Superior Group of Companies, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results. The company operates in Uniforms and Related Products, Remote Staffing Solutions, and Promotional Products.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $123.3 million | $127.7 million | $395.0 million | $381.3 million |
| Gross profit / margin | $45.8 million / 37.2% | $47.5 million / 37.2% | $142.0 million / 36.0% | $136.8 million / 35.9% |
| Income before taxes | $10.0 million | $12.1 million | $28.7 million | $35.6 million |
| Net income | $8.2 million | $9.9 million | $23.3 million | $28.5 million |
| Diluted EPS | $0.51 | $0.63 | $1.45 | $1.85 |
- Q3 segment sales: Uniforms $61.9 million, down 15.5%; Remote Staffing $18.0 million, up 55.0%; Promotional Products $45.2 million, up 2.4%.
- Nine-month segment sales: Uniforms $200.7 million, down 4.1%; Remote Staffing $46.7 million, up 54.8%; Promotional Products $152.8 million, up 4.8%.
- Q3 consolidated sales declined as lower PPE sales in Uniforms more than offset growth in staffing and core promotional products. For the first nine months, overall sales grew, but income and EPS fell, including the effect of the pension termination charge.
- Cash from operations was $18.2 million for the nine months, versus $51.1 million a year earlier. Investing cash use was $20.5 million, including $14.5 million of capital expenditures and $6.0 million for the Gifts by Design acquisition. Financing provided $3.7 million; cash increased $1.2 million to $6.4 million.
- At September 30, working capital was $164.4 million. Debt under the credit facilities totaled $96.8 million; cash less debt was approximately $90.4 million. Current debt was $15.3 million. The company reported $87.2 million of undrawn revolving capacity and compliance with its credit covenants.
Material changes and notable items
- Q3 PPE sales declined sharply year over year: Uniforms PPE revenue fell $13.7 million and Promotional Products PPE revenue fell $18.5 million. Core promotional products growth and a $4.4 million contribution from Gifts by Design partly offset the latter decline.
- Remote Staffing growth reflected continued work for customers added in 2020 and new customer onboarding in 2021. Uniform apparel demand showed signs of recovery in certain customer industries.
- The company completed termination of its two fully funded qualified pension plans in Q2 and recorded a $6.9 million noncash settlement charge in the nine-month period. Plan assets funded $13.8 million in lump-sum payments and a $3.0 million annuity contract; a $1.3 million surplus remained undistributed at quarter-end.
- On February 8, 2021, the revolving facility maximum increased from $75 million to $125 million and maturity was extended to February 2026. The company acquired Gifts by Design for $6.0 million cash in January.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management said operating cash flow and revolver availability should meet anticipated working-capital needs for the next 12 months, and expects to continue capital spending and dividends as conditions permit.
- Management sees longer-term growth opportunities in core uniforms, staffing, and promotional products, while expecting opportunities to supply PPE to continue declining.
- Supply-chain disruptions, port congestion, shipping delays and higher freight costs were creating inventory pressure; many materials and finished goods are sourced from China. The filing also identifies risks from COVID-19 and variants, demand uncertainty, supplier or facility interruptions, foreign exchange, tariffs, and political or civil unrest, including in Haiti.
- Variable-rate borrowings expose the company to interest-rate changes. A hypothetical 100-basis-point LIBOR increase was estimated to add about $0.9 million of pretax interest expense for the nine-month period, before the swap’s effect.
- Estimated remaining acquisition-related contingent payments were $3.9 million in aggregate and expected in Q2 2022; actual payments may differ. Management does not expect ordinary-course legal matters to materially affect results, cash flows, or financial position.
Important facts for investors to verify
- Whether lower PPE revenue is offset by sustainable growth in core uniforms and promotional products, and continued staffing expansion.
- Whether freight, sourcing and inventory pressures affect margins, cash conversion, or customer fulfillment.
- Cash-flow trends and working-capital needs, particularly inventory growth and the gap between operating cash flow and capital spending.
- Debt levels, variable-rate exposure, covenant headroom, and the availability of the revolving facility.
- Timing and accounting effects of the pension plan termination, and settlement of acquisition-related contingent consideration.