Earnings Call
Gildan Activewear Inc. (GIL)
Earnings Call Transcript - GIL Q4 2021
Sophie Argiriou, Vice President, Investor Communications
Thank you, Michelle. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our earnings results for the fourth quarter and full year of 2021. 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 tomorrow, the 24th of February, and will be available on our website. Joining me on the call this morning are Glenn Chamandy, President and Chief Executive Officer of Gildan; and Rhodri Harries, our Executive Vice President and Chief Financial and Administrative Officer. In a moment, Rhod will take you through the results for the quarter and a Q&A session will follow afterwards. I would like to remind you that certain statements included in this conference call may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve 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 that may affect the company's future results. And now, I will turn it over to Rhod.
Rhodri Harries, Executive Vice President and Chief Financial and Administrative Officer
Thank you, Sophie. Good morning, and thanks for joining us today. This time last year, when we reported our fourth quarter results, we expressed confidence that we were entering 2021 as a fundamentally stronger company. We now believe our results and accomplishments for this year are strong evidence of that. We finished the year with record top and bottom line performance in the fourth quarter, leading to record sales, earnings, and free cash flow for the full year. Simply put, thanks to the strong efforts, expertise, and focus of our whole team, we navigated through a still challenging environment in 2021 to deliver on the core objective of our back-to-basic strategy, which was to remove complexity from our business, so we can better leverage our world-class vertically integrated manufacturing system to better support our customers. By delivering on this objective, we were able to capitalize on improving demand during 2021 at margin levels much stronger than pre-pandemic levels. We also delivered on our capital deployment priorities. And as you saw from today's earnings announcement, we are now moving forward with the Gildan sustainable growth strategy, with well-defined initiatives to enable us to deliver strong performance over the next three years, which I will cover after I take you through the details of the quarter. So let's get started. During the fourth quarter, we generated record net sales of $784 million, up 14% from last year, with activewear sales of $627 million, up 17%, and hosiery and underwear sales of $157 million, up 3%. The overall sales increase was primarily due to higher sales volumes and net selling prices in activewear, partly offset by product mix due to the timing of fleece sales compared to last year. Higher activewear sales volumes were driven primarily by higher year-over-year point of sales and, to a lesser extent, by the impact of some distributor restocking in the North American imprintables channel, although I would emphasize that the inventory levels in the channel continue to remain well below 2019 pre-pandemic levels. If we look at sales relative to pre-pandemic levels, total net sales were up 19% above the fourth quarter in 2019, driven by higher unit sales volumes, net selling prices, and stronger mix in activewear, partly offset by lower sock sales. Volume growth in activewear reflected the continuing positive trend of higher POS in the North American imprintable channel, combined with the positive impact of the non-recurrence of distributor inventory destocking that occurred in the fourth quarter of 2019. While we continue to see a lag in demand compared to pre-pandemic levels in international sales due to the impact of the Omicron variant and lockdowns in various regions. Moving on to our gross margin where performance remains strong. We generated gross margin of 29.2% in the quarter, up 670 basis points. On an adjusted basis, gross margin of 30.6% was up 480 basis points compared to last year. The strong improvement over 2020 was driven by higher net selling prices and manufacturing efficiency stemming from our Back to Basics initiatives. The positive impact of these factors more than offset inflationary pressure on raw materials and other manufacturing costs and the mix impact from the timing of fleece sales compared to the prior year. Relative to 2019, we saw a strong improvement in growth, adjusted gross margin in the quarter, up 500 basis points. The increase was due to higher net selling prices, favorable product mix and Back to Basics efficiencies, which more than offset higher raw material and manufacturing costs. Fourth quarter SG&A expenses came in at $80 million, $9 million above the fourth quarter last year, due mainly to higher volume driven distribution expenses and higher variable compensation. As a percentage of sales, SG&A expenses were 10.3%, which was slightly better than last year, compared to the fourth quarter of 2019, SG&A expenses as a percentage of sales improved by 130 basis points. Strong sales and gross margin performance, together with our continued focus on SG&A, translated into operating income in the quarter of $177 million or 22.6% of sales, a significant increase from $79 million or 11.4% of sales last year. The increase in operating margin included the net benefit of a $32 million impairment reversal related to our hosiery cash generating unit for which we had recorded an impairment charge last year, and which now has been reversed to the full