Market Overview

Delta Galil Reports Second Quarter 2018 Results

Share:

Net Income was $6.5 Million, or $0.25 per share, Including
Acquisition Costs

Net Income Before One-Time Items Increased 2% to $9.1 Million;
Diluted EPS Before One-Time Items Increased 3% to $0.36

Reaffirms 2018 Guidance; Sales Expected to Reach $1,400
Million-$1,440 Million and Full-Year Diluted EPS Expected to Reach
$2.11-$2.30

Eminence Acquisition was Completed Earlier than Expected On July 6th
2018

2018 Second Quarter Highlights

  • Net income before one-time items totaled $9.1 million, compared to
    $8.9 million last year, representing a 3% increase.
  • Net income was $6.5 million, including acquisition-related costs,
    compared to $8.9 million last year.
  • Diluted earnings per share before one-time items increased 3% to
    $0.36, compared to $0.35 last year.
  • Diluted earnings per share, including acquisition-related costs were
    $0.25 for the second quarter of 2018, compared to $0.35 in the same
    quarter last year.
  • Sales for the first six months of 2018 increased 3% to $673.4 million,
    compared to $656.1 million for the comparable period last year.
  • A strong balance sheet was highlighted by $450 million in equity and
    $105 million in cash as of June 30, 2018.
  • Financial guidance for 2018 was reaffirmed: Full-year 2018 sales are
    expected to range between $1,400 million-$1,440 million, representing
    an increase of 2%-5% from 2017 actual sales of $1,368.1 million.
    Full-year 2018 diluted EPS excluding one-time items is expected to
    range between $2.11-$2.30, representing an increase of 7%-16% from
    2017 actual EPS, excluding one-time items, of $1.98.
  • Declared a dividend of $3.5 million, or $0.139 per share, to be
    distributed on September 4, 2018. The determining and "ex-dividend"
    date will be August 23, 2018.
  • The acquisition of the Eminence Group, which sells premier branded
    underwear and leisurewear for men and women in France and Italy, was
    completed earlier than expected.
  • Isaac Dabah, CEO of Delta Galil, stated: "We are very pleased with the
    early completion of the Eminence Group acquisition, and believe it
    provides a potential platform for growth, while expanding our presence
    and branded business in the important France and Italy markets. We
    remain committed to investing in new products and resources to drive
    sustained profitable growth and long-term shareholder value. And with
    a strong balance sheet and cash position, we have the necessary
    financial resources to continue to invest, innovate and grow – both
    organically and through 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 net income of $6.5
million for the second quarter ended June 30, 2018, including a one-time
non-recurring charge of $3.95 million related to acquisition costs,
compared to net income of $8.9 million for the 2017 second quarter.
Excluding the acquisition-related cost, net income for the 2018 second
quarter was $9.1 million.

Sales

The Company reported sales of $338.9 million for the second quarter of
2018, relatively flat from $340.5 million in the second quarter of 2017.
Sales for the first six months of 2018 were $673.4 million, up 3% from
$656.1 million in the same six-month period of 2017.

Operating Profit

Operating profit before one-time items was $15.2 million for the second
quarter of 2018, compared to $17.7 million in the second quarter of
2017, representing a 14% decrease. Operating profit was $11.3 million
for the second quarter of 2018, including $4 million acquisition-related
costs, compared to $17.7 million for the same period last year,
representing a 36% decrease.

Operating profit in the first six months of 2018 before one-time items
was $29.2 million, down 4% from $30.6 million in the same period of
2017. For the first six months of 2018, operating profit was $25.3
million, including $4 million acquisition-related costs, down 9% from
$27.9 million in the same period last year. The decrease in operating
profit was mainly a result of costs associated with a new distribution
center, as well as running costs and lower profitability in the
company's factories due to a change in the product's mix.

Net Income

Net income excluding the acquisition-related costs increased 2% to $9.1
million, from $8.9 million in the second quarter of 2017. Net income was
$6.5 million for the second quarter of 2018, including the
acquisition-related costs, down 27% from $8.9 million last year.

