Delta Galil Reports Third Quarter 2018 Results

Sales Increased 9% to $370.8 Million;
EBITDA Increased 13% to $35.3 Million

Updates 2018 Guidance; Sales Expected to Increase 8%-9% and Reach
$1,475 Million-$1,495 Million
Diluted EPS Expected to Increase 12%-18% and Reach $2.23-$2.34

2018 Third Quarter Highlights

• Sales increased 9% to $370.8 million, compared to $340.3 million last year.
• EBITDA increased 13% to $35.3 million, compared to $31.3 million in 2017.
• Eminence Group’s results were consolidated into Delta European Brands operating segment, which includes Schiesser, contributing $27.1 million to sales in the third quarter of 2018.
• Financial guidance for 2018 was updated: Full-year 2018 sales are expected to range between $1,475 million-$1,495 million, representing an increase of 8%-9% from 2017 actual sales of $1,368.1 million. Diluted EPS is expected to range between $2.23-$2.34, representing an increase of 12%-18% from 2017 actual EPS, of $1.98.
• Delta declared a dividend of $3.5 million, or $0.139 per share, to be distributed on December 5, 2018. The determining and "ex-dividend" date will be November 27, 2018.
• Isaac Dabah, CEO of Delta Galil, stated: “We are pleased with the continued strength of our diversified business model, as we concluded the quarter with a 9% sales increase and 10% increase in EBIT, before one-time items. We saw strong performance from Delta USA and significant improvements in Delta Israel. We have a strong balance sheet, and we remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value.”

TEL AVIV, Israel--(BUSINESS WIRE)--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 financial results for the third quarter and nine months ended September 30, 2018.

Sales

The Company reported sales of $370.8 million for the third quarter of 2018, a 9% increase from $340.3 million in the third quarter of 2017. Sales for the first nine months of 2018 were $1,044.2 million, up 5% from $996.4 million in the same nine-month period of 2017. The sales growth primarily reflected strength in Delta Galil USA, Delta European Brands (now including Eminence) and Delta Israel.

Operating Profit

Operating profit before one-time items increased 10% to $26.7 million in the third quarter of 2018, compared to $24.3 million in the third quarter of 2017. Operating profit including $9.6 million of acquisition-related and restructuring costs was $17.0 million for the third quarter of 2018, compared to $24.2 million for the same period last year, representing a 29% decrease.

Operating profit in the first nine months of 2018, before one-time items increased 2% to $55.9 million, compared to $54.9 million in the same period of 2017. For the first nine months of 2018, operating profit including $13.6 million of acquisition-related and restructuring costs was $42.3 million, down 19% from $52.1 million in the same period last year. The increase in operating profit excluding one-time items was due to higher gross profit achieved from Eminence results consolidated for the first time, which has a relatively high gross margin compared to average margin in Delta.

Net Income

Net income excluding Eminence acquisition-related costs and restructuring costs increased 15% to $16.6 million, from $14.5 million in the third quarter of 2017. Net income including acquisition-related and restructuring costs of $7.0 million (net of tax) was $9.6 million for the third quarter of 2018, compared to $14.4 million last year, a 33% decrease.

Net income before acquisition-related and restructuring costs increased 8% for the first nine months of 2018, and totaled $33.2 million, compared to $30.6 million for the same period of 2017. For the first nine months of 2018, net income including the acquisition-related and restructuring costs totaled $23.5 million, compared to $28.9 million for the same period last year, a 19% decrease.

Diluted Earnings Per Share

Diluted earnings per share before adjustments increased 15% in the 2018 third quarter, and totaled $0.65, compared to $0.57 last year. Diluted earnings per share including acquisition-related and restructuring costs were $0.38 for the third quarter of 2018, compared to $0.56 in the same quarter last year, representing a 33% decrease.

