Delta Galil Reports Third Quarter 2023 Results

Third Quarter Results Reflect Significant Progress on Initiatives Aimed at Expanding Gross Margin, Reducing Inventory, Driving Operating Cash Flow and Strengthening the Balance Sheet

Third quarter Online Sales of the Company's Own Brands Increased 26% compared to Third Quarter of Last Year

Third Quarter Gross Margin Increased 250 Basis Points Year-over-Year to a Record Third Quarter of 40.9%

Strong 10% EBIT Despite Lower Sales and SG&A Deleverage

Continued Sequential Improvements in Inventory; Down 6.4% from Second Quarter and 21.3% compared to Third Quarter of Last Year

Operating Cash Flow Excluding IFRS 16 was $30.3 Million for the Third Quarter, and $99.6 Million for the Nine Month Period

Equity at a record level of $725.8 Million or 41.5% of Total Balance Sheet

Declares a $7.5 Million Dividend for the Third Quarter of 2023

Management’s Goal, Based on its Initial 2024 Budget, is Focused on Achieving Sales and Profit Levels Similar to 2022’s Record Results; Updated Guidance Will Be Provided in February 2024

Delta Galil Industries, Ltd. (DELG/Tel Aviv Stock Exchange), the global manufacturer and marketer of branded and private label intimate, activewear, loungewear and denim apparel for men, women and children, today reported financial results for the third quarter and nine months ended September 30, 2023.

Third Quarter 2023 Highlights (comparisons are to prior year period unless otherwise noted)

• Sales decreased 9.6% (9.8% % in constant currency) to $463.0 million, driven by the continued slowdown in global consumer spending
• Third quarter online sales of the Company’s own brands increased 26% compared to the third quarter of last year
• Gross margin improved 250 basis points to a third quarter record of 40.9%
• EBIT was $46.1 million, or 10.0% of sales compared to last year at $55.1 million, or 10.8% of sales
• EBITDA excluding IFRS 16 impact was $53.2 million, a 16.7% decrease from last year and a 40.0% increase from second quarter 2023
• Inventory decreased for the fourth consecutive quarter, reflecting an aggregate reduction of $114.4 million since September 30, 2022
• Operating cash flow excluding IFRS 16 was $30.3 million, a $66.4 million improvement from the same period last year
• Net debt, excluding IFRS 16, was down $103.7 million to $178.0 million, compared to $281.7 million at September 30, 2022
• Equity at September 30, 2023, was at a record level of $725.8 million, up 10% from September 2022
• Dividend declared of $7.5 million, or $0.292 per share, which will be distributed on December 5, 2023, with a record and “ex-dividend” date of November 23, 2023
• On November 14, 2023, the Company announced the acquisition of Chantelle Group’s Passionata Brand, which is expected to close on January 2024.

Isaac Dabah, CEO of Delta Galil, stated, “During the third quarter, we made strong progress executing against previously disclosed strategies aimed at reducing inventory levels, expanding gross margin, and generating strong operating cash flow. In addition, we achieved a strong, double digit EBIT margin, despite lower sales and SG&A deleverage due to our record third quarter gross margin and the benefits of our previously implemented cost efficiency efforts. As a result, we have strengthened our balance sheet and capital position, ending the quarter with record equity of $725.8 million, and a net debt-to-EBITDA ratio, excluding IFRS 16, of 1.0. This strong financial position provides us with significant flexibility to further invest in our brands, support our customers, and pursue long-term growth opportunities.”

Mr. Dabah continued, “While we navigate a challenging macro environment, we remain committed to pursuing profitable growth initiatives and during the third quarter Delta own branded web sales increased across all segments driven by higher traffic. This reflects our continued focus on growing our direct-to-consumer channels, while simultaneously developing new and innovative products for our customers. I am also excited to announce that on November 14, 2023, we announced the acquisition of Chantelle Group’s Passionata brand. This is a unique and valuable addition to our global brand portfolio, as Passionata resonates so strongly with millennial women who are confident expressing their sensuality. We have a long history of growing brands, and we are excited to strengthen our position and presence in women's intimates across 18 different countries and various distribution channels.”

Mr. Dabah concluded, “I am encouraged by the progress we are making managing the items under our control, strengthening our financial position, and investing in our long-term growth objectives. We expect 2024 will be a strong year with meaningful revenue and profitability growth compared to 2023, and at similar level of 2022 record annual results. We expect the challenging macro environment to continue into 2024, but we believe we are well positioned to navigate these challenges and take advantage of opportunities that support our strategies aimed at creating long-term value for our shareholders. Based on our 2024 budget and initial estimates, we expect meaningful revenue and profitability growth compared to 2023. Additionally, our goal in 2024 is focused on achieving sales and profit levels similar to 2022’s annual record results.”

Sales

The Company reported third quarter 2023 sales of $463.0 million, a 9.6% decrease from $512.0 million in the third quarter of 2022. Nine months ended 2023 sales were $1,349.1 million, a 9% decrease (8% in constant currency) from $1,487.1 million in the prior-year period.

