Gildan Activewear, inc (GIL) Q2 2021 Earnings Call Transcript

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Gildan Activewear, inc (GIL -0.22%)
Q2 2021 Earnings Call
Aug 5, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2021 Gildan Activewear Earnings Conference Call. [Operator Instructions]

Now I would like to hand over the conference over to Ms. Sophie Argiriou, VP, Investor Communications. Please go ahead.

Sophie Argiriou -- Vice President, Investor Communications

Thank you, Rowel. Good morning everyone and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the second quarter of 2021. We also issued our interim shareholder report containing management's discussion and analysis and consolidated financial statements. These documents will be filed with the Canadian Securities and Regulatory Authorities and the U.S. Securities Commission and are available on the company's corporate website.

I'm joined here today by Glenn Chamandy, President and Chief Executive Officer of Gildan; and Rhod Harries, our Executive Vice President and Chief Financial and Administrative Officer. Momentarily, Rhod will take you through the results for the quarter and a Q&A session will follow.

Before we begin, I'd 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 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 the Canadian Securities Regulatory Authorities that may affect the company's future results.

And with that, I'll turn the call over to Rhod.

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Thank you, Sophie. Good morning to all and thank you for joining us on the call today. This morning we reported strong second quarter results, which, as anticipated, reflected a significant recovery from the height of the COVID shutdowns in the second quarter last year. We also delivered improved sequential performance, building from the solid start that we saw in the first quarter of this year. Further, when compared to pre-pandemic levels in the second quarter of 2019, our results are showing that even though we have not seen a full top-line recovery, our Back to Basics strategy is unfolding better than planned.

Benefits from eliminating redundancy and complexity in our business are driving solid sales performance, efficiencies in our operations, cost savings and stronger profitability. Of course, this strong performance is supported by strong execution and, once again, our team demonstrated exceptional operating capability during the quarter by delivering on our targets, while navigating through the challenges of a tight supply chain environment. In the end, we were able to deliver higher-than-anticipated sales of $747 million; adjusted operating margin of 19.9%; adjusted EPS of $0.68, up 21% over the second quarter of 2019; and record second quarter free cash flow of $208 million.

Given the strong recovery so far, the better-than-expected progress of our Back to Basics strategy, the company's prospects for continued free cash flow generation and with our net debt leverage ratio now at 0.6, our Board approved yesterday, the reinstatement of our share repurchase program to buyback, over the next 12 months, up to 5% of the company's outstanding shares. So, overall, another strong quarter.

Now turning to more specific details on our results. As I just mentioned, for the second quarter, we generated sales of $747 million, up 225% over the prior year, driven by volume increases across all product categories and favorable product mix. Activewear sales came in at $597 million, up 354% and sales in the hosiery and underwear category were $150 million, up 53% versus last year. Volumes were up in all markets and geographies, particularly in imprintables, driven by the strong recovery in POS and the impact of the non-recurrence of significant distributor inventory destocking, which we saw last year as distributors drew down on inventories during the COVID shutdown period. On the underwear and hosiery front, we saw double-digit POS growth drive higher underwear unit sales during the quarter, as well as in hosiery products, which were particularly impacted by last year's store closures.

Comparing the second quarter of 2019, which was a strong quarter, sales were down 7% which we nonetheless think is encouraging when considering the impact of both lower imprintables net selling prices this year and product mix slightly unfavorable compared to 2019. Overall imprintables POS was down approximately 8% compared to the same period in 2019 showing some further improvement from the 10% decline we saw going into the quarter, mainly due to improving trends in North America. Specifically, imprintables POS in North America was down in the single-digit range, compared to the second quarter of 2019, while POS in International imprintables markets remained weak, down close to 30%. In retail channels, overall POS in the quarter was up compared to the same quarter in 2019.

So overall, we were pleased with the top-line performance we delivered in this quarter, especially given the context of a tight supply chain environment, where labor shortages in the U.S. are continuing to affect yarn supply and constraining our ability to completely rebuild inventory levels following the hurricanes from last year.