Net income before one-time items increased 3% for the first six months
of 2018, and totaled $16.6 million, compared to $16.2 million for the
same period of 2017. For the first six months of 2018, net income was
$14.2 million, including the acquisition-related costs, down 2% from
$14.4 million for the first six months of last year.

Diluted Earnings Per Share

Diluted earnings per share before one-time items increased 3% in the
2018 second quarter, and amounted to $0.36, compared to $0.35 in the
same quarter last year. Diluted earnings per share including
acquisition-related costs were $0.25 for the second quarter of 2018,
compared to $0.35 in the same quarter last year, representing a 27%
decrease.

Diluted earnings per share before one-time items increased 4% for the
2018 six-month period and totaled $0.65, compared to $0.63 for the prior
year period. For the first six months of 2018, diluted earnings per
share were $0.55, down 2% from $0.57 last year.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: "While we experienced
challenges in our second quarter, they were partially offset by
improvements in several business segments and regions, demonstrating the
strength of our diversified business model. We have a strong balance
sheet in place, and through our blend of branded and private label
products, an expanding global presence, and a range of market segments,
we remain positioned for long-term profitable growth."

"During the quarter, we saw significant improvements in Delta Israel,
including a 14% increase in sales, as well as a strong performance by
Schiesser, including a 10% increase in sales.

"We were very pleased with the early completion of the Eminence Group
acquisition, as it adds a men's premium French brand, while expanding
our business in France and Italy, where we currently lack significant
market share. The acquisition was financed using Euro bank loans at an
attractive interest rate. We will consolidate Eminence Group results
beginning in the third quarter."

"Looking ahead, we expect the investments we made in our manufacturing
facilities to start having positive impacts on our bottom line towards
the second half of 2019. We are also excited about designer/influencer
collections in Delta Galil Premium Brands, possible initiatives with
online retailers, and the ability to introduce core Delta products
through the Eminence distribution channels. With a strong balance sheet
and cash position, we have the necessary financial resources to continue
to invest, innovate and grow – both organically and through
acquisitions."

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $22.9 million or 6.8% of sales in the second quarter of 2018,
compared to $25.5 million, or 7.5% of sales in the same quarter last
year. For the first six months of 2018, EBITDA was $44.3 million,
compared to $44.6 million in the same period of 2017.

Operating cash flow for the trailing 12 months ended June 30, 2018 was
$51.9 million, compared to $76.4 million for the trailing 12 months
ended June 30, 2017.

Net financial debt as of June 30, 2018 was $178.7 million, compared to
$169.7 million as of June 30, 2017 and $125.6 million as of December 31,
2017.

Equity on June 30, 2018 was $450.1 million, up from $417.8 million a
year earlier.

Delta Galil declared a dividend of $3.5 million, or $0.139 per share, to
be distributed on September 4, 2018. The determining and "ex-dividend"
date will be August 23, 2018.

2018 Financial Guidance

Delta Galil reaffirmed its 2018 financial guidance, excluding one-time
items and the positive impact expected from the Eminence Group
acquisition.

  • Full-year 2018 sales are expected to range between $1,400
    million-$1,440 million, representing an increase of 2%-5% from 2017
    actual sales of $1,368.1 million.
  • Full-year 2018 EBIT is expected to range between $91 million-$96
    million, representing an increase of 4%-10% from 2017 actual EBIT of
    $87.4 million.
  • Full-year 2018 EBITDA is expected to range between $119 million-$125
    million, representing an increase of 3%-8% from 2017 actual EBITDA of
    $115.9 million.
  • Full-year 2018 net income is expected to range between $54 million-$59
    million, representing an increase of 7%-16% from 2017 actual net
    income of $50.7 million.
  • Full-year 2018 diluted EPS is expected to range between $2.11-$2.30,
    representing an increase of 7%-16% 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;
babywear, activewear, sleepwear, and leisurewear. Delta Galil also
designs, develops, markets and sells branded denim 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 June 30, 2018

                     

June 30

December 31

2018

2017

2017

(Unaudited)

(Audited)

