Delta Galil Reports First Quarter 2020 Results

Took Early and Effective Measures to Mitigate Adverse Impact of Covid-19

Improved Operating Cash Flow

Double Digit Growth in E-commerce Sales

TEL AVIV, Israel--()--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 its financial results for the first quarter ended March 31, 2020. The Company noted that despite the increase in sales due to the Bogart acquisition completed in July 2019, as well as rising web and e-commerce customer sales, its first quarter 2020 sales were adversely affected by the COVID-19 pandemic.

For the First Quarter Ended March 31, 2020

  • Sales were $332.7 million, a decrease of 9% from the first quarter of 2019, primarily due to reduced volume in all business segments and markets following COVID-19 eruption, partly offset by sales from The Bogart Group, acquired in July 2019.
  • Net loss was $30.5 million, or ($1.19) per share, compared to net income of $3.0 million, or diluted earnings per share of $0.12, for the first quarter of 2019.
  • Operating cash flow improved $10.3 million, to $7.5 million in the first quarter of 2020, versus negative $2.8 million a year ago.
  • Strong balance sheet highlighted by $457.3 million in equity and $144.1 million in cash.
  • Strong Double digit growth in E-commerce sales, including both own sites and internet customers.
  • The Company launched a comprehensive restructuring plan to further streamline operations that will be recorded as a one-time expense of $40 million in the second quarter.
  • Actions taken to further strengthen Financial Flexibility:
    • A companywide hiring freeze, reduction in salaries of senior management, furlough and reduced working hours.
    • Elimination and/or reduction of marketing spend, travel and consulting fees.
    • Negotiated reduction in rental costs.
    • Tightly managed working capital items.
    • Suspension of quarterly cash dividend for 2020.
    • Drew down $66 million from its committed credit facilities.
    • Receiving government-supported loans in the amount of $30 million during Q2 under attractive terms.
    • Increasing Company’s committed and uncommitted credit facilities by $25 million and $29 million during Q2.
  • As a result of the actions above, and due to a strong expected operating cash flow in the second quarter, the company estimated its cash balance as of June 24, 2020 to be approximately $220 million.
  • The Company joined the fight against COVID-19 by producing 4 million facemasks for European emergency service personnel and other customers.
  • As a result of the global impact of COVID-19, and due to the prolonged shutdown of stores in Delta Galil’s main markets, the Company expects its Q2 sales and profit decline to be more significant than Q1; however, the Company expects a much stronger and a profitable second half of the year with a gradual return to normal operations.
  • Isaac Dabah, CEO of Delta Galil: “These are truly unprecedented times, where our business and Q1 results have been significantly impacted by the COVID-19 pandemic. That said, we’ve seen a sustained increase in e-commerce sales in all of our operating segments, demonstrating the continued strength of our diversified business and Omni-channel model. We had a very good improvement in our operating cash flow due to tight management of our working capital. And continuing the positive trend from last year, Delta Israel had significant improvement in profitability, despite COVID-19. I am pleased that through our strong leadership team we were able to identify and implement necessary adjustments to our business where we could, while remaining focused on delivering our core value proposition to our customers and shareholders. In addition, we've launched a comprehensive restructuring plan, which covers all of our operating segments. As a result, and with a strong balance sheet in hand, we are well positioned to emerge from this challenging period and continue our growth in a post-COVID world.”

COVID-19

Delta Galil noted that the disruption caused by COVID-19 and related business closures and public quarantine measures resulted in decreased sales volume, primarily with several major DGUSA customers and lower retails sales due store closures, which were partially offset by higher web and e-commerce customer sales. The impact of COVID-19 reduced first quarter sales and EBIT by approximately $53 million and $23 million, respectively. Among other factors impacted by COVID-19, the Company also experienced increased costs related to bad debts, but was able to reduce SG&A expenses. The Company implemented a number of initiatives to reduce operational costs that it will continue to benefit from in subsequent periods, including:

  • A companywide hiring freeze, 10%-20% reduction in salaries of senior management until the end of the year, furlough and reduced working hours.
  • Elimination and/or reduction of marketing spend, travel and consulting fees.
  • Tightly managed working capital items.

