Delta Galil Reports Record Second Quarter 2022 Results

Sales increased 8% year-over-year, (up 11% in constant dollars) to a record $491.3 million

Operating income excluding non-recurring items increased 4% year-over-year to a record $44.0 million

Net income per diluted share, excluding non-recurring items, increased 4% year-over-year -- and 51% sequentially -- to a record $1.01 per diluted share

Company declares a $6 million dividend for second quarter 2022, an increase compared to second quarter 2021

Company reiterates full-year 2022 guidance in constant dollar basis and expects to achieve mid-to-low range of sales guidance

Delta Galil Industries, Ltd. (DELT/Tel Aviv Stock Exchange), the global manufacturer and marketer of branded and private label intimate apparel products for men, women and children, as well as leisurewear, activewear and denim, today reported record financial results for the second quarter and first half ended June 30, 2022.

Second Quarter 2022 Highlights (Comparisons are to Prior Year Period)

• Sales reached record levels for the sixth consecutive quarter, increasing 8%, or 11% in constant dollars, to $491.3 million, versus $455.8 million last year.
• Operating income excluding non-recurring items increased 4% to a record $44 million.
• Net income excluding non-recurring items increased 3% to a record $28.1 million, compared to $27.3 million.
• Diluted earnings per share (EPS), adjusted for non-recurring items, increased 4% to a record $1.01, compared to $0.97 per share.
• EBITDA excluding IFRS 16 increased 2% to a record $52.1 million.
• Balance sheet remains strong with $182.6 million in cash and short-term deposits, and $641.6 million in equity as of June 30, 2022.
• Delta Galil declared a dividend of $6.0 million, or $0.235 per share, to be distributed on September 6, 2022. The “record” and "ex-dividend" date will be August 22, 2022.

Isaac Dabah, CEO of Delta Galil, stated, “Positive momentum continued across many aspects of our business and we produced record second quarter and year-to-date financial results. Our record results reflect the powerful and diversified platform we have built, our innovative products, compelling brands, broad customer base and the successful execution of our growth strategy. We remain focused on maintaining robust levels of profitability as we successfully control operating costs and leverage our SG&A expenses.”

Mr. Dabah, continued, “We believe we are well positioned to successfully navigate the challenging retail environment while pursuing our long-term growth initiatives. In July 2022, as part of our global strategy to grow our digital presence and increase our focus on sustainable apparel and brands, we acquired Organic Basics, a digitally-native brand known for its sustainably and ethically made underwear, activewear and base layers. We see a significant opportunity to grow the Organic Basics brand globally, particularly in the U.S. and Europe, and we are excited to launch an expanded collection of products in 2023. We are confident that our diversified business model, strong balance sheet and global workforce will position us to meet our targets, and we expect 2022 to be a record year for sales and profitability.”

Sales

The Company reported record sales of $491.3 million in the second quarter of 2022, an 8% increase from $455.8 million in the second quarter of 2021. In constant dollars, second quarter sales increased 11% from the prior-year period. Record second-quarter sales were driven primarily by strong growth within the Company’s Private Label segment. The Company reported record first-half sales of $975.1 million, a 12% increase from $871.9 million in the prior-year period. In constant dollars, first-half sales increased 14% from the prior-year period.

Digital Sales

Own website sales in the second quarter of 2022 declined 15% to $53.7 million, compared to $63.4 million in the prior-year period, following a shift in consumer behavior back to physical retail locations as stores reopened after COVID-19 related lockdowns. Own website sales in the first half of 2022 declined 19% to $108.5 million, compared to $134.1 million in the prior-year period.

Excluding Bare Necessities, which was acquired in October 2020, own website sales in the second quarter and first half of 2022 increased by 93% and 100%, respectively, compared to the same periods in 2019.

Gross Profit

Gross profit in the second quarter of 2022 increased 1% to $189.0 million, or 38.5% of total sales, compared to $187.3 million, or 41.1% of total sales in the prior-year period. The year-over-year reduction in second-quarter gross margin is attributable mainly to increased freight and raw material costs, the increased mix of Private Label sales--which are characterized by lower gross margins but higher operating margins--and the devaluation of the Euro compared to the USD, partially offset by a favorable customer mix, and increased profitability of the Company’s factories. Gross profit in the first half of 2022 increased 8% to $372.3 million, or 38.2% of total sales, compared to $346.3 million, or 39.7% of total sales, in the first half of 2021.

