efficient in the way that we operate. And if you look at our SG&A performance full-year in '23, we came in just around 10%, which is around our target. And as we move into '24, we'll be looking to continue to run at those levels, maybe improve upon it a little bit, and then we'll get also the benefit of the refundable tax credits flowing through. And so you can see SG&A for on a full-year basis should look good on a comp basis versus '23. And then when you look at overall op margin, that's why we've given the guidance that we expect it to be slightly above the 18% to 20% range, the higher than the 20% because of what we're seeing in gross margin and SG&A. So overall, we feel we're very well positioned. Things are well under control and we're excited about what we see for 2024.

Got it. Thank you so much.

Your next question comes from the line of George Doumet with Scotiabank. Your line is open.

Yes. Good morning, guys. Rhod, can you help us understand the moving parts embedded in the Q1 guidance of low -- of down low-single digits? And how should we think on the recovery towards the flat to up low-single digits? Is that -- would that be linear or a little bit more bumpy?

No. If you look at Q1, we have called out that it would be down low-single digits. And I gave some color in the script, right? We talked about POS effectively being mixed. But I think really the story behind POS is POS is in good shape, good shape for us across the activewear category. If you look and that's the most important category for us. And if you look across the Board, POS is performing reasonably well as you think about the macro backdrop. So I would say we are comfortable with what we're seeing there. There are some spots, some pockets of weakness where it's a little bit more variable, but I would say it's holding up. But as we go into Q1, what we do see is effectively, we do expect restocking on the distributor side. We're going into season, so we expect to see restocking. But because of the strength of what we saw in Q4, where normally we would expect destock in Q4 and we've called that out, we were expecting that. But what happened was we shipped to POS. We shipped in line with POS in Q4. And effectively as a result of that, we didn't see the -- I would say the destock in Q4. And so what we expect are lower levels of replenishment in Q1. So the restock won't be as large as you might normally expect in the first quarter. So the impact of that in total basically meant that we will see a little bit weaker start to the year, but I would say as we go forward, we do see strength as we move into Q2, Q3, Q4, and that's all on the back of our very strong competitive positioning. What we're seeing with market share gains, what we're seeing in these key categories, ring spun, fleece, all the drivers of the business. I mean, there are many, I would say, drivers of the business as we think about '24 in total, right? So we've got those product categories that we're doing very well on. We've got product innovation coming through, which I called out we're very excited about. You'll see that on the basic side, we've got new product styles that are effectively rolling through, which will drive our business in national accounts. In international, we've got new retail programs in activewear, in underwear, in hosiery. We're doing well on the hosiery side with some of our -- very well actually with some of our customers. We've got -- we're excited about what's going on with Comfort Colors, American Apparel, and we've got strong product availabilities. If you look across the Board at all of the different areas of the business, even though you've got the macro backdrop to deal with, we feel we're well positioned as we move through the year and you'll see that as we move through the quarters.

Okay. Thanks. And just for my follow-up, I also want to talk a little bit more about free cash flow. Can you maybe quantify the lift or can you give us some goalposts in terms of working capital and CapEx for this year? Thanks.

Yes. So CapEx I called out is 5% of sales is a good guide. And if you think about CapEx, we had a little bit higher in '23. There we were spending a little bit more on Bangladesh, but now we're ramping up Bangladesh. So CapEx comes down as we move into '24. And then if you look from a working capital perspective, inventory, we've made our investment in working capital. So as we move into '24, we don't have to make the type of investments that we've been making in the last couple of years. And so as a result of that, I would say we do see the strong free cash flow. So the guide is that free cash flow will come in stronger than '23, and we fully expect that given the different elements what we see from a profitability perspective, working capital, and CapEx.

Okay. Will you carry me through a number at us for working capital, like just to get a sense of where you see that landing at the end of the year?

Well, look, if you think about working capital, at the end of the year, we generally are running in the mid-30s, right, as a percent of sales. That's effectively where we tend to be. So around that area is what I'll be looking at, George, as you think about effectively modeling out working capital. Again, working capital is like all of the different other areas of our business, and we think we've got it well under control. And as I said, our inventory position is very good. We're in a very spot to support product availability. And then, if you look across the Board, I think we're managing that well. So mid-30s, around that area is kind of the way to think about working capital for us when we finish '24.

