Superior Group at Sidoti Conference: Strategic Growth Plans

On Wednesday, 19 March 2025, Superior Group of Companies (NASDAQ: SGC) presented at the Sidoti Small-Cap Virtual Conference, outlining its strategic initiatives amidst a backdrop of both growth opportunities and macroeconomic challenges. The company highlighted its diversified business segments, robust financial health, and focus on technological advancements to enhance operations.

Key Takeaways

• Superior Group projects $590 million in sales for fiscal year 2025, up from $566 million in 2024.
• The company maintains a strong balance sheet with a debt-to-EBITDA ratio of 1.7x.
• Strategic growth is driven by acquisitions, share repurchases, and capital investments.
• The company is leveraging AI to improve efficiency, especially in its contact center business.
• Superior Group plans to continue paying dividends and executing a stock repurchase plan.

Financial Results

• Overall Sales: $566 million in fiscal year 2024, with a guidance of $590 million for 2025.
• Healthcare Apparel: $120 million in sales with a 7.3% EBITDA margin and over 90% customer retention.
• Branded Products: $354 million in sales, a 9.2% CAGR over five years, and an EBITDA margin exceeding 10%.
• Contact Centers: $93 million in sales, 21.6% growth rate over five years, and a 12.6% EBITDA margin.

Operational Updates

• Healthcare Apparel: Holds a 5% market share in a $4 billion market, distributing through retail and direct supply.
• Branded Products: Operates in a fragmented market, holding 1% market share, with over 5 million uniforms worn daily.
• Contact Centers: Present in 10 offices across five countries, focusing on small to medium-sized opportunities.

Future Outlook

• Growth Strategy: Continued focus on strategic acquisitions, particularly in branded products and contact centers.
• Dividends and Repurchases: Consistent dividend payments since 1977 and a new $17.5 million stock repurchase plan.
• Technological Advancements: AI is seen as a key tool to enhance service quality and efficiency.

Q&A Highlights

• Macroeconomic Factors: The company is well-positioned to handle economic uncertainties with a diversified supply chain.
• Seasonality: Branded products see stronger sales in the third and fourth quarters, while contact centers peak in the second and third quarters.
• Tariffs and Costs: Tariffs on Mexico and Canada are not expected to impact costs significantly, with the ability to pass costs to customers.

Readers are encouraged to refer to the full transcript for a comprehensive understanding of Superior Group’s strategic plans and financial outlook.

Full transcript - Sidoti Small-Cap Virtual Conference:

Jim, Host: Good morning for those of you on the West Coast. Good afternoon for those of us on the East Coast. Welcome to the Sedonian Company March investor conference. The next company to present is Superior Group of Companies. With us, we have the CFO, Mike Kempel, and the president of the branded product segment, Jake Henselstein.

We’ll have a short presentation. It should last about fifteen minutes or so, and then the remainder of time will be for q and a. So if you do have a question, you can type it into the q and a box at the bottom of your screen. With that out of the way, Mike, it’s it’s all yours.

Mike Hempel, CFO, Superior Group of Companies: Thanks, Jim, and good morning good afternoon, everyone. We appreciate your time and interest in the Superior Group of Companies. As Jim mentioned, my name is Mike Hempel. I’m the CFO at Superior Group. I’ve been with the business about three years, and I’m joined by Jake Hemmelstein, who is the president of our largest segment in branded products.

So again, we’re excited, to have the opportunity to share the highlights of Superior Group and our compelling opportunities for future growth. So with that, as Jim mentioned, we’ll step through a presentation and take your questions. Just a brief overview before we get into the details of each of our three segments, just to share a few of our, investment highlights. Our business was founded back in 1920, and we’ve got three very attractive diversified businesses, all of which you’ll see later in the deck are operating in large profitable growth industries. We’ve had a history of organic growth across all three businesses, again, with modest shares within their respective addressable markets and all with strong customer retention.

