Reports Record Financial Results for 2013
Operating Income Rises 34% from Prior Year Excluding Non-Recurring Items Sales Increase 19%
19 February 2014
Delta Galil Reports Record Financial Results for 2013

Operating Income Rises 34% from Prior Year Excluding Non-Recurring Items

Sales Increase 19%, Driven by Growth Across All Product Categories and Regions

Fifth Consecutive Year of Profitable Growth

Providing Initial 2014 Guidance; Sales Expected to Top $1 Billion as

Full-Year EPS Expected to Reach $1.93-2.11

Quarterly Highlights

Sales increased to $255.9 million in the 2013 fourth quarter, up 4% from the same period of 2012.

Delta Galil delivered its 17th consecutive quarter of year-over-year organic sales growth.

Operating income was $21.1 million in the 2013 fourth quarter, growing 7% from the comparable amount a year ago.

EBITDA was $26.9 million or 10.5% of sales in the 2013 fourth quarter, increasing 12% compared with $24.1 million or 9.8% of sales in the same quarter of 2012.

Net income attributed to shareholders rose to $14.5 million in the 2013 fourth quarter, increasing 5% from the comparable amount in 2012.

Diluted earnings per share attributed to shareholders increased to $0.57 for the 2013 fourth quarter, up 4% from the comparable amount of $0.55 a year ago.

The Board of Directors declared a dividend of $3 million or $0.1210 per share, to be distributed on March 18, 2014. The determining and “ex-dividend” date will be March 3, 2014, per the Tel Aviv Stock Exchange.

Strong balance sheet was highlighted by $97.3 million in cash and a record $321.9 million in equity as of December 31, 2013.

Financial guidance for 2014 calls for sales of $1,035 million-$1,065 million. Full-year 2014 diluted EPS before non-recurring items is expected to be $1.93-$2.11.

Isaac Dabah, CEO of Delta Galil, stated: “2013 was a milestone year for Delta Galil, highlighted by record sales and earnings, solid performance across multiple product categories and geographies, new license opportunities, and a strong balance sheet to support further progress in the future. We delivered these achievements by following our well-established strategic course: focusing on innovation, quality and customer service; driving both organic growth and accretive acquisitions; and continually seeking new opportunities to apply our competitive and financial strengths to drive shareholder value.”

Tel Aviv, February 18, 2014 – 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, today reported its financial results for the fourth quarter and year ended December 31, 2013.

The Company reported sales of $255.9 million for the fourth quarter of 2013, up from $246.6 million for the same quarter last year, an increase of 4%. Sales in 2013 were $974.7 million, compared to $817.8 million in 2012, an increase of 19%, representing an organic sales growth of 9%.

Operating income was $21.1 million for fourth quarter 2013, up 7% from $19.7 million in the same quarter of 2012. Operating income in the 2013 fourth quarter included a $2.1 million provision for leasehold improvement write-off and the impact of an onerous contract relating to the consolidation of offices in Delta USA into one new site. In 2013, operating income excluding non-recurring items was $67.9 million, compared to $50.7 million in 2012, a 34% increase. In the year-ago, total non-recurring items included a net gain of $24.2 million pre-tax, relating to a capital gain from a real estate sale and negative goodwill relating to the Schiesser acquisition, net of Schiesser acquisition costs, fixed asset impairment and restructuring expenses. In 2013, non-recurring items included a restructuring expense of $3.5 million relating to the consolidation of manufacturing sites in Egypt, offset by restructuring income of $2.0 million from the reversal of a prior year restructuring accrual.

A key contributor to the higher operating income was an expanding gross profit margin, which rose to 32.1% in the 2013 fourth quarter from 28.8% a year ago. This was partly offset by higher selling, marketing, general and administrative expenses as Delta Galil invested in the growth of its business.

