Superior Group of Companies, Inc. — Q1 2021 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated. Superior operates in uniforms and related products, remote staffing solutions, and promotional products.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $140.8 million | $94.2 million | +49.4% |
| Gross profit / margin | $49.0 million / 34.8% | $33.5 million / 35.5% | Margin down 0.7 percentage points |
| Selling and administrative expenses | $35.1 million | $27.5 million | +27.7% |
| Income before taxes | $13.2 million | $4.6 million | +186.5% |
| Net income | $10.5 million | $3.4 million | +211.2% |
| Diluted EPS | $0.66 | $0.22 | +200% |
| Operating cash flow | $(2.3) million | $19.5 million | Down $21.8 million |
Revenue by segment: Uniforms and Related Products sales were $70.6 million (+17.4%); Remote Staffing Solutions were $13.0 million (+41.6%); and Promotional Products were $58.9 million (+124.9%). PPE contributed $12.5 million in uniforms and $14.2 million in promotional products.
Liquidity and debt: Cash was $10.9 million at quarter-end, versus $5.2 million at December 31, 2020. Working capital was $165.3 million. Gross borrowings were $110.9 million, compared with $88.1 million at year-end; $80.2 million of revolving capacity was undrawn. The company reported compliance with its credit agreement’s financial covenants.
Material changes and drivers
- Sales growth reflected PPE demand, higher promotional-product orders, remote-staffing customer growth, and the January acquisition of Gifts by Design. The acquisition contributed $3.0 million of Q1 sales and cost $6.0 million in cash at closing.
- Core uniform apparel remained pressured in restaurant, transportation, and hospitality markets. PPE and healthcare apparel demand partly offset those declines.
- Consolidated gross margin declined despite higher sales. Management attributed segment cost-of-sales movements to product mix and higher logistics costs; uniforms cost of goods sold rose to 66.2% of segment sales from 64.3%.
- Interest expense fell to $0.3 million from $1.1 million, primarily due to lower LIBOR and a prior-year swap loss. The effective tax rate declined to 20.8% from 27.1%.
- Operating cash flow turned negative, mainly reflecting payments of prior-year accrued compensation and income taxes and a $15.1 million cash outflow from accounts payable and other current liabilities. Investing outflows included $6.7 million of capital expenditures and the acquisition.
Outlook, risks, and unusual items
- The filing gives no numerical revenue or earnings guidance. Management said operating cash flows and available revolver capacity are expected to cover anticipated working-capital needs for the next 12 months, and expects ongoing capital investment in facilities and technology.
- Management sees longer-term growth opportunities in healthcare apparel, remote staffing, and promotional products, but noted that PPE opportunities are expected to be less robust in 2021 than in 2020.
- COVID-19 continues to create uncertainty around customer demand, operations, and suppliers. The company also reported significant shipping delays, higher freight costs, and inventory pressure, with substantial sourcing exposure to China.
- Two defined-benefit pension plans were fully funded at March 31. In April, the company paid $13.7 million in lump sums to participants and expected to settle remaining obligations through annuity purchases in Q2. It estimated a non-cash pretax termination charge of $7.5–$8.5 million in Q2.
- Acquisition-related contingent consideration had an estimated fair value of $8.7 million at quarter-end; payments of $5.8 million were expected in Q2. Actual payments may differ from estimates. Management did not expect ordinary-course legal proceedings to materially affect results or financial position.
- Debt bears variable rates and is secured by substantially all operating assets. The amended revolving facility increased maximum availability from $75 million to $125 million and extended maturity to February 2026.
Key investor verification points
- Assess how much of the sharp sales and earnings growth depends on PPE demand and promotional-program timing versus recurring core business.
- Track gross margin, freight costs, supply-chain delays, and inventory levels as sales mix and sourcing conditions change.
- Reconcile negative operating cash flow with reported earnings, and monitor working-capital movements and cash conversion.
- Review debt growth, variable-rate exposure, remaining revolver availability, and ongoing covenant compliance.
- Confirm the final pension settlement costs and the timing and amount of acquisition-related contingent payments.