Moving to gross profit. We reported a strong recovery over last year, generating adjusted gross margin of 30.5% in the quarter. While last year we had significant COVID-related costs and Back to Basics-related charges in the second quarter of 2020 flowing through our numbers, we are now also seeing the favorable impact of product mix, lower raw material costs and benefits stemming from our Back to Basics initiatives in our gross margin. This is evident on a sequential basis with adjusted gross margin in the quarter, up 240 basis points from 28.1% after excluding the one-time USDA pandemic assistance benefit, we received in the first quarter of this year, which impacted margins by 300 basis points.

Likewise, our margin performance compared to 2019 pre-pandemic levels also improved meaningfully even though sales have not yet fully returned to 2019 levels. Adjusted gross margin of 30.5% in the second quarter was up 270 basis points compared to 27.8% in the second quarter of 2019. The increase was driven primarily by lower raw material costs and Back to Basics cost savings, which more than offset lower imprintables net selling prices and slightly unfavorable product mix compared to 2019.

Turning to SG&A. Our SG&A expenses in the quarter were $80 million, up approximately $15 million over last year, driven primarily by increases in variable compensation expenses and volume-driven distribution costs, offset in part by Back to Basics cost savings. As a percentage of sales, SG&A expenses of 10.7% were down significantly from last year, as you would expect, and 80 basis points better than 11.5% in the second quarter of 2019.

Adding up these elements, we generated adjusted operating income of $149 million, translating to an operating margin of 19.9% in the quarter. The significant recovery from the loss we posted last year was driven by the higher sales, strong gross margin performance and SG&A leverage. Lower financial expenses driven by reduced average debt levels and the non-recurrence of fees related to debt facility amendments we made last year also offset the impact of higher income taxes.

Consequently, we generated net earnings of $146 million or $0.74 per diluted share, and adjusted net earnings just over $135 million or $0.68 per share compared to a net loss of $250 million or $1.26 per share and an adjusted net loss of $197 million or $0.99 per diluted share in the second quarter last year. Compared to 2019, stronger adjusted gross margin and SG&A performance drove a 360 basis point adjusted operating margin improvement in the quarter compared to 16.3% in 2019, which led to a 21% increase in adjusted EPS.

Finally, from a cash flow perspective, we generated $208 million in the quarter, which was a record for a second quarter, up from $177 million last year and $26 million in 2019. The increase over last year was primarily due to higher operating earnings and included a net cash benefit of $18 million from insurance proceeds we received in connection to damages sustained from the hurricanes last year. These positive elements were partly offset by higher trade receivable balances driven by the sales increase, a lower drawdown in inventory compared to last year when our facilities were idled and higher capital expenditures related to our manufacturing capacity.

Our net debt position at the end of the second quarter was $363 million, down from $542 million at the end of March and our debt leverage ratio fell to 0.6 times net debt to trailing 12-months adjusted EBITDA, which is now below our historical target leverage range and down from 2.1 at the end of the first quarter of 2021. Consequently, as highlighted at the beginning of the call, given the strength of the results we are achieving and the free cash flow we are generating, we were pleased to announce this morning that in addition to the reinstatement of our dividend last quarter, we are now reinstating our share repurchase program; an important step, given the emphasis we place on return of capital to shareholders under our overall capital allocation program.

This sums up the key highlights of our results for the second quarter. In short, strong results driven by a number of considerations, which, on balance, give us reason to feel good about our outlook. On the positive side, we are encouraged by the recovery we have seen in North America so far, including the sell-through trends for our products as well as the benefits we are seeing from our Back to Basics strategy.

On the other side of the ledger, we remain cautious about certain factors, including the pace of recovery outside of North America, which currently is weak. Further, on the supply chain side. U.S. labor shortages continue to be a factor affecting yarn supply, although we have seen some improvement more recently. We're also seeing tightness in raw material inputs and broader transportation-related issues, which are creating inflationary pressure.

Consequently, we can sum it up by saying we remain cautiously optimistic as the recovery progresses. Confident that our people and our strategy are positioning us well to continue to move through this environment and capitalize on market share opportunities as we fully utilize and grow our manufacturing capacity, deliver on our profitability targets and create shareholder value for the long term.

This concludes my formal remarks. And, with that, I will turn it back to Sophie.

