Delta Galil Reports Second Quarter 2019 Results

Information


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 net income of $5.1 million for the second quarter ended June 30, 2019, including a one-time non-recurring charge of $2.8 million related to Bogart acquisition costs. This compared to net income of $6.5 million for the same quarter of 2018, including a one-time non-recurring charge of $3.95 million related to Eminence acquisition costs. Net income excluding one-time items was $7.9 million in the second quarter of 2019, compared to $9.1 million last year.

The Company’s results in 2019 reflect the application of International Financial Reporting Standard 16 (“IFRS 16”) with respect to accounting for leases.

Sales

The Company reported a 10% increase in sales of $373.9 million for the second quarter of 2019, compared to $338.9 million for the second quarter last year. Sales for the first six months of 2019 also increased 10% to $739.3 million from $673.4 million for the same period of 2018.

Operating Profit

Operating profit increased 27% to $14.3 million in the second quarter of 2019, compared to $11.3 million in the second quarter last year. Operating profit before one-time items increased 13% to $17.2 million for the second quarter of 2019, compared to $15.2 million for the same quarter last year.

Operating profit for the first six months of 2019 was $24.8 million, compared to $25.3 million in the first six months of 2018, a 2% decrease. Operating profit excluding one-time items for the first six months of 2019 totaled $27.6 million, compared to $29.2 million for the comparable period of 2018, a 5% decrease.

Net Income

Net income was $5.1 million in the second quarter of 2019, compared to $6.5 million in the same quarter last year, a 22% decrease. Net income excluding one-time items was $7.9 million in the second quarter of 2019, compared to $9.1 million last year, a 13% decrease.

Net income for the first six months of 2019 totaled $8.1 million, compared to $13.9 million for the same period last year, a 42% decrease. Net income excluding one-time items for the first six months of 2019 was $10.9 million, compared to $16.6 million for the comparable period of 2018, 34% decrease.

Diluted earnings per share were $0.20 the second quarter of 2019, compared to $0.25 in the second quarter of 2018, a 22% decrease. Diluted earnings per share excluding one time items were $0.31 in the second quarter of 2019, compared to $0.36 in the second quarter last year, a 14% decrease.

Diluted earnings per share for the first six months of 2019 were $0.32, compared to $0.55 for the first six months of 2018, a 43% decrease. Diluted earnings per share excluding one-time items for the first six months of 2019 were $0.43, compared to $0.65 for the same period last year, a 35% decrease.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “We’re pleased with our second quarter results, as sales grew 10%, driven primarily by our Global Upper Market, Delta European Brands, and Delta Israel. During the quarter, we made several strategic investments in our business that I’m confident will drive continued momentum and growth.

“This includes strengthening our management team with two key appointments. We named Steve Moore President of Delta Galil’s Mass Division, and Suzanne Silverstein President of 7 For All Mankind®. Both will be instrumental in helping to build the company both in the U.S. and globally.”

“Also to this point, we announced progress on a longtime goal of Delta’s – expanding our presence in the bra category – with the acquisition of intimate apparel leader The Bogart Group. We will begin consolidating Bogart results beginning Q3 2019.”

“We have a strong balance sheet in place and looking ahead, our healthy cash flow will pave the way for future growth."

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $37.3 million in the second quarter of 2019, up 63% from $22.9 million in the same quarter last year. For the first six months of 2019, EBITDA was $68.0 million, up 53% from 44.3 million in the same period of 2018.

Operating cash flow was $34.5 million in the second quarter of 2019, compared to $10.4 million in the second quarter of 2018. For the first six months of 2019, Operating Cash flow was $31.6 million, up from negative $22.0 million in the same period of 2018.

Net financial debt as of June 30, 2019 was $361.1 million, compared to $178.7 million, as of June 30, 2018 and $326.7 million as of December 31, 2018.

Equity on June 30, 2019 was $462.3 million, up from $450.1 million a year earlier.

Delta Galil declared a dividend of $2.5 million, or $0.098 per share, to be distributed on September 3, 2019. The determining and "ex-dividend" date will be August 21, 2019.

