Delta Galil Reports Second Quarter 2020 Results

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, as well as leisurewear, activewear and denim, today reported its financial results for the second quarter ended June 30, 2020. The Company noted that overall sales and net income continued to be negatively impacted by the COVID-19 pandemic. The Company also noted that its results for the latest quarter reflected a one-time restructuring charge of $39.2 million to maximize operational efficiencies, improve cost structure and enhance production flexibility.

Second Quarter 2020 Highlights

• Sales were $270.9 million, a decrease of 27% from $373.9 million reported in the second quarter of 2019.
• Net loss was $53.3 million, including the restructuring charge noted, compared to net income of $5.1 million last year.
• Excluding one-time charges, net loss was $23.0 million, compared to net income of $7.9 million for the second quarter of 2019.
• Operating cash flow improved nearly $46.4 million, to $80.9 million in the second quarter of 2020, from $34.5 million a year ago.
• Strong balance sheet highlighted by $255.6 million in cash and $410.4 million in equity.
• 163% increase in Company’s own websites sales.
• Inventory balance significantly reduced by $88 million, excluding Bogart's inventory, to $290.0 million from June 2019.
• Net Debt reduced by $54.5 million from June 2019.
• The Company estimates that its operating results will return to profitability starting in Q3 and in Q4 of this year.
• The Company is implementing a comprehensive restructuring plan to further streamline operations that was recorded as a one-time expense of $39.2 million in the second quarter.

• Actions taken to further strengthen Financial Flexibility:
  • A companywide hiring freeze, reduction in salaries of senior management, furlough and reduced working hours.
  • Elimination and/or reduction of marketing spend, travel and consulting fees.
  • Negotiated reduction in rental costs.
  • Tightly managed working capital items.
  • Suspension of quarterly cash dividend for remainder of 2020.
  • Drew down $79 million from its credit facilities.
  • Received government-supported loans for $40 million during Q2 under attractive terms.
  • Increased Company’s committed and uncommitted credit facilities to a total of $258 million, of which $79 million were utilized as of June 30, 2020.

• As a result of the Company’s agility to respond and execute appropriate cost cutting initiatives, Q2 operating loss before one-time items was kept at similar levels to Q1; however sales were significantly lower, as the pandemic’s effects on Delta Galil were more impactful in Q2 versus Q1 due to the store closures enacted in the Company's markets.
• Isaac Dabah, CEO of Delta Galil, stated: “While our second quarter results reflect the continued global impact of the COVID-19 pandemic, we are pleased to report that our financials were better than we expected as of last quarter. We finished Q2 with strong performance in direct-to-consumer e-commerce across all of our businesses, and we see strong recovery in brick-and-mortar sales in Israel, that presented a growth in May and June, and in our European brands. During the quarter, we initiated a significant strategic restructuring plan across all business units, which we expect to deliver efficiencies in our cost structure, operations and productivity starting already in Q3. We have a solid plan in place, a strong balance sheet, many of our customers are gradually recovering, and we continue to focus on developing new products to drive sustainable profitable growth and long-term shareholder value. We started the third quarter with strong results for July and expect to get back to profitability in the third quarter. ”

COVID-19

Delta Galil noted that the disruption caused by COVID-19 and related business closures and public quarantine measures resulted in decreased sales volume, primarily with several major DGUSA and DGPB customers and lower retails sales due to store closures, which were partially offset by higher web and e-commerce customer sales. The impact of COVID-19 reduced second quarter sales and EBIT by approximately $147 million and $37 million, respectively. In an effort to reduce operational costs, the Company quickly implemented a number of initiatives, which it continues to benefit from, including:

• A companywide hiring freeze, 10%-20% reduction in salaries of senior management until the end of the year, furlough and reduced working hours.
• Elimination and/or reduction of marketing spend travel and consulting fees.
• Tightly managed working capital items.

The above-mentioned initiatives and others contributed to the strong operating cash flow in the second quarter and kept operating loss before non-recurring items at similar levels to Q1; however sales were significantly lower in Q2, as the pandemic’s effects on Delta Galil were more impactful versus Q1 due to the closures enacted in the Company's markets.