Sophie Argiriou -- Vice President, Investor Communications

Thank you, Rhod. And, with that, I will now turn it over back to our operator, Rowel, to begin the question-and-answer session. Rowel, go ahead.

Questions and Answers:

Operator

Thank you, ma'am. [Operator Instructions] Your first question is from the line of Paul Lejuez from Citigroup. Your line is now open.

Paul Lejuez -- Citigroup -- Analyst

Hey, thank you, guys. Curious if you could talk a little bit more about the supply chain, which pieces of the supply chain might be getting better versus worse, where you think you have visibility. And I'm curious how you're thinking about pricing as you kind of absorb some of the higher costs. What do you think in terms of pricing power? Where do you have it? And what might be the timing on where you take -- where and when you take price? Thanks.

Glenn J. Chamandy -- President & Chief Executive Officer

Okay. I'll answer the question first on supply chain. So really where we're restrained right now in our supply chain is mainly in our U.S. yarn operations as we brought back our production as we exited the end of last year due to the hurricane, compounding with the labor shortages in the market, has taken us a little bit longer to bring folks back to our facilities and get them up and running, which are now running at a better rate than they were before and continuing to improve. So we're pretty optimistic about the momentum we have as we go forward and we're going to continue to add incremental capacity as we move into the year. Our current run rate, despite these supply chain restraints, is we're running at the same levels in the back half or as we exited Q2 as '19 levels. And during the year, we've repurposed a lot of the -- or all of the equipment from our Mexican operations, which will allow us actually to have a substantial increase in capacity, which we're working forward to. And our objective is to continue to increase our volumes as we move through the year and enter into 2022.

As far as the pricing is concerned, look, we're going to leverage our Back to Basics strategy, I mean, we -- although price -- there are price inflations, we have streamlined our business and we have a lot of manufacturing efficiencies. Obviously, they are not large enough to offset the big spike in raw material and some of the transportation costs, so we will have to adjust price as we move into '22 but we'll leverage as much as we can from our operating efficiencies and then adjust the difference in price. But I think the most important thing is that our objective is to maintain the 18% operating margins. So we'll balance those two out and just make sure that we're in line with our stated goals as we move forward into '22.

Paul Lejuez -- Citigroup -- Analyst

Got it. Thank you. Good luck.

Glenn J. Chamandy -- President & Chief Executive Officer

Thank you.

Operator

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

Vishal Shreedhar -- National Bank Financial -- Analyst

So the 18%...

Glenn J. Chamandy -- President & Chief Executive Officer

Sorry, we can't hear you.

Sophie Argiriou -- Vice President, Investor Communications

We didn't hear the beginning of your question.

Vishal Shreedhar -- National Bank Financial -- Analyst

Oh, sorry. Just thanks for taking my questions. Can you hear me now?

Glenn J. Chamandy -- President & Chief Executive Officer

Yeah, we hear you. Thank you.

Vishal Shreedhar -- National Bank Financial -- Analyst

Okay, great. With respect to the 18% operating margin target, obviously, Gildan doing better than most would have thought at this juncture in H1, tracking above those targets. Understand inflation is coming and I understand you intend to take price. But given that you're still tracking to that 18%, should we think that H2 falls below that 18% operating margin level as inflation comes in and you kick in price toward the back end of the year?

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Yeah. If you look at the 18% which Glenn called out, which is really important to us, right, that's effectively where we're targeting if you look at the combination of our gross margin and SG&A. We have done well in achieving that target. We thought we would get there, we got the back -- when we got to 2019 levels -- revenue levels, and we've achieved that earlier than we thought. But as we go into the back half of the year, Vishal, I mean, we will see pressure, we will see inflationary pressure in Q3 and we'll see it in Q4 in both and all areas of the business really. If you look at the raw materials, as we called out, we've got cotton prices going up, and we got transportation. So all of that's coming through. So as we go through the back half of the year, we'll see that flow through our margin, but I think we've achieved 18% now and our plan is to hold at 18% as we go forward. And I think you can assume that in 2021, that's a number we can deliver full-year.

