SGC Superior Group of Companies Inc

Superior Group of Companies, Inc. (NASDAQ: SGC) (the “Company”), today announced its third quarter 2023 results.

Third Quarter Results

For the third quarter ended September 30, 2023, net sales decreased 1.9% to $136.1 million, compared to third quarter 2022 net sales of $138.7 million. Pretax income was $3.3 million compared to a pretax loss of ($17.0) million in the third quarter of 2022. Net income was $3.1 million or $0.19 per diluted share compared to a net loss of ($12.7) million, or ($0.80) per diluted share for the third quarter of 2022.

In the prior year third quarter of 2022, the Company recognized pre-tax, non-cash impairment charges related to goodwill of $21.5 million ($17.1 million net of tax, or $1.07 per diluted share). On an adjusted basis, which excludes impairment charges made in the prior year third quarter, this quarter’s net income of $3.1 million or $0.19 per diluted share compares to $4.4 million or $0.27 per diluted share in the prior year. At the conclusion of this press release is a reconciliation of reported-to-adjusted results, including a description of the significant items.

“We delivered stronger sequential results that are consistent with our back-end weighted full-year outlook, while again producing positive free cash flow, further reducing debt, and strategically investing to capitalize on future demand,” said Michael Benstock, Chief Executive Officer. “Our strong customer retention reflects our sharp focus on customer service, and along with new customer wins in each segment underscores our potential to drive even stronger growth and profitability when economic uncertainty lifts. Our Board’s latest quarterly dividend approval reflects our shared confidence in the opportunities across all three of our attractive end markets, and our ability to further enhance shareholder value.”

Third Quarter 2023 Dividend

The Board of Directors declared a quarterly dividend of $0.14 per share, payable December 6, 2023 to shareholders of record as of November 22, 2023.

2023 Full-Year Outlook

For full-year 2023, the Company is updating its Outlook to include a sales forecast range of $538 million to $545 million compared to its earlier forecast of $550 million to $560 million, and an earnings per share forecast range of $0.46 to $0.53 compared to its earlier forecast of $0.45 to $0.55.

Webcast and Conference Call

The Company will host a webcast and conference call at 5:00 pm Eastern Time today. The live webcast and archived replay can be accessed in the investor relations section of the Company's website at https://ir.superiorgroupofcompanies.com/Presentations. Interested individuals may also join the teleconference by dialing 1-844-861-5505 for U.S. dialers and 1-412-317-6586 for International dialers. The Canadian Toll-Free number is 1-866-605-3852. Please ask to be joined to the Superior Group of Companies call. A telephone replay of the teleconference will be available through November 20, 2023. To access the replay, dial 1-877-344-7529 in the United States or 1-412-317-0088 from international locations. Canadian dialers can access the replay at 855-669-9658. Please reference conference number 4364975 for replay access.

Disclosure Regarding Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words “may,” “will,” “should,” “could,” “expect,” "anticipate,” “estimate,” “believe,” “intend,” “project,” “potential,” or “plan” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) projections of revenue, income, and other items relating to our financial position and results of operations, including short term and long term plans for cash, (2) statements of our plans, objectives, strategies, goals and intentions, (3) statements regarding the capabilities, capacities, market position and expected development of our business operations, (4) statements of expected industry and general economic trends and (5) the projected impact of the COVID-19 pandemic on our, our customers’, and our suppliers’ businesses.

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; uncertainties related to supply disruptions, inflationary environment (including with respect to the cost of finished goods and raw materials and shipping costs), employment levels (including labor shortages) and general economic and political conditions in the areas of the world in which the Company operates or from which it sources its supplies or the areas of the United States of America (“U.S.” or “United States”) in which the Company’s customers are located; changes in the healthcare, retail, hotel, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, discover liabilities associated with such businesses during the diligence process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of cotton and other manufacturing materials; attracting and retaining senior management and key personnel; the effect of the Company’s material weakness in internal control over financial reporting; the Company’s ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting; lingering effects of the COVID-19 pandemic, including existing and possible future variants, on the United States and global markets, our business, operations, customers, suppliers and employees, including the length and scope of restrictions imposed by various governments and organizations and the continuing success of efforts to deliver effective vaccines and boosters, among other factors; and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this press release and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.