Sales

The Company reported sales of $270.9 million for the second quarter of 2020, compared to $373.9 million for the second quarter of 2019, a 27% decrease. The decrease in sales was primarily due to reduced volume in most business segments and markets following the outbreak of COVID-19, partly offset by sales from The Bogart Group, acquired in July 2019. Sales for the first six months of 2020 were $603.6 million, compared to $739.3 million for the same period last year, representing an 18% decrease.

Operating Profit (Loss)

Operating loss for the second quarter was $55.4 million, compared to operating profit of $14.3 million in the second quarter of 2019. Operating loss for the 2020-second quarter included a one-time restructuring charge of $39.2 million, which the Company recorded as part of its plan to improve production flexibility and cost structure and reduce overhead. Benefits are expected to become evident as early as the third quarter of this year. Excluding non-recurring items, operating loss was $16.2 million in the second quarter of 2020, compared to operating income of $17.2 million last year.

Operating loss for the first six months of 2020 was $84.1 million, compared to operating profit of $24.8 million in the first six months of 2019. Excluding non-recurring items, operating loss for the first six months of 2020 $32.1 million, compared to operating profit of $27.6 million for the comparable period last year.

Net Income (Loss)

Net loss for the second quarter of 2020 was $53.3 million, compared to net income of $5.1 million in the second quarter last year. Excluding one-time items, net loss was $23.0 million for the second quarter of 2020 compared to net income of $7.9 million for the second quarter of 2019.

Net loss for the first six months of 2020 was $83.8 million, compared to net income of $8.1 million for the same period last year. Excluding one-time items, net loss was $43.0 million for the first six months of 2020, compared to net income of $10.9 million for the same period last year.

Diluted Earnings (Loss) Per Share

Diluted loss per share was $2.08 for the second quarter of 2020, compared to earnings per share of $0.20 in the second quarter of 2019. Diluted loss per share excluding one-time items was $0.89 for the second quarter of 2020, compared to earnings per share of $0.31 for second quarter last year.

Diluted loss per share for the first six months of 2020 was $3.27, compared to earnings per share of $0.32 for the first six months of 2019. Diluted loss per share excluding one-time items was $1.67 for the first six months of 2020, compared to earnings per share of $0.43 for the same period last year.

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $6.7 million in the second quarter of 2020, compared to $37.3 million in the second quarter of 2019. For the first six months of 2020, EBITDA was $14.2 million, compared to $68.0 million in the same period last year.

Operating cash flow was $80.9 million, improving $46.4 million compared to $34.5 million in the second quarter of 2019. Excluding IFRS 16, operating cash flow improved $44.9 million to $65.9 million in the second quarter of 2020, compared to $21.0 million in the comparable period last year.

Net financial debt as of June 30, 2020 was $306.6 million, compared to $361.1 million, as of June 30, 2019 and $334.5 million as of December 31, 2019.

Equity on June 30, 2020 was $410.3 million, compared with $462.3 million a year earlier.

The Company does not currently anticipate declaring a dividend for the remainder of the fiscal year.

2020 Financial Guidance

As a result of the global impact of COVID-19, and the continued uncertainty surrounding the pandemic, Delta Galil is not providing financial guidance for fiscal 2020 at this time. Nevertheless, the Company estimates that it will return to profitability starting in Q3 of this year.

IFRS 16

Starting January 1, 2019, the Company adopted the new lease accounting standards set forth in IFRS 16. This requires that certain leases, which were accounted for as operating leases be treated as capital leases going forward. Certain leases will be reclassified as assets and liabilities on the balance sheet, which will yield increased depreciation and interest expense, offset by a reduction in rental expense.

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 and branded Men’s underwear including the brands Schiesser, Eminence, Athena & Liabel; babywear, activewear, sleepwear such as the PJ Salvage brand, and leisurewear. Delta Galil also designs, develops, markets and sells branded denim and apparel under the brand 7 For All Mankind®, and ladies apparel under the brands Splendid® and Ella Moss®, among others. In addition, it sells its products under brand names licensed to the company, including: Wilson, Maidenform, 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, 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 June 30, 2020
		June 30				December 31
		2020		2019		2019
		(Unaudited)				(Audited)
		Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents		253,050		38,611		108,294
Restricted Cash		2,501		1,218		933
Other accounts receivable:
Trade receivables		151,466		186,130		212,311
Taxes on income receivable		6,730		2,159		2,867
Others		30,763		66,035		35,200
Financial derivative		781		12		971
Inventory		289,968		350,129		328,108
Total current assets		735,259		644,294		688,684
Non-current assets:
Investments in associated companies accounted using the equity method and long-term receivables		27,508		14,773		14,367
Investment property		3,158		3,340		3,228
Fixed assets, net of accumulated depreciation		201,522		190,040		213,210
Goodwill		145,826		110,739		148,001
Intangible assets, net of accumulated amortization		260,998		220,139		273,318
Assets in respect of usage rights		204,036		195,426		207,651
Deferred tax assets		17,192		16,096		19,678
Financial derivative		15,356		11,332		19,677
Total non-current assets		875,596		761,885		899,130
Total assets		1,610,855		1,406,179		1,587,814

