Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2022 Gildan Activewear Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. For operator assistance throughout the call, please press star zero. Finally, please be advised that today's conference is being recorded. I would now like to hand the conference over to Sophie Argiriou, Vice President of Investor Communications. Please go ahead.
Thank you, Gavin. Good morning, and thank you for joining us. Earlier this morning, we issued our press release announcing our earnings results for the second quarter of 2022. 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 Administrators and the U.S. Securities and Exchange Commission and will be available on the company's corporate website. With me today is Glenn Chamandy, Gildan's President and Chief Executive Officer, and Rhodri Harries, our Executive Vice President and Chief Financial and Administrative Officer. Shortly, Rhodri will take you through the results, after which a Q&A session will follow. Before we begin, please take note that certain statements included in this conference call may constitute forward-looking statements.
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 Administrators. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable IFRS financial measures are provided in today's earnings release and in our MD&A. With that, I'll turn it over to Rod.
Thank you, Sophie. Good morning to all, and thank you for joining us on the call today. We were pleased to announce this morning that we delivered another strong quarter, with record sales up 20% and EPS and Adjusted EPS up 15% and 27% respectively. We generated strong free cash flow of $159 million in the quarter and continue to execute on our capital allocation priorities of reinvesting in our business and returning capital to our shareholders. Simply put, we believe our top and bottom line performance is a reflection of the control we currently have over our supply chain and our cost structure. We realize the ongoing benefits from back to basics and execute on the Gildan Sustainable Growth strategy.
Given macroeconomic uncertainty, we believe we are as well positioned as possible to navigate through any near term challenges as we continue to position the business for longer term growth. Now, turning to the specifics of our results for the second quarter. We generated sales of $896 million, up 20% over the prior year quarter, driven by higher sales in Activewear, partly offset by lower sales in the Hosiery and Underwear category. Sales of Activewear totaled $758 million, up 27% versus last year due to higher base selling prices and lower year-over-year promotional discounting, as well as favorable product mix and higher unit sales volumes in North America. We were particularly pleased to see continued strong performance in Ringspun and fleece products, key drivers of Activewear growth in the quarter.
Activewear volume growth in North America was offset in part by lower international shipments compared to last year, largely driven by weaker demand in Asia, where surges in COVID cases have prompted ongoing shutdowns. Finally, in the hosiery and underwear category, where we generated sales of $138 million, the 8% decline in the quarter was due to having to lap demand driven by last year's stimulus payments as well as the impact of a softening retail environment unfolding this year. On the whole, given all these considerations, we're very pleased with how our overall sales performance for the quarter. Moving on to our margin performance. Despite the headwinds of rising levels of inflation across our supply chain, our margins for the quarter remain strong.
We generated gross and adjusted gross margin of 29.6% in the quarter versus gross margin of 32.2% and adjusted gross margin of 30.5% last year. On a GAAP basis, the gross margin decline of 260 basis points included the impact of the non-recurrence of a 175 basis point net insurance gain, which benefited gross margins last year. The balance of the gross margin decrease, which impacted both our GAAP and adjusted margin of 90 basis points, was due to higher manufacturing costs, partly offset by higher net selling prices and favorable product mix. Turning to SG&A. Expenses for the second quarter totaled $88 million, up approximately $8 million over the prior year. The increase was primarily due to the impact of inflation on overall costs and higher volume-driven distribution expenses.
However, as a percentage of net sales, SG&A expenses fell to just below 10%, improving by 80 basis points compared to 10.7% last year, reflecting the benefit of sales leverage and continued strong overall cost management, which more than offset the impact of inflationary cost pressures. Adding up these elements, we generated operating margin of 19.4% for the quarter and 19.6% on an adjusted basis, close to the high end of our 18%-20% target range, and only down slightly by 30 basis points over last year. After reflecting financial expenses and income taxes, which in aggregate were up $3 million over the prior year, we reported record net earnings of $158 million and $160 million on an adjusted basis, up 8% and 18% respectively compared to last year.