extent possible, given the significantly improved economic environment and outlook for this category. On an adjusted basis, which excludes this benefit, operating income of $160 million was up $55 million over last year, and adjusted operating margin of 20.4% in the quarter was up 510 basis points from 15.3% in 2020. Consequently, we generated record net earnings of $174 million and EPS of $0.89 per diluted share in the quarter, up from net earnings of $67 million and $0.34 in 2020. Adjusted net earnings and adjusted EPS in the quarter totaled $149 million and $0.76, up from $90 million and $0.45 last year. With another record quarter this year, we also set a new full-year record with EPS of $3.07 per diluted share, and adjusted EPS of $2.72 per share, up 64% over 2019. Moving on to free cash flow. The $160 million generated in the fourth quarter brought our full year free cash flow to $594 million, also a record level and up from $358 million last year. The increase reflected strong earnings, improved working capital management, and the timing of insurance collections related to the 2020 hurricanes, partly offset by higher capital expenditures. At year-end, our net debt position stood at $530 million, down from $577 million at the end of 2020 and our leverage ratio was 0.7 times adjusted EBITDA, below our target range of one to two times. During 2021, we were pleased to be able to reinstate dividend payments and share repurchases, and in aggregate, we returned more than $335 million of capital to shareholders during the year. This morning, we were also pleased to announce a 10% increase in our quarterly dividend. And with our current share repurchase program now almost complete, our debt leveraged below our target range and strong confidence in our ability to generate free cash flow, today, we also announced that we are increasing our share repurchase plan from 5% to 10% of our float. So overall, we accomplished a great deal in 2021. But more importantly, as we look back to the launch of our Back to Basic strategy, we delivered what we envisioned from this plan. We simplified and focused our business, allowing us to deliver adjusted operating margin expansion of close to 500 basis points, and our RONA, which is return on net assets, improved by more than 800 basis points during the 2018 to 2021 period. It also put us in a position to continue to expand our capacity in Central America and the Caribbean, and resume our expansion plans in Bangladesh where we are now rapidly moving forward with the construction of the first large-scale textile and sewing facilities. In addition, our clear focus allowed us to push forward with reinforcing our vertically integrated supply chain model through broadening our existing yarn capabilities with the acquisition of Frontier Yarns in December. We are very pleased with this acquisition, which is now allowing us to further internalize yarn production and support our textile expansion plans in Central America and the Caribbean. So today, thanks to Back to Basics, we stand as a less complex, more focused, and competitively advantaged organization, stronger than we have ever been and well-positioned for sustainable growth. This leads me to the last area I'd like to cover in our opening remarks. During the fourth quarter, we completed a comprehensive strategic planning process to define the underlying initiatives that will support our next phase of growth under what we call the Gildan sustainable growth strategy. While Back to Basics will always remain at our core under the Gildan sustainable growth strategy, our efforts now turn to building on our strong foundation to drive organic top and bottom line growth through three key pillars; capacity expansion, innovation, and ESG. Under this revised strategy, we believe that by leveraging our competitive advantage as a low-cost, vertically integrated manufacturer and executing on projected capacity expansion plans, delivering superior quality, value-driven innovative products to our customers, and through our leading ESG practices, we can drive strong organic revenue growth, profitability, and effective asset utilization to deliver compelling shareholder value creation. To this end, we announced in our press release today that under the Gildan sustainable growth strategy, our outlook over the next three years, based on everything we are seeing today and assuming a continued global recovery reflects net sales growth at a compound annual growth rate in the 7% to 10% range, while maintaining operating margins in the 18% to 20% range. Further, to support our long-term growth and vertical integration, we're expecting investments in capital expenditures as a percentage of sales to be in the range of 6% to 8% over this period. Finally, at the same time as we're investing in our business, we are also planning to continue to return capital to shareholders through dividend growth and through continued share repurchases in line with our one to two times leverage framework and valuation considerations. So overall, a complete plan to grow our business and to deliver strong shareholder value and ESG performance, which we plan to provide more detail on at our virtual investor day now scheduled for March 29. So let me close here with how I started my remarks. Last year, when we reported our year-end results, we expressed our confidence that we were entering the New Year as a fundamentally stronger company. Today, we reiterate that sentiment with even greater conviction. And with that, I will now turn it back over to you, Sophie.