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of June 30, 2020
		June 30				December 31
		2020		2019		2019
		(Unaudited)				(Audited)
		Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans		78,926		15,034		1,868
Current maturities of bank loan		9,720		7,973		10,588
Current maturities of debentures		37,579		29,335		36,802
Financial derivative		2,051		2,395		2,070
Current maturities of liabilities in respect of leases		55,436		49,546		53,401
Other accounts payable:
Trade payables		148,608		142,725		140,475
Taxes on income payable		18,506		5,992		16,392
Provision for restructuring		30,803		2,972		1,435
Others		118,251		96,250		138,802
Total current liabilities		499,880		352,222		401,833
Non-current liabilities:
Bank loan		104,489		65,776		68,337
Severance pay liabilities less plan assets		10,233		8,965		10,155
Liabilities in respect of leases		172,899		167,867		172,903
Other non-current liabilities		41,239		29,753		47,899
Debentures		338,130		291,767		340,376
Deferred taxes liabilities		32,175		27,558		39,368
Financial derivative		1,382		-		-
Total non-current liabilities		700,547		591,686		679,038
Total liabilities		1,200,427		943,908		1,080,871
Equity:
Equity attributable to equity holders of the parent company:
Share capital		23,714		23,714		23,714
Share premium		130,262		130,321		130,237
Other capital reserves		(14,740)		(9,383)		(7,962)
Retained earning		287,249		333,568		376,763
Treasury shares		(16,093)		(16,177)		(16,093)
		410,392		462,043		506,659
Minority interests		36		228		284
Total equity		410,428		462,271		506,943
Total liabilities and equity		1,610,855		1,406,179		1,587,814

DELTA GALIL INDUSTRIES LTD.
Consolidated Statement of Comprehensive Income
For the 3-month and 6-month periods ending June 30, 2020
		Six months ended June 30				Three months ended June 30
		2020		2019		2020		2019
		(Unaudited)
		Thousands of Dollars
Sales		603,630		739,261		270,947		373,886
Cost of sales		410,411		474,725		191,461		239,733
Gross profit		193,219		264,536		79,486		134,153
% of sales		32.0%		35.8%		29.3%		35.9%
Selling and marketing expenses		178,160		206,013		74,223		102,724
% of sales		29.5%		27.9%		27.4%		27.5%
General and administrative expenses		38,657		36,477		17,385		18,864
% of sales		6.4%		4.9%		6.4%		5.0%
Trade receivable credit loss		7,945		328		3,876		(30)
Other Expenses (income), net		535		(3,041)		230		(1,720)
Operating income (loss) excluding non-recurring items		(32,078)		24,759		(16,228)		14,315
Non-recurring items		52,060		-		39,154		-
Operating income (loss)		(84,138)		24,759		(55,382)		14,315
Finance expenses, net		19,050		15,316		8,647		7,365
Income before tax on income		(103,188)		9,443		(64,029)		6,950
Taxes on income		(19,385)		1,346		(10,735)		1,882
Net income (loss) for the period		(83,803)		8,097		(53,294)		5,068
Net income (loss) for the period excluding one-time items, net of tax to company's shareholders		(42,753)		10,939		(22,827)		7,910
Attribution of net earnings for the period:
Attributed to company's shareholders		(83,555)		8,097		(53,152)		5,068
Attributed to non-controlling interests		(248)		-		(142)		-
		(83,803)		8,097		(53,294)		5,068
Net diluted earnings (loss) per share attributed to company's shareholders		(3.27)		0.32		(2.08)		0.20
Net diluted earnings (loss) per share, before non-recurring items net of tax attributable to Company's shareholders		(1.67)		0.43		(0.89)		0.31