Net income attributable to shareholders was $14.5 million in the 2013 fourth quarter, compared to $13.8 million in the same quarter of 2012, a 5% increase. Diluted earnings per share attributed to shareholders were $0.57 for the 2013 fourth quarter, up from $0.55 for the 2012 fourth quarter. For 2013, net income attributable to shareholders excluding non-recurring items was $44.1 million or $1.75 per diluted share, compared to $33.8 million or $1.37 per diluted share excluding non-recurring items for 2012.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “2013 was a milestone year for Delta Galil, highlighted by record sales and earnings, solid performance across multiple product categories and geographies, new license opportunities, and a strong balance sheet to support further progress in the future. We delivered these achievements by following our well-established strategic course: focusing on innovation, quality and customer service; driving both organic growth and accretive acquisitions; and continually seeking new opportunities to apply our competitive and financial strengths to drive shareholder value.”
“Our top-line growth in 2013 was broadly diversified, with particular increases in activewear, socks and seamless categories. We also experienced growth with key customers, increased our branded business, and prepared to enter a promising new channel for Delta Galil—wholesale clubs. Geographically, our growth was distributed across North America, Israel and Europe, including an 84% sales increase in Germany as a result of our Schiesser acquisition. We are also extremely excited about our recently signed licenses with Lacoste and Marc O’Polo.”
“We have entered 2014 with great excitement about our strong prospects. Based on our initial financial guidance, this will be our first year of sales in the $1 billion-plus range. We look forward to delivering record results as we pursue profitable growth across our product categories, private label and branded business, retail channels, and geographic regions.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $26.9 million or 10.5% of sales in the 2013 fourth quarter, increasing 12% compared with $24.1 million or 9.8% of sales in the same quarter of 2012. For 2013, EBITDA before non-recurring items was $86.2 million or 8.8% of sales, rising 33% compared with $64.8 million before non-recurring items or 7.9% of sales in 2012.

Operating cash flow was positive $22.1 million in the 2013 fourth quarter, versus $32.7 million in the same period of 2012.

Net financial debt decreased substantially, to $63.3 million at December 31, 2013 from $92.2 million a year earlier. The financial debt to EBITDA ratio improved significantly to 0.7 for 2013, half the level of the previous year.

Equity on December 31, 2013 was a record $321.9 million, compared to $277.8 million a year earlier.

Delta Galil declared a dividend of $3.0 million, or $0.1210 per share, to be distributed on March 18, 2014. The determining and “ex-dividend” date will be March 3, 2014, per the Tel Aviv Stock Exchange.

Initial Guidance for 2014

The Company provided its initial 2014 financial guidance, reflecting a strong outlook for sales and profitability (excluding non-recurring items):

Full-year 2014 sales are expected to range between $1,035 million-$1,065 million, representing an increase of 6%-9% from 2013 sales of $974.7 million.

Full-year 2014 EBIT before non-recurring items is expected to range between $75 million-$81 million, representing an increase of 10%-19% from 2013 EBIT before one-time items of $67.9 million.

Full-year 2014 EBITDA before non-recurring items is expected to range between $93 million-$99 million, representing an increase of 8%-15% from 2013 EBITDA.

Full-year 2014 net income before non-recurring items is expected to range between $49 million-$54 million, representing an increase of 11%-22% from 2013 net income before one-time items of $44.3 million.

Full-year 2014 diluted EPS before non-recurring items is expected to range between $1.93-$2.11, representing an increase of 10%-21% from 2013 EPS before one-time items of $1.75.

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; babywear, activewear, sleepwear, and leisurewear. 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 As of December 31, 2013

 

Assets  31 Dec. 2013      31 Dec. 2012
Thousands of Dollars Thousands of Dollars
Current assets:
Cash and cash equivalents 97,346 45,475
Restricted Cash 1,448 2,822
Other accounts receivable:
Trade receivables 112,293 108,735
Taxes on income receivable 2,427 125
Others 9,522 12,124
Financial derivative 2,955 719
Inventory 169,303 150,309
Assets classified as held for sale 1,000 6,456
Total current assets 396,294 326,765
Non-current assets:
Long-term receivables 15,520 13,272
Investment property 4,850 4,795
Fixed assets, net of accumulated depreciation 95,797 93,019
Intangible assets, net of accumulated amortization 118,135 111,482
Deferred tax assets 9,560 8,833
Financial derivative 10,942 1,045
Total non-current assets 254,804 232,446
Total assets 651,098 559,211
Liabilities and Equity
Current liabilities:
Short-term bank loans 26,438 40,175
Current maturities of long-term loans
from banking corporations 150 1,357
Current maturities of Debentures 17,847 15,965
Other accounts payable:
Trade payables 71,283 72,351
Taxes on income – payable 4,401 5,029
Others 56,441 47,479
Total current liabilities 176,560 182,356
Non-current liabilities:
Loans from financial institutions less
current maturities - 150
Severance pay liabilities less plan assets 2,105 2,679
Other non-current liabilities 17,196 13,543
Debentures 129,717 79,323
Reserve for deferred taxes 3,630 3,361
Total non-current liabilities 152,648 99,056
Total liabilities 329,208 281,412
Equity:
Equity attributable equity holders of the
parent company:
Share capital 23,499 23,311
Share premium 127,024 124,220
Other capital reserves 16,212 8,736
Unassigned income balance 163,990 130,364
Treasury shares (10,996) (10,996)
319,729 275,635
Minority interests 2,161 2,164
Total equity 321,890 277,799
Total liabilities and equity 651,098 559,211

