Delta Brands Company
Delta Brands
+2.44%
Base:4,054
opening:4,054
High:4,199
low:4,069
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(daughter of Delta Galil) which deals in the marketing and sale of clothing and underwear products, this week published its financial statements for the fourth quarter of 2022 in which it presented relatively lukewarm results with a net profit of NIS 36.4 million on revenues of NIS 290 million. For comparison, in the corresponding quarter last year the company earned NIS 49.8 million on revenues of NIS 301.4 million. And it is still about an annual profit of 100 million shekels when the company trades at a value of about 1 billion shekels and has about 330 million shekels in the coffers. So it is true that the results for the whole year are weak compared to 2021, but it was a relatively difficult year for the industry after a good 2021 (due to the closings, the decrease in costs and digital purchases).
Against this background, Delta Brands wants to expand and buy Golf in exchange for NIS 425 million. This is a preliminary and non-binding proposal, and it is not stated how it will be done. Good chance it will be done partly in shares. There is also a considerable chance that it will not come to fruition. Golf is selling at the rate of Delta – about NIS 1 billion, but it has not been able to make a profit in recent quarters (the fourth quarter has not yet been published and it may indicate an improvement after large write-offs in Adika, which is merged into Golf. Golf has a financial debt of about 40-50 million NIS and it was traded Before the NIS 180 million report, we do not know of purchases at a premium of over 100% in recent years.
So it is true that Golf is trading at an attractive price that expresses a discount on the value due to Adika’s losses and it is true that if you neutralize Adika’s losses in the last year, you get Golf that is profitable and definitely worth significantly above the market value (before the report), but Delta’s opening shot seems excessive or that it is a deal with a significant component of shares – for Delta Galil Ham (and controlling shareholder Isaac Dabach) it is of course better for this to be a deal with a large component of shares, especially since Delta owns 80% of Delta Brands, it has a lot of room for dilution.
And maybe for Davakh it doesn’t really matter what the value of Golf is – 100 million more or less, it won’t change much because he understands that he has to grow. For him, the addition of Golf as a result of the synergy will dramatically increase the value of the company. Golf without Adika should earn NIS 30-40 million a year and that’s even before the synergy that can double or even triple the profit.
A consolidated entity can sell for NIS 2 billion or more, be stronger vis-à-vis the lessors and enjoy synergy and efficiency that will bring it to a profit of over NIS 200 million. In such a situation, the total value will be high and will overshadow the purchase value.
So we will soon know if the deal is progressing. Meanwhile the market is excited. Delta Brands has increased since the report by about 10%, Golf has increased by about 70%.
And back to Delta Brands reports. The company explained that the decrease was mainly due to the effect of the warmer than usual weather in December, which affected the timing of the winter season sales, which were partially moved to January 2023. It should be noted that the sales of the company’s websites grew in the current quarter compared to the corresponding quarter last year.
The company’s CEO, Anat Bognersays in an interview with BizPortal that “the fourth quarter is an excellent quarter in terms of operational parameters. Yes, there was a 5% weakening in the results due to the hot weather in December, but we are happy to see a shift in sales to January. There was an injury to the gross profit in terms of the exchange rate, which was relatively offset by by benefiting from shipping costs that were lower than the corresponding quarter last year. Despite the weakening, the fourth quarter is still the strongest quarter of the year and accounted for about 33% of the year’s total. The damage to sales was very small, about NIS 10 million compared to the corresponding quarter.
“As mentioned, the quarter went perfectly well until the last two weeks of December where there was a very large slowdown in sales due to the weather. On the other hand, we already saw in January the great improvement in sales (compared to January 2022) both on the online and retail sites as a result of winter weather, and this without increasing the discount rates. Therefore, it is not impossible that the reports for the first quarter this year will be higher than expected, although it is still very early to assess because we are only in the middle of the quarter.”
What does the company’s growth strategy look like?
“We are investing in a number of channels, first of all in our core brands, we have not yet realized the full potential. Both in Delta and in FIX we continue to expand into categories that we have not yet exhausted – in Delta, for example, this is the pregnancy and postpartum category. We are expanding the variety The men’s products are also focused on the back-to-school field. In addition, we are working on expanding Pix’s sales channels to online channels in Europe, and in September of this year we will launch a collection in collaboration with Noa Kirel. In Penta Ray we launched in the middle of 2022, it is a new product that we will continue to work on establishing and during 2023 we will open 7 stores with one already opened. We launched the Victoria’s Secret website in the middle of last December which was very successful when in the first two weeks alone we sold about NIS 1.4 million and we have not yet realized the full potential. Around September we will open the first two physical stores and there will be more later, about 15 in total in the next 5 years.”
Further to the report of the intention to acquire Golf, it seems that you are looking for acquisitions.
“Definitely. We have about 330 million shekels in the coffers and we understand and want to turn it into money that will lead to the company’s growth, and along the way we are looking for brands that will allow us to grow in all parameters. We are also investing in a new logistic-robotic center that should open in August 2025 and support the future growth of The company. The cost is about NIS 120 million.”
Where will you be in two years?
“We strive to offer a wide variety of products to customers. Our conduct shows that we are geared towards growth – significant growth as we want will not continue to come only from our core brand, we need to continue to develop into additional worlds while maintaining operational parameters that yield us high profitability rates.”