In the 10 years under the leadership of Isaac Dabah, Israeli apparel maker Delta Galil has gone from death’s door to a leading international company in the undergarments industry. Along the way its share prices has climbed 2,000% to a market cap of 2.9 billion shekels ($800 million).
Last week, the company reported record 2018 results, with fourth-quarter sales 22% to $454.3 million and earnings before interest, taxes, depreciation and amortization increasing 25% to $50.2 million.
The good news is expected to continue into this year. Delta said it expected to reach between $1.55 billion and $1.59 billion, as much as a 6% rise over 2018, with earnings per share climbing between 5% and 12% to $2.50-$2.65.
The Israeli apparel industry veteran who once owned Gloria Vanderbilt Apparel Corporation bought control of Delta exactly a decade ago from founder Dov Lautman and remains CEO today. What’s the secret to turning around a company?
“No one knows the secret,” he said in an interview with TheMarker. “It was hard work. We made a lot of changes in the company, mainly at the beginning. We closed money-losing factories, we brought in new management systems and hired new people.”
Dabah recalls that the first thing he did after taking over Delta was to shake up its corporate culture.
“Delta was a very Israeli company. It’s execution was typical of the Middle East – belated,” he said. The second thing was to boost the percentage of sales from brands, both the company’s own and those it manufactures under license from 20% to 70%.
Finally, Dabah set hard targets for managers. “Every month we measure performance. There’s no such thing as ‘We worked hard, but we didn’t meet the target.’ You have to meet the target,” he said.
Dabah attributes Delta’s success to its wide product range, which runs from intimate apparel for men and women to active wear and baby wear.
Today Delta sells its products under brand names licensed by Maidenform, Tommy Hilfiger and Lacoste among others. It also has its own brands, including denim ware under the 7 For All Mankind label and the French undergarments maker Eminence.
“Delta’s big advantage is that it’s a stable company …. That stems both from Delta’s [product] diversity but also from the fact that we sell underwear, bras and socks. That’s a steady business that doesn’t grow or shrink dramatically. The business has been growing steadily,” he explained.
Under Dabah, the company also closed most of its Israeli plants, and today Delta’s presence in Israel is limited to its headquarters operations and research and development.
“There’s no place for factories in Israel, but there is a place for R&D. Israel’s advantage compared to other places its way of thinking, its brains and its innovative,” said Dabah. “Israelis think out of the box more than Americans – it’s not a cliché.”
The R&D unit not only works to develop new yarns and fabrics but also to identify fashion trends, hopefully before rivals latch on. Delta innovations include a plastic molding for bras that gives it better volume and shape, and fabrics that require fewer washings and have a longer shelf life.
Manufacturing is done in low-cost countries like Vietnam and Egypt, where Delta employs 3,000 people and was one of the first Israeli companies to take advantage of the Israeli-Egyptian peace agreement.
Dabah was in Egypt last week and met with Egyptian President Abdel Fattah el-Sisi as part of a delegation visiting Egypt to bestow on the late Egyptian leader Anwar Sadat a posthumous Congressional Gold Medal for leading Egypt to peace with Israel.
Delta isn’t without problems. Its shares trod water in the three years through the end of 2018 amid concerns that apparel retailers in North America were closing stores as they were losing business to online competition.
The market was also concerned about Delta’s ability to digest its acquisitions - Eminence and 7 for All Mankind – made over the last two years.
Delta seems to have overcome both – its shares have risen 23% this year and Dabah has set ambitious targets for double-digit sales growth and EBITDA of 15%, compared with 7.1% in 2018.
He is looking for growth engines from, among other things, direct sales of its private label products via its stores and websites from 54% today, and is investing in upgrading its websites in Israel, Europe and the United States, and from new mergers and acquisitions.
Asked whether he would ever sell the company, Dabah laughed and said: “If someone offers me a good price, I would think about it. Someone in the United States once told me, “There’s nothing that isn’t for sale except your family.’ Right now, I’m not thinking of selling. The company is quite complex, and we have much more work to do.“
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