Wednesday, March 30, 2016

55th AIM Student Equity Update by Avery Flyte. Superior Uniform Group, Inc. (SGC): “A Leader in Providing Uniforms and Service Apparel”

Superior Uniform Group, Inc. (SGC, $17.51): “Uniformly Unique 

By: Avery D. Flyte, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Superior Uniform Group, Inc. (NASDAQ: SGC) is a leading provider of uniforms and service apparel and related products in the United States.
  • Management announced better-than-expected fourth quarter 2015 results, which continue to outpace every other sector of the uniform and corporate identity apparel market.
  • The company’s ongoing growth strategies, combined with the ability to successfully identify suitable acquisition candidates, will boost shareholder value in the near term.
  • SGC could be heading to new 52-week highs on the back of a stock buyback/restructuring announcement.  

Key Points:  

Superior Uniform Group wrapped up 2015 with a 15.1% surge in earnings. The company achieved total revenue growth of 7.2% to $210.3 million during the fiscal year 2015, driven by uniforms and related products increases of 5.4% and remote staffing solutions increases of 36.6% relative to the same period in 2014. Moreover, these seemingly impressive figures continue to outpace every other sector of the uniform and corporate identity apparel market. 

Michael Benstock, President and Chief Executive Officer, explained on the company’s fourth quarter earnings call that the impressive performance was likely due to organic growth in both the uniform segment and remote staffing vertical. This increase was primarily attributable to a group-purchasing contract from Premier Inc. to provide 5,000 direct primary care facilities uniforms and related products. Management stressed that they believe the company’s ongoing growth strategies, combined with the ability to successfully identify suitable acquisition candidates and negotiate transactions on favorable terms, will drive sales for 2016 and deliver earnings growth for its shareholders. 

As part of its overall growth strategy, SGC announced March 8 that it had acquired substantially all of the assets of BAMKO, Inc. The Los Angeles-based company is a full-service merchandise and promotional products company, providing a wide range of supply chain solutions.  With sales offices in the United States, England, and Brazil, as well as support offices in China and India, the acquisition of BAMKO affords SGC with an opportunity to broaden its national and international exposure. At the same time, this transaction will enable SGC to expand its presence in the branded merchandise and promotional products market, allowing the company to further diversify and reduce dependence on the uniform and related products segment.  Management expects this acquisition to provide further revenue and net earnings growth in 2016 and beyond.  

In addition, the company initiated a share repurchase program of up to $12 million in August 2008 as part of its overall capital allocation strategy. Since the approval of the share repurchase program, SGC has purchased 750,000 shares of common stock at an aggregate cost of $9 million. The new share repurchase authorization not only displays the firm’s financial strength but its ongoing commitment to increasing shareholder value as well. The stock might even climb to new 52-week highs on the back of such an announcement.  

What has the stock done lately? 

Since being added to the AIM Equity Fund on December 8, 2015, Superior Uniform Group’s stock is up ~3%. That may not sound like much, but SGC has consolidated in the high $16/low $17s for the better part of the last four months, and not gone anywhere really. The company’s additional investments in the branded merchandise and promotional products market and share repurchases should push the stock price back to record highs in the coming year. 

Past Year Performance:
Over the past year, SGC has decreased 8.22% in value following the company’s second quarter fiscal 2015 earnings results that missed management’s expectations. The company reported net income of $3.6 million or $0.25 per diluted share. This compares to $3.9 million or $0.29 per diluted share in 2014; 7.7 and 13.8 percent decreases, respectively. The earnings reduction was exclusively attributed to a reduction of the revenue from two large orders along with the recognition of a pre-tax pension settlement loss in the second quarter of 2015 of approximately $0.3 million. SGC’s market valuation implies a ~36% discount to its 52-week high of $23.73/share.

 Source: FactSet

My Takeaway 

Superior Uniform Group is a multifaceted enterprise that is strongly positioned to compete in the highly fragmented and competitive uniform and corporate identity apparel market. The company has displayed above average financial performance and has a strong cash position, which will enable the company to finance the majority of its dividends, capital expenditures, acquisition activity, and share repurchases going forward. With momentum steadily on its side right now, Superior Uniform Group is undoubtedly poised to enter new 52-week-high territory in the coming year.


Source: FactSet

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