Thousands of Dollars

Assets
Current assets:
Cash and cash equivalents 104,753 99,138 137,470
Restricted Cash 1,180 1,577 1,430
Other accounts receivable:
Trade receivables 153,134 150,188 148,806
Taxes on income receivable 1,277 1,788 2,915
Others 27,192 18,689 20,632
Financial derivative 694 1,111 1,191
Inventory 295,680 261,393 269,877
Assets classified as held for sale - 1,000 -
Total current assets 583,910 534,884 582,321
 
Non-current assets:

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

14,460 10,830 11,142
Investment property 3,552 3,605 3,718
Fixed assets, net of accumulated depreciation 165,721 154,771 160,018
Goodwill 70,101 70,101 70,101
Intangible assets, net of accumulated amortization 156,304 150,856 158,768
Deferred tax assets 13,755 16,334 11,654
Financial derivative 10,592 22,619 22,800
Total non-current assets 434,485 429,116 438,201
Total assets 1,018,395 964,000 1,020,522
                     

DELTA GALIL INDUSTRIES LTD.

Concise Consolidated Balance Sheets

As of June 30, 2018

 

June 30

December 31

2018

2017

2017

(Unaudited)

(Audited)

Thousands of Dollars

 
Liabilities and Equity
Current liabilities:
Short-term bank loans 24,598 108 28
Current maturities of debentures 20,409 14,745 20,596
Financial derivative 2,879 1,332 1,432
Other accounts payable:
Trade payables 117,271 100,094 112,028
Taxes on income payable 8,569 5,892 6,373
Others 97,609 93,380 117,804
Total current liabilities 271,335 215,551 258,261
 
Non-current liabilities:
Severance pay liabilities less plan assets
Other non-current liabilities 4,151 3,507 4,057
Debentures 35,893 45,092 40,212
Reserve for deferred taxes 248,009 277,937 258,945
Financial derivative 8,951 4,160 7,724
Total non-current liabilities 297,004 330,696 310,938
Total liabilities 568,339 546,247 569,199
 
Equity:
Equity attributable to equity holders of the parent company:
Share capital 23,712 23,700 23,708
Share premium 130,792 130,750 130,791
Other capital reserves (1,314) 1,849 7,834
Retained earning 312,759 277,530 304,788
Treasury shares (16,677) (17,222) (16,914)
449,272 416,607 450,207
Minority interests 784 1,146 1,116
Total equity 450,056 417,753 451,323
Total liabilities and equity 1,018,395 964,000 1,020,522
     

DELTA GALIL INDUSTRIES LTD.

Consolidated Statement of Comprehensive Income

For the 3-month and 6-month periods ending June 30, 2018

     
Six months ended June 30

%
Increase/(Decrease)

Three months ended June 30

%
Increase/(Decrease)

2018         2017       2018         2017    
(Unaudited)
Thousands of Dollars
Except for Earnings per Share Data
Sales 673,394         656,142 3% 338,907         340,461 (0%)
Cost of sales 423,776 418,098 216,200 216,360
Gross profit 249,618 238,044 5% 122,707 124,101 (1%)
% of sales 37.1% 36.3% 36.2% 36.5%
Selling and marketing expenses 189,928 173,949 9% 93,483 90,678 3%
% of sales 28.2% 26.5% 27.6% 26.6%
General and administrative expenses 31,458 33,138 (5%) 14,970 17,179 (13%)
% of sales 4.7% 5.1% 4.4% 5.0%
Other Expenses (income), net (812) 576 (850) (1,293)
Share in profits of associated company accounted for using the
equity method
161 187 141 157
Operating income excluding non-recurring items 29,205 30,568 (4%) 15,245 17,694 (14%)
% of sales 4.3% 4.7% 4.5% 5.2%
Restructuring expenses (Income) (5) 2,665 - -
Deal cost 3,950 - 3,950 -
Operating income 25,260 27,903 (9%) 11,295 17,694 (36%)
% of sales 3.8% 4.3% 3.3% 5.2%
Finance expenses, net 9,597 9,115 5% 4,568 5,405 (15%)
Income before tax on income 15,663 18,788 6,727 12,289
Taxes on income 1,795 4,289 269 3,379
Net income for the period 13,868 14,499 (4%) 6,458 8,910 (28%)
Net income for the period excluding one-time items, net of tax 16,620 16,151 3% 9,105 8,910 2%
 
Attribution of net earnings for the period:
Attributed to company's shareholders 14,170 14,439 6,484 8,880
Attributed to non-controlling interests (302) 60 (26) 30
13,868 14,499 6,458 8,910
Net diluted earnings per share attributed to company's
shareholders
0.55 0.57 (4%) 0.25 0.35 (27%)

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

Company's shareholders

0.65 0.63 4% 0.36 0.35 3%
                             

DELTA GALIL INDUSTRIES LTD.

