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Delta Galil Reports Third Quarter 2018 Results

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

Sales Increased 9% to $370.8 Million;
EBITDA Increased 13% to $35.3 Million

Updates 2018 Guidance; Sales Expected to Increase 8%-9% and Reach
$1,475 Million-$1,495 Million
Diluted EPS Expected to Increase 12%-18% and Reach $2.23-$2.34

2018 Third Quarter Highlights

  • Sales increased 9% to $370.8 million, compared to $340.3 million last year.
  • EBITDA increased 13% to $35.3 million, compared to $31.3 million in 2017.
  • Eminence Group’s results were consolidated into Delta European Brands operating segment, which includes Schiesser, contributing $27.1 million to sales in the third quarter of 2018.
  • Financial guidance for 2018 was updated: Full-year 2018 sales are expected to range between $1,475 million-$1,495 million, representing an increase of 8%-9% from 2017 actual sales of $1,368.1 million. Diluted EPS is expected to range between $2.23-$2.34, representing an increase of 12%-18% from 2017 actual EPS, of $1.98.
  • Delta declared a dividend of $3.5 million, or $0.139 per share, to be distributed on December 5, 2018. The determining and "ex-dividend" date will be November 27, 2018.
  • Isaac Dabah, CEO of Delta Galil, stated: “We are pleased with the continued strength of our diversified business model, as we concluded the quarter with a 9% sales increase and 10% increase in EBIT, before one-time items. We saw strong performance from Delta USA and significant improvements in Delta Israel. We have a strong balance sheet, and we remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value.”

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 financial results for the third quarter and nine months ended September 30, 2018.

Sales

The Company reported sales of $370.8 million for the third quarter of 2018, a 9% increase from $340.3 million in the third quarter of 2017. Sales for the first nine months of 2018 were $1,044.2 million, up 5% from $996.4 million in the same nine-month period of 2017. The sales growth primarily reflected strength in Delta Galil USA, Delta European Brands (now including Eminence) and Delta Israel.

Operating Profit

Operating profit before one-time items increased 10% to $26.7 million in the third quarter of 2018, compared to $24.3 million in the third quarter of 2017. Operating profit including $9.6 million of acquisition-related and restructuring costs was $17.0 million for the third quarter of 2018, compared to $24.2 million for the same period last year, representing a 29% decrease.

Operating profit in the first nine months of 2018, before one-time items increased 2% to $55.9 million, compared to $54.9 million in the same period of 2017. For the first nine months of 2018, operating profit including $13.6 million of acquisition-related and restructuring costs was $42.3 million, down 19% from $52.1 million in the same period last year. The increase in operating profit excluding one-time items was due to higher gross profit achieved from Eminence results consolidated for the first time, which has a relatively high gross margin compared to average margin in Delta.

Net Income

Net income excluding Eminence acquisition-related costs and restructuring costs increased 15% to $16.6 million, from $14.5 million in the third quarter of 2017. Net income including acquisition-related and restructuring costs of $7.0 million (net of tax) was $9.6 million for the third quarter of 2018, compared to $14.4 million last year, a 33% decrease.

Net income before acquisition-related and restructuring costs increased 8% for the first nine months of 2018, and totaled $33.2 million, compared to $30.6 million for the same period of 2017. For the first nine months of 2018, net income including the acquisition-related and restructuring costs totaled $23.5 million, compared to $28.9 million for the same period last year, a 19% decrease.

Diluted Earnings Per Share

Diluted earnings per share before adjustments increased 15% in the 2018 third quarter, and totaled $0.65, compared to $0.57 last year. Diluted earnings per share including acquisition-related and restructuring costs were $0.38 for the third quarter of 2018, compared to $0.56 in the same quarter last year, representing a 33% decrease.

