Superior Group's Q3 2025 Earnings Call: Contradictions Emerge on Branded Products Market, SG&A Costs, Tariff Impact, and Pricing Strategies

Date of Call: November 3, 2025

Financials Results

• Revenue: $138.0M, reported by CFO as up 7% YOY (note: CEO's prepared remarks incorrectly referenced a 7% YOY decline)
• EPS: $0.18 per diluted share, up from $0.10 sequentially, down from $0.33 YOY
• Gross Margin: 38.3%, down from 40.4% YOY, flat sequentially vs Q2

Guidance:

• Full-year revenue outlook tightened to $560M–$570M (prior range $550M–$575M) with a higher midpoint.
• Company expects sequential sales build into Q4 (December largest month), primarily in Branded Products.
• Maintaining expense discipline and completed cost-savings actions; targeting improved profitability as sales convert.
• Pricing and sourcing actions expected to offset tariff pressure in healthcare; liquidity of >$100M to pursue M&A and capital returns.

Business Commentary:

* Revenue Performance and Outlook: - Superior Group of Companies reported a 7% decline in consolidated revenue for Q3, compared to the same period last year. - The company adjusted its full-year revenue outlook range to a new range of $560 million to $570 million, reflecting a higher midpoint, indicating a belief in sequential improvement and strong pipelines.

• Cost Management and Expense Reduction:
• SG&A expenses were reduced by 7%, or $3.9 million, with all three segments seeing improvements in SG&A costs.

• This cost management strategy was implemented to maintain a strong balance sheet and position the company for growth as economic uncertainty dissipates.

• Branded Products Segment Challenges:

• The Branded Products segment experienced an 8% revenue decline due to factors such as sales pull forward and lower employee turnover among customers.

• Despite challenges, the combined revenue of second and third quarters exceeded the prior year, supported by a stronger pipeline and order backlog.

• Healthcare Apparel and Contact Center Dynamics:

• Healthcare Apparel revenue dropped by 5%, affected by macro uncertainty, while Contact Center revenue declined by 9% due to the downsizing of existing customers.

• Both segments are focused on leveraging strong pipelines and converting them into sales to drive future growth.

• Pricing Strategy and Tariff Environment:

• The company has been able to pass through cost increases due to tariffs, primarily in the Branded Products and Healthcare Apparel segments.
• The recent announcements of tariff adjustments are expected to provide stability and positively impact customer spending in the near future.

Sentiment Analysis:

Overall Tone: Neutral

• Management emphasized sequential improvement and $4M SG&A reductions but acknowledged YOY pressure (EPS $0.18 vs $0.33 prior year) and continued customer caution. They tightened revenue guidance to $560M–$570M, cited strong pipelines and >$100M liquidity while noting uncertain macro/tariff-driven demand.

Q&A:

• Question from Michael Kupinski (NOBLE Capital Markets): Can you describe the Branded Products environment — hesitancy in buying due to tariffs or returning to normal?
  Response: Tariff-related uncertainty has suppressed buying, but recent tariff announcements are positive; proactive client communication and opportunistic sourcing have built pipeline and backlog, supporting near-term order recovery.

• Question from Michael Kupinski (NOBLE Capital Markets): Where are you in working off pre-purchased inventory and thoughts on future inventory cost increases?
  Response: Using opportunistic sourcing (lower-tariff jurisdictions and domestic), selectively building inventory with clients and passing tariff-related cost increases through pricing where possible; healthcare benefits from Haiti sourcing advantages.

• Question from Michael Kupinski (NOBLE Capital Markets): Quantify the lost call-center client impact and comment on the pipeline and potential return to growth?
  Response: Lost solar customer ~ $2M annualized impact; contact-center decision timelines remain elongated but pipeline shows green shoots and management expects potential recovery/benefit in 2026.

• Question from James Sidoti (Sidoti & Company): Do you have pricing power to maintain/increase prices over the next quarters?
  Response: Generally able to pass through cost increases — most branded orders are priced-to-order and long-term contracts have seen price increases; healthcare implemented increases in July/August and largely offset tariffs; contact centers unaffected by tariffs.

• Question from James Sidoti (Sidoti & Company): Is the Q4 sequential revenue build (midpoint of guidance) primarily Branded Products or spread across segments?
  Response: Primarily Branded Products — bookings and pipeline are strong with new logos and increased account activity driving the expected Q3-to-Q4 build.

• Question from Keegan Tierney Cox (D.A. Davidson): Any color on sales trends by month and areas of strength?
  Response: Expect month-to-month sales growth into Q4 with December the largest month; the sequential build is concentrated in Branded Products.

• Question from Keegan Tierney Cox (D.A. Davidson): What are you seeing on acquisition opportunities given you held cash this quarter?
  Response: Active deal flow with attractive valuations for buyers; primary focus on Branded Products (large, fragmented market) and selective smaller call-center targets by geography — management expects potential M&A within the next year if fit is right.