Our segments have high margins, they’re profitable, and benefit from increasing scale as we grow the business. And our third segment, which is contact centers, is our highest margin and fastest growing business. And last but not least, we’re proud of the fact that we’ve got a solid balance sheet, driven by strong operating cash flow, efficient working capital, and providing a consistent return to our shareholders through an uninterrupted dividend since 1977. So before we get into each of the segments, just to provide a brief overview of the segments and the size of our business, we just completed our our fiscal year 02/2024. We had total sales for Superior Group of $566,000,000 And that was comprised of our branded products segment at $354,000,000 Healthcare apparel, about $120,000,000 And then our contact center business, dollars 93,000,000.

As you can see on this slide, as we go back to 2019, Superior Group in consolidation has delivered, annual growth of 8% over that time horizon. So now shifting to our first segment, healthcare apparel, this is our oldest business among the three segments. And so when you think of healthcare apparel, think of scrubs that are worn by over 12,000,000 healthcare professionals, worn by doctors, caregivers, and patients. We are one of the largest and older oldest providers of healthcare apparel in the in the country. So when you look at, who wears medical apparel, you can see here on the left hand, left left side of the the screen, our healthcare apparel is really worn by a broad range of end users.

We have, you know, scrubs that are worn, in acute and non acute settings across a number of different, occupations that you can see here, doctors and dentists, lab technicians, registered nurses, etcetera. And then there’s also a range of non healthcare providers, that also will be customers of our healthcare apparel. And that could be janitors, cafeteria workers, receptionists, housekeeping, etcetera. And as I mentioned before, also patients. Our apparel was ultimately distributed in a number of different ways.

About half of our product is distributed, in the retail marketplace. That could be brick and mortar stores, as well as online. And then another large portion of our product, is is really provided determined by offices, or facilities that specify apparel, that, our customers would be purchasing, again, in in acute or non acute settings. In in terms of the type of product that we sell, you could see here on the screen, we’ve got three main brands that we sell our healthcare apparel underneath. So first would be our Fashion Seal Healthcare brand.

This is really the heritage of our business, goes back 105 years old. And this is really driven by value and quality, really to withstand the rigors of the industrial laundries that purchase our product. This really represents what we will call the institutional side of our healthcare business. Again, primarily, you know, scrubs, worn by doctors and nurses in hospital settings. Our other two brands, Wink, which is our internally developed brand, is is really, a large piece of our, what we call, consumer based, side of our healthcare, apparel business.

And then thirdly, we have an exclusive license with Carhartt, which again is a large, recognizable brand, that again is is, sold within more of our consumer based healthcare business. When we take a step back and look at our healthcare apparel segment, again, you can see in terms of the addressable market over $4,000,000,000 and what we view as the addressable market for this segment, And we represent just a small percentage of that market, about 5%. The sales growth over the last five years has been just up slightly. But taking into consideration that we, between over that five year period of time, had significant, growth related to, the pandemic in 2021 and that kind of a resetting of the market, we’re starting to show growth from pre pandemic levels and we’re excited, about, the growth that we have within the digital channel, of healthcare apparel that we think will will drive further growth as we move forward. Again, as I mentioned earlier, we we have a profitable segment with a 7.3% EBITDA margin, strong, customer retention, over 90%, and our products are worn by, you know, over 2,000,000, caregivers on a daily basis.

So we really feel with our sales channels, both within wholesale, both brick and mortar and digital, as well as our own direct to consumer channel, provides us a lot of opportunity, to reach a wide range of customers and a lot of opportunity for continued growth in this channel. You can see here, just to give you a sense of the customers within this, within our health care apparel segment, you’ll see, you know, Amazon, which represents our wholesale, digital channel, as well as the likes of Cintas, SanMar, Scrubs and Beyond. Another would be an example of a brick and mortar customer. But again, you could see just a a a wide range of of customers and recognizable brands in the market. With that, I will turn it over to Jake to give us an overview of branded products.

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: Great. Thanks, Mike. And, thanks everyone for for being here today and listening in. So the branded products division, essentially, at its core is logoed products and uniforms to some of the largest companies in the world. But but what we provide is more than just a a product.

