Superior Group of Companies, Inc. — FY2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023, with comparisons to FY2022; it is not a standalone fourth-quarter report. Superior operates Branded Products (promotional merchandise and branded uniform programs), Healthcare Apparel, and Contact Centers (nearshore outsourced business-process and customer-support services). The company filed on March 13, 2024.
Financial performance
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Net sales | $543.3 million | $578.8 million | Down 6.1% |
| Gross margin | $203.5 million; 37.5% | $193.4 million; 33.4% | Margin improved, largely on lower inventory write-downs |
| Net income (loss) | $8.8 million; $0.54 diluted EPS | $(32.0) million; $(2.03) diluted EPS | Prior-year result included $51.5 million of goodwill and intangible impairment charges |
| Adjusted EBITDA | $33.5 million | $27.9 million | Non-GAAP; increased year over year |
| Cash from operations | $78.9 million | $(2.6) million | Improvement included working-capital cash releases |
| Cash and cash equivalents | $19.9 million | $17.7 million | At December 31 |
| Working capital | $178.8 million | $232.8 million | Down, primarily reflecting lower inventory and other current assets |
| Debt | $94.4 million | $156.1 million | Year-end borrowings; $100.0 million of revolving capacity remained available |
Consolidated selling and administrative expenses rose to $183.2 million from $176.3 million, or 33.7% of sales versus 30.5%. Interest expense nearly doubled to $9.7 million; the weighted-average borrowing rate was 7.0% for 2023 versus 2.4% in 2022. Capital expenditures were $5.0 million, down from $11.0 million. The company paid $9.2 million in dividends, or $0.56 per share.
Segment trends
- Branded Products: Sales of $342.7 million, down 11.7%; Segment Adjusted EBITDA was $33.1 million versus $31.1 million. Lower customer advertising spend, timing of uniform rollouts, and reduced PPE demand weighed on sales.
- Healthcare Apparel: Sales of $113.9 million, up 0.5%; Segment Adjusted EBITDA was $8.0 million versus a $2.7 million loss. Margin recovery reflected substantially lower inventory write-downs, partly offset by discounting and challenging post-pandemic inventory conditions.
- Contact Centers: Sales of $91.5 million, up 8.6% before intersegment eliminations, attributed mainly to new customer onboarding. Segment Adjusted EBITDA fell to $12.4 million from $18.5 million as employee-related costs increased.
Material changes, outlook, and risks
Profitability improved from the prior-year loss, but the comparison is significantly affected by FY2022’s noncash impairment charges and a $3.4 million gain on sale of property. Inventory write-downs fell to $2.3 million from $13.6 million. Operating cash flow improved sharply, with a $24.7 million inventory reduction and higher accounts payable and other current liabilities contributing to cash generation; this makes the sustainability of cash conversion important to assess.
Management provided no specific revenue or earnings guidance. It expects 2024 capital expenditures to exceed 2023 levels and believes cash, operating cash flow, and revolving-credit availability will cover near-term needs and obligations. Longer-term funding expectations rely on the same sources. The credit facilities mature in August 2027, carry variable SOFR-based rates, and require fixed-charge coverage of at least 1.25:1 and net leverage no greater than 4.0:1; the company reported compliance at year-end.
- Control weakness: Management and the auditor concluded internal control over financial reporting was ineffective at year-end because of a material weakness in segregation of duties, change management, and user access in certain Contact Centers systems. The auditor issued an adverse opinion on internal controls, while giving an unqualified opinion on the financial statements. Remediation was underway but not yet considered complete; the auditor did not opine on the remediation plan.
- Valuation and estimation: The auditor identified the $14.2 million CID Resources trade name impairment assessment as a critical audit matter due to judgment in cash-flow, royalty-rate, and discount-rate assumptions. No impairment was recorded in 2023, but the company remains exposed to future impairment if performance or assumptions weaken.
- Operating and financing risks: The company cites reliance on China-linked raw-material supply, tariffs and geopolitical disruption, inflation and labor costs, customer order reductions, competition, and demand uncertainty. Variable-rate debt exposes earnings to higher rates; a 100-basis-point SOFR increase was estimated to add about $1.2 million of annual pretax interest expense.
- Other obligations and contingencies: The unfunded SERP obligation was $13.6 million; a deferred compensation liability was $7.9 million. Management said ordinary-course legal matters were not expected to have a material adverse effect. Guardian acquisition contingent consideration remained subject to remeasurement.
Most important facts for investors to verify
- Whether the Contact Centers control weakness is remediated, tested, and no longer results in ineffective control conclusions.
- Whether operating cash flow remains strong after the inventory reduction and other working-capital benefits, and whether margins hold as inventory write-downs normalize.
- Whether Branded Products demand recovers and Contact Centers can manage higher labor costs while converting new customer wins into profitable growth.
- Debt repayment, variable-rate interest exposure, covenant headroom, planned 2024 capital spending, and the sustainability of dividends.
- Key assumptions supporting the CID Resources trade name valuation, alongside supply-chain, tariff, and geopolitical exposures.