SUPERIOR GROUP OF COMPANIES, INC. quarterly report, Q1 FY2015

Superior Uniform Group, Inc. — Q1 2015 Form 10-Q

Business context and reporting period. The filing covers the three months ended March 31, 2015, compared with the same quarter of 2014. The company reports two segments: Uniforms and Related Products and Remote Staffing Solutions. The filing identifies the registrant as Superior Uniform Group, Inc.

Financial performance and position

MetricQ1 2015Q1 2014 / prior date
Net sales$46.347 million$41.027 million
Gross profit$15.796 million$14.056 million
Gross margin34.1%34.3%
Income before taxes$3.223 million$1.878 million
Net income$2.043 million$1.218 million
Basic / diluted EPS$0.15 / $0.14$0.09 / $0.09
Net cash used in operating activities$1.114 million$7.257 million
Cash and cash equivalents$5.019 million$4.586 million at Dec. 31, 2014
Total debt$28.000 million$25.035 million at Dec. 31, 2014
Current assets / current liabilities$103.330 million / $22.896 million$99.456 million / $22.265 million at Dec. 31, 2014

Net margin increased to 4.4% from 3.0%. Q1 investing activities used $0.906 million, primarily for property and equipment; financing activities provided $2.453 million. The quarterly cash dividend was $0.075 per share. The company reported a $207,000 negative fair value on its interest-rate swap, recorded in other current liabilities.

Changes versus the prior comparable period

  • Sales grew 13.0%. Uniforms and Related Products sales rose 11.9%; Remote Staffing Solutions sales increased 26.6% before intersegment eliminations and 36.1% after eliminations, as reported by management.
  • Net income rose 67.7%; diluted EPS increased to $0.14 from $0.09. Weighted-average diluted shares increased to 14.55 million from 13.55 million.
  • Gross margin edged down to 34.1% from 34.3%, reflecting higher direct product costs in uniforms, partly offset by lower overhead as a share of sales. Selling and administrative expenses rose in dollars but declined as a share of sales.
  • Operating cash use improved to $1.114 million from $7.257 million, though operations still consumed cash. The smaller use primarily reflected less cash absorbed by inventory and other working-capital movements.
  • Debt increased by $2.965 million from year-end, including a $4.0 million revolving-credit balance. Cash rose by $0.433 million from year-end.

Outlook, commentary, and risks

  • Management expected improving employment and higher employee turnover, healthcare-sector demand, and market penetration to support uniform-segment sales growth in 2015. It cited a new group-purchasing-organization contract effective February 1, 2015, opening access to at least 3,000 additional healthcare facilities.
  • Management expected Remote Staffing Solutions to continue growing. A new El Salvador call-center building was expected to be completed near year-end 2015 and approximately double existing capacity there; the company expected to spend more than $5 million more to complete it, following approximately $2 million spent in 2014.
  • No specific company-wide revenue or earnings forecast was provided. Management said operations and available credit should fund operations for the foreseeable future.
  • Credit facilities are secured by substantially all operating assets and include leverage and fixed-charge-coverage covenants. The company stated it was in compliance. A portion of term-loan interest is hedged at an effective fixed rate of 2.53%; the term loan matures July 2018, and an additional revolving facility matures July 2016.
  • Risks identified include economic and employment conditions, industry changes, competition, raw-material prices and availability, and post-acquisition integration, among other risks referenced in the 2014 Form 10-K. Management said there were no material changes to previously disclosed risk factors. Routine legal claims were not expected to materially affect results, cash flows, or financial position.
  • A 2-for-1 stock split became effective February 4, 2015; share and per-share figures were restated for all periods. The company was evaluating the then-new revenue-recognition standard, with adoption scheduled for January 1, 2017, subject to a proposed delay.

Important facts for investors to verify

  • Whether sales growth and margin performance continued after Q1, particularly the effect of direct product costs in the uniform business.
  • Whether operating cash flow improved sustainably and how inventories, vendor deposits, and other working-capital needs developed.
  • Progress, remaining cost, and expected returns on the El Salvador facility expansion and other planned capital spending.
  • Debt levels, revolving-facility availability, covenant headroom, and interest-rate exposure as the term loan amortizes.
  • Whether the new healthcare purchasing agreement and Remote Staffing Solutions expansion translated into sustained external sales growth.