For the nine-month period, diluted earnings per share before adjustments increased 9% and totaled $1.31 in 2018, compared to $1.20 for the same period in 2017. For the first nine months of 2018, diluted earnings per share including acquisition-related and restructuring costs were $0.93, down 17% from $1.13 last year.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “We are pleased with the continued strength of our diversified business model, as we concluded the quarter with a 9% sales increase and 10% increase in EBIT, before adjustments. We saw strong performance from Delta USA, where successful launches for Costco and new kids businesses drove a 9% increase in sales and a 49% increase in EBIT. We continued to see significant improvement in Delta Israel, with a 19% increase in sales and $1.3 million improvement in EBIT, as well as strong comparable sales and online growth.”

“During the quarter, we focused on consolidating Eminence Group, which made a strong contribution to sales in its first quarter as part of Delta Galil, while expanding our European presence.”

“Also during the quarter, we signed a global licensing agreement to exclusively develop, produce and distribute Ted Baker men’s underwear, loungewear, and thermal wear worldwide, with the first collection launching Spring 2019. This represents an important step in our ongoing strategy to grow our global portfolio of premium brands.”

“Looking ahead, we expect continued long-term growth in Delta Galil Premium Brands to reach above 10% EBIT. We see significant opportunities, including potential corporate initiatives to sell to key online retailers, and the ability to introduce core Delta products through Eminence distribution channels. Further, the investments we made in our manufacturing facilities will start having positive impacts on our bottom line towards 2019. We have a strong balance sheet, and we remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $35.3 million or 9.5% of sales in the third quarter of 2018, compared to $31.3 million, or 9.2% of sales in the same quarter last year. For the first nine months of 2018, EBITDA was $79.6 million, compared to $75.9 million in the same period of 2017.

Operating cash flow for the trailing 12 months ended September 30, 2018 was $20.9 million, compared to $80.7 million for the trailing 12 months ended September 30, 2017.

Net financial debt as of September 30, 2018 was $349.1 million, compared to $164.8 million as of September 30, 2017, mainly explained by the acquisition of Eminence for $135.4 million.

Equity on September 30, 2018 was $457.6 million, up from $436.0 million a year earlier.

Delta Galil declared a dividend of $3.5 million, or $0.139 per share, to be distributed on December 5, 2018. The determining and "ex-dividend" date will be November 27, 2018.

2018 Financial Guidance

Delta Galil updates its 2018 financial guidance, excluding one-time items:

• Full-year 2018 sales are expected to range between $1,475 million-$1,495 million, representing an increase of 8%-9% from 2017 actual sales of $1,368.1 million.
• Full-year 2018 EBIT is expected to range between $97 million-$99 million, representing an increase of 11%-13% from 2017 actual EBIT of $87.4 million.
• Full-year 2018 EBITDA is expected to range between $127 million-$130 million, representing an increase of 10%-12% from 2017 actual EBITDA of $115.9 million.
• Full-year 2018 net income is expected to range between $57 million-$60 million, representing an increase of 12%-18% from 2017 actual net income of $50.7 million.
• Full-year 2018 diluted EPS is expected to range between $2.23-$2.34, representing an increase of 12%-18% from 2017 actual EPS, of $1.98.

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 under the brands Eminence, Athena & Liabel; babywear, activewear, sleepwear, 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®. 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 September 30, 2018
	September 30		December 31
	2018	2017	2017
	(Unaudited)		(Audited)
	Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents	58,743	95,685	137,470
Restricted Cash	3,150	1,646	1,430
Other accounts receivable:
Trade receivables	190,903	152,363	148,806
Taxes on income receivable	2,799	2,266	2,915
Others	29,070	20,060	20,632
Financial derivative	667	996	1,191
Inventory	356,606	275,130	269,877
Assets classified as held for sale	-	1,000	-
Total current assets	641,938	549,146	582,321
Non-current assets:
Investments in associated companies accounted using the equity method and long-term receivables	15,470	11,289	11,142
Investment property	3,508	3,691	3,718
Fixed assets, net of accumulated depreciation	189,604	158,371	160,018
Goodwill	111,570	70,101	70,101
Intangible assets, net of accumulated amortization	221,526	150,111	158,768
Deferred tax assets	11,438	14,422	11,654
Financial derivative	12,606	20,623	22,800
Total non-current assets	565,722	428,608	438,201
Total assets	1,207,660	977,754	1,020,522