Diluted EPS for the quarter totaled $0.85, and adjusted diluted EPS was $0.86, up 15% and 27% respectively over the second quarter in 2021. With the increases reflecting the benefit of a lower share count from our 2021 buyback program, which we just renewed with a new 5% NCIB program announced this morning. Moving on to cash flow and balance sheet items. We generated operating cash flow from operating activities of $210 million, and after CapEx of approximately $50 million, we delivered free cash flow of $159 million in the quarter compared to $208 million last year.
After adjusting for a net cash benefit of $18 million related to insurance proceeds, which we received last year in the quarter, the balance of the decline reflected higher year-over-year capital expenditures tied to our projects in Central America, the Caribbean and Bangladesh, and higher working capital requirements driven by the impact of the Frontier acquisition, higher raw material and work in process inventories, and the impact of inflation on unit costs. Finally, we ended the quarter with a net debt position of $848 million and a leverage ratio of 1.1 x at the low end of our target range. This sums up our results for the quarter, second quarter, which combined with our first quarter, has translated into strong overall performance in the first half of the year.
As we move into the second half of the year, while we have seen some slowing, we believe the recovery of large events in travel and tourism remains a tailwind to demand, which is supported by the feedback we're getting from our major imprintables distributors. Also, while we are seeing a softening retail environment, for Gildan, this is primarily impacting national account customer sales of activewear, hosiery and underwear products, which represents a smaller part of our overall business. Putting this all together, given our record first half performance and the ongoing benefits of our back to basics strategy combined with our shift to the GSG strategy, we remain positive as we move forward and confident about our ability to deliver on our three-year objectives announced earlier this year. This concludes my formal remarks, and with that, I'll turn it back over to Sophie.
Thank you, Rod. At this time, we're ready to begin the question and answer session, so I'm gonna turn it over to Gavin, our operator, so we can start the session.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Paul Lejuez of Citi. Please ask your question.
Hey, thanks, guys. Curious if you can maybe talk about your growth in the first half of the year relative to the growth in the market. What are your expectations for the second half, both for the market overall and your growth within the market specifically? Then second, just curious if you're picking up any new big customers as a result of more efforts to do more nearshoring from a supply chain perspective, or if the growth is coming from all existing customers. Thanks.
Okay. Thanks for the question, Paul. If you look at our growth in the first half of the year, I think we are very pleased with the way that growth unfolded. Effectively, if you look at first quarter, we obviously had a very strong quarter. If we look at the way that unfolded, we split first quarter about 50% price, 50% volume. As we moved into the second quarter, effectively what we saw was about three-quarters of the growth of sales was driven by price, and then the remainder was driven by volume and a little bit of mix.
It, you know, was interesting in the second quarter because what we really saw was really strong growth on Activewear, as we called out, and we saw negative growth in Hosiery and Underwear. If you drill into Activewear, effectively what we saw was a real strong growth in North America versus international. International was very weak because of things that we're seeing in China and elsewhere. Then in North America, the growth was very strong on the distributor side, effectively, and it was a little bit weaker, I would say, on the well, related to anything related to retail. Our North American Activewear business going very well. We're very pleased with how it's unfolded, and we very definitely think we're gaining market share.
If you look at some of the key growth categories, Ringspun products, or if you look at fleece , for example, we saw very strong POS in those areas. I would say the driver has been Activewear. It has been North America. It has been where, I would say we're differentiated from many others because we effectively have a big footwear business. We're less affected by the retail environment. As a result of that, we've seen market share growth.
As we move into the second half, as we said, we have seen some slowing as we've moved from June into July. Our outlook remains positive in the back half because of this shift that's going on, I would say from, to a certain extent, from hard goods to people want experiences. If they want experiences, they want travel, they want tourism, they want events. That's a strength in the printwear business where we're very strong. We've got a large order book. We haven't seen cancellations. We feel very good about the back half on that side of the business.
On the retail side, that's weaker, though, as we called out, with respect to underwear, hosiery and anything on the printwear side, which we really call our national accounts, which goes into the retailer side of the business. That's obviously because of the inventory adjustments that are occurring in retail, but over time, we expect that to come back. I think all in all, we feel very good about the way things are unfolding.