The Company expects that its financial results in the second quarter of 2020 will continue to be affected by the business disruptions caused by the pandemic. The Company said it will continue to take the necessary actions across its business to streamline its operations, optimize production capabilities and productivity, reduce overhead, and improve its competitive position going forward. These measures are expected to result in restructuring expenses of approximately $40 million, of which approximately $36 million will be in cash, (and approximately $23 million of that will be paid during 2020) and $4.0 million of non-cash expenses related to write down of fixed assets.

Sales

The Company reported sales of $332.7 million in the first quarter of 2020, compared to $365.4 million in the first quarter last year, representing a 9% decrease. The decrease was mainly driven by a reduction in sales in all business segments and markets, partially offset by increased sales to certain customers, including $38.1 million in sales attributable to the Bogart acquisition.

Operating Income (Loss)

Operating loss was $28.8 million for the first quarter of 2020, compared to operating income of $10.4 million in the first quarter of 2019. Operating loss for the 2020 first quarter included bad debt expenses of $7.0 million, a write-down of intangible assets (including IFRS 16 impairment) of $12.8 million, and deal costs related to the Brayola acquisition of $0.1 million. Excluding non-recurring items, operating loss was $15.8 million in the first quarter of 2020, compared to operating income of $10.4 million in the comparable period last year.

Net Income (Loss)

Net loss was $30.5 million in the first quarter of 2020, compared to net income of $3.0 million for the first quarter last year. Excluding non-recurring items net of tax, net loss was $20.0 million in the first quarter of 2020, compared to net income of $3.0 million in the comparable period last year.

Diluted Earnings (Loss) Per Share

Diluted loss per share was ($1.19) for the first quarter of 2020, compared to diluted earnings per share of $0.12 for the first quarter of 2019. Before one-time items, diluted loss per share was ($0.78) for the first quarter of 2020, compared to diluted earnings per share of $0.12 for the comparable period last year.

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $7.6 million in the first quarter of 2020, compared to $30.6 million in the first quarter of 2019.

Operating cash flow improved $10.3 million to $7.5 million in the first quarter of 2020, from negative $2.8 million in the first quarter of 2019. Excluding IFRS 16, operating cash flow improved $8.4 million to negative $7.8 million in the first quarter of 2020, compared to negative $16.2 million in the comparable period last year.

Net financial debt as of March 31, 2020 was $366.4 million, compared to $361.8 million as of March 31, 2019.

Equity on March 31, 2020 was $457.3 million, compared to $456.1 million a year prior.

The Company does not currently anticipate declaring a dividend for the remainder of the fiscal year.

2020 Financial Guidance

As a result of the global impact of COVID-19, and the continued uncertainty surrounding the pandemic, Delta Galil is not providing financial guidance for fiscal 2020 at this time.

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 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 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 March 31, 2020

 

March 31

 

December 31

 

2020

 

2019

 

2019

 

(Unaudited)

 

(Audited)

 

Thousands of Dollars

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

143,134

 

43,290

 

108,294

Restricted Cash

922

 

2,534

 

933

Other accounts receivable:

 

 

 

 

 

Trade receivables

149,337

 

184,839

 

212,311

Taxes on income receivable

2,103

 

1,789

 

2,867

Others

39,768

 

52,352

 

35,200

Financial derivative

649

 

693

 

971

Inventory

323,068

 

317,578

 

328,108

Total current assets

658,981

 

603,075

 

688,684

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

Investments in associated companies accounted using

 

 

 

 

 

the equity method and long-term receivables

14,140

 

15,421

 

14,367

Investment property

3,114

 

3,325

 

3,228

Fixed assets, net of accumulated depreciation

210,109

 

189,746

 

213,210

Goodwill

144,941

 

110,163

 

148,001

Intangible assets, net of accumulated amortization

264,031

 

219,952

 

