Superior Group: Essential Workwear

09/09/2020 5:00 am EST

Focus: CONSUMER

Douglas Gerlach

President, ICLUBcentral, Inc.

Perennially underfollowed by Wall Street, Superior Group of Companies (SGC) — which celebrates its 100th anniversary this year — is a unique mashup of three complementary businesses, observes Douglas Gerlach, editor of SmallCap Informer.

Traditionally, the company has been a provider of uniforms and image apparel. In recent years, it has expanded into new product lines, including promotional products and call center staffing.

The Superior Uniform Group division manufactures and markets employee uniforms, image apparel, medical scrubs, and patient apparel. The company also manages uniform apparel programs for major corporations and hospitals, as well as hospitality and food service industries.

More than six million Americans wear Superior Group apparel each day, and roughly 80% of its customer base is considered “Essential Workwear.” This unit’s business is quite economically defensive.

The firm's promotional products companies provide custom branding solutions. This segment generated 29% of 2019 revenues and has been expanding the fastest of all three divisions.

Its call center segment pivoted to a work-from-home model as the COVID-19 pandemic arrived, and returned to full-force pre-pandemic operating levels in June 2020.

For the quarter ended June 30, 2020, sales grew 72.7% to $159.4 million, with more than a third of sales coming from newly-added personal protective equipment, or PPE.

The company expects to continue to gain market share through sales growth. It plans to launch its WonderWink line of “commercial laundry-friendly” fashion scrubs in the third quarter of 2020. Management has tagged this new product line a “game changer” and says interest from current customers is very high.

With the EPS forecast at $2.76 five years out and an average high P/E of 17.0, the stock could reach $47. On the low side, multiplying the average low P/E of 10.0 by the expected low EPS of $1.68 yields a potential low of just below $17. This  represents a risk-reward ratio of 4 to 1 and a potential return of 17.6% annually.

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