About Superior Group of Companies, Inc. (SGC):Established in 1920, Superior Group of Companies is comprised of three attractive business segments each serving large, fragmented and growing addressable markets. Across Healthcare Apparel, Branded Products and Contact Centers, each segment enables businesses to create extraordinary brand engagement experiences for their customers and employees. SGC’s commitment to service, quality, advanced technology, and omnichannel commerce provides unparalleled competitive advantages. We are committed to enhancing shareholder value by continuing to pursue a combination of organic growth and strategic acquisitions. For more information, visit www.superiorgroupofcompanies.com.

Investor Relations Contact:Investors@superiorgroupofcompanies.com

Comparative figures are as follows:

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In thousands, except share and per share data)

		Three Months Ended September 30,
		2023				2022
Net sales		$	136,126			$	138,703
Costs and expenses:
Cost of goods sold			82,928				88,066
Selling and administrative expenses			47,246				43,815
Goodwill impairment charge			-				21,460
Other periodic pension costs			214				528
Interest expense			2,464				1,794
			132,852				155,663
Income (loss) before income tax expense			3,274				(16,960	)
Income tax expense (benefit)			160				(4,241	)
Net income (loss)		$	3,114			$	(12,719	)
Net income (loss) per share:
Basic		$	0.19			$	(0.80	)
Diluted		$	0.19			$	(0.80	)
Weighted average shares outstanding during the period:
Basic			15,992,792				15,806,852
Diluted			16,155,355				15,806,852
Cash dividends per common share		$	0.14			$	0.14

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In thousands, except share and per share data)

		Nine Months Ended September 30,
		2023				2022
Net sales		$	396,061			$	430,218
Costs and expenses:
Cost of goods sold			248,159				281,667
Selling and administrative expenses			134,007				131,998
Goodwill impairment charge			-				45,918
Intangible assets impairment charge			-				5,581
Other periodic pension costs			642				1,584
Interest expense			7,658				2,676
			390,466				469,424
Income (loss) before income tax expense			5,595				(39,206	)
Income tax expense (benefit)			380				(5,042	)
Net income (loss)		$	5,215			$	(34,164	)
Net income (loss) per share:
Basic		$	0.33			$	(2.17	)
Diluted		$	0.32			$	(2.17	)
Weighted average shares outstanding during the period:
Basic			15,954,264				15,739,381
Diluted			16,132,832				15,739,381
Cash dividends per common share		$	0.42			$	0.40

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except share and par value data)

		September 30,				December 31,
		2023				2022
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	17,729			$	17,722
Accounts receivable, less allowance for doubtful accounts of $5,267 and $7,622, respectively			98,289				104,813
Accounts receivable - other			86				3,326
Inventories			105,134				124,976
Contract assets			46,765				52,980
Prepaid expenses and other current assets			10,824				14,166
Total current assets			278,827				317,983
Property, plant and equipment, net			48,666				51,392
Operating lease right-of-use assets			18,806				9,113
Deferred tax asset			10,677				10,718
Intangible assets, net			52,098				55,753
Other assets			12,983				11,982
Total assets		$	422,057			$	456,941
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	45,168			$	42,060
Other current liabilities			37,433				38,646
Current portion of long-term debt			4,219				3,750
Current portion of acquisition-related contingent liabilities			1,321				736
Total current liabilities			88,141				85,192
Long-term debt			103,134				151,567
Long-term pension liability			13,262				12,864
Long-term acquisition-related contingent liabilities			387				2,245
Long-term operating lease liabilities			13,440				3,936
Other long-term liabilities			8,582				8,538
Total liabilities			226,946				264,342
Shareholders’ equity:
Preferred stock, $.001 par value - authorized 300,000 shares (none issued)			-				-
Common stock, $.001 par value - authorized 50,000,000 shares, issued and outstanding 16,505,826 and 16,376,683 shares, respectively			16				16
Additional paid-in capital			76,515				72,615
Retained earnings			121,308				122,979
Accumulated other comprehensive loss, net of tax:
Pensions			(990	)			(1,113	)
Foreign currency translation adjustment			(1,738	)			(1,898	)
Total shareholders’ equity			195,111				192,599
Total liabilities and shareholders’ equity		$	422,057			$	456,941

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In thousands)

