Delta Galil Reports Third Quarter 2023 Results

Third Quarter Results Reflect Significant Progress on Initiatives Aimed at Expanding Gross Margin, Reducing Inventory, Driving Operating Cash Flow and Strengthening the Balance Sheet

Third quarter Online Sales of the Company's Own Brands Increased 26% compared to Third Quarter of Last Year

Third Quarter Gross Margin Increased 250 Basis Points Year-over-Year to a Record Third Quarter of 40.9%

Strong 10% EBIT Despite Lower Sales and SG&A Deleverage

Continued Sequential Improvements in Inventory; Down 6.4% from Second Quarter and 21.3% compared to Third Quarter of Last Year

Operating Cash Flow Excluding IFRS 16 was $30.3 Million for the Third Quarter, and $99.6 Million for the Nine Month Period

Equity at a record level of $725.8 Million or 41.5% of Total Balance Sheet

Declares a $7.5 Million Dividend for the Third Quarter of 2023

Management’s Goal, Based on its Initial 2024 Budget, is Focused on Achieving Sales and Profit Levels Similar to 2022’s Record Results; Updated Guidance Will Be Provided in February 2024

CAESAREA, Israel, November 16, 2023--(BUSINESS WIRE)--Delta Galil Industries, Ltd. (DELG/Tel Aviv Stock Exchange), the global manufacturer and marketer of branded and private label intimate, activewear, loungewear and denim apparel for men, women and children, today reported financial results for the third quarter and nine months ended September 30, 2023.

Third Quarter 2023 Highlights (comparisons are to prior year period unless otherwise noted)

• Sales decreased 9.6% (9.8% % in constant currency) to $463.0 million, driven by the continued slowdown in global consumer spending

• Third quarter online sales of the Company’s own brands increased 26% compared to the third quarter of last year

• Gross margin improved 250 basis points to a third quarter record of 40.9%

• EBIT was $46.1 million, or 10.0% of sales compared to last year at $55.1 million, or 10.8% of sales

• EBITDA excluding IFRS 16 impact was $53.2 million, a 16.7% decrease from last year and a 40.0% increase from second quarter 2023

• Inventory decreased for the fourth consecutive quarter, reflecting an aggregate reduction of $114.4 million since September 30, 2022

• Operating cash flow excluding IFRS 16 was $30.3 million, a $66.4 million improvement from the same period last year

• Net debt, excluding IFRS 16, was down $103.7 million to $178.0 million, compared to $281.7 million at September 30, 2022

• Equity at September 30, 2023, was at a record level of $725.8 million, up 10% from September 2022

• Dividend declared of $7.5 million, or $0.292 per share, which will be distributed on December 5, 2023, with a record and "ex-dividend" date of November 23, 2023

• On November 14, 2023, the Company announced the acquisition of Chantelle Group’s Passionata Brand, which is expected to close on January 2024.

Isaac Dabah, CEO of Delta Galil, stated, "During the third quarter, we made strong progress executing against previously disclosed strategies aimed at reducing inventory levels, expanding gross margin, and generating strong operating cash flow. In addition, we achieved a strong, double digit EBIT margin, despite lower sales and SG&A deleverage due to our record third quarter gross margin and the benefits of our previously implemented cost efficiency efforts. As a result, we have strengthened our balance sheet and capital position, ending the quarter with record equity of $725.8 million, and a net debt-to-EBITDA ratio, excluding IFRS 16, of 1.0. This strong financial position provides us with significant flexibility to further invest in our brands, support our customers, and pursue long-term growth opportunities."

Mr. Dabah continued, "While we navigate a challenging macro environment, we remain committed to pursuing profitable growth initiatives and during the third quarter Delta own branded web sales increased across all segments driven by higher traffic. This reflects our continued focus on growing our direct-to-consumer channels, while simultaneously developing new and innovative products for our customers. I am also excited to announce that on November 14, 2023, we announced the acquisition of Chantelle Group’s Passionata brand. This is a unique and valuable addition to our global brand portfolio, as Passionata resonates so strongly with millennial women who are confident expressing their sensuality. We have a long history of growing brands, and we are excited to strengthen our position and presence in women's intimates across 18 different countries and various distribution channels."

