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Delta Galil’s Third Quarter Income Leaps 39%

While sales remained sluggish despite a surge in e-commerce, Delta Galil returned to profitability in the third quarter.

In a Nutshell: Delta Galil Industries, a global manufacturer and marketer of branded and private-label apparel products for men, women and children, said the disruption caused by COVID-19 and related business closures and public quarantine measures resulted in decreased sales volume in the third quarter, primarily with several major customers, and lower retail sales due to store closures, which were partially offset by higher web and e-commerce customer sales.

In an effort to reduce operational costs and strengthen financial flexibility, the company implemented a number of initiatives from which it continues to benefit, including a companywide hiring freeze, a reduction in salaries of senior management until the end of the third quarter, and reduced working hours.

The company, based in Tel Aviv, Israel, eliminated or reduced marketing spend, travel and consulting fees, tightly managed working capital items and negotiated a reduction in rental costs. It also received government-supported loans of $46 million during the second and the third quarters, under attractive terms.

Operating cash flow improved $32.9 million to $44.1 million in the quarter from $11.2 million in the third quarter last year. A strong balance sheet was highlighted by $215 million in cash and $436.4 million in equity at quarter’s end. Net debt was reduced by $131.4 million from September 2019.

During the quarter, Delta Galil acquired U.S. online retailer Bare Necessities, which enhanced its digital presence, while offering more than 160 brands and 6,400 styles in intimates, women’s swimwear, shapewear, lingerie, sleepwear and hosiery. This added to its portfolio of seamless apparel, including bras, shapewear and socks; intimate apparel for women, and underwear for men under brands such as Schiesser, Eminence, Athena & Liabel and PJ Salvage. Dellta Galil also designs, develops markets and sells denim and sportswear under the 7 For All Mankind, Splendid and Ella Moss monikers.

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Delta Galil is not providing financial guidance for fiscal 2020 as a result of the global impact of Covid-19 and the continued uncertainty surrounding the pandemic. However, the company said it estimates that its operating results will maintain profitability in the fourth quarter.

Sales: Sales in the third quarter ended Sept. 30 declined 14 percent to $382.9 million compared to $446.1 million in the third quarter of 2019. The company said the decrease in sales was primarily due to reduced volume in Delta Galil Premium Brands, Delta USA and Global Upper Market business segments following the outbreak of Covid-19.

E-commerce sales at owned websites jumped 97 percent.

Earnings: Net income grew 39 percent to $19.5 million from $14 million last year, and a sharp turnaround from a loss of $53.3 million in the second quarter, the company noted. Excluding one-time items, net income was $19.5 million in the quarter compared to $14.5 million in the third quarter of 2019.

Diluted earnings per share increased 40 percent to 77 cents from 55 cents last year.

Operating profit for the third quarter fell 26 percent to $33.6 million. Before one-time items, operating profit was $33.6 million, compared to $27.1 million in the third quarter of 2019. The increase was due mainly to cost-saving initiatives and improved gross margin. Gross margin increased 400 basis points to 38.1 percent versus 34.1 percent in the year-ago period.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 12 percent to $57.7 million in the period.

CEO’s Take: Isaac Dabah, CEO of Delta Galil, said: “As we continue to live and operate through this pandemic, we are very pleased with our strong third quarter performance. Our return to profitability exceeded our expectations and will continue in the fourth quarter. Our results this quarter were driven by a strong performance in Delta European Brands and Delta Israel, coupled with initial benefits reaped from our strategic restructuring plan announced last quarter, as well as additional cost savings initiatives.

“Looking ahead, we continue our ongoing focus on driving innovation and excellence to deliver sustained profitable growth and long-term shareholder value,” Dabah added. “With a strong balance sheet, we have the necessary financial resources to continue to innovate and grow.”