Yeah. Maybe on your second part of your question on nearshoring, look, we still see lots of opportunity. So far we've been obviously very tight on our capacity. We have a lot of opportunity, and our focus is gonna be as we move forward into the back half into 2023, is to, you know, obviously obtain new programs and, new relationships with customers, looking to nearshore. It's not gonna be just about our core business, it's also gonna be about developing new business as we continue to expand and bring on the additional capacity.
Just to follow up there. Were you facing some supply constraints in the second quarter? Were you held back in any way, any bottlenecks that occurred in 2Q? How do you see those resolving in the second half, or would it be beyond second half?
Well, look it, we've been tight. If our finished goods inventory basically has not moved in, probably, 12 months to put things in perspective. We're shipping everything we're selling, and we have a pretty good order book. We are tight. You know, we acquired Frontier in December, and as we said, we were gonna work through their customer relations and contracts, which are pretty much subsiding now, which is giving us additional capacity as we move into the back half of the year with yarn. All of our capacity expansion plans in Central America are complete, so you know, we can just absorb that yarn relatively easy to increase our capacity as needed.
We're focusing on building our Bangladeshi facility as well, which will, you know, start in Q2 of next year, but we'll probably, by the time it ramps up, be at 24 stories. I think we're really well positioned with capacity to support, you know, I think, new programs, the opportunities of nearshoring as well as the overall capabilities of taking additional market share as we move into 2023.
Thanks, guys. Good luck.
Thank you.
Your next question comes to the line of Vishal Shreedhar of National Bank. Please ask your question.
Hi, thanks for taking my questions. In the past, you would give us POS indications kind of inter quarter. I was hoping you could share with us some of those July POS indications for the printwear industry.
Well, look, July was our direct business like Rod said. It's still in good form. You know, moderating slightly, but I mean, I think it's really in good shape, and I think we have a lot of momentum there. You know, where we saw really, I think, a little bit of, you know, downward pressure obviously. I mean, our retail business is, you know, negative and it's. I don't think it's really, you know, ever since, you know, the end of Q1. I think it's been on trajectory similar. It hasn't moved, I mean, and typically because of stimulus and, you know, the higher cost of energy and food, et cetera, to the mass market shopper. You know, that's sort of been a constant.
Where we sort of saw a little bit of a pullback, I think, at the end of June and July is our national account business, which is very short term. You know, the thing is about the national account business is like an at-once business. These guys are constantly replenishing product and prints and T-shirts into the retail channel. These retailers, as they, you've read of all the high levels of inventory, and those inventories are typically in their own private brands. It's not easy for them to just say, "Okay, I'm gonna sell them." They stop buying what they can stop. You know, they look at things that are more at-once type businesses.
You know, I think that as the retailers work through their inventories in, you know, the next month or two, and get them back in line, we'll see that business come back. It's very, you know, it's an incredible part of their overall sales and, you know, it's just, I think it's just a timing issue as retailer inventories work themselves through. That's the feedback we usually get from our national account customers as well. All in all, I think, look, we're still pretty positive. I think we're in a good position and, you know, we don't know what the future will be until we get there.
Okay. I guess the next question would be on commodity inflation, particularly cotton. Maybe you could just remind us or help us understand where your pricing is with respect to cotton and how you feel about the outlook with respect to pricing your key commodities.
Well, pricing is pretty much firm in the market. I would tell you, start with that. I would say that, look, when we raised our prices, which is a combination of promotional discounts and some price increases, we eliminated the promotional discounts and, you know, we took some price increases. When we set our pricing, we set pricing pretty much where the levels of cotton are today. You know, we had a good position in our cotton fixations. So we're basically, you know, we set cotton at a level probably where the market is today. Look, there's still lots of inflation. I mean, there's inflation in energy.
There's lots of labor inflation and the only area that I think we've seen a little bit of deflation is a little bit of the freight side from particularly goods coming from Asia. Other than that, I mean, look, inflation is still an obstacle. Cotton is, you know, pretty much going sideways now at the same levels in which we fixed our prices. You know, I don't see there's gonna be much movement there as we move into the future, but we'll see how that goes.