		Nine Months Ended September 30,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	5,215			$	(34,164	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			10,331				9,504
Goodwill impairment charge			-				45,918
Intangible assets impairment charge			-				5,581
Inventory write-downs			1,609				5,781
Provision for bad debts - accounts receivable			64				1,565
Share-based compensation expense			3,523				3,382
Deferred income tax benefit			-				(6,361	)
Change in fair value of acquisition-related contingent liabilities			(442	)			284
Change in fair value of written put options			(460	)			(1,791	)
Changes in assets and liabilities, net of acquisition of businesses:
Accounts receivable			6,410				3,521
Accounts receivable - other			3,240				978
Contract assets			6,208				(10,222	)
Inventories			18,280				(19,242	)
Prepaid expenses and other current assets			3,462				579
Other assets			(844	)			2,677
Accounts payable and other current liabilities			2,148				(9,561	)
Payment of acquisition-related contingent liabilities			(279	)			(3,346	)
Long-term pension liability			561				1,662
Other long-term liabilities			362				(1,249	)
Net cash provided by (used in) operating activities			59,388				(4,504	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment			(4,023	)			(11,221	)
Acquisition of businesses			-				(11,202	)
Net cash used in investing activities			(4,023	)			(22,423	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings of debt			4,000				320,143
Repayment of debt			(51,813	)			(274,898	)
Debt issuance costs			(300	)			(869	)
Payment of cash dividends			(6,886	)			(6,380	)
Payment of acquisition-related contingent liabilities			(553	)			(1,416	)
Proceeds received on exercise of stock options			97				684
Tax withholdings on vesting of restricted shares and performance based shares			-				(232	)
Net cash provided by (used in) financing activities			(55,455	)			37,032
Effect of currency exchange rates on cash			97				(132	)
Net increase in cash and cash equivalents			7				9,973
Cash and cash equivalents balance, beginning of period			17,722				8,935
Cash and cash equivalents balance, end of period		$	17,729			$	18,908

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES(Unaudited)(In thousands, except share and par value data)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net income (loss)		$	3,114			$	(12,719	)		$	5,215			$	(34,164	)
Interest expense			2,464				1,794				7,658				2,676
Income tax expense (benefit)			160				(4,241	)			380				(5,042	)
Depreciation and amortization			3,515				3,401				10,331				9,504
Goodwill impairment charge			-				21,460				-				45,918
Intangible assets impairment charge			-				-				-				5,581
Adjusted EBITDA(1)		$	9,253			$	9,695			$	23,584			$	24,473
Net income (loss)		$	3,114			$	(12,719	)		$	5,215			$	(34,164	)
Adjustment for items:
Goodwill impairment charge			-				21,460				-				45,918
Intangible assets impairment charge			-				-				-				5,581
Tax impact of adjustments(2)			-				(4,345	)			-				(6,385	)
Adjusted net income(3)		$	3,114			$	4,396			$	5,215			$	10,950
Diluted net income (loss) per share		$	0.19			$	(0.80	)		$	0.32			$	(2.17	)
Adjustment for items, after-tax, per diluted share			-				1.07				-				2.85
Diluted adjusted net income per share(3)		$	0.19			$	0.27			$	0.32			$	0.68
Weighted average shares outstanding during the period:
Diluted, as reported			16,155,355				15,806,852				16,132,832				15,739,381
Diluted, as adjusted(4)			16,155,355				16,196,767				16,132,832				16,195,155

(1) Adjusted EBITDA, which is a non-GAAP financial measure, is defined as net income (loss) excluding interest expense, income tax expense, depreciation and amortization expense, impairment charges and the other items described in the following sentence. The Company believes Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results from period to period by removing (i) the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences, (iii) asset base (depreciation and amortization), (iv) the non-cash charges from asset impairments and (v) gains or losses on the sale of property, plant and equipment. The Company uses Adjusted EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used Adjusted EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs. Adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities or any other measure determined in accordance with GAAP. The items excluded to calculate Adjusted EBITDA are significant components in understanding and assessing the Company’s results of operations. The presentation of the Company’s Adjusted EBITDA may change from time to time, including as a result of changed business conditions, new accounting pronouncements or otherwise. If the presentation changes, the Company undertakes to disclose any change between periods and the reasons underlying that change. The Company’s Adjusted EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate Adjusted EBITDA in the same manner.