DELTA GALIL INDUSTRIES LTD. Concise Consolidated Balance Sheets As of September 30, 2018
	September 30		December 31
	2018	2017	2017
	(Unaudited)		(Audited)
	Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans	78,028	-	28
Current maturities of bank loan	8,136	-	-
Current maturities of debentures	20,424	14,465	20,596
Financial derivative	2,680	1,341	1,432
Other accounts payable:
Trade payables	137,035	104,140	112,028
Taxes on income payable	10,416	5,017	6,373
Others	107,799	100,851	117,804
Total current liabilities	364,518	225,814	258,261
Non-current liabilities:
Bank loan	73,232	-	-
Severance pay liabilities less plan assets	8,982	3,594	4,057
Other non-current liabilities	35,350	37,474	40,212
Debentures	241,482	267,959	258,945
Reserve for deferred taxes	26,324	6,918	7,724
Financial derivative	219	-	-
Total non-current liabilities	385,589	315,945	310,938
Total liabilities	750,107	541,759	569,199
Equity:
Equity attributable to equity holders of the parent company:
Share capital	23,713	23,706	23,708
Share premium	130,735	130,799	130,791
Other capital reserves	(289)	9,330	7,834
Retained earning	319,259	288,079	304,788
Treasury shares	(16,596)	(17,035)	(16,914)
	456,822	434,879	450,207
Minority interests	731	1,116	1,116
Total equity	457,553	435,995	451,323
Total liabilities and equity	1,207,660	977,754	1,020,522

DELTA GALIL INDUSTRIES LTD. Consolidated Statement of Comprehensive Income For the 3-month and 9-month periods ending September 30, 2018
	Nine months ended September 30		% Increase/(Decrease)	Three months ended September 30		% Increase/(Decrease)
	2018	2017		2018	2017
	(Unaudited)
	Thousands of Dollars
	Except for Earnings per Share Data
Sales	1,044,157	996,443	5%	370,763	340,301	9%
Cost of sales	651,616	629,316		227,840	211,218
Gross profit	392,541	367,127	7%	142,923	129,083	11%
% of sales	37.6%	36.8%		38.5%	37.9%
Selling and marketing expenses	292,039	262,140	11%	102,111	88,191	16%
% of sales	28.0%	26.3%		27.5%	25.9%
General and administrative expenses	46,707	50,295	(7%)	15,249	17,157	(11%)
% of sales	4.5%	5.0%		4.1%	5.0%
Other Expenses (income), net	(1,784)	222		(972)	(354)
Share in profits of associated company accounted for using the equity method	282	432		121	245
Operating income excluding non-recurring items	55,861	54,902	2%	26,656	24,334	10%
% of sales	5.3%	5.5%		7.2%	7.2%
Restructuring expenses	5,422	2,832		5,427	167
Inventory Step up due to Eminence acquisition	3,849	-		3,849	-
Eminence acquisition cost	4,283	-		333	-
Operating income	42,307	52,070	(19%)	17,047	24,167	(29%)
% of sales	4.1%	5.2%		4.6%	7.1%
Finance expenses, net	15,904	14,518	10%	6,307	5,403	17%
Income before tax on income	26,403	37,552		10,740	18,764
Taxes on income	2,904	8,664		1,109	4,375
Net income for the period	23,499	28,888	(19%)	9,631	14,389	(33%)
Net income for the period excluding one-time items, net of tax	33,244	30,644	8%	16,624	14,493	15%
Attribution of net earnings for the period:
Attributed to company's shareholders	23,854	28,798	(17%)	9,684	14,359	(33%)
Attributed to non-controlling interests	(355)	90		(53)	30
	23,499	28,888		9,631	14,389
Net diluted earnings per share attributed to company's shareholders	0.93	1.13		0.38	0.56
Net diluted earnings per share, before non-recurring items net of tax attributable to Company's shareholders	1.31	1.20	9%	0.65	0.57	15%