Consolidated Cash Flow Reports

For the 3-month and 6-month periods ending June 30, 2018

 

Six months ending

Three months ending

June 30

June 30

2018

2017

2018

2017

(Unaudited)

Thousands of Dollars

 
Cash flows from operating activities:
Net income for the period 13,868 14,499 6,458 8,910
Adjustments required to reflect cash flows deriving from operating
activities
(25,647) (1,753) 7,961 11,729
Interest paid in cash (5,953) (7,480) (2,523) (3,224)
Interest received in cash 310 231 213 122
Taxes on income paid in cash, net (2,546) (2,746) (1,748) (1,645)
Net cash generated (used in) from operating activities (19,968) 2,751 10,361 15,892
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets (20,249) (12,809) (11,189) (6,584)
Restricted cash release (deposit) 250 190 97 (35)
Earn-out payment for acquisition of an activity (2,250) (1,500) -
Proceeds from selling of fixed asset 1,676 28,231 179 28,056
Others (1,645) (640) (925) (901)
Net cash generated from ( used in) Investing activities (22,218) 13,472 (11,838) 20,536
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated
subsidiary
(30) (30) (30)
Long term payables credit for fixed assets purchase (1,643) (2,034) (1,154) (480)
Debentures principle repayment - (6,413) - -
Financial Institute payment (6,413) - - -
Dividend paid (6,999) (6,300) (3,538) (2,761)
Short-term credit from banking corporations, net 24,570 (44,880) 24,586 84
Debentures issuance net of issuance expenses - 57,152 - -
Release (deposit) of bank deposit used as a security with respect of
SWAP transaction
- 1,545 -- -
Proceeds from exercise of employees options 242 103 137 (98)
Net cash generated from ( used in) financing activities 9,727 (857) 20,031 (3,285)
Net increase (decrease) in cash and cash equivalents (32,459) 15,366 18,554 33,143
Exchange rate differences and revaluation of cash and cash
equivalents, net
(258) 1,825 (983) 1,366
Balance of cash and cash equivalents at the beginning of the
period
137,470 81,947 87,182 64,629
Balance of cash and cash equivalents at the end of the Period 104,753 99,138 104,753 99,138
 

DELTA GALIL INDUSTRIES LTD.

Consolidated Cash Flow Reports

For the 3-month and 6-month periods ending June 30, 2018

                             

Six months ending

Three months ending

June 30

June 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 12,685 11,409 6,388 5,983
Amortization 2,395 2,600 1,259 1,812
Cash erosion, net (40) (406) (23) (232)
Interest paid in cash 5,953 7,480 2,523 3,224
Interest received in cash (310) (231) (213) (122)
Taxes on income paid in cash, net 2,546 2,746 1,748 1,645
Deferred taxes on income, net (631) (2,455) (929) (668)
Severance pay liability, net 127 190 51 86

Restructuring expenses, net

(442) 2,665 - -
Capital loss (gain) from sale of fixed assets and asset held for sale (66) (3,142) (77) (3,184)
Change to the benefit component of options granted to employees 800 1,174 446 626
Share in profits of associated company accounted for using the
equity method
(161) (187) (141) (157)
Others 254 233 (898) (159)
23,110 22,076 10,134 8,854
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables (7,837) 6,264 (4,212) (17,305)
Decrease in other receivable and balances (5,242) 494 (2,547) 4,043
Increase (decrease) in trade payables 6,029 (4,653) 17,528 17,542
Increase (decrease) in other payables (9,459) (3,647) 2,183 7,834
Decrease (increase) in inventory (32,248) (22,287) (15,125) (9,239)
(48,757) (23,289) (2,173) 2,875
(25,647) (1,753) 7,961 11,729
 

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