Business Wire | Aug 19, 2020 05:35AM EDT

Delta Galil Reports Second Quarter 2020 Results

Aug. 19, 2020

TEL AVIV, Israel--(BUSINESS WIRE)--Aug. 19, 2020--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(r), and ladies apparel under the brands Splendid(r) and Ella Moss(r), 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 companiesaccounted using the equity method and 27,508 14,773 14,367long-term receivables

Investment property 3,158 3,340 3,228

Fixed assets, net of accumulated 201,522 190,040 213,210depreciation

Goodwill 145,826 110,739 148,001

Intangible assets, net of accumulated 260,998 220,139 273,318amortization

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 55,436 49,546 53,401of leases

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 Three months ended June 30 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 (32,078) 24,759 (16,228) 14,315non-recurring items

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 periodexcluding one-time items, net of tax (42,753) 10,939 (22,827) 7,910to company's shareholders



Attribution of net earnings for the period:

Attributed to company's shareholders (83,555) 8,097 (53,152) 5,068

Attributed to non-controlling (248) - (142) -interests

(83,803) 8,097 (53,294) 5,068



Net diluted earnings (loss) per share (3.27) 0.32 (2.08) 0.20attributed to company's shareholders



Net diluted earnings (loss) pershare, before non-recurring items net (1.67) 0.43 (0.89) 0.31of tax attributable to Company'sshareholders



DELTA GALIL INDUSTRIES LTD.

Consolidated Cash Flow Reports

For the 3-month and 6-month periods ending June 30, 2020

Six months ended Three months ended June 30 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 cashflows deriving from operating 184,042 39,404 139,252 38,427activities

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 (963) (6,015) 286 (3,005)cash, net

Net cash generated (used in) from 88,347 31,616 80,857 34,457operating activities

Cash flows from investment activities:

Acquisition of fixed assets and (9,171) (13,582) (3,753) (6,979)intangible assets

Providing loans - (18,102) - (9,290)

Restricted cash release (deposit) - 2,276 - 1,316

Bank deposit with respect to SWAP - - 5,180 -transaction

Acquisition of a subsidiary (1,469) (441) - -

Proceeds from selling of fixed asset 312 97 32 27

Net cash used in Investing (10,328) (29,752) 1,459 (14,926)activities

Cash flows from financing activities:

Dividends paid to non-controllinginterest holders in consolidated - (346) - -subsidiary

Long term payables credit for fixed (2,036) (1,641) (852) (503)assets purchase

Lease principle repayment (30,257) (26,789) (14,994) (13,436)

Dividend paid (6,506) (5,052) - (1,505)

Repayment (providing) of long-term 34,031 (3,970) 36,171 (1,966)loans from banks

Short-term credit from banking 78,926 (64,827) 10,463 (7,036)corporations, net



Proceed from Debentures Issuance, - 69,130 - -net of Issuance expenses

Repayment of bank loan used to (5,412) - (4,314) -acquisition of a subsidiary

Net cash generated from (used in) 68,746 (33,495) 26,474 (24,446)financing activities

Net increase (decrease) in cash and 146,765 (31,631) 108,790 (4,915)cash equivalents



Exchange rate differences andrevaluation of cash and cash (141) (292) 1,126 236equivalents, net

Balance of cash and cash equivalents 106,426 70,534 143,134 43,290at the beginning of the period, net

Balance of cash and cash equivalents 253,050 38,611 253,050 38,611at the end of the Period, net



DELTA GALIL INDUSTRIES LTD.

Consolidated Cash Flow Reports

For the 3-month and 6-month periods ending June 30, 2020

Six months ended Three months ended June 30 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 5,084 4,255 2,344 2,060agreements

Severance pay liability, net 90 105 33 19

Restructuring expenses 29,597 - 29,597 -

Decrease in liabilities in respect of (2,164) - (2,164) -leases due to rent payments reliefCapital loss (gain) from sale of (115) 33 (49) 9fixed assets and asset held for sale

Change to the benefit component of 547 601 227 310options granted to employees

Impairment of intangible assets 12,780 - -

Write-down of customers and other 10,860 328 3,876 (30)receivables

Share in profits of associatedcompany accounted for using the (76) (369) (133) (336)equity method

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 50,801 39,283 (4,363) (165)receivables

Decrease (Increase) in other (2,867) (8,394) (426) (3,779)receivable and balances

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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CONTACT: Nissim Douek +972-54-5201178 Nissim@unik.co.il

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