Vishal Shreedhar -- National Bank Financial -- Analyst

Okay. Just what are you seeing in the market right now, just given the pervasive inflation? Are your competitors talking to specifically the in-principle wholesale market? Are some of your competitors taking price at this juncture?

Glenn J. Chamandy -- President & Chief Executive Officer

There hasn't been price taken in the market so far this year. Our strategy is to continue to [Indecipherable] our low-cost manufacturing and our Back to Basics strategy. So what we'll do is we'll adjust, like I said, our pricing irrelevant of our competition, because we think we're taking share. I mean the market hasn't recovered, we're doing well. We're very happy with our positioning. We have a lot of capacity that we're going to be bringing on as we move into '22 with the installation of all of our machines in Central America from our Mexican operations. So we're going to balance volume growth with operating margins and make sure that we have a good balance between those two, so not to knee jerk on price, but we can probably take prices up a little bit higher if we wanted to. But I think we feel that maintaining a disciplined operating margin target, as well as focusing on top-line growth is really what's going to create long-term shareholder value for us.

Vishal Shreedhar -- National Bank Financial -- Analyst

Okay. And maybe just a last one here. Just given the the inflation coming in and the transportation challenges, the labor challenge, how would you reflect on the financial health of the wholesalers and their ability to accommodate all these pressures?

Glenn J. Chamandy -- President & Chief Executive Officer

Well, I think that the inflation is good for wholesalers. I mean, higher prices is necessarily units. So they make more money off higher prices. So it's necessarily -- it's a positive, I think from a wholesale perspective. The thing is that it's not just the inflationary cost, it's actually the capabilities of doing businesses. Restaurants are closing because they don't have employees. That's really much more than -- that's then a structural issue really than a financial one. So I think that's what with, I think, in the U.S., we have to be careful of, is making sure that we can get employment. We've done a good job. We had to take salaries up and incentives for employees to come back to work. But we're in a good place right now and we have a good momentum.

So the rest of our operations in Central America, we don't have those types of issues. I mean, employment is abundant and there is some inflation, but it's more an input costs associated with manufacturing power, electricity, transportation, but there is abundance of labor in Central America. So where we're really focused right now is making sure that we got our yarn facilities up and running to support the capacity buildup.

Vishal Shreedhar -- National Bank Financial -- Analyst

Thank you.

Operator

Your next question is from the line of Stephen MacLeod from BMO Capital Markets. Your line is now open.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Thank you. Good morning.

Glenn J. Chamandy -- President & Chief Executive Officer

Morning.

Stephen MacLeod -- BMO Capital Markets -- Analyst

I just wanted to ask about the labor backdrop and particularly as it relates to the yarn spinning business. Can you talk about it impacting your ability to rebuild inventories? Or is there -- are you seeing -- are there areas where demand is actually being unmet because of the labor shortages?

Glenn J. Chamandy -- President & Chief Executive Officer

Well, we destocked the channel in Q2 basically, so that would probably be a good reflection of that. We're leaving sales on the table basically and our inventories are relatively low. So demand is strong and I don't think demand is just strong because of the come back of the market. I think demand is also stronger because onshoring is also becoming a bigger factor. I mean -- and I think that's also a big benefit for us as we look forward into the future is that there is more demand for our products. And the other thing I think also that we called out a couple of quarters ago is that we believe that the overall market has expanded as well, which is also, I think, going to drive demand in our channel. So, things are looking pretty good in terms of demand side and I think we're well-positioned as we move out of this -- out of '21 into '22 to capitalize on potential upside in volume growth.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay. Okay, that's helpful. And then I'm just wondering if you're able to give any more sort of discrete color around how things are shaping up in the back half of the year? In terms of your outlook section in the past, you've given some directional indicators around POS and demand trends. Are you able to do that for Q3 and into Q4?

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Yeah, look, I think, Steve, and you can see the way that POS improved in the second quarter, that we called out, how we started the quarter, how we finished the quarter and obviously things are getting better as we move through the year. As we look at the back half of the year, if you look at our sales, overall, we think that 2019 levels are -- look pretty reasonable when we think about it. As Glenn said, we're running our capacity now at 2019 levels. So as we think of the back half, that's what we're focused on, as I said, the 18% margin overall for the full year. So I would say it's an improving environment, but it's not without risk, as we said, when we opened up the call with our remarks, overall. If you look at it, probably, and you think about a comparison versus 2019, Q3 a little lower, Q4 a little higher, right, given the way that the supply chain is evolving. But that's about, I would say, the color we can provide right now as we as we sit here today.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay, that's very helpful. Thank you, Rhod. Thanks, Glenn.

