Gildan Activewear Inc Stock

Ladies and gentlemen, thank you for standing by, and welcome to Gildan Activewear's 2026 Q2 Earnings Conference Call. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Jessy Hayem, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead.

Good morning, everyone, and thank you for joining us this morning. Earlier today, we issued a press release announcing our results for the second quarter of 2026, while updating our guidance for 2026 and maintaining our 3-year objectives for the 2026-2028 period. The company's management discussion and analysis and consolidated financial statements for the 3 and 6 months ended June 28, 2026, are expected to be filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission today and will also be available on our corporate website.

Now joining me on the call today are Glenn Chamandy, President and CEO of Gildan; Luca Barile, Executive Vice President, Chief Financial Officer; and Chuck Ward, Executive Vice President, Chief Commercial Officer. This morning, we'll take you through the results for the quarter, and then 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 known and unknown 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 including in the case of our full year and Q3 2026 outlook and our 3-year objectives for the 2026-2028 period as well as certain risks and assumptions related thereto, our earnings press release dated July 30, 2026.

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.

Before I turn it over to Glenn, a few items to note. We may refer to Hanes brand as Hanes throughout this call. And earlier today, we also announced that we entered into a definitive agreement to divest the Hanes brand Australian business, which we refer to as HAA. Remember that HAA had been classified as held for sale and reported as discontinued operations since the fourth quarter of 2025. As such, unless otherwise indicated, the figures we will be discussing today are from continuing operations and therefore, exclude the results of the HAA business.

And now I'll turn it over to Glenn.

Thank you, Jessy. Good morning, everyone, and thank you for joining us on this call. As we highlighted this morning's press release, we delivered strong results in this quarter as our team continued to execute with discipline against our strategic objectives. Our second quarter net sales from continuing operations were $1.58 billion, up 72% versus last year, primarily due to the Hanes brand acquisition. We also delivered second quarter adjusted diluted earnings per share from continuing operations of $1.28, up 32% compared to last year. Furthermore, we updated our 2026 guidance, which Luca will review. And we maintain our 3-year objectives for the 2026-2028 period.

We are very pleased with the excellent progress we are making with our integration of Hanes brand, only 8 months following the close of this transformational acquisition. In fact, we are well on track to generate approximately $100 million of targeted synergies in 2026, with the vast majority of these initiatives planned for this year already implemented. The actions we have taken so far in order to optimize our manufacturing and supply chain network are making our combined businesses more efficient. As we exit 2026, we expect these benefits to become increasingly visible in our operating performance, setting us up favorably to deliver the next $100 million in targeted synergies we have identified for 2027.

Furthermore, we are optimizing our distribution capabilities and standardizing our key IT manufacturing and supply chain processes across the combined business. We continue to expect approximately $250 million of annual run rate cost synergies over the next 3 years, while pursuing additional opportunities beyond our current target as the integration progresses.

Now from a commercial and market backdrop perspective. The proactive reduced sell-in we undertook, which we announced in fourth quarter of 2025 is now complete with our wholesale business is performing well with continued share gains, strong brand momentum and market trends improved in June. In retail, the environment was more measured, but our brands are performing. So while we are prudently planning around a current soft retail backdrop, we are also very focused on the opportunities ahead.

We announced this morning that we also expect to receive approximately $220 million of IEEPA tariff refunds in 2026. A significant portion of these tariff refunds represent the nonrecurring benefit, which is primarily tied to fiscal 2025 and products manufactured in our Asian hub. This portion of the refund will be reinvested into new incremental strategic growth initiatives in the second half of 2026, mainly to elevate the Hanes brand portfolio, such as improving product quality, investing behind the brand, retail marketing and accelerating product innovation and packaging enhancement to support stronger growth over time. Chuck will provide more details in a moment.

In addition, a sizable portion of the refund reflects the recurring benefit because following recent changes in U.S. tariff policy, tariffs no longer apply to apparel qualifying as originating under CAFTA-DR, which is a structural benefit for the company going forward. As a result, our updated 2026 guidance reflects the structural tariff benefit and underscores the underlying earnings power of the combined businesses as we exit 2026 and a foundation for further earnings growth in '27.

Lastly, we also announced this morning that we entered into a definitive agreement to sell HAA. This step further reinforces our focus on significant value creation opportunities with Hanes brand and is expected to accelerate our debt reduction towards the midpoint of our targeted leverage framework and supports the resumption of share repurchases once this level is reached.

So let me conclude by saying our focus cannot be clearer, control what we control, execute our strategy, capture the significant opportunity ahead, drive profitable growth and long-term shareholder value.

I look forward to answering your questions after our formal remarks. And now I'll turn it over to Chuck for a commercial review.

Thank you, Glenn, and good morning, everyone. Let me start by reviewing our commercial performance and then provide you with an overview of our exciting brand and marketing initiatives, which are underway.

Starting with wholesale. Let me be clear, the fundamentals of our business remain healthy. First, inventory across wholesale customers are in balance, both from a quality and a quantity perspective. We also saw underlying demand trends improve sequentially throughout the quarter with further strengthening in June, which we suspect is connected to major events like FIFA World Cup, the 250th anniversary of the United States and other tourism-related events.

Q3 started a little softer, and it's been tougher to call a trend as the Middle East conflict resumed and cautiousness in the broader market became more pronounced. In the second quarter, we continued to gain share in key growth categories such as ring-spun fleece, supported by our product innovation. We also continue to see strong momentum for Comfort Colors, American Apparel and Champion, each delivering double-digit sales growth in the second quarter.

All Pro continued to gain traction following last year's launch. The Gildan Soft Style collection continued to outperform the market, and we successfully launched the Hanes Scrubs line. And for those of you that attended or will be attending a Bruno Mars concert, you'll see that Comfort Colors is now the official apparel partner for the Romantic Tour in Europe and in the United States.

Importantly, we are also seeing favorable competitive dynamics that are creating new opportunities for us to capture additional market share. For example, similar to what we have done with Comfort Colors, we are making targeted investments in our American Apparel brand to further capitalize on the continued premiumization that we're seeing in the market.

Turning to retail. During the quarter, we saw softness in the broader market and cautiousness on part of retailers managing their inventories, which resulted in lower seasonal inventory builds at certain large retail customers. Our brands performed generally well, supported by some initial introductions of product innovation, the relevance of our brand portfolio and the quality of our customer relationships.

Now let me give you an overview of some of the initiatives that we have already begun implementing to elevate and further strengthen the Hanes brand portfolio and increase consumer engagement. As Glenn mentioned, we're taking a disciplined approach to reinvesting a portion of the tariff refunds into initiatives that support long-term growth like brand building, retail marketing programs and accelerating product innovation and packaging enhancements. So for the Hanes brand, we are focusing on investments to strengthen brand relevance, increase consumer engagement and support the innovation that we're introducing in key categories. We have already begun this work with a bold refresh of the brand platform for Hanes, which is now live in the market and is backed by consumer research.

Our objective is to modernize how Hanes shows up with consumers while staying true to its heritage of trusted comfort, quality and everyday value. We will bring this to life across key consumer touch points, including digital, social, streaming, retail media, online shopping channels and select high visibility placements with a clear objective to deepen the engagement, to strengthen the Hanes brand portfolio and to support profitable growth over time.

Our accelerated and expanded investment substantially increases the scale of our reach. We expect the campaign ecosystem to deliver about 1 billion impressions and reach approximately 120 million consumers, allowing Hanes to reconnect with the majority of U.S. households, further supporting our product placement and demand.

And with that, I will turn it over to Luca for the financial review.

Thank you, Chuck, and good morning, everyone. Thank you for joining us today to discuss our second quarter results. Let me start with the specifics of the quarter, then turn to our 2026 outlook and guidance and finally, the HAA sale announcement.

First, the quarterly results. We reported strong second quarter net sales from continuing operations of $1.58 billion, up 72.3% year-over-year and in line with guidance of approximately $1.6 billion. The increase reflects the Hanes brand acquisition, partially offset by the impact of integration initiatives announced in the fourth quarter of 2025 to optimize our manufacturing footprint and accelerate synergy capture. Compared with pro forma net sales from continuing operations of $1.72 billion, the year-over-year decline was due to lower volumes stemming from a continuation of our proactive inventory reduction across customer channels as we integrate Hanes brand, which temporarily reduced sell-in as previously communicated as well as the nonrecurrence of some pre-buying in the second quarter of 2025 ahead of pricing actions, primarily in retail.

Now looking at wholesale. Net sales were $769 million compared to $781 million in the prior year, down 1.5% and down 5.8% compared to pro forma net sales from continuing operations for wholesale. The decline was mainly due to the proactive inventory reduction across our combined customer channels, partially offset by pricing initiatives. As for retail, net sales were $813 million compared to $137 million in the prior year, primarily reflecting the acquisition of Hanes brand. Compared to pro forma net sales from continuing operations of $901 million, the decline was due to cautious retailer inventory management in response to softer consumer demand and softness in the broader market, partially offset by pricing actions.

As Chuck mentioned earlier, retail sales were also impacted by lower seasonal inventory builds at certain large retail customers, reflecting their tempered optimism in the current soft broader environment as well as the nonrecurrence of some prebuying activity in the second quarter of 2025 ahead of pricing actions. Finally, to a lesser extent, retail sales were also affected by the lower sell-in previously detailed.

Shifting to margins. We generated gross profit of $460 million or 29.1% of net sales versus $289 million or 31.5% of net sales in the same period last year. Adjusting for an inventory fair value step-up cost of $86 million recorded as part of the Hanes brand acquisition, adjusted gross profit was $545 million or 34.5% of net sales compared to 31.5% in the prior year. The 300 basis point improvement mainly reflects the favorable contribution from Hanes brand, lower raw material costs and to a lesser extent, pricing initiatives to partially offset the impact from tariffs, which continued to impact gross margins, notwithstanding an approximate $25 million benefit recorded in the quarter from a Phase 1 tariff refund under U.S. Customs and Border Protection refund process.

SG&A expenses were $194 million compared to $82 million in the prior year. Adjusted SG&A expenses were $193 million or 12.2% of net sales compared to $81 million or 8.8% of net sales for the same period last year. The increase in adjusted SG&A in the quarter reflects the acquisition of Hanes brands, including the impact of higher amortization of intangible assets and depreciation of property, plant and equipment resulting from the fair value purchase accounting impacts of the acquisition. This was partially offset by synergies realized from the Hanes brands integration process and a subsidy recorded as part of the Hanes brands integration plan under the Barbados Economic Diversification and Growth Fund, which was retroactive to 2025.

As we bring all these elements together and adjusting for restructuring and acquisition-related costs and the inventory fair value step-up cost as part of the Hanes brands acquisition, adjusted operating income was $352 million, up $144 million year-over-year. Adjusted operating margin was 22.3% of net sales, down 40 basis points versus last year, but 260 basis points ahead of guidance of approximately 19.7%. The year-over-year decrease in adjusted operating margin reflects Hanes brands' lower operating margins due to historically higher levels of SG&A relative to Gildan and a net headwind from IEEPA tariffs, inclusive of tariff refunds, partially offset by a favorable contribution from the aforementioned Barbados fund subsidy, lower raw material costs and pricing initiatives implemented to partially offset the impact from tariffs.

Net financial expenses were $69 million, up $37 million year-over-year, primarily due to higher borrowing levels related to the Hanes brands acquisition.

Taking into account all of these factors and a higher outstanding share base as a result of the acquisition, GAAP diluted earnings per share from continuing operations were $0.49 compared to $0.91 in the prior year. Adjusting for restructuring and acquisition-related costs, the inventory fair value step-up cost and an income tax recovery of $29 million related to restructuring charges and other adjustments, adjusted diluted earnings per share from continuing operations were $1.28, up 32% from $0.97 in the prior year. Adjusted diluted EPS from continuing operations includes the positive impact of $0.11 per share from the IEEPA tariff refunds in the second quarter of 2026.

Now turning to cash flow and balance sheet items for the first half of 2026. Cash flows from operating activities, which include discontinued operations, were $68 million compared to $46 million in the prior year. After accounting for capital expenditures totaling $51 million, the company generated approximately $17 million of free cash flow with $326 million recorded in the second quarter. As planned, during the first half of 2026, we returned $92 million to shareholders through dividends. We ended the first half of 2026 with net debt of about $4.69 billion and a leverage ratio of 3.2x net debt to trailing 12 months pro forma adjusted EBITDA.

Now turning to the outlook. For 2026 and with respect to our continuing operations, we are updating our full year guidance as follows: revenue is expected to be at the low end of the previously communicated range of $6 billion to $6.2 billion. Full year adjusted operating margin of approximately 21.8% compared to previous guidance of approximately 20%. Adjusted diluted EPS in the range of $4.65 to $4.75, an increase of approximately 32.5% to 35% year-over-year compared to previous guidance of $4.20 to $4.40. CapEx to come in at approximately 3% of net sales and free cash flow to be approximately $1 billion compared to previous guidance of above $850 million.

The assumptions underpinning our updated outlook are detailed in our press release issued earlier today. Notably, our outlook includes approximately $220 million in expected IEEPA tariff refunds under U.S. Customs and Border Protection refund process. which was initiated in the second quarter of 2026, with most of the refunds anticipated to be recorded during the third quarter and inclusive of approximately $25 million recorded in the second quarter.

Importantly, our outlook also assumes that a significant portion of these tariff refunds, which is equivalent to the nonrecurring refund benefit recorded in 2026, will be reinvested in 2026 into the strategic growth initiatives, which Chuck detailed earlier.

Said differently, we are reinvesting the portion of refunds that relates to IEEPA tariffs paid in fiscal 2025 as well as IEEPA tariffs paid in 2026 on products manufactured in our Asian hub, which were subsequently subject to the Section 122 and Section 301 tariffs.

Whereas we have reflected in our 2026 guidance, the positive impact of the refunds tied to the recurring structural benefit for apparel qualifying as originating under CAFTA-DR being tariff-free. As such, we believe that our updated 2026 guidance for adjusted operating margin of approximately 21.8% and adjusted EPS of $4.65 to $4.75 reflects the underlying earnings power of our combined business as we exit 2026. It's a relevant base for future comparison, providing a strong foundation for further growth in 2027.

Finally, we have also provided guidance for our third quarter. Net sales from continuing operations are expected to be approximately $1.65 billion, with both wholesale and retail returning to growth as compared with pro forma net sales from continuing operations in the prior year.

Adjusted operating margin is expected to be approximately 26% compared to 23.2% in the prior year, reflecting the significant anticipated tariff refunds positively impacting gross margins, the flow-through of realized synergies and the Barbados subsidy, partly offset by higher SG&A levels due to the reinvestment of some of the aforementioned tariff refunds as well as higher amortization of intangible assets and depreciation of property, plant and equipment resulting from the fair value purchase accounting impacts of the Hanes brands acquisition. And lastly, the adjusted effective income tax rate is expected to be approximately 18.5% in the third quarter of 2026.

Finally, earlier today, we also announced that we entered into a definitive agreement to divest the Hanes brands Australia business, which we refer to as HAA to BBFIT Investments for an enterprise valuation of approximately AUD 700 million or approximately USD 490 million at current exchange rates, subject to customary adjustments. Remember that we had communicated our intention to pursue a sale of HAA and announced the launch of a formal sale process in the fourth quarter 2025 earnings release, at which time the business was classified as held for sale and reported as discontinued operations.

The transaction is expected to close in the second half of 2026, subject to the receipt of required regulatory approvals and customary closing conditions. Proceeds from the transaction will be used to pay down a portion of outstanding debt, accelerating our return to the midpoint of our target leverage framework of 1.5 to 2.5x net debt to trailing 12 months pro forma adjusted EBITDA. As we previously communicated, we expect to renew our NCIB program when the net debt ratio approximates the midpoint of our target leverage framework.

In summary, we delivered strong second quarter results, generated strong free cash flow and continued to advance the Hanes brands integration with discipline. While the broader operating environment remains dynamic, we remain focused on what we can control, delivering product innovation, maintaining strong customer partnerships, executing with agility, improving operational efficiency and driving profitable growth. Our updated guidance reflects the structural benefits in the business, the strength of our cash generation, which is underpinned by our continued focus on working capital management and our confidence in the combined company's earnings power. Thank you.

And now I'll turn it over to Jessy.

Thank you, Luca. This concludes our prepared remarks, and now we'll begin taking your questions. Before moving to the Q&A session, I'd like to remind you to limit your questions to 2, and we'll circle back for a second.

Operator, you may begin the Q&A session, please.

[Operator Instructions] Your first question comes from Jay Sole with UBS.

Great. My first question is about the guidance raise. So nice guidance raise. Now it looks like that the growth in earnings this year will be in the mid-30s range versus before. If we look back at the previous 3-year guidance, which is based on the midpoint of the fiscal '25 guidance and where fiscal '25 ended, it was only going to be up in the low 20s. Do you feel like the new guidance is sort of like a -- at the same time, you're reiterating your 3-year outlook for low 20s -- adjusted diluted EPS CAGR in the low 20% range. The question is, is this guidance raise for this year sort of a pull forward of earnings out of future years? Or when you say that the company can grow off of this year's base, do you still feel like you can grow at that low 20% range off of, say, somewhere between $465 million and $475 million in earnings? That's my first question. Hopefully, that makes sense.

My second question is, can you talk about your balance sheet a little bit, specifically accounts receivables and days sales outstanding? I guess there's been some talk that if you look at your accounts receivables and also maybe some [indiscernible] receivables that are off balance sheet, it looks like days sales outstanding are a little bit on the high side. Can you just explain why that is and sort of what that -- what the implications are for your business and what you see for that part of the balance sheet going forward?

Okay. Thanks for your questions, Jay. So on the first question, first of all, the short answer is yes, and I'll give you the context, okay? So when we take a look at the updated guidance range, which is now from an adjusted operating margin perspective, 21.8%, it's important really to understand the underlying assumptions there, okay? So we start off with our IEEPA tariff refunds. We expect to receive $220 million of IEEPA tariff refunds, okay? $25 million has already been recorded in our Q2 results, and we expect most of the remainder to be recorded in Q3, okay? There's a significant portion of those refunds, about half, that represents a nonrecurring benefit, right? And that's tied to tariffs that were paid in 2025 as well as tariffs emanating from our Asian hub. And that's important because the product and manufacturing out of the Asian hub after the IEEPA tariffs were deemed illegal were subject to tariffs under Section 122 and are currently subject to tariffs under the Section 301. So that's representing a nonrecurring benefit.

Now we're taking that nonrecurring benefit, and we're reinvesting that in 2026 into 3 main buckets. The first is retail marketing and advertising campaigns. The second is retail promotions and demand generation initiatives. And the third is accelerating the product innovation and packaging enhancements. And that's going to have the effect of really strengthening brand relevance and creating momentum as new products hit the market. So now the remaining half of the refunds, right, really represents a structural benefit, and this is really important because right now, in our CAFTA-DR region, we are not paying tariffs on apparel qualified goods that we bring into the commerce of the U.S. And that's really what informs our guide.

So when you take a look at the adjusted operating margin of 21.8%, it's really representative of the earnings potential and margin strength of the combined go-forward business. It reflects that underlying power of the combined business, and it is a foundation for future growth in 2027 and beyond. So that you have to think about is really as the new base. And remember, in this year, we already had $100 million of synergies penciled in, and we have the next $100 million of synergies in 2027. So that really informs the base for 2027. So again, the short answer is yes, and I want to make sure you have the right context.

Now on your second question regarding the balance sheet. So well, first, with respect to the balance sheet, I want to reiterate that we're confident, one, that our current disclosure is accurate and comprehensive with respect both to our financial information and our governance practices, okay? Second, we look at our DSOs, receivable quality, channel health, including sell-through, which we monitor closely on an ongoing basis. So as opportunities emerge for us to gain market share, we launched and expanded several brands. We entered new product categories and supported our customers as they transition business to us.

So whenever you launch brands, build distribution or penetrate new channels, working capital requirements generally increase. The distributors need inventory as they get behind new products, brands, programs take time to mature. And those dynamics can impact both receivables and DSOs. Now while DSOs have increased, we've supported customer demand and gained share in a softer market during a period of significant industry disruption, okay? So our growth in wholesale continues to be driven by market share gains, customer adoption of new product categories and brands such as Comfort Colors, All Pro and Champion, okay? So from our perspective, the key takeaway is that our working capital trends reflect strategic growth initiatives in a period of industry consolidation rather than any deterioration in the underlying health of the channel.

We've guided to our free cash flow to now come in at approximately $1 billion for 2026, and that's supported by our working capital coming down to lesser than 30% of net sales by the end of Q4. Now for further clarity, our targeted working capital level focuses on the core elements of working capital, such as AR and inventory. It excludes the benefit of the current portion of long-term debt, net of cash and cash equivalents, okay?

So now if you peel back the onion on AR, we had an increase in net AR for the quarter. That was primarily due to the impact of higher sales in Q2 compared to Q4 '25 and Q1 '26. The increase was partially offset by reductions in both net and gross DSOs during the quarter, which sequentially improved versus Q4 '25 and Q1 '26 as expected. So look, as planned, our sale of trade AR to financial institutions under our receivables purchase agreements that remained at relatively consistent levels versus Q4 and Q1 '26 as a percentage of gross receivables. And we expect gross and net DSOs to further decline as we move towards achieving our target of ending the year with working capital as a percentage of sales below 30%.

And also with respect to inventories, our inventory position and valuation remain in line with expectations and is expected to come down further as we progress throughout the end of the year. And additionally, inventories across our customer base remain in balance, both from a quality and quantity perspective. So our continued focus on working capital management is a key pillar underpinning our guidance of generating $1 billion of free cash flow in 2026.

Your next question comes from Brian Morrison with TD Cowen.

I don't -- I'm probably going to go down the same line here, but I appreciate all the color you just gave, Luca. And I understand the $4.60 to $4.70 EPS is a base to grow from, but I am getting lots of incoming on this IEEPA that you just addressed. So am I correct that of that $220 million, about half of that or $110 million is the structural benefit that you put in guidance and it represents all of the 180 basis point increase? Or maybe what you could do is, are there other drivers in there? Because if it's all from the 180 basis points, I would expect some of that to be offset from reinvestment in SG&A. Just maybe walk through a bridge of that 180 basis points, please.

Yes. So thank you, Brian. So what we have, again, underpinning our guidance is we're receiving $220 million of IEEPA tariff refunds, right? Now half of that -- so call it, half of that is around $110 million. That is being reinvested in the business in the initiatives that Chuck had outlined earlier today. So that full receipt of the $220 million plus the reinvestment of the nonstructural portion of that benefit is included in our guide, but there's also the structural benefit going forward.