For the nine-month period, diluted earnings per share before adjustments increased 9% and totaled $1.31 in 2018, compared to $1.20 for the same period in 2017. For the first nine months of 2018, diluted earnings per share including acquisition-related and restructuring costs were $0.93, down 17% from $1.13 last year.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “We are pleased with the continued strength of our diversified business model, as we concluded the quarter with a 9% sales increase and 10% increase in EBIT, before adjustments. We saw strong performance from Delta USA, where successful launches for Costco and new kids businesses drove a 9% increase in sales and a 49% increase in EBIT. We continued to see significant improvement in Delta Israel, with a 19% increase in sales and $1.3 million improvement in EBIT, as well as strong comparable sales and online growth.”

“During the quarter, we focused on consolidating Eminence Group, which made a strong contribution to sales in its first quarter as part of Delta Galil, while expanding our European presence.”

“Also during the quarter, we signed a global licensing agreement to exclusively develop, produce and distribute Ted Baker men’s underwear, loungewear, and thermal wear worldwide, with the first collection launching Spring 2019. This represents an important step in our ongoing strategy to grow our global portfolio of premium brands.”

“Looking ahead, we expect continued long-term growth in Delta Galil Premium Brands to reach above 10% EBIT. We see significant opportunities, including potential corporate initiatives to sell to key online retailers, and the ability to introduce core Delta products through Eminence distribution channels. Further, the investments we made in our manufacturing facilities will start having positive impacts on our bottom line towards 2019. We have a strong balance sheet, and we remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $35.3 million or 9.5% of sales in the third quarter of 2018, compared to $31.3 million, or 9.2% of sales in the same quarter last year. For the first nine months of 2018, EBITDA was $79.6 million, compared to $75.9 million in the same period of 2017.

Operating cash flow for the trailing 12 months ended September 30, 2018 was $20.9 million, compared to $80.7 million for the trailing 12 months ended September 30, 2017.

Net financial debt as of September 30, 2018 was $349.1 million, compared to $164.8 million as of September 30, 2017, mainly explained by the acquisition of Eminence for $135.4 million.

Equity on September 30, 2018 was $457.6 million, up from $436.0 million a year earlier.

Delta Galil declared a dividend of $3.5 million, or $0.139 per share, to be distributed on December 5, 2018. The determining and "ex-dividend" date will be November 27, 2018.

2018 Financial Guidance

Delta Galil updates its 2018 financial guidance, excluding one-time items:

  • Full-year 2018 sales are expected to range between $1,475 million-$1,495 million, representing an increase of 8%-9% from 2017 actual sales of $1,368.1 million.
  • Full-year 2018 EBIT is expected to range between $97 million-$99 million, representing an increase of 11%-13% from 2017 actual EBIT of $87.4 million.
  • Full-year 2018 EBITDA is expected to range between $127 million-$130 million, representing an increase of 10%-12% from 2017 actual EBITDA of $115.9 million.
  • Full-year 2018 net income is expected to range between $57 million-$60 million, representing an increase of 12%-18% from 2017 actual net income of $50.7 million.
  • Full-year 2018 diluted EPS is expected to range between $2.23-$2.34, representing an increase of 12%-18% from 2017 actual EPS, of $1.98.

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 and branded Men’s underwear under the brands Eminence, Athena & Liabel; babywear, activewear, sleepwear, 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®. 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 September 30, 2018

     
September 30 December 31
2018 2017 2017
(Unaudited) (Audited)
Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents 58,743 95,685 137,470
Restricted Cash 3,150 1,646 1,430
Other accounts receivable:
Trade receivables 190,903 152,363 148,806
Taxes on income receivable 2,799 2,266 2,915
Others 29,070 20,060 20,632
Financial derivative 667 996 1,191
Inventory 356,606 275,130 269,877
Assets classified as held for sale - 1,000 -
Total current assets 641,938 549,146 582,321
 
Non-current assets:

Investments in associated companies accounted
using the equity method and long-term receivables

15,470 11,289 11,142
Investment property 3,508 3,691 3,718
Fixed assets, net of accumulated depreciation 189,604 158,371 160,018
Goodwill 111,570 70,101 70,101
Intangible assets, net of accumulated amortization 221,526 150,111 158,768
Deferred tax assets 11,438 14,422 11,654
Financial derivative 12,606 20,623 22,800
Total non-current assets 565,722 428,608 438,201
Total assets 1,207,660 977,754 1,020,522

DELTA GALIL INDUSTRIES LTD.

