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Superior Group of Companies, Inc. (SGC)

Q3 2014 Earnings Call· Thu, Oct 23, 2014

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Transcript

Operator

Operator

Good morning everyone, and welcome to the Superior Uniform Group’s Conference Call to discuss the Company’s Fiscal Third Quarter 2014 Financial Results. With us today are Mr. Michael Benstock, Chief Executive Officer of Superior Uniform Group and Mr. Andrew D. Demott, Chief Financial Officer. After the speakers’ opening remarks, there will be a question-and-answer period and instructions to ask a question will be given at that time. This call is being recorded and your participation implies consent to the recording of this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the conference call over to Hala Elsherbini, Senior Vice President of Halliburton Investor Relations who will read the Safe Harbor statement. Please go ahead.

Hala Elsherbini

Analyst

Thank you and good afternoon, everyone. This conference call will contain forward-looking statements about Superior Uniform Group’s business opportunities and its anticipated results of operations. Please bear in mind that forward-looking information is subject to many risks and uncertainties and actual results may differ from what in here today. Many of these risks and uncertainties are described in Superior Uniform Group’s Annual Report on Form 10-K for the year ended December 31, 2013. In the new release that published this morning and in the Company’s other filings with the SEC. Forward-looking statements in this conference call are based on our current expectations and beliefs. Management does not undertake any duty to update any of the forward-looking statements made during this conference call or otherwise. Please note that all growth comparisons that management makes on today’s call will relate to the corresponding period of last year unless otherwise noted. With that, I will now turn the call over to Michael.

Michael Benstock

Analyst

Thank you, Hala and good morning everyone. We are pleased you could join us, learn more about Superior Uniform Group’s third quarter and nine-month performance. Here’s what we’ll cover today. I’ll start with some financial highlights for the quarter which ended September 30. Then I’ll provide some perspective on our progress in executing our growth strategies in both our operating segments followed by the industry trends that we see affecting our performance. Next, Andy will give you some color on the story behind our financial results for the three months and for the nine months. Finally I’ll return with our general outlook on the fourth quarter after which we’ll be ready to answer your questions. Let’s begin with some quarterly highlights. This was a record third quarter from a revenue and earnings standpoint. It also was the second highest quarterly performance in our 94-year history exceeded only by this year’s second quarter. Both our uniform and related products in the Remote Staffing Solutions segments posted better than expected increases. As a result, revenue grows by 18.3% to $52.3 million compared with $44.2 million for last year’s third quarter. HPI Direct has proven to the pivotal acquisition for us. We completed this acquisition on July 1, 2013 and as such its results are included in the current and prior year quarters. Therefore, all of our net sales growth in the current is organic. Taking a closer look at the two segments, our uniform business which includes the Fashion Seal Healthcare, HPI Direct and Superior ID brands saw 17.5% higher revenue with HPI reporting an impressive 59.3% increase. We continue to expand our relationship with current customers obtaining higher sales from 24 of our top 30 customers. Remote Staffing Solutions, is our call center and BPO operation while still a small part…

Andrew Demott

Analyst

Thank you, Michael, and good morning everyone. As you can see all of the growth strategies that Michael discussed led to another phenomenal quarter from the financial performance perspective. Since our press release is available on our website and our 10-Q was issued this morning, I’ll provide some commentary around some of our key financial factors in this quarter. Let’s take a closer look, starting with the income statement for the third quarter. Net sales increased 18.3% for the latest three months, net sales revenues to $52.3 million from $44.2 million a year ago. Third quarter results include HPI’s results for both the current quarter and the prior year period and thus our top-line increase this quarter is attributable two organic. The uniforms and related product segment contributed 17% of the overall sales increase, the Remote Staffing Solutions adding the remaining 1.3%. Our uniforms and related product sales were up, 17.5% of the last year’s third quarter. As Michael indicated, HPI delivered a remarkable quarter of 59.3% higher net sales. This reflects a success of our continued market penetration. Our Remote Staffing Solutions saw quarterly sales rise 42.6% from a year ago as they continue to sign significant new accounts. Cost of goods sold actually decreased with the percentage of sales to 64.7% or $33.9 million from 66% or $29.1 million at this time last year. Two major reasons for this were higher sales volume to cover overhead and lower direct purchasing costs due to better product sourcing efforts. This led to an improvement in gross margins to 35.3% for the latest quarter compared to 34% a year ago. Selling and administrative expenses continue to increase at a fraction of the sales rate. They rose 2.4% from a year ago to $13.1 million. As a percent of net sales SG&A…

Michael Benstock

Analyst

Thanks, Andy. On our last call we told you that Superior Uniform Group have a strong second half. We’re really are very proud of our third quarter results and we expect the solid finish to what really has been a transformational and credible year thus far for the company. While we don’t provide specific guidance, here’s what we’re seeing in general for the final quarter. Mid-term elections are not proving to be much of a distraction on purchasing decision to-date to which we’re grateful. The same is true for the current volatility in the Middle East and the rising concern about the Ebola virus. However, these situations may affect the confidence on the economy and some of our customers, so we continue to watch them closely. Historically, we’ve done a good job managing market risk. These are the range from the cotton crisis to earthquakes, to multiple recessions. We are able to do this by controlling costs and maintaining operating efficiencies throughout by automated distribution systems, redundant manufacturing strategies and employing remanufacturing projects as well as having a flat organizational structure. Our new business pipeline is solid and both uniforms and Remote Staffing Solutions as we continue to develop significant near-term contract opportunities. With that, I’d like to open the call for Q&A.

Operator

Operator

We will now begin the question-and-answer session. (Operator Instructions). There are no questions at this time.

Michael Benstock

Analyst

Okay. If there are no questions at this time – I was hoping that I’d get one or two or some thoughts from some of you, but I’d like to leave you with some final thoughts. Superior Uniform Group is a long-term company. We’ve been around a long time and truly when you look at us you have to consider that we have learned the tricks. We’re able to report some of the best quarters in the history of our company, because we evolve and transform the business model.

Andrew Demott

Analyst

There is a question.

Michael Benstock

Analyst

And there is a question. Go ahead let take the question and I’ll complete my remarks afterwards.

Operator

Operator

We did have a question but it looks like he left the queue.

Michael Benstock

Analyst

Okay. In creating some of the best quarters in the history of the company and transforming company as we have, you wonder, how do you accomplish that? But really that was accomplish through making some really hard decisions over the years, these past years of existing unprofitable operations that prove less accretive to meet our goals. We now operate two businesses that are diverse yet leverage the fundamental strength of our business model based on an efficient cost and structure. And both yield very, very good margins. We operate low overhead and high upside potential. Both businesses are growing organically by taking share from competitors and deepening relationships with our customers. We’re also expanding through acquisitions to leverage synergies and entering new geographic and product markets. We continue reinvest in our operations that would drive future growth and deliver meaningful bottom line results in order to create long term value for our shareholders. I believe the company has never been in better financial shape and we have the right team in place to continue to execute on our growth strategies. Andy and I thank you for taking the time to be with today. We look forward to sharing results of our fourth quarter and full year with you in February. In the meantime, we wish a profitable end to your year and an enjoyable holiday season.

Operator

Operator

The conference is now concluded. Thank you for attending for today’s presentation. You may now disconnect.