2019 Financial Guidance

Delta Galil left unchanged its 2019 financial guidance, excluding one-time items. The Company’s financial guidance for 2019 includes the impact of IFRS 16 on accounting for leases. The current financial guidance does not include the impact from expected higher tariffs on imported products from China to the US and costs related to recall of damage goods shipped to a primarily customer, which are in total estimated at an amount of up to $4 million. Excluding the above and the impact from Bogart acquisition, the Company estimates that it will meet its sales target and the lower range of its profitability goals set in the guidance.

The Company will update its guidance with respect to these factors in the 2019 third quarter.

  • 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 June 30, 2019

 

June 30

 

December 31

 

2019

 

2018

 

2018

 

(Unaudited)

 

(Audited)

 

Thousands of Dollars

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

38,611

 

104,753

 

70,534

Restricted Cash

1,218

 

1,180

 

3,494

Other accounts receivable:

 

 

 

 

 

Trade receivables

186,130

 

153,134

 

224,019

Taxes on income receivable

2,159

 

1,277

 

881

Others

66,035

 

27,192

 

26,395

Financial derivative

12

 

694

 

273

Inventory

350,129

 

295,680

 

309,645

Total current assets

644,294

 

583,910

 

635,241

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

Investments in associated companies accounted using

 

 

 

 

 

the equity method and long-term receivables

14,773

 

14,460

 

29,401

Investment property

3,340

 

3,552

 

3,424

Fixed assets, net of accumulated depreciation

190,040

 

165,721

 

191,738

Goodwill

110,739

 

70,101

 

110,955

Intangible assets, net of accumulated amortization

220,139

 

156,304

 

221,669

Assets in respect of usage rights

195,426

 

-

 

-

Deferred tax assets

16,096

 

13,755

 

9,285

Financial derivative

11,332

 

10,592

 

4,216

Total non-current assets

761,885

 

434,485

 

570,688

Total assets

1,406,179

 

1,018,395

 

1,205,929

DELTA GALIL INDUSTRIES LTD.

Concise Consolidated Balance Sheets

As of June 30, 2019

 

June 30

 

December 31

 

2019

 

2018

 

2018

 

(Unaudited)

 

(Audited)

 

Thousands of Dollars

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term bank loans

15,034

 

24,598

 

79,987

Current maturities of bank loan

7,973

 

-

 

8,015

Current maturities of debentures

29,335

 

20,409

 

19,514

Financial derivative

2,395

 

2,879

 

2,935

Current maturities of liabilities in respect of leases

49,546

 

-

 

-

Other accounts payable:

 

 

 

 

 

Trade payables

142,725

 

117,271

 

139,591

Taxes on income payable

5,992

 

8,569

 

10,481

Others

99,222

 

97,609

 

112,326

Total current liabilities

352,222

 

271,335

 

372,849

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Bank loan

65,776

 

-

 

70,134

Severance pay liabilities less plan assets

8,965

 

4,151

 

8,886

Liabilities in respect of leases

167,867

 

-

 

-

Other non-current liabilities

29,753

 

35,893

 

35,833

Debentures

291,767

 

248,009

 

222,975

Deferred taxes liabilities

27,558

 

8,951

 

25,798

Financial derivative

-

 

-

 

1,603

Total non-current liabilities

591,686

 

297,004

 

365,229

Total liabilities

943,908

 

568,339

 

738,078

 

 

 

 

 

 

Equity:

 

 

 

 

 

Equity attributable to equity holders of the parent company:

 

 

 

 

 

Share capital

23,714

 

23,712

 

23,714

Share premium

130,321

 

130,792

 

130,667

Other capital reserves

(9,383)

 

(1,314)

 

(10,503)

Retained earning

333,568

 

312,759

 

339,922

Treasury shares

(16,177)

 

(16,677)

 

(16,523)

 

462,043

 

449,272

 

467,277

Minority interests

228

 

784

 

574

Total equity

462,271

 

450,056

 

467,851

Total liabilities and equity

1,406,179

 

1,018,395

 

1,205,929

DELTA GALIL INDUSTRIES LTD.

