Delta Galil Reports Third Quarter 2019 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 its financial results for the third quarter ended September 30, 2019. The Company’s results in 2019 reflect the application of International Financial Reporting Standard 16 (“IFRS 16”) with respect to accounting for leases.

Sales

The Company reported a 20% increase in sales of $446.1 million for the third quarter of 2019, compared to $370.8 million for the third quarter last year. Excluding Bogart, which was acquired on July 2, 2019, sales in original currency increased by 6% as compared to the third quarter of 2018. Sales for the first nine months of 2019 increased 14% to $1,185.4 million, from $1,044.2 million for the same period of 2018. Excluding Bogart and Eminence sales in the first six months, sales in original currency increased by 5% as compared to the first nine months of 2018.

Operating Profit

Operating profit increased 57% to $26.7 million in the third quarter of 2019, compared to $17 million in the third quarter last year. Operating profit before one-time items increased 2% to $27.1 million for the third quarter of 2019, compared to $26.7 million for the same quarter last year.

Operating profit for the first nine months of 2019 was $51.5 million, compared to $42.3 million in the first nine months of 2018, a 22% increase. Operating profit, excluding one-time items for the first nine months of 2019, totaled $54.7 million, compared to $55.9 million for the comparable period of 2018, a 2% decrease.

Net Income

Net income was $14.0 million in the third quarter of 2019, compared to $9.6 million in the same quarter last year, a 46% increase. Net income, excluding one-time items, was $14.5 million in the third quarter of 2019, compared to $16.6 million last year, a 13% decrease.

Net income for the first nine months of 2019 totaled $22.1 million, compared to $23.5 million for the same period last year, a 6% decrease. Net income, excluding one-time items for the first nine months of 2019, was $25.4 million, compared to $33.2 million for the comparable period of 2018, a 24% decrease.

Diluted earnings per share were $0.55 for the third quarter of 2019, compared to $0.38 for the third quarter of 2018, a 45% increase. Diluted earnings per share, excluding one-time items, were $0.57 in the third quarter of 2019, compared to $0.65 in the third quarter last year, a 13% decrease.

Diluted earnings per share for the first nine months of 2019 were $0.87, compared to $0.93 for the first nine months of 2018, a 7% decrease. Diluted earnings per share, excluding one-time items for the first nine months of 2019, were $0.99, compared to $1.31 for the same period last year, a 24% decrease.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “We are pleased with our third quarter results, which reflect our balanced and diversified mix of businesses, products and markets. During the quarter, we benefited from positive momentum in our Global Upper Market, strong retail sales for Delta Israel and significant growth in both the Socks and Seamless categories. Additionally, e-commerce sales on Delta’s own website grew by double digits and we successfully concluded the acquisition of The Bogart Group.”

"Looking forward, we are focusing on further growing these business segments and improving the performance of our DGUSA and Delta Premium Brands by implementing a structured strategic and operational plan."

“The third quarter represented the first time we consolidated results for The Bogart Group. We intend to leverage its strong market position going forward, particularly as we see opportunities for it to strengthen DGUSA’s product assortment.”

“Additionally, we plan to focus on growing the Eminence ladies and kids products, while leveraging the European brands infrastructure for selling Delta products.”

“Looking ahead, we will focus on driving organic growth, and seek new opportunities to apply our competitive and financial strengths to deliver shareholder value.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $51.5 million in the third quarter of 2019, up 46% from $35.3 million in the same quarter last year. For the first nine months of 2019, EBITDA was $119.5 million, up 50% from $79.6 million in the same period of 2018.

Operating cash flow improved to $11.2 million in the third quarter of 2019, compared to negative $14.2 million in the third quarter of 2018. For the first nine months of 2019, operating cash flow was $42.8 million, up from negative $34.1 million in the same period of 2018.

Net financial debt as of September 30, 2019 was $417.8 million, compared to $349.1 million as of September 30, 2018, and $326.7 million as of December 31, 2018.

Equity on September 30, 2019 was $469.1 million, up from $457.6 million a year earlier.

Delta Galil declared a dividend of $3.5 million, or $0.139 per share, to be distributed on December 3, 2019. The determining and "ex-dividend" date will be November 21, 2019.

2019 Financial Guidance

• Delta Galil is updating its 2019 financial guidance, excluding one-time items. The Company’s financial guidance for 2019 includes the impact of IFRS 16 on accounting for leases. The updated guidance includes the impact from expected higher tariffs on imported products from China to the US and costs related to recall of damaged goods shipped to a primary customer, which in total are estimated to be up to $4 million.
• Full-year 2019 sales are expected to range between $1,650 million-$1,690 million, representing an increase of 10%-13% from 2018 actual sales of $1,498 million.
• Full-year 2019 EBIT is expected to range between $106 million-$111 million, representing an increase of 8%-13% from 2018 actual EBIT of $98 million.
• Full-year 2019 EBITDA is expected to range between $183 million-$187 million, representing an increase of 41%-44% from 2018 actual EBITDA of $130 million.
• Full-year 2019 net income is expected to range between $60 million-$62 million, representing an increase of 0%-3% from 2018 actual net income of $60 million.
• Full-year 2019 diluted EPS is expected to range between $2.37-$2.44, representing an increase of 0%-3% from 2018 actual EPS of $2.37.