Thank you for the color.
Your next question comes from the line of Stephen MacLeod from BMO Capital Markets. Please ask your question.
Thank you. Good morning. Just wanted to circle around on just the top line. You know, exiting Q1, you had indicated you saw some deceleration sort of into that mid-single-digit range. Then you put up a very strong top line. Just wondering where you saw outperformance relative to your expectation when we had the Q1 call.
Well, we're continuing to see the strong momentum in our wholesale distributor channel. I mean, like what Rod said, particularly in fleece and, you know, in the fashion T-shirt segment, our ring-spun T-shirts. I mean, those are the areas which are, you know, really driving market share, and we're gaining share in those categories. Those are really the ones that are sort of leading the pack. We're getting the recovery of our basics, basically, as, you know, events continue to open up and et cetera. You know, that channel is resilient. It's all about the experience and it's doing well, and we're taking share within the channel.
Great. Thank you. Just turning to the national accounts business. Can you just remind us how big that business is as it relates to your sales into that market?
Well, we really don't break that down, but you know, look, it's an area that obviously has been a big help to our recovery in terms of the overall sales in the U.S. market. Look, I think it's short term in terms of its decline. It's still a small part of our business overall, but it actually is a growth driver for us as we move forward.
Okay, that's great. Thank you.
Your next question comes to the line of Jay Sole of UBS. Please ask your question.
Great. Thank you so much. Glenn, I'm just wondering if you can elaborate a little bit on the levels of inventory at the distributor level. Obviously the last couple quarters it's been well below normal. Have you seen that sort of adjust now? Or, how do you see it?
Well, you know, there's just probably been maybe a slight tick up, but I would say that the weeks of supply, because, you know, it's always on a go-forward basis. The weeks of supply that we had at the end of Q1 is similar to what we have at the end of Q2. We have typically sales to cover the following quarter in the channel. That's a normal level of inventory and still below 19 levels.
Got it. Okay. Maybe just on buybacks. You know, obviously, the company continues to buy back shares. You know, how are you thinking about the rest of the year, just in terms of priority for free cash and just sort of capacity to, you know, maybe buy back more stock now that the authorization has increased?
Jay. Well, yeah, if you look at our existing program, right, it expired, or it's just expiring now. I think we did a great job on the existing program. Effectively, we purchased 85% or 8.5% of our stock over the last year. We didn't get it all done, and we do wanna continue with return of capital as a key part of our overall capital allocation framework. That's why we've announced a new program, effectively 9.2 million shares. You know, we'll continue to effectively work away against that new program now as we go forward. If you look at our free cash flow, for the most part, our free cash flow is available for dividends.
It's available for M&A, but in this environment, we don't see that really. You know, obviously, we're focusing on our own operations, and we're doing a great job there. I think that leaves free cash flow available to support buybacks as we go forward. I think you'll see very definitely we'll continue as we have been doing over the last year.
Got it. Okay, thank you so much.
Your next question comes from the line of Luke Hannan of Canaccord Genuity. Please ask your question.
Thanks. Good morning, everyone. Glenn, if I remember correctly, I think you had said on the previous earnings call that the view would be that restocking is more likely to play out in 2023. Is that still your view? If so, is that more likely to occur in the first half of the year or in the second based on what you're seeing today?
I think that with you know the way the market is today, I would say that you know it's hard for us to say because obviously you know our objective is to keep a good balance of inventory in the channel. You know we may never ever get up to those levels of 2019, to be perfectly honest with you. I mean it's not necessarily an advantage for anybody. It's more working capital for our customers and you know. Our objective is that as part of our back to basics strategy the reduction of our SKUs and the ability for us to you know service basically I think that we would like to see the levels of inventory sort of stay where they are today.
I think that's sort of a really, I would say, our long-term plan because then we can create, you know, better value for our customers basically because, you know, they get better return on their capital. We'll be able to react to the market and service it in aggregate much better. You know, I don't foresee it really coming back and saying, "Hey, we wanna get all this inventory back in the channel." Because, you know, maybe in 2019 it could have been, you know, on the high side. Then, you know, as we moved into COVID it was on the low side. I think we're, you know, we probably have a very good balance today.