• Question from Keegan Tierney Cox (D.A. Davidson): How much did the cost-savings program help this quarter?
  Response: G&A reduced by about $4M year-over-year; roughly half (~$2M) attributable to the cost-savings program this quarter, with an annualized target of ~$13M versus budget.

Contradiction Point 1

Branded Products Market Environment

It reflects differing perspectives on the macroeconomic and tariff-related challenges impacting the Branded Products segment, which could influence revenue projections and strategic decisions.

Is the Branded Products environment characterized by consumer hesitancy and shifting trade policies, or is it returning to normalization? - Michael Kupinski(NOBLE Capital Markets, Inc., Research Division)

2025Q3: The market has been challenged due to macroeconomic uncertainty and tariff volatility, impacting customer behavior. The recent tariff announcements provide stability, and orders are expected to follow. - Jake Himelstein(President of Branded Products)

Did customers pull forward orders due to tariffs this quarter, and what is inventory like? - Keegan Tierney Cox(D.A. Davidson & Co., Research Division)

2025Q2: We have not seen significant pull forward due to tariffs, but we are strategic in inventory and pricing to mitigate tariff impacts. We leverage long-term supplier relationships and respond to tariffs by adjusting pricing accordingly. - Jake Himelstein(President of Branded Products)

Contradiction Point 2

SG&A Cost Structure

It involves differing explanations of the SG&A cost structure, which impacts financial forecasting and operating efficiency.

Given the improved environment and your cash position this quarter, what are your current views on acquisition opportunities? - Keegan Tierney Cox(D.A. Davidson & Co., Research Division)

2025Q3: This is largely due to investments in sales and marketing, which we believe are effective in driving top-line growth. - Michael Benstock(CEO)

Can you quantify the percentage of SG&A expenses that are variable with sales and the percentage that is fixed and recurring? - David P. Marsh(Singular Research, LLC)

2025Q2: Our SG&A for the quarter was $52.2 million, which includes $1.8 million of credit loss reserves. Even without these reserves, SG&A would have been about 35% of sales. Commissions, particularly within Branded Products, are variable and included within G&A. - Michael Koempel(CFO)

Contradiction Point 3

Tariff Impact and Sourcing Strategy

It highlights differing perspectives on how tariffs have affected the company's sourcing strategy and pricing, which are crucial for understanding financial and operational decisions.

Is the Branded Products environment marked by consumer hesitancy and shifting trade policies, or is it returning to normalization? - Michael Kupinski (NOBLE Capital Markets, Inc., Research Division)

2025Q3: The market has been challenged due to macroeconomic uncertainty and tariff volatility, impacting customer behavior. The recent tariff announcements provide stability, and orders are expected to follow. - Jake Himelstein(President of Branded Products)

Can you explain the tariff challenges you've faced and how you addressed them? - James Sidoti (Sidoti)

2025Q1: The ever-escalating China tariff rate has slowed customer decision-making and made sourcing of products challenging. SGC has managed this by leveraging a redundant manufacturing and sourcing strategy for most of its products, which has helped navigate past challenges. - Michael Benstock(CEO)

Contradiction Point 4

Pricing Strategy and Customer Behavior

It involves differing views on the company's ability to maintain or increase prices in response to cost increases, which is crucial for understanding profitability and customer relationships.

Can you maintain or increase pricing in the next few quarters? - James Sidoti (Sidoti & Company, LLC)

2025Q3: Superior is able to increase pricing where costs have risen, with most orders priced on a per-order basis. In long-term contracts, pricing increases have been largely successful in offsetting tariff impacts. - Jake Himelstein(President of Branded Products)

How have you addressed tariff-related challenges? - James Sidoti (Sidoti)

2025Q1: The ever-escalating China tariff rate has slowed customer decision-making and made sourcing of products challenging. SGC has managed this by leveraging a redundant manufacturing and sourcing strategy for most of its products, which has helped navigate past challenges. - Michael Benstock(CEO)

Contradiction Point 5

Pricing Strategy for Branded Products

It involves differing statements regarding the company's ability to increase pricing and absorb cost increases, which are critical for understanding pricing strategy and financial performance.

Can you discuss your pricing power, including your ability to sustain or increase pricing over the next few quarters and the expected trajectory? - James Sidoti (Sidoti & Company, LLC)

2025Q3: Superior is able to increase pricing where costs have risen, with most orders priced on a per-order basis. In long-term contracts, pricing increases have been largely successful in offsetting tariff impacts. Almost all cost increases are passed through to customers, with only rare instances where costs are absorbed. - Jake Himelstein(President of Branded Products)

Are existing customers still active in the Branded Products segment, and is growth driven by large contracts or other factors? - Keegan Tierney Cox (D.A. Davidson)

2024Q4: In terms of pricing, I wouldn't say we're seeing any significant pricing gain on an overall basis. It's a tough market out there. I would see it more or less in line with the last year, maybe slightly more, but not significant. - Michael Koempel(CFO)