Superior Group of Companies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Superior operates Uniforms and Related Products, Remote Staffing Solutions, and Promotional Products. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $130.8 | $159.4 | $271.6 | $253.6 |
| Gross profit | $47.2 | $55.9 | $96.2 | $89.4 |
| Gross margin | 36.1% | 35.1% | 35.4% | 35.3% |
| Income before taxes | $5.5 | $18.9 | $18.8 | $23.5 |
| Net income | $4.6 | $15.2 | $15.1 | $18.5 |
| Diluted earnings per share | $0.28 | $1.00 | $0.94 | $1.22 |
| Operating cash flow | Not presented quarterly | $(3.0) | $39.8 |
Net margin was 3.5% in Q2 2021 versus 9.5% a year earlier, and 5.5% for the first half versus 7.3%. Q2 included a $6.9 million pension plan termination charge. Six-month selling and administrative expense was $69.0 million, up from $63.8 million; interest expense declined to $0.6 million from $1.5 million. Capital expenditures were $11.3 million for the first half, compared with $4.9 million.
Revenue trends and changes from prior periods
- Q2 consolidated sales declined 17.9%. Uniforms sales fell 10.1%, Remote Staffing grew 67.4% before intersegment eliminations, and Promotional Products declined 35.5%.
- The Promotional Products decline chiefly reflected $48.7 million less PPE revenue year over year, partly offset by $22.0 million growth in core promotional products. Uniforms sales were affected by lower healthcare apparel and PPE demand; Remote Staffing benefited from expanded and new customers and comparison with COVID-related disruption in 2020.
- First-half consolidated sales increased 7.1%. Uniforms grew 2.1%, Remote Staffing 54.6% before eliminations, and Promotional Products 5.8%. Core promotional products increased, while PPE sales declined in Promotional Products; Gifts by Design contributed $4.7 million in sales after its January acquisition.
- Consolidated gross margin was broadly stable in the first half. Management attributed higher Uniforms cost of goods sold as a share of sales partly to higher logistics costs and product mix.
Liquidity, debt, and capital allocation
- At June 30, cash was $7.5 million, working capital was $175.2 million, and current assets and current liabilities were $265.6 million and $90.5 million, respectively.
- Outstanding credit-facility borrowings totaled $114.2 million: $51.3 million revolving, $18.0 million 2017 term loan, and $44.9 million 2018 term loan. Revolving capacity was increased to $125 million and maturity extended to February 2026; reported undrawn capacity was $73.1 million.
- The facilities bear variable LIBOR-based rates, are secured by substantially all operating assets, and include financial covenants. The company reported compliance at quarter-end. It also reported $0.6 million of outstanding letters of credit.
- First-half cash flow was negative $3.0 million from operations and negative $17.4 million from investing, offset by $22.6 million from financing. Financing included $25.8 million in net borrowings. Inventory growth and payments of prior-period accruals contributed to operating cash use.
- First-half dividends paid were $3.4 million; dividends declared were $0.22 per share. No shares were repurchased during Q2; remaining program capacity was 657,451 shares.
Outlook, commentary, and risks
- The filing provides no specific numerical revenue or earnings guidance. Management said it expects PPE opportunities to decline, while citing longer-term growth opportunities in uniforms, Remote Staffing, and core promotional products. It stated that operating cash flows and revolver availability are expected to meet anticipated working-capital needs over the next 12 months.
- Management said global supply disruptions, port congestion, shipping delays, and higher freight costs were creating inventory pressure and were expected to continue. Sourcing is concentrated in China for key materials and products; disruptions, tariffs, political unrest, or other supplier and logistics issues could constrain supply or raise costs.
- COVID-19 effects remain uncertain, including potential impacts on demand, customers, suppliers, employees, and operations. Management cautioned that renewed disruptions could adversely affect revenue, profitability, liquidity, and asset valuations.
- The company terminated two fully funded qualified defined-benefit pension plans in Q2. It paid $13.8 million in participant lump sums from plan assets and purchased a $3.0 million annuity; the $6.9 million accounting charge did not require a company cash outlay. A $1.3 million plan asset surplus remained undistributed at quarter-end.
- Gifts by Design was acquired for $6.0 million cash in January 2021. Management said ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were reported effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether core promotional-products and uniform demand can offset continued normalization of pandemic-related PPE sales.
- Whether higher freight costs, shipping delays, and inventory levels pressure margins, cash conversion, or product availability.
- Progress in converting revenue growth—particularly in Remote Staffing and core promotional products—into earnings and operating cash flow.
- Debt balances, variable-rate exposure, covenant headroom, and the company’s ability to fund working capital, capital spending, and dividends.
- Final disposition of the pension plan surplus and the timing and amounts of acquisition-related contingent consideration payments.