Delta Galil Profits Dip, Poised for Strong 2024
A slowdown in global consumer spending hurt Delta Galil Industries Ltd.’s third-quarter results, but progress on certain strategies should improve 2024 sales and profitability.
“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,” Delta’s CEO Isaac Dabah said. “While we navigate a challenging macro environment, we remain committed to pursuing profitable growth initiatives and during the third quarter [Delta’s company-owned] 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.”
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The company is a manufacturer of branded and private label intimates, activewear, loungewear and denim apparel for men, women and children. In addition to branded denim and apparel under the 7 For All Mankind nameplate, Delta also sells its products under brand names via licensing programs that include Adidas, Wolford, Wilson, Columbia, Tommy Hilfiger and others.
On Tuesday, the company said it will acquire lingerie brand Passionata from The Chantelle Group. The deal, at an undisclosed purchase price, is expected to close in January. Antonio Iandolo, president of Delta Textile France, will lead the Passionata brand with an international team based in France.
“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,” Dabah said on Thursday when the company posted third-quarter results. “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.”
The company said net income for the three months ended Sept. 30 fell 18.3 percent to $29.5 million, or $1.09 a diluted share, from $36.1 million, or $1.32, in the same year-ago quarter. Net sales were down 9.6 percent to $463 million from $512 million. For the nine months, net income dropped 38.7 percent to $47.6 million on a 9 percent decline in net sales to $1.35 billion. On an adjusted basis excluding non-core items, net of tax, net income was $53.8 million.
Gross margin in the quarter rose to 40.9 percent, versus 38.4 percent a year ago. The increase was due primarily to better customer, channel and segment mix and lower freight costs, partially offset by higher discounts and promotions. The company also decreased its inventory levels for the fourth consecutive quarter, reflecting an aggregate reduction of $114.4 million since Sept. 30, 2022.
The company updated Full Year 2023 guidance and now expects net income between $87.5 million to $95.1 million on a sales range of $1.84 billion to $1.88 billion. That compares with prior guidance of $120.9 million in net income on sales of $2 billion. The forecasts are based on a return to normalized inventory levels of its customers and a continuation of growth, such as the launch of Organic Basics global new collection, as well as an increase of production level in its new factories in Vietnam and Egypt and the implementation of the company’s realignment plans, among other factors.
“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,” Dabah said. “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.”
Dabah said that based on Delta’s 2024 budget and initial estimates, the company expects “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.”
Based in Caesarea, Israel and traded on the Tel Aviv Stock Exchange, Delta Galil has been able to continue operations despite the war that wages on between Israel and terrorist organization Hamas. Dabah did note last month that while the company is fully operational, it did have to adapt with workforce modifications.