And the way to think really about the structural benefit, if you really think about the P&L, is that tariffs that were incurred that are flowing through the P&L in 2026 are now offset with the structural benefit. So that has the implication of bringing the adjusted operating margin to 21.8% for the year. And that's why that is the base that we will move off of as we grow into 2027. That's why we're calling it a structural benefit.

And as we move forward throughout the remainder of this year, let's say, the $110 million or half of the $220 million is going to be reinvested in the 3 buckets that I mentioned, which are the retail marketing and advertising campaigns, the retail promotional activity and accelerating the product innovation and packaging enhancements. So 21.8% is the base.

I get it. I understand. And then my second question is, when I take a look at the go forward, the reiteration of 2028, should I simply assume that we have $150 million of synergies in '27 and '28, that's about another 200 basis points. So when I look out at 2028, that a 24% operating margin is reasonable? Or should we think that there should be some reinvestment offsetting that?

So again, it's -- the base of '26 is the base as you think about the 3-year guide. We're not going to give specifics exactly on the 3-year guide, but the way you're thinking of the synergies is additive is exactly right. If you remember, we called out $250 million -- at least $250 million of synergies, $126 million, $127 million and $50 million in 2028. But we're also actively pursuing potential other opportunities to increase that number. So you're thinking of it correctly.

Your next question comes from Paul Lejuez with Citi.

This is Brandon Cheatham on for Paul. I wanted to dig in on SG&A in the second quarter. Just help me understand the Barbados subsidy that was realized in the quarter. How much of that was a makeup amount? And how much will be going forward? And how should we think about SG&A for the balance of the year, excluding the incremental investments that you're making from tariffs, just to give us a sense of what we should build off of going into '27.

Yes. Thanks for your question. So starting with Q2, let's address the Barbados subsidy. So as we've articulated in the past, we're continuously looking at incentives from the jurisdictions that we operate in. And I think it's really important to understand that now that we've obtained the subsidy from the Barbados government that this was always part of our original guide, and I'll explain to you why.

In Barbados, they enacted in late 2025, the economic diversification and growth fund, okay? We applied for a subsidy under that fund in early 2026, and that was really done as part of the Hanes integration plan. So what we've received is a multiyear subsidy. What was recorded in Q2 was around $37 million. $25 million of that is related to the 2025 year and $12.5 million is representative of the first half of 2026. But this was included in our original guide. It represents our workings with the jurisdictions that we operate in, and that effectively came through in the second quarter in terms of SG&A.

In terms of the remainder of the year, look, we're giving you very clearly from an operating margin perspective that we will be approximately 21.8%. What you will see with SG&A is that you're going to see an uptick in the SG&A percentage as you move through the third and fourth quarter versus the second due to a portion of that reinvestment that we were articulating earlier. So again, I would point you to the 21.8% as the real basis for the year. And as you model the back half of the year, there would be an increase because of the reinvestment.

Got it. And just to put a point on that, you are always baking in the $25 million catch-up in guidance for this year, but not necessarily including that specifically in 2Q. Is that the right way to think about that?

Correct because the enactment of the fund was in 2025. We were in an application process early in '26. And so timing and negotiation was the factor here. But that was always included in our original guide, correct.

Okay. And then just a follow-up. On the reinvestment, is there going to be any potential timing issues? Are you going to be able to redeploy the tariff refund all in the third quarter? Or could there be some movement between 3Q and 4Q?

So the bulk of the refund we're anticipating to come into the third quarter, but our initiatives will be across the third and the fourth quarter, the reinvestment.

Your next question comes from Luke Hannan with Canaccord.

I wanted to get into Q3. First of all, maybe if we can just get a better understanding of POS trends quarter-to-date. But then more specifically, I think you had talked about growth returning in both wholesale and retail. And if you can frame up for us, particularly at retail where it sounds like the consumer is a little bit softer, where that growth is going to be coming from?

Okay. Thanks for your question. So really to understand the growth profile of the third and fourth quarter, what I would actually do is start to really give you a bit more context on the full year. So our guidance range for the top line was $6 billion to $6.2 billion, right? And what we articulated previously was that really what governed the bookends of that range was effectively the macroeconomic environment, right, and the market assumptions. And our market assumption when we provided guidance last time was effectively that the market will be flat to up low single digits, okay?

So the first thing to really understand is that going forward, what we've done is we've baked in a market assumption that is flat to low single digits. And why that is the case, that effectively, what we saw predominantly on the retail side is that the market weakened in June. And we've been cautious with that assumption as we move forward. So then when you look at the full year, now we're calling that we'll be at the low end of the $6 billion to $6.2 billion.

When we look specifically now at the third quarter, both wholesale and retail are returning to growth. Why? A few reasons. One is that the proactive reduction of inventories and reduction of sell-in, that's complete, as Glenn articulated. So with that behind us, the underlying business is growing. The fundamentals remain healthy in wholesale. We continue to take share in a down market. We have a fleece, for example, sell-in that we articulated that would be pushed from the second quarter more to the fourth quarter, which was in line with when customers really need it. And growth categories such as Comfort Colors continues to grow really well, ring-spun, American Apparel, Champion. So the underlying health in the wholesale is strong.

When we take a look at retail, even though the market has weakened, we continue to have real good strength in underwear. We have visibility on the wraparound of some of the 2025 programs, some of the new programs that are hitting this year. So the third quarter returned to growth. But then when you look at the full year, knowing that you'd be at the low end of 6% to 6.2% and you understand where we are in the third quarter with revenue approximately $1.65 billion, it implies strong fourth quarter from a sales perspective. And what gives us that confidence is really in, I would say, 5 categories. Again, I'll reiterate that the proactive lower sell-in is now complete as of Q2. So that's one thing.

Two, I mentioned fleet sales are pushed closer to when customers need it, and that's going to be really a shift from Q2 to the fourth quarter. Some new programs wrap around plus line of sight on other programs kicking in. And there is also a factor of easier comp on the HBI legacy sales between the third and the fourth quarter. And we're also going to start to see some of the positive effects of the reinvestment initiatives and retail promotional activity. So that's what's underpinning the strength in the fourth quarter. Third quarter, you're already going to see return to growth for wholesale and retail, approximately $1.65 billion.

Okay. And then I also wanted to follow up. You talked about the net tariff headwind. So you did get some refunds during the quarter, but tariffs were still net-net a headwind for you during Q2. When does the inventory that you have on hand now, when does the embedded, I guess, tariff headwind on that dissipate? And then also, can you just confirm any product now that's coming from Bangladesh, I believe anything that's made predominantly with U.S. cotton after September, it should be coming in tariff-free. Can you confirm that, that's as of right now, it's not included in guidance?

No. So I'll do a small clarification on that point is that product coming out of Bangladesh under the 301s is subject to tariff of 10%. Product coming out of Vietnam is under 301 subject to 12.5%. And that's why -- that's actually specifically why the product coming out of our Asian hub is not a structural benefit. And those refunds are really a onetime refund or nonrecurring, if you will, and that's the portion that we're reinvesting. The portion that's a structural benefit is anything coming out of the CAFTA-DR region, okay?

So to the portion -- the earlier point that you made in terms of how this is going to flow in, the majority of the refunds and tariffs are really going to come through the third quarter. The fourth quarter, you will see an operating margin that's still going to be higher than what we're calling for the year, but is more akin to a run rate. And then you really have the 21.8% for the full year, which is the real foundation for moving into 2027. So that's why you'll see the third quarter operating margin -- adjusted operating margin of approximately 26%. There's a little bit of timing there.

Your next question comes from Martin Landry with Stifel.

I was wondering if you could talk a little bit about the wholesale segment, the performance of your point of sale and how the industry performed as well during Q2, that would be super helpful.

Martin, yes, from the wholesale segment perspective, the market continued to be down low single digits. We performed better than that. We were on the upper end of low single digits up. We continue to outperform the market and take share in Q2. And as I mentioned in my comments earlier, the market improved sequentially throughout the quarter with June being stronger, but some of that was the tourism piece. Really, the drivers for us in that market continue to be Comfort Colors, which we talked about, American Apparel and Champion, which all grew double digits and continue to grow quite well and really just the premiumization of the market, and we continue to bring products to that market. So we've been able to take share in a down market in the wholesale segment.

Okay. That's helpful. And just switching gears, Glenn, I was wondering if you could talk a little bit about Hanes' products during that transfer and now on a go-forward basis, did you rationalize the SKU count at Hanes? Did you prune some of their SKUs? And do you -- like what -- how much innovation do you expect to bring to the Hanes product line next year?

Well, that's -- if you look at the -- let's just start off with the whole acquisition of Hanes, I think maybe as a starting point, I think is as we projected in the beginning of the year, in terms of -- and what we communicated from looking at how we were going to reintegrate their processes and their facilities and really Gildanize the Hanes product line with innovation was all part of allowing us to, first of all, start off by getting all the synergies.

So if we look at 2026 this year, we implemented about $100 million worth of synergies. And these are all implemented and flowing through. And with the actions we've taken in the manufacturing side of it, really the consolidation allows us basically not only to really obtain the synergies required to support and give us good visibility on those synergies as we move into 2027, but really gives us the ability to innovate the product line.

So we didn't only generate these synergies, but we really revamped completely the way the products are going to be sold as we move into 2027. And that's one of the things that we're going to articulate when we go to our investor conference that we're putting together in December, which we'll communicate the date, I guess, shortly.

So we're not just looking at one particular category. We're looking at all the categories, the packaging, the products that we're producing. So we -- not only we're able to get the synergies we talked about with the dissynergy is that we're putting much more value in the products that we're going to be offering to consumers as we go forward. So we're very, really excited. And we've got the whole objective with respending the nonrecurring portion of the tariff is actually going to be the catalyst really for launching this as we move forward.

So we're coming out not only with a with a great advertising and marketing plan, which you'll see very visible as we move through the fall. But we're also going to be making sure that we move out a lot of the older packaging and products from retail, which is supporting revenue growth in the back half of the year. And at the same time, making sure that we have a clear cutoff that as we move into the spring 2027, we've got a new look and image for the Hanes brand in retail with consumers as we go forward. So we're really excited about where we are today. And again, we're moving forward.

I think one of the things that we called out is the sale of the HAA, which is really now going to allow us to continue to focus on really the growth drivers as we get this behind us. And the combination of HAA and our increased guidance of over $1 billion of free cash flow that's really going to bring us back to the midpoint of our debt leverage and to give us ability to start buying back stock once we conclude on that sale and we move into the balance of this year.

And Luca really called out, not only have we invested in the innovation, the packaging, et cetera, but we also have restructurally benefited from higher margins as we exit this year, which is a real structural underlying strength of our company and what we've been able to do through this integration and the consolidation. And that's really the base on which we have to grow into 2027 before we really add on the next layer of $100 million synergies and also lower interest rates as we move into 2027.

So the combination of these 2 companies, we think that we've done a great job. We're excited about our innovation. We've taken Haynes from an operating margin company with the low teens and really as I think we've accelerated that to be in line more closer to where we were with Gildan as we exited 2025 as a base. So if we really look at that, that's really the power and the value creation that we've really, I think, in a very short period of time, been able to complete.

And not only that, but with the reinvigoration of the product, the Haynes, the marketing and all the things we're doing, we're very excited about the longer-term perspective. And it's very important to understand is that you have to build the foundation. And Gildan has always looked for the long term and building a foundation is a key thing. And we're building a foundation both in earnings, product, and we think that that's going to be very powerful as we move into the future. And we're very excited to show everybody in December exactly what we're doing.

The next question comes from Vishal Shreedhar with National Bank.

With respect to the refund of the tariffs and just referring to the wholesale industry and the tepid volumes, Gildan has a history of taking prices down. So should we anticipate that the prices may come down in the future given that you've gotten the tariffs back and that was one of the causes of price increases in the past? And should we anticipate that? Or do you expect you to hold the margin benefits that you've got from the prices and the refunds?

I would say that you look at -- I mean, first of all, as a company, we didn't take price up all the way to cover all of the -- all the tariff benefit, okay, or the cost of tariffs. So that's number one. Secondly, there's lots of inflation. You can see today, obviously, raw materials have gone up. You can see the price of cotton, energy has gone up, labor is going up. So there's a lot of structural inflation still in the environment. So I would say to you that we don't see any movement necessarily on structural price changes as we go forward.

Okay. And with respect to the refund portion of the IEEPA benefits, it's a big number that you're reinvesting, and you indicated that we should see some of that revenue benefit starting to flow through in Q4. And how should we think about the residual benefit flowing into the other years and the potential benefit from that, just given the return on -- I'm trying to think about the return on investment of that large number of additional marketing and initiatives that you're putting into the product.

Well, I think, Vishal, thanks for your question. I think that's exactly it is that we make sure we really take a look at the return before spending money and spending our capital. So we saw this as an opportunity. And I do think it's really important to understand that this isn't something that fell into our lap. We've been monitoring the situation with tariffs for quite some time. We are very plugged in from an information perspective. And so we anticipated that tariffs were going to be coming off. And even though that we had not previously included any of the refunds in our guide because we have to go through a process with the U.S. Customs and Border Protection and so forth, the anticipation was there. They were deemed illegal very early in the year.

So the team -- as a team, we really start to focus on, we anticipated that this was coming and where are we going to put that capital. And so this was really put through really in 3 categories, which I would say is quite surgical, right? So the first category, again, is retail marketing and advertising campaigns, retail promotional activity and accelerating the product innovation and packaging enhancements that Glenn was alluding to. What is the impact of that? The impact is that you're already starting to create additional strength and brand relevance and you're creating that momentum as the new products will hit the market.

So again, we've also articulated today, right, that from a 3-year perspective, there's no change to our expectations. And knowing where we are today and the guidance that we're giving for '26, it implies that there's strength moving forward. And this is just part of that strategy in order to make sure that these investments bear fruit as we are moving into '27 and '28. I hope that helps.

Your next question comes from Stephen MacLeod with BMO Capital Markets.

I just wanted to just get a bit of a sense on how you see the back half free cash flow generation evolving to get to your $1 billion target.

Sure. Thank you for your question. So as you mentioned, we're calling for approximately $1 billion of free cash flow this year. So the underlying contributors have always been the same, right? The synergies coming through, the focus on our working capital, our working capital as a percentage of sales coming down to the end of the year at a level of sub-30%. And again, I do want to, just for clarity, articulate that when you look at our -- for example, our disclosures on total working capital, we're really focused on the main elements, right, the AR, our inventory. So we're not taking that benefit of the current portion of long-term debt net of cash and cash equivalents. So the core real working capital coming down to a position of lower than 30%. Obviously, we have the impact of tariff refunds net of the reinvestment and so forth.

Now in terms of the pattern of free cash flow generation, the way our business is structured is the first quarter is typically a cash consumption quarter. We've now returned to free cash flow generation this quarter and at a level of around $326 million. So when you do take a look at the second half, that's where the bulk of the $1 billion will be generated. There could be some noise between the third and the fourth quarter. We do expect the majority of the refunds to come in the third quarter, and that's the way I think you have to think about it. But it's really underpinned by the business fundamentals and our real focus on working capital management.

Okay. That's great. And then just coming back to the sort of balance sheet questions around the DSOs. Do you have a target in mind or a sustainable level that you expect to be at when we think about the combined business and all the moving parts that we have in the business right now with respect to the sales backdrop and some of the tariff impacts?

So for us, very focused on the balance sheet. The balance sheet is very important. Again, I want to reiterate that bringing working capital to a level that sub-30% requires not only focus on AR, DSOs and so forth, but as well as inventory. So I do think it's important to recognize that over the last few quarters now, there has been an improvement in our DSOs, and that's purpose. That's come in as planned.

If you really take a look at -- if you look at our AR position at the end of the second quarter, the sales for the quarter and you take that over the 90 days of the quarter, you would have seen an improvement in gross DSOs and in net DSOs, which is notable, right, versus the first quarter and versus the fourth. So that's coming in as planned.

And also, as previously articulated, in terms of our sale of receivable program, that's a program that we have in place, and we continue to operate with that program. Remember, our sale of trade receivables, it's a standard business practice. It's a tool to optimize working capital and lower your interest cost. So we've engaged in this practice since 2016, and we'll continue to do so. And our sale of receivable program is a true sale program without recourse, okay? So given the full credit risk is transferred and in our case, to a third-party financial institution. And the amounts used, right, as a percentage of gross AR, have been pretty consistent between the fourth, first and now the second quarter as a combined business moving forward. So very strong focus. It's a key pillar to generating $1 billion of free cash flow, and that's where the focus remains.

Your next question comes from John Zamparo with Scotiabank.

I want to ask about the buyback program. And I wonder, given the potentially greater earnings power from Gildan moving forward from the structural portion of the tariff changes, does that make management or the Board contemplate a buyback program that could begin before reaching 2x leverage?

Thank you for your question, John. I think, again, the focus on the balance sheet, now we spoke about working capital, but also the focus on the balance sheet is making sure that we maintain an investment-grade balance sheet. Coming together after the transaction, that was very important to us, allowed us to take advantage of interest rate favorability, which, by the way, from an interest perspective, with everything that's in the guide plus our investment-grade balance sheet is going to give us favorability in the second half versus the first half. So very focused on that, but also very focused and mindful of returning capital to shareholders. So we have to balance the 2.

And we've been very consistent with our approach to capital allocation, where we've articulated when we approximate returning to the midpoint of our targeted range of 1.5 to 2.5x, we would then reinitiate our share buyback -- we expect to reinitiate our share buyback program. So we're also very pleased as we announced today, the definitive agreement for the divestment of HAA. That's going to accelerate that process. We expect that transaction to close in the second half of '26. And so that's where we should be in a position to make those decisions and be at the midpoint of our leverage range by -- at some point in the second half of this year.

Understood. And then on a POS basis, I think the press release referenced Comfort Colors, American Apparel and Champion is growing double digits. When we think about consolidated sales growth at the POS level being lower, what are the largest categories or brands that are maybe moving the other way?

Well, I think as we talked about, there's premiumization in the market, that's the reason we're continuing to move in those brands. I also mentioned in my comments, we're seeing our ring-spun category, our soft style move well as well. And then -- so they're performing above market. And again, on lower volumes, you got to remember the base of those is lower volume. So yes, they're up double digit. But I think our basics business is performing well, too and better -- slightly better than market. But again, we pulled up to the upper end of lower single digits by the double-digit growth in Comfort Colors, American Apparel and Champion.

Your next question comes from Chris Li with Desjardins.

Maybe just one follow-up for me. Just in terms of the retail softness that you guys are seeing, I'm just wondering, is it more kind of broad-based? Or is it skewed towards more products that are a bit more economically sensitive like the [ intimates ] business?

Yes. Thank you for your question, Chris. So the answer is that it's more broad-based. What we did see is we saw sort of a turn of the broader market towards softness in June. And so that's why what we did from a guidance perspective, from a forecast perspective is that we've changed our market assumption from flat to up low single digit for the year to flat to low single digit for the year. So that's really what informs being at the low end of the $6 billion to $6.2 billion. And really -- it's really more pronounced in -- or was pronounced in retail, and it was in the month of June.

In wholesale, actually, things really were on the up and up in June based on the elements that Chuck had referred to earlier, such as the FIFA World Cup and increase in tourism and so forth. On the wholesale side, in July, it's harder to call a trend. It's come down a little bit, but still performing well. So that's really the way you should think about the broader market and the 2 markets for wholesale and retail.

Your next question comes from Ryland Conrad with RBC Capital Markets.

Just on 2026 guidance with it being a 53-week fiscal year, could you just speak to what's embedded in your guide with respect to the expected incremental benefit or impact of that extra week, both for sales or EPS?

Yes. Thank you for your question, Ryland. So I mean, that's been penciled into our original guide and continues to be penciled in the guide that we're giving today. There is that 53rd week. And we do have, again, to a much, I would say, lower degree is that you see that also contributing to the fourth quarter versus the third.

Okay. Got it. And then just on margins and more generally, the inflationary pressures. I know you have good visibility on input costs, including cotton and energy for 2026 with hedging programs. But I'm curious if you've observed competitors across the industry take pricing to offset any of those inflationary pressures and whether that's maybe an opportunity for you to widen the price gap to competition and gain more share going forward?

Well, I would say if you look at, we're structurally, I think, sound in terms of our manufacturing footprint, our cost structure. We've always been the market leader and also follow in the price setter. So look, I would say to you that inflation is relative is in the market between labor, energy, raw materials, et cetera. So we're going to continue to pursue the best strategy like we've done historically is making sure that we're the market leader. At the same time, balance that out with making sure that we're optimizing our operating performance and creating long-term shareholder value, which we've been doing. So I think we're well balanced.

Your next question is a follow-up from Brian Morrison with TD Cowen.

Sorry to prolong the call. Just a quick question. With respect to the tariff refunds, the $220 million, can you just remind me what tariffs these fall under? Were they Section 301? What tariff refunds are you receiving back?

Sure. Thanks, Brian. So just to be very clear, those are IEEPA tariffs that were deemed illegal, and those are the refunds that we are receiving through the process that was opened up by the U.S. Border and Customs Protection. It's exactly the IEEPA tariffs.

Sorry, I should have known it's IEEPA, I assume you said 301, I apologize. But in terms of the amount, like was it 10% on [indiscernible], where are they coming from specifically in terms of regions?

So, yes. So the large -- there's 2 -- there's 3 elements, right? There's the tariffs that we paid in 2025 with respect to CAFTA-DR as well as tariffs that were paid from our Asian hub, right? So that's -- if you think about it again, it was around half and half, right? So the structural benefit is that we're no longer paying tariffs, neither under Section 122 or under Section 301 for our production and our supply that's coming out of CAFTA-DR countries, right? So that's at 0% because our product is qualified trade coming into the U.S. Where we continue to pay tariffs is in Bangladesh under Section 301 at 10% and Vietnam under Section 301 at 12.5%. Those are the 2 numbers you have to keep in mind and CAFTA-DR at 0. That's the structural benefit.

This concludes the question-and-answer session. I'll turn the call to Jessy Hayem for closing remarks.

Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great day.

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

[Foreign Language] Good afternoon, and welcome to Gildan Activewear Annual Meeting of Shareholders. My name is Michael Kneeland, and I am the Chair of the Board of Directors of Gildan.

Seated with me today is Glenn Chamandy, President and Chief Executive Officer; Luca Barile, Chief Financial Officer; and Rob Assal, Chief Legal and Administrative Officer and Corporate Secretary.

I would like to also introduce the other directors who are here today, present today. I mean, Michener Chandlee, in the back; Anne-Laure Descours. We also have Ghislain Houle, Melanie Kau, who's not here, but she is on the virtual; Deepak Khandelwal; Peter Lee, and Karen Stuckey.

We also have the following members of management present, Chuck Ward, Benito Masi, and Jason DeHann.