Consolidated Statement of Comprehensive Income

For the 3-month and 6-month periods ending June 30, 2019

 

Six months ended June 30

 

% Increase/(Decrease)

 

Three months ended June 30

 

% Increase/(Decrease)

 

2019

 

2018

 

 

 

2019

 

2018

 

 

 

(Unaudited)

 

Thousands of Dollars

 

Except for Earnings per Share Data

Sales

739,261

 

673,394

 

10%

 

373,886

 

338,907

 

10%

Cost of sales

474,725

 

423,776

 

 

 

239,733

 

216,200

 

 

Gross profit

264,536

 

249,618

 

6%

 

134,153

 

122,707

 

9%

% of sales

35.8%

 

37.1%

 

 

 

35.9%

 

36.2%

 

 

Selling and marketing expenses

206,013

 

189,928

 

8%

 

102,724

 

93,483

 

10%

% of sales

27.9%

 

28.2%

 

 

 

27.5%

 

27.6%

 

 

General and administrative expenses

33,963

 

31,458

 

8%

 

15,992

 

14,970

 

7%

% of sales

4.6%

 

4.7%

 

 

 

4.3%

 

4.4%

 

 

Other Expenses (income), net

(2,672)

 

(812)

 

 

 

(1,384)

 

(850)

 

 

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

369

 

161

 

 

 

336

 

141

 

 

Operating income excluding non-recurring items

27,601

 

29,205

 

(5%)

 

17,157

 

15,245

 

13%

% of sales

3.7%

 

4.3%

 

 

 

4.6%

 

4.5%

 

 

Restructuring expenses (Income)

-

 

(5)

 

 

 

-

 

-

 

 

Deal cost

2,842

 

3,950

 

 

 

2,842

 

3,950

 

 

Operating income

24,759

 

25,260

 

(2%)

 

14,315

 

11,295

 

27%

Finance expenses, net

15,316

 

9,597

 

60%

 

7,365

 

4,568

 

61%

Income before tax on income

9,443

 

15,663

 

 

 

6,950

 

6,727

 

 

Taxes on income

1,346

 

1,795

 

 

 

1,882

 

269

 

 

Net income for the period

8,097

 

13,868

 

(42%)

 

5,068

 

6,458

 

(22%)

Net income for the period excluding one-time items, net of tax

10,939

 

16,620

 

(34%)

 

7,910

 

9,105

 

(13%)

 

 

 

 

 

 

 

 

 

 

 

 

Attribution of net earnings for the period:

 

 

 

 

 

 

 

 

 

 

 

Attributed to company's shareholders

8,097

 

14,170

 

 

 

5,068

 

6,484

 

 

Attributed to non-controlling interests

0

 

(302)

 

 

 

0

 

(26)

 

 

 

8,097

 

13,868

 

 

 

5,068

 

6,458

 

 

Net diluted earnings per share attributed to company's shareholders

0.32

 

0.55

 

(43%)

 

0.20

 

0.25

 

(22%)

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

0.43

 

0.65

 

(34%)

 

0.31

 

0.36

 

(14%)

DELTA GALIL INDUSTRIES LTD.

Consolidated Cash Flow Reports

For the 3-month and 6-month periods ending June 30, 2019

 

Six months ending

 

Three months ending

 

June 30

 

June 30

 

2019

 

2018

 

2019

 

2018

 

(Unaudited)

 

Thousands of Dollars

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income for the period

8,097

 

13,868

 

5,068

 

6,458

Adjustments required to reflect cash flows deriving from operating activities

39,404

 

(25,647)

 

38,427

 

7,961

Interest paid in cash

(10,307)

 

(5,953)

 

(6,460)

 

(2,523)

Interest received in cash

437

 

310

 

427

 

213

Taxes on income paid in cash, net

(6,015)

 

(2,546)

 

(3,005)

 

(1,748)

Net cash generated (used in) from operating activities

31,616

 

(19,968)

 

34,457

 

10,361

Cash flows from investment activities:

 

 

 

 

 

 

 

