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Delta Galil’s Eminence Acquisition Boosts Profile But Hits Bottom Line

Though the Eminence purchase gave Delta Galil a more global presence, the seamless production specialist did incur acquisitions costs that cut into profits.

In a Nutshell: Delta Galil Industries, a Tel Aviv-based manufacturer and marketer of branded and private label apparel products for men, women and children, saw strong performance from Delta USA, where successful launches for Costco and new kids businesses drove sales and earnings gains.

Delta Galil, which develops seamless intimate apparel and socks for women, and underwear for men under the Eminence, Athena and Liabel brands, said it continued to see significant improvement in Delta Israel, with a 19 percent increase in sales and a $1.3 million improvement in earnings before interest and taxes (EBIT), as well as strong comparable sales and online growth.

The company, which also designs and sells branded denim and apparel under the 7 For All Mankind label and women’s apparel under the Splendid and Ella Moss monikers, said during the quarter it focused on consolidating Eminence Group, which made a strong contribution to sales in its first quarter, while expanding its European presence. In 2017, Eminence Group’s net sales were approximately 99 million euros ($113 million).

Delta Galil said it sees significant opportunities, including corporate initiatives to sell to key online retailers, and to introduce core Delta products through Eminence distribution channels. The company also said investments made in manufacturing facilities will start having positive impacts on the bottom line in 2019.

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Updating its financial guidance for 2018, Delta Galil said full-year sales are now expected to range from $1.48 billion to $1.5 billion, representing an increase of 8 percent to 9 percent from 2017 actual sales of $1.37 billion. Full-year net income is expected to range between $57 million and $60 million, which would be a 12 percent to 18 percent jump from 2017 actual net income of $50.7 million.

Sales: Sales in the third quarter ended Sept. 30 increased 9 percent to $370.8 million compared to $340.3 million last year. Delta said the sales growth mainly reflected strength in Delta Galil USA, Delta European Brands and Delta Israel. Sales from Eminence Group, purchased in July, were consolidated into Delta European Brands operating segment, which includes Schiesser, contributing $27.1 million to sales in the quarter.

Earnings: Net income excluding Eminence acquisition-related costs and restructuring costs, increased 15 percent to $16.6 million from $14.5 million in the third quarter of 2017. Net income including acquisition-related and restructuring costs of $7 million, was $9.6 million this year, compared to $14.4 million last year, marking a 33 percent decline.

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 13 percent to $35.3 million from $31.3 million in the year-ago period. EBITDA was 9.5 percent of sales in the quarter compared 9.2 percent of sales in the same quarter last year.

Operating profit before one-time items increased 10 percent to $26.7 million compared to $24.3 million in the year-ago quarter. Operating profit including $9.6 million of acquisition-related and restructuring costs was $17 million for the quarter compared to $24.2 million for the same period last year, representing a 29 percent decrease.

CEO’s Take: Isaac Dabah, Delta Galil CEO, said: “We saw strong performance from Delta USA and significant improvements in Delta Israel. We have a strong balance sheet, and we remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value. Looking ahead, we expect continued long-term growth in Delta Galil Premium Brands to reach above 10 percent EBIT.”