Delta Galil Reports Record 2019 and Q4 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 fourth quarter and full year ended December 31, 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 record sales of $504.8 million for the fourth quarter of 2019, an 11% increase from $454.3 million in the same quarter of 2018. Sales for the 2019 full year increased 13% to $1,690.2 million, from $1,498.4 million for 2018.

Operating Profit

Operating profit increased 36% to $52.2 million in the fourth quarter of 2019, from $38.4 million in the fourth quarter of 2018. Operating profit excluding one-time items increased 22% and amounted to $51.2 million for the fourth quarter of 2019, compared to $42.1 million for the fourth quarter of 2018.

For the 2019 full year, operating profit increased 29% and totaled $103.7 million, compared to $80.7 million in 2018. Operating profit excluding one-time items increased 8% for the 2019 full year and totaled $106 million, compared to $98 million for 2018.

Net Income

Net income increased 44% to $35.6 million in the fourth quarter of 2019, compared to $24.7 million in the same quarter of 2018. Net income excluding one-time items increased 28% to $34.8 million in the fourth quarter of 2019, compared to $27.2 million for the fourth quarter of 2018.

For the 2019 full year, net income increased 20% to $57.7 million, from $48.2 million in 2018. Net income excluding one-time items for the 2019 full year totaled $60.2 million, compared to $60.5 million for 2018, representing a 0.4% decrease.

Diluted Earnings Per Share

Diluted earnings per share increased 45% in the 2019 fourth quarter to $1.40, compared to $0.97 for the same quarter of 2018. Diluted earnings per share excluding one-time items increased 28% in the 2019 fourth quarter and amounted to $1.37, compared to $1.07 for the 2018 comparable period.

For the 2019 full year, diluted earnings per share increased 19% to $2.26 from $1.90 for 2018. Diluted earnings per share excluding one-time items for the 2019 full year totaled $2.36, compared to $2.37 for 2018, representing a 0.4% decrease.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “We are pleased to have concluded a strong 2019, as reflected in our record sales, EBIT, EBITDA and operating cash flow. Our results were primarily driven by the strength of our Global Upper Market, Delta Israel and European Brands, coupled with our diverse blend of product categories and business segments. We continued to invest in our online sales growth engine, which presented double-digit e-commerce growth. We recently consummated the acquisition of online bra-fitting technology leader Brayola as part of our online expansion strategy. Our Vietnam factory turned profitable during the fourth quarter, and we expect that to continue into 2020.”

“During the year, we focused on consolidating the recently acquired intimate apparel leader Bogart Group into our business, and its performance exceeded our expectations. Additionally, the acquired men’s underwear leader Eminence continues to be a contributor to Delta European Brands – along with our overall growth – and we have begun cross-selling Eminence and Schiesser.”

“Looking ahead, we remain focused on strengthening our product assortment with Bogart’s lingerie capabilities. We intend to introduce Bogart products to Delta customers, while leveraging Bogart’s relationships to introduce Delta products to their major customers. We also plan to grow the Eminence ladies and kids products, while using the European Brands infrastructure for selling Delta products.”

"In 2020 we will celebrate the 20^th anniversary of the launch of 7 for all Mankind, the original premium denim brand. The collection, based on the original designs, will highlight our marketing drive."

“As always, we remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value. And, with a strong balance sheet, we have the necessary financial resources to continue to innovate and grow.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $76.1 million, or 15.1% of sales in the fourth quarter of 2019, compared to $50.2 million, or 11.1% of sales in the same quarter of 2018. For the 2019 full year, EBITDA was $195.6 million, or 11.6% of sales, compared to $129.8 million, or 8.7% of sales in 2018.

Operating cash flow doubled to $112.3 million in the fourth quarter of 2019, compared with $56.5 million in the fourth quarter of 2018. For the 2019 full year, operating cash flow was $155.0 million, compared to $22.4 million for the full year 2018.

Net financial debt as of December 31, 2019 was $334.5 million, compared to $326.7 million as of December 31, 2018.

Equity on December 31, 2019 was $506.9 million, up from $467.9 million a year prior.

Delta Galil declared a dividend of $6.5 million or $0.255 per share, to be distributed on March 17, 2020. The determining and "ex-dividend" date will be March 4, 2020.

2020 Financial Guidance

Delta Galil provided its initial 2020 financial guidance, excluding one-time items, which is based on current market conditions and current exchange rates of: Euro/USD 1.10 and USD / NIS 3.45. The Company’s financial guidance for 2020 includes the impact of IFRS 16 on accounting for leases. Based on the current information available, the Company estimates the negative impact of the Corona virus on its first half of 2020 and annual EBIT to range between $5-7 million. This estimate is included in its guidance below. The Company will update its financial guidance if necessary, based on any new information that becomes available.