This year, again, the meeting is beginning with a hybrid format, allowing both in-person and virtual participation, allowing for everyone to participate. We believe this allows for both direct communication with shareholders while providing a valuable opportunity for our internationally based shareholders to engage with Gildan without the need for travel.

We will begin by conducting the official business of the meeting. After the official business is completed, Glenn Chamandy and Luca Barile will address shareholders and provide an overall business and financial update.

After that, we will answer any questions submitted during the meeting. I will now ask the Corporate Secretary, Rob Assal, to take us through the certain procedures for conduct of this meeting.

[Foreign Language] we also wanted to go over a few items to ensure the orderly conduct of the meeting. Please note that today's meeting is being recorded.

If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of this information. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant that you first obtained all required consents for the disclosure, recording, transfer and use of such personal information.

Once voting has opened, the voting tab will appear on the navigation bar at the top of your screen. The resolutions and voting choices will then be displayed. After you vote, a message confirming vote received will appear. Your vote can be changed at any time until polls are closed by simply clicking the other option.

If you wish to cancel your vote, please press cancel. Only registered holders of common shares of record as of March 17, 2026, and duly appointed proxy holders are permitted to participate, ask questions and vote at this meeting. Registered shareholders and duly appointed proxy holders who have already voted online or submitted proxies in advance of today's meeting are not required to vote again unless they wish to change their vote.

Questions will only be addressed during the question period at the end of the meeting. When asking a question in person, we would ask that you please indicate your name, the entity you represent, if any, and confirm that you are a registered shareholder or a duly appointed proxy holder. Questions may also be submitted using the instant messaging service on the virtual meeting platform provided that you have logged into the platform as a registered shareholder or a duly appointed proxy holder.

Questions submitted during the meeting via the online platform will be moderated before being sent to the Chair. Questions or comments containing inappropriate language or that are otherwise disruptive to the orderly conduct of the meeting for all shareholders will not be answered. Questions which were already answered or that are redundant or repetitive will not be answered.

Thank you, Rob. The meeting is now called to order. In accordance with the bylaws of the corporation, I will preside as Chair of this meeting, and I hereby appoint Rob Assal to act as Secretary for the meeting.

I now appoint [ Martine Gardier ] and [ Charles Mussellem ] of Computershare Investor Services as scrutineers to report on the number of common shares represented in person and by proxy at this meeting and to report the voting results.

I have received a sworn, a declaration prepared by Computershare indicating that the notice calling this meeting and the accompanying materials were duly mailed and delivered to registered shareholders and to intermediaries. Accordingly, I propose to dispense with the reading of the notice, and I direct that a copy of the notice and proof of service be kept by the secretary with records of this meeting.

The scrutineers will provide me with their report on attendance at the meeting, and it shows that there is a quorum has been reached. I direct that a copy of the scrutineer's report be kept by the Secretary with the records of this meeting. I now declare the meeting regularly constituted for the transaction of business. I would now ask the Secretary of the meeting to take us through certain voting procedures for this meeting.

Thank you. In addition to receiving the annual consolidated financial statements today, shareholders will vote on 4 items as described in our management information circular.

These are the appointment of the auditors, the election of the directors, the adoption, ratification and renewal of our shareholder rights plan and a nonbinding advisory resolution on the company's approach to executive compensation. In order to facilitate the timely completion of the formal business of today's meeting, we have arranged for certain shareholders to move and second the various motions.

Registered shareholders and duly appointed proxy holders will be asked to vote on each item of business after each item is presented. Approval of all items of business brought before the meeting will require an affirmative vote of a majority of the votes cast by shareholders.

Voting tablets for the items of business were distributed to registered shareholders who had not previously voted by proxy and to duly appointed proxy holders as they arrived at today's meeting. If you did not receive any voting tablets, but think you should have, please raise your hand and a representative of Computershare Investor Services will attend to you.

If you are a shareholder who holds shares through a broker and you submitted a form of proxy or voting information form prior to the deadline, your vote has already been counted. For registered shareholders and duly appointed proxy holders attending the meeting virtually, you will receive a message on the virtual meeting platform advising you that the polls are open. You will only have a certain amount of time to cast your vote.

Thank you, Rob. I now present to the meeting the consolidated financial statements of the company for the fiscal year ending December 28, 2025, and the auditor's report thereon. Copies of such documents have been made available through notice and access to our shareholders.

Having done so, I now declare that the audited financial statements of the company for the year ending December 28, 2025, together with the report of the auditors thereon have been presented and received. The next item of business is the appointment of KPMG LLP as the company's auditors and that the Board of Gildan be authorized to fix the remuneration of the auditors as recommended by the Audit and Finance Committee. I ask for a motion and a seconder.

My name is Sabrina Teixeira. I am a shareholder and proxy holder. I move that KPMG LLP be appointed as the company's auditors and that the Board of Directors of the company be authorized to fix the remuneration of the auditors.

My name is Suzanne Adams. I'm a shareholder and a proxy holder, and I second the motion.

Thank you. I now direct that a vote be taken on the appointment of KPMG as the company auditors. If you did not vote already on this item, please do so.

In the interest of expediency, we will proceed with the business of the meeting and announce the voting results for all items of business at the end of the meeting. We will now proceed with the election of the directors. The Board has determined that 9 persons should be elected as directors of the company and has proposed 9 candidates to hold such office for the ensuing year, 8 of whom are independent. In addition to Glenn Chamandy and myself, 7 highly qualified individuals are being proposed for election as directors.

Their biographies are included in the company's management information circular made available to our shareholders. The directors will be voted on individually rather than as a slate. Each of the nominees has expressed a desire to serve as a director for the company -- of the company. I nominate each of the following persons for election as a director of the company to hold office until the close of the next Annual Meeting of Shareholders or until his or her successors are duly elected or appointed.

The nominees are Glenn Chamandy, Michener Chandlee, Anne-Laure Descours, Ghislain Houle, Melanie Kau, Deepak Khandelwal, Peter Lee, Karen Stuckey and myself, Michael Kneeland. I ask for a motion and a seconder for the nomination of the Gildan director nominees.

My name is Ariana Lisio. I am a shareholder and a proxy holder, and I move that each of the following persons be nominated for election as a director of the company to hold office until the close of the next Annual Meeting of the shareholders or until their successors are duly elected or appointed. Nominees are Michael Kneeland, Glenn Chamandy, Michener Chandlee, Anne-Laure Descours, Ghislain Houle, Melanie Kau, Deepak Khandelwal, Peter Lee, and Karen Stuckey.

My name is [ Vince Parafora ]. I am a shareholder and a proxy holder. I second the motion.

Thank you. If you did not vote already on this item, please do so. I will now turn to the item on the agenda relating to the resolution to confirm the adoption, ratification and renewal of the company's shareholder rights plan as set forth in the management information circular.

On February 25, 2026, the Board adopted a shareholder rights plan and subsequently entered into a shareholder rights plan agreement with Computershare Investor Services. This shareholder rights plan is designed to ensure that all shareholders are treated fairly in connection with any takeover bid or other acquisition of control of the company.

It replaces and renews the company's existing shareholder rights plan, which expires today. This shareholder rights plan is the same as the company's existing shareholder rights plan, except that it includes minor amendments to the administrative nature. The shareholder rights plan will come into force at the close of business today, provided that the resolution to confirm the adoption, renewal and ratification of the shareholder rights plan is approved by a majority of votes cast by the shareholders who vote in respect to the resolution.

The full text of the resolution is reproduced on Page 10 of the management information circular and the full text of the shareholder rights plan is available on SEDAR and EDGAR and the company website. I ask for a motion and a seconder.

My name is [indiscernible] . I'm a shareholder and proxy holder. I move that the resolution confirming the adoption, renewal and ratification of the company's shareholder right plan set forth in the management circular -- information circular be adopted.

My name is Sabrina Teixeira. I'm a shareholder and proxy holder. I second the motion.

Well, thank you. If you did not vote already on this item, please do so. The next item of business is the advisory vote on the company's approach to executive compensation as set forth in the management information circular.

The full text of the advisory resolution is reproduced on Page 12 of the management information circular. The results of the say-on-pay vote will not be binding on the Board. However, the Board will take into account the results together with the other comments we received from shareholders when we consider the company's approach to executive compensation in the future.

We are committed to continuing to engage directly with shareholders on this important topic. So I ask for a motion and seconder.

My name is Suzanne Adams. I'm a shareholder and a proxy holder. I move that the resolution on the advisory vote on executive compensation set forth in the management information circular be adopted.

My name is Ariana Lisio. I am a shareholder and a proxy holder. I second the motion.

Thank you. If you did not vote already on this item, please do so. That concludes the matters of business properly brought at this meeting. We will have a brief adjournment while we wait for the scrutineers' report.

Scrutineers' report on the voting results and confirm the following. Regarding the election of directors, I am pleased to announce that Glenn Chamandy, Mr. Chandlee, Anne-Laure Descours, Ghislain Houle, Melanie Kau, Deepak Khandelwal, Peter Lee, Karen Stuckey, and I, Michael Kneeland, have been duly elected directors of the company. I'm also pleased to report that the advisory resolution on the company's approach to executive compensation and the resolution for appointment of KPMG LLP and for the adoption, ratification and renewal of the shareholder rights plan have all been carried.

Detailed results of each vote will be available shortly on SEDAR and EDGAR and Gildan websites. This completes the business on the agenda for the annual meeting. Now before we move to our business and financial update and on the question period, I ask for a motion, a seconder to terminate the formal part of this meeting.

My name is [ Vince Parafora ]. I am a shareholder and a proxy holder. I move to terminate the meeting.

My name is [indiscernible]. I'm a shareholder and proxy holder, and I second the motion.

I declare the formal part of the annual meeting now terminated. Now before the question period starts, Glenn Chamandy and Luca Barile would like to say a few words.

Thank you, Michael, and good afternoon, everybody, and thanks for joining us today. I will present our achievements for 2025, and Luca will go through our financial performance for '25 and review the first quarter results that we just released today.

First slide, please. 2025 was another great year for Gildan. We generated over 35% total shareholder returns, and we achieved some historical milestones in '25, which will continue to deliver what we believe in the long-term success and growth for the company. I'd like to take a moment and thank all our employees for their hard work and dedication.

And I'd also like to thank our customers and our shareholders for their support. Next slide, please. 2025, we had record sales of $3.6 billion, up 11% versus '24. We announced the acquisition of Hanesbrands in August of 2025, and we actually closed the transaction soon after in December 1, 2025.

The acquisition is a historical moment for Gildan as it we believe will unlock a powerful engine of growth and innovation for future years to come. We financed the acquisition with both debt and -- stock and debt, sorry.

And we issued a senior unsecured note for roughly -- U.S. roughly 1.2 billion as part of the financing. Next page, please. We continue to deliver on our -- all 3 pillars of our Gildan sustainable growth strategy. We strengthened our manufacturing competitive advantage by modernizing of our U.S. yarn facilities, the ramp-up of our first phase of our Bangladesh.

We optimized all of the company's capacity and increased it to support the integration of Hanes. And we continue to bring new innovation to the market with our soft cotton technology, our plasma print. And finally, we strengthened our sustainability practice by delivering on all our initiatives for 2025.

Next slide, please. The Hanes acquisition has meaningfully increased the company's scale, customer reach, has widened our product portfolio and it's increased our overall addressable market and future growth opportunities. The combination of Hanes and Gildan makes Gildan today one of the largest global apparel players by units sold.

Next page, please. Again, the combination is rebalancing the company's channels of distribution and product categories. Approximately 50% of our revenues will now be in the wholesale market, 50% of our revenues will be in retail. And approximately 50% of our products will be in the Activewear segment and 50% will be in Innerwear. And no one customer is greater than 20% of our revenue.

So we're well diversified. Next slide, please. We've got a large portfolio of brands for both the wholesale market and the retail market and as well as for innerwear type products and activewear type products. And we're also supported by third-party brands or licenses to expand in areas and to reach other opportunities where our brands cannot.

Next page, please. Sustainability has been a -- has been long-term underpinned by our vertically integrated low-cost manufacturing. We're proud of our 20-year long track record, and we're progressing well towards our goals of [ 2030 ] and our GHG emission targets.

Next slide, please. We remain confident in our 3-year outlook with sales growth between 3% and 5%, EPS growth in the low 20% range, a CapEx between 3% and 4% of sales and bringing our leverage framework in line with between 1.5 and 2.5x leverage to EBITDA. So we're pleased so far with the start of 2026, our discipline and execution across the organization, and we're looking forward for another exciting year, and we remain committed to delivering long-term shareholder value. And with that, I'll pass it over to Luca to review our financial performance.

Okay. Thank you, Glenn, and good afternoon, everyone. So I'll provide a recap of our 2025 financial performance, a brief summary of the results we reported this morning for the first quarter of 2026 as well as the full year outlook.

And then we'll conclude with a few comments before turning it back over to Michael. So first slide, please. So starting with 2025. I fully echo Glenn's view that it was a strong year. If we start at the top left-hand side of the page, you can see that net sales from continuing operations came in at $3.6 billion, up 11% over 2024.

Excluding the 1-month contribution from Hanesbrands, our sales growth was in line with our guidance of mid-single-digit growth. We believe our top line performance demonstrated resilience in a fluid environment in the context of geopolitical tensions and a dynamic global trade environment throughout most of the year.

If we move to the upper right-hand side of the slide, the chart highlights that in parallel with record sales, we were also able to deliver strong margins in 2025, with our operating margin coming in around 17% and our adjusted operating margin at 21.5%. Excluding Hanesbrands, our adjusted operating margin was roughly in line with the guidance we provided, which called for an increase of approximately 70 basis points year-over-year. Turning to the bottom section of the slide, you can see that strong sales and margins translated into strong diluted and adjusted diluted EPS from continuing operations of $2.57 and $3.51, respectively.

And finally, our strong operating performance yielded continued robust free cash flow generation of $493 million for the year. Overall, we delivered strong results for the full year, all while navigating a complex global macroeconomic environment.

Next slide, please. Okay. So turning to capital allocation. In 2025, total capital returned to shareholders was $319 million, including dividends paid of approximately $135 million and by repurchasing approximately 3.8 million shares under our NCIB program. While having been consistently active with our share buybacks, we paused our repurchases upon announcing the Hanesbrands acquisition until our net debt leverage ratio moves back to the midpoint of our targeted leverage framework of 1.5 to 2.5x net debt to adjusted EBITDA.

On a cumulative basis, over the past 5 years, we returned over $2.6 billion in capital, reflecting our sustained commitment to shareholder return. In fact, over the past decade, up to the acquisition announcement, we had repurchased approximately 40% of our issued and outstanding shares. With regards to capital expenditures, we delivered on the investments we committed to with a clear focus on the key pillars of our strategy.

CapEx moderated closer to the normalized range of approximately 3% of net sales as we completed the ramp-up of our new state-of-the-art facility in Bangladesh. As Glenn highlighted, these important investments in our vertical integration and capacity reinforce our competitive advantage and position us well for future growth.

Finally, maintaining a healthy balance sheet remains central to our financial discipline. As a result of the acquisition of Hanesbrands, we ended 2025 with a leverage ratio of 3x. Proceeds from the potential divestment of Hanesbrands Australia, which would be used to pay down a portion of the company's outstanding debt should further accelerate our objective to return to our leverage framework of 1.5 to 2.5x.

And in terms of our strategic priorities, investing in CapEx to drive organic growth and return capital to shareholders through both dividends and share buybacks remain the core focus of our capital allocation strategy. Next slide, please. Okay. So turning to 2026. This slide summarizes our Q1 results, which we reported this morning.

Overall, we were very pleased with our performance. The quarter unfolded largely as we anticipated with sales of nearly $1.2 billion, up 64% year-over-year, in line with the guidance that we had provided. This was reflecting the acquisition of Hanesbrands, growth in key product categories, but partly offset by our proactive inventory reduction across our combined customer channels to accelerate synergy capture, which temporarily reduced sell-in as previously communicated.

Our operating margin came in approximately flat, but our adjusted operating margin was 14.3% down 470 basis points year-over-year, but ahead of guidance for the quarter. We reported GAAP diluted loss per share of $0.30, whereas adjusted diluted EPS came in at $0.43 compared to $0.59 in the prior year. Overall, the quarter was in line with our expectations.

And with that, now let's turn to strategy and outlook. Next slide, please. All right. So turning to the outlook. In our press release issued this morning, we maintained our guidance for 2026. The broader operating environment remains uncertain, and we feel cautiously optimistic about the remainder of 2026 while being mindful of the Middle East conflict and the heightened concerns to the end consumer.

Nonetheless, we are focused on what we can control. We believe that our low-cost vertically integrated business model and the agility it provides, together with strong industry positioning, provide a solid foundation for us to navigate evolving external conditions and support continued financial performance.

Therefore, for 2026, with respect to our continuing operations, our guidance is maintained as follows: we expect revenue from continuing operations of $6 billion to $6.2 billion. Full year adjusted operating margin is expected to be approximately 20%. We continue to expect adjusted diluted earnings per share in the range of $4.20 to $4.40. That's up between 20% and 25% year-over-year.

And finally, we also expect free cash flow to be above $850 million in 2026 with CapEx projected at approximately 3% of net sales. So in summary, we are pleased with the quarter and our progress thus far regarding the integration of Hanesbrands. This concludes my prepared remarks. And with that, I'll turn it over to Michael.

Well, thank you, Glenn and Luca. Before concluding this meeting, we would be pleased to answer questions from any registered shareholder or duly appointed proxy holder who wishes to address the meeting.

When asking a question, we would ask that you please indicate your name, the entity you represent, if any, to confirm that you are a registered shareholder or a duly appointed proxy holder.

Please limit your questions to topics related to today's subject matter and keep your questions short and to the point. I would like to remind you that the questions which we were already answered or that are redundant or repetitive will not be answered again. So...

It appears there are no further questions at this time.

Thank you -- thank you. So before concluding the meeting, on behalf of the Board of Directors, I want to thank Gildan's management team present here today and all the talented employees of Gildan who continue to show their focus, determination and strength in making Gildan the leader it is today. On behalf of the Board and the management team, I want to thank our shareholders for their confidence and support. I will now declare the meeting terminated. Thank you.

Ladies and gentlemen, thank you for standing by, and welcome to Gildan Activewear's 2026 Q1 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jessy Hayem, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead.

Thank you, Angela. Good morning, everyone, and thank you for joining us this morning. Earlier today, we issued a press release announcing our results for the first quarter while maintaining our guidance for 2026 as well as our 3-year objectives for the 2026-'28 period. 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 and Exchange Commission today and will also be available on our corporate website.

As a reminder, please note that we'll be holding our Annual General Meeting today at 02:00 p.m. Eastern Time with more information available on the Events page of our corporate website. Now joining me on the call today are Glenn Chamandy, President and CEO of Gildan, Luca Barile, Executive Vice President, Chief Financial Officer; and Chuck Ward, Executive Vice President, Chief Commercial Officer. This morning, we'll take you through the results for the quarter and then 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, including in the case of our fiscal 2026 outlook and our 3-year objectives for the 2026-'28 period, as well as certain risks and assumptions related thereto and our earnings press release dated April 30, 2026.

During this call, we'll 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.

Before I turn it over to Glenn, a few items to note: Remember that the first quarter represents the first full fiscal reporting period during which the results of Hanes brands are fully consolidated into the company's financial statements. Please note that we may refer to Hanes brand as Hanes throughout this call. Then, as previously announced, the Hanes brands Australian business, which we refer to as HAA, has been classified as held for sale and reported as discontinued operations as of December 1, 2025, the date of closing of the Hanes brands acquisition. So unless otherwise indicated, the figures we'll be discussing today are from continuing operations and therefore, exclude the results of the HAA business.

With this in mind, we are only in a position to confirm that the sale process is progressing as expected and will not provide any further updates at the moment. Also, as we announced last quarter, we have transitioned to reporting disaggregated net sales by wholesale and retail as of the first quarter. You will find in our press release, supplementary pro forma net sales from continuing operations disaggregated by channel and geographic area on a quarterly and full year basis for 2025. In addition, you also find supplementary pro forma net sales from continuing operations for the same period, showing Gildan on a stand-alone basis and adjusted for Hanes brands sales. For reference, wholesale comprises sales to distributors, screen printers, embellishers and global lifestyle brand customers, which we refer to as GLB, whereas retail comprises sales to mass merchants, department stores, national chains, specialty and online retailers and directly to consumers. And now I'll turn it over to Glenn.

Thank you, Jesse, and good morning, everyone, and thank you for joining us on this call. As we highlighted in this morning's press release, we are pleased with our first quarter performance, reflecting disciplined execution and continued progress against our strategic priorities. We delivered record Q1 sales from continuing operations of nearly $1.2 billion, which were up 64% versus last year, primarily due to the Hanes Brand acquisition. We also reported adjusted diluted earnings per share from continuing operations of $0.43 compared to $0.59 in the first quarter of 2025, reflecting the short-term impact of integration initiatives that we have put in place to accelerate synergies captured.

We remain very excited about the Hanes acquisition and the opportunities we see. We are progressing well with our integration initiatives and relocating [indiscernible] production volumes from the Hanes to the Gildan facilities, leveraging our low-cost manufacturing and supply chain structure.

We are working fast but with a well-thought approach to be able to unlock the benefits of operating as one integrated company. And we continue to optimize and expand our capacity in 2026 to support growth in 2027. We are also enhancing our distribution network. Our plans to standardize IT systems, key supply chain and manufacturing processes all remain on track.

Given the progress so far, we remain confident in attaining our objective of approximately $250 million in run rate cost synergies over the next 3 years including approximately $100 million in 2026, and we continue to pursue additional synergies beyond the 3-year target.

Now with the situation in the Middle East, the external environment around us becomes increasingly uncertain, but Gildan has navigated through uncertain situations in the past with agility and discipline. That said, I'd like to address 2 key elements related to this situation: First, despite inflationary environment, we have good visibility for 2026 when it comes to our input costs, including cotton, polyester as well as energy. Second, our Bangladesh operations have been running normally until now and we have built in temporary contingency plans should the situation deteriorate.

This is what our agility and our vertical integration enables us to do. So we have a clear line of sight into our plans for the rest of the year, and we are focused on what we can control, driving operational excellence, advancing on our integration of Hanes, maintaining our cost discipline and consistent execution.

With that in mind, considering the strength of our competitive positioning across our product lines, channels and geographies, driven by our scale and our strong pipeline of innovation, we are maintaining our guidance for 2026 and remain confident and our ability to achieve our 3-year objectives for 2026, 2028 period.

I look forward to answering your questions after our formal remarks. And now I'll turn it over to Luca for a financial review.