Sophie Argiriou, Vice President, Investor Communications
Thank you, Rhodri. Before moving to the Q&A session, I ask that you limit the number of questions to two. And of course, we will circle back for a second round of questions if time permits. I'll now turn the call over back to the operator to start the question and answer session. Michelle, go ahead.
Paul Lejuez, Analyst
Hey, thanks, guys. I'm curious about the 7% to 10% sales CAGR over the next three years. How much of that do you think will be consistent growth in that range, versus maybe more lumpy based on when additional capacity comes in? And also, we’d love to know how much of that 7% to 10% you think of as being unit increases versus pricing? And then second, if you could just talk about the pricing environment in activewear just generally and how you look at your price gaps versus the competition rest of the market right now. Thanks.
Glenn Chamandy, President and Chief Executive Officer
Thank you for your question, Paul. Looking at the compound annual growth rate, we anticipate a growth of 7% to 10% over the next three years. We expect steady year-on-year growth as we progress through each year. We are adding capacity in Central America, which will support our efforts this year, and we expect new capacity in Bangladesh to come online at the end of this year or the start of next year to support our growth in 2024. We have a solid plan for capacity expansion that we believe will facilitate strong growth in the coming years. This year, we foresee significant growth primarily due to increases in volume, along with some price adjustments. Our strategy focuses on expanding capacity to meet the robust demand for our products over the next several years. If we analyze the sources of growth, it largely stems from unit volume rather than pricing, which remains our main focus. Competitively, we emphasize volume and market share over price. Our activewear segment is performing exceptionally well, with growth across various sales channels, including imprintable and retail sectors. In terms of pricing, we opted not to increase prices to match total inflation; instead, we leveraged our low-cost manufacturing, which has been central to our success. The price changes we implemented were largely aimed at reducing our promotional spending. While we did raise prices somewhat, most of our increases in 2022 came from cutting down on promotions. We're also successfully widening the gap between our products and those of our competitors, benefiting from our efficient manufacturing. Most of our core T-shirts are still priced just above $2, even in light of inflation. Overall, we believe we're well-positioned to gain substantial market share, which makes us optimistic about the next three years.
Vishal Shreedhar, Analyst
Hi, thanks for taking my questions. Wondering if you could provide us with insights on trends quarter-to-date, and maybe the impact of Omicron and how that's led into the restocking situation for the dealers?
Glenn Chamandy, President and Chief Executive Officer
Okay, well, let me just first of all clarify the restocking because that's a little bit of a misnomer because we did have a little bit of restocking, but the truth is that none of that inventory is actually in our distributors' warehouses, because when we look at the inventory and the channels including, once we build it, it's in the channel as far as we're concerned. And today, the lead times to get product into the channel has taken a lot longer because of freight disruption and labor restraints in our customers. So our actual inventory in the four walls of our distributors is probably lower on a year-to-year basis, but the actual channel has a little bit more inventory, supporting, coming to them basically. So because product is selling relatively quick, and POS is very strong. I mean, so those two combinations basically in our distributors are selling as fast as they receive the product.
Vishal Shreedhar, Analyst
Okay, and the quarter-to-date trends and the impact of Omicron, maybe the current trend…
Glenn Chamandy, President and Chief Executive Officer
Yes, the trends are looking, remaining pretty strong. We didn’t have Omicron, it probably made somewhat of a little effective, more to be honest with you. Our manufacturing, we'll be able to can be a lot of people out, both in the U.S. and Central America, but I think that's behind us right now, it was probably about a month in January, just not for Christmas, that was somewhat away. But I would say in where we stand today, it's pretty much behind us, except for International, which is still lagging North America.
Vishal Shreedhar, Analyst
Okay. And in the past, there was thoughts on this online market and how this if this online market, which grew substantially during COVID, if that didn't fade away, substantially, it may suggest market size expansion, just wondering if you can give us some updates on the online market and what you're seeing there?
