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Delta Galil Reports First Quarter 2019 Results

TEL AVIV, Israel--(BUSINESS WIRE)--

Sales Increased 9% to $365.4 Million; $14 Million Improvement in Cash Flow

Reaffirms 2019 Guidance; Sales Expected to Reach $1,550 Million-$1,590 Million and Full-Year EPS Expected to Grow by 5% to 12% and Reach $2.50-$2.65

2019 First Quarter Highlights

  • Sales grew 9% to $365.4 million in the first quarter of 2019, from $334.5 million in the first quarter of 2018.
  • EBITDA increased 43% to $30.6 million in the first quarter of 2019, from $21.4 million in the same quarter last year.
  • A strong balance sheet following Eminence acquisition and IFRS 16 implementation highlighted by $456.1 million in equity and $45.8 million in cash as of March 31, 2019.
  • Financial guidance for 2019 was reaffirmed: Full-year 2019 sales are expected to range between $1,550 million - $1,590 million, representing an increase of 3%-6% from 2018 actual sales of $1,498 million. Full-year 2019 diluted EPS is expected to range between $2.50-$2.65, representing an increase of 5%-12% from 2018 actual EPS of $2.37.
  • Declared dividend of $1.5 million, or $0.059 per share, to be distributed on June 5, 2019. The determining and "ex-dividend" date will be May 23, 2019.
  • Isaac Dabah, CEO of Delta Galil, stated: “We concluded the quarter with a 9% increase in sales and a significant improvement in cash flow; however, our first quarter results were impacted by the devaluation of the Euro and NIS versus the US dollar, and a shift of holiday sales to the second quarter. Still, we remain pleased as we continue to benefit from a diversified model, including a range of business segments, product categories and an expanded global presence, that enables us to drive momentum and balance. As we look ahead, we remain committed to investing in new products and resources to deliver sustained profitable growth and long-term shareholder value. With a strong balance sheet in place, we have the necessary financial resources to continue to innovate and grow -- both organically and through strategic acquisitions.”

Delta Galil Industries, Ltd. (DELT/Tel Aviv Stock Exchange, DELTY.PK/OTCQX), the global manufacturer and marketer of branded and private label apparel products for men, women and children, as well as leisurewear, activewear and denim, today reported its financial results for the first quarter ended March 31, 2019. The Company’s results for the first quarter of 2019 reflect the application of International Financial Reporting Standard 16 (“IFRS 16”) with respect to accounting for leases.

Sales

The Company reported a 9% increase in sales of $365.4 million for the first quarter of 2019, compared to $334.5 million for the first quarter last year. The sales increase largely reflected top-line growth in Delta Galil USA, Delta Galil’s Global Upper Market, Delta Israel, and Delta European Brands, which included a strong contribution from its newly acquired Eminence business.

Operating Profit

Operating profit was $10.4 million for the first quarter of 2019, compared to $14.0 million in the first quarter of 2018, representing a 25% decrease.

Net Income

Net income was $3.0 million in the first quarter of 2019, compared to $7.4 million in the same quarter last year, a 59% decrease.

Diluted earnings per share were $0.12 the first quarter of 2019, compared to $0.30 in the first quarter of 2018, a 61% decrease.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “We concluded the quarter with a 9% increase in sales and a significant improvement in cash flow; however, our first quarter results were impacted by the devaluation of the Euro and NIS versus the US dollar, and a shift of holiday sales to the second quarter. Still, we remain pleased as we continue to benefit from a diversified model, including a range of business segments, product categories and an expanded global presence, that enables us to drive momentum and balance. In the first quarter of 2019, we saw a strong performance from Delta Galil USA, Global Upper Market, and a contribution from Eminence.”

“During the quarter, we continued to improve efficiencies at our factories and expect full operational status for 2019. Our Delta Galil Premium Brands business was impacted by the shift in holiday and the depreciation of the Euro, as well as a new store opening expenses; however it remains an exciting growth opportunity.”

“As we look ahead, we remain committed to investing in new products and resources to deliver sustained profitable growth and long-term shareholder value. With a strong balance sheet in place, we have the necessary financial resources to continue to innovate and grow -- both organically and through strategic acquisitions.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $30.6 million in the first quarter of 2019, up 43% from $21.4 million in the same quarter last year.

Operating cash flow was negative $2.8 million in the first quarter of 2019, compared to negative $30.3 million in the first quarter of 2018, representing a $14.1 million Cash Flow improvement and $13.4 million rental expenses classification to finance activities due to the IFRS 16 implementation.

Net financial debt as of March 31, 2019 was $361.8 million, compared to $170.0 million as of March 31, 2018.

Equity on March 31, 2019 was $456.1 million, approximately equal to $459 million a year earlier.

Delta Galil declared a dividend of $1.5 million, or $0.059 per share, to be distributed on June 5, 2019. The determining and "ex-dividend" date will be May 23, 2019.