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 6-month periods ending June 30, 2020
		Six months ended June 30				Three months ended June 30
		2020		2019		2020		2019
		(Unaudited)
		Thousands of Dollars
Cash flows from operating activities:
Net income for the period		(83,803)		8,097		(53,294)		5,068
Adjustments required to reflect cash flows deriving from operating activities		184,042		39,404		139,252		38,427
Interest paid in cash		(11,252)		(10,307)		(5,582)		(6,460)
Interest received in cash		323		437		195		427
Taxes on income paid (received) in cash, net		(963)		(6,015)		286		(3,005)
Net cash generated (used in) from operating activities		88,347		31,616		80,857		34,457
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets		(9,171)		(13,582)		(3,753)		(6,979)
Providing loans		-		(18,102)		-		(9,290)
Restricted cash release (deposit)		-		2,276		-		1,316
Bank deposit with respect to SWAP transaction		-		-		5,180		-
Acquisition of a subsidiary		(1,469)		(441)		-		-
Proceeds from selling of fixed asset		312		97		32		27
Net cash used in Investing activities		(10,328)		(29,752)		1,459		(14,926)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary		-		(346)		-		-
Long term payables credit for fixed assets purchase		(2,036)		(1,641)		(852)		(503)
Lease principle repayment		(30,257)		(26,789)		(14,994)		(13,436)
Dividend paid		(6,506)		(5,052)		-		(1,505)
Repayment (providing) of long-term loans from banks		34,031		(3,970)		36,171		(1,966)
Short-term credit from banking corporations, net		78,926		(64,827)		10,463		(7,036)
Proceed from Debentures Issuance, net of Issuance expenses		-		69,130		-		-
Repayment of bank loan used to acquisition of a subsidiary		(5,412)		-		(4,314)		-
Net cash generated from (used in) financing activities		68,746		(33,495)		26,474		(24,446)
Net increase (decrease) in cash and cash equivalents		146,765		(31,631)		108,790		(4,915)
Exchange rate differences and revaluation of cash and cash equivalents, net		(141)		(292)		1,126		236
Balance of cash and cash equivalents at the beginning of the period, net		106,426		70,534		143,134		43,290
Balance of cash and cash equivalents at the end of the Period, net		253,050		38,611		253,050		38,611

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 6-month periods ending June 30, 2020
		Six months ended June 30				Three months ended June 30
		2020		2019		2020		2019
		(Unaudited)
		Thousands of Dollars
Adjustments required to reflect cash flows from operating activities:
Revenues and expenses not involving cash flow:
Depreciation		19,713		13,423		11,643		6,756
Amortization		30,134		26,931		14,782		13,425
Cash erosion, net		291		(147)		(99)		124
Interest paid in cash		11,252		10,307		5,582		6,460
Interest received in cash		(323)		(437)		(195)		(427)
Taxes on income paid in cash, net		963		6,015		(286)		3,005
Deferred taxes on income, net		(4,906)		(791)		6,812		241
Discount component for lease agreements		5,084		4,255		2,344		2,060
Severance pay liability, net		90		105		33		19
Restructuring expenses		29,597		-		29,597		-
Decrease in liabilities in respect of leases due to rent payments relief		(2,164)		-		(2,164)		-
Capital loss (gain) from sale of fixed assets and asset held for sale		(115)		33		(49)		9
Change to the benefit component of options granted to employees		547		601		227		310
Impairment of intangible assets		12,780		-		-
Write-down of customers and other receivables		10,860		328		3,876		(30)
Share in profits of associated company accounted for using the equity method		(76)		(369)		(133)		(336)
Others		2,108		203		1,867		1,157
		115,835		60,457		73,837		32,773
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables		50,801		39,283		(4,363)		(165)
Decrease (Increase) in other receivable and balances		(2,867)		(8,394)		(426)		(3,779)
Decrease in trade payables		8,441		2,253		36,982		40,849
Decrease in other payables		(25,887)		(15,431)		(3,075)		(1,069)
Decrease (increase) in inventory		37,719		(38,764)		36,297		(30,182)
		68,207		(21,053)		65,415		5,654
		184,042		39,404		139,252		38,427

 

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