Q2 2020 Results Overview

19 Aug. 2020

Delta Galil Reports Second Quarter 2020 Results

 

Triple Digit Growth in E-commerce Sales

Strong Operating Cash Flow and Cash Balance

Reduction in Companywide Sales Resulting From COVID-19 Pandemic

 

One-Time Restructuring Charge Reflects Plan to Streamline Operations and Position for Future Growth

Expects Return to Profitability in Q3 2020

 

August 18, 2020, 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 second quarter ended June 30, 2020. The Company noted that overall sales and net income continued to be negatively impacted by the COVID-19 pandemic. The Company also noted that its results for the latest quarter reflected a one-time restructuring charge of $39.2 million to maximize operational efficiencies, improve cost structure and enhance production flexibility.

 

Second Quarter 2020 Highlights

  • Sales were $270.9 million, a decrease of 27% from $373.9 million reported in the second quarter of 2019.
  • Net loss was $53.3 million, including the restructuring charge noted, compared to net income of $5.1 million last year.
  • Excluding one-time charges, net loss was $23.0 million, compared to net income of $7.9 million for the second quarter of 2019.
  • Operating cash flow improved nearly $46.4 million, to $80.9 million in the second quarter of 2020, from $34.5 million a year ago.
  • Strong balance sheet highlighted by $255.6 million in cash and $410.4 million in equity.
  • 163% increase in Company’s own websites sales.
  • Inventory balance significantly reduced by $88 million, excluding Bogart's inventory, to $290.0 million from June 2019.
  • Net Debt reduced by $54.5 million from June 2019.
  • The Company estimates that its operating results will return to profitability starting in Q3 and in Q4 of this year.
  • The Company is implementing a comprehensive restructuring plan to further streamline operations that was recorded as a one-time expense of $39.2 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 remainder of 2020.
  • Drew down $79 million from its credit facilities.
  • Received government-supported loans for $40 million during Q2 under attractive terms.
  • Increased Company’s committed and uncommitted credit facilities to a total of $258 million, of which $79 million were utilized as of June 30, 2020.

 

  • As a result of the Company’s agility to respond and execute appropriate cost cutting initiatives, Q2 operating loss before one-time items was kept at similar levels to Q1; however sales were significantly lower, as the pandemic’s effects on Delta Galil were more impactful in Q2 versus Q1 due to the store closures enacted in the Company's markets.

 

  • Isaac Dabah, CEO of Delta Galil, stated: “While our second quarter results reflect the continued global impact of the COVID-19 pandemic, we are pleased to report that our financials were better than we expected as of last quarter. We finished Q2 with strong performance in direct-to-consumer e-commerce across all of our businesses, and we see strong recovery in brick-and-mortar sales in Israel, that presented a growth in May and June, and in our European brands. During the quarter, we initiated a significant strategic restructuring plan across all business units, which we expect to deliver efficiencies in our cost structure, operations and productivity starting already in Q3. We have a solid plan in place, a strong balance sheet, many of our customers are gradually recovering, and we continue to focus on developing new products to drive sustainable profitable growth and long-term shareholder value. We started the third quarter with strong results for July and expect to get back to profitability in the third quarter. ”

 

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 and DGPB customers and lower retails sales due to store closures, which were partially offset by higher web and e-commerce customer sales. The impact of COVID-19 reduced second quarter sales and EBIT by approximately $147 million and $37 million, respectively. In an effort to reduce operational costs, the Company quickly implemented a number of initiatives, which it continues to benefit from, 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 above-mentioned initiatives and others contributed to the strong operating cash flow in the second quarter and kept operating loss before non-recurring items
at similar levels to Q1; however sales were significantly lower in Q2, as the pandemic’s effects on Delta Galil were more impactful versus Q1 due to the closures enacted in the Company's markets.

 

Sales

The Company reported sales of $270.9 million for the second quarter of 2020, compared to $373.9 million for the second quarter of 2019, a 27% decrease. The decrease in sales was primarily due to reduced volume in most business segments and markets following the outbreak of COVID-19, partly offset by sales from The Bogart Group, acquired in July 2019. Sales for the first six months of 2020 were $603.6 million, compared to $739.3 million for the same period last year, representing an 18% decrease.

 

Operating Profit (Loss)

Operating loss for the second quarter was $55.4 million, compared to operating profit of $14.3 million in the second quarter of 2019. Operating loss for the 2020-second quarter included a one-time restructuring charge of $39.2 million, which the Company recorded as part of its plan to improve production flexibility and cost structure and reduce overhead. Benefits are expected to become evident as early as the third quarter of this year. Excluding non-recurring items, operating loss was $16.2 million in the second quarter of 2020, compared to operating income of $17.2 million last year.

 

Operating loss for the first six months of 2020 was $84.1 million, compared to operating profit of $24.8 million in the first six months of 2019. Excluding non-recurring items, operating loss for the first six months of 2020 $32.1 million, compared to operating profit of $27.6 million for the comparable period last year.

 

Net Income (Loss)

 

Net loss for the second quarter of 2020 was $53.3 million, compared to net income of $5.1 million in the second quarter last year. Excluding one-time items, net loss was $23.0 million for the second quarter of 2020 compared to net income of $7.9 million for the second quarter of 2019.

 

Net loss for the first six months of 2020 was $83.8 million, compared to net income of $8.1 million for the same period last year. Excluding one-time items, net loss was $43.0 million for the first six months of 2020, compared to net income of $10.9 million for the same period last year.

 

Diluted Earnings (Loss) Per Share

 

Diluted loss per share was $2.08 for the second quarter of 2020, compared to earnings per share of $0.20 in the second quarter of 2019. Diluted loss per share excluding one-time items was $0.89 for the second quarter of 2020, compared to earnings per share of $0.31 for second quarter last year.

 

Diluted loss per share for the first six months of 2020 was $3.27, compared to earnings per share of $0.32 for the first six months of 2019. Diluted loss per share excluding one-time items was $1.67 for the first six months of 2020, compared to earnings per share of $0.43 for the same period last year.

 

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $6.7 million in the second quarter of 2020, compared to $37.3 million in the second quarter of 2019. For the first six months of 2020, EBITDA was $14.2 million, compared to $68.0 million in the same period last year.  

Operating cash flow was $80.9 million, improving $46.4 million compared to $34.5 million in the second quarter of 2019. Excluding IFRS 16, operating cash flow improved $44.9 million to $65.9 million in the second quarter of 2020, compared to $21.0 million in the comparable period last year.

Net financial debt as of June 30, 2020 was $306.6 million, compared to $361.1 million, as of June 30, 2019 and $334.5 million as of December 31, 2019.

 

Equity on June 30, 2020 was $410.3 million, compared with $462.3 million a year earlier.

 

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.

Nevertheless, the Company estimates that it will return to profitability starting in Q3 of this year.

 

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.

 

Concise Consolidated Balance Sheets

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