Delta Galil Reports First Quarter 2023 Results

First Quarter Sales Decreased 9% (6% in constant currency) to $442.5 Million

Gross Margin Increased 120 basis points to a First Quarter Record of 39.1%

First Quarter Operating Cash Flow Excluding IFRS 16 Improved by $63.6 Million Year-over-Year

Declares a $4 Million Dividend for First Quarter 2023

Delta Galil Expects to Meet the Lower End of its 2023 Guidance Range

Delta Galil Industries, Ltd. (DELT/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 first quarter ended March 31, 2023.

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

• First quarter results were in-line with the Company's plan, and 2023 annual results are expected to meet the lower end of the Company’s guidance range
• Sales decreased 9% (6% in constant currency) to $442.5 million
• Gross margin improved 120 basis points to a first-quarter record of 39.1%
• EBITDA excluding IFRS 16 impact decreased 33% to $28.5 million
• Diluted earnings per share before non-core items decreased 61% to $0.26
• Operating cash flow excluding IFRS 16 improved $63.6 million to $11.0 million
• Second consecutive quarter of inventory reduction, reflecting a total reduction in inventory of $61.6 million since September 30, 2022
• The Company declared a dividend of $4 million, or $0.156 per share, which will be distributed on June 6, 2023, with a record and “ex-dividend” date of May 24, 2023

Isaac Dabah, CEO of Delta Galil, stated, “Our first quarter performance was in line with our 2023 plan and expectations. During the quarter, we increased direct-to-consumer sales across both our own websites and our stores. In addition, we managed to reduce our inventory for the second consecutive quarter, while achieving a record first quarter gross margin, despite the heavily promotional retail landscape. We believe these positive trends demonstrate the strength of our brands and customers, and the resiliency of our business model. We continue to focus on further streamlining our operations, strengthening our supply chain, and expanding our product portfolio to meet evolving consumer demands.”

Mr. Dabah continued, “We believe we will see growth in sales and profitability in the second half of the year driven by a solid pipeline of new customers and licenses, as well as multiple new brand launches, including a new collection for the recently acquired Organic Basics."

“We believe we are well positioned to navigate the current market environment, while streamlining our operations and investing in strategic growth opportunities. In the first quarter, we generated $11.0 million in operating cash flow, excluding IFRS 16, and ended the quarter with a strong balance sheet and an equity position of over $700 million. We are proud of our exceptional team that drives our success by upholding our commitment to extraordinary innovation, design, and thought leadership,” concluded Mr. Dabah.

Sales

The Company reported first quarter 2023 sales of $442.5 million, a 9% decrease (6% in constant currency) from $483.9 million in the first quarter of 2022.

Gross Margin

Gross margin in the first quarter of 2023 increased to a first-quarter record of 39.1%, compared to 37.9% in the first quarter of 2022. The increase in gross margin was due primarily to better customer, channel and segment mix and lower freight costs, partially offset by negative foreign currency impacts, higher discounts, and loss of cost economies from lower production volumes.

EBIT

EBIT in first quarter 2023 was $14.4 million compared to $34.2 million last year. EBIT before non-core items (detailed below) in first quarter 2023 was $19.8 million compared to $34.2 million last year.

Non-Core Items

As part of the Company's strategic focus to improve its production flexibility, capabilities and competitiveness, and to further streamline its operations, the Company approved a restructuring plan which includes actions to:

- shut down the Bare Necessities distribution center and transition to a third-party fulfillment center in Mexico,

- relocate its Egypt cut and sew operations from Cairo to El-Minya,

- shut down its socks production facility in Bulgaria, moving production to a new facility in Egypt, and

- implement efficiency measures in the Company’s 7 for All Mankind segment.

Total cost of the plan--included in first quarter results as a non-core item--amounted to $5.4 million (including a $3.9 million cash impact). The Company estimates annual savings from the plan at approximately $7 million, a portion of which will be realized in 2023.

Net Income

Net income for first quarter 2023 was $3.0 million, compared to $18.9 million in the first quarter last year. Net income excluding non-core items, net of tax, was $7.8 million, compared to $18.9 million in the first quarter of 2022.

Diluted Earnings Per Share

Diluted earnings per share for first quarter 2023 decreased to $0.08, from $0.67 in the first quarter of 2022. Diluted earnings per share attributable to the Company’s shareholders, excluding non-core items, net of tax, were $0.26, compared to $0.67 in first quarter 2022.

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

EBITDA excluding IFRS 16 impact for first quarter 2023 was $28.5 million, compared to $42.6 million in the first quarter of 2022.

Cash flow generated by operating activities, excluding IFRS 16, increased to $11.0 million for first quarter 2023, compared to cash flow used in operating activities of ($52.6) million in the first quarter of 2022. The significant year-over-year improvement in operating cash flow can be primarily attributed to the reduction in inventory levels.

Net financial debt at March 31, 2023 was $224.0 million, compared to $217.4 million at December 31, 2022, and $172.4 million at March 31, 2022. The year-over-year increase in net debt is primarily due to capital expenditures and dividend payments, partially offset by cash flow generated by operating activities.

Equity at March 31, 2023 was $703.1 million, up 8% from $651.7 million at March 31, 2022.

Delta Galil declared a dividend of $4 million, or $0.156 per share, to be distributed on June 6, 2023. The record and “ex-dividend” date will be May 24, 2023.

2023 Financial Guidance

The Company’s first quarter results were in line with its expectations and plan. Delta Galil now expects to meet the lower end of its prior 2023 guidance range. The Company’s guidance excludes non-core items, includes IFRS 16, and is based on exchange rates of 1.10 USD to 1 Euro and 3.55 NIS to 1 USD:

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 USD (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 PJ 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, 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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