(2) The tax impact of adjustments includes the tax effect of each separate adjustment based on the statutory tax rate for the jurisdiction(s) in which the adjustment was taxable or deductible, and the tax effect of items that relate to tax specific financial transactions.

(3) Adjusted net income and diluted adjusted net income per share, which are non-GAAP measures, are defined as net income (loss) and net income (loss) per share, excluding the impacts of impairment charges. Management believes adjusted net income and diluted adjusted net income per share provides useful information to investors because it allows management, investors and others to evaluate and compare our operating results from period to period by removing the impact of impairment charges that are not reflective of our core business.

(4) Diluted weighted average shares outstanding used to calculate diluted adjusted net income per share includes shares of common stock of 389,915 and 455,774 for the three and nine months ended September 30, 2022, respectively. These shares were excluded from diluted weighted average shares outstanding used to calculate diluted net income (loss) per share, as the Company recognized a net loss their inclusion would have been antidilutive.

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES BY SEGMENT(Unaudited)(In thousands)

		Branded Products				Healthcare Apparel				Contact Centers				Other				Total
As of and For the Three Months Ended September 30, 2023:
Net income																		$	3,114
Income tax expense																			160
Income (loss) before income tax expense		$	5,506			$	1,991			$	3,173			$	(7,396	)		$	3,274
Interest expense			-				-				-				2,464				2,464
Depreciation and amortization			1,452				1,064				880				119				3,515
Adjusted EBITDA(1)		$	6,958			$	3,055			$	4,053			$	(4,813	)		$	9,253
		Branded Products				Healthcare Apparel				Contact Centers				Other				Total
As of and For the Three Months Ended September 30, 2022:
Net loss																		$	(12,719	)
Income tax benefit																			(4,241	)
Income (loss) before income tax expense		$	(17,635	)		$	1,237			$	4,390			$	(4,952	)		$	(16,960	)
Interest expense			87				32				-				1,675				1,794
Depreciation and amortization			1,724				973				653				51				3,401
Goodwill impairment charge			21,460				-				-				-				21,460
Adjusted EBITDA(1)		$	5,636			$	2,242			$	5,043			$	(3,226	)		$	9,695
		Branded Products				Healthcare Apparel				Contact Centers				Other				Total
As of and For the Nine Months Ended September 30, 2023:
Net income																		$	5,215
Income tax expense																			380
Income (loss) before income tax expense		$	16,630			$	3,542			$	7,888			$	(22,465	)		$	5,595
Interest expense			-				-				-				7,658				7,658
Depreciation and amortization			4,826				3,014				2,210				281				10,331
Adjusted EBITDA(1)		$	21,456			$	6,556			$	10,098			$	(14,526	)		$	23,584
		Branded Products				Healthcare Apparel				Contact Centers				Other				Total
As of and For the Nine Months Ended September 30, 2022:
Net loss																		$	(34,164	)
Income tax benefit																			(5,042	)
Income (loss) before income tax expense		$	(15,730	)		$	(19,627	)		$	13,071			$	(16,920	)		$	(39,206	)
Interest expense			205				84				-				2,387				2,676
Depreciation and amortization			4,696				2,942				1,697				169				9,504
Goodwill impairment charge			25,595				20,323				-				-				45,918
Intangible assets impairment charge			5,581				-				-				-				5,581
Adjusted EBITDA(1)		$	20,347			$	3,722			$	14,768			$	(14,364	)		$	24,473

(1) Adjusted EBITDA, which is a non-GAAP financial measure, is defined above.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESSUPPLEMENTAL INFORMATION - REPORTABLE SEGMENTS BY QUARTER(Unaudited)(In thousands)