Mr. Dabah concluded, "I am encouraged by the progress we are making managing the items under our control, strengthening our financial position, and investing in our long-term growth objectives. We expect 2024 will be a strong year with meaningful revenue and profitability growth compared to 2023, and at similar level of 2022 record annual results. We expect the challenging macro environment to continue into 2024, but we believe we are well positioned to navigate these challenges and take advantage of opportunities that support our strategies aimed at creating long-term value for our shareholders. Based on our 2024 budget and initial estimates, we expect meaningful revenue and profitability growth compared to 2023. Additionally, our goal in 2024 is focused on achieving sales and profit levels similar to 2022’s annual record results."

Sales

The Company reported third quarter 2023 sales of $463.0 million, a 9.6% decrease from $512.0 million in the third quarter of 2022. Nine months ended 2023 sales were $1,349.1 million, a 9% decrease (8% in constant currency) from $1,487.1 million in the prior-year period.

Gross Margin

Gross margin in the third quarter of 2023 increased to 40.9%, compared to 38.4% in the third quarter of 2022. The 250-basis point expansion was due primarily to better customer, channel, and segment mix and lower freight cost, partially offset by higher discounts and promotions. Gross margin in the nine months ended 2023 increased by 180 basis points to 40.1%, compared to 38.3% in the nine months ended of 2022.

EBIT

EBIT in the third quarter of 2023 was $46.1 million or 10.0% of sales compared to $55.1 million or 10.8% of sales in the prior-year period.

EBIT in the nine months ended 2023 was $88.8 million, compared to $127.8 million in the same period last year. In the nine months ended 2023, EBIT before non-core items was $96.9 million, or 7.2% of sales, compared to $133.3 million, or 9.0% of sales, in the nine months ended 2022.

The reduction in EBIT margin before non-core items was mainly due to reduction in gross profit following the lower sales and deleverage of SG&A expenses, which could support higher sales levels.

Non-Core Items

The Company recorded no non-core items in its third quarters of 2023 and 2022.

In the first nine months of 2023, expenses associated with the realignment plans were $11.4 million and the Company estimates annual cost savings from these plans to reach approximately $12.5 million, a portion of which will be realized in 2023.

Non-core items in the first nine months of 2023 also included, a $4.0 million benefit associated with a reversal of an earn-out liability with respect to Bogart's acquisition, and $0.7 million related to deal costs.

Non-Core Items (in USD, Millions)
	First Nine Months
		2022			2023
Realignment plans	$	5.5		$	11.4
Income from decrease of earn-out liability		-			(4.0)
Deal costs		-			0.7
Total Non-Core Items	$	5.5		$	8.1

Net Income

Net income in the third quarter of 2023 was $29.5 million, compared to $36.1 million in the third quarter last year.

Net income in the nine months ended 2023 was $47.6 million, compared to $77.7 million in the same period last year. Net income excluding non-core items, net of tax, was $53.8 million, compared to $83.2 million in the first nine months of 2022.

Diluted Earnings Per Share

Diluted earnings per share in the third quarter of 2023 were $1.09, compared to $1.32 in the third quarter of 2022.

Diluted earnings per share in the nine months of 2023 were $1.71, compared to $2.79 in the same period last year. Diluted earnings per share, excluding non-core items, net of tax, were $1.94 compared to $3.00 in 2022.

EBITDA, Cash Flow, Net Debt, Equity, and Dividend

EBITDA excluding IFRS 16 impact in the third quarter of 2023 was $53.2 million, compared to $63.9 million in the third quarter of 2022. In the nine months ended September 30, 2023, EBITDA excluding IFRS 16 impact was $119.7 million, compared to $158.5 million in the first nine months of 2022.

Cash flow generated from operating activities, excluding IFRS 16, increased to $30.3 million in the third quarter of 2023, compared to cash flow used in operating activities of $36.1million in the third quarter of 2022. Cash flow generated from operating activities, excluding IFRS 16, increased to $99.6 million in the first nine months of 2023, compared to cash flow used in operating activities of $104.4 million in the first nine months of 2022. The significant year-over-year improvement in operating cash flow is primarily attributed to the reduction in inventory levels.

Net financial debt, excluding IFRS 16, at September 30, 2023, was $178.0 million, compared to $217.4 million at December 31, 2022, and $281.7 million at September 30, 2022. The year-over-year reduction in net debt is primarily due to the strong operating cash flow, partially offset by capital expenditures and dividend payments.