Glenn Chamandy, President and Chief Executive Officer
During our last call, we mentioned that we believe the market has grown significantly since 2019, and we still hold that view. Our point of sale performance is very strong, particularly in the online segment, which continues to thrive. We are now beginning to see the positive impact of social gatherings and the return of our core products to the market. As we observe our basic products showing growth as well, the combination of these factors is positioning us well to significantly enhance our point of sale as we head into 2022 and 2024.
Mark Petrie, Analyst
Hey good morning. Actually, Glen, I just want to follow up on your comment with regards to promotions and pricing for this year. We've seen some industries that are sort of exiting the pandemic with higher gross margins as a result of sort of strong demand and structural or semi-permanent shifts away from promotional spending. I'm just curious if you think that's something that that will sort of structurally remain in the industry for the foreseeable future, or in your business, maybe not the industry, but your business?
Glenn Chamandy, President and Chief Executive Officer
As long as our business continues to perform well, we will provide the best returns to our shareholders, which is our goal. The reduction in promotional spending is helping us manage the rising costs of raw materials, allowing us to maintain our pricing without significant adjustments in the future. We have a solid pricing strategy that was based on projected cotton prices. If cotton prices increase, we will lower our promotional spending and, should prices decrease, we can increase spending as needed. This strategy is also influenced by market demand. We believe we are well-positioned to adapt to changes in raw material costs since they are the main variable impacting our costs of goods sold. In fact, our manufacturing costs are decreasing this year as we implement our Back to Basics approach, which has allowed us to produce more efficiently within our operations. The simplifications we've made are improving our cost structure and countering inflation in labor costs. However, we don't control raw material prices, and their fluctuations impact us. If raw material costs decrease, we will increase promotions. Currently, we are satisfied with our strategy given the present situation.
Mark Petrie, Analyst
Okay, thanks. And just to follow up, I guess on that, do you think this shift in approach with regards to sort of navigating the volatility or ups and downs in cotton pricing potentially reduces the risk of sort of revaluations and volatility in distributor ordering patterns as cotton moves up and down?
Glenn Chamandy, President and Chief Executive Officer
Correct. I mean, that's, that's why when we set our pricing, we set it in at a range where we have that flexibility, really. So the answer is that we don't foresee any devaluations, cotton comes back down to the normalized level.
Rhodri Harries, Executive Vice President and Chief Financial and Administrative Officer
And just add to that, Mark, I would say is we've given our outlook and we've reflected what we're thinking, that does reflect obviously that over three years, it could be a change, ultimately, in underlying commodity prices. But we've reflected that overall, in our view, given the way we're running the business and the things that Glenn said.
Mark Petrie, Analyst
Understood. I wanted to ask one more question regarding the EBIT margin range of 18% to 20%. What factors might push you up or down within that range during a given period? Is it related to sales leverage over time? Do you believe that the margin can increase over the three-year period, or do you expect it to remain relatively stable, with short-term factors like product mix or raw material costs impacting it in any given year?
Glenn Chamandy, President and Chief Executive Officer
I would say it's mix in raw material costs that could affect this over a year. And then the timing of those events.
Rhodri Harries, Executive Vice President and Chief Financial and Administrative Officer
Yes, it's the things that will move within the quarters, effectively. I mean, a good example of that is if you look at the comps that we have this quarter, for example, coming into Q1 versus last year, we had a sort of big benefit from a cotton assistance payment that we received of $80 million, that's 250 basis points. So you have things moving through your numbers as you go quarter-to-quarter Mark. But I think given the bottle that we're running, we've been very clear about our ability to effectively run in this range. And so I would say we feel good about delivering on that over the three consistently over the three-year period.
Luke Hannan, Analyst
Yes, thanks. Good morning, Glen. I just had one for you under the Back to Basics program; you guys have made a lot of progress under that. And clearly, it's being reflected in your financial results now. But how do you ensure that you avoid becoming overly complex from a SKU perspective going forward while also making sure that you're innovative enough to meet your customer’s needs?
Glenn Chamandy, President and Chief Executive Officer
We have streamlined our brand to focus on two or three key brands moving forward, down from five. This is a great example of SKU rationalization and helps us operate with less working capital, which enhances our service and other aspects. With fewer SKUs, we can improve our product quality, which is essential for our success. We're currently innovating to enhance our products in terms of printability and softness. Our approach is focused and adheres to the Back to Basics strategy, where we concentrate on doing our best without spreading ourselves too thin. We are committed to leveraging our strategy effectively and feel confident in our growth projections and outlook for the coming years.