Okay, understood. Then my follow-up, recognizing that it's very, very early here, but you are currently pacing well ahead of the three-year guidance that you had outlined at the investor day. It sounds like the distributors are still fairly clean on inventory, so the outlook for the balance of the year on balance, even with softer retail environment, is still fairly optimistic. I guess I'm not asking that, you know, when we might see an upward revision of guidance, but again, clearly the implication would be if this is a strong year, then the implication for 2023 and 2024 are that they would be on balance weaker, which might not necessarily be the case. When might we see a revision of any kind to that guidance?
Well, the ink's not dry on the last guidance, so I think we just, you know, basically gave that approval. It's been a pretty short time ago. I think, look, I think we're continuing to drive against it. I think it's an aggressive target. It's 7%-10% on a CAGR basis and, you know, we're on track. I think that's the good news, I think, at the end of the day. I mean, that's, you know, we don't know what the future will be. I mean, that's why we gave a range. We're on track basically to achieve it, and we're comfortable within that range in the period that we, you know, communicated to.
Once we get to the point where we actually achieve it, then we'll reset the bar maybe as we go forward. Look, our sales growth is a function of capacity. As we look at bringing on capacity, which we've done, I think, and are continuing to ramp up in Central America, then we have Bangladesh, and then we have a second plant in Bangladesh, so we can obviously continue to build. It's not just we have the ability to. We obviously increased our guidance, but what we'll do is I think we're good for now, and then once we achieve it, we'll look at resetting the target.
Understood. Thank you very much.
Your next question comes from the line of Jim Duffy from Stifel. Please ask your question.
Hi, good morning. This is Peter McGoldrick on for Jim. Thanks for taking our question. I just wanted to focus on a little bit on the near-term trajectory to get some guardrails around the demand picture in the activewear business. Can you explain any, how you're planning order levels into the North America printwear market? How you're thinking of pricing? How is that embedded? If you see any changes in the demand picture from the travel and tourism or any other feedback that you had mentioned in the printwear market.
No, what we said was, look, I mean, we have a good order position. You know, our pricing is pretty much firmed. You know, the area of, I think, that we've seen softness, like I said earlier, was a little bit in the national account space, where basically, you know, big retailers are cutting back inventory and that needs to be worked through as they bring their inventories in line, and that should come back.
So, you know, all in all, you know, we have, you know, we still see positive tailwind of, you know, of, the experience, people traveling, rock concerts, camps, jog runs. I mean, all the things that were somewhat COVID related are still positively coming back. So that's all in the positive direction. You know, retail and obviously is the one area where the consumer basically has stopped spending and I think that will work itself out as well as we go forward.
Okay, thanks. I guess just drilling in on that last point, recognizing the increased challenges at retail, can you give us insight into the discussions you're having with those customers or your expectation for the timing of that? Is this a one-time reset to inventory, or are you expecting a lower demand picture going forward on a sustained basis?
Well, first of all, that's a tough function of like, you know, we don't set inventory. We have programs, and then they get replenished, and the replenishment of those programs is running below by 8% basically in retail. I mean, our national account business, that's sort of a business which is basically like, you know, as I said earlier, is just a timing issue until they open the dollars to come back, and then they'll start to supply more product. That's not us, that's our customer's customer obviously that's doing that. But look, we're not really, you know, focusing on the existing programs that we have, but we're also at the same time looking for new opportunities, new programs with additional capacity coming on. We've been very tight on production, so we haven't really had much to sell.
As we take advantage of customers looking to nearshore more product, retailers looking to you know for better value, which is what Gildan is all about, is the value proposition. You know, we're gonna continue to grow the business. It's you know we'll focus on the existing core business we have, but I think that as we move into 2023 and 2024, it's also gonna be looking for new opportunities and leveraging our supply chain.
Okay. Thank you very much.
Your next question comes from the line of Brian Morrison of TD Cowen. Please ask your question.