It’s a solution for our clients, connecting brands to their consumers and employees. And I know you may think of branded products as cheap conference giveaways or a uniform t shirt with a logo, But we really think of ourselves as a solutions provider to our clients, whether it be for things like employee retention plans, customer loyalty, or just creating pride around a company’s brand. So why do companies choose us? Brands choose us because we’re a one stop shop where we can fill all of a customer’s branded merchandise needs. There are plenty of competitors of ours that can provide a single offering to a client, but we’re able to offer promotional products, custom uniforms, retail merchandise, print signage, corporate gifting, all with our own in house and state of the art technology platform, with our own custom sourcing overseas and with our own warehouses, across the world.

And and most of our competition just doesn’t have the ability to to do that breadth of of offerings for for their clients. In terms of opportunities, we operate in a very highly fragmented market. There is no company in the branded product space that has greater than five percent market share. It’s a lot of mom and pop companies that are quite honestly working out of their basement. We don’t have competitors that can do the type of things we can do with our largest clients.

There’s 25,000 branded products companies, in the industry, and and we’re the eighth largest in the space. And that kind of scale and size, really is a massive benefit for us and and a huge opportunity for us to continue to grow and take market share. So we’re the eighth largest, but still only about, you know, 1% market share. So again, an amazing opportunity to increase that share. And and, you know, one of the stats I love on here is that over 5,000,000 Americans wear one of our uniforms to work each and every day.

That’s that’s a really special number and that number is growing each year. You know, we’ve had a fantastic five year CAGR at 9.2% and as we grow, we’re seeing economies of scale that allow us to continue to expand our EBITDA margin, which is now over 10%. So so a sampling of some of the brands we work with, you know, we are industry agnostic. We are region agnostic. We work with some of the largest and most widely respected companies in the world and continue to add more and more logos to this, to this list.

Mike wants to take us through contact centers?

Mike Hempel, CFO, Superior Group of Companies: Sure. So contact centers is our third business, which we operate as the office gurus. The office gurus is a nearshore contact center that supports both inbound and outbound call services on behalf of a number of different brands across a variety of of industries. So why do companies outsource their contact center needs? Well, actually, many years ago, we faced the challenge of finding sufficient back office resources at a reasonable cost in The US in order to support the growth of our business.

Years ago, we expanded our production office in El Salvador and began to build a nearshore capability to not only meet our internal needs, but also address a growing need for US companies to expand various call center activities for their business. Outsourcing contact center operations, certainly enables companies to more quickly scale and gain cost leverage both in terms of labor as well as technology. At the same time, customer support is not always a core competency of businesses. And so outsource providers such as ourselves can deliver dependable, consistent customer experiences in multiple languages. Why do customers choose the office gurus?

We believe they choose, the office gurus because our clients prefer prefer a nearshore capability that is more culturally aligned with reliable English fluency. By focusing on the small to medium sized opportunities, we provide our clients with a high touch service, as compared to larger engagements with thousands of agents that might be largely focused on transactional type services. We bring consistent processes and leverage analytics and technology, which are all focused on improving the customer experience for our clients as well as well as making our services most efficient. In terms of the footprint, of our of the office gurus, we operate across 10 offices across five nearshore countries, as you can see here on the screen, primarily in El Salvador and Belize, followed by Jamaica, The Dominican Republic, and a small footprint, in Florida. Our footprint provides access to various pools of talent to continue to support the growth as well as risk mitigation for our customers.

This is an industry where customer quality is of the utmost importance. As you can see, as we’re sharing here on the slide, we’ve been recognized as a leading provider within the business process industry, as well as being recognized as a great place to work within a very competitive labor market. Clearly, the current inflationary environment has helped accelerate many companies’ outsource plans as they have realized that remote workforces are obviously, the future, particularly in lower cost nearshore locations rather than in The US. Going into a little bit more detail on the contact centers, we we do, feel we are a leading provider to an underserved market represented by small and medium sized businesses. In fact, we get a lot of our business from customers who are outsourcing for the first time.