Luke Hannan, Analyst
Okay, thanks. And for my follow-up, we did see inventory pick up both sequentially and year-over-year, and I'm curious to know how much of that was higher volumes versus higher cost and then what are your expectations near term as far as building inventory? I know the distributors are chasing inventory right now. So I’m just curious to know what that's going to look like in terms of your own books.
Glenn Chamandy, President and Chief Executive Officer
Yes, they look at inventory. And that was a bit of a build. And you would expect that, right? If you look at what's going on from a cost perspective overall. I mean, a bit of the unit volume, but we're running tight on inventory. As we run through the various quarters, as we get through this year, as we bring on capacity, as we effectively bring on yarn production, really, as it comes up, we'll have the opportunity to build our inventories a bit. But I think as you can assume, inventories are staying tight as we run through 2022 into 2023. And that's, inventories everywhere maybe as a way to think about it.
Stephen MacLeod, Analyst
Thank you. Good morning, guys. Just wondering if you could give a little bit of color on what you're seeing in the activewear segment as it relates to some of the end markets, particularly some of the summer markets is sort of lagged, like corporate travel, stuff like that, wondering if you can give an update on how those markets have trended in Q4, and on a year-to-date basis?
Glenn Chamandy, President and Chief Executive Officer
Well I think that they're starting to pick up. I mean, other than the wave of Omicron that happened in towards the end of last year, beginning of the year, I mean, things were somewhat picking up. I mean, there was a lot of trade shows canceled in early January that would have probably affected business. But overall, we're very bullish on the outlook. And then we think this is all behind us right now. And for us, I mean, that's really the key; because we've seen a large growth in the market and the market has grown and the pieces have grown are sibling very well. And then, once we get packed up, promotionally, corporate promotional, and tourism and all the other things that go with it and social gatherings, which have come back but not back fully. I think that's going to be a big part of our success. And one of the other areas that we've seen significant growth is our fleece category, which is lifestyle change of people wearing more sweatshirts. And that's also been a big driver of our overall revenues as during 2021. So we're feeling very comfortable with the, our outlook, activewear is growing. And it's not just in the premier market; obviously, we know we're seeing a lot of near-shoring coming back. For people, servicing retailers, our global lifestyle customers are looking to grow with us. So we're poised to think in every one of the areas that we really service except for International, which is probably the only one that's a little bit at this point disappointing. But that's, I think, will take care of itself once, once on the sort of beige. So everything is running on full cylinders.
Stephen MacLeod, Analyst
That's great. Thank you. And then I just wanted to pick up a little bit on the innovation comment, you sort of cited as a key pillar of your sustainable growth strategy. Can you just talk a little bit about sort of what that means in terms of the product that you're offering, considering, you've also embarked on a strategy to reduce the SKU count.
Glenn Chamandy, President and Chief Executive Officer
Right, so the innovation is going to be as for every product that we sell, we're going to sell the best product in the market by definition. I think that's the way to look at it. So if you look at a competitive product in the market, we're going to make sure that our products are better quality and features than anything else being sold. So we have different categories. We have our basics, we have fashion, we got etcetera. So our fleece, so we're going to continue to re-invest in our low-cost manufacturing, basically, to support what we think is innovation. And also, innovation is also involved in our manufacturing processes, which will allow us to continue reducing costs, really, because that's also been the key pillar in terms of what we're doing. And that's, new ways and that's also embedded in our ESG strategy. In terms of consumption of milk, obviously, we consume less water, we consume less energy. So that's also part of our innovation strategy. So innovation is not just about product, but it's also about our whole footprint of our manufacturing.
Jim Duffy, Analyst
Thank you, and good morning, most of my questions have been asked and answered. But just wondering if you could talk a little bit about what you're seeing in retail in Q4 and maybe going forward.
Glenn Chamandy, President and Chief Executive Officer
Well retail is continuing to be strong. There's been a little bit of say slowdown from stimulus tax. I mean, that’s probably be the only thing I would say is in retail, where, it was very robust that we're spending money. But we saw Walmart's earnings report. I mean, they did very well. I mean, so overall retail is continuing to do well.
