Delta Galil expects to end 2023 with higher gross and operating margins, lower inventory and reduced debt. Credit: Shutterstock.

Despite Delta Galil’s Q2 sales decline to $443.6m, its gross margin expanded by 190 basis points to 40.4%, compared to 38.5% in the same period last year due to a better customer, channel and segment mix, and lower freight costs.

Delta Galil CEO Isaac Dabah explains: “We managed to achieve a strong second quarter gross margin despite a heavily promotional retail landscape, while simultaneously reducing our inventory for the third consecutive quarter, netting a cumulative reduction of $85.7 since September 2022.”

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Dabah also announced measures to streamline operations by reducing its operational footprint in China.

As outlined in its financial update, the company is looking into strategic actions aimed at “reducing inventory levels, enhancing gross margin and optimising production capabilities.”

This comes after Delta Galil reported, in its first quarter results that it was looking to streamline its operations by shutting down its Bare Necessities distribution centre and transitioning to a third-party fulfilment centre in Mexico as well as relocating its Egypt cut and sew operations from Cairo to El-Minya. Plus, it planned to shutdown its sock production facility in Bulgaria and moving production to a new facility in Egypt.

In the second quarter and the first half of 2023, the expenses associated with the realignment plans were reported at $6m and $11.4m.

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Additionally, the company plans to implement new, innovative products and focus on increasing its direct-to-consumer channels.

The company estimates annual cost savings from the realignment plans of approximately $12.5m, a portion of which will be realised in 2023.

Highlights from Delta Galil Q2 results:

  • Net sales decreased by 10% (9% in constant currency) to $443.6m from $491.3m in the second quarter of 2022
  • EBITDA was $38m, a 27.1% decrease from last year and a 33.3% increase from the first quarter of 2023
  • Net income in the second quarter was $15.1m, compared to $22.7m in the second quarter last year.

Delta Galil is a global manufacturer and marketer of branded and private label apparel products for men, women and children, but it also has its own brands, with Dabah explaining: “During the quarter, most of our owned brands increased direct sales across both e-commerce and brick-and-mortar retail channels.”

The apparel manufacturer restates its previous guidance for the full year 2023

The company anticipates significantly improved gross and operating margins during the latter part of 2023 and is aiming for reduced inventory and debt levels.

Dabah continues: “As we enter the second half of 2023, we remain confident in the direction we are headed and in the meaningful opportunities we are pursuing to drive shareholder value. For the remainder of 2023, we expect sales and profitability growth led by strong direct-to-consumer performance, favourable customer mix, improving margins, and higher utilisation across our factories.

“We expect to meet our prior 2023 full-year guidance while further strengthening our balance sheet through continued reductions in both inventory and debt levels.”