Delta Galil sees record Q3 sales but downgrades guidance due to headwinds
Delta Galil, the intimates leisurewear, activewear and denim giant, said Tuesday that its sales rose, 2% in the third quarter (or 6% in constant currency) to reach a record $512 million.
The company makes its owns brands as well as denim for 7 For All Mankind, and other products for brands including Adidas, Wolford, Wilson, Columbia, Tommy Hilfiger and more.
Its earnings on an EBIT basis, increased 4% year-on-year to a record $55.1 million, or 10.8% of sales. The increase was driven by record sales, SG&A leverage and capital gains. That led to net income that was up 11% to $36.1 million.
CEO Isaac Dabah hailed “another quarter of record sales and EBIT—particularly given current challenging economic conditions”.
Demonstrating the continued strength of a diversified business model, the results were driven by sales growth in constant currency in the Private Label, 7 For All Mankind and Delta Israel segments, although sales in its Brands segment and Other—which mainly includes the results of acquired label Bare Necessities—“were negatively impacted by global demand headwinds, changes in foreign currency exchange rates, and inflation pressures”.
The company added that it has begun integrating recently-acquired sustainable underwear brand Organic Basics, and plans to grow the business globally and into new categories in Q2 2023. It’s also investing in digital growth.
Delta Galil said constant currency sales rose in all regions and sales in the first nine months of 2022 as a whole have also been strong, with an 8% increase to $1.487 billion, or an 11% rise in constant currency.
While the company reached record sales in the quarter, there were a few negative points with e-commerce sales falling, although this was more about a shift in consumer behaviour back to physical stores rather than any reflection of weakness online. Sales on its own websites, added up to $49 million, a 7% fall, or a 3% fall in constant currency.
But despite the normalisation of shopping behaviour, online sales, are still running well ahead of the pre-pandemic period. Excluding Bare Necessities and Organic Basics, which were acquired in October 2020 and July 2022, respectively, own websites sales were up 68% compared to the same period in 2019.
It's all good news, of course, but it's undeniable that there are major headwinds at present and that has led to a revision of the full-year guidance.
For the year as a whole — excluding non-recurring items, including the IFRS 16 impact, and assuming no major resurgence of the pandemic — Delta Galil revised its revenue and earnings outlook to reflect increased negative impacts from foreign currency fluctuations as well as heightened inventory levels and increased promotional activity in the marketplace.
It had previously expected sales to be up on 2021 in a range of $2.08 billion to $2.1 billion and this has now been revised to an increase of 3.7%-4.1%, or $2.02 billion-$2.03 billion.
Constant currency sales should be up between 6.8% and 7.1%. And EBIT will increase but only marginally. It had expected a range of $210 million-$220 million but is now forecasting $189 million-$192 million.
And net income is likely to fall, possibly by as much as 4.6%. It had originally expected an increase from $124.2 million to a range of $138 million-$145 million. But this is now likely to be a fall to between $119 million and $121 million.
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