Patricia Baker, Analyst
Okay, and then just on the softness in international. And I fully understand that Omicron had an impact there. Just curious before the onset of Omicron, were you starting to see any slight improvements in that market? Or was it pretty much where it had been in Q3 and Q2?
Glenn Chamandy, President and Chief Executive Officer
Well, it was growing at a rate of double digits basically, every year up until COVID, right. So that's the start there. And then once COVID hit, it basically was similar to the U.S. and then it really never recovered. So it's down 25%, depending on which market it is relative to, 90 levels still, probably China being a little bit worse, because of stricter lockdown than Europe. But still, both of them.
Rhodri Harries, Executive Vice President and Chief Financial and Administrative Officer
Yes, if you look at the numbers, Patricia, they, as Glenn said, I mean it has been down pretty significantly. There was a little bit of improvement in Q3, but not much. It was still down pretty heavily and effectively. Then when the Q4 came along and then the Omicron, we saw sort of a reversion back to where it had been. So it really has been very divergent, I would say between what we're seeing in the U.S. and we're seeing internationally. The U.S. has been certainly obviously has recovered progressively strong, getting stronger and international. Really, we just haven't seen that uptick yet.
Patricia Baker, Analyst
So just looking at your three year plan, have you assumed that sometime in that three year period that international gets back to where it was? I think it's kind of a permanent lower base.
Glenn Chamandy, President and Chief Executive Officer
I believe it will recover, but we need to keep in mind that international markets are starting from a low base. Therefore, they are not as significant right now. We anticipate that it will rebound, as the core aspects of our business and international markets largely depend on travel and tourism. This is essentially what fuels many of those markets. Once that occurs, I am confident that those markets will fully recover. In the short term, we are quite optimistic about the outlook for the North American market. This optimism stems not only from consumer spending and demand but also from trends like on-shoring and the desire to be closer to the market, which relates to our retail and GLB customers. Overall, I think we are in relatively good shape, and I am confident that international markets will eventually bounce back as society evolves.
Chris Li, Analyst
Hi, good morning, everyone. Glenn, I was wondering if you can share with us, roughly, what percentage of your activewear sales are fleece and fashion basics? And what does that mean in terms of your market share in the expanded term?
Glenn Chamandy, President and Chief Executive Officer
I don't think we really give that information out, Chris. But I would say that look at fleece and fashion basics are the two fastest-growing categories. I mean, obviously, basics are we have, we've always had a large share of basic, so it's not growing at the same clip, because, we have, I think at one time, 85% share of the basic category. So but our fashion basic and our fleece are both big growth drivers. And in fleece, there's, there's not a lot of competition, right? I mean, you need to be vertically integrated manufacturer and probably have a pretty good capital structure to be able to support fleece. So there's really nobody in our industry that really has the capabilities of substantially growing up like we are. So I think we're in a good position. We're kept capitalizing on a large portion of the market growth, and we see a bigger growth in front of us.
Chris Li, Analyst
Okay, now that's helpful. And then my other question is, in the past you've mentioned that if the distributor inventory, which will be coming back to pre-pandemic level that will translate into roughly $150 million to $200 million of incremental revenue. Is that still a fair assessment?
Glenn Chamandy, President and Chief Executive Officer
Well, that will happen. I think, eventually, over time. I mean for two reasons. One is that inventories are so low today that they have to continue to replenish and bring product back into their channels. But the second thing is I think the market is growing. So you need more units to support the growth of the market. So for both of those reasons, I will say 100%, that inventory eventually will come back into the market. The question is when? I mean, I don't think it will be fully happened in this year. I mean, maybe next year that could be something that could happen.
Sabahat Khan, Analyst
Great. Thanks and good morning. Just I guess a bit of a high-level question on the industry outlook. You've addressed the TAM in the past that somewhere between kind of call it $4.5 billion to $6 billion. And then with the additional demand that we've seen through the pandemic. I think you called out that work from home demand is still there. And do you have an updated view on what the TAM looks like today? And presumably, it's gotten significantly larger given top-line growth that you're targeting is above kind of historical levels; just want some color on that.