Thank you, Glenn, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. Let me start with the specifics of the quarter, then turn to our 2026 outlook and guidance. First, the quarterly results. We reported record first quarter sales from continuing operations of $1.17 billion, up 63.8% year-over-year, in line with guidance of approximately $1.15 billion. The increase reflects the Hanes Brands acquisition, partially offset by our integration initiatives undertaken to optimize the company's manufacturing footprint and accelerate synergy capture.

Now compared with pro forma net sales from continuing operations of $1.29 billion, the year-over-year decline was primarily driven by lower volumes stemming from our proactive inventory reduction across customer channels, which temporarily reduced sell-in as we previously communicated.

Now looking at wholesale. Net sales were $552 million compared to $626 million in the prior year, due primarily to the impact of the voluntary inventory reduction across customer channels as well as the non-recurrence of some preemptive buying ahead of tariffs in the comparable period last year. This was partially offset by pricing initiatives, which were implemented to partially offset a portion of the impact from tariffs, the contribution of paint brands and favorable mix. We continue to see robust demand for comfort Colors and our new brands such as Champion, which is under a licensing agreement and Alpro.

Now turning to retail. Net sales were $614 million compared to $85 million in the prior year, primarily reflecting the contribution from the Hanes Brands acquisition and higher net selling prices. To a lower extent, retail sales were also affected by the lower sell-in previously detailed and the non-recurrence of preemptive buying ahead of tariffs. As previously mentioned, our key underwear brands captured additional market share in the quarter and new programs launched in mid-2025 are performing well.

Shifting to margins. We generated gross profit of $278 million or 23.9% of net sales versus $222 million or 31.2% of net sales in the same period last year. Adjusting for an inventory fair value step-up charge of $106 million recorded as part of the Hanes brands acquisition, adjusted gross profit was $385 million or 33% of net sales compared to 31.2% in the prior year. The 180 basis points improvement mainly reflects favorable pricing initiatives implemented to partially offset the impact of tariffs, the favorable contribution from Hanes brands and to a lesser extent, lower raw material and manufacturing costs.

SG&A expenses were $219 million compared to $87 million in the prior year. Adjusting for charges related to the proxy contest and leadership changes and related matters, adjusted SG&A expenses were $218 million or 18.7% of net sales compared to $86 million or 12.1% of net sales for the same period last year. The increase in adjusted SG&A in the quarter reflects the acquisition of Hanes brands, partially offset by synergies realized as part of the Hanes brands integration process. As we bring all these elements together and adjusting for the restructuring and acquisition-related costs and the inventory fair value step-up charge as part of the acquisition, as well as the costs relating to proxy contest and leadership changes and related matters, adjusted operating income was $167 million, up $31 million year-over-year.

Adjusted operating margin was 14.3% of net sales, was down 470 basis points versus last year and ahead of guidance provided of approximately 12.9%. The year-over-year decrease in adjusted operating margin is mainly a reflection of the Hanes brands acquisition and gains as lower operating margins due to historically higher levels of SG&A relative to Gildan. Net financial expenses were $67 million, up $37 million year-over-year, primarily due to higher borrowing levels related to the Hanes brands acquisition.

Now taking into account all of these factors and a higher outstanding share base as a result of the acquisition, GAAP diluted loss per share from continuing operations was $0.30 compared to GAAP diluted earnings per share of $0.56 in the prior year. And adjusting for restructuring and acquisition-related costs, inventory fair value step-up charge and an income tax recovery of $33 million related to restructuring charges and other adjustments. Adjusted diluted earnings per share from continuing operations were $0.43, down 27.1% from $0.59 in the prior year.

Now turning to cash flow and balance sheet items. Cash flows used in operating activities, which includes discontinued operations, totaled $279 million for the first quarter compared to $142 million in the prior year primarily reflecting lower net earnings from continuing operations. After accounting for capital expenditures totaling $30 million, the company consumed approximately $310 million of free cash flow. We ended the quarter with net debt of $4.868 billion and a leverage ratio of 3.3x net debt to trailing 12 months pro forma adjusted EBITDA.

As previously announced, we are pursuing a sale of HAA and the net proceeds from the potential divestments will be used to pay down a portion of the company's outstanding debt and further accelerate our objective to return to a leverage framework of 1.5 to 2.5x net debt to pro forma adjusted EBITDA.

Turning to the outlook. For 2026, with respect to our continuing operations, we are maintaining our guidance as follows: revenue of $6 billion to $6.2 billion, full year adjusted operating margin of approximately 20%, CapEx to come in at approximately 3% of net sales. Adjusted diluted EPS in the range of $4.20 to $4.40, an increase of 20% to 25% year-over-year and free cash flow to be above $850 million.

Furthermore, the assumptions underpinning our outlook are essentially the same as we previously communicated and are detailed in our press release issued earlier today. Finally, we have also provided guidance for our second quarter. We expect net sales from continuing operations to be approximately $1.6 billion. This continues to reflect the proactive temporary reduction of inventory levels across customer channels, which is reducing sell-in as we complete the consolidation of manufacturing facilities to accelerate synergy capture.

Furthermore, a timing shift in shipments from the second quarter into the second half of 2026 is also reflected and is due to the non-recurrence of some pre-buying in the second quarter of 2025 ahead of pricing actions. Our adjusted operating margin is expected to be around 19.7%, reflecting the higher SG&A levels, which includes higher amortization of intangible assets and depreciation of property, plant and equipment resulting from the fair value purchase accounting impacts of the Hanes brands acquisition, in addition to a timing differential between some integration-related costs incurred and the flow-through of their benefit in subsequent quarters.

Finally, the company's adjusted effective income tax rate in the second quarter is expected to be slightly lower than the expected full year 2026 adjusted effective income tax rate. In summary, we are pleased with the quarter and our integration progress. The broader operating environment remains uncertain, and we feel cautiously optimistic about the remainder of 2026, while being mindful of the Middle East conflict and the heightened concerns on the end consumer. Nonetheless, we are focused on what we can control. We believe that our low-cost vertically integrated business model and the ability it provides together with strong industry positioning, provide a solid foundation for us to navigate evolving external conditions and support continued financial performance. Thank you. And now I'll turn it over to Jesse.

Thank you, Luca. This concludes our prepared remarks, and now we'll begin taking your questions. [Operator Instructions]

[Operator Instructions]

Your first question comes from the line of Jay Sole with UBS.

Great. Two questions for me. I love if you could give us a little review of the point of sale, both for the Gildan [indiscernible] business, but also for the Hanes business that you saw in the quarter that you're kind of seeing second quarter to date. And then also maybe if you can take a step back and tell us how the strategy that you're developing for the Hanes business is evolving, how you're thinking about investing in marketing, investing in products. If you can give us an update on that, that would be terrific as well.

Well, I'll let Chuck go with to discuss the market conditions and all volumes on the other side.

Okay. Yes, as we look at net sales for the quarter, as Luca said, we were in line with guidance. Both markets were a little bit softer than we expected with some impacts in the U.S., obviously, with some tough weather during Q1 that everybody experience. But overall, as Glenn mentioned, we performed well, and we outperformed both markets. We continue to gain share in those markets. And as we mentioned in his comments, we typically perform well in challenging markets. But if I break it down, we really, Jay, look at a wholesale retail as Jesse mentioned in her opening remarks. So I'll really address it from a wholesale retail perspective.

As we look at the wholesale market, the market was down low single digits, while we performed up low single digits. So again, continuing to take share in the market. If you really dive into that market, Jay, it's continuing strong performance with our premium products. Luca mentioned Comfort Colors, for example, and the strength that we're seeing continue that brand, our growth in Champion, the license that we have for that product, our [indiscernible] program. So really continue to perform well in that market. From a retail perspective, we'll say the market was flattish in the retail market, but we were also up low single digits in that market as well really with underwear performing exceptionally well, not only in men's, but also in women's and kids as well.

We also continue to gain momentum in activewear in retail. But we did see a little bit of softness in intimates and in socks. And then when we look at it from an international perspective, we were slightly below the plan in international, but it's mainly due to the uncertain macro conditions and the rising energy costs we're seeing.

We continue to see what we've been seeing for some time, which is a strong performance in Continental Europe, continued pressure in the U.K. and some pressure in Latin America. So we feel really good about how we performed in the markets. As we shifted into Q2, we're seeing some improvements in both markets overall. We're continuing to grow in our key growth categories and outperform those markets.

Great. And maybe just a second part of that question. Look, as we continue to go forward, I mean we're very excited, obviously, about the opportunity. I mean the big -- the big thing for us right now is to continue to integrate Hanes into Gildan and leverage really everything that Gildan has offered because we're taking, I think, what we think is one of the most highly iconic brands in the industry and putting it together with the world's global low-cost manufacturer. And what we're able to do is basically just provide an innovation platform that we think is going to excel and open up doors.

And we've already accomplished a lot of that. Like the reason for us obviously to wind down the Hanes facilities integrated into Gildan's network is to capture what we believe is the future value creation that we have to offer with the brand from an innovation perspective. So all those things are in place. And we're really excited about it. We've started showcasing some of this with our retail partners. Like we said in our last call, we're going to have our Investor Day in December, and we'll be really excited about showing off all the things we're doing from our product innovation positioning, our advertising, how we're really -- our whole go-forward strategy. And there's a lot of work that's been done. We're moving -- like I said earlier in my comments, very effectively. It seems quick, but I think we're doing it in a very organized fashion to be able to make sure that we achieve all of our goals, including the synergies that we set forth, but it's not just synergies. For us, it's important to make sure that we get back on the growth trajectory and you need to make an investment and our investment is the synergies are an investment because as we bring those synergies and as we bring their product into our environment, we create synergies and those synergies turn into innovation because we have Gildan, that's our whole secret sauce really is to be able to improve the quality of the product and the consumer experience for what we're going to be doing. So we're well positioned and we're excited, and we can't wait to show it to you.

Your next question comes from the line of Paul Lejuez with Citigroup.

Could we just go back to Glenn, what you said on the Bangladesh facility, I think you said it's been operating normally. And so now, I just wanted to clarify but it's still running normally. Curious what your expectation is in terms of the Bangladesh facility or if you did see something change recently? And then second, without you could share your gross margin and SG&A targets for the year and just how each compare to what would be the adjusted numbers the same line items last year.

Okay. So look, like what I said in my comments, yes, we're running normally. We haven't had disruption. The facilities is running as it was before the crisis. And in fact, I mean, the volume is a little bit higher. So things are going as planned. We have a lot of redundancy in our energy there. We have solar. We have different energy sources that we use. So we have our own LNG facility, basically on-site in our [indiscernible] campus.

I mean we're pretty well insulated. And I wouldn't say that things are not tight in the country because, obviously, the energy situation is tight. But so far, we've been operating effectively and like what I said earlier, we built a contingency plan, not that we don't think we can operate, but if there's an arm we get and the whole group in the Middle East. I mean, obviously, we're going to have to react to any type of situation that could happen. So we're very diligent. We're very focused, we have a good plan, and we're comfortable with our positioning and the guidance that we set forth.

Yes. And with respect to your question on the margin, so we've given the guidance for the full year in terms of our adjusted operating margin of approximately 20%. [indiscernible] to understand the composition of that margin, we can start with sort of the performance already to date, the adjusted operating margin in the first quarter of 14.3%. That was higher than our guide of 12.9%. Some of that was driven by some timing of SG&A versus the remainder of the quarters. But why I start with the first quarter is because what you're going to see as we navigate through the year is a sequential improvement in adjusted operating margin and the guidance we're giving for the second quarter is an adjusted operating margin of 19.7%.

Now what's driving that sequential improvement and why we're providing the guide not only for the second quarter, but the visibility of the full year is because as an organization based on our operating model and as well as the solid cost control that we put in place, we have visibility on the costs that are flowing through our P&L, right? So the strength that underpins the margins are the same elements that we had last year, right? We had the optimization of our Central American facility. We have the investments we made in the [indiscernible] spinning, the investments we made in Bangladesh. So that's the foundation. Then we have the synergies that are starting to flow through, right? We've got about $100 million of synergies called out for 2026. So as that materializes, that's going to lend itself to an improvement in the operating margin.

And finally, when you do look at gross margin versus SG&A, gross margin also expect it to sequentially improve. I would say the contribution there is you have a pricing tailwind from some of the pricing actions taken in the prior year, lower year-over-year fiber cost from a cotton perspective, we have full visibility for 2026 because of our hedge strategy and our head position and our operating model.

The synergy realization is coming through gross margin, although in the first year, it were pronounced on the SG&A side. And those proactive actions that we're taking in order to manage costs as we go through the integration. On the SG&A side, there were higher levels of SG&A from the Hanes perspective. We have higher SG&A coming through because of the impact of the acquisition, the PPA adjustments such as the amortization of intangibles and new property, plant and equipment. But again, as synergies are realized on the SG&A side, which we're well on our way, that will lend itself to improvement. So the headline adjusted operating margin of approximately 20% for the year and in the second quarter, a sequential improvement up to 19.7%.

Got it. When you say gross margins specially improve, is that each quarter of the year? And you want to put out there at your target gross ...

Correct. So we have the Q1 results. The adjusted gross margin for Q1 is at 33%. The adjusted SG&A is at 18.7%. Those will sequentially improve -- will sequentially improve in order to yield an adjusted operating margin for the full year of approximately 20%.

[indiscernible] in terms of exit rate on the SG&A.

Well, in terms of our guidance, we provide the adjusted operating margin. We provide guidance on our adjusted EPS. So I think with the color that I provided you, you can infer that for sequential improvement. We're not providing a specific guide on the gross margin and the SG&A in isolation.

Your next question comes from the line of Brian Morrison with TD Cowen.

Two questions. Glenn, should we expect optimization of the Hanes facility integration in the second half of this year? And then what are the next major buckets of synergies? Is it you aren't spending more vertical integration? Just some color on the major buckets still to do.

And then Luca, on the back half, the forecast margin is about 22%. Can you build off that in 2027? Or should we take into account a seasonally weaker Q1 to build off a bit lower base?

Okay. So just on the integration, look, we're fully advancing on the integration, including yarn. The bulk of Hanes' volume is being produced in Gildan's world today, yearn being in all of our supply chain, the processes we use in chemicals, distribution, everything that we do in terms of Gildan's world, from a supply chain perspective, there's pretty much going through a process, and we'll be fully integrated. And basically, that's why we're comfortable, and that's why we chose to wind down and manage our inventory and the customer channels because we wanted to really accelerate as best as possible, the transition of Hanes into our world for 2 reasons. Obviously, one is to capture these synergies, but the second is to provide the innovation that we really need to drive the revenue growth for 2027. So all that is in place, and that's why we're confident, and that's why the margin is expanding in the back half of the year. And although this year, there'll be a smaller portion on the synergy side of COGS, but there'll be a lot of SG&A. But as we really roll into '27, that's where we're going to see the COGS input as we start turning the inventory into 2027. So everything is on plan, and we're excited about our position.

Great. And then -- go ahead.

I just sort of -- on that drawdown that you referred to, what's the magnitude of it? How much will be a tailwind as we get into 2027?

Well, I mean Luca [indiscernible] yours.

Yes. So again, when you take a look at the first quarter performance and what we're guiding for the second quarter, right? So you have to take a look at that from an understanding that the fundamentals are growing, right? We're growing both in wholesale growing in retail. Chuck alluded to the market conditions and how we're outperforming the market. So that growth is then offset by the proactive production in inventories across channels that's reducing selling and that there's also sort of the timing right between the quarters and the cadence of the quarters because of some nonrecurrence of pre-buying before tariffs, which is a Q1 phenomenon and pre-buy from last year ahead of price increases in the second quarter. So -- and when you take these 2 elements together and you have growth that's outperforming the rates that Chuck was alluding to, and then you see the results. And that should give you a good indication of the value of the inventory reduction.

And then as we go through the year, look, we're working diligently to get that capacity that we've installed up and running. So we have really very comfortable with our supporting our capacity for 2027 to take advantage of any opportunities to restock the channel.

And Brian, the tail end of your first question on the margins as we move into '27. Obviously, we're giving the guide for 2026. But as you would recall, we have $100 million of synergies coming in this year. We've got $100 million slated for '27 and at least $50 million for 2028. So the strong fundamentals of the margin that we articulated continued to come through and additional run rate synergies come through. That is definitely part of the algorithm that supports our 3-year targets, right, of our earnings effect of their adjusted EPS CAGR growth of low 20% range. So margins will be continuing to be healthy.

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

Lots of great color so far. Just wanted to ask if you're able to quantify kind of the amount of synergies you achieved in Q1 relative to your $100 million target for '26.

Yes. So what I can say about that is, look, we're confident in achieving the $100 million in our results for this year. What I can share with you is that we're well on our way. As you know, we've taken proactive actions in order to accelerate the synergy capture as Glenn has alluded to those. So although I going to give you a full quantification of that, what I can tell you is we have visibility to the [ 126 ] and we're well on our way in achieving that number.

Okay. That's great. And then maybe for my second question, just with respect to the temporary inventory reduction, and that obviously lingers a little bit into Q2. I'm just curious on operationally, like how long that overhang is meant to -- is expected to impact your sales? Is it isolated to Q2? Or will it be something that trickles into the back half of the year as well?

Yes. So the way I would say is that we've seen a pronounced impact in the first quarter. It's -- the remainder of that impact is penciled into the guide of the second quarter, where revenue will be approximately $1.6 billion and then given our guide for the full year of $6 billion to $6.2 billion, and when you take a look at the back half, the back half is a return to growth. So you can infer that phenomenon that will complete in the second quarter.

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

I just want to come back to the demand environment and how that has evolved as macro uncertainty has sort of ramped up. I think you've made some -- a couple of comments on this. but just hoping for a bit more granularity. And then specifically, I think your full year guide is based on an assumption of industry flat to low single-digit growth. And just wanted to gauge your comfort level of with that today versus end of February when you initiated it.

I think on the -- I'll answer to the growth part, [indiscernible] it, we believe that things are on track in terms of the flat to low single-digit growth, I mean, from what we see out in the marketplace today. That's a snapshot in where we are today. I mean it's not $10 -- the $10 gasoline prices in the United States, for example, that could change things in the future. But where we are today, I would say and what we're seeing so far as we started Q2, I mean, that's sort of -- we've seen improvement since Q1. So I think that, that's still a very good assumption for us as we move through the back of the year.

Yes. And Mark, on the markets, I mean, I'll dig in a little bit more. As I mentioned, both markets were -- Well, wholesale was down low single digits during the quarter with -- and retail was somewhat flat. I mean we're -- as I mentioned, going into Q2, we are seeing some improvements. As Glenn said, I mean we'll continue to monitor closely what happens with inflation and so forth as it comes through in the future. But as we mentioned, we performed -- typically perform well in those markets. And sometimes there's trade downs and so forth. So we're cautiously optimistic of where we are and where we're headed. As Glenn said, we feel good about our future growth.

And again, if there's a trade down from inflation, we trend well. and we take opportunity from that. If there's poly-based impacts from -- polyester going up because of cost, it sometimes drives people towards cotton products, so we can capture that as well. But what I would say is we're well positioned to capture wherever the trends move.

And maybe look at -- also, I would say that look, we're really well positioned from a nearshore perspective. I mean, one thing I would take in account is that the bulk of our volume being in this hemisphere has allowed us to, I think, have a competitive advantage not just because of the closeness to the marketplace, but now also from a cost perspective. As of March 1, obviously, we're not paying tariffs on product coming in from Central America anymore, which has allowed us to continue driving a good cost structure in this hemisphere.

We'll wait and see what happens as all the global 301s and tariff situation works itself out in the next couple of months. But we're well positioned. We think that there's opportunity for us. And look, what we also said is that look, you create an opportunity like every -- in every situation, and we're well positioned and we're taking advantage of, we think, is the Hanes positioning the their brand strategy and our low-cost manufacturing and the products that we can enhance in the innovation, but also looking into the active side of the business where we really can leverage idle cost manufacturing for new programs.

And these are all things that we're in the process of doing. So as we go through this year, we'll see, but our lines and sights are really now are focusing on 2027 and beyond as we reposition the brand, the strategy and the innovation and really gear the company up for future growth.

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

My first question is, I know it's well understood of how you guys are gaining market share in the wholesale channel. I wanted to ask if you can elaborate on what's sort of is driving the market share gains in underwear, which obviously is a much bigger part of your business now.

Yes, Chris, I mean, as Glenn mentioned, a couple of things. On the wholesale side, part of it is we continue to expand our categories as well. We're opening up new parts of the market there. We're doing half and accessories, and we actually launched shrubs this year. We're expanding our performance products and as well, as I mentioned before, and we're continuing to grow in those premium offerings and [indiscernible] colors and AA. Then on the retail side, as you talked about on the underwear side, Glenn mentioned it, we're -- a couple of things. We're starting our innovation cycle with the Hanes products, as he mentioned.

We presented those to retailers. We have great reception. There's actually a lot of excitement in the retailers by what combined we can do with our supply chain and our cost structure, combined with the Hanes brands. I think that's going to open up expanded opportunities in retail. I think you're going to see us not only expand the core products but also be able to come trade up products as well. And again, we're working closely with those retailers on the space, the programs. the packaging really across the board of how we go to market with the Hanes brand.

And maybe just to add 1 more point, Luca. I mean, the good news is that Hanes is winning today with what they have. And they've been consuming before we acquired Hanes, they've been taking market share in the market. And so -- which is a good thing. And that's why 1 of the reasons why we're so excited about the opportunities. So they were taking share and now all of a sudden, you're going to see, okay, with a product which is okay, but not anywhere near what Gildan is going to innovate. And as we bring in our innovation, that's why we're so excited about this thing because they're already winning, but they're going to win even more. And I think that that's really the key for us as we go forward and launch all of our product offerings and the innovation as we move into 2027. I think that's the key. So we're already in a good position. We're already taking share. And I think that for us, I think we're -- with the value-add and innovation, I mean, it's going to be, we think, a game changer for the industry, and we're totally excited about it.

That's very helpful. And maybe I just have a follow-up question on that, Glenn. I know you mentioned many times before that you think activewear in the retail channel is also a big opportunity. I'm just wondering where are you on that journey in terms of sort of rejuvenate that growth? And is that more of a 2027 story? Or can we actually see some of that growth being manifested in latter part of '26 on the activewear side.

Look, the thing about retail, look, it takes time to develop retail programs as we're always 9 months out. So obviously, it will be more of a 2027 story. But we're working diligently right now with our retail partners. And look at -- nothing happens overnight, okay, because the key thing you have to understand is that you have to basically put the positioning, get the product right, it's a whole package that happens. So we're working closely with our retail partners. We're in a process of, I think, driving an innovation cycle. And they see what Gildan can do for Hanes as a brand. And Hanes is one of the most iconic brands in retail. Its recognization is 1 of the highest in all or brands within in the consumer space.