Operator

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

Luke Hannan -- Canaccord Genuity -- Analyst

Hey, thanks, good morning. First question for me is on capital allocation. You guys finished the quarter with a very clean balance sheet here, which obviously inspired you guys to bring back the share buyback program. I'm just curious, though, if I just do a quick math and I assume that you invest a little bit in inventory going forward plus you fulfill the NCIB, that still leaves you in a very clean position, balance sheet-wise. So do you see any changes to your near-term capital allocation priorities?

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Well, we are very happy where the balance sheet is. Effectively, I think, over the last 12, 18 months, we've seen a significant strengthening of our balance sheet as we moved through the COVID environment. We are generating -- we generated a lot of cash last year, and we're generating a lot of cash this year. So we're -- I would say, we're very pleased about the balance sheet. As we look forward, we've got our target leverage range, 1 to 2 times, that we're working to, and I -- we will target effectively capital allocation, capital return to put us inside that range. Again we're like everybody else, we don't have a crystal ball and we have to be a little cautious as we move through the back half of this year into next year, given the overall broader situation. So we are very pleased with the state of the balance sheet.

Well, obviously, we plan to generate cash as we move through the back half. We do plan to buyback, repurchase stock, as we called out, and as we go forward, we'll basically be working to that range. Probably the low end of the range is where I would look as you think about where we're going to sit as we move through the end of this year and into 2022.

Luke Hannan -- Canaccord Genuity -- Analyst

Understood, thanks for that. And then just quickly as well, in the press release, you guys talk about, in retail, overall POS was up during the quarter relative to 2019. I'm just curious if you can quantify that at all.

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Well, on the retail side, I mean, effectively, we did see good strength in our POS, overall. If you look, our underwear POS has been really strong. I think I would say we're very happy with the way that the underwear has performed versus '20 versus '19. So underwear, very good; activewear, overall, down a bit versus '19 but activewear again is doing well overall. And then hosiery, I would say, hosiery is effectively -- if you look at versus 2020, we were up very definitely, and if you look at '19, I'd just call it flattish.

Luke Hannan -- Canaccord Genuity -- Analyst

Okay, thanks.

Operator

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

Chris Li -- Desjardins -- Analyst

Hi, good morning, everyone. Just wondering, Glenn, if you can share with us a little bit more of what's driving the international weakness.

Glenn J. Chamandy -- President & Chief Executive Officer

Well, I think that my feeling is it's a little bit less of a -- in Europe, it's not a lifestyle market like it is in the North American market. It's a little bit more of a tourism market and I think there has been lack of tourism and which is -- I think has affected the business a little bit because a lot of the T-shirts in Europe are sold in the tourism shops, etc. That could be possibly one. I think just the overall market there just hasn't -- [Indecipherable] the size of the market is not as large as the U.S. and it's also maybe a little bit driven by the lack of stimulus in the market. I don't know, it's hard to say for us, to be honest with you. But it's down approximately 30%, but there is still pulse and we're still optimistic that it's going to come back around. But it's just taking a little longer, I think.

Chris Li -- Desjardins -- Analyst

Okay, that's helpful. And then just shifting over to the U.S., I remember last quarter, I think, you mentioned that the distributor inventory levels were about 40% below the 2019 level. I'm just wondering if you have an updated number for us on that side.

Glenn J. Chamandy -- President & Chief Executive Officer

We destocked again in the quarter, so, probably more like 45% now, that's it.

Chris Li -- Desjardins -- Analyst

Okay. That's helpful. Okay, thanks very much.

Glenn J. Chamandy -- President & Chief Executive Officer

Thank you.

