SUPERIOR GROUP OF COMPANIES, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Highlights: Consolidated revenues for the third quarter were $150 million, up 10% compared to the year-ago period. EBITDA was $11.7 million, a 26% increase from $9.3 million, with an EBITDA margin expanding to 7.8%. Diluted EPS rose to $0.33 from $0.19 year-over-year. The company generated positive operating cash flow and improved its net leverage ratio.
• Segment Details: Healthcare Apparel saw growth in online channels despite wholesale softness. Branded Products benefited from volume growth and margin expansion. Contact Centers had sales growth but investments in talent and infrastructure impacted margins.
• Strategic Investments: The company continues to invest in people, services, products, and technology to capitalize on growth opportunities within its end markets.

Segment Performance

• Healthcare Apparel: Third quarter revenue increased by 11% to $33 million. Gross margin percentage rose by more than 300 basis points, but SG&A as a percentage of sales increased by 200 basis points. EBITDA was $3.8 million, up from $3.1 million in the year-ago period.
• Branded Products: Revenue grew by 11% to $93 million. Gross margin expanded by 160 basis points, and SG&A as a percentage of sales decreased by 180 basis points. EBITDA was $10.7 million, up more than 50% from the year-ago period.
• Contact Centers: Revenue increased by 4% to $25 million. Investments in talent and satellite offices affected gross margin and SG&A. EBITDA was $3 million, down from $4.1 million in the prior year period.

Guidance

• The company reaffirmed its full-year 2024 expectations, projecting revenues in the range of $563 million to $570 million and diluted earnings per share in the range of $0.73 to $0.79, reflecting acceleration from first-half results.

Risks

• Supply Chain: Ongoing logistics challenges including container shortages, Suez Canal traffic issues, and rerouting delays in various countries.
• Customer Hesitancy: Continued caution from customers due to inflation, interest rates, presidential election, and geopolitical conflicts.
• Competition: Price sensitivity and competition in certain segments, particularly in contact centers where there is significant competition.

Question and Answer

Q: Characterize the revenue benefit from pushed out supply chain delays in the third quarter.

A: Mike Koempel stated the impact was approximately a few million dollars, with much of this effect realized in the third quarter.

Q: Discuss customer hesitancy and spending plans across segments.

A: Varies by segment; Branded Products demand edging up, Healthcare Apparel seeing softness in brick-and-mortar and retail, Contact Centers experiencing slow decision-making.

Q: Talk about pricing power and cost considerations.

A: Pricing is favorable for new outsourcers, but price-sensitive for long-term outsourcers; sourcing mix and product flexibility contribute to margins.

Q: Address supply chain delays resolution and inventory status.

A: Logistics delays persist, but inventory is generally sufficient to supply orders, with some pockets being addressed.

Q: Discuss SG&A investments and potential leverage.

A: Mike Koempel indicated SG&A rate is expected to align with year-to-date trends, with investments expected to leverage as top-line growth continues going forward.