So with our innovation and everything else we have to do, we think that, look, we're very confident that we're going to see growth. And it's not going to happen overnight. But as we do this, we're going to -- we'll be on a trajectory for 2027. And then you have to make an investment. The investment is either in advertising, innovation and quality. Those are all the attributes that you have to continue to look at it. Things don't happen overnight, but they will happen. And that's the point that I think we need to make sure that we resonate with our shareholders is that you have to make an investment sometime to get a return, and those investments are being made early quickly, diligently and we expect to see fruit from our investments as we move into 2027.

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

I understand that your cotton needs are hedged for this year, but I think energy costs have gone up as well and freight costs have gone up. So in the past, there's been occasions where you have absorbed higher costs and other times, you've passed on -- that you've passed it on to your customers. So I was wondering what's going to be your pricing strategy this time around to deal with your rising input costs?

Well, first of all, Mark, one thing to take into account is we also hedge energy as well, okay? So we hedge a lot of our exposure to make sure that we have visibility and deliver our operating results when we give guidance. So we have very good visibility for 2026 and all those components that I mentioned, cotton, poly, energy, for this fiscal year. So look, we'll wait and see.

I mean, if you look at Gildan's history, we've always been able to offset any type of inflationary pressure with price because we're the price leader. We set the prices in the market. Our competitors are typically high-cost manufacturers that don't have the low-cost opportunity like Gildan and don't forget, what we said earlier is all the things we're doing from the Hanes perspective was that with the scale and the combined companies we're widening our competitive advantage. So we're reducing our costs much as by in-sourcing the Hanes products of the Gildan facilities, but Gildan in generally is lowering its overall cost because of the fact that our scale continues to grow, the company becomes bigger.

So look, we'll see how that goes as we move into 2027. But for now, I would say that prices will remain stable for 2026 because we're in a position that we have very good visibility and we'll see what happens as we move and we'll guide to that as we go to '27.

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

I wanted to focus on the printwear market for a second. Can you just speak to -- I mean what is the health overall of the distributor network there? I guess, more specifically looking to learn a little bit more about maybe the smaller distributors and how they're sharing against this backdrop as opposed to some of your larger customers there?

Look, I mean, look, the market obviously is consolidated over the years. And -- but everybody is pretty much in the equal playing field. So I would say that the bigger distributors represent a larger portion of the market today. So it's -- I think it's -- this is the way the market has evolved and consolidated over time. So the customer base is healthy. I mean the industry itself has probably gone through 24 months of probably [indiscernible] robust sales, I mean, to say the least, I mean, for various reasons. But we're still think that the long-term trajectory and all the work that we've done that the industry should continue to grow at low to mid-single digits actually is all the work that we've done, and we're projecting flat to low this year only because of the, I think, the overall environment. But I would say that the industry and the customers in large are cautiously optimistic.

And then for my follow-up, sticking with the printwear market for a second. And maybe we'll hear more about this in December as well. But I know in the past, for past Investor Days, it's been framed up the corporate promotional channel, for example, was a big piece of the end market, the collegian channel as well travel and tourism, et cetera. Has there been any big shifts in the sizes of each of those end markets since we would have last spoken at the Investor Day?

I would say the only real shift is that I think that from what we see in the industry is that people are gravitating to higher-value products. So for example, our copper colors brand, our champion, our Alpro, I mean, these are -- our fleece, I mean, all these product categories are ringspun T-shirt, basically our [indiscernible] T-shirt are all growing, basically, and the price points of these shirts are much higher than the typical basics. I mean, so people are spending more money on products. They're looking for innovation. So those are all great opportunities for us, basically, and we've been able to capitalize on them. And our Comfort Colors brand is growing 25%, 30% a year over the last 3 years, right, and continuing to growing this year. And these are shorts that are selling for $5 and $6 versus $2 to be honest with you. So it's -- the industry is evolving, and it's good for us. I mean, it's a value-add situation. It's good for our mix in terms of what we sell the channel.

Your next question comes from the line of John Zamparo with Scotiabank.

I wonder if you can comment on the Bangladesh expansion, in particular, I appreciate the commentary on existing operations. So I wonder if you could update us on this initiative and whether it's progressing at the same pace as what you'd expected when you reported Q4.

Yes. Well, first of all, it's definitely on the same pace as it was for Q4. We're confident in the long-term viability of Bangladesh, and we're proceeding as planned. Obviously, we're in the early stages of development and facilities. So that's the stage we're at. And it's important to understand even the long-term levers in terms of the energy of Bangladesh and our commitment to be there, we believe that the infrastructure even today, obviously, from what you read in the papers that there's limited to some of the infrastructures in terms of the energy, et cetera. But Bangladesh is doing a lot to overcome that. They have 2 nuclear reactors that are coming online.

That is going to take up a majority of -- a big portion of their power electrical costs. One that is going to be starting in 2026 and probably after Q2, maybe Q3 or Q4 and another one that will be starting in early 2047. They have a big push for renewable energy basically, particularly in solar. They're drilling -- continue drilling. They have a lot of offshore capabilities in drilling gas offshore. And they've also built a much bigger infrastructure for being in LNG and we do is a combination of all these things in our facilities, including LNG, but we have the capabilities of turning LNG into gas in our facilities.

We're running also renewables, et cetera. So whatever being said, we're full steam ahead in terms of Bangladesh. We also believe that Bangladesh longer term, will be positioned, we believe, from a trade perspective favorably. And so yes, we're moving forward as planned with our plan for Bangladesh.

Okay. That's great color. And then as a follow-up, you referenced the contingency plans perhaps in place already in case there's further disruption to the business. I don't expect you to fully reveal that playbook. But can you share at a high level what those plans entail what Gildan views as the primary risks from the war, whether it's higher costs or disruptions to the business, how you would navigate those.

Well, I think, look, I mean, at the end of the day, we have facilities in this hemisphere that we're shuttering down right now. So obviously, we have capacity that may not be at the same cost curve as Gildan's current operations. So what we're doing is we're basically -- we can manage -- and we're looking at a [indiscernible] situation because like I said earlier, we're running. We have energy today. We're meeting our objectives. We haven't lost any volume whatsoever. But if we were to lose all the oil in the Middle East, what would we do? I think we'd have a contingency plan for that. That's what I would say to you.

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

Glenn, obviously, the backdrop is uncertain, and you've expressed that, and it's nice to know that you do have plans in place to -- and comfort in the 2026 outlook. Notwithstanding historically, the Gildan business on the printwear side has been sensitive to confidence levels and business confidence levels. I'm wondering if you're seeing any of that manifest in these quarters as it relates to the outlook, the energy price in the war.

Yes. No, I mean -- again, we feel like from a consumer sentiment perspective and our customers as well, they're cautiously optimistic. We're not seeing that come through yet. Again, so we feel good about where we are in the market and where we think the market is going. I think the things Glenn was talking about were just as if there's a drastic deterioration, then obviously, we'll have to adjust and deal with that. But we're set to do so, and we feel good about kind of where we are.

And maybe also just add 1 more point, we're comping weak sales from '25 and I think even '24, particularly in Printwear as there's -- we've seen the market was more like down low single digits to, in certain cases, mid-single digits and printwear over '24, '25 year -- year '24 and year '25. So we took share in those markets during those years in which we're continuing to take share now. So we're positioned. Our business is positive today, even though the market is, we think, is down a little bit in Q1 and -- but we're continuing to take share. We're well positioned with our brand strategy.

And what I said earlier in terms of Comfort Colors and [indiscernible] and all the things that are selling. It's opened up new avenues of opportunity for us. So typically, before we are always selling into the basic T-shirt, but now we've got hats. We got bags. We've got performance products. We're going after the other 60% of the channel, which we've never really catered to before. So all in all, I think that we're well positioned to weather even if the market continues to be at the same level in Q1, I mean we're comfortable as we go through the year with our guidance.

Okay. So when Chuck indicated that the market was down low single digits and Gildan was up, was that due to -- was that in volume, was that in dollars? Was that due to these new products that you've introduced? Or is it due to mix? Can you give me some more color on that because given your...

Yes. Look, as we go forward, looking into revenue, it's dollars really at the end of the day because when we're looking at -- from a unit perspective, when we saw a comfort color versus [indiscernible], obviously, we sell it at a higher price point, right? So there's a little bit of a mix shift within our numbers. But I would say that our revenues in terms of how we see our POS and that's how we measure retail as well. So our POS revenue is definitely on the positive side. And that's -- and we look at the market in the same way. So we're looking at both the same way.

Your next question comes from the line of Ryland Conrad with RBC Capital Markets.

With the transition to retail and wholesale revenue reporting, you guys at a high level, how should we think about kind of a normalized organic growth profile for each of those channels within your 3% to 5% growth framework through 2028.

Yes. So thanks for your question. So when you take a look at the -- I think not only for this year but over the '26 to '28 midterm guide, net sales the CAGR will be growing at 3% to 5% range. And what we've articulated and what we've seen in the first quarter as well is that both in wholesale and retail and you're right, that is exactly how we're looking at our business is wholesale and retail as we move forward. We've seen growth in both. And the only reason that hasn't fully translated into sales being up versus the pro forma numbers is because of the actions that we're taking and a little bit because of the reference of prebuy in the first quarter.

So the underlying strength and the underlying growth profile is actually quite similar when you think about the wholesale and in retail, but they do channels. And that will come through over the course of the 3-year midterm guide that we provided within the 3% to 5% range. So that's the way I think you have to think about it. And you're absolutely right. And that's why we've given the extra disclosure in our disclosures around the pro forma for wholesale and retail. That is the way we normally look at our business, report our business but manage our business.

Okay. Got it. I appreciate that. And then just with the recent step-up in leverage, I'm curious if you can maybe share your latest expectations for leverage rate at the end of this year. I mean, whether the timeline to reset the buyback has changed at all relative to the initial, I think, 12 to 18 months those are [indiscernible] communicated.

Yes. Good question. So -- and I appreciate that question because that's where we're very focused. I'm very focused, right, is from a financial perspective, as we navigate through this year, we are in a position where we're very -- we're targeting working capital to come down at a level that's going to be sub 30% by the end of the year. We're very focused on delivering the transaction. We're at 3.3x leverage at the end of the first quarter, and that was in line with our internal plans. We're actively in a process for the investment of our HAA, our Australia business, which I can't really comment on, but it's a competitive process, and it's actually progressing as planned. And so once that comes to fruition, the funds from that divestment will be put towards paying down our debt. And our target is to be back within our leverage framework as quickly as possible, which is 1.5 to 2.5x, and we have not changed our position that once we are back close to the midpoint of that leverage, which is around 2x, we will be in a position to return to buying back stock through an NCIB program.

I do think I want to remind you as well that one of the items is also a focal point for us, is a generation of free cash flow. We're really generating -- at least $850 million of free cash flow this year, which underpins the guidance that we've provided. So strong free cash flow generation. Within that, we're investing 3% of our top line into net sales and very focused on bringing down that working capital to a level that we will be able to operate in and be efficient with our cash return to the leverage framework and return to buying back our stock.

That concludes our question-and-answer session. I would now like to hand the conference back over to Jessy Hayem for closing remarks.

Thank you, Angela. Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great day.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to Gildan Activewear's 2025 Q4 Earnings Conference Call. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Jessy Hayem, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead.

Thank you, Sarah. Good morning, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our results for the fourth quarter and full year 2025 and initiated guidance for 2026. 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.

Now joining me on the call today are Glenn Chamandy, President and CEO of Gildan; Luca Barile, Executive Vice President, Chief Financial Officer; and Chuck Ward, Executive Vice President, Chief Commercial Officer. This morning, we'll take you through the results for the quarter and additional updates and then 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.

Before I turn it over to Glenn, as you know, on December 1, 2025, the company completed the acquisition of HanesBrands. As such, the fourth quarter and full year 2025 results include HanesBrands' contribution from December 1, 2025 to December 28, 2025. Moreover, as announced this morning, the HanesBrands Australian business, which we refer to as HAA, has been classified as held for sale and reported as discontinued operations as of December 1, 2025, the date of closing of the HanesBrands acquisition. Unless otherwise indicated, the figures we will be discussing today are from continuing operations and therefore, exclude the results of the HAA business.

And now I'll turn it over to Glenn.

Thank you, Jessy, and good morning, everybody, and thanks for joining us today. I'd like to start the call by taking a moment and thanking our employees, both Gildan and Hanes for their dedication and commitment and outstanding execution through the year. I'd also like to acknowledge the loyalty of our customers and the ongoing support of our shareholders.

As we highlighted in this morning's press release, 2025 was another important year for Gildan. And we concluded on a high note with record revenues from continuing operations of about $3.6 billion, strong adjusted operating margins of 21.5% and a year-over-year adjusted diluted EPS growth of 17% or adjusted diluted EPS from continuing operations of $3.51, which includes the contribution of Hanes since December 1, the date of the closing of the acquisition.

As we look ahead to 2026, we are very excited about the Hanes acquisition, which doubles our scale, combines iconic brands with our world-class, low-cost vertically integrated platform and unlocks a powerful engine for innovation and growth. Our global team's focus is now fully capturing the value of our expanded platform. In fact, the integration is well underway and progressing ahead of plan.

Let me give you a few highlights about the progress we have made so far. Since the transaction closed, our teams have moved quickly and decisively with a strong focus on unlocking the significant value that we targeted, leveraging the scale and capabilities of the combined organizations. We've already begun our manufacturing footprint optimization. We made the decision to close that 2 Hanes textile factories in early 2026. Production volumes from these facilities will be relocated across our consolidated network in early 2026, leveraging Gildan's low cost structure and further accelerating our synergies.

As a result, our capacity is tight in the short term. We are, therefore, proactively undertaking a temporary reduction of inventory levels across customer channels. We will continue to optimize and increase our production levels through 2026 to support the growth going forward into 2027. Furthermore, we are optimizing our distribution capacity and work is underway to standardize IT platforms and harmonize key manufacturing supply chain processes to drive further efficiencies and unlock the full benefits of the operating as one integrated business.

We have put in place a new organizational structure to support the combined operations with leadership presence in Winston-Salem, North Carolina. Chuck Ward has been appointed to a newly created role of EVP and Chief Commercial Officer. In this role, he will lead the company's commercial strategy for retail and wholesale channels. Given the pace and the quality of the progress so far, we are raising our synergy expectations.

We now anticipate approximately $250 million in run-rate cost synergies over the next 3 years, an increase from the original $200 million target. We now expect approximately $100 million per year in 2026 and 2027 and at least $50 million in 2028. And we will continue to pursue additional synergies beyond our revised 3-year synergies target. Furthermore, the associated onetime restructuring costs are expected to stay within a 1:1 ratio to the cost of synergies generated.

Now just touching on Bangladesh. Today, we are pleased to announce that we are moving forward with Phase 2 of our Bangladesh complex. Over the next 18 months, we will begin construction of our second large-scale textile facility with initial production expected to come online in the later part of 2027, supporting growth plans for 2028. As previously communicated, the supporting infrastructure is already in place, and the required investment remains within our CapEx guidance. Expanding our Bangladesh footprint is central to reinforcing our cost leadership in ring spun and in innerwear. And the addition of a second facility strengthens our ability to support key sales drivers, enhances our flexibility and position us well for the long-term demand.

Today, we are also announcing that following a comprehensive evaluation and strategic alternatives, we have determined that pursuing a sale of the HanesBrands Australia business, or HAA, is in the best interest of Gildan's stakeholders. As a result, Gildan has initiated a formal process for HAA.

Finally, with a strong foundation and a further strengthened competitive position across product lines, channels and geographies, we remain confident in our ability to unlock targeted run-rate synergies and achieve these synergies -- objectives for the 2026 to 2028 period outlined in our August 2025, including compounded annual sales growth of 3% to 5% versus pro forma net sales from continuing operations of $6.089 billion for the Gildan and Hanes combined businesses for fiscal 2025 and adjusted diluted EPS growth in the low 20% range compared to the fiscal 2025 adjusted diluted EPS from continuing operations.

In conclusion, we believe this is an exciting and pivotal moment for Gildan, and we're enthusiastic about the next phase of our growth journey. We have a solid foundation that allows us to execute from a position of strength. With scale both in wholesale and retail and setting us succinctly apart and underpinning our strong competitive positioning and putting us in a greater position to continue driving sustainable growth and long-term shareholder value. I look forward to answering your questions after our formal remarks. And now I will turn it over to Luca for a financial review.

Thank you, Glenn. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year results. Let me start with the specifics of the quarter, then turn to our 2026 outlook and guidance.

First, the quarterly results. As a reminder, HAA operations have been classified as held for sale and are therefore reported as discontinued operations as of the fourth quarter of 2025. We reported fourth quarter sales from continuing operations of $1.078 billion, up 31.3% year-over-year. Excluding Hanes' contribution of $217 million for the period from December 1 to December 28, 2025, organic growth was up 4.9%. Activewear sales grew 10.3% to $788 million, once again reflecting the Hanes acquisition and complemented by favorable mix and higher net selling prices.

We saw solid sales to North American distributors and continued growth with national account customers, driven by our strong overall competitive positioning, new programs contribution and market share gains in key growth categories. We continue to see robust demand for Comfort Colors and our innovative pipeline continues to drive excitement with our new soft cotton technology and new brands such as Champion and ALLPRO.

For the Innerwear category, which now includes hosiery, underwear and intimates, sales were up about 171% versus last year, primarily reflecting HanesBrands' contribution in December, offset by slightly lower volumes owing to continued broader market weakness.

Turning to international markets. Sales were $68 million, up 5.1% year-over-year, primarily reflecting the acquisition, which was partially offset by demand softness across markets and more specifically in the U.K. On a full year 2025 basis, excluding HanesBrands' contribution of $217 million for the period from December 1 to December 28, 2025, net sales were up 4% year-over-year and in line with guidance. Furthermore, excluding the impact of the exit of the Under Armour business in 2024, net sales would have been up approximately 4.7% year-over-year.

Shifting to margins for the quarter. We generated gross profit of $312 million or 28.9% of net sales versus $253 million or 30.8% of net sales in the prior year. Adjusting for an inventory fair value step-up charge of $35.4 million recorded as part of the HanesBrands acquisition, adjusted gross profit was $347 million or 32.2% of net sales compared to 30.8% in the prior year. The 140-basis point increase was primarily driven by favorable pricing implemented to offset the impact from tariffs, lower manufacturing and raw material costs and to a lesser extent, the favorable HanesBrands contribution.

SG&A expenses were $125 million compared to $78 million in the prior year, primarily reflecting the combination with HanesBrands. Adjusting for charges related to the proxy contest and leadership changes and related matters, adjusted SG&A expenses were $124 million or 11.5% of net sales compared to $78 million or 9.5% of net sales for the same period last year. The increase in adjusted SG&A in the quarter reflects primarily the combination with HanesBrand as well as purchase accounting impacts, including amortization of intangible assets recorded in connection with the acquisition.

As we bring all these elements together and adjusting for restructuring and acquisition-related costs, as well as the inventory fair value step-up charge recorded as part of the acquisition and costs related to the proxy contest, leadership changes and related matters, adjusted operating income was $223 million, up $48 million or 20.7% of net sales compared to 21.3% in the prior year, mainly a reflection of HanesBrands' lower adjusted operating margin.

A brief comment on the full year adjusted operating margin. It reached 21.5% of net sales, up 20 basis points compared to the prior year. Excluding HanesBrands, adjusted operating margin was roughly in line with the guidance provided, which called for an increase of approximately 70 basis points year-over-year. Net financial expenses for the quarter were $43 million, up $16 million year-over-year, primarily due to higher borrowing levels related to the HanesBrands acquisition.

Taking into account all these factors and a higher outstanding share base as a result of the acquisition in the fourth quarter, we generated GAAP diluted EPS from continuing operations of $0.32 versus $0.86 in the prior year, while adjusted diluted EPS were $0.96, up 16% from $0.83 in the prior year. For the full fiscal year 2025, GAAP diluted EPS from continuing operations were $2.57 compared to $2.46 in the prior year, while adjusted diluted EPS increased by 17% to $3.51 from $3 in the prior year. Excluding HanesBrands' contribution, adjusted diluted EPS came in toward the low end of the guidance range provided.

Now turning to cash flow and balance sheet items for the year. Operating cash flow, which includes discontinued operations, totaled $606 million compared to $501 million in the prior year, primarily reflecting lower working capital investment. After accounting for capital expenditures totaling $114 million, the company generated approximately $493 million of free cash flow, which includes discontinued operations. During 2025, we returned $319 million to shareholders, including dividends paid and by repurchasing about 3.8 million shares under our NCIB program. We ended the year with net debt of $4.417 billion and a leverage ratio of 3x net debt to trailing 12 months pro forma adjusted EBITDA.

As Glenn detailed, Gildan has determined that pursuing a sale of HAA is in the best interest of Gildan and its stakeholders. We will only proceed with a potential transaction if value and terms are attractive and determined to be in the best interest of the company. And the proceeds from the potential divestment will be used to pay down a portion of the company's outstanding debt and further accelerate Gildan's objective to return to a leverage framework of 1.5 to 2.5x net debt to pro forma adjusted EBITDA ratio, while largely offsetting the expected earnings dilution from the HAA sale.

Now turning to the outlook. Looking ahead to 2026, we expect to build on the progress made across our key strategic initiatives under our Gildan sustainable growth strategy, driving continued market share gains in key product categories in a dynamic macroeconomic environment. We have a strong foundation. And now with the Hanes acquisition, and even further strengthened competitive position across product lines, channels and geographies.

As such, for 2026, with respect to our continuing operations, meaning excluding HAA, we expect the following: revenue of $6 billion to $6.2 billion, full year adjusted operating margin to be approximately 20%. CapEx to come in at approximately 3% of net sales. Adjusted diluted EPS in the range of $4.20 to $4.40. Free cash flow to be above $850 million.

There are various assumptions underpinning this outlook. They are: firstly, our full year guidance reflects continuing operations and excludes the contribution from HAA operations, which are reported as discontinued operations. Net sales and diluted earnings per share for HAA for 2026 are expected to be approximately $675 million and $0.21, respectively. Also, our outlook takes into account the expiry of a Transition Service Agreement at HanesBrands related to its divestiture of Champion, representing slightly over $100 million in sales in 2025.

Our outlook continues to reflect growth in key product categories, driven by recently introduced innovation, the favorable impact from new program launches and market share gains and the various incentives from jurisdictions where we operate.

Furthermore, and as previously detailed, our outlook reflects the temporary reduction of inventory across our combined customer channels, which we are proactively undertaking. Our outlook reflects continued disciplined adjustments to our operating footprint and commercial mix with a focus on margin accretive growth.