Great. Thanks. Good luck.

Thank you.

Your next question comes from the line of Brian Morrison with TD Securities. Your line is open.

Hey, good morning. Hey, Rhod, can you just elaborate on some of the industry details on the Q4 POS performance, maybe an update on inventory in the distributor channel, and then the trend to trade down to lower price points, is that accelerating or staying constant?

Okay, Brian. Chuck will answer this question.

Hey, Brian.

Hi, Chuck.

I think as we looked at -- good morning. As we looked at fourth quarter, I mean, we continue to see growth in the areas we've been talking about with ring spun and fleece being up double digits. We saw good positive POS from the basics as well, and it was up low-single digits. So again, I think we saw growth across the categories throughout the fourth quarter, and we're seeing that carrying into Q1 with positive POS as well. And so, again, we saw ourselves continue to gain share. We've been talking about that the last few quarters with a challenge in the market. We've outperformed the market in those categories. We continue to gain share. From a channel inventory perspective, I mentioned I think it's imbalance. It's a healthy inventory especially as we go into season here later in the quarter. And so I think it's well dispersed and across product categories. So I think the channel is in good shape.

And then on trade down, Brian, we did see some trade down as we move through Q4. I mean, the trade down isn't sort of evolving the way that we discussed it. SKU category we like to talk about is fleece. And if you look at the mix between the hoods and the crews, again, it's sort of went more to a balanced mix versus what we've traditionally see, which is more heavy on the hood side versus the crews. So the trade down did unfold as we move through the fourth quarter. But mix overall, I would say we're okay as we look at it. And then as we move into '24, we have been careful as we think about mix with respect to the guide. So we'll see how the year evolves, but because of the macro backdrop and everything that we're seeing with respect to inflation, all the things that are creating a little bit of pressure for everybody. We have been careful about how we think about mix as we've given you the guide for full-year '24.

Okay. Thanks for that both Rhod and Chuck. I want to follow-up with my second question, which is for Vince. I want to circle back to your creation of long-term shareholder value in your prepared remarks. Again, it's early days. It sounds like you're content with GSG, but high level, what are your initial thoughts on growth drivers or avenues as we look beyond the execution of the near term GSG strategy? You mentioned international, you mentioned the cost advantage, but does anything stand out that requires a material shift from the current strategy?

No. I think I'm quick to answer that. I don't see a material shift in our Gildan sustainable growth strategy. I think it's pretty down in terms of what, like I said, there's coming off the back to basics, the SKU rationalization, where manufacturing is today with certainly you can see the plan in Bangladesh where we want to the DNA is to be a low cost producer. And I think just leveraging the Bangladesh investment is going to be important as well. That also avails us opportunities in Europe and international that maybe strengthens our opportunity to expand there. So, no, I don't see anything material that we need to -- we just need to enhance upon what we have.

Thanks very much.

Your next question comes from the line of Luke Hannan with Canaccord Genuity. Your line is open.

Thanks. Good morning. I wanted to ask about product innovation, which has come up a number of times on this call and specifically on the new products that were introduced last month. Can you give us a sense of directionally what roughly are we talking about in terms of the magnitude of sales that will -- this will impact or even the percentage of SKUs? And where else do you see opportunities for innovation within the portfolio?

Hi, Luke. This is Chuck. So I'll take that. A few things. One, as we think about innovation, we think about innovation across not only product, but also our manufacturing and our ESG. So we continue to innovate throughout. And so we're continuing to constantly focus on where we can innovate in the product. As you said at the show, we were excited about the innovations we put out around our core basics. We really touched each one of the basics our Style 2000, our Style 5000, our 8000 and our fleece. So we wanted to make some changes there to give it better features of [indiscernible] better printability. I think it was well received in the market and we'll start seeing that product come through the market midyear. And then from an impact perspective, we think it shores up our base OE product, and then we'll continue to grow in that fleece area. We've seen drastic growth as I was mentioning double-digit growth before in fleece that's going to continue. And so it just shores up that base and will continue to drive growth across the category.