273,318

Assets in respect of usage rights

200,110

 

200,055

 

207,651

Deferred tax assets

27,201

 

16,363

 

19,678

Financial derivative

8,777

 

8,505

 

19,677

Total non-current assets

872,423

 

763,530

 

899,130

Total assets

1,531,404

 

1,366,605

 

1,587,814

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of March 31, 2020

 

March 31

 

 

December 31

 

2020

 

 

2019

 

 

2019

 

(Unaudited)

 

 

(Audited)

 

Thousands of Dollars

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term bank loans

68,463

 

22,024

 

1,868

Current maturities of bank loan

10,392

 

7,860

 

10,588

Current maturities of debentures

36,532

 

28,699

 

36,802

Financial derivative

3,437

 

2,903

 

2,070

Current maturities of liabilities in respect of leases

55,054

 

49,809

 

53,401

Other accounts payable:

 

 

 

 

 

Trade payables

109,954

 

101,347

 

140,475

Taxes on income payable

14,169

 

8,899

 

16,392

Others

112,561

 

96,200

 

140,237

Total current liabilities

410,562

 

317,741

 

401,833

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

Bank loan

64,717

 

66,810

 

68,337

Severance pay liabilities less plan assets

10,035

 

8,836

 

10,155

Liabilities in respect of leases

172,565

 

172,652

 

172,903

Other non-current liabilities

43,547

 

29,140

 

47,899

Debentures

332,049

 

288,494

 

340,376

Deferred taxes liabilities

35,518

 

26,876

 

39,368

Financial derivative

5,151

 

-

 

-

Total non-current liabilities

663,582

 

592,808

 

679,038

Total liabilities

1,074,144

 

910,549

 

1,080,871

 

 

 

 

 

 

Equity:

 

 

 

 

 

Equity attributable to equity holders of the parent company:

 

 

 

 

 

Share capital

23,714

 

23,719

 

23,714

Share premium

130,261

 

130,411

 

130,237

Other capital reserves

(20,974)

 

(11,725)

 

(7,962)

Retained earning

340,174

 

329,695

 

376,763

Treasury shares

(16,093)

 

(16,272)

 

(16,093)

 

457,082

 

455,828

 

506,659

Minority interests

178

 

228

 

284

Total equity

457,260

 

456,056

 

506,943

Total liabilities and equity

1,531,404

 

1,366,605

 

1,587,814

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Statement of Income
For the 3-month period ending March 31, 2020

 

Three months ended March 31

 

2020

 

2019

 

(Unaudited)

 

Thousands of Dollars

 

 

 

 

Sales

332,683

 

365,375

Cost of sales

218,950

 

234,992

Gross profit

113,733

 

130,383

% of sales

34.2%

 

35.7%

Selling and marketing expenses

105,492

 

103,289

% of sales

31.7%

 

28.3%

General and administrative expenses

23,786

 

17,971

% of sales

7.1%

 

 

Other Expenses (income), net

(305)

 

1,321

Operating income (loss) excluding non-recurring items

(15,850)

 

10,444

% of sales

(4.8%)

 

2.9%

One-time items

12,906

 

-

Operating income (loss)

(28,756)

 

10,444

% of sales

(8.6%)

 

2.9%

Finance expenses, net

10,403

 

7,951

Income before tax on income

(39,159)

 

2,493

Taxes on income

(8,650)

 

(536)

Net income (loss) for the period

(30,509)

 

3,029

Net income (loss) for the period excluding one-time items,
net of tax to company's shareholders

(19,990)

 

3,029

 

 

 

 

Attribution of net earnings for the period:

 

 

 

Attributed to company's shareholders

(30,403)

 

3,029

Attributed to non-controlling interests

(106)

 

-

 

(30,509)

 

3,029

 

 

 

 

Net diluted earnings (loss) per share attributed to
company's shareholders

(1.19)

 

0.12

 

 

 

 

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

(0.78)

 

0.12

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Cash Flow Reports
For the 3-month period ending March 31, 2020