Concise Consolidated Balance Sheets

As of September 30, 2018

   
September 30 December 31
2018   2017 2017
(Unaudited) (Audited)
Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans 78,028 - 28
Current maturities of bank loan 8,136 - -
Current maturities of debentures 20,424 14,465 20,596
Financial derivative 2,680 1,341 1,432
Other accounts payable:
Trade payables 137,035 104,140 112,028
Taxes on income payable 10,416 5,017 6,373
Others 107,799 100,851 117,804
Total current liabilities 364,518 225,814 258,261
 
Non-current liabilities:
Bank loan 73,232 - -
Severance pay liabilities less plan assets 8,982 3,594 4,057
Other non-current liabilities 35,350 37,474 40,212
Debentures 241,482 267,959 258,945
Reserve for deferred taxes 26,324 6,918 7,724
Financial derivative 219 - -
Total non-current liabilities 385,589 315,945 310,938
Total liabilities 750,107 541,759 569,199
 
Equity:

Equity attributable to equity holders of
the parent company:

Share capital 23,713 23,706 23,708
Share premium 130,735 130,799 130,791
Other capital reserves (289) 9,330 7,834
Retained earning 319,259 288,079 304,788
Treasury shares (16,596) (17,035) (16,914)
456,822 434,879 450,207
Minority interests 731 1,116 1,116
Total equity 457,553 435,995 451,323
Total liabilities and equity 1,207,660 977,754 1,020,522

DELTA GALIL INDUSTRIES LTD.

Consolidated Statement of Comprehensive Income

For the 3-month and 9-month periods ending September 30, 2018

       
Nine months ended September 30

%
Increase/(Decrease)

Three months ended September 30

%
Increase/(Decrease)

2018   2017       2018   2017    
(Unaudited)
Thousands of Dollars
Except for Earnings per Share Data
Sales 1,044,157   996,443 5% 370,763   340,301 9%
Cost of sales 651,616 629,316 227,840 211,218
Gross profit 392,541 367,127 7% 142,923 129,083 11%
% of sales 37.6% 36.8% 38.5% 37.9%
Selling and marketing expenses 292,039 262,140 11% 102,111 88,191 16%
% of sales 28.0% 26.3% 27.5% 25.9%
General and administrative expenses 46,707 50,295 (7%) 15,249 17,157 (11%)
% of sales 4.5% 5.0% 4.1% 5.0%
Other Expenses (income), net (1,784) 222 (972) (354)
Share in profits of associated company accounted for using the equity method 282 432 121 245
Operating income excluding non-recurring items 55,861 54,902 2% 26,656 24,334 10%
% of sales 5.3% 5.5% 7.2% 7.2%
Restructuring expenses 5,422 2,832 5,427 167
Inventory Step up due to Eminence acquisition 3,849 - 3,849 -
Eminence acquisition cost 4,283 - 333 -
Operating income 42,307 52,070 (19%) 17,047 24,167 (29%)
% of sales 4.1% 5.2% 4.6% 7.1%
Finance expenses, net 15,904 14,518 10% 6,307 5,403 17%
Income before tax on income 26,403 37,552 10,740 18,764
Taxes on income 2,904 8,664 1,109 4,375
Net income for the period 23,499 28,888 (19%) 9,631 14,389 (33%)
Net income for the period excluding one-time items, net of tax 33,244 30,644 8% 16,624 14,493 15%
 
Attribution of net earnings for the period:
Attributed to company's shareholders 23,854 28,798 (17%) 9,684 14,359 (33%)
Attributed to non-controlling interests (355) 90 (53) 30
23,499 28,888 9,631 14,389
Net diluted earnings per share attributed to company's shareholders 0.93 1.13 0.38 0.56

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

1.31 1.20 9% 0.65 0.57 15%
DELTA GALIL INDUSTRIES LTD.
 