Okay, understood. Thanks. And then for my follow-up here, I just wanted to ask about, I guess, where both retailers and distributors are sitting as of today when it comes to inventory? Where does that stand versus pre pandemic levels, maybe in terms of weeks of supply or otherwise? I know it was mentioned that it seems like everyone is ordering a little bit closer to their needs. But I guess is the overall thinking that these parties feel like can they do less or -- sorry, can they do more with less inventory on hand?

If you look at where we are from an inventory perspective with our customers, Luke, I would say we're at good levels. We're at a normalized level. And as I called out earlier in my remarks, over the last few years, we've been working to build back our inventory so that we can effectively get our customers to normalize levels. So I would say if you look across the Board, we feel like inventory is in good shape and where it needs to be. And for the most part now, we're passed all of the pandemic impacts, right, of inventories going down and then going back up again to a certain extent and then coming down particularly on the retail side. So printwear inventory is in good shape, normalized levels, and I think that's great from a POS perspective because you have to have that inventory to drive the POS. That's how we see the strong growth in fleece and in ring spun and across the Board, because were everybody is effectively well replenished. On the retail side, if you look at inventory levels there, if you recall in '22, we had the impact of destocking going on in '23 that moderated a bit as we move through the middle of the year. But as we've gotten to the end of the year and as we move into '24, on the retail side, we are again seeing tight inventory levels. I think people are being very careful in the way that they manage their inventory in this environment. And so on the retail side, I would say probably there we see it a little bit more tighter than on the printwear side where that's a little bit more normalized. Whereas if you look on the retail side, people may not necessarily be replenishing to POS. They might be going a little bit lower than that in order to keep levels at, I would say, for them very well positioned, I suppose, against for the macro backdrop.

Okay. Thank you very much.

Your next question comes from the line of Mark Petrie with CIBC. Your line is open.

Hey, good morning. Thanks. Vince, just given your background both with brands and distributors, can you talk about your views on Gildan's positioning as a brand portfolio? And if you see any holes or opportunities? You mentioned the American Apparel specifically, I'm hoping you could just expand on that and the broader topic.

Yes. I mean, obviously, the Gildan brand is even stronger than when I left the industry. The market share is enviable, as I mentioned, to be in this position. So I think that part of it is strong in terms of what we're doing in the market share. I think Chuck's hinted at the ring spun and fleece where we feel like there's still a lot of opportunity to grow and we'd love to see those categories reach the open end market share dominance that we have. But I think when you look at the American Apparel and Comfort Colors both, I mean, I can remember buying Comfort Color from Barry Chouinard years ago and seeing where the brand is today and how it was merchandised at in the trade shows was, frankly, terrific. And even talking about the innovation behind the scenes with use of water and how we wash the garments and so forth. So it's what we do from there. As I said, tweaks and enhancement maybe in the marketing side of things. Don't want to get into a lot of SG&A. That's not the driver of this brand, nor in American Apparel. So I don't want to make you believe that we got big plans around that. But the heritage of the brand with the customers, I think is strong. These distributors appreciate what the brand brings about much like I did in the early 90s and through the early 2000s. And if anything, that's been accentuated over the years. So I just think there's opportunity still within the Gildan brand, but also in the ancillary brand of American Apparel and as we continue to enhance that and reenergize it. And then with Comfort Colors, it's still got a great place in resort wear, it's got a great place in the Greek wear, if you will, on college campuses. And what we do is if we here, we'll be a lot of fun to play with.

Okay. I appreciate that. Thank you. And I wanted to also just ask about retail shelf space. How much of the programs that you won were reflected in Q4? Was that sort of fully embedded there? Is there further gains embedded in the guidance for 2024? And would you say that there's potential upside based on what you're seeing in the market today?