Equity on September 30, 2023 was at a record level of $725.8 million, up 10.2% from $658.6 million on September 30, 2022.

Delta Galil declared a dividend of $7.5 million, or $0.292 per share, to be distributed on December 5, 2023. The record and "ex-dividend" date will be November 23, 2023.

2023 Financial Guidance and 2024 outlook

As disclosed in its recent immediate report issued on October 24, 2023, the Company has reduced its sales and earnings guidance for 2023 primarily due to challenging macro conditions. The Company’s guidance excludes non-core items, includes IFRS 16 and is based on current tax rates. These forward-looking statements are based largely on the expectations of the Company and are subject to uncertainties including macroeconomic trends. Actual results may differ materially from those included in the guidance as result of risks and uncertainties which cannot be fully predicted. There is no certainty that the aforementioned conditions will occur, and actual results may be significantly different from those forecasted or implied below.

		Full-Year 2023 Updated Guidance (in millions, except per share amount)		Full-Year 2023 Previous Guidance (in millions, except per share amount)		2022 Results (in millions, except per share amount)
Sales		$1,840 - 1,880		$2,000.0		$2,031.5
EBIT		$150.0 - 160.0		$192.0		$190.2
EBITDA		$244.6 - 254.6		$285.7		$284.2
Net income		$87.5 – 95.1		$120.9		$120.6
Diluted EPS ($)		$3.17 - 3.46		$4.27		$4.33

Based on initial estimates, the Company expects significant growth in sales and profitability in 2024 compared to 2023, and at similar level of 2022 record annual results.

These expectations depend, among others, on the following changes: return to normalized inventory levels within our main customers driving increased demands and improve profitability rates, continuity of growth while expanding into other categories with Skims, launch of Organic Basics global new collection, increase of production level in our new factories in Vietnam and Egypt, implementation of our realignment plans, improved backlog of innovative products and launches of new license agreements.

Constant Currency - Excluding the Impact of Foreign Currency

This release refers to "reported" amounts in accordance with IFRS accounting principles ("GAAP"), which include translation and transactional impacts from foreign currency exchange rates. The release also refers to "constant dollar" amounts, which exclude the impact of translating foreign currencies into U.S. dollars, and are considered a non-GAAP financial measure. These constant currency performance measures should be viewed in addition to, and not in lieu of, or superior to, Delta Galil’s operating performance measures calculated in accordance with GAAP.

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 endeavored 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; underwear for men including under its owned brands Schiesser, Eminence, and Athena; babywear, activewear, sleepwear, and loungewear including under its owned P.J. Salvage and Delta brands. Delta Galil also designs, develops markets and sells branded denim and apparel under the brand 7 For All Mankind®, and ladies’ and kids’ apparel under the brand Splendid®. In addition, it sells its products under brand names licensed to the company, including adidas, Wolford, Wilson, Columbia, Tommy Hilfiger and others. 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, tax rates in the various countries the company operates in, 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.

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Balance Sheets As of September 30, 2023
	September 30				December 31
	2023		2022		2022
	(Unaudited)				(Audited)
	Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents	147,521		98,433		126,649
Restricted Cash	2,922		4,899		4,002
Short-term deposit	6,365		66,278		64,265
Trade receivables	211,591		214,927		236,772
Taxes on income receivable	989		14,409		10,691
Other receivables	49,547		50,721		36,389
Financial derivative	34		426		423
Inventory	423,313		537,760		487,307
Assets held for sale	1,799		-		-
Total current assets	844,081		987,853		966,498
Non-current assets:
Investments in associated companies accounted using
the equity method and long-term receivables	13,185		12,348		12,528
Investment property	2,596		2,521		2,702
Fixed assets, net of accumulated depreciation	242,003		226,290		235,273
Goodwill	144,018		142,675		144,238
Intangible assets, net of accumulated amortization	267,233		273,181		275,948
Assets in respect of usage rights	215,305		195,244		193,275
Deferred tax assets	18,497		18,734		18,183
Financial derivative	264		2,038		2,025
Total non-current assets	903,101		873,031		884,172
Total assets	1,747,182		1,860,884		1,850,670