Our outlook reflects our currently expected impact of tariffs, including the expected positive impact of the February 20, 2026, U.S. Supreme Court decision in validating certain tariffs and the subsequent related announcements by the U.S. Administration, together with mitigation initiatives, including pricing actions and our ability to leverage our flexible business model as a low-cost, vertically integrated manufacturer. Higher tariff costs incurred prior to these developments remain embedded in our inventory costs.

Given the dynamic and rapidly evolving tariff environment, the level and structure of tariffs and their effects remain uncertain and difficult to predict. In addition, our outlook does not reflect potential rights, if any, to refunds, which remains subject to, among other, applicable procedural requirements and further guidance from U.S. Customs and Border Protection.

As previously communicated, there will be no share repurchases until our net debt leverage ratio approximates the midpoint of our target leverage framework of 1.5 to 2.5x net debt to trailing 12 months pro forma adjusted EBITDA. The adjusted effective income tax rate for 2026 is expected to be around 19%.

Our outlook assumes continued successful execution of the HanesBrands' integration plan, including the realization of the anticipated benefits from actions already undertaken as well as future integration actions.

And finally, we have assumed no meaningful deterioration from current market conditions, including the pricing and inflationary environment and the absence of a significant shift in labor conditions or the competitive environment.

As Glenn laid out earlier, we are reiterating our 3-year objectives for 2026 to 2028 period, including compound annual net sales growth of 3% to 5% and versus pro forma net sales from continuing operations of $6.089 billion for the Gildan and HanesBrands combined businesses for fiscal 2025. And adjusted diluted EPS growth in the low 20% range compared to our fiscal 2025 adjusted diluted EPS from continuing operations.

And turning to the guidance for our first quarter of 2026. We expect net sales from continuing operations to be approximately $1.15 billion. As detailed earlier, given our ongoing consolidation of manufacturing facilities and in order to accelerate and increase synergy capture and support our new operating model, we are proactively undertaking a temporary reduction of inventory levels across customer channels which will have an impact on the net sales in the quarter.

Our adjusted operating margin is expected to be approximately 12.9%, reflecting the higher SG&A levels, which will be impacted by higher amortization of intangible assets and depreciation of property, plant and equipment resulting from the fair value purchase accounting impacts of the HanesBrands acquisition, in addition to a timing differential between some integration-related costs incurred and the flow-through of their benefit in subsequent quarters. Finally, the company's adjusted effective income tax rate in Q1 and is expected to be slightly higher than the expected full year 2026 adjusted effective income tax rate.

Lastly, the company has implemented a reorganization of its internal sales teams to more closely align with its go-to-market strategy. This organizational realignment is intended to enhance strategic focus and operational execution by reflecting the distinct customer engagement models and growth drivers of each channel. As a result, effective the first quarter of 2026, we will transition from disclosing net sales for Activewear and Innerwear which was previously Hosiery and Underwear to providing the same information on a retail and wholesale basis.

We believe these changes will improve transparency and better align the company's reporting with its go-to-market structure. We expect to provide supplemental 2025 pro forma disaggregation of revenue disclosure when we report our first quarter results for 2026.

In summary, we are pleased with the quarter, and we're excited to continue to provide you with the updates on our integration progress and our major 2026 initiatives in the spring when we release our first quarter results.

Thank you. And now I'll turn it over to Jessy.

Thank you, Luca. This concludes our prepared remarks, and now we'll be taking your questions. [Operator Instructions] usual, before moving to the Q&A session, I'd like to remind you to limit your questions to 2 and then we'll circle back for a second round if time permits. Sarah, you may begin the Q&A session, please.

[Operator Instructions] Your first question comes from Paul Lejuez with Citigroup.

This is Brandon Cheatham on for Paul. I was hoping you could talk a little bit more about the destocking that you're planning for the year. What is the cadence of that? Is it primarily hit 1Q ? And should we see that kind of rebound as the year progresses? And I just want to confirm, it sounds like this was driven by your capacity changes by shutting down those 2 facilities. It's not something that you're seeing in customer orders, so are some orders just going unfulfilled? Or are you kind of working hand-in-hand with your customers on that. And then I have a follow-up.

I'll start with the first part of the question. So what we're doing is look at -- we communicated last year that we are increasing our internal capacity in Bangladesh and in Central America, obviously, in anticipation to support the Hanes integration. So there's a disconnect between what our ultimate capacity is and what our run rate is. So currently, we have all the capacity in place to support the closure of the 2 Hanes facilities. And these are -- they only had 2 facilities. So it's basically closing both of their textile facilities.

And what we're currently doing is we're bringing that product into our Gildan network. And obviously, we're ramping the volumes up to support the capacity that's in place. So the disconnect for us right now is that we're short on available inventory where we have a little bit available -- we have tightness of inventory as we move into 2026 that needs to be managed. So we're proactively reducing inventory in the channels to reflect that, which will ultimately should allow us to bring that inventory back up as we move into the later part of this year into '27.

I'll maybe let Luca talk about the timing.

Yes. Thanks for your question. So I think in order to articulate the timing and really understand how this is impacting our guide, it's really important to understand the composition of the top line. Let me start by saying that as we understand the top line, the starting point is really our pro forma results for 2025, okay? And in other words, the pro forma results simulate as if the Hanes acquisition would have occurred the first day of '25. So our pro forma net sales are $6.089 billion. That excludes both the sales contribution of HanesBrands Australia, which is now classified as an asset held for sale and as a discontinued operation and the expiry of the transition service agreement at Hanes, which related to its divestiture of Champion, which was slightly over $100 million. So that's the starting point.

From that point, effectively, both wholesale and retail are fundamentally growing. And they're growing off of that pro forma base in line with the expectations of our growth over the next 3 years of 3% to 5%. The wholesale growth vectors, they include growth in key categories: fleece, ring spun, Comfort Colors, brands like Champion, ALLPRO, the continuation of strong growth from national accounts, which includes some of our private label programs in fleece and [ T ] and items that contributed to our 75% of our organic growth in '25, that continues as we move into '26, continue to take share despite a fluid macroeconomic environment from our product innovation and some positive mix is also contributing to that accretion.

On the retail side, growth is expected across all categories. It's primarily supported by sales share gains and expansion across key retail customers and channels. And it's complemented by the impact of some price that we took to work through the impact of tariff costs and inventory. So that underlying growth I just described is offset really by 2 factors. The first is our proactive decision to temporarily reduce inventories across the customer channels, as Glenn was alluding to. That inventory reduction driven by the accelerated integration of production volumes from the closure of the 2 Hanes facilities into our network, that's a trade-off of short-term capacity tightness for accelerated synergy capture.

So as a reminder, we're expected to yield run rate synergies now of $250 million over the next 3 years versus the $200 million was previously communicated. And that cadence is now realized with $100 million in 2026, $100 million in 2027 and $50 million in 2028. And the second factor is remember that we're continuing to optimize our operating footprint and commercial mix with a clear focus on margin accretive growth. So effectively, the $6 billion to $6.2 billion top line guide from continuing operations, it excludes $675 million of expected contribution from HAA. It's rooted in the foundational growth, and it's offset by the actions that we are taking for the long term.

So in terms of the cadence, when you take a look at our Q1 net sales guidance, it's approximately $1.15 billion. So again, to appreciate what's happening in Q1, we needed the understanding of the full year, and our Q1 guidance reflects our proactive decision to temporarily reduce the inventories across channels. And Q1 also has in terms of the addition to that, where we're comping higher sales in the first quarter of 2025 related to customers across channels where there was some prebuying in anticipation of potential tariffs coming through. So it's impacting our Q1 guidance and some of that may trickle into the beginning of the second quarter.

Got it. That's very helpful. And then just a follow-up. After you close those 2 Hanes facilities, what sales can you achieve with your current manufacturing capacity? And then when Bangladesh Phase 2 comes online, should we think about that as an incremental $500 million in sales capacity? Or has anything changed there?

So we have enough sales capacity today to support the guide of the 3% to 5% over the 3-year period. And once we bring Bangladesh 2 online, obviously, we'll be able to support '28 and '29 at least with the level of capacity. Now it's a little bit different mix associated because we're going to -- depending on what product and what mix goes into that textile facility. But I would say that we definitely have visibility on enough capacity to support '28 and '29 with the development of the second phase of Bangladesh, and we can support '26 and '27 going into '28 with what we have available to us right now.

And that's the part that's important to understand is that we did already put -- embedded into our guidance of CapEx guidance in 2025. We did an expansion throughout our network. We're expanding again in DR '26, which is embedded into our 3% CapEx number that we outlined as well as the development of our Bangladesh facility. That's all embedded in our 3% to 4% CapEx number. But the important thing to understand is that everything is in place. It's now the disconnect. We couldn't start ramping up production in 2025 in anticipation for the Hanes closure. We had to wait for the closure to happen. Otherwise, we would have been consuming more working capital, et cetera, et cetera.

So the way you have to look at it is that all this capacity is in place. We're running at a certain run rate today. We're closing the 2 Hanes facilities. That product amongst our product has to be sort of manufactured. And there's a disconnect between the time it takes us to sort of develop and grow the volumes within the capacity that's already there. And that's sort of why we're managing these inventories in the channel in the short term.

But that's really a short-term situation, and it will work itself through as we move through this year. And the other important point is that when we look at synergies, obviously, the synergy from Hanes' cost structure to the Gildan cost structure, that's a synergy which is quantifiable, but scale is also a huge synergy for us right now. And as we continue to optimize and grow the Gildan footprint, we're continuing to lower our cost structure and be better positioned, I think, as we continue to go forward. And we're very excited about where we are.

Your next question comes from Jay Sole with UBS.

Great. Maybe, Glenn, I want to just follow up on that. I think you mentioned in the prepared remarks that you see $100 million in synergies this year, $100 million next year and at least $50 million in 2028. Can you just talk about what you're seeing that allowed you to raise the guidance? And sort of do you see opportunities even beyond in 2028 versus kind of what was stated in the press release today?

Yes. Well, look, I mean, there's definitely an ongoing opportunity for us to continue reducing and increasing the synergy levels. I mean, as we go into this, obviously, when we called out in the beginning, we said it was $200 million, potentially up to $300 million. What we do is we just want to make sure that we articulate what we really have clear line of sight of. And right now, we have clear line of sight of $200 million, and we're continuing to move forward and see if we can bring that $200 million up.

Now as far as the opportunity above and beyond the 3-year period, there's things like Bangladesh, for example. There's still a lot of fabric that is being sourced outside, and that will be internalized as we go forward and bring on Bangladesh. So we know that Bangladesh will bring us additional savings and synergies as we move past the 3-year period. So we're really comfortable on the $250 million and potentially taking that up from there as we move forward, and we'll communicate that as we move along. And every quarter, we'll give you an update, but we're effectively looking to get all these synergies.

And this is not really a back-to-basic story. This is basically just us hunting and tackling and going through things. I mean there was a lot of complexity in the business that we're streamlining. And that's part of what we've taken into consideration even a little bit this year as we look at it. There's some businesses that -- and segments that they shouldn't really be in. And these are all areas that we're looking to streamline and reduce SG&A complexity. So overall, we're very excited.

And one thing I'd like to really point out about the synergies, it's not just about the synergies. Look, we have line of sight on synergies, but I also like to maybe just add. I think that the most important point about the whole thing is that we're also investing and we're investing in the innovation of the product. So just the fact that we're actually looking at the synergies, but we are not just reducing the cost structure of the businesses, but we're investing in the future.

And one of the things that we're doing right now is we're also reinvigorating the product offerings of the Hanes in all segments and enhancing what we think is the go-to-market strategy of the quality of these products by leveraging our vertically integrated low-cost manufacturing, the innovation that we've been able to develop. So that in a way is a dissynergy because we're putting more value in the garments that they're going to be going to market the are sold. We're in a very good position right now. We're going to be -- and this is one of the reasons why we're moving quickly because we want to not just capture the synergies, but we believe that the quicker that we can innovate and elevate the Hanes product category in the lines and offer better quality products to the consumer, the faster we're going to go on the trajectory of sales growth with this brand because we think the brand has a lot of legs, and we're very excited about our positioning so far.

Yes. And maybe, Glenn, I'd just like to add, I think, Jay, from an earnings profile, right, in terms of our guidance that we're really encouraged, right, with the $4.20 to $4.40 of adjusted EPS, which includes $100 million of synergies for 2026. So the actions we're taking, accelerating and increasing our synergies to $250 million with $100 million in 2026, $100 million in '27 and $50 million in 2028, we're very encouraged by that.

Well, if I can just follow up on that because there's a lot of important points there and Glenn, the investment in the product, I think I'm glad you brought that up. I think there's a thought out there. HanesBrands hadn't had a lot of sales growth looking backwards over the last few years, their history. I mean, do you see it the Hanes -- the portfolio of brands that you're acquiring with HanesBrands, do you see that as a portfolio that you can grow over time? And because not everybody has that -- is aware of that.

Right, exactly. So one of the things I think is important is that, first of all, we're going to hold an investor conference sometime in the fall. Jessy, Luca and myself are going to nail down that date because when we can explain to investors, shareholders really our strategy, the opportunity at hand, I mean the opportunity is -- we think is quite large. Hanes has had declines, but the declines have been in certain categories. I mean, intimates has not performed, but that's a category which is sort of a decline because of the consumer, it's a department store driven. Department stores have obviously declined over the years. It's also a consumer that's basically changing their purchase habits from going to structured to unstructured product offerings. So there's different elements of why and where the sales have dissipated.

But the Innerwear business is still taking share. I mean, HanesBrand as a company is gaining market share. They gained market share in 2025. So far this year and the beginning of the year, they're continuing to gain share. And they're doing that, I think, without really the type of investment that was required for the long term. I mean that was sort of, I would say, the challenges that the company did have. They weren't able to invest the capital and innovation that Gildan or manufacturing capacity.

So when you take an iconic brand like Hanes and you combine that with the vertically integrated low-cost manufacturing, it's an exciting proposition. So we're really going to -- we're going to change the way underwear is being sold in the United States. I can tell you that with the development of our plan, we're going to explain all this to the market. But we are going to be investing in technology, innovation, ESG all the things that are fundamental to our Gildan sustainable growth strategy. And we're going to put that into, what we think is an underinvested brand in Hanes.

So despite the underinvestment, the thing is doing well. And we think with the investment we're making, innerwear as a category is going to continue to grow. And also, don't forget is that Hanes used to have a very large Activewear business. That's another growth opportunity for Gildan is because, look, we can leverage our platform, our products, our innovation, everything that we have from an Activewear perspective as well to help grow it.

I mean -- and back in -- when Hanes was spun off from Sara Lee, half of their business was Activewear and half their business was innerwear. So today Activewear is a very small part of their business. So we're excited. We think we have a lot to offer. We have a great team of people. Chuck is on the forefront of making sure that -- and has now taken over the -- both divisions and spending his time in Winson-Salem, where we're consolidating our retail groups together. And we're well positioned to continue to grow, and we're excited.

Your next question comes from Brian Morrison with TD Cowen.

Glenn, you mentioned the Q1 destock recovery later in this year and next. So why no change to the 2028 EPS CAGR guide with the increase in aggregate synergies to $250 million that would be another $0.20 to $0.25. Is this a rounding error? Are you providing some cushion in that guidance? Maybe it's more appropriate for Luca.

Well, to understand is obviously -- Luca, do you want to?

Yes, sure. So thanks for your question. So look, as we articulated in the press release, we're maintaining our view on the 3-year guide, right, 3% to 5% on the top line in terms of the CAGR, low 20% range adjusted EPS and 3% to 4% of net sales from a CapEx perspective and so on. So effectively, we've maintained that. You're right. We've increased the synergies to $250 million, $100 million in '26, $100 million in '27 and $50 million in '28.

And our 3-year guidance was put out really ahead of the increased synergy number. But there's puts and takes. But the ultimate takeaway is that we're very comfortable with what we put out. We're continuing to chase the performance and push for it. And as Glenn articulated, we're not stopping there, right? We're going after more if it can come. So today, what we're saying is we're comfortable with that top line CAGR. We're comfortable with that adjusted EPS growth over the 3 years, and we're encouraged by the synergies that we're estimating to date.

Okay. And then maybe just from a high-level basis, maybe just update us with how far down the road the Australian process is. Obviously, you announced this back in August, you had closure of the [ HBI ] transaction in December. Is it well underway? Or is it really just commencing?

So again, on the HAA process, first of all, the takeaways, look, we're only going to proceed with something that if there's value, the terms are attractive for us. It's in the best interest of the company and our stakeholders. So that's the headline. The other thing is that we've engaged our bankers. We're within a process. The process is unfolding as planned. But we don't intend to provide any further updates on that regarding the sale or transaction until it's either approved by the Board or the process is concluded. So it's underway. It's progressing as planned, and that's what I can share at this time.

Your next question comes from Ian Liu with Scotiabank.

My first question is on hosiery, underwear or innerwear segment. I was wondering if you could help us impact the performance this quarter, like organically, how did Gildan and Hanes Innerwear business perform? How much did the timing of shipment from Q3 into Q4 helped? And maybe what other factors that drove the result? Just trying to understand the underlying business performance during the holiday season as well.

Okay. Thanks for the question, Ian. I think the good thing is, as we said back in Q3 of last year, we said that the Innerwear business would improve in Q4, and it did improve as we suspected quarter-over-quarter. Organically, we were effectively flat in Innerwear for Q4. But again, great improvement over Q3, just as we expected. One thing Glenn pointed out is both the -- our legacy and organic business as well as the Hanes business has continued to gain share in Innerwear and is performing quite well, not only through Q4, but as we've entered into Q1.

So we feel good about where we're positioned in the category and our outlook on 2026, which Luca had mentioned in his comments. So again, I think we feel good about where we are. We're going to continue to drive share there. We're going to continue, as Glenn mentioned, to look at product, where can we innovate, where can we make changes, where can we improve our customers' experience. And we think that's going to bode well for us going forward.

That's helpful. And then my second question is on the sales growth outlook. But could you maybe provide a bit more color on like the composition of the drivers of the organic growth expectations outside of the temporary inventory reduction. Maybe break it down by your expectations on Activewear and Innerwear or retail and wholesale and volume and pricing?

Yes. Thanks for your question. So yes, so the revenue guide for 2026, right, between $6 billion to $6.2 billion. So as we spoke about earlier, fundamentally, from a wholesale and retail perspective, there's growth that's in the plan. That's offset by the initiatives, the proactive initiatives we're taking with reduction of inventories as well as, look, as we continue to look at the business and try to optimize the commercial mix and just really focusing on margin accretive growth.

So when you kind of peel back the onion and you say, well, where is that growth coming from for wholesale and retail, they don't come as a surprise. We've got growth in key categories, right, fleece, ring spun products, Comfort Colors, the Champion brand, ALLPRO, the basics driven by innovation, strong national account growth, right, our GLB customers. We have the wraparound of programs that contributed to 75% of our growth in 2025 that are coming into 2026, and we have that visibility on the same type of composition as we move forward.

So those really underpin the growth. And then when you take a look at retailers, really the retail growth across the categories that make up the innerwear, right, in terms of underwear, hosiery and so forth, it's across our key customers and channels. And where is that coming from? It's through share gains, expansion of space and so forth and the wraparound of programs. So that should give you a little bit of color on that front.

And so we're pleased with the $6 billion to $6.2 billion of the top line guide for 2026. And ultimately, with all of that contribution and the contribution of the synergy capture, we're going to see sequential improvement as we go through the year in terms of our operating margin and effectively deliver that -- expect to deliver that adjusted EPS of $4.20 to $4.40, which is up 20% to 25% versus our reported 2025 results of $3.51. So we're encouraged by the growth profile.

Your next question comes from Martin Landry with Stifel.

Glenn, I'm just trying to understand mechanically how the integration will happen. You're talking about closing the 2 facilities that Hanes was operating. Hanes had similar revenue levels as you did. So help me understand how are you going to cram 2 big facilities into what you had, like I think you said in excess of 10% capacity that you mentioned last call. So like how is this going to work? Are you going to use third-party providers as well?

No. We -- all this will be internalized in our own facilities. What we said last year is that we went through an expansion in our Bangladesh facility. We expanded it by 50% to be able to support the volumes of Hanes. We had about 10% excess capacity in our system, and we said we added another about 10% in Central America. That's what we communicated to you during 2025. We're also going to be adding additional capacity in our facility in DR in 2026 by moving some of their equipment into our facility. So overall, we have enough ample capacity to support.

Now you have to understand there's a big difference between Underwear and Activewear. Obviously, in terms of the amount of fabric and material it takes. It takes 1 pound to make an undergarment it takes 7 pounds to make -- sorry, take 7 pounds to make an average mix, 15 pounds to make a sweatshirt, 1 pound to make an undergarment. So in terms of poundage, when we look at capacity, you have to understand the mix associated with that type of product offering.

So overall, we're very excited. We have the capacity in place. We just have to get the volumes within those facilities running at the right capacity. And that's sort of the point of reflection here is that the capacity was installed and running at a certain rate. And now what we're doing is we're closing their facilities, there are 2 facilities, which will be shuttered sometime at the end of Q1.

And then that product, amongst our product will be in our facilities and then therefore, we'll be a little tight as we continue to ramp up to the level of production run rate that supported the capacity that's installed. And that's the whole important thing here. So we'll manage inventories in the channel. We feel very comfortable that we can do that without affecting our POS and as we go through the end of the year, some of that may come back in. Some of it may not, we're not sure. But that we always have the ability to put those goods back in the channel as we move into 2027.

So I think this is a good plan. And you have to understand things is that -- and the reason why we're accelerating this is just because this is not just about our manufacturing COGS side of it, but it's also the SG&A side. We're looking at IT systems, for example, the time it takes to do an implementation on a textile factory from an IT perspective is 9 months.

So the lesser facilities that we have to integrate, the quicker that we can get the other parts of our SG&A associated expenses and Hanes is spending a greater amount on IT systems than Gildan was just because of their complexity and other things that go with it. So we're looking at a comprehensive cohesive view of how we're going to be able to attack these synergies and complexity, simplification, all the things that we do are going to be instrumental to achieving it. That's why we're so confident in our ability to execute and achieve these synergies.

Okay. That's helpful. And then, Luca, I don't know if you quantified it, but in your $6 billion to $6.2 billion revenue guide, what's the impact of that inventory reduction?