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 including the brands Schiesser, Eminence, Athena & Liabel; babywear, activewear, sleepwear such as PJ Salvage, 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 September 30, 2019
	September 30				December 31
	2019		2018		2018
	(Unaudited)				(Audited)
	Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents	50,221		58,743		70,534
Restricted Cash	813		3,150		3,494
Other accounts receivable:
Trade receivables	213,701		190,903		224,019
Taxes on income receivable	2,552		2,799		881
Others	34,591		29,070		26,395
Financial derivative	880		667		273
Inventory	405,372		356,606		309,645
Total current assets	708,130		641,938		635,241
Non-current assets:
Investments in associated companies accounted using
the equity method and long-term receivables	14,541		15,470		29,401
Investment property	3,174		3,508		3,424
Fixed assets, net of accumulated depreciation	216,308		189,604		191,738
Goodwill	145,675		111,570		110,955
Intangible assets, net of accumulated amortization	269,897		221,526		221,669
Assets in respect of usage rights	209,376		-		-
Deferred tax assets	15,779		11,438		9,285
Financial derivative	17,096		12,606		4,216
Total non-current assets	891,846		565,722		570,688
Total assets	1,599,976		1,207,660		1,205,929

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of September 30, 2019
	September 30				December 31
	2019		2018		2018
	(Unaudited)				(Audited)
	Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans	80,917		78,028		79,987
Current maturities of bank loan	10,662		8,136		8,015
Current maturities of debentures	29,706		20,424		19,514
Financial derivative	2,074		2,680		2,935
Current maturities of liabilities in respect of leases	52,818		-		-
Other accounts payable:
Trade payables	186,023		137,035		139,591
Taxes on income payable	10,903		10,416		10,481
Others	126,417		107,799		112,326
Total current liabilities	499,520		364,518		372,849
Non-current liabilities:
Bank loan	70,975		73,232		70,134
Severance pay liabilities less plan assets	8,726		8,982		8,886
Liabilities in respect of leases	178,703		-		-
Other non-current liabilities	49,719		35,350		35,833
Debentures	288,197		241,482		222,975
Deferred taxes liabilities	35,002		26,324		25,798
Financial derivative	-		219		1,603
Total non-current liabilities	631,322		385,589		365,229
Total liabilities	1,130,842		750,107		738,078
Equity:
Equity attributable to equity holders of the parent company:
Share capital	23,714		23,713		23,714
Share premium	130,150		130,735		130,667
Other capital reserves	(14,442)		(289)		(10,503)
Retained earning	345,550		319,259		339,922
Treasury shares	(16,092)		(16,596)		(16,523)
	468,880		456,822		467,277
Minority interests	254		731		574
Total equity	469,134		457,553		467,851
Total liabilities and equity	1,599,976		1,207,660		1,205,929

DELTA GALIL INDUSTRIES LTD.
Consolidated Statement of Comprehensive Income
For the 3-month and 9-month periods ending September 30, 2019
	Nine months ended September 30				% Increase/(Decrease)		Three months ended September 30					% Increase/(Decrease)
	2019		2018				2019		2018
	(Unaudited)
	Thousands of Dollars
	Except for Earnings per Share Data
Sales	1,185,400		1,044,157		14%		446,139		370,763			20%
Cost of sales	768,537		651,616				293,812		227,840
Gross profit	416,863		392,541		6%		152,327		142,923			7%
% of sales	35.2%		37.6%				34.1%		38.5%
Selling and marketing expenses	312,509		292,039		7%		106,496		102,111			4%
% of sales	26.4%		28.0%				23.9%		27.5%
General and administrative expenses	53,014		46,707		14%		19,051		15,249			25%
% of sales	4.5%		4.5%				4.3%		4.1%
Other Expenses (income), net	(2,767)		(1,784)				(95)		(972)
Share in profits of associated company accounted for using the equity method	634		282				265		121
Operating income excluding non-recurring items	54,741		55,861		(2%)		27,140		26,656			2%
% of sales	4.6%		5.3%				6.1%		7.2%
Restructuring expenses	-		5,422				-		5,427
Inventory Step up due to Eminence acquisition			3,849						3,849
Deal cost	3,273		4,283				431		333
Operating income	51,468		42,307		22%		26,709		17,047			57%
Finance expenses, net	25,435		15,904		60%		10,119		6,307			60%
Income before tax on income	26,033		26,403				16,590		10,740
Taxes on income	3,902		2,904				2,556		1,109
Net income for the period	22,131		23,499		(6%)		14,034		9,631			46%
Net income for the period excluding one-time items, net of tax	25,404		33,244		(24%)		14,465		16,624			(13%)
Attribution of net earnings for the period:
Attributed to company's shareholders	22,177		23,854				14,080		9,684
Attributed to non-controlling interests	(46)		(355)				(46)		(53)
	22,131		23,499				14,034		9,631
Net diluted earnings per share attributed to company's shareholders	0.87		0.93		(7%)		0.55		0.38		45%
Net diluted earnings per share, before non-recurring items net of tax attributable to Company's shareholders	0.99		1.31		(24%)		0.57		0.65		(13%)

