Superior Uniform Group, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; quarterly comparisons include the fourth quarter. The filing registrant is Superior Uniform Group, Inc. (now identified in the request as Superior Group of Companies, Inc.). The company sells uniforms and related products and provides remote staffing solutions.
Financial performance
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales | $112.373 million | $105.878 million | +6.1% |
| Gross profit | $40.259 million | $37.467 million | +7.4% |
| Gross margin | 35.8% | 35.4% | +0.4 percentage points |
| Earnings before tax | $5.586 million | $5.747 million | -2.8% |
| Net earnings | $4.136 million | $3.807 million | +8.6% |
| Diluted EPS | $0.68 | $0.64 | +$0.04 |
| Cash from operations | -$0.855 million | +$6.455 million | Decreased $7.310 million |
- Uniforms and Related Products sales rose 4.4% to $109.442 million, supported mainly by healthcare-market penetration; other markets remained soft.
- Remote Staffing Solutions segment sales rose 64.3% to $6.610 million before $3.679 million of intersegment eliminations. Management reported approximately $2.9 million in 2011 sales to outside customers.
- Fourth-quarter sales were $27.238 million, up 4.9% from $25.968 million. Gross profit was $9.284 million versus $9.207 million; pretax earnings fell to $615,000 from $1.424 million, and net earnings fell to $725,000 from $944,000.
- Cash and cash equivalents were $2.804 million at year-end, down from $9.107 million. Working capital was $55.784 million, with a 6.3:1 working-capital ratio. Current assets were $66.224 million and current liabilities $10.440 million.
- Long-term debt was $640,000. The company had a $15 million revolving facility, maturing June 2013, and reported compliance with its covenants.
- Inventories rose 32.8% to $41.208 million, a major use of operating cash. Capital expenditures were $913,000; dividends paid were $3.235 million, or $0.54 per share.
Material changes and outlook
- Despite higher annual sales and net income, pretax earnings declined and fourth-quarter profitability weakened. Management attributed pressure in part to sharply higher cotton and other raw-material costs; some increases were passed to customers, but gross-margin pressure emerged in Q4.
- Management expected raw-material costs to continue weighing on gross margins in 2012. It described the U.S. economic environment as challenging, with customer employment, locations, and employee turnover affecting uniform demand.
- Management saw remote staffing as a growth opportunity in 2012 and beyond. It was marketing a licensed apparel concept intended to let customers generate advertising revenue from uniforms; meaningful revenue was expected in the first half of 2012, but the product was in testing and had not yet produced significant revenue. The filing provides no quantified earnings or revenue guidance.
- Management expected the effective tax rate to increase in 2012 because the benefit from untaxed foreign income was expected to be significantly lower.
- The pension deficit increased to $8.086 million from $3.535 million, mainly reflecting lower discount rates and actuarial losses. The company contributed $550,000 in 2011 and planned a $550,000 contribution in 2012.
Risks, contingencies, and other notable items
- Approximately 52% of products were sourced from Central America. Disruption, trade restrictions, labor issues, or higher input costs could affect supply and margins.
- One customer represented 6.2% of 2011 sales. The five largest customers represented 23.1% of sales and 36.4% of year-end trade receivables.
- Supplier advances included a $3.722 million receivable from one Haiti-based supplier, up from $1.201 million. The balance is included in other receivables.
- Other disclosed risks include competition and pricing pressure, customer cancellations or credit deterioration, economic weakness, hurricane exposure in Florida, pension funding, acquisition integration, and possible U.S. restrictions on offshore outsourcing.
- The company reported ordinary-course legal matters that management did not expect to have a material effect. The auditor issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting.
Key facts for investors to verify
- Whether inventory growth supports realized sales and whether the 2011 inventory build continues to constrain operating cash flow.
- Whether cotton and other input-cost inflation can be passed through to customers without further margin erosion.
- Collectability and terms of the $3.722 million advance receivable from the Haiti supplier, and the broader concentration of receivables.
- Progress and commercial economics of the licensed advertising-apparel product and the remote staffing segment’s external-customer growth.
- Changes in pension funding status, required contributions, and assumptions such as discount rates and expected asset returns.
- The outlook for dividend payments and repurchases, which remain subject to board discretion, liquidity, and credit-agreement conditions.