Gross Margin

Gross margin in the third quarter of 2023 increased to 40.9%, compared to 38.4% in the third quarter of 2022. The 250-basis point expansion was due primarily to better customer, channel, and segment mix and lower freight cost, partially offset by higher discounts and promotions. Gross margin in the nine months ended 2023 increased by 180 basis points to 40.1%, compared to 38.3% in the nine months ended of 2022.

EBIT

EBIT in the third quarter of 2023 was $46.1 million or 10.0% of sales compared to $55.1 million or 10.8% of sales in the prior-year period.

EBIT in the nine months ended 2023 was $88.8 million, compared to $127.8 million in the same period last year. In the nine months ended 2023, EBIT before non-core items was $96.9 million, or 7.2% of sales, compared to $133.3 million, or 9.0% of sales, in the nine months ended 2022.

The reduction in EBIT margin before non-core items was mainly due to reduction in gross profit following the lower sales and deleverage of SG&A expenses, which could support higher sales levels.

Non-Core Items

The Company recorded no non-core items in its third quarters of 2023 and 2022.

In the first nine months of 2023, expenses associated with the realignment plans were $11.4 million and the Company estimates annual cost savings from these plans to reach approximately $12.5 million, a portion of which will be realized in 2023.

Non-core items in the first nine months of 2023 also included, a $4.0 million benefit associated with a reversal of an earn-out liability with respect to Bogart's acquisition, and $0.7 million related to deal costs.

Net Income

Net income in the third quarter of 2023 was $29.5 million, compared to $36.1 million in the third quarter last year.

Net income in the nine months ended 2023 was $47.6 million, compared to $77.7 million in the same period last year. Net income excluding non-core items, net of tax, was $53.8 million, compared to $83.2 million in the first nine months of 2022.

Diluted Earnings Per Share

Diluted earnings per share in the third quarter of 2023 were $1.09, compared to $1.32 in the third quarter of 2022.

Diluted earnings per share in the nine months of 2023 were $1.71, compared to $2.79 in the same period last year. Diluted earnings per share, excluding non-core items, net of tax, were $1.94 compared to $3.00 in 2022.

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

EBITDA excluding IFRS 16 impact in the third quarter of 2023 was $53.2 million, compared to $63.9 million in the third quarter of 2022. In the nine months ended September 30, 2023, EBITDA excluding IFRS 16 impact was $119.7 million, compared to $158.5 million in the first nine months of 2022.

Cash flow generated from operating activities, excluding IFRS 16, increased to $30.3 million in the third quarter of 2023, compared to cash flow used in operating activities of $36.1million in the third quarter of 2022. Cash flow generated from operating activities, excluding IFRS 16, increased to $99.6 million in the first nine months of 2023, compared to cash flow used in operating activities of $104.4 million in the first nine months of 2022. The significant year-over-year improvement in operating cash flow is primarily attributed to the reduction in inventory levels.

Net financial debt, excluding IFRS 16, at September 30, 2023, was $178.0 million, compared to $217.4 million at December 31, 2022, and $281.7 million at September 30, 2022. The year-over-year reduction in net debt is primarily due to the strong operating cash flow, partially offset by capital expenditures and dividend payments.

Equity on September 30, 2023 was at a record level of $725.8 million, up 10.2% from $658.6 million on September 30, 2022.

Delta Galil declared a dividend of $7.5 million, or $0.292 per share, to be distributed on December 5, 2023. The record and “ex-dividend” date will be November 23, 2023.

2023 Financial Guidance and 2024 outlook

As disclosed in its recent immediate report issued on October 24, 2023, the Company has reduced its sales and earnings guidance for 2023 primarily due to challenging macro conditions. The Company’s guidance excludes non-core items, includes IFRS 16 and is based on current tax rates. These forward-looking statements are based largely on the expectations of the Company and are subject to uncertainties including macroeconomic trends. Actual results may differ materially from those included in the guidance as result of risks and uncertainties which cannot be fully predicted. There is no certainty that the aforementioned conditions will occur, and actual results may be significantly different from those forecasted or implied below.

Based on initial estimates, the Company expects significant growth in sales and profitability in 2024 compared to 2023, and at similar level of 2022 record annual results.

These expectations depend, among others, on the following changes: return to normalized inventory levels within our main customers driving increased demands and improve profitability rates, continuity of growth while expanding into other categories with Skims, launch of Organic Basics global new collection, increase of production level in our new factories in Vietnam and Egypt, implementation of our realignment plans, improved backlog of innovative products and launches of new license agreements.

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. The release also refers to “constant dollar” amounts, which exclude the impact of translating foreign currencies into U.S. dollars, and are 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, Delta Galil’s operating performance measures calculated in accordance with GAAP.

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 endeavored 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; underwear for men including under its owned brands Schiesser, Eminence, and Athena; babywear, activewear, sleepwear, and loungewear including under its owned P.J. Salvage and Delta brands. Delta Galil also designs, develops markets and sells branded denim and apparel under the brand 7 For All Mankind®, and ladies’ and kids’ 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, tax rates in the various countries the company operates in, 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.

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