Glenn Chamandy, President and Chief Executive Officer
Right. Well, what we said in previous calls is that pre-pandemic, we thought that the market size was $6.5 billion. And we think that that market has grown substantially since then. We've had a lot of research, and that's something that we're going to call out in our investor day is really to bring more insight into the size of the market. We've done a lot of market research and, which confirm that the market has grown substantially. So we'll discuss that on our investor day.
Sabahat Khan, Analyst
Okay, great. And then, as we look, I guess in terms of the kind of the fashion basic side and historically, I think the number you quote in the past or something like that 25% market share, and I guess within the margin guide that you're providing over the next year is on the top line and what role is fashion basics going to play in both the top line and on the margin side, and maybe any goals you have for market share capture on that side of the business?
Glenn Chamandy, President and Chief Executive Officer
Well look at just two fundamental huge areas of growth, obviously, one is fashion and the other is fleece, which is our fleece business is growing substantially as we speak. The capacity that we're bringing on in Bangladesh, which is two large state-of-the-art facilities, will be geared and dedicated to 100% making fashion T-shirts. So we have a huge wave of capacity coming on, which would be on the low side of the cost curve, basically. So that's our commitment to grow our fashion basics. And then as we look at the growth of our fleece production, we're reorienting our existing facilities here in Central America to basically take on the demand and capabilities to support it incrementally. So I think we're in a pretty good position to capture the two large drivers of what we think is industry demand. Our basics, our typical basics, I mean they'll grow at a slow clip. But we've got quite a large market share there, so we don't really see big growth in the basic category is really going to be a function of our fashion basics and our fleece that will drive the top line growth over the next few years.
Sabahat Khan, Analyst
Okay, and then, I guess just on the inventory among the distributors that you noted in the press release being below pre-pandemic levels, do you foresee a bit more of a restocking event or sort of is this just in time temporal punishment, something you expect will continue, and what should we expect over the course of 2022?
Glenn Chamandy, President and Chief Executive Officer
Well, we think definitely for the short foreseeable future, I mean, inventories are going to remain tight. So that's that's a fact. I mean, what I said is that although we've got more inventory, what we call the channel but a lot of inventory is on actually physically in our distributors' four walls right now. So their four wall inventory is probably half of what it was in 2019. So, inventories are relatively tight. There will be some probably ultimately catch up just because we think that A, the number one, the market is growing and inventories are relatively low, which, has affected service a little bit, but I mean, the point is, is that it's almost a good problem, but we will definitely be a small catch-up towards the end of the year probably.
Jim Duffy, Analyst
Thanks very much. Good morning. Glenn, you mentioned that the average price of a shirt was now $2. I just want to clarify where it is the price level relative to the pandemic? Are we pre-pandemic? Are we significantly above or are we in line, where is where do we compare?
Glenn Chamandy, President and Chief Executive Officer
Well, our pricing on our like our basic pricing, let's say for example, tees have gone from they were in the highest single dollar and let's say $1.75 or something $1.90, and they're just north of $2 today. So the pricing has gone up, but hasn't gone up significantly. Really, I mean, if you look at the end user price, that could be absorbed, our price increases could be absorbed quite easily in the market. And fashion T-shirts have moved up a little bit too on our side. But I mean, our competitors have taken a lot more price than we have in our GAAP relative to us and the competition has grown substantially relative as pre-pandemic levels. So for us, I think we're in a pretty good position leveraging our low-cost manufacturing. We could take more price if we wanted to, I would say but, what we're going to do is we're going to continue to focus on unit volume growth and bring on a wave of capacity really and as we leverage the acquisition of frontier and we move into the back half of this year, we're going to have a substantial increase in our volumes, really as we move into 2023. So we're pretty excited about our position.
Brian Morrison, Analyst
Thanks very much.
Sophie Argiriou, Vice President, Investor Communications
Thank you, Michelle. Once again, we would like to thank you for your participation today. And we look forward to speaking to you soon. I would also like to remind you that as Rhod mentioned, we will be holding our virtual investor day on Tuesday, March 29. And in the coming days, we'll be issuing a press release to provide you with the details for the registration of the event. So once again, thank you and have a wonderful day. Thank you.
Operator, Operator
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