DELTA GALIL INDUSTRIES LTD.
IFRS16 IMPACT
	Nine months ending				Three months ending
	September 30, 2019				September 30, 2019
	Before IFRS16		Reported		Before IFRS16		Reported
	Millions of Dollars

Operating income	45.7		51.5		24.6		26.7
Operating income excluding non-recurring items	49.0		54.7		25.1		27.1
EBITDA	76.9		119.5		35.7		51.5
Finance expenses, net	19.0		25.4		7.8		10.1
Net income for the period	22.6		22.1		14.2		14.0
Net income for the period excluding one-time items, net of tax	26.0		25.5		14.7		14.5
Cash flows from operating activities	0.3		42.8		(4.5)		11.2

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 9-month periods ending September 30, 2019
	Nine months ending				Three months ending
	September 30				September 30
	2019		2018		2019		2018
	(Unaudited)
	Thousands of Dollars
Cash flows from operating activities:
Net income for the period	22,131		23,499		14,034		9,631
Adjustments required to reflect cash flows deriving from operating activities	41,648		(43,466)		2,243		(17,819)
Interest paid in cash	(14,913)		(10,709)		(4,606)		(4,756)
Interest received in cash	437		312		-		2
Taxes on income paid in cash, net	(6,531)		(3,768)		(516)		(1,222)
Net cash generated (used in) from operating activities	42,772		(34,132)		11,155		(14,164)
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets	(20,022)		(30,852)		(6,440)		(10,603)
Payments under subsidiary purchase transaction	(26,370)		-		(26,370)		-
Restricted cash release (deposit)	2,681		(89)		405		(339)
Earn-out payment for acquisition of an activity	-		(2,250)		-		-
Providing long term loans	(18,102)		-		-		-
Acquisition of a subsidiary	(441)		(135,380)		-		(135,380)
Proceeds from selling of fixed asset	218		1,774		121		98
Others	804		(2,505)		804		(860)
Net cash used in Investing activities	(61,232)		(169,302)		(31,480)		(147,084)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary
	(346)		(30)		-		-
Long term payables credit for fixed assets purchase	(2,658)		(2,637)		(1,017)		(994)
Lease principle repayment	(42,492)		-		(15,703)		-
Debentures principle repayment	(8,093)		(8,093)		(8,093)		(8,093)
Financial Institute payment	-		(6,413)		-		-
Dividend paid	(7,544)		(10,528)		(2,492)		(3,529)
Long term loan received from bank	-		81,480		-		81,480
Repayment of long-term loans from banks	(6,506)		-		(2,536)		-
Short-term credit from banking corporations, net	(1,989)		71,283		62,838		46,713
Proceed from Debentures Issuance, net of Issuance expenses	69,129		-		-		-
Proceeds from exercise of employees options	-		266		-		24
Net cash generated from ( used in) financing activities	(499)		125,328		32,997		115,601
Net increase (decrease) in cash and cash equivalents	(18,959)		(78,106)		12,672		(45,647)
Exchange rate differences and revaluation of cash and cash equivalents, net	(1,354)		(621)		(1,062)		(363)
Balance of cash and cash equivalents at the beginning of the period	70,534		137,470		38,611		104,753
Balance of cash and cash equivalents at the end of the Period	50,221		58,743		50,221		58,743

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 9-month periods ending September 30, 2019
	Nine months ending				Three months ending
	September 30				September 30
	2019		2018		2019		2018
	(Unaudited)
	Thousands of Dollars
Adjustments required to reflect cash flows
from operating activities:
Revenues and expenses not involving cash flow:
Depreciation	21,640		20,714		8,217		8,029
Amortization	43,140		3,505		16,209		1,110
Cash erosion, net	(138)		111		9		151
Interest paid in cash	14,913		10,709		4,606		4,756
Interest received in cash	(437)		(312)		-		(2)
Taxes on income paid in cash, net	6,531		3,768		516		1,222
Deferred taxes on income, net	(2,424)		(2,425)		(1,633)		(1,794)
Discount component for lease agreements	6,095		-		1,840		-
Severance pay liability, net	112		237		7		110
Restructuring expenses ,net	-		4,133		-		4,575
Capital loss (gain) from sale of fixed assets and asset held for sale	5		86		(28)		152
Change to the benefit component of options and RSU granted to employees	995		1,145		394		345
Share in profits of associated company accounted for using the equity method	(634)		(282)		(265)		(121)
Others	326		1,076		(206)		822
	90,124		42,465		29,666		19,355
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables	28,391		(25,093)		(10,892)		(17,256)
Decrease in other receivable and balances	(5,791)		(4,170)		2,603		1,072
Increase (decrease) in trade payables	9,616		15,434		7,363		9,405
Increase (decrease) in other payables	(13,238)		(13,060)		2,193		(3,601)
Decrease (increase) in inventory	(67,454)		(59,042)		(28,690)		(26,794)
	(48,476)		(85,931)		(27,423)		(37,174)
	41,648		(43,466)		2,243		(17,819)

 

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