Good morning. A couple questions, Rod and Glenn. Just following up really on with activewear in the back half of the year. Is your message here that you expect unit volumes to be positive? It's pretty clear the pricing year-over-year will be strong. Is that the message?
Well, look, yeah, we feel good about the activewear business. There's definitely strength in North America. There's weaknesses. We talked about in national account, there's weakness in international. You've got to balance all of that and look at the pluses and minuses. You know, overall, we feel good about the business.
Okay. I guess, shifting gears here and following up on the Bangladesh commentary. Does the slowing global economy have anything to do with your commentary that Bangladesh may be a Q2 event? And what kind of flexibility do you have on the timing of the start of that facility?
No, we haven't changed really. I mean, originally it was gonna be, you know, Q1, but just the timing of, you know, equipment and it's not, definitely not a capacity issue. We need all the capacity we can get from there. It's just, you know, by the time the plant starts, it will start actually in Q1, but it's gonna, you know, be minuscule really as it starts up. I know. But we won't see the effects really until Q2. Then as it, you know, by the time that product hits, you know, our supply chain and really makes an impact on our sales, it'll be a 24 stores.
You know, we're pushing as hard as we can on Bangladesh. Like anything else, you know, we're working through all the supply chain and other things to bring on the capacity. Saying that, you know, we have a lot of capacity that's coming on still in Central America. We're in a good position as we leverage the Frontier acquisition to continue increasing the capacity. That was really, you know, our Achilles heel, that we couldn't, you know, increase that capacity until we had the yarn available to support it. Now that is in place now, and we've you know, eliminated you know, most of all of the outside sales by July. There's a couple you know, small programs we're finishing this month.
In general, you know, all that yarn will be used to support our growth as we move into 2023. You know, capacity is not an issue, I can tell you that, I mean, for sure. We're well on the way to be able to support our sales targets.
Does yarn in the industry remain tight? Should that enable you to gain more market share now that you're 100% sourced with Frontier?
Should help, that's for sure. It's still tight. I think that those are two positives for us.
Okay, last question, Rod. The last couple of quarters, you've had this note in your financials or your MD&A that you plan to exit the leggings, shapewear, underwear, the brand name business. Just, can you update us what the process is here, the magnitude of the sales and the timing this should take to play out?
Yeah. That was part of our overall back to basics initiatives. Brian, we've been looking at that. I mean, we've been working away on it, and I would expect that something will unfold here in the not-too-distant future. It's very small. It's very minor. It's a non-material part of our business. So, effectively, as with all of these things, we work away at it constantly. I think, again, it's just part of all the back to basics initiatives which are, you know, we've had a lot of impact from back to basics, but it's ongoing. It, you know, the back to basics never finishes for us. You know, I think we'll get something done here in the not-too-distant future.
We're talking transaction rather than wind down, correct?
Well, again, it's very small. Effectively, yes, it probably will be something on the small side. We'll see.
Okay. Thank you very much.
Your next question comes from the line of Mark Petrie of CIBC. Please ask your question.
Yeah, good morning. Thanks for all the comments so far. I just had a follow-up question with regards to the pricing environment, given the volatility in cotton specifically. I understand the comments, but could you provide a little bit of context, just with regards to how material the promotional component is to the pricing picture overall? Is the expectation that some of those promotions will be coming back into the picture, as you know, demand potentially slows and, you know, as I said, as is clearly playing out, you know, cotton prices are coming back? Thanks.
Right. Look at, you know, first of all, pricing is pretty firm in the channel right now, so there's no really promotional activity to say. I would say that in generally everybody who's in our industry has significantly high cost inventory. I mean, you know, if you look at the cycle of buying cotton, for example, you know, you buy your July cotton, which is a five-month period, and if you looked at where the prices were in July, they're substantially higher than, you know, they currently are now. Some may not have high prices, but some will. I would say in general, people have high cost inventory, either between the freight, the labor, the cotton, you know, all of the various things. It's keeping pricing higher.