So as we went through the guide for the $6 billion to $6.2 billion, again, the takeaway is that fundamentally, there's growth in the range that's consistent with what we're expecting over the 3 years of 3% to 5% across both wholesale and retail. As that comes into play, there's 2 factors that are effectively offsetting, which is, one, the proactive reduction of the inventories; and two, to a lesser extent, the -- as we continue to optimize the operating footprint on the commercial mix. So I would say it's closer to 2/3 on the first item and 1/3 on the second item. And that's what yields a guidance of $6 billion to $6.2 billion against the pro forma of 2025, which is $6.089 billion.

Your next question comes from Vishal Shreedhar with National Bank.

Luca, I was just hoping to -- obviously, when you do a deal like this, things shift and things change. But at closing, my understanding was that management previously articulated leverage of about in the mid-2s, and you currently have 3. Maybe you can help me understand that.

Yes, absolutely. So when we did close the -- first of all, we closed the transaction earlier than expected, right? We were saying that it was end of the year but really more in the first quarter. So we closed it earlier than expected, which we're really pleased because now we have the keys and we can get going with our integration plan. That's number one.

Number two, the elements that contributed to a leverage of around 3x or 3x at the end of the year. It was effectively slightly higher debt levels at closing. And also in terms of the EBITDA contribution of the EBITDA pro forma at the time, there was adjustments for differences between IFRS and U.S. GAAP and so forth that came into play. So we just shored up the number. But the takeaway here is we're at 3x leverage today.

In the guide, we're going to generate over $850 million of free cash flow. That is a big number. And with that, we are putting that towards ensuring that we can delever this transaction as quickly as possible. We did come out in the original announcement saying that we would deliver between 12 to 18 months. We are trying to deliver as quickly as we can, maintain our strong balance sheet. We're an investment-grade balance sheet, which is valuable to us and also valuable to our customers.

So the focus is on delevering. And when we get to around the midpoint of our targeted range of 1.5 to 2.5x, we'll then return to buying back stock. So we put that on pause. So we feel very comfortable with where the balance sheet is today with the cash flow generation that's within the guide. And to complement all of that is also our HAA sale process, which would also further accelerate that delivery. So we're comfortable with where the leverage is, and we're attacking it.

Okay. And with respect to the EPS CAGR, my -- so we took -- you took up the synergies, you chatted about that. But my understanding was previously management had indicated it would be 20% CAGR with something materially exceeding 20% in the first year. And at the time that was given, HBI's consideration for Australia was understood. So just wondering how that's changed and what the thinking around that has changed?

Yes. Sure, Vishal. So it's a good question. I think nothing has changed really is the way to think about it because we're at $4.20 to $4.40 off of our $3.51. So we're growing between 20% to 25%. At the time, the discussion was around the consolidated entity. So now we've concluded our strategic review of HAA. HAA is now reported as a discontinued operation. And you'll see as it gets reported, HAA is projected to contribute $0.21 of discontinued operations. That $0.21 is not in our guide of $4.20 to $4.40. So if you would aggregate the 2, we would be exactly in line with what we had communicated. So the differential is simply HAA being recorded as asset held for sale and a discontinued operation.

Your next question comes from Stephen MacLeod with BMO Capital Markets.

I just had a couple of follow-up questions. The first one is with respect to the Q1 inventory reduction. How do you balance that with potential sell-through challenges? Like do you expect that lower inventory will lead to stockouts in some situations or not?

No. No, we feel comfortable that -- and we're very prudent about our approach. And the inventory is going to be dispersed, like we said, through channels. So it's not particularly in one place. And we have good inventory levels in the channel because that's what's one of the things that have been allowing us to generate share. So we think we can optimize those levels. We have the capability of doing it and really not affect the POS at all.

We're very comfortable. We have very good in-stock levels. Our percentages -- and when you look in stock, it's not just the sheer volume we have in stock, but we really manage it by the percentage of the quality of that in-stock. So our quality of our in-stock today is very, very high. So you can -- so sometimes you have good inventories, but your quality is not good because you're missing something. Like for example, we've been chasing Comfort Colors now for the last 3 years because it's been growing by 40% a year. So -- but during 2025, we brought that inventories to an appropriate level to support the revenue of that as we increase our capacity. So overall, we think that we're in a very good position, and we don't see any negative impact from POS. And that answers your question.

Okay. That's great. And then just my second one would be, I don't know if you disclosed it in the notes, I haven't seen it, but can you give a little bit of color as to what Hanes Australia adjusted EBITDA would have been in Q4?

So what we've provided is in terms of -- for 2026, we know the sales of $675 and the contribution is expected to be $0.21 of earnings. With respect to the fourth quarter and the disclosures, you can see the sales that it contributed to the fourth quarter, which was around $70 million, and it contributed $0.04 of earnings to discontinued operations.

Your next question comes from Chris Li with Desjardin Capital Markets.

My first question is just did you see any sequential improvement in terms of industry demand for both the wholesale and retail channel in Q4? And then what is your outlook that underpins your guidance for 2026 in terms of industry demand?

Thanks, Chris. I mean, I think overall, the market was okay in Q4 on the dollar -- from a dollar perspective. The units were down slightly, but we're continuing to see higher value products that we've talked about, for example, Comfort Colors, Champion, ALLPRO. So we're continuing to see where the market has been driven by those higher-value products, and we're continuing to grow those and take share. So -- and overall, the wholesale and retail markets were a little bit softer than we expected, but we gained share in key categories, and we continue to go and grow on that.

As we look at 2026, we think we're going to be flat to up low single digits plus our new programs. So the way we get the growth we've talked about is we have that plus we have new programs. Not only do we have the wraparound from some of the programs that we've talked about in 2025, but also new programs in 2026 from -- everything from Champion and ALLPRO to some GLB programs as well as some new products and categories. You probably saw that we've talked about accessories, we've talked about scrubs. And then again, new retail programs, not only in Activewear, but Innerwear and not only in Hanes but also some private label programs as well. So we feel really good about where we are as we go into 2026 with those new programs and what we think the market assumption is.

And my follow-up question is for Glenn. You mentioned earlier that Hanes the U.S. intimate business has been underperforming because of structural factors. Is that potentially something you would consider divesting at some point as you continue to integrate the business within the Gildan platform?

No, at this point in time, look, we think that it's sort of gone to a trough. I mean, there's 1 brand, which has really been underperforming the most of the brands that they do offer. I think they have a plan to stabilize that and reinvigorate it. So look, time will tell, but we think that it's definitely not going to be a growth driver for the company, but we think that we can elevate it, improve margins and stabilize the business basically that's where we are today, and we'll see how that goes as we go forward.

Your next question comes from Ryland Conrad with RBC Capital Markets.

Just on the operating margin guidance. Could you speak a bit to the assumed underlying margin expansion for stand-alone Gildan business? And just what the puts and takes are there for 2026?

Yes. Thanks for your question. So for '26, the adjusted operating margin guidance, right, approximately 20%. The Gildan's based profile was obviously higher than the Hanes' base profile. So you have the 2 coming together, sequential improvement as you go through the year, given the synergies are coming in and so forth. But the growth drivers to the strong operating margin at the end of the day, remain unchanged.

If you take a look at what's been driving the operating margin performance at Gildan, we've had the optimization of our Central American capacity, our yarn optimization, the Bangladesh cost advantage that's really bolstered the gross margin, discipline around SG&A. So that's really the base. Then you tack on the Hanes profile and then you tack on the synergies that are coming in 2026 and that's effectively what's going to drive the 20%. And with that strong 20% delivering the earnings of $4.20 to $4.40. I do want to reiterate again that the quality of those earnings are strong because of the cash flow generation that we have in the plan, which is over $850 million. So I would say it's the usual suspects that we're driving Gildan's margin that will continue, plus the synergies.

Okay. And then just on Comfort Colors expanding into new categories this year, is there anything you could share maybe on initial conversations with your customers there? And with respect to your net sales guidance for this year, like are there any assumptions baked into that around the contribution from those categories?

Yes, Ryland, I think first on the expansions of Comfort Colors, One, the brand has continued to have consumer that really seeks the brand has an emotional connection to the brand. And it's going to open up our opportunity to go into other categories and things like the accessories. We did have our show out in Long Beach earlier in the year where we launched hats and bags. And what I can tell you from the reception perspective is from the minute to show up to the minute the show closed, there was a long line waiting at the booth to get a chance to win one and to see them.

And the feedback -- I was there on the floor with the customers, the feedback of the product was great. And so I think that customer gives us leeway to go into other categories, and we think we can continue to do that. And so we'll continue to grow that brand. Yes, there's contribution in our forecast for that. I would say it's muted in the first part of the year -- or I'm sorry, throughout the year because it's -- we're introducing the new category as well. So -- but yes, there is contribution.

The other brand that we're spending a lot of time with is ALLPRO. ALLPRO we've talked about that brand as well. It's growing. It's from a low base, but a great reception from the brand, and it allows us to play more in performance in corporate wear and go into different categories that way. Champion we talked about our license with Champion. It opens up other areas as well and fanwear, sportswear, kind of from the sports heritage brand that it is. So really, what we're trying to do as we look out at the market overall is how we continue to expand that addressable market for us and so that we can reach into other areas.

This concludes the question-and-answer session. I will turn the call to Jessy Hayem for closing remarks.

Thank you. Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great day.

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

Ladies and gentlemen, thank you for standing by, and welcome to Gildan Activewear's 2025 Q3 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jessy Hayem, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead.

Thank you, Jeannie. Good morning, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our results for the third quarter while updating our full year guidance for 2025. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents are expected to be filed with the Canadian Securities and Regulatory Authorities and the U.S. Securities Commission today, and they'll also be available on our corporate website.

Now joining me on the call today are Glenn Chamandy, our President and CEO; Luca Barile, Executive Vice President, CFO; and Chuck Ward, Executive Vice President, Chief Operating Officer. This morning, we'll take you through the results for the quarter, and then 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 Glenn.

Thank you, Jessy, and good morning, everyone. We're pleased with our third quarter results as we continue to drive profitable growth, especially in a macroeconomic backdrop, which remains fluid. We saw strong net sales growth of 5.4% in Activewear and adjusted operating margins of 23.2%, which allowed us to deliver record adjusted diluted EPS of $1 this quarter, an increase of 17.6% versus the same period last year. These are record-setting third quarter results, which once again showcased the effectiveness of our Gildan sustainable growth strategy in driving strong financial performance.

Our sales in the distributor channel remain healthy, and we're seeing sustained momentum in our national account customers, which is supported by strong overall competitive positioning. We continue to drive growth in key categories. We're very pleased that our innovation pipeline continues to create excitement, and we have now introduced new brand offerings such as ALLPRO and Champion. Furthermore, our Comfort Colors brand continues to perform very well. This year, the brand is actually celebrating its 50th anniversary. A great milestone for Comfort Colors whose pigment dyed shirts are redefining comfort and style. They're crafted from 100% rings spun cotton, grown and harvested in the U.S. using a pigment pure technology, which helps to reduce water and energy and shortens processing time.

So as we turn the page to another successful quarter of execution, we are narrowing our adjusted diluted EPS guidance to a range of $3.45 to $3.51, and also updating our full year adjusted operating margins, CapEx, free cash flow guidance. Luca will detail this in a moment. We believe that this is an exciting pivotal moment for Gildan, and we're enthusiastic about the next phase of our growth journey.

We're delivering constant execution of our strategic priorities. We're capitalizing on the largest innovation pipeline in the company's history. And now we're focused on planning the integration of the proposed acquisition of HanesBrands, which will broaden our portfolio of retail presence as we look to drive meaningful run rate synergies of at least $200 million by leveraging our best-in-class large-scale, low-cost vertically integrated manufacturing network.

We continue to expect the transaction to close late this year or early 2026. As you can expect, we have put in place an integration team that have begun planning for this combination. At this point, there is no further commentary that we'll be positioned to provide for the proposed transaction. In conclusion, we continue to execute from a position of strength. We have a solid foundation. We're focusing on our GSG strategy with our strong competitive positioning, all of which is putting us in a great position to execute on the eventual combination with HanesBrands and ultimately drive long-term shareholder value. I look forward to answering your questions after our formal remarks, and now I'll turn it over to Luca for a financial review.

Thank you, Glenn. Good morning, everyone, and thank you for joining us today to discuss our third quarter results. Let me start with the specifics of the quarter, then turn to our 2025 outlook and guidance. First, the quarterly results. We reported third quarter sales of $911 million, up 2.2% year-over-year, in line with previously provided guidance of low single-digit growth. The 5.4% increase in Activewear sales was driven by favorable product mix and higher net prices.

As Glenn mentioned, we continue to drive growth in key categories and are experiencing robust demand for Comfort Colors while supplementing our portfolio with the addition of ALLPRO and Champion. Sales to North American distributors were solid, complemented by sustained momentum at our national account customers, driven by our strong overall competitive positioning. Sales in the hosiery and underwear category were down 22% versus last year, which reflect, as expected, a timing shift of shipments into the fourth quarter and to a lesser extent, unfavorable mix as the category experienced continued broader market weakness during the quarter.

Turning to international markets. Sales were down by $4 million or down 6.1% year-over-year, primarily reflecting ongoing demand softness across markets. We don't typically spend time on our year-to-date results, but just a brief comment that on a year-to-date basis, our consolidated revenue growth is at mid-single digits, excluding the impact of the exit of the Under Armour business in 2024, setting us up well for the full year.

Shifting to margins for the quarter. Our gross margin was 33.7%, a 250 basis point improvement over the prior year, primarily due to lower manufacturing costs and favorable pricing, which reflect price increases implemented to offset the initial impact from tariffs. To a lesser extent, we also benefited from lower raw material costs. SG&A expenses were $95 million versus $84 million last year. Excluding charges related to the proxy contest and leadership changes and related matters, which were almost entirely incurred in the prior year, adjusted SG&A were still $95 million or 10.4% of sales compared to $78 million or 8.8% of sales in the same quarter last year, reflecting higher variable compensation and IT-related general and administrative expenses.

As we bring these elements together and adjusting for restructuring and acquisition-related costs primarily related to the proposed HanesBrands acquisition as well as the costs related to the proxy contest and leadership changes and related matters, which were almost all entirely incurred in the prior year. We generated adjusted operating income of $212 million, up $12 million, representing a record 23.2% of net sales. This reflects an 80 basis point improvement year-over-year, which came in ahead of guidance we provided.

Net financial expenses of $44 million were up $13 million over the prior year due primarily to fees related to the committed financing that we obtained for the proposed HanesBrands acquisition and due to generally higher borrowing levels. Furthermore, in connection with the proposed acquisition, as you may have seen, we announced on September 23, a private placement offering of USD 1.2 billion aggregate principal amount of senior unsecured notes across 2 series. The proceeds from this offering will be used to fund the proposed acquisition of HanesBrands, refinance its debt and cover related transaction costs. Taking into account all these factors and adjusting for restructuring and other costs and the financing fees in connection with the proposed HanesBrands acquisition, we generated record adjusted diluted EPS of $1, up 17.6% compared to $0.85 in the comparable period.

Now turning to cash flow and balance sheet items for the first 9 months of 2025. Operating cash flow was $270 million compared to $291 million last year, primarily reflecting higher working capital investments. After accounting for CapEx of $82 million, we generated approximately $189 million in free cash flow in the first 9 months of 2025, of which $200 million was generated in the third quarter. During the first 9 months of the year, we returned $286 million in capital to shareholders, including $102 million in dividends and repurchased about 3.8 million shares under our NCIB program. Finally, we ended this quarter with net debt of about $1.7 billion and at a leverage ratio of 2x net debt to trailing 12 months adjusted EBITDA, at the midpoint of our targeted range of 1.5x to 2.5x.

Now turning to our strategy and outlook. As Glenn highlighted earlier, we are pleased with the team's continued execution as we approach the end of a very solid year. We continue to tap into the largest innovation pipeline in the company's history with more product launches to come in 2025 and into 2026. Now turning to the outlook. We remain focused on operational agility and committed to executing on our GSG strategy in order to drive strong financial performance as we navigate a fluid macroeconomic environment.

We are updating our 2025 guidance as follows and expect revenue growth for the full year to be up mid-single digits, in line with previous guidance. Full year adjusted operating margin to increase approximately 70 basis points compared to previous guidance of up approximately 50 basis points. Our CapEx to come in at approximately 4% of sales compared to previous guidance of 5% of sales. Adjusted diluted EPS to be in the range of $3.45 to $3.51, which is up approximately 15% and 17% year-over-year compared to our previous guidance of $3.40 to $3.56; and free cash flow to now approximately $400 million compared to our previous guidance of above $450 million.

The assumptions underpinning this outlook are the following: Firstly, we continue to reflect the impact of tariffs currently in place in conjunction with mitigation initiatives available to us, including pricing and our ability to leverage our flexible business model as a low-cost, vertically integrated manufacturer. The higher tariffs are also embedded in our inventory costs. Furthermore, the outlook continues to reflect growth in key product categories, driven by recently introduced innovation, the favorable impact from new program launches and market share gains and the various incentives from jurisdictions where we operate.

We've assumed no share repurchases for the remainder of 2025, as indicated at the time of the announcement of the proposed HanesBrands acquisition. We've taken into account acquisition-related costs incurred thus far, and we anticipate that our adjusted effective tax rate for 2025 will remain at a similar level to what we saw for the full year in 2024.

Finally, we've assumed no meaningful deterioration from the current market conditions, including the pricing and inflationary environment and the absence of a significant shift in labor conditions or the competitive environment. So in summary, we are pleased with the quarter, and we remain confident in our ability to deliver continued strong financial performance as we look ahead and get ready to welcome HanesBrands. Thank you. And now I'll turn it over to Jessy.

Thank you, Luca. This concludes our prepared remarks, and now we'll begin taking your questions. [Operator Instructions] Jeannie, can you please begin the Q&A session?

Thank you. [Operator Instructions] And your first question comes from Paul Lejuez with Citigroup.

A couple of questions. One, can you just talk a little bit more about the weakness in the underwear business, where you think that market share might be going? Maybe you can quantify how much was the shift versus overall market weakness? And what's your view on when that business stabilizes? And then second, just curious what you're seeing at point of sale overall. Maybe if you could talk to pockets of strength and weakness at point of sale.

Paul, it's Chuck. Thank you for the questions. A couple of quick things, I guess, first on the underwear and innerwear business. What we're seeing, the innerwear business was impacted by a few things for the quarter. There continues to be some delays in some floor sets by a large retailer. So we're continuing to face that a bit. Also, some of it is retailers managing inventory investments and balances due to the impacts if you think of what they now have impacts of tariffs in their inventory and some cautiousness overall, we did see during Q3, the retailers starting to manage inventory a little tighter.

And also, we had talked previously about some ongoing product and program resets that are happening within the space with some customers. So all those things kind of drove the quarter results that you see here. I think as we think about it going forward, we expect to see a return in the innerwear of growth in Q4. So we expect Q4 to be back to a growth perspective.

Overall, on POS and what we're seeing in the market, I mean, what we're seeing is a stable market. We have seen it stabilized over the year. We think that we'll continue to see that through Q4 as well. And so -- and I think if you think about categories and how they're performing, I mean, we're seeing strong performance, obviously, with our Comfort Colors brand. We're continuing to see very large growth and net fleece has performed well. Glenn mentioned in his comments some about some new Activewear programs and national account growth that we're seeing as well. So we're capitalizing on those things as we go. And then obviously, we feel good about our brand portfolio and where we are to address the market going forward.

When you say stable market, are you saying stable to last year, like POS is flat to last year or stable at a low single-digit or mid-single-digit rate?

Yes. More in line with Q2, what we were talking about in Q2, the market has kind of been stable at that same rate going forward.

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

Just maybe a first question on your guidance update. On your free cash flow guidance, you are guiding a little bit lower despite lower CapEx. It looks like it's mostly coming from higher working capital investment. Can you please elaborate a little bit of what's driving the change in the guidance for this year?

Yes, sure. Thank you, Chris, for your question. So look, from a free cash flow perspective, we're actually -- so a few things. One, very good free cash flow performance in the quarter. We generated $200 million, which is right in line with our own internal expectations. And the revision to the guidance from a free cash flow perspective, there's a few things that drive that. One is the, just taking into account the transaction costs incurred to date with the proposed HanesBrands acquisition. The second is there's a bit of timing with respect to working capital.

I'd reiterate that our view on working capital as a percentage of sales is really to be around 37% to 38%. We'll get there as we move into 2026. And right now, there's also some tariff costs that are incurred in our inventory. So that's really the main drivers. From a cash flow generation perspective that we're still generating healthy elements of free cash flow. That's really driven by the fact that we have really strong margin performance coming through, and that's expected to continue into next year.

Great. Okay. That's very helpful. And then maybe just another one on the guidance update. The operating margin expected to increase by 70 basis points this year. As you look out into next year, what are some of the key puts and takes? And maybe directionally speaking, do you think 70 basis point improvement again next year is achievable?

Well, starting with the guidance for this year, the one thing that we're very pleased with, and that is -- it starts with the performance that we've seen sort of quarter-over-quarter and specifically in the third quarter is strong margin performance. And the strong margin performance comes from -- is twofold. One, from strong gross margin performance, but also really good cost control around SG&A. And the reason why we've upped the guidance there in terms of up to 70 basis points improvement year-over-year versus the 50 that we previously guided to is because the elements that we control that have been driving the margin expansion are things that are foundational to the way the company is running today and will continue to run.

Those things are really embedded in the ramp-up of Bangladesh, right? Our investment in Bangladesh and the cost differential that that's bringing us is contributing to that margin. That's expected to continue. The investments we made into our yarn operations, optimization of our yarn footprint and those costs are coming through. Those will continue. The optimization of our Central American capacity and quite frankly, overall, our network overall, that's coming through.

So there are elements that when you take a look at the gross margin in the third quarter, we do have some impact from favorable pricing. There's a little bit of timing versus Q4. But the way to think about the margin, it's strong and it's sustained, and it's driven by things that we control and that are foundational to the business model. So that's what I would -- how I would think about heading into next year.

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

Two-part question for me. First is just on the fleece business. Glenn, if you can just talk about how the fleece business trended maybe in September, if the weather is a little bit warmer and maybe what you've seen in October as the weather has gotten a little cooler and just how inventory in that business is looking overall and how demand is looking?

And then secondly, with all the tariffs now, it's been a couple of quarters since April 2. What kind of conversations are you having with companies? What kind of opportunity do you see maybe to capture some new business from companies maybe looking to move some of their production out of Asia, maybe to your factories with your company, whether it's in Bangladesh or Central America?

Okay. Well, I would say, look, fleece is still performing well for us. We're in a good position with fleece this year. It's really early. I mean the season really only starts kicking off, like we ship a lot of our fleece in the end of Q2, Q3 basically. And then the season really sell-through period is -- starts now and moves into the fall and winter really. So I think we're -- it's early days in terms of weather. But so far, the sales are meeting our expectations, I would say, in terms of fleece so far for this year.