Mark, I would say we did have some programs in 2023 that were launched and are in our results for 2023. But in the guidance Rhod gave, we also have some new retail programs in both activewear, some changes in some underwear programs that are reflected going forward as well as I think we talked about -- Rhod talked about some of the 2024 growth, I mean that we're going to see. We're going to see it in retail again through the underwear, some activewear. We're also going to see it in the hosiery side, because despite the UA license non-renewal there, we are filling up that capacity with margin enhancing programs from some other brands. So we feel good about that. And then obviously some of our global lifestyle brand partners on the activewear side, we see recovery there. So there's definitely new programs and recovery built into our 2024 guidance kind of across each of the channels.

Okay, thanks. And I guess maybe just to follow-up, Chuck, the other than the sock replacement program, because obviously the UA program doesn't expire until end of next month. But other than that, are those programs already in place in general or can you just give us a sense of how that plays out through the year?

Yes. Well, they're in place and they're in the plan. They're not things we're still having to go chase. They are locked in. Now we're just as we brought down manufacturing of some of the UA product, we filled it up with other product along the way. So we're able to switch that out and basically replace that with again margin accretive programs going forward.

And Mark, some of these programs are doing very well in the marketplace, right? When we think about the -- Chuck called out on the GLB side. So in some respects, we're very pleased with our positioning. The programs that we're running with on the GLB side are winning, are gaining market share. The program that we're getting out of, the license that we're getting out of, in many respects, we see that as almost a back to basics initiative. So if you look at the complexity, if you look at the cost of the program, you look at the as Chuck and I have mentioned, the margin is very, very low associated with that profitability in the very end. So I mean, we're very excited actually in the way things are shifting because we get to use our capacity, I would say in a more productive way and the programs that we're behind in supporting the GLB partners are doing very well. They're taking share. And so our positioning on the hosiery side, I would say is good as we build through '24 and '25 as we move forward longer-term.

Understood. Appreciate the color.

Thank you.

Your next question comes from the line of Chris Li with Desjardins. Your line is open.

Hi, good morning, everyone. Maybe I have a two part question on capital allocation. At first, you mentioned obviously very strong free cash flow and leverage is very solid expected for this year. I'm just wondering in terms of your share buyback, Rhod, do you expect to spend about the same amount of money on share buyback this year as you did last year?

Yes. If we look at the share buyback, Chris, as you said, we feel very much that we are positioned to continue with our share buyback as we move through '24. I mean, we've got, I think a strong record of returning capital to shareholders. And I do want to start by also just calling out the dividend increase that we're doing, right. So we're excited about our ability to do the 10% dividend increase. That's a third year in a row where we've increased our dividend. And then as we think about running out return of capital to our shareholders, we very definitely think about the share buyback program. And if you think about what we've been able to do over the last few years, last year we did 7%. And we do have, I would say a baseline positioning of being able to do about 5%. And I would say this year again, because of our overall strength of our balance sheet or free cash flow, I wouldn't be surprised if we wouldn't be able to do a little bit more than that throughout the full-year. That's how we're thinking about NCIB as we start the year.

Okay, that's helpful. And then maybe related to that is on M&A, I apologize if you made comments maybe earlier, but just what's your view on M&A overall from a capital allocation perspective?

Yes, and this is Vince. I think I'll take that one. I mean the company had a kind of history in the mid-teens at 2013 to '17 time frame where there was acquisitions. But right now, our capital is focused on organic. I think that's when we think about what we have next related to late M&A, I don't foresee that as our plan this year as we think about it. And I think our allocation is geared towards Bangladesh, more towards innovation and organic play, not in the inorganic area.

Great. Thanks very much, guys.

Thanks Chris.

Your next question comes from the line of Martin Landry with Stifel. Your line is open.

Hi, good morning guys. I would like to dig into the Q1 guidance. You're talking about a margin which is going to be coming in at the lower end of your 18% to 20% range for Q1. But you're also talking about cotton being a tailwind in 2024. So I'm just trying to reconcile the two and trying to understand why your operating margins are going to be a little soft at the start of the year?