The enclosed notes constitute an integral part of these Financial Statements

 

 

Concise Consolidated Statement of Comprehensive Income For the 3-month and 12-month periods ending December 31, 2013

          

For the year ended December 31   31 Dec. 2013      31 Dec. 2012
Thousands of Dollars Thousands of Dollars % Increase
Sales 974,719 817,782 19%
Cost of sales (1) (2) 680,426 607,290
Gross profit 294,293 210,492
% of sales 30.2% 25.7%
Selling and marketing expenses (2) (3) 190,593 133,714 43%
% of sales 19.6%   16.4%
Administrative and general expenses 36,250 26,691
% of sales 3.7% 3.3%
Other income (expenses), net 472 571
Operating income excluding non-recurring items 67,922 50,658 34%
% of sales 7.0% 6.2%
Capital gain from selling of asset held for sale - 19,910
Schiesser acquisition cost - 1,160
Net income derived from adjustments due to Purchase Price Allocation of
Schiesser (1)    - 12,163
Restructuring expenses  1,529 5,424
Impairment of fixed assets   - "1 309"
Operating income 66,393 74,838
Finance expenses, net 10,981 8,925 23%
Equity income - 93
Profit before tax on income 55,412 66,006
Taxes on income 12,732 9,029
Net income for the period 42,680 56,977
Net income for period excluding non-recurring items, net of tax 44,254 33,920 30%
Attribution of net earnings for the period
Attributed to company's shareholders 42,560 56,857
Attributed to non-controlling interests 120 120
- 42,680 56,977
Net diluted earnings per share attributed to shareholders of the company 1.69 2.30
Net diluted earnings per share excluding non-recurring items net of tax, attributed to shareholders of the company 1.75 1.37

 

(1) Net Income includes, Lucky Buy of $12.6 million offset by inventory Step-Up of $0.4 million which is included in the GAAP financials among Cost of Sales.
(2) Development and design expenses were classified from Cost of goods sold to Selling and Marketing expenses.
(3) Selling and Marketing expenses in Q4 and year 2013 includes M2.1$ write down of leasehold improvements and onerous contract influence due to the consolidation of Delta USA offices to into a new location.

 

Three months ended December 31 31 Dec. 2013 31 Dec. 2012
Cash flows from operating activities:
Net profit for the period 42,680 56,977
Adjustments required to reflect cash flows deriving
from operating activities 28,910 31,807
Interest paid in cash (10,001) (8,475)
Interest received in cash 471 604
Taxes on income paid in cash, net (15,820) (8,009)
Net cash generated from operating activities 46,240 72,904
Cash flows from investment activities:
Cash added from purchased subsidiary - 12,258
Insolvency and other payments regarding
subsidiary purchase - (86,052)
Acquisition of fixed assets and intangible assets (20,649) (21,550)
Restricted cash deposit 1,448 (2,822)
Proceeds from realization of assets held for sale, net of tax 6,233 41
Proceeds from selling of fixed asset 632 765
Proceeds from sale of real estate in Naharia, net of related expense 3,161 2,010
Loans to subcontractor (826) (400)
Others (85) (87)
Net cash used for Investing activities (10,086) (95,837)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary (123) (127)
Long term payables credit for fixed assets purchase (1,867) -
Debentures repayment (11,285) (11,285)
Dividend paid (10,500) (7,995)
Repurchase of shares - (1,296)
Repayment of loans and other long-term liabilities (3,155) (2,875)
Short-term credit from banking corporations, net (14,716) (29,253)
Issuance of debentures 55,704 50,987
Proceeds from exercise of employee options 2,542 3,209
Net cash generated from financing activities 16,600 1,365
Net increase (decrease) in cash and cash
equivalents 52,754 (21,568)
Profit (Loss) due to exchange rate differentials on cash and cash equivalents (883) 1,283
Balance of cash and cash equivalents at the beginning of the period 45,475 65,760
Balance of cash and cash equivalents at the end of the Period 97,346 45,475