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Balance Sheets As of September 30, 2023
	September 30						December 31
	2023			2022			2022
	(Unaudited)						(Audited)
	Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans	22,704			100,671			51,430
Current maturities of bank loan	23,913			40,406			42,152
Current maturities of debentures	29,194			30,319			45,935
Financial derivative	2,001			1,009			1,037
Current maturities of leases liabilities	49,217			47,261			47,968
Trade payable	194,241			235,851			209,673
Taxes on income payable	29,937			29,657			34,048
Provision for restructuring plan	5,919			4,225			2,633
Other payables	136,773			156,439			176,411
Total current liabilities	493,899			645,838			611,287
Non-current liabilities:
Bank loans	141,293			127,671			133,151
Severance pay liabilities less plan assets	5,393			7,536			5,982
Liabilities in respect of leases	186,139			166,028			164,175
Other non-current liabilities	53,165			75,737			63,431
Debentures	108,109			145,151			129,969
Deferred taxes liabilities	31,422			34,240			32,158
Financial derivative	1,973			65			173
Total non-current liabilities	527,494			556,428			529,039
Total liabilities	1,021,393			1,202,266			1,140,326
Equity:
Equity attributable to equity holders of the parent company:
Share capital	23,714			23,714			23,714
Share premium	127,896			128,268			128,268
Other capital reserves	16,260			7,472			26,410
Retained earning	544,771			486,088			517,751
Treasury shares	(13,703	)		(14,075	)		(14,075	)
	698,938			631,467			682,068
Minority interests	26,851			27,151			28,276
Total equity	725,789			658,618			710,344
Total liabilities and equity	1,747,182			1,860,884			1,850,670

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Statement of Income For the 9-month and 3-month periods ending September 30, 2023
	Nine months ended September 30						Three months ended September 30
	2023			2022			2023			2022
	(Unaudited)
	Thousands of Dollars
	(Excluding earning per share figures)
Sales	1,349,079			1,487,126			463,039			512,002
Cost of sales	807,616			918,258			273,578			315,417
Gross profit	541,463			568,868			189,461			196,585
% of sales	40.1	%		38.3	%		40.9	%		38.4	%
Selling and marketing expenses	380,850			377,916			127,314			125,094
% of sales	28.2	%		25.4	%		27.5	%		24.4	%
General and administrative expenses	68,286			66,138			20,397			20,705
% of sales	5.1	%		4.4	%		4.4	%		4.0	%
Other expenses (income), net and share in profit of
associated company	(4,537	)		(8,498	)		(4,373	)		(4,339	)
Operating income excluding non-core items	96,864			133,312			46,123			55,125
% of sales	7.2	%		9.0	%		10.0	%		10.8	%
Non-core items, net	8,087			5,467			-			-
Operating income (loss)	88,777			127,845			46,123			55,125
Finance expenses, net	29,297			27,502			8,788			9,413
Income (loss) before tax on income	59,480			100,343			37,335			45,712
Taxes on income (tax savings)	11,919			22,631			7,839			9,606
Net income (loss) for the period	47,561			77,712			29,496			36,106
Net income for the period excluding non-core items, net of tax	53,820			83,179			29,496			36,106
Attribution of net earnings (loss) for the period:
Attributed to company's shareholders	44,844			73,945			28,722			34,926
Attributed to non-controlling interests	2,717			3,767			774			1,180
	47,561			77,712			29,496			36,106
Net income for the period attributed to the company's shareholders excluding non-core items, net of tax	51,041			79,412			28,722			34,926
Net diluted earnings per share attributed to company's shareholders (in US Dollars)	1.71			2.79			1.09			1.32
Net diluted earnings per share, before non-core items, net of tax attributable to Company's shareholders (in US Dollars)	1.94			3.00			1.09			1.32