Yes. Thanks, Martin. So if you look at Q1, I mean the primary reason that the margins are going to be a little bit lower is because it's a smaller quarter, right? So if you think about Q1 compared to Q2, Q3, Q4, effectively gross margin is in good shape as I said, right as we leave 2023. And then from an SG&A perspective, you tend to see our SG&A -- because our SG&A is reasonably consistent quarter-to-quarter other than distribution expense. You normally see our Q1 is a little bit higher from an SG&A perspective. So if you look last year, we were at 11%, 11.5% of sales. And so as we think about Q1 this year, effectively probably around the same range, is the way to think about that. And as a result of that, you end up with operating margin a little bit towards the lower end of the range. But again, we feel like our operating margin for the full-year is in great shape. We've called it out as being slightly above the high end of our range. And you'll definitely see that as we move into Q2, Q3, Q4.

Okay. And cotton prices have spiked up a little bit recently, and I was wondering how much have you covered of your needs for 2024?

Yes, cotton has come up a little bit as of late. We see that. I mean, it's interesting when you look at the cotton markets, it's little bit like everything else. I mean inflation is still out there. And I would say that effectively, if you look at what's going on and to a certain extent that provides price stability, right as we move through '24 and as probably as you think about moving into '25. But overall, I would say we have good visibility on our cotton position. We've called that out last quarter. We generally have good visibility on our position as we move through the years. And we feel very good about, again what we're going to have in cost of goods sold for '24 and our ability to basically drive that gross margin. Again, our pricing is I would say, in good shape, very much aligned with our cost structure. And again, we'll see what happens with cotton and what that does to prices in the marketplace as we go forward. Maybe again in some places puts upward pressure on it, but overall we're in good shape.

Okay. Thank you.

Your next question comes from the line of Vishal Shreedhar with National Bank. Your line is open.

Hi. I was wondering about volume growth in 2024. Should we think it's in line with sales? And if not, what are the puts and takes there? And is the expectation that as Bangladesh ramps up, we should anticipate that volume growth to accelerate through the year and accelerate through 2025?

Yes. If you look at -- if you assume or you think about volume growth through the year, I mean yes, we definitely expect to have volume growth as we move through 2024. If you heard earlier, we said we're being cautious on mix and we also said there are areas -- we've assumed price stability, but there are some areas where we see a little bit more competitiveness. So if you put all of that together, Vishal, you can see that we are assuming good volume growth and volume growth fundamentally a little bit better than our sales growth, right, in order to deliver on that. And then as we move through the year, I would say that effectively, we do expect it to come through. In Q1, as I said we've got to be a little bit careful because of what's going on with the lower level of replenishment because of the strength of Q4. But as we move into Q2, Q3, Q4, you'll see that. So volume growth is a key driver and for us, it's always a key driver. And that's how we think about basically growing our business over the long-term.

Okay. And with respect to the operating margin targets, given the tax credits that's embedded in SG&A, should we think of that operating margin target of 18% to 20% being permanently moved up post 2024?

Well, I think it's a good question and something for us to think about right, as we move through 2024. As I said earlier, legislation has not been enacted yet. Effectively, we've assumed that it will be and that it will be retroactive. But as we move through '24, obviously we'll be assessing that. And as we move towards '25, we'll be thinking about that. I mean, I think fundamentally, it just shows as we think about our operating target, it's and how we set that, it's a bit of a -- we use it as a bit of a proxy to be able to drive return on invested capital, to drive RONA. So what we want is good top line growth and then we want very good return on invested capital. We want efficient use of our asset base and we use operating margin as a way to achieve that and 18% to 20% has been a good range for us, but if ultimately fundamentally the landscape changes and as we continue to actually leverage the GSG strategy, which as you can tell we're very, very excited about it, I think as we move to '25, we'll be assessing how we think about that target we give to you.

Thank you.

Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Your line is open. Mr. MacLeod, your line is open. There are no further questions at this time. I will now turn the call back over to Jessy Hayem for closing remarks.

Thank you, Jeanie. Once again, we'd like to thank everyone for joining us this morning, and we look forward to speaking to you soon. Have a great day.

This concludes today's call. You may now disconnect.