Suffering a net loss and sales decline in the first quarter, Delta Galil said the second quarter is expected to be even worse.
In a Nutshell: Delta Galil Industries, a global manufacturer and marketer of branded and private-label apparel in denim, including 7 for All Mankind, activewear, innerwear and leisurewear, said despite an increase in sales at the Bogart brand acquired in July 2019, as well as rising online revenue, its first-quarter results were adversely affected by the COVID-19 pandemic.
The company launched a comprehensive restructuring plan to further streamline operations that will be recorded as a one-time expense of $40 million in the second quarter. Actions taken to further strengthen financial flexibility included a company-wide hiring freeze, reduction in salaries of senior management, furlough and reduced working hours, and elimination and/or reduction of marketing spend, travel and consulting fees.
In addition, Delta Galil renegotiated reductions in rental costs, tightly managed working capital items, drew down $66 million from its committed credit facilities, is receiving government-supported loans in the amount of $30 million during the second quarter, and is increasing its committed and uncommitted credit facilities by $25 million and $29 million, respectively.
As a result of these actions and an expected strong operating cash flow in the second quarter, Delta Galil estimated its cash balance as of June 24 to be approximately $220 million.
During the quarter, the company joined the fight against COVID-19 by producing 4 million face masks for European emergency service personnel and other customers.
As a result of the global pandemic’s impact and the prolonged shutdown of stores in Delta Galil’s main markets, the company expects its second-quarter sales and profit decline to be more significant than the first quarter. However, it expects a “much stronger and a profitable second half of the year with a gradual return to normal operations.”
The company said due to the global impact of COVID-19 and the continued uncertainty surrounding the pandemic, it was not providing financial guidance for fiscal 2020 at this time.
Sales: For the first quarter ended March 31, sales fell 9 percent compared to a year earlier to $332.7 million, primarily due to reduced volume in all business segments and markets following the coronavirus disruption, partly offset by sales from the Bogart Group.
The company said it saw double-digit growth in e-commerce sales, including its own sites and its internet customers.
Earnings: Delta Galil posted a net loss in the quarter of $30.5 million, or $1.19 per share, compared to net income of $3 million, or diluted earnings per share of 12 cents, for the first quarter of 2019.
The operating loss was $28.8 million for the period compared to operating income of $10.4 million in the first quarter of 2019. The operating loss in the quarter included bad debt expenses of $7 million and a write-down of intangible assets of $12.8 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $7.6 million in the quarter compared to $30.6 million in the year-ago period.
CEO’s Take: Isaac Dabah, CEO of Delta Galil, said: “These are truly unprecedented times, where our business and Q1 results have been significantly impacted by the COVID-19 pandemic. That said, we’ve seen a sustained increase in e-commerce sales in all of our operating segments, demonstrating the continued strength of our diversified business and omnichannel model. We had a very good improvement in our operating cash flow due to tight management of our working capital. And continuing the positive trend from last year, Delta Israel had significant improvement in profitability, despite COVID-19.
“I am pleased that through our strong leadership team, we were able to identify and implement necessary adjustments to our business where we could, while remaining focused on delivering our core value proposition to our customers and shareholders,” Dabah added. “In addition, we’ve launched a comprehensive restructuring plan, which covers all of our operating segments. As a result, and with a strong balance sheet in hand, we are well positioned to emerge from this challenging period and continue our growth in a post-COVID world.”