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Cash Flow Reports For the 9-month and 3-month periods ending September 30, 2023
	Nine months ended September 30						Three months ended September 30
	2023			2022			2023			2022
	(Unaudited)
	Thousands of Dollars
Cash flows from operating activities:
Net income for the period	47,561			77,712			29,496			36,106
Adjustments required to reflect cash flows
deriving from (used in) operating activities	118,424			(107,379	)		25,128			(46,284	)
Interest paid in cash	(25,490	)		(21,739	)		(8,594	)		(9,064	)
Interest received in cash	2,768			190			1,523			68
Taxes on income paid in cash, net	(6,182	)		(14,810	)		(4,756	)		(4,684	)
Net cash generated from (used in) operating activities	137,081			(66,026	)		42,797			(23,858	)
Cash flows from investment activities:
Change in short-term deposits, net	53,989			(66,278	)		35,415			(36,809	)
Purchase of fixed assets	(28,012	)		(35,179	)		(6,832	)		(20,375	)
Purchase of intangible assets	(3,399	)		(6,295	)		(1,679	)		(3,055	)
Acquisition of activity	-			(4,500	)		-			(4,500	)
Proceeds from selling of fixed asset	483			6,335			39			6,245
Others	487			946			(334	)		395
Net cash generated from (used in) Investing activities	23,548			(104,971	)		26,609			(58,099	)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders
in consolidated subsidiary	(1,934	)		(2,763	)		(534	)		(646	)
Long term payables credit for fixed assets purchases	(5,044	)		(7,425	)		(1,478	)		(2,028	)
Lease principle repayments	(37,492	)		(38,370	)		(12,540	)		(12,219	)
Repayment of Debentures	(31,080	)		(16,700	)		(15,940	)		(16,700	)
Dividend paid	(19,040	)		(21,998	)		(7,012	)		(6,035	)
Receipt of a long-term loans from banking corporations	32,694			53,800			32,694			-
Repayment of long-term loans from banking corporations	(42,574	)		(5,367	)		(38,842	)		(1,825	)
Short-term credit from banking corporations, net	(28,775	)		100,671			(8,236	)		72,473
Repayment of bank loan used to acquisition of a subsidiary	-			(792	)		-			-
Others	(3,180	)		(5,797	)		(2,461	)		(343	)
Net cash generated from (used in) financing activities	(136,425	)		55,259			(54,349	)		32,677
Net increase (decrease) in cash and cash equivalents	24,204			(115,738	)		15,057			(49,280	)
Exchange rate differences and revaluation of cash
and cash equivalents, net	(3,332	)		(15,958	)		(2,419	)		(114	)
Balance of cash and cash equivalents
at the beginning of the period, net	126,649			230,129			134,883			147,827
Balance of cash and cash equivalents at the end of the Period, net	147,521			98,433			147,521			98,433

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Cash Flow Reports For the 9-month and 3-month periods ending September 30, 2023
	Nine months ended September 30						Three months ended September 30
	2023			2022			2023			2022
	(Unaudited)
	Thousands of Dollars
Adjustments required to reflect cash flows
From (used in) operating activities:
Revenues and expenses not involving cash flow:
Depreciation	25,807			24,320			7,920			8,320
Amortization	47,582			45,018			15,126			14,805
Exchange rate losses	110			652			118			253
Interest paid in cash	18,894			15,413			6,234			7,075
Interest received in cash	(2,768	)		(190	)		(1,523	)		(68	)
Taxes on income paid in cash, net	6,182			14,810			4,756			4,684
Deferred taxes on income, net	(913	)		(4,421	)		1,287			4,094
Interest due to lease agreements	6,596			6,326			2,360			1,989
Severance pay liability, net	(860	)		(25	)		(28	)		(25	)
Change in restructuring plan	3,078			(4,672	)		(1,152	)		(3,118	)
Income from decrease of earn-out liability	(4,000	)		-			-			-
Capital (gain) loss from sale of fixed assets	(42	)		(4,374	)		164			(4,352	)
Benefit component of options and restricted share units
granted to employees	1,823			2,700			97			825
Credit (gain) losses from trade receivables	(459	)		353			(714	)		334
Share in profits of associated company accounted for using the equity method	(407	)		(542	)		(203	)		(262	)
Others	2,546			956			(580	)		(1,103	)
	103,169			96,324			33,862			33,451
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables	21,360			(23,321	)		(31,397	)		(32,866	)
increase in other receivable and balances	(7,608	)		(13,757	)		(4,669	)		(15,674	)
Decrease (increase) in trade payables	(20,903	)		(4,606	)		4,253			(10,455	)
Increase (decrease) in other payables	(37,098	)		(828	)		(726	)		4,650
Decrease (increase) in inventory	59,504			(161,191	)		23,805			(25,390	)
	15,255			(203,703	)		(8,734	)		(79,735	)
	118,424			(107,379	)		25,128			(46,284	)

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Contacts

For more information:
Nissim Douek
+972-54-5201178
Nissim@unik.co.il

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Stacy Berns
Berns Communications Group
+1-212-994-4660
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