• Full-year 2020 sales are expected to range between $1,740 million-$1,770 million, representing an increase of 3%-5%, from 2019 actual sales of $1,690.2 million.

• Full-year 2020 EBIT is expected to range between $107 million-$113 million, representing an increase of 1%-7% from 2019 actual EBIT of $106 million.

• Full-year 2020 EBITDA is expected to range between $197 million-$203 million, representing an increase of 1%-4%, from 2019 actual EBITDA of $195.6 million.

• Full-year 2020 net income is expected to range between $57 million-$62 million, from 2019 actual net income of $60.2 million.

• Full-year 2020 diluted EPS is expected to range between $2.23 -$2.42, from 2019 actual EPS of $2.26.

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 December 31, 2019
		December 31
		2019		2018
		(audited)
		Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents		108,294		70,534
Restricted Cash		933		3,494
Other accounts receivable:
Trade receivables		212,311		224,019
Taxes on income receivable		2,867		881
Others		35,200		26,395
Financial derivative		971		273
Inventory		328,108		309,645
Total current assets		688,684		635,241
Non-current assets:
Investments in associated companies accounted using
the equity method and long-term receivables		14,367		29,401
Investment property		3,228		3,424
Fixed assets, net of accumulated depreciation		213,210		191,738
Goodwill		148,001		110,955
Intangible assets, net of accumulated amortization		273,318		221,669
Assets in respect of usage rights		207,651		-
Deferred tax assets		19,678		9,285
Financial derivative		19,677		4,216
Total non-current assets		899,130		570,688
Total assets		1,587,814		1,205,929

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Balance Sheets As of December 31, 2019
	December 31
	2019		2018
	(audited)
	Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans	1,868		79,987
Current maturities of bank loan	10,588		8,015
Current maturities of debentures	36,802		19,514
Financial derivative	2,070		2,935
Current maturities of liabilities in respect of leases	53,401		-
Other accounts payable:
Trade payables	140,475		139,591
Taxes on income payable	16,392		10,481
Others	140,237		112,326
Total current liabilities	401,833		372,849
Non-current liabilities:
Bank loan	68,337		70,134
Severance pay liabilities less plan assets	10,155		8,886
Liabilities in respect of leases	172,903		-
Other non-current liabilities	47,899		35,833
Debentures	340,376		222,975
Deferred taxes liabilities	39,368		25,798
Financial derivative	-		1,603
Total non-current liabilities	679,038		365,229
Total liabilities	1,080,871		738,078
Equity:
Equity attributable to equity holders of the parent company:
Share capital	23,714		23,714
Share premium	130,237		130,667
Other capital reserves	(7,962)		(10,503)
Retained earning	376,763		339,922
Treasury shares	(16,093)		(16,523)
	506,659		467,277
Minority interests	284		574
Total equity	506,943		467,851
Total liabilities and equity	1,587,814		1,205,929

DELTA GALIL INDUSTRIES LTD. Consolidated Statement of Comprehensive Income For the 3- month and year ending December 31, 2019
	Year ended December 31				% Increase/(Decrease)		Three months ended December 31					% Increase/(Decrease)
	2019		2018				2019		2018
	(audited)
	Thousands of Dollars
	Except for Earnings per Share Data
Sales	1,690,164		1,498,421		13%		504,764		454,264			11%
Cost of sales	1,086,005		931,981				317,468		280,365
Gross profit	604,159		566,440		7%		187,296		173,899			8%
% of sales	35.7%		37.8%				37.1%		38.3%
Selling and marketing expenses	429,705		406,132		6%		117,196		114,093			3%
% of sales	25.4%		27.1%				23.2%		25.1%
General and administrative expenses	73,177		65,163		17%		20,163		18,456			11%
% of sales	4.3%		4.3%				4.0%		4.1%
Other Expenses (income), net	(3,739)		(2,468)				(972)		(684)
Share in profits of associated company accounted for using the equity method	950		392				316		110
Operating income excluding non-recurring items	105,966		98,005		8%		51,225		42,144			22%
% of sales	6.3%		6.5%				10.1%		9.3%
Restructuring expenses	(987)		5,422				(987)		-
Inventory Step up due to Eminence acquisition	-		7,625				-		3,776
Deal cost	3,273		4,283				-		-
Operating income	103,680		80,675		29%		52,212		38,368			36%
Finance expenses, net	36,065		21,352		69%		10,630		5,448			95%
Income before tax on income	67,615		59,323				41,582		32,920
Taxes on income	9,915		11,146				6,013		8,242
Net income for the period	57,700		48,177		20%		35,569		24,678			44%
Net income for the period excluding one-time items, net of tax	60,213		60,451		(0%)		34,809		27,207			(28%)
Attribution of net earnings for the period:
Attributed to company's shareholders	57,898		48,539				35,721		24,685
Attributed to non-controlling interests	(198)		(362)				(152)		(7)
	57,700		48,177				35,569		24,678
Net diluted earnings per share attributed to company's shareholders	2.26		1.90		19%		1.40		0.97		45%
Net diluted earnings per share, before non-recurring items net of tax attributable to Company's shareholders	2.36		2.37		(0%)		1.37		1.07		28%