And so our growth is fueled by new customers as well as seat expansion with existing customers. Much like Jake described in branded products and I demonstrated in healthcare apparel, here too, contact centers operates in a very large market, a hundred over a hundred and $20,000,000,000 and we just have a very small portion, of that market share. So there’s significant opportunity for growth. You can see that our growth rate over the last five years is 21.6%, driving a strong EBITDA margin of 12.6%. And, again, just like in the other segments, we have very high customer retention.

Here, we’ve got a net revenue retention of a 3%. So we’ve been able to demonstrate not only are we maintaining, our current clients, but we’re actually able to continue to grow the seats with those existing clients, as well as adding new customers to the portfolio on an annual basis. Again, just to give you a quick snapshot of the various, customers and markets that we provide, you’ll see here recognizable names, but again, also cutting across a wide range of different industries, that we support. So, lastly, just to provide again just a few, quick highlights from a financial perspective. Earlier, I shared a five year view here looking at Superior Group over a long longer horizon.

Again, we just ended 02/2024 at almost 566,000,000 in sales. Our guidance for February, ’25 at the midpoint is 590,000,000 in sales. And again, over the course of, the year since 2014, all of our segments have grown, at a cumulative rate of 11% per year, and again, guiding for continued growth in 2025. In terms of our financial position, just to give you, you know, one important statistic that obviously we closely monitor and manage, which is our debt to EBITDA ratio. You can see that it has ebbed and flowed over time as we make different investments in the business.

We just ended the fiscal year at 1.7 times our EBITDA. So in a very strong financial position with plenty of capacity, not just within our covenants, but also, significant amount of liquidity available to us between cash and our, revolving facility to continue to make the necessary investments to grow our business. In terms of capital allocation strategy, as you can see here, really focused in four areas mainly. I mentioned initially, our dividend payment, which we’ve been paying consistently since 1977. We obviously recognize that’s an important value proposition to our to our investors.

And at different points in time, we have increased the the dividend rate, to our, to our investors. Secondly, share repurchases. More recently, we implemented a stock repurchase plan, which was approved by our board back in October of twenty twenty four, and just recently, in connection with our 2024 earnings announcement, also announced an additional stock repurchase plan of up to $17,500,000 that begins this year. Thirdly, of course, we’ll continue to look at and evaluate investments to support the organic growth of our business. In terms of our capital expenditures, we typically invest one to one and a half percent of revenues.

Every, I would say, five to seven years, we could have a larger investment. We did more recently or lastly in 2021 where we put new automation into our largest warehouse, where we felt there was the appropriate return on investment. But again, generally speaking, we’ll operate in the one to 1.5% of revenues. And then, lastly, mergers and acquisitions. As I mentioned before, with our improved financial position and capacity within our existing, revolver, we do have the ability to take advantage of strategic acquisitions, you know, as we look both in the brand and product segment and the contact center segment, opportunities that would be complementary to those segments and add strategic capabilities to our business.

Just sharing a few highlights from a corporate social responsibility perspective. You can look at this at your leisure and we also have our report that’s filed on our website that provides more details for your review. Again, just ending on our investment highlights. Again, as I mentioned before, you can see the the four highlights that we have here. And with that, Jim, that concludes our presentation.

I’ll turn it over to you for questions.

Jim, Host: Great. Great. Well, let’s start out with Jake. As soon as we have him moving on as well. Getting some branded products questions.

So, you know, you’ve been with the business a while. You’ve been through several business cycles. So what are the big macroeconomic factors that you look at that that really impact your business? Is it things like unemployment and inflation, interest rates? You know, what what are the things you’re you’re engaging?

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: Yeah. Thanks, Jim. Certainly, macroeconomic factors play a role. You know, the spend in branded products typically lives in marketing, sometimes in procurement departments. And when there’s uncertainty around the economy, whether it be tariffs, unemployment, inflation, interest rates, there there can be an impact on spend.

But, you know, we feel that in our business, we’re really well positioned to weather this storm. We have a we’ve actively diversified diversified our supply chain out of tariff countries, and we have a diversified client base that isn’t impacted by, you know, a single macroeconomic factor. And the other factor for us is we’ve talked about it in in the presentation, we have a huge adjustable market. And so we’re actively taking market share from our competitors, who are not as well prepared as we are, to handle the current environment. So, we always view, you know, a a a difficult macroeconomic environment as a fantastic opportunity to grow our business through taking market share.

