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
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Net sales | $46.347 million | $41.027 million |
| Gross profit | $15.796 million | $14.056 million |
| Gross margin | 34.1% | 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.