Regarding tariffs, I would say to you that, look, there's a lot of uncertainty in the market today. And I think that we're seeing a lot of people looking to reorient their supply chain. But at the same time, there's a little bit of I would say, hesitation because people don't understand are tariffs off, the tariffs are on. They're making a deal, they're not making a deal. They're going to court, they're not going to court. So shifting your supply chain is never something you want to do in a knee-jerk type of reaction. So -- and even ourselves, to be honest with you, there's ways for us in our own manufacturing to further optimize, I would say, our supply chain relative to the way we're set up, but we're sort of waiting to see how all of these things materialize.

So overall, I would say that there's definitely going to be a rethink in terms of how people are trying to reorient into their supply chain. And there's also going to be specific areas where I think the opportunity is going to allow us to look at other product categories. So for example, if you look at the 100% polyester product category, that's an area where the tariffs are the highest and duties are the highest. So -- and that's an area that we have -- our Rio Nance 6 facility, for example, has got a lot of capabilities of producing polyester. So -- and there's been trade legislation changes in that category. So we think that, that's something that we can capitalize on, and that's probably one of the areas where we have actually the lowest market penetration.

So we're working quickly now on building product innovation, things that we're doing to look at that category. And one of our brands, which is ALLPRO, I mean it's really focusing on all polyester type products and as well as a lot of the big brands that are looking maybe potentially nearshore, those are -- that's a category which is really important to them. So overall, look, we think there's going to be an opportunity. I think it still has to come to fruition, I would say, as we move into the future. But I think we're well positioned with our manufacturing footprint to take advantage of any type of opportunity.

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

Luca, when you mentioned that the market was stable, my understanding was that the market was -- I'm talking about the wholesale market was under pressure, at least for the last several quarters. So were you talking on a volume basis or on a sales basis? And are you including national accounts in that as well when you're saying it's stable?

When we look at the market, we look at the whole market in styrene, and I would say to you that the Q3 was similar to Q2. And what we said in Q2, it was down low single digits basically. So we're seeing the same type of comps as we move into Q3. So it hasn't really improved and hasn't gotten any worse. So it's more stable relative to Q2, but still negative year-over-year.

Obviously, we're doing well in the market because of our soft cotton technology, our Comfort Colors, our AA basically is continuing to grow, our launch of our ALLPRO and Champion, and remember that 3/4 of our sales growth this year in 2025 was projected coming from new programs. Our fleece is in retail, a big major program we had is doing very well. So all those things are driving the sales growth for us to have our mid-single-digit growth for the full year, which we're on track for. But I would say that the market, it was down probably low to mid in Q1. We said low in Q2, and it's probably in the same level Q3, and we're expecting that type of scenario in Q4 in our assumption.

Okay. And that's on a sales basis, right, not on a unit basis?

Yes. Yes.

Okay. Okay. And with respect to the gross margin, and I know you chatted to this a little bit earlier, but it improved quite a bit sequentially. Is that mainly related to the manufacturing initiatives? Or was there pricing in there as well?

Yes, Vishal. So again, the gross margin was strong in the quarter. It's a combination of things. But really what's driving the foundation of the margin at the end of the day is the contribution of the lower manufacturing costs. There is some impact from pricing, but really the lower manufacturing cost is what's foundational. And that is what's going to carry forward not only into the fourth quarter, but that's foundational to the business as we move into next year.

Yes. And then, maybe just add one thing to that, I would say is that, look at the fundamentals of our strategy of optimizing our manufacturing and scaling and generating scale in our operations is going to continue as we move into 2026 because we've expanded in Central America, like we said this year, which we've added another 10% capacity in our facilities in our 4 walls at a limited CapEx and the CapEx is coming even below our expectations. So as we leverage that CapEx as we move into 2026, obviously, that's going to continue to help us with additional cost reductions and margin expansion as we continue to optimize our facilities.

And we're actually in the process now of looking to expand within our Bangladesh facility within the 4 walls of that as well. And we believe that we actually can expand that facility by probably another 50% as we look at the 4 walls of that building by utilizing some space that we have within our park and allowing us to drive additional capacity. So these are all the things that's built into Gildan DNA is looking at ways really to optimize our manufacturing, particularly as we look at our overall planning as we move into 2026 and bringing on Hanes and as far as we continue to plan our integration strategy. So scale is going to be a key driver of continued margin expansion, and we think we're well positioned to continue to grow our margins as we move forward and lower our costs.

Your next question comes from the line of Brian Morrison with TD Cowen.

Glenn, I wanted to follow up with that what you just talked about. So how much capacity you talked about the increase in Bangladesh and in Honduras throughput. How much available capacity in dollars is within your existing infrastructure? It sounds like there's another $200 million to $250 million in Bangladesh 1, and what is your view for a go-ahead for a second facility at Bangladesh? I know you already have some of the pieces already in place there.

Well, I think -- 2 things. One, look, we'll articulate some of our plans as we move into Q1 and report because we'll have good visibility on our total integration plan with HBI. So I think that will sort of give you a little bit of context. But the increased capacity that we can get out of Bangladesh right now doesn't preclude us from putting up the second facility. So we still have that optionality. What we're going to do is we have space available to us in Bangladesh, where we can add additional knitting equipment, and we're putting in some more dyeing and finishing equipment in the facility and the existing facility will allow us to get the first level of expansion. And then we'll also, obviously, as we move forward, evaluate Phase 2.

Phase 2 would be a much bigger, longer project. It's going to take 12 to 18 months to develop. So that's something that will be down the road. But trying to get incremental capacity and also looking to optimize our cost structure and reduce the amount of capital we've got to spend. That's our first priority as we bring on HBI. So with all of that and looking at the ecosystem of what they're doing, the products, the mix and all the different things, we're building, I think, a cohesive integration plan that ultimately is going to continue to lower our costs and bring us scale, which is what we called out before.

But more importantly, we think that there's a lot of room in terms of the margin improvement and operating margin improvement on the other side because we don't -- we believe that Hanes should be operating in the same type of operating margins as Gildan does today. So that's our long-term goal, let's say, for example, as we drive into the future. So everything being equal, I think we're in a very good position. We're very comfortable with our positioning, and we're going to continue to leverage our best-in-class vertically integrated large-scale manufacturing as we build our plans into '26, '27 and '28.

And Glenn, to follow up, how long would it take you to expand Bangladesh 1? And have tariffs on Bangladesh made you alter any of your logistics or supply chain in order to optimize your cost structure?

I would say, look at the -- even with tariffs, Bangladesh is very competitive. And what we said before is that it had a 25% cost advantage relative to what we're doing in Central America and the products that we're producing. So the tariff impact with U.S. cotton obviously is a lot lower than that. And then as we continue to scale the thing up and lower our cost, therefore, they will be offsetting some of that tariff cost even further. So that's all part of the strategy, how we're going to continue to drive efficiencies in our system.

So look, we think that we're in a good place. We're going to continue -- we feel comfortable, and you can see it's flowing through in our operating margin expansion this year. And all we're saying to you is that, look, we've got further room to continue to expand our manufacturing footprint, reduce our costs and make us more competitive and continue to innovate our products.

And don't forget, one of the things that you could take into account is that even though that we've seen margin expansion, don't preclude us that the fact that we've reinvested significantly in our product and innovation because the things that we're doing in our soft cotton technology, for example, have -- we're putting more value into these garments, so more cost in terms of a like-for-like type thing. But the fact is, is because we're optimizing, we're offsetting those costs with lower manufacturing costs, which is improving our operating margin. So it's a win-win scenario in our ecosystem. And by bringing in, I think, as we move forward into '26 and taking in the big volume that we have from Hanes, that's only going to continue to allow us to scale up even further, and we're really excited about the opportunity.

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

Just a couple of questions. Just looking at the imprintables channel in Q3, and you sort of called it out as being similar to Q2. Can you talk a little bit about sort of what you're seeing within each segment of that market, fashion basics, basics and fleece?

Well, I would say to you that, look, our soft cotton technology continues to drive our basic strategy. Comfort Colors is doing really well again, similar to last year. AA is actually coming back. We're seeing good growth in AA. And we have our new brands, ALLPRO, Champion and all the new programs we have. So it's -- we're doing well in a bad market, I mean that's the truth of the situation. The market conditions, like we said, are down low single digits, and we're doing well. So I think that we're well positioned and good -- hopefully, we'll see a big improvement in market conditions in 2026. And with the momentum we have, I think we'll be -- we'll see a good strong 2026.

Okay. That's great. And then just turning to the cotton cost environment. Obviously, it's been very benign over the last sort of year or so. And I'm just curious, how much does that play into your gross margin outlook? And do you see incremental upside from this sort of more benign cotton cost environment?

No, I would say that, look, it's sort of going sideways right now. So there'll be no impact one way or the other on margins.

Yes. And I would say -- just to complement that, I would say that, look, if you look at the -- starting with the Q3, the strong margin performance, it really was driven by lower manufacturing costs. There was a little bit of lower raw material costs that did come through. And we do have visibility of that as we move forward. But the real driver of the sustained margin moving forward is from the manufacturing cost.

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

Glenn, I want to come back on the market dynamic. You're saying that the market has been weak in Q1, Q2 and Q3, and you also expect the market to be down in Q4. I'm just trying to understand why is the importable market down? The economy is doing well. GDP is growing nicely. So what explains the fact that the industry is in decline?

Well, I would say that there's different things overall when we look at the market. Our GLB customers are basically -- you can follow them. I mean, they're not performing as they were in previous years. So that's one. We're seeing large retailers managing inventory a little bit on maybe the national account side.

You have corporate promotional products, companies worried about tariffs and spending money basically in -- which is affecting potentially some of the printwear market. The travel, the tourism sort of it, I think that part is still going good. People are still moving around and spending. So there's different pockets of things, I would say, that are affecting the market. And it's hard to say really because there's so many different avenues of market growth, let's say, for example, or market consumption really at the end of the day. So we really don't have a total handle on it, to be perfectly honest with you. But we just -- we get the results, obviously, and it's a little bit here, a little bit there, and it all adds up to -- maybe, Chuck, you want to add into that?

Yes. No, I think, Martin, again, I think to be clear, that's the market overall. As Glenn said, it's all the -- it's not just in imprintables. It's across the whole market we're talking about the way it looks at that, and we talked about inventory and retailers and so forth. I mean when you're talking about the imprintables market, Martin, we feel great about our positioning. When we look at our brand portfolio, what we have and the ability to address the market.

Glenn's talked about our soft cotton technology, things we've done there that's really driving our basics category. Plasma print, which we've talked about, which has been testing with DTG printers is going great. It's going to be launched in Q4. It looks good. We're expanding the Gildan line and with the new Hammer Max heavyweight that kind of takes on the workwear, streetwear side. He talked about Comfort Colors, it's our fastest-growing brand. We've doubled our manufacturing capacity with that. And we're seeing a lot of organic marketing coming out of that, like CNBC had an article recently, New York Times had one. GQ had something.

We're just getting a lot of organic marketing through that brand. And we're capitalizing on that brand strength and going to expand it into premium bags and hats. We're doing a women's fleece collection. So Glenn talked about AA. And really, when you think about it, Martin, one of the things if you look back at our investor presentations and what's on our website, we had said that we really participated in the core of the imprintables market, which is about 60% of that market. And we've said we really don't play in the 40% overall.

But now we're looking -- for example, I just talked about Comfort Colors going into hats and bags. We hadn't historically played in hats, outerwear, teamwear, bags, accessories. And we're working to now try to reach into that 40%. We're investing in innovation in our polyester fibers and the imprintability of poly and poly yarns to maybe benefit going forward, as Glenn was talking about bringing in poly product. And so that brings me to ALLPRO, where that's hitting new white space categories with performance and corporate ID, uniforming markets, outerwear, some outerwear jackets in that. Champion, obviously, going off the heritage of the Champion brand with authentic sports team colors or fanwear, teamwear, coaches jacket, shorts, different things. So I would say we feel very good about our ability to address the imprintables market and as we go forward and again, to play in areas maybe we hadn't played in the past.

So just to summarize that despite there could be some negativity in the market, we're well positioned for growth regardless. And despite the market being down, we're still seeing mid-single-digit growth from all these factors that Chuck just mentioned. And hopefully, as we move into 2026, we'll see some positive momentum in the market, which will even accelerate our growth further.

Okay. That's great color. And just to be clear, you said, Chuck, that you're entering into hats. Are you entering into other categories like bags and workwear or just hats?

No, no, hats. We're doing hats. We're going to do some bags. Things like our Hammer Max will probably play a little bit in workwear, as I mentioned. We're going to do some outerwear jackets things in ALLPRO, and Champion has coaches jackets. So yes, we're playing in areas that if you go back to that investor presentation in areas where we said we didn't play in the past, we're reaching into.

Your next question comes from the line of Paul Kearney with Barclays.

First one is just looking at inventories, can you comment on levels in the quarter? How much of the increase was from the higher tariff costs? And where do you expect to end Q4? And then I have a quick follow-up.

Yes. Thanks for your question. So we're comfortable with where inventories are. The inventory levels are slightly higher, and there's a few reasons for that. One, yes, there are some costs related to tariffs that are in our inventory, but it's better -- it's more that we're really well positioned from an in-stock level. And if you remember that when we have really good in-stocks, that drives really good availability, and that's what's really important from the market's perspective of our customers.

So as I did comment earlier, look, we've got a strong focus on working capital, a strong focus on generating cash flow. Our target is to bring that working capital down towards the 37%, 38% as we're in 2026. We'll be slightly higher than that as we end Q4, but we're well positioned, and we're in control of our working capital. So it's -- I would think of it as good inventory.

Okay. And that was great color on the innovation and the growth outlook for the Activewear for next year. I guess my follow-up is I'm curious, after the HanesBrands acquisition, is there anything that we should be considering for the organic outlook for the Gildan business as you kind of roll in those brands and those customers? How should we think about the hosiery and underwear part of the business or any kind of shifts as you combine the businesses?

Well, I think what's really important is if we take this kind of step by step is we look at what we're putting out in terms of guidance for this year, right? So when we take a look at the top line, we're reconfirming our guidance there on the top line of revenue up mid-single digit, right? We've seen this year a very strong performance, which is really fueling that top line growth. So revenue up mid-single digits, right?

Then when we take a look at the margin profile, we're calling up our operating margin guidance to 70 basis points year-over-year. Just as a reminder, 2024 was at 21.3%. And then this all feeds into an adjusted EPS guidance range that we've tightened right at $3.45 to $3.51, which is up 15% to 17%. As you think of the go forward, right, in terms of the proposed acquisition, what we've gone out to the market with, right, is a view that net sales are going to accrete over the next 3 years at a rate of 3% to 5% CAGR, right? So that's the way you have to think of the top line.

In terms of how much we're going to continue to invest in the business is 3% to 4% of that top line into CapEx, which is going to be really important, we're going to be doing this within a leverage framework of always with our target between 1.5x to 2.5x. It's really important to us to maintain that. If you notice where we are right now, we're actually at the midpoint of our range going into the closing of the transaction. And then from an EPS perspective, really jumping up to the low 20% range off the midpoint of what we're guiding to in terms of 2025.

So that's the profile of how you have to think about the coming together of the 2 entities. And then the first year, what we've articulated as well is that the EPS will be meaningfully higher than that average of the 20% over the next 3 years. So hopefully, that's helpful, but that's the way you should be thinking about the coming together of the 2 entities.

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

Thanks for the commentary thus far. I wanted to follow up on the topic of there being delays in floor sets by large retailers. I know it was mentioned in the past that you have a large fleece program that's either already in place with your large retailer customers or set to. Has the timing of that been impacted at all by the fact that retailers are being a little bit more diligent in managing inventory?

No, Luke, that has set and on the floor, it is doing well. It's performing well. Early reads on it are very good. They definitely wouldn't want to miss that fleece season. So, no, it's been placed in on the floor. It was more in the innerwear categories.

And I would just add -- Luke, I would just add that, again, from a growth perspective this year, 75% of our growth is coming from new programs. That includes the T-shirt and fleece, meaningful programs within our national accounts. And so that plays into that piece right there.

And then for my follow-up, I wanted to ask on that same sort of topic or dynamic of customers being a little bit more diligent in managing inventory, it sounds like distributors overall seem to be okay with their inventory balances. What's your view on why that sort of dynamic wouldn't impact distributors, but retailers seem to be a little bit more impacted?

Well, I think when you look at it, again, distributors have always known that availability is their #1 purchase criteria. So they have to have the product available. And so -- and they found as they do that, they have a better chance of servicing the market. So there's been an appetite to make sure they're well balanced and well stocked to service it.

And again, I think when you look at the retailers, I think they're a lot wider in what they're dealing with. It's not just innerwear that we talked about or Activewear we talked about, it could be everything else in the store and fashion goods, electronics, everything across the store that they're running into, and they're really uncertain about tariffs and so forth going forward. So I think they look at it probably a little differently than the distributors have to look at their supply chains.

Your next question comes from the line of John Zamparo with Scotiabank.

I wanted to come back to the free cash flow guide, but related to the CapEx. Apologies if I missed it, what is the nature of that update? Are you deferring projects? Or are some areas of spending no longer as compelling as they were prior? And if it's the former, is that based on the supply chain uncertainty from some customers that you referenced?

No. So 2 things. Starting with the CapEx guide, right? So going from 5% to 4% of net sales, I mean, still that's a healthy number, number one. One thing that we do not move off of, I think it's important to understand is how we reinvest in the maintenance of our assets. So always think about almost around 2/3 of what we spend in CapEx goes through maintenance and reinvesting into our assets to make sure that we maintain our competitive advantage. That doesn't move.

And there is a little bit of shift in terms of timing of projects, which is effectively the difference between the 5% and the 4%. So that's the way I would think of the CapEx. And again, you touched upon free cash flow. I think, again, free cash flow is very important to us, and we're comfortable in terms of our free cash flow generation. The difference in the guide, again, comes down to we've reflected the transaction costs incurred to date. There's a bit of timing of working capital where we have a little bit of tariff cost that's in our inventories, but we're comfortable where we are, and we're comfortable that where we're going. There's nothing really major. It's timing.

Okay. Understood. And then I wanted to ask about the competitive landscape, and I wonder if you've seen any meaningful change in that over the last quarter or so. Do you think your competitors are behaving rationally? Are they also passing on costs as you'd expect?

I'd say overall, the whole market has passed on costs associated with tariff. I mean that's pretty consistent across all categories, all markets, all channels. I would say that in the printwear market, we're continuing to win. Our strength, like Chuck mentioned, in all the brand portfolio, the technology, the innovation, that's all a function of the capital that we've been spending and leveraging our large-scale low-cost manufacturing.

And so it takes a long time to put that in place, and then we're really capitalizing it in this type of market where our competitors, we think, are weak, undercapitalized and don't have really the brand strength, the innovation, the manufacturing to really grow their businesses. So we're continuing to lead and widen the gap against the competitive landscape in most of the cases where we operate.

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

Glenn, I want to follow up your last answer to your last question. I just want to confirm, so have you seen a widening of your price gap versus your competitors given your low-cost advantage? And is that also allowing you to gain more market shares?

No. We've taken price equal to whatever tariff impact, and we did it in stages, too. So we didn't really go out and price at one time. So we slowly took prices up to cover the impact of tariffs, so they would be aligned. And basically, the market had to follow because everybody has that same type of cost. So I would say to you that the pricing, I would say, relationship before and after tariffs is probably pretty consistent in the market, and everybody had to react to the tariff cost and everybody really reacts to our pricing because we're the price leader.

Okay. That's helpful. And maybe, Luca, just a follow-up for you. Just on the SG&A expense, sorry if you answered this already. It was a bit higher than what we were expecting in Q3. You noted there's some increase in variable compensation. Are you able to kind of break out for us just how much of that was from variable comp? And then maybe a follow-up to that is, as you look out for next year, your SG&A rate, should we be kind of anchoring around 10% of sales for next year? Is that still a good soft target?

Yes. Thanks for your question. So look, in the quarter, I mean, slightly higher. I think there's 2 things. The drivers are some higher variable comp, but there was also some IT-related expenses that were more onetime in nature. The way you have to think about the target for SG&A and specifically for this year, right, we've given the operating margin guidance of 70 basis points higher year-over-year. And when you look at the composition of the gross margin and the SG&A, our SG&A is always targeted to be around 10% of sales.

So there's a couple of onetimers here in the quarter, but we're comfortable with that target. And then with your question with respect to next year, I would point you towards the guidance that we've given in terms of the 2 companies coming together, the combination, which really yields really strong adjusted diluted EPS CAGR over the next 3 years with the first year being meaningfully higher than that low 20% range. So 10% is what we're looking at for this year in terms of what we can control on our end.

Your next question comes from the line of Ryland Conrad with RBC.

Just on the 3 quarters of expected growth from new programs this year. Just curious how long of line of sight or how much visibility you have on incremental program wins in national accounts into 2026?

Yes, Ryland, thanks for the question. We have similar -- as we've mentioned, we have similar line of sight on our growth for next year. So similar percentages that we're looking at, as we said, for this year of growth that we see and have line of sight for next year.

Okay. Great. And just on Comfort Colors, I guess, could you talk a bit about the performance year-to-date and just the underlying drivers there? And then on the plans to expand that brand into additional product categories, like is there anything that you could share additionally there on that front, whether it be kind of timing or just expectations on how that will benefit the brand?

Sure. I mean, again, the brand is -- again, it's our fastest-growing brand with double-digit growth. It's been very strong all year long. We haven't seen it falter at all. It just keeps growing. I mentioned we doubled our manufacturing capacity for that brand, and we're going to invest additional in 2026 to grow that capacity more. And so that's the reason we think it has brand strength to move outside of just where we have been, which is tees and fleece. We're adding more women's collections, which will be very strong. We're going to go into caps and bags, as I mentioned.

Again, I think that will be well received because then people can -- when they're putting this product out in the printwear, could go to fraternity stores, resorts, see it in bars where they're putting the things, they want to sell a hat and a T-shirt. They don't -- we're actually seeing it picked up quite a bit in band merch. And when people go to a concert, they may pick up a shirt, but they also want a hat. So we're trying to put out things that will go well with the core product and a lot of it will move together.

And just to reference, even though there's hats and bags, these are all going to be cotton-based. They're going to be basically dyed in the same process as we make the T-shirts. So it's going to give an nostalgic look in terms of the pigment type technology that we use on all of the Comfort Colors products that we sell. So it's really going to be enlightening and stay consistent with the brand's heritage and focus.

There are no further questions at this time. I will now turn the call back over to Jessy Hayem for closing remarks.

Thank you, everyone, for joining us today and attending our call, and we look forward to speaking with you soon. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.