Jim, Host: And can you talk a little bit about the seasonality of the business? I know the last couple of years, you’ve seen a a much bigger second half, than the first half. You know, is that a trend? And do you think that happens this year?

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: There there isn’t a ton of seasonality in in the branded products business, but we do tend to see the third and fourth quarters, be slightly stronger than the first half of the year. Think about, you know, employee holiday gifting or companies using up budget before the end of the calendar year. There does tend to be a little bit more strength towards towards the end of the year that we’ve we’ve seen recently, but not a ton of seasonality.

Mike Hempel, CFO, Superior Group of Companies: And and, Jim, I might just add elsewhere in our business, the contact centers can can can typically, default a little bit more to the back half as well, whereas we’re onboarding new customers at the beginning of the year and then those customers grow, that can tend to drive, you know, more volume second quarter, third quarter as well.

Jim, Host: Can you talk about the acquisition pipeline? And I know it’s been a couple of years since you did a big one. What is the Board looking for right now in terms of acquisitions?

Mike Hempel, CFO, Superior Group of Companies: Well, we’re we’re really as I mentioned in in my comments, you know, certainly with the with the financial position we’re in and the capacity we have, you know, we’re we’re looking for what I would describe as strategic acquisitions, primarily in the branded products and contact center business. Strategic in the sense of does that get us into a different industry that perhaps we we have not yet penetrated or it could be a geography or it could be a capability, that we don’t have within the business that we feel could really enable a step function change or growth, in that business. We as I mentioned in the fourth quarter, we had a a smaller opportunistic acquisition, which enabled us to add a few, you know, blue chip customers, to the promotional product portfolio, but that’s really kind of what we’re what we’re focused on. And, Jacob, you wanna add anything from a branded products perspective.

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: Yeah. I’d say, Mike, like, we we have to be actively engaged with a number of targets at the same time. You know, you never know when the time is right for a a an acquisition target, and some companies we talk with today might not be ready for two or three years, to be acquired. And so we are actively involved in these conversations with, with companies. And and, you know, when the time is right, we’ll know it’s right.

And and when we’re looking at acquisitions, the target has to be accretive to our bottom line, easy to integrate, good for culture, and potentially bring us into a new line of business. And and Mike mentioned that, but if it’s not doing all four of those things, it’s not gonna be the right deal for us.

Jim, Host: So you did do a deal in the fourth quarter. Well, relatively small one. I think you paid about $4,000,000 for it. You know, can you talk about how that fits in and how that, integration is going?

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: Yeah. We made a a small tuck in acquisition in December, a company called Three Point based, outside Portland, Oregon. Integration at this point is is complete, which is great. We have a very robust tech platform as I spoke about in our presentation. So we’re able to fully integrate the operations of this company in less than two months.

And and what that does for us, it it minimizes the distraction of m and a. Right? If we can integrate a company quickly, we can eliminate redundancies within the acquired business and, you know, eliminate distractions quickly. So all told, I’d say it’s going really well. Mike mentioned they have a couple blue chip clients.

We’re trying to penetrate those further and get more business, and that’s you know, that was the thesis for the investment is is getting to some of these large blue chip companies that we didn’t have a relationship with and try to expand our share of wallet.

Jim, Host: And I know you mentioned tariffs a little bit, in the presentation, but, you know, I think it it might be one of the overhangs on the stock right now. Can you just, you know, tell us what you think would happen should tariffs go in with Mexico and Canada?

Mike Hempel, CFO, Superior Group of Companies: Sure. I’ll I’ll start then maybe Jake can can, again, speak more specifically to branded products. You know, from looking at it at a segment basis, in our healthcare apparel segment, none of our production is in any of the tariff related countries. I think as we’ve said publicly, we have our own manufacturing in Haiti, which produces a significant portion of healthcare apparel, and then outside of that, again, we produce it in other countries, you know, outside of China. So from a tariff perspective at this point, right, because I think it’s still you could describe it as a fluid situation, but at this point, no impact from a cost standpoint within healthcare apparel.