 

Three months ended March 31

 

2020

 

2019

 

(Unaudited)

 

Thousands of Dollars

 

 

 

 

Cash flows from operating activities:

 

 

 

Net income for the period

(30,509)

 

3,029

Adjustments required to reflect cash flows

 

 

 

deriving from operating activities

44,790

 

977

Interest paid in cash

(5,670)

 

(3,847)

Interest received in cash

128

 

10

Taxes on income paid in cash, net

(1,249)

 

(3,010)

Net cash generated (used in) from operating activities

7,490

 

(2,841)

Cash flows from investment activities:

 

 

 

Acquisition of fixed assets and intangible assets

(5,418)

 

(6,603)

Providing loans

-

 

(8,812)

Restricted cash release

-

 

960

Bank deposit with respect to SWAP transaction

(5,180)

-

Acquisition of a subsidiary

(1,469)

 

(441)

Proceeds from selling of fixed asset

280

 

70

Net cash used in Investing activities

(11,787)

 

(14,826)

Cash flows from financing activities:

 

 

 

Dividends paid to non-controlling interest holders

 

 

 

in consolidated subsidiary

-

 

(346)

Long term payables credit for fixed assets purchase

(1,184)

 

(1,138)

Lease principle repayment

(15,263)

 

(13,353)

Dividend paid

(6,506)

 

(3,547)

Repayment of long-term loans from banks

(2,140)

 

(2,004)

Short-term credit from banking corporations, net

68,463

 

(57,791)

Proceed from Debentures Issuance, net of Issuance expenses

-

 

69,130

Repayment of bank loan used to acquisition of a subsidiary

(1,098)

 

-

Net cash generated from (used in) financing activities

42,272

 

(9,049)

Net increase (decrease) in cash and cash equivalents

37,975

 

(26,716)

 

 

 

 

Exchange rate differences and revaluation of cash

 

 

 

and cash equivalents, net

(1,267)

 

(528)

Balance of cash and cash equivalents

 

 

 

at the beginning of the period, net

106,426

 

70,534

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

143,134

 

43,290

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Cash Flow Reports
For the 3-month period ending March 31, 2020

 

Three months ended March 31

 

2020

 

2019

 

(Unaudited)

 

Thousands of Dollars

Adjustments required to reflect cash flows

 

 

 

from operating activities:

 

 

 

Revenues and expenses not involving cash flow:

 

 

 

Depreciation

8,070

 

6,667

Amortization

15,352

 

13,506

Cash erosion, net

390

 

(271)

Interest paid in cash

5,670

 

3,847

Interest received in cash

(128)

 

(10)

Taxes on income paid in cash, net

1,249

 

3,010

Deferred taxes on income, net

(11,718)

 

(1,032)

Discount component for lease agreements

2,740

 

2,195

Severance pay liability, net

57

 

86

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

(66)

 

24

Change to the benefit component of options granted to employees

320

 

291

Impairment of intangible assets

12,780

-

Write-down of customers and other receivables

6,984

358

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

57

 

(33)

Others

241

 

(596)

 

41,998

 

28,042

Changes to operating assets and liabilities:

 

 

 

Decrease (increase) in trade receivables

55,164

 

39,090

Decrease (Increase) in other receivable and balances

(2,441)

 

(4,615)

Decrease in trade payables

(28,541)

 

(38,596)

Decrease in other payables

(22,812)

 

(14,362)

Decrease (increase) in inventory

1,422

 

(8,582)

 

2,792

 

(27,065)

 

44,790

 

977

 

Contacts

For more information:
Nissim Douek
+972-54-5201178
Nissim@unik.co.il

U.S. Media Contact:
Stacy Berns
Berns Communications Group
+1-212-994-4660
sberns@bcg-pr.com

Contacts

For more information:
Nissim Douek
+972-54-5201178
Nissim@unik.co.il

U.S. Media Contact:
Stacy Berns
Berns Communications Group
+1-212-994-4660
sberns@bcg-pr.com