Superior Group of Companies (SGC) Q2 FY26 earnings call: guidance and Q&A

Superior Group of Companies reported a strong second quarter, with consolidated revenue increasing 3% year-over-year to $148 million. This growth, coupled with a 160 basis point improvement in SG&A, led to a 27% rise in EBITDA to $7.7 million and adjusted diluted EPS of $0.21, more than double the prior year. The company emphasized its diversified business model as key to navigating a 'choppy demand environment,' with strong segments offsetting challenges in others.

The Branded Products segment, the company's largest business, was a primary growth engine, with revenue up 6% year-over-year to $98 million. This was driven by higher volumes from existing customers, favorable customer mix, and improved sourcing. The segment also achieved gross margin expansion and SG&A improvement as a percentage of sales, contributing to a 25% increase in Branded Products EBITDA. Management noted a strong and replenishing pipeline of new opportunities.

The Healthcare Apparel segment faced a challenging quarter, with revenue declining 4% to $27 million and segment EBITDA down $1 million year-over-year. Gross margin decreased 260 basis points, primarily due to a $2.6 million noncash inventory write-down related to a strategic decision to accelerate a shift to a more focused product offering. This transition, under new leadership, is expected to result in continued shorter-term margin pressure through the balance of 2026, with improvements anticipated in 2027.

The Contact Centers segment saw revenue decline 4% year-over-year to $23 million, reflecting client attrition from 2025. However, the segment improved sequentially for the second consecutive quarter, driven by a net increase in agents year-to-date and stronger conversion from a significantly larger new business pipeline. Despite lower gross margins due to initial investments for new customers, improved SG&A led to stronger EBITDA for the quarter, with sequential top-line and EBITDA margin improvement expected to continue.

The company ended the second quarter with $23 million in cash and equivalents, having generated $18 million in operating cash flow in the first half of the year. This financial flexibility supports strategic investments in growth opportunities and capital returns to shareholders. Superior Group paid $2.2 million in dividends during the quarter and has approximately $9 million remaining under its share repurchase authorization. Inventory levels in Healthcare Apparel were noted as being at their lowest in 6-7 quarters, with further efficiency opportunities identified.

Superior Group maintains a selective M&A strategy, focusing on acquisitions that are additive to its business by expanding service capabilities, entering new channels, or reaching new customer bases or geographies, particularly in digital. The company is not interested in generic promotional companies. While actively seeking opportunities, management indicated that any significant acquisition this year, beyond a potential Contact Centers deal or a Philippines call center start-up, is unlikely.