Consolidated Cash Flow Reports

For the 3-month and 9-month periods ending September 30, 2018

       
Nine months ending Three months ending
September 30 September 30

2018

 

2017

2018 2017
(Unaudited)
Thousands of Dollars
Cash flows from operating activities:
Net income for the period 23,499 28,888 9,631 14,389

Adjustments required to reflect cash flows
deriving from operating activities

(43,466) 4,869 (17,819) 6,622
Interest paid in cash (10,709) (10,281) (4,756) (2,801)
Interest received in cash 312 498 2 267
Taxes on income paid in cash, net (3,768) (4,351) (1,222) (1,605)

Net cash generated (used in) from operating
activities

(34,132) 19,623 (14,164) 16,872
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets (30,852) (21,520) (10,603) (8,711)
Restricted cash release (deposit) (89) 121 (339) (69)
Earn-out payment for acquisition of an activity (2,250) (1,500) - -
Acquisition of a subsidiary (135,380) - (135,380) -
Proceeds from selling of fixed asset 1,774 28,275 98 44
Others (2,505) (882) (860) (242)

Net cash generated from (used in) Investing
activities

(169,302) 4,494 (147,084) (8,978)
Cash flows from financing activities:

Dividends paid to non-controlling interest holders
in consolidated subsidiary

(30) (90) - (60)
 

Long term payables credit for fixed assets
purchase

(2,637) (2,034) (994) -
Debentures principle repayment (8,093) (14,506) (8,093) (8,093)
Financial Institute payment (6,413) - - -
Dividend paid (10,528) (10,522) (3,529) (4,222)
Long term loan received from bank 81,480 - 81,480 -
Short-term credit from banking corporations, net 71,283 (44,988) 46,713 (108)
Debentures issuance net of issuance expenses - 57,152 - -

Release of bank deposit used as a security with
respect of SWAP transaction

- 1,545 - -
Proceeds from exercise of employees options 266 347 24 244

Net cash generated from (used in) financing
activities

125,328 (13,096) 115,601 (12,239)

Net increase (decrease) in cash and cash
equivalents

(78,106) 11,021 (45,647) (4,345)

Exchange rate differences and revaluation of
cash and cash equivalents, net

(621) 2,717 (363) 892

Balance of cash and cash equivalents at the
beginning of the period

137,470 81,947 104,753 99,138

Balance of cash and cash equivalents at the end
of the Period

58,743 95,685 58,743 95,685

DELTA GALIL INDUSTRIES LTD.

 

Consolidated Cash Flow Reports

For the 3-month and 9-month periods ending September 30, 2018

 
 

Nine months ending

 

Three months ending

September 30

September 30

2018

 

2017

2018

 

2017

(Unaudited)

Thousands of Dollars

 
Adjustments required to reflect cash flows
from operating activities:
Revenues and expenses not involving cash flow:
Depreciation 20,714 17,391 8,029 5,982
Amortization 3,505 3,559 1,110 959
Cash erosion, net 111 (470) 151 (64)
Interest paid in cash 10,709 10,281 4,756 2,801
Interest received in cash (312) (498) (2) (267)
Taxes on income paid in cash, net 3,768 4,351 1,222 1,605
Deferred taxes on income, net (2,425) 1,691 (1,794) 4,146
Severance pay liability, net 237 232 110 42
Restructuring expenses ,net 4,133 2,832 4,575 167

Capital loss (gain) from sale of fixed assets and asset
held for sale

86 (3,495) 152 (353)

Change to the benefit component of options granted to
employees

1,145 1,586 345 412

Share in profits of associated company accounted for using
the equity method

(282) (432) (121) (245)
Others 1,076 733 822 500
42,465 37,761 19,355 15,685
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables (25,093) 1,630 (17,256) (4,634)
Decrease (increase) in other receivable and balances (4,170) 5,279 1,072 4,785
Increase (decrease) in trade payables 15,434 (671) 9,405 3,982
Increase (decrease) in other payables (13,060) (5,522) (3,601) (1,875)
Decrease (increase) in inventory (59,042) (33,608) (26,794) (11,321)
(85,931) (32,892) (37,174) (9,063)
(43,466) 4,869 (17,819) 6,622

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