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 9-month periods ending September 30, 2018
	Nine months ending		Three months ending
	September 30		September 30
	2018	2017	2018	2017
	(Unaudited)
	Thousands of Dollars
Cash flows from operating activities:
Net income for the period	23,499	28,888	9,631	14,389
Adjustments required to reflect cash flows deriving from operating activities	(43,466)	4,869	(17,819)	6,622
Interest paid in cash	(10,709)	(10,281)	(4,756)	(2,801)
Interest received in cash	312	498	2	267
Taxes on income paid in cash, net	(3,768)	(4,351)	(1,222)	(1,605)
Net cash generated (used in) from operating activities	(34,132)	19,623	(14,164)	16,872
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets	(30,852)	(21,520)	(10,603)	(8,711)
Restricted cash release (deposit)	(89)	121	(339)	(69)
Earn-out payment for acquisition of an activity	(2,250)	(1,500)	-	-
Acquisition of a subsidiary	(135,380)	-	(135,380)	-
Proceeds from selling of fixed asset	1,774	28,275	98	44
Others	(2,505)	(882)	(860)	(242)
Net cash generated from (used in) Investing activities	(169,302)	4,494	(147,084)	(8,978)
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary	(30)	(90)	-	(60)
Long term payables credit for fixed assets purchase	(2,637)	(2,034)	(994)	-
Debentures principle repayment	(8,093)	(14,506)	(8,093)	(8,093)
Financial Institute payment	(6,413)	-	-	-
Dividend paid	(10,528)	(10,522)	(3,529)	(4,222)
Long term loan received from bank	81,480	-	81,480	-
Short-term credit from banking corporations, net	71,283	(44,988)	46,713	(108)
Debentures issuance net of issuance expenses	-	57,152	-	-
Release of bank deposit used as a security with respect of SWAP transaction	-	1,545	-	-
Proceeds from exercise of employees options	266	347	24	244
Net cash generated from (used in) financing activities	125,328	(13,096)	115,601	(12,239)
Net increase (decrease) in cash and cash equivalents	(78,106)	11,021	(45,647)	(4,345)
Exchange rate differences and revaluation of cash and cash equivalents, net	(621)	2,717	(363)	892
Balance of cash and cash equivalents at the beginning of the period	137,470	81,947	104,753	99,138
Balance of cash and cash equivalents at the end of the Period	58,743	95,685	58,743	95,685

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports For the 3-month and 9-month periods ending September 30, 2018
	Nine months ending		Three months ending
	September 30		September 30
	2018	2017	2018	2017
	(Unaudited)
	Thousands of Dollars
Adjustments required to reflect cash flows
from operating activities:
Revenues and expenses not involving cash flow:
Depreciation	20,714	17,391	8,029	5,982
Amortization	3,505	3,559	1,110	959
Cash erosion, net	111	(470)	151	(64)
Interest paid in cash	10,709	10,281	4,756	2,801
Interest received in cash	(312)	(498)	(2)	(267)
Taxes on income paid in cash, net	3,768	4,351	1,222	1,605
Deferred taxes on income, net	(2,425)	1,691	(1,794)	4,146
Severance pay liability, net	237	232	110	42
Restructuring expenses ,net	4,133	2,832	4,575	167
Capital loss (gain) from sale of fixed assets and asset held for sale	86	(3,495)	152	(353)
Change to the benefit component of options granted to employees	1,145	1,586	345	412
Share in profits of associated company accounted for using the equity method	(282)	(432)	(121)	(245)
Others	1,076	733	822	500
	42,465	37,761	19,355	15,685
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables	(25,093)	1,630	(17,256)	(4,634)
Decrease (increase) in other receivable and balances	(4,170)	5,279	1,072	4,785
Increase (decrease) in trade payables	15,434	(671)	9,405	3,982
Increase (decrease) in other payables	(13,060)	(5,522)	(3,601)	(1,875)
Decrease (increase) in inventory	(59,042)	(33,608)	(26,794)	(11,321)
	(85,931)	(32,892)	(37,174)	(9,063)
	(43,466)	4,869	(17,819)	6,622