	Year ended				Three months ended
	December 31, 2019				December 31, 2019
	Excluding IFRS16		Reported		Excluding IFRS16		Reported
	Millions of Dollars
Operating income	95.6		103.7		49.9		52.2
Operating income excluding non-recurring items	97.9		106.0		48.9		51.2
EBITDA	137.7		195.6		60.8		76.1
Finance expenses, net	27.5		36.1		8.5		10.6
Net income for the period	58.0		57.7		35.4		35.6
Net income for the period excluding one-time items, net of tax	60.5		60.4		34.5		35.0
Cash flows from operating activities	97.1		155.0		96.8		112.2

DELTA GALIL INDUSTRIES LTD. Consolidated Cash Flow Reports
	Year ended
	December 31
	2019		2018
	(audited)
	Thousands of Dollars
Cash flows from operating activities:
Net income for the period	57,700		48,177
Adjustments required to reflect cash flows deriving from operating activities	127,228		(4,730)
Interest paid in cash	(22,161)		(16,798)
Interest received in cash	440		398
Taxes on income paid in cash, net	(8,159)		(4,678)
Net cash generated from operating activities	155,048		22,369
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets	(30,069)		(41,854)
Payments under subsidiary purchase transaction	(26,370)		-
Restricted cash release (deposit)	2,561		(433)
Earn-out payment for acquisition of an activity	-		(2,250)
Providing long term loans	(18,102)		(13,800)
Acquisition of a subsidiary	(441)		(136,341)
Proceeds from selling fixed asset	479		1789
Others	979		(2,687)
Net cash used in Investing activities	(70,963)		(195,576)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary
	(346)		(180)
Long term payables credit for fixed assets purchase	(3,503)		(3,648)
Lease principle repayment	(57,912)		-
Debentures principle repayment	(29,748)		(20,920)
Financial Institute payment	-		(6,413)
Dividend paid	(11,084)		(14,070)
Long term loan received from bank	-		81,480
Repayment of long-term loans from banks	(8,944)		(2,014)
Short-term credit from banking corporations, net	(82,907)		73,415
Proceed from Debentures Issuance, net of Issuance expenses	150,137		-
long-term loans from suppliers	(3.350)		-
Proceeds from exercise of employees options	-		272
Net cash generated from (used in) financing activities	(47,657)		107,922
Net increase (decrease) in cash and cash equivalents	36,428		(65,285)
Exchange rate differences and revaluation of cash and cash equivalents, net	(536)		(1,651)
Balance of cash and cash equivalents at the beginning of the period	70,534		137,470
Balance of cash and cash equivalents at the end of the Period, net of short term credit from banks	106,426		70,534

DELTA GALIL INDUSTRIES LTD. Consolidated Cash Flow Reports
	Year ended
	December 31
	2019		2018
	(audited)
	Thousands of Dollars
Adjustments required to reflect cash flows
from operating activities:
Revenues and expenses not involving cash flow:
Depreciation	30,631		26,818
Amortization	59,193		5,498
Cash erosion, net	(219)		324
Interest paid in cash	22,161		16,798
Interest received in cash	(440)		(398)
Taxes on income paid in cash, net	8,159		4,678
Deferred taxes on income, net	58		(463)
Discount component for lease agreements	8,474		-
Severance pay liability, net	(250)		(121)
Restructuring expenses ,net	(987)		2,947
Capital loss (gain) from sale of fixed assets and asset held for sale	(86)		99
Change to the benefit component of options and RSU granted to employees	1,200		946
Share in profits of associated company accounted for using the equity method	(950)		(393)
Others	(468)		2,630
	126,476		59,363
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables	31,923		(59,454)
Decrease in other receivable and balances	(5,875)		396
Increase (decrease) in trade payables	(40,726)		18,330
Increase (decrease) in other payables	2,972		(7,566)
Decrease (increase) in inventory	12,458		(15,799)
	752		(64,093)
	127,228		(4,730)

 

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