SUPERIOR GROUP OF COMPANIES, INC.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

In our Healthcare Apparel segment, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient apparel. We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and Wink® (within CID Resources), will continue to provide opportunities for growth and increased market share.

Current wording

In our Healthcare Apparel segment, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and Wink®, will continue to provide opportunities for growth and increased market share.

Previous wording

Economic and political events over the past several years have altered the landscape in which we and other U.S. companies operate in a variety of ways. World events, including the Russian invasion of Ukraine and the resulting economic sanctions have impacted the global economy, including by exacerbating inflationary and other pressures. The ongoing conflict in the Middle East could continue to affect oil prices and have other negative effects on the global economy. Civil unrest in countries where we manufacture products, such as Haiti, may result in our facilities incurring damage or destruction that interrupts our manufacturing processes and adversely affects our reputation and our relationships with our customers. While inflation and interest rates decreased in 2024, the effects of the ongoing conflict in the Middle East, further fluctuations in inflationary conditions and interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis or other situations, including deteriorating or prolonged diplomatic tension between the United States and China, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices.

Current wording

With the enactment of the tariffs and escalating diplomatic tension between the United States and China it is uncertain how inflation and interest rates will be impacted during 2025. World events, including the Russia-Ukraine War and the ongoing conflict in the Middle East continue to have negative effects on the global economy. Civil unrest in countries where we manufacture products, such as Haiti, may result in our facilities incurring damage or destruction that interrupts our manufacturing processes and adversely affects our reputation and our relationships with our customers.

Previous wording

Prolonged or recurring disruptions or instability in the United States and global economies, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.

Current wording

Prolonged or recurring disruptions or instability in the United States and global economies, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, declines in to our revenue and profitability, costs associated with complying with new or amended laws and regulations and mitigating the increased cost of the new tariffs affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, negative impacts on the valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.

Previous wording

The Company generated net income of $5.4 million and $3.1 million during the three months ended September 30, 2024 and 2023, respectively. The increase in net income during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to an increase in net sales and gross margins at our Branded Products and Healthcare Apparel segments, a decrease in interest expense, partially offset by an increase in selling and administrative expenses across all three of our reportable segments.

Current wording

The Company generated a net loss of ($0.8) million and income of $3.9 million during the three months ended March 31, 2025 and 2024, respectively. The decrease in net income during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to a decrease in net sales and gross margins at our Branded Products and Healthcare Apparel segments, partially offset by a decrease in interest expense.

Previous wording

EBITDA was $11.7 million and $9.3 million during the three months ended September 30, 2024 and 2023, respectively. EBITDA increase was primarily due to increased net sales and gross margins at our Branded Products and Healthcare Apparel segments, partially offset by an increase in selling, general and administrative expenses across all of our reportable segments. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.

Current wording

EBITDA was $3.5 million and $9.6 million during the three months ended March 31, 2025 and 2024, respectively. The EBITDA decrease was primarily due to the net loss incurred and the decrease in net sales and gross margins at our Branded Products and Healthcare Apparel segments during the three months ended March 31, 2025. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.

Previous wording

Contact Centers net sales increased 3.8% or $0.9 million, before intersegment eliminations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily attributable to new customers, partially offset by a decrease in existing customer volume.

Current wording

Contact Centers net sales increased 2.9% or $0.7 million, before intersegment eliminations for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was primarily attributable to a mix of sales growth from new and existing customers.

Previous wording

Gross margin rate for our Branded Products segment was 36.2% for the three months ended September 30, 2024 and 34.6% for the three months ended September 30, 2023. The gross margin rate increased as compared to the prior year period primarily driven by sourcing mix resulting in lower product costs and pricing increases to existing customers.

Current wording

Gross margin rate for our Branded Products segment was 32.0% for the three months ended March 31, 2025 and 36.5% for the three months ended March 31, 2024. The gross margin rate decreased as compared to the prior year period was primarily driven by sourcing mix resulting in higher product costs and lower pricing to existing customers.