EBIT, Excluding Non-Recurring Items

EBIT excluding non-recurring items in the second quarter of 2022 increased 4% to $44.0 million, compared to $42.4 million in the prior-year period. The increase was driven by higher sales, operating leverage. EBIT excluding non-recurring items in the first half of 2022 increased 11% to $78.2 million, compared to $70.4 million in the prior-year period.

Net Income, Excluding Non-Recurring Items

Net income excluding non-recurring items in the second quarter of 2022 increased 3% to $28.1 million, compared to $27.3 million in the prior-year period. Net income excluding non-recurring items in the first half of 2022 increased 11% to $47.1 million, compared to $42.4 million in the prior-year period.

Diluted Earnings Per Share, Excluding Non-Recurring Items

Diluted earnings per share excluding non-recurring items in the second quarter of 2022 increased 4% to $1.01, compared to diluted earnings per share of $0.97 in the prior-year period. Diluted earnings per share excluding non-recurring items in the first half of 2022 increased 9% to $1.68, compared to diluted earnings per share of $1.54 in the prior-year period.

EBITDA, Cash Flow, Net Debt, Equity, and Dividend

EBITDA excluding IFRS 16 in the second quarter of 2022 increased 2% to $52.1 million, compared to $50.9 million in the comparable period last year. EBITDA excluding IFRS 16 in the first half of 2022 increased 8% to $94.7 million, compared to $87.4 million in the comparable period last year.

Net cash used in operating activities excluding IFRS 16 was $15.7 million in the second quarter of 2022, compared to net cash provided by operating activities of $36.9 million in the prior-year period. The year-over-year reduction in operating cash flow reflects higher investments in working capital, mainly inventory, to better support growth and service seasonal inventory requirements. Net cash used in operating activities excluding IFRS 16 was $68.3 million in the first half of 2022, compared to net cash provided by operating activities of $58.3 million in the same period in 2021.

Net financial debt excluding IFRS 16 as of June 30, 2022, was $218.4 million, compared to $124.6 million as of June 30, 2021. At June 30, 2022, the ratio of net financial debt excluding IFRS 16 to trailing 12-month EBITDA was 0.9 times, compared to 0.7 times at June 30, 2021.

Delta Galil declared a dividend of $6.0 million, or $0.235 per share, to be distributed on September 6, 2022. The “record” and "ex-dividend" date will be August 22, 2022.

Non-recurring items

The Company is focused on realigning its manufacturing footprint to improve production flexibility and efficiencies while reducing its manufacturing presence in China. As a result, during the second quarter of 2022, the Company ceased operations at Bogart's Shenzhen Factory and moved its operating activity to a new factory in Vietnam. The Company recorded a $5.5 million expense during the second quarter of 2022 associated with employee severance and related costs.

2022 Financial Guidance

Delta Galil’s 2022 guidance excludes non-recurring items and includes IFRS 16, and assumes there is no major resurgence of the COVID-19 pandemic that leads to quarantines and/or lockdowns in any countries in which the Company sells or manufactures its products. The Company reiterates its guidance on a constant currency basis and expects to achieve the mid-to-low range of its sales guidance.

Rapid changes in currency exchange rates have impacted the Company’s reported sales. On a constant currency (USD) basis (*), full year 2022 sales would benefit from additional sales of $45 million or 2%.

(*) based on the following exchange rate: 1.03 $ per 1 Euro, 3.30 NIS per 1$

Earnings Presentation

The Company will host an in-person investor meeting to discuss second quarter 2022 results and its business outlook at the Tel Aviv Stock Exchange on August 15, 2022 at 9:00 a.m. Israel Daylight Time. A recording of the presentation will be available later in the week at deltagalil.com/investor-relations/events-presentations.

Constant Currency - Excluding the Impact of Foreign Currency

This release refers to “reported” amounts in accordance with IFRS accounting principles (“GAAP”), which include translation and transactional impacts from foreign currency exchange rates. This release also refers to “constant dollar” amounts, which exclude the impact of translating foreign currencies into USD (U.S. dollars), and is considered a non-GAAP financial measure.

These constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, our operating performance measures calculated in accordance with GAAP. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

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 including the brands Schiesser, Eminence, Athena & Liabel; babywear, activewear, sleepwear such as the PJ Salvage brand, 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 brand Splendid®. In addition, it sells its products under brand names licensed to the company, including adidas, Wolford, Wilson, Columbia, 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.

Source: Delta Galil Industries, Ltd.

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