2019 Financial Guidance

Delta Galil reaffirmed its 2019 financial guidance, excluding one-time items, which is based on current market conditions and current exchange rates of: Euro/USD 1.14 and USD / NIS 3.65. The Company’s financial guidance for 2019 includes the impact of IFRS 16 on accounting for leases.

  • Full-year 2019 sales are expected to range between $1,550 million-$1,590 million, representing an increase of 3%-6% from 2018 actual sales of $1,498 million.
  • Full-year 2019 EBIT is expected to range between $112 million-$117 million, representing an increase of 14%-19% from 2018 actual EBIT of $98 million.
  • Full-year 2019 EBITDA is expected to range between $189 million-$194 million, representing an increase of 45%-49% from 2018 actual EBITDA of $130 million.
  • Full-year 2019 net income is expected to range between $64 million-$67 million, representing an increase of 5%-12% from 2018 actual net income of $60 million.
  • Full-year 2019 diluted EPS is expected to range between $2.50-$2.65, representing an increase of 5%-12% from 2018 actual EPS of $2.37.

IFRS 16

Starting January 1, 2019, the Company adopted the new lease accounting standards set forth in IFRS 16. This requires that certain leases, which were accounted for as operating leases be treated as capital leases going forward. Certain leases will be reclassified as assets and liabilities on the balance sheet, which will yield increased depreciation and interest expense, offset by a reduction in rental expense.

About Delta Galil Industries

Delta Galil Industries is a global manufacturer and marketer of branded and private label apparel products for men, women and children. Since its inception in 1975, the Company has continually strived to create products that follow a body-before-fabric philosophy, placing equal emphasis on comfort, aesthetics and quality. Delta Galil develops innovative seamless apparel including bras, shapewear and socks; intimate apparel for women; extensive lines of underwear for men including the brands Schiesser, Eminence, Athena & Liabel; babywear, activewear, sleepwear such as PJ Salvage, and leisurewear. Delta Galil also designs, develops markets and sells branded denim and apparel under the brand 7 For All Mankind®, and ladies apparel under the brands Splendid® and Ella Moss®, among others. In addition it sells its products under brand names licensed to the company, including: Wilson, Maidenform, Tommy Hilfiger, and others. For more information, visit www.deltagalil.com.

Safe Harbor Statement

Matters discussed in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words "anticipate," "believe," "estimate," "may," "intend," "expect" and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein, and while expected, there is no guarantee that we will attain the aforementioned anticipated developmental milestones. These forward-looking statements are based largely on the expectations of the Company and are subject to a number of risks and uncertainties. These include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, product, and distributor performance, the impact on the national and local economies resulting from terrorist actions, and U.S. actions subsequently; and other factors detailed in reports filed by the Company.

 

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of March 31, 2019

 
    March 31   December 31
2019   2018 2018
(Unaudited) (Audited)
Thousands of Dollars

Assets

Current assets:
Cash and cash equivalents 43,290 87,182 70,534
Restricted Cash 2,534 1,277 3,494
Other accounts receivable:
Trade receivables 184,839 152,631 224,019
Taxes on income receivable 1,789 1,600 881
Others 52,352 23,530 26,395
Financial derivative 693 1,057 273
Inventory 317,578 288,640 309,645
Total current assets 603,075 555,917 635,241
 
Non-current assets:
Investments in associated companies accounted using
the equity method and long-term receivables 15,421 11,689 29,401
Investment property 3,325 3,788 3,424
Fixed assets, net of accumulated depreciation 189,746 163,307 191,738
Goodwill 110,163 70,101 110,955
Intangible assets, net of accumulated amortization 219,952 157,944 221,669
Assets in respect of usage rights 200,055 - -
Deferred tax assets 16,363 11,388 9,285
Financial derivative 8,505 18,962 4,216
Total non-current assets 763,530 437,179 570,688
Total assets 1,366,605 993,096 1,205,929
 
 

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of March 31, 2019

 
    March 31   December 31
2019   2018 2018
(Unaudited) (Audited)
Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank credit 22,024 12 79,987
Current maturities of bank loan 7,860 - 8,015
Current maturities of debentures 28,699 20,676 19,514
Financial derivative 2,903 1,863 2,935
Current maturities of liabilities in respect of leases 49,809 - -
Other accounts payable:
Trade payables 101,347 101,687 139,591
Taxes on income payable 8,899 7,571 10,481
Others 96,200 98,939 112,326
Total current liabilities 317,741 230,748 372,849
 
Non-current liabilities:
Bank loan 66,810 - 70,134
Severance pay liabilities less plan assets 8,836 4,162 8,886
Liabilities in respect of leases 172,652 - -
Other non-current liabilities 29,140 35,288 35,833
Debentures 288,494 255,888 222,975
Deferred taxes liabilities 26,876 7,993 25,798
Financial derivative - - 1,603
Total non-current liabilities 592,808 303,331 365,229
Total liabilities 910,549 534,079 738,078
 