If anything, I think that people will cut back on production, to be perfectly honest with you. I think that'll be the natural trend for you know some to work through their high cost inventory. As far as we're concerned, look, we never raise prices to the levels of the you know really peak cotton. That's why our you know our gap obviously is quite significant in the market in terms of our competitive advantage. We raise prices to you know reflect the current cotton prices I think that are there in the market today. There is still inflation, like I said earlier. You know, labor is definitely a factor. Energy is definitely a factor. The only area other than you know raw material is freight.
On the raw material side, polyester is actually continuing to go up because it's also oil-based. You know, all these puts and takes. I mean, inflation hasn't really subsided, and I personally don't think it's going to. You know, there might be a little bit more of an impact globally on demand, but I don't think inflation is gonna be stopped anytime soon, personally. That's just my feeling. I think we're well positioned, you know, as far as everything we have, and we'll see where it goes. You know, we control what we control. You know, we're controlling our SG&A, I mean, which was below 10% this quarter. Our target longer term is to keep it there. We'll see where it goes. I think we're in relatively good shape to hit our targets and our operating margins.
Okay, understood. Appreciate all the comments. All the best.
Thank you.
Your next question comes from the line of Chris Li of Desjardins. Please ask your question.
Hi, good morning, everyone. Glenn, just, you know, based on everything you said so far on the various demand dynamics in activewear, is it fair to say that your POS for North American activewear overall for both wholesale and retail combined, was it still positive in June or July, or has it sort of dipped a bit negative given the pullback in retail?
Well, what pulled down our POS in June and July was really our national account business. You know, our distributor business moderated somewhat in Q1 like we called out. You know, but right now I would say that it's the national account and obviously the retail side of the business, which is, you know, been a little bit of a drag, let's say for example in, you know, the last six weeks or so. Obviously international hasn't been performing either. It's actually. That's one area that we're starting to see a little bit of a pickup around, but because we've had pretty, you know, sharp declines on our international business.
All over, I think puts and takes. I think that in the, you know, the national accounts side of it, but I think it's temporary because I think it's just a question of bringing inventories in line at retail. It's not a fundamental change in direction because a lot of this national account business is actually, you know, even purchased directly from the retail stores themselves. Each retail store manager has an open to buy in T-shirts. It's a business within a business at the retail level, especially for the screen printed side of it. You know, it's all gonna come back, we think. You know, we're still cautiously optimistic, but we're cautiously optimistic. I think is the key.
Okay, that's helpful. It suffices to say whatever the POS rate that you're seeing right now, is it fair to say maybe we're kind of starting to hit the bottom and like you said, maybe as the inventory gets adjusted again, it will start to gradually pick up? Like, are we kinda close to that bottom, do you think?
Look, we don't know. I mean, look, things are, you know, our customers are very bullish about the business, which is a positive thing. You know, we've done all of our research that we can do in the market. But, you know, we don't know, right? I mean, you know, we're in a global environment that's just completely unstable. I mean, people stop reading the news and we'll be in good shape really, because I can tell you one thing, the job market is tight as ever. You know, the job market's not a reflection of the overall outlook, I would say, in terms of what we're seeing and reading. You know? I think, look, we'll see what happens.
Okay. No, that's helpful. Maybe one for Rod, just in terms of the maybe the margin outlook for the second half. Obviously, I don't think it's gonna be as strong as first half given some of the cycling of the price increases and some of the other pressure. Can you give us a sense of, you know, what you expect adjusted EBIT margin to be in the second half? Do you still expect to be kind of in the 18%-20% range that for your long-term target?
That's right, Chris. Definitely as we move into the second half, I mean, we will see. We took price increases we entered the third quarter. We have pricing effectively there to offset some inflation. As we move further into the half, we'll effectively see the inflation coming through. I would expect to see some moderation from, you know, current levels, from an overall margin perspective, but we'll stay well within our range.
Great. Okay. Thanks and all the best.
Thank you.
There are no further questions at this time. I would like to turn the call back over to Sophie Argiriou.
Thank you, Gavin. Once again, we'd like to thank everyone for joining us this morning, and we look forward to speaking to you soon. Have a good day, everyone. Thank you.
This concludes today's conference call. You may now disconnect.