Acquisition of fixed assets and intangible assets

(13,582)

 

(20,249)

 

(6,979)

 

(11,189)

Providing loans

(18,102)

 

-

 

(9,290)

 

-

Restricted cash release (deposit)

2,276

 

250

 

1,316

 

97

Earn-out payment for acquisition of an activity

-

 

(2,250)

 

-

 

-

Acquisition of a subsidiary

(441)

 

-

 

-

 

-

Proceeds from selling of fixed asset

97

 

1,676

 

27

 

179

Others

-

 

(1,645)

 

-

 

(925)

Net cash generated from ( used in) Investing activities

(29,752)

 

(22,218)

 

(14,926)

 

(11,838)

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

(1,641)

 

(1,643)

 

(503)

 

(1,154)

Lease principle repayment

(26,789)

 

-

 

(13,436)

 

-

Financial Institute payment

-

 

(6,413)

 

-

 

-

Dividend paid

(5,052)

 

(6,999)

 

(1,505)

 

(3,538)

Repayment of long-term loans from banks

(3,970)

 

-

 

(1,966)

 

-

Short-term credit from banking corporations, net

(64,827)

 

24,570

 

(7,036)

 

24,586

Proceed from Debentures Issuance, net of Issuance expenses

69,130

 

-

 

-

 

-

Proceeds from exercise of employees options

-

 

242

 

-

 

137

Net cash generated from ( used in) financing activities

(33,495)

 

9,727

 

(24,446)

 

20,031

Net increase (decrease) in cash and cash equivalents

(31,631)

 

(32,459)

 

(4,915)

 

18,554

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

(292)

 

(258)

 

236

 

(983)

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

70,534

 

137,470

 

43,290

 

87,182

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

38,611

 

104,753

 

38,611

 

104,753

DELTA GALIL INDUSTRIES LTD.

Consolidated Cash Flow Reports

For the 3-month and 6-month periods ending June 30, 2019

 

Six months ending

 

Three months ending

 

June 30

 

June 30

 

2019

 

2018

 

2019

 

2018

 

(Unaudited)

 

Thousands of Dollars

Adjustments required to reflect cash flows

 

 

 

 

 

 

 

from operating activities:

 

 

 

 

 

 

 

Revenues and expenses not involving cash flow:

 

 

 

 

 

 

 

Depreciation

13,423

 

12,685

 

6,756

 

6,388

Amortization

26,931

 

2,395

 

13,425

 

1,259

Cash erosion, net

(147)

 

(40)

 

124

 

(23)

Interest paid in cash

10,307

 

5,953

 

6,460

 

2,523

Interest received in cash

(437)

 

(310)

 

(427)

 

(213)

Taxes on income paid in cash, net

6,015

 

2,546

 

3,005

 

1,748

Deferred taxes on income, net

(791)

 

(631)

 

241

 

(929)

Discount component for lease agreements

4,255

 

-

 

2,060

 

-

Severance pay liability, net

105

 

127

 

19

 

51

Restructuring expenses ,net

-

 

(442)

 

-

 

-

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

33

 

(66)

 

9

 

(77)

Change to the benefit component of options and RSU granted to employees

601

 

800

 

310

 

446

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

(369)

 

(161)

 

(336)

 

(141)

Others

531

 

254

 

1,127

 

(898)

 

60,457

 

23,110

 

32,773

 

10,134

Changes to operating assets and liabilities:

 

 

 

 

 

 

 

Decrease (increase) in trade receivables

39,283

 

(7,837)

 

(165)

 

(4,212)

Decrease in other receivable and balances

(8,394)

 

(5,242)

 

(3,779)

 

(2,547)

Increase (decrease) in trade payables

2,253

 

6,029

 

40,849

 

17,528

Increase (decrease) in other payables

(15,431)

 

(9,459)

 

(1,069)

 

2,183

Decrease (increase) in inventory

(38,764)

 

(32,248)

 

(30,182)

 

(15,125)

 

(21,053)

 

(48,757)

 

5,654

 

(2,173)

 

39,404

 

(25,647)

 

38,427

 

7,961