Previous wording

Gross margin rate for our Healthcare Apparel segment was 41.8% for the three months ended September 30, 2024 and 38.7% for the three months ended September 30, 2023. The gross margin rate increased as compared to the prior year period primarily due to costs of goods favorability associated with our Haiti manufacturing facility during the current period.

Current wording

Gross margin rate for our Healthcare Apparel segment was 37.2% for the three months ended March 31, 2025 and 39.4% for the three months ended March 31, 2024. The gross margin rate decreased as compared to the prior year period primarily due to higher costs of goods during the current period.

Previous wording

Gross margin rate for our Contact Centers segment was 53.6% for the nine months ended September 30, 2024 and 54.2% for the nine months ended September 30, 2023. The rate decrease was primarily due to increased employee related costs of our agents.

Current wording

Gross margin rate for our Contact Centers segment was 53.6% for the three months ended March 31, 2025 and 53.7% for the three months ended March 31, 2024.

Previous wording

As a percentage of net sales, total selling and administrative expenses was 34.9% for the three months ended September 30, 2024 and 34.7% for the three months ended September 30, 2023. The rate increase was primarily driven by increases in employee related costs, third-party professional services and expenditures related to marketing and advertising activities.

Current wording

As a percentage of net sales, total selling and administrative expenses was 36.5% for the three months ended March 31, 2025 and 35.2% for the three months ended March 31, 2024. The rate increase was primarily driven by increases in employee related costs, third-party professional services and expenditures related to marketing and advertising activities.

Previous wording

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 45.9% for the three months ended September 30, 2024 and 42.4% for the three months ended September 30, 2023. The rate increased as compared to the prior year period driven by an increase in the provision for bad debts and an increase in employee related costs.

Current wording

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 45.1% for the three months ended March 31, 2025 and 44.2% for the three months ended March 31, 2024. The rate increased as compared to the prior year period driven by an increase in third party professional service fees in the current period.

Previous wording

Selling and administrative expenses for our Other segment, which represents unallocated Corporate costs, increased by $1.1 million, primarily driven by an increase in employee related costs and third party professional services.

Current wording

Selling and administrative expenses for Other, which represents unallocated Corporate costs, increased by $0.6 million, primarily driven by an increase in employee related costs and third party professional services.

Previous wording

Interest expense decreased to $1.6 million for the three months ended September 30, 2024 from $2.5 million for three months ended September 30, 2023. This decrease was due to a $36.2 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on those borrowings from 7.4% for the three months ended September 30, 2023 to 6.3% for the three months ended September 30, 2024.

Current wording

Interest expense, net decreased to $1.2 million for the three months ended March 31, 2025 from $1.8 million for three months ended March 31, 2024. This decrease was due to a lower weighted average interest rate on those borrowings from 6.6% for the three months ended March 31, 2024 to 5.4% for the three months ended March 31, 2025.

Previous wording

Income tax expense increased to $1.2 million for the three months ended September 30, 2024 from $0.2 million for the three months ended September 30, 2023. The effective tax rate was 17.8% and 4.9% for the three months ended September 30, 2024 and 2023, respectively. Income tax expense and the effective tax rate for the three months ended September 30, 2024 and September 30, 2023 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

Current wording

Income tax expense decreased to a benefit of $0.1 million for the three months ended March 31, 2025 from expense of $0.7 million for the three months ended March 31, 2024. The effective tax rate was 16.3% and 14.8% for the three months ended March 31, 2025 and 2024, respectively. Income tax benefit, expense and the effective tax rate for the three months ended March 31, 2025 and March 31, 2024 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

Previous wording

For the next twelve months, our primary capital requirements are to maintain our operations, meet contractual obligations, fund capital expenditures, pay dividends and for other general corporate purposes. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements for the next twelve months.

Current wording

For the next twelve months, our primary capital requirements are for capital to maintain our operations, meet contractual obligations, primarily consisting of our revolving credit facility, term loan, operating leases and acquisition-related contingent liabilities, and fund capital expenditures, dividends, stock repurchases, any potential merger and acquisition activity and other general corporate purposes. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements for the next twelve months.