Operator

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

Brian Morrison -- TD Securities -- Analyst

Hey. Thank you. Good morning. I want to go back to your inventories lean and the yarn shortage. Can you just provide some color on your view to source inputs relative to some of your peers? Because I presume you must have an advantage with your vertical integration. And then, furthermore, when you say the distributors -- or pardon me -- like, are you gaining market share from this? And then with respect to your 45% comment, can you put a numerical value on that?

Glenn J. Chamandy -- President & Chief Executive Officer

So 45% of what? On inventory?

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

On the inventory, yeah. So if you look at the -- what we called out last quarter, we said it was over $100 million was effectively the way to think about the destock that occurred versus 2019. And then the further destock that we're looking at this quarter is probably another $30 million on top of that. So we're down probably $135 million, somewhere in that range, I would say, versus 2019.

Brian Morrison -- TD Securities -- Analyst

Okay, thank you. And with respect to...

Glenn J. Chamandy -- President & Chief Executive Officer

As far as the supply chain is concerned is that we're vertical. Right? So we're one of the few people who make yarn, manufacture yarn through finished goods. So our competitors are either sourcing yarn or sourcing fabric to manufacture their products. So that is, for us, is I think a strategic long-term advantage. Short-term, what happened was that the -- we've -- we [Indecipherable] some of our factories in the hurricane at the same time as the labor shortages was happening, and which were [Indecipherable] to foresee. So, it's taken just a little bit of time to get the folks back to run the plant. So we're making big progress on it. It's been a grind to hire three, lose two and not that type of situation, but there's not a lot of people because we don't have a lot of people in our yarn facilities. That's the crazy thing. But nevertheless, that's how tight employment is. So -- but we're making progress and we feel that -- very comfortable as we move forward that we'll continue to increase our overall volumes.

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

And to your point, Brian, about our vertical integration, I mean, we do feel that we're in a better position from a supply chain perspective than our competitors overall. So we are -- we don't feel disadvantaged in any way. Everybody is dealing with very tight supply chain and we think our team is doing in a great job in this environment.

Glenn J. Chamandy -- President & Chief Executive Officer

And also there is a lot more inflation on sourced yarn, particularly in Asia than there is in the [Indecipherable]. I mean, pricing in Asia on yarns and fibers has gone up significantly relative to more of a stable crop [Phonetic] structure, I think, in our industry on the products that we [Indecipherable].

Brian Morrison -- TD Securities -- Analyst

Yeah. So it's got to be an advantage. So I want to turn to, you call it POS at retail for imprintables and that's offsetting other verticals that haven't returned yet. Can you just ballpark the size of your national account business and maybe the size of the opportunity you see as I'm sure you potentially see further growth in onshoring?

Glenn J. Chamandy -- President & Chief Executive Officer

Well, I haven't seen enough for supporting the Nike's, the Adidas of the world. I mean, that's just -- these are -- all of these companies are looking to, particularly, exit China, number one, I think, is one of the big benefits, I think. And number two, I think that they're trying to get closer to market. Both our big brands and our retail partners basically are all looking to buy product locally. So large screen printers that service mass market retailers are growing their businesses, which has been a driving part of much success of our POS. So when we look at it, we sort of look at it holistically and our POS basically what Rhod said is slightly below '19.

But I would say, in July, we're seeing closer to the '19 levels and improving. So every month, things just continue to get better. And then the other side of our -- I think, of our POS big opportunity is, as you know, gatherings occur and we're starting to see bigger orders in the market, which were just non-existent up until now. So all of these things are encouraging, but at the same time there, there's a delta virus that's heading out. And so we're cautiously optimistic. But the network's in a relatively good position and have a good balance, we have variable levels of inventory in our warehouses, our customer warehouses, and I think that's global supply is tight.

And one of the other reasons also why global supply is tight is that during the pandemic, particularly in raw materials and other factors is that, during the pandemic people idled equipment globally. Right? So people looked at, for example, saying, I got so many plants and these ones are -- don't have the proper cost pressure and they're old equipment and they idled those facilities and they've taken capacity out of the market. So there has been a big reduction of capacity. And then if you look at the equipment market today and buying new equipment, it's 12 to 18 months out, let's say, for example, which tells you that things are going to be tight for quite some time as people look to rebuild capacity. And so that's also a good sign in terms of where we think the market is. So we're relatively -- we feel in good position with our structure, our cost structure, as well as our operating structure.

