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Amid Sourcing Shift, Delta Galil Reducing China Manufacturing

Sales for the second quarter at Delta Galil reached record levels for the sixth consecutive quarter, increasing 8 percent to $491.3 million.

In a Nutshell: Delta Galil Industries, a global manufacturer and marketer of branded and private label intimate apparel, leisurewear, activewear and denim, on Monday said it is focused on realigning its manufacturing footprint to improve production flexibility and efficiencies, while reducing its manufacturing presence in China.

As a result, during the second quarter the company ceased operations at Bogart’s Shenzhen Factory and moved its operating activity to a new factory in Vietnam. The company recorded a $5.5 million expense during the second quarter of 2022 associated with employee severance and related costs.

Delta Galil, based in Caesarea, Israel, also reiterated its guidance and expects to achieve the mid-to-low range of its sales guidance. The company, which sells underwear for men under such brands as Schiesser, Eminence, Athena and Liabel, as well as denim and apparel under 7 For All Mankind and women’s wear under the brand Splendid, said rapid changes in currency exchange rates have impacted its sales, resulting in full year 2022 sales benefiting a rise in volume sales of $45 million or 2 percent.

The company said the balance sheet remained strong, with $182.6 million in cash and short-term deposits, and $641.6 million in equity as of June 30.

Sales: Sales for the second quarter ended June 30 reached record levels for the sixth consecutive quarter, increasing 8 percent to $491.3 million versus $455.8 million last year. Sales were driven primarily by strong growth within the company’s private label segment.

Own website sales in the quarter declined 15 percent to $53.7 million, following a shift in consumer behavior back to physical retail locations as stores reopened after Covid-19 related lockdowns.

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Earnings: Net income for the quarter rose 3 percent to a record $28.1 million, compared to $27.3 million in the 2021 period.

Diluted earnings per share (EPS) increased 4 percent to a record $1.01 versus 97 cents per share last year. Operating income was up 4 percent to a new high of $44 million.

Gross profit rose 1 percent to $189 million, or 38.5 percent of total sales, compared 41.1 percent of total sales in the prior-year period. The year-over-year reduction in second-quarter gross margin was attributed mainly to increased freight and raw material costs, the increased mix of private label sales that are characterized by lower gross margins, but higher operating margins, and the devaluation of the euro compared to the dollar, partially offset by a favorable customer mix and increased profitability of the company’s factories.

CEO’s Take: Isaac Dabah, CEO of Delta Galil, said: “Positive momentum continued across many aspects of our business and we produced record second quarter and year-to-date financial results. Our record results reflect the powerful and diversified platform we have built, our innovative products, compelling brands, broad customer base and the successful execution of our growth strategy. We remain focused on maintaining robust levels of profitability as we successfully control operating costs and leverage our SG&A expenses.”

“We believe we are well positioned to successfully navigate the challenging retail environment, while pursuing our long-term growth initiatives. In July…as part of our global strategy to grow our digital presence and increase our focus on sustainable apparel and brands, we acquired Organic Basics, a digitally native brand known for its sustainably and ethically made underwear, activewear and base layers. We see a significant opportunity to grow the Organic Basics brand globally, particularly in the U.S. and Europe, and we are excited to launch an expanded collection of products in 2023. We are confident that our diversified business model, strong balance sheet and global workforce will position us to meet our targets, and we expect 2022 to be a record year for sales and profitability.”