Superior Group: A growth company that trades at multiples without growth (NASDAQ: SGC)


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On March 9, Superior Group of Companies (SGC) released its fourth quarter results. In this article, I will dive deeper into the 2021 results, outlook and whether SGC is a good investment.

Impressive 2021 results

Revenue increased 2% to $537 million in 2021. This is an impressive result considering that 2020 revenue included $131.2 million in PPE revenue and approximately $38 million in 2021. Excluding PPE, revenue increased 26% from $395m to ~$500m. This growth was driven by The Office Gurus (TGO) and BAMKO which grew by 54% and 65% respectively. The uniform segment decreased by 8% due to the peak in demand for PPE. Excluding this impact, the segment would have grown by 2.3%.

Gross margin decreased by 120 basis points to 34.6% and general and administrative expenses increased by 60 basis points to 26.5% of revenue. As with the peers, inflation has had an impact on input costs and wages. Additionally, Omicron has increased absenteeism at TGO.

Finally, net income decreased by 33% to 27.2M compared to 2020 or decreased by 15% when taking into account the pension plan termination charge of USD 7.8M. However, when compared to pre-COVID levels, i.e. 2019, net income increased by 125%, even ignoring any adjustment for pension plan termination costs.

The balance sheet is still strong. While debt increased from $28M to $115M, this was partially offset by the $3.8M increase in cash. Either way, net leverage is still healthy, hovering at 2x EBITDA (net debt = $106m and EBITDA = $52m). Inventory rose significantly from $90m to $121m. But it’s part of the strategy to overcome supply chain challenges. With large stocks, SGC was able to win customers among its peers.

SGC generated $17 million in operating cash flow. Cash flow could have been higher, but they spent $21 million building inventory. Capital expenditures increased from $11.8 million to $17.6 million, primarily due to investments in new facilities and technology.

Advice seems realistic

As the results were better than management had guided, during the earnings call, they provided further revenue guidance through 2025. SGC expects the uniform segment to grow at a CAGR by 10% until 2025. This is driven by the growth of the health sector. industry and gaining market share in other segments. I think that’s plausible because we’ve seen smaller players exit the market.

For BAMKO, they expect the CAGR to be 11% through 2025. Note that it is lower than the previous 12%, but this is due to basis adjustments. Management believes that as digital marketing becomes less targeted, the return on investment in digital marketing will deteriorate, making BAMKO’s promotional products more attractive.

According to TGO, they expect the CAGR to be 23% as they see many growth opportunities in this segment and expand into the Dominican Republic. Finally, they expect to generate $1 billion in revenue by 2025, implying that they need to acquire assets generating $155 million in revenue.

I think management’s advice is doable. Also, I expect margins to improve in the coming years. First, the combination of the sales force of the Uniform and BAMKO segments will not only contribute to cross-selling, but also to increased revenue per employee and ultimately to a resizing of the sales force.

The pricing strategy should bring the gross margin back to previous levels. At the beginning of December 2021, SGC launched its new price list for the uniform and TGO segments. The price increases have been sufficient to offset the escalating costs, and since management sees lower costs, they do not foresee the need for new pricing. For BAMKO, each order is priced to achieve a certain gross margin. More interestingly, customers don’t seem to have pushed back against these price increases.


Currently, SGC shares are trading as a non-growth business at 7.3x EBITDA. If the Uniform segment increases by 10%, it would deserve at least an 8x multiple. While BAMKO’s growth would be similar to that of the Uniform segment, BAMKO’s relative gross margin stability merits a 10x higher multiple. According to TGO, I expect his multiple to converge on Digital Realty Trust (NYSE: DLR) of 14x. The result would be a mixed EV/EBITDA multiple of 9.4x implying a fair value of $25 per share or a 30% upside from current levels. Note that this is a conservative valuation and I plan to refine the valuation once the 10K is deposited.

Multiple EV/EBITDA chart for Superior Group



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