Delta Galil Reports Second Quarter 2018 Results

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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