		Branded Products				Healthcare Apparel				Contact Centers				Intersegment Eliminations				Other				Total
For the Three Months Ended September 30, 2023:
Net sales		$	83,512			$	29,649			$	24,121			$	(1,156	)		$	-			$	136,126
Cost of goods sold			54,588				18,165				10,724				(549	)			-				82,928
Gross margin			28,924				11,484				13,397				(607	)			-				53,198
Selling and administrative expenses			23,418				9,493				10,224				(607	)			4,718				47,246
Other periodic pension cost			-				-				-				-				214				214
Interest expense			-				-				-				-				2,464				2,464
Income (loss) before income tax expense		$	5,506			$	1,991			$	3,173			$	-			$	(7,396	)		$	3,274
		Branded Products				Healthcare Apparel				Contact Centers				Intersegment Eliminations				Other				Total
For the Three Months Ended June 30, 2023:
Net sales		$	79,592			$	28,072			$	22,758			$	(1,260	)		$	-			$	129,162
Cost of goods sold			53,952				17,653				10,554				(593	)			-				81,566
Gross margin			25,640				10,419				12,204				(667	)			-				47,596
Selling and administrative expenses			20,362				9,466				9,614				(667	)			4,607				43,382
Other periodic pension cost			-				-				-				-				214				214
Interest expense			-				-				-				-				2,624				2,624
Income (loss) before income tax expense		$	5,278			$	953			$	2,590				-			$	(7,445	)		$	1,376
		Branded Products				Healthcare Apparel				Contact Centers				Intersegment Eliminations				Other				Total
For the Three Months Ended March 31, 2023:
Net sales		$	81,851			$	28,154			$	22,056			$	(1,288	)		$	-			$	130,773
Cost of goods sold			55,952				18,054				10,267				(608	)			-				83,665
Gross margin			25,899				10,100				11,789				(680	)			-				47,108
Selling and administrative expenses			20,053				9,502				9,664				(680	)			4,840				43,379
Other periodic pension cost			-				-				-				-				214				214
Interest expense			-				-				-				-				2,570				2,570
Income (loss) before taxes on income		$	5,846			$	598			$	2,125			$	-			$	(7,624	)		$	945

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIESSUPPLEMENTAL INFORMATION - REPORTABLE SEGMENTS BY QUARTER(Unaudited)(In thousands)

		Branded Products				Healthcare Apparel				Contact Centers				Intersegment Eliminations				Other				Total
For the Three Months Ended September 30, 2022:
Net sales		$	86,769			$	30,039			$	23,363			$	(1,468	)		$	-			$	138,703
Cost of goods sold			60,600				18,609				9,453				(596	)			-				88,066
Gross margin			26,169				11,430				13,910				(872	)			-				50,637
Selling and administrative expenses			22,257				10,161				9,520				(872	)			2,749				43,815
Goodwill impairment charge			21,460				-				-				-				-				21,460
Other periodic pension cost			-				-				-				-				528				528
Interest expense			87				32				-				-				1,675				1,794
Income (loss) before income tax expense		$	(17,635	)		$	1,237			$	4,390			$	-			$	(4,952	)		$	(16,960	)
		Branded Products				Healthcare Apparel				Contact Centers				Intersegment Eliminations				Other				Total
For the Three Months Ended June 30, 2022:
Net sales		$	102,039			$	26,288			$	21,466			$	(1,860	)		$	-			$	147,933
Cost of goods sold			72,954				18,904				8,692				(750	)			-				99,800
Gross margin			29,085				7,384				12,774				(1,110	)			-				48,133
Selling and administrative expenses			24,004				9,801				8,402				(1,110	)			4,872				45,969
Goodwill impairment charge			4,135				20,323				-				-				-				24,458
Intangible assets impairment charge			5,581				-				-				-				-				5,581
Other periodic pension cost			-				-				-				-				528				528
Interest expense			63				34				-				-				486				583
Income (loss) before income tax expense		$	(4,698	)		$	(22,774	)		$	4,372			$	-			$	(5,886	)		$	(28,986	)
		Branded Products				Healthcare Apparel				Contact Centers				Intersegment Eliminations				Other				Total
For the Three Months Ended March 31, 2022:
Net sales		$	97,083			$	30,568			$	17,974			$	(2,043	)		$	-			$	143,582
Cost of goods sold			68,868				18,553				7,293				(913	)			-				93,801
Gross margin			28,215				12,015				10,681				(1,130	)			-				49,781
Selling and administrative expenses			21,557				10,087				6,372				(1,130	)			5,328				42,214
Other periodic pension cost			-				-				-				-				528				528
Interest expense			55				18				-				-				226				299
Income (loss) before taxes on income		$	6,603			$	1,910			$	4,309			$	-			$	(6,082	)		$	6,740