And then, Jake, do you wanna touch on how you’re thinking about it from a branded products perspective?

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: Yeah. I and in in most instances where we are impacted by tariffs, we will have the ability to pass the related cost through to customers. You know, the majority of the revenue in the branded product segment is ad hoc orders for branded products, which is priced on an, you know, order by order basis. So if someone orders a thousand units of something, we’ll price it at that point inclusive of, you know, the current tariff rates. If costs increase, so too will the price charge the client for that order.

You know, on uniform relationships, most of our long term uniform contracts allow the ability to pass through tariff costs on impacted items. Now that being said, Jim, if if tariffs tariffs continue to rise, if there’s other things that come up in that in that those programs, there could be a contraction in demand for branded products as costs continue to rise. But, again, we are better positioned than the rest of our competition to move those sort of programs out of, you know, tariff regions into other regions we currently source from.

Jim, Host: You know, a lot of the companies that presented, today had a board on AI and how AI is impacting their business. Do do you see AI as a as a risk for your business opportunity or, you know, have you implemented it at all?

Mike Hempel, CFO, Superior Group of Companies: We’re we’re approaching it as an opportunity, and we have implemented, you know, various AI technologies. Again, I can touch on what what we’re doing within our contact center business, and then and then Jake can touch on, the application within his segment. Within the contact center business, which is where we get this question a lot, there’s a lot of different applications, that, you know, that we’ve begun to use. It could be anywhere from assisting with recruiting to enabling us to really expand our reach on quality control, as we, you know, review calls that take place and provide feedback to our agents. So we’re really looking at the technology as a way of how can we improve our service in a more efficient manner.

And so we’re really looking at it as as providing, you know, a higher quality service to our customers. And in some cases, I mentioned quality control. We we used to do that, you know, manually, so to speak, and only be able to cover a small percentage of all of our calls, and it would take us an extended period of time to give feedback to our agents. Now with AI, we can review almost a % of our calls and give immediate feedback, and at a less of a cost. So we’re continuing to focus on AI, Jim.

Of course, the no one no one knows exactly how far it’s gonna go and and and the reach of it, but we’re we’re continuing to explore different, different, capabilities and implement those into our business.

Jim, Host: Right. And then I think we have time for one more. And I’m just gonna, I’ll ask it from about share buybacks. And I know I I think you did about $10,000,000 or you’re authorized to about $10,000,000 last year. You’re authorized for another $17,500,000 this year.

When can you start buying? And is that a priority or is that, yeah, a priority at this point with the stock trading where it is? Sure.

Mike Hempel, CFO, Superior Group of Companies: Ever since we, initiated the first buyback in August of twenty four, you know, we’ve been, you know, we’ve been in the market and, as as we said publicly, you know, we we assess when to buy based on, you know, a number of factors, obviously, based on what’s happening in the market. And and so whether it’s an open market or whether we’re in a blackout period and have a 10 b five one plan, you know, we continue to evaluate the market and where we feel, there is a good opportunity. We are, you know, we are, you know, acquiring, you know, shares in the market. I think, part of getting an additional authorization is is, again, just giving us that flexibility, to to be in the market again when opportunistic, and we’ll continue to approach it in the same manner.

Jim, Host: Yeah. Well, we are at a time. I appreciate, you know, the fact you you did the presentation today. You sat through the meetings. I think, it’s very interesting time to look at the name.

You know, it’s 5% dividend at this point. You know? Very attractive. And I think yeah. Right.

Right. And even I think with conservative guidance, you’re you’re looking to grow in that mid single digit range. So, you know, I I think it’s a good time for investors to take a look at the name. So thank you, Michael. Thank you, Jake.

I appreciate the update, and I will talk to you. We’re only about six weeks away from another earnings call.

Mike Hempel, CFO, Superior Group of Companies: Alright. Thanks, Jeff. Thanks, everyone.

Jake Henselstein, President of Branded Product Segment, Superior Group of Companies: Appreciate it. Bye

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