Equity:
Equity attributable to equity holders of the parent company:
Share capital 23,719 23,712 23,714
Share premium 130,411 130,790 130,667
Other capital reserves (11,725) 11,015 (10,503)
Retained earning 329,695 309,367 339,922
Treasury shares (16,272) (16,677) (16,523)
455,828 458,207 467,277
Minority interests 228 810 574
Total equity 456,056 459,017 467,851
Total liabilities and equity 1,366,605 993,096 1,205,929
 
 

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Statement of Income
For the 3-month period ending March 31, 2019

 
    Three months ended on    
March 31 % Chg.
2019   2018
(Unaudited)
Thousands of dollars
Sales 365,375   334,487 9%
Cost of sales 234,992 207,576
Gross profit 130,383 126,911 3%
% of sales 35.7% 37.9%
Selling and marketing expenses 103,289 96,445 7%
% of sales 28.3% 28.8%
General and administrative expenses 17,971 16,488 9%
% of sales 4.9% 4.9%
Other income (expenses), net 1,288 (38)
Share in profit of associated company accounted for using the equity method 33 20
Operating income excluding non-recurring items 10,444 13,960 (25%)
% of sales 2.9% 4.2%
Restructuring income (expenses) - 5
Operating income 10,444 13,965 (25%)
Finance expenses, net 7,951 5,029 58%
Income before taxes on income 2,493 8,936
Taxes on income (tax saving) (536) 1,526
Net income for the period 3,029 7,410 (59%)
Net income excluding non-recurring items, net of tax for the period 3,029 7,515 (60%)
Attribution of net earnings for the period:
Attributed to company's shareholders 3,029 7,686 (61%)
Attributed to non-controlling interests - (276)
3,029 7,410

Net diluted earnings per share attributable to Company's shareholders

0.12 0.30 (60%)

Net diluted earnings per share, before non-recurring items attributable to Company's shareholders

0.12 0.30 (60%)
 

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Cash Flow Reports
For the 3-month period ending March 31, 2019

   
Three months ended on March 31
2019   2018
(Unaudited)
Thousands of Dollars
Cash flows from operating activities
Net profit for the period 3,029 7,410
Adjustments required to reflect cash flows deriving from operating activities 977 (33,608)
Interest paid in cash (3,847) (3,430)
Interest received in cash 10 97
Taxes on income paid in cash, net (3,010) (798)
Net cash used in operating activities (2,841) (30,329)
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets (6,603) (9,060)
Providing loans (8,812) -
Restricted cash release 960 153
Earn-out payment for acquisition of an activity - (2,250)
Acquisition of a subsidiary (441) -
Proceeds from sale of fixed asset 70 1,497
Others - (720)
Net cash used in investment activities (14,826) (10,380)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary (346) (30)
Long term payables credit for fixed assets purchase (1,138) (489)
 
Repayments of LT leases (13,353)
Liability to financial institution - (6,413)
Dividend paid (3,547) (3,461)
Repayment of long-term loans from banks (2,004) -
Short-term credit from banking corporations, net (57,791) (16)
Debentures issuance net of issuance expenses 69,130 -
Proceeds from exercise of employee options - 105
Net cash used in financing activities (9,049) (10,304)
Net decreased in cash and cash equivalents (26,716) (51,013)
Exchange rate differences and revaluation of cash and cash equivalents, net (528) 725
Balance of cash and cash equivalents at the beginning of the period 70,534 137,470
Balance of cash and cash equivalents at the end of the period 43,290 87,182
 
 

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Cash Flow Reports
For the 3-month period ending March 31, 2019

 
    Three months ended on March 31
2019   2018
(Unaudited)
Thousands of Dollars
Adjustments required to reflect cash flows
from operating activities:
Revenues and expenses not involving cash flow:
Depreciation 6,667 6,297
Amortization 13,506 1,136
Cash erosion, net (271) (17)
Interest paid in cash 3,847 3,430
Interest received in cash (10) (97)
Taxes on income paid in cash, net 3,010 798
Deferred taxes, net (1,032) 298
Severance pay liability, net 86 76
Restructuring expenses - (442)
Capital loss (gain) from sale of fixed assets 24 11
Change in benefit component of options and restricted shares granted to Employees 291 354
Share in losses of associated companies accounted for using the equity method (33) (20)
Others 1,599 1,152
27,684 12,976
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables 39,448 (3,625)
Decrease (increase) in other receivable (4,615) (2,695)
Decrease in trade payables (38,596) (11,499)
Increase (decrease ) in other payables (14,362) (11,642)
Increase in inventory (8,582) (17,123)
(26,707) (46,584)
977 (33,608)
 

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