Previous wording

Beyond the next twelve months, our principal demand for funds will be for maintenance of our core business, to satisfy long term contractual obligations and the continuation of the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of our facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. The Company’s material contractual obligations include outstanding debt, operating leases, long-term pension liability and non-qualified deferred compensation plan liabilities in Other Liabilities. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements.

Current wording

Beyond the next twelve months, our principal demand for funds will be for maintenance of our core business, to satisfy long-term contractual obligations, stock repurchases, any potential merger and acquisition activity and the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. The Company's material contractual obligations include outstanding debt, operating leases, long-term pension liability and non-qualified deferred compensation plan liabilities in Other Liabilities. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements.

Previous wording

One of our largest cash requirements is for the purchase of inventory. Superior carries inventories of both raw materials and finished products, the practice of which requires substantial working capital, which we believe to be common in the industry.

Current wording

The Company carries inventories of both raw materials and finished products, the practice of which requires substantial working capital, which we believe to be common in the industry. The Company also requires working capital to invest in new product lines and technologies.

Previous wording

The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below. In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. The Company may also begin relying on the issuance of equity or debt securities. There can be no assurance that any such financings would be available to us on reasonable terms. Any future issuances of equity securities or securities convertible into or exercisable for equity securities may be dilutive to our shareholders. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

Current wording

In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

Previous wording

Please refer to Note 5 to our Condensed Consolidated Financial Statements located in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional details on our outstanding long-term debt, which disclosure is incorporate herein by reference.

Current wording

Please refer to Note 5 to our Condensed Notes to the Consolidated Financial Statements located in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional details on our outstanding long-term debt.

Previous wording

During the nine months ended September 30, 2024 and 2023, the Company paid cash dividends of $7.0 million and $6.9 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

Current wording

During the three months ended March 31, 2025 and 2024, the Company paid cash dividends of $2.3 million and $2.3 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

Previous wording

EBITDA, which is a non-GAAP financial measure, is defined as net income excluding interest expense, income tax expense and depreciation and amortization expense. The Company believes EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results from period to period by removing (i) the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences and (iii) asset base (depreciation and amortization). The Company uses EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs.

Current wording

EBITDA, which is a non-GAAP financial measure, is defined as net income excluding interest expense, net, income tax expense, depreciation and amortization expense and impairment charges. The Company believes EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results from period to period by removing (i) the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences and (iii) asset base (depreciation and amortization). The Company uses EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs.

Previous wording

The following table reconciles net income to EBITDA (in thousands):

Current wording

The following table reconciles net (loss) income to EBITDA (in thousands):

Previous wording

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; uncertainties related to supply disruptions, inflationary environment (including with respect to the cost of finished goods and raw materials and shipping costs), employment levels (including labor shortages) and general economic and political conditions in the areas of the world in which the Company operates or from which it sources its supplies or the areas of the United States of America (“U.S.” or “United States”) in which the Company’s customers are located;changes in the healthcare, retail chain, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, discover liabilities associated with such businesses during the diligence process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of raw materials; attracting and retaining senior management and key personnel; the effect of the Company’s previously disclosed material weakness in internal control over financial reporting; the Company’s ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting; and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023* and in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024**. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.*

Current wording

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; uncertainties related to a potential trade war, supply disruptions, inflationary environments (including with respect to shipping costs and the cost of finished goods and raw materials and shipping costs), employment levels (including labor shortages), and general economic and political conditions in the areas of the world in which the Company operates or from which it sources its supplies or the areas of the United States of America (“U.S.”* or*“United States”) in which the Company’s customers are located; changes in the healthcare, retail chain, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, discover liabilities associated with such businesses during the diligence process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of raw materials; attracting and retaining senior management and key personnel;the Company’*s ability*to maintain effective internal control over financial reporting;and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025*. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.*