Brian Morrison -- TD Securities -- Analyst

Thank you.

Operator

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

Mauricio Serna -- UBS -- Analyst

Hi, good morning. This is Mauricio Serna on behalf of Jay Sole. First of all, congratulations on the results. And I want to ask a couple of things. First, on the pricing strategy, is there like a pricing gap that you have in mind in the imprintables business just versus your competitors that you cannot target? And on the other hand, you talked about inflationary pressure, should we think that will mostly affect the cost of goods sold or should we also see some of that hitting the SG&A dollars in the second half of the year? Just thinking also because the SG&A dollars versus 2019, they were like down 14% in the second quarter. So just thinking, is that like a level that we should think about for the second half or if there's anything regarding inflation there? Thank you.

Glenn J. Chamandy -- President & Chief Executive Officer

Okay, well, I'll answer pricing and Rhod will take the other parts of the question. As far as the pricing is concerned, look, we have a significant advantage on price in the market today. This pricing inflation affects everybody with the only caveat just that I think that we have positive manufacturing efficiencies coming through our Back to Basics strategy as we continue to streamline our operations. So our pricing strategy will be a function of maintaining our operating margins at probably to 18% level and focusing on top-line growth. I mean, that's how we're going to balance it out. So we're really focused on making sure the top-line grows as we move forward into '22 and, at the same time, it's delivering our good financial results, the results and targets that we set for the market.

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

And inflation on the SG&A line, the bottom line is, yes. I mean, inflation is everywhere and we expect the inflation to flow through anywhere where you have labor. For sure, on the distribution side, we have upward pressure and we see it elsewhere. So we do expect the labor to impact the SG&A. That being said, we do believe we have our SG&A dialed in very well. If you look at where we were for the quarter and how we're traveling versus our overall SG&A targets, which we had out there for some time, I think we're performing well and we think that we will be able to manage our SG&A tightly as we move through the back half of the year, again, helping us, overall, to deliver that full year 18% number from an operating perspective. So -- but it's -- inflation is everywhere. It's -- everywhere you look, there is inflation.

Mauricio Serna -- UBS -- Analyst

Got it. Thank you very much and congratulations.

Glenn J. Chamandy -- President & Chief Executive Officer

Thank you.

Operator

Your next question is from the line of Patricia Baker from Scotiabank. Your line is now open.

Patricia Baker -- Scotiabank -- Analyst

Good morning, everyone. My questions on the quarter have been asked and answered. But perhaps maybe take this opportunity to provide us with an update of how things are going at the Bangladeshi facility build.

Glenn J. Chamandy -- President & Chief Executive Officer

Well, we're continuing to move forward with Bangladesh as planned. We're still projected to start the plant at the end of Q4 in '22 and be ramped up during the year of '23 is really where we stand today. We're maybe one or two months, I think, probably a little later than we anticipated. But it's still moving forward, and we feel comfortable we'll deliver the plant at the end of Q4 '22.

Patricia Baker -- Scotiabank -- Analyst

Thank you.

Glenn J. Chamandy -- President & Chief Executive Officer

Thank you.

Operator

There are no further questions. Presenters, please continue.

Sophie Argiriou -- Vice President, Investor Communications

Well, with that, I guess, once again, I'd like to thank everyone for their participation today and we look forward to speaking to you soon. So. Have a wonderful day everyone and thanks.

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Sophie Argiriou -- Vice President, Investor Communications

Rhodri J. Harries -- Executive Vice-President, Chief Financial and Administrative Officer

Glenn J. Chamandy -- President & Chief Executive Officer

Paul Lejuez -- Citigroup -- Analyst

Vishal Shreedhar -- National Bank Financial -- Analyst

Stephen MacLeod -- BMO Capital Markets -- Analyst

Luke Hannan -- Canaccord Genuity -- Analyst

Chris Li -- Desjardins -- Analyst

Brian Morrison -- TD Securities -- Analyst

Mauricio Serna -- UBS -- Analyst

Patricia Baker -- Scotiabank -- Analyst

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