Executive Summary / Key Takeaways

• Superior Group of Companies (SGC) is undergoing a strategic reorientation, leveraging its diversified business model across Branded Products, Healthcare Apparel, and Contact Centers to drive market share gains amidst macroeconomic headwinds.
• The company's commitment to cost management has yielded significant results, with a 7% year-over-year reduction in SG&A expenses in Q3 2025, positioning it for stronger profitability as demand normalizes.
• SGC is strategically investing in technological differentiation, particularly through AI in its Contact Centers for enhanced efficiency and customer satisfaction, and in Branded Products for automated product selection, creating a competitive moat.
• Despite a Q3 2025 earnings and revenue miss against consensus estimates, the company's stock saw an after-hours increase, and management tightened its full-year revenue outlook to a higher midpoint of $560 million to $570 million, reflecting confidence in its robust pipeline and strategic execution.
• Key risks include ongoing macroeconomic uncertainty, tariff volatility, and potential supply chain disruptions, which SGC aims to mitigate through its diversified sourcing strategy and proactive customer engagement.

A Century of Adaptation: SGC's Enduring Business Model

Superior Group of Companies, Inc. (SGC) has a rich history spanning over a century, evolving from its origins as Superior Surgical Mfg. Co., Inc. in 1920 to its current diversified form. This journey, marked by strategic rebranding and a relocation to Florida, underscores a foundational adaptability that remains central to its operations today. The company's strategic vision has consistently focused on leveraging its diverse portfolio to create value, a principle that guides its current responses to dynamic market conditions.

SGC operates through three distinct yet synergistic segments: Branded Products, Healthcare Apparel, and Contact Centers. The Branded Products segment, anchored by BAMKO and HPI, delivers customized merchandising, promotional items, and branded uniform programs to a wide array of industries. The Healthcare Apparel segment, featuring brands like Wink and Fashion Seal Healthcare, provides essential apparel to the healthcare sector. Complementing these, the Contact Centers segment, primarily through The Office Gurus, offers outsourced nearshore business process outsourcing (BPO) and call-center support services to North American clients. This diversification acts as a significant cushion against macro uncertainty, a competitive advantage in a fluid economic landscape.

The company's strategic initiatives are deeply rooted in its history of proactive adaptation. Notably, SGC began diversifying its supply chain away from high-tariff-risk countries during the first Trump administration, a foresight that has proven invaluable in the current environment of escalating tariffs and trade policy shifts. This strategic positioning, combined with a relentless focus on cost management and technological innovation, forms the bedrock of SGC's investment thesis.

Technological Edge: Driving Efficiency and Customer Experience

SGC's commitment to advanced technology is a core differentiator, enhancing both operational efficiency and customer experience across its segments. In its Contact Centers segment, SGC is employing artificial intelligence (AI) in virtually every facet of its operations. This includes AI-driven talent acquisition and development, streamlining the onboarding process, and enabling agents to build confidence before engaging with customers.

A standout technological offering is "Guru Assist," an AI-powered tool that provides real-time, next-best-action guidance to agents during calls. This technology significantly improves agent accuracy, reduces average handle time (AHT), and boosts customer satisfaction. The tangible benefits for clients include measurable improvements in interaction quality and overall customer experience, leading to higher satisfaction scores.

In the Branded Products segment, AI is being leveraged to tackle one of the most time-consuming aspects of the business: product selection. AI agents are now used for product selection and mockups, replacing human effort. This capability allows SGC to present clients with better-suited ideas, drawing from historical order data and market trends, which enhances employee leverage and improves the client experience. This technological advantage is particularly significant as many competitors in the highly fragmented branded products industry lack the technical wherewithal or financial capability to implement such solutions. These technological advancements contribute directly to SGC's competitive moat, driving efficiency, supporting market positioning, and ultimately bolstering its long-term growth strategy.

Financial Performance: Resilience Amidst Headwinds

SGC's recent financial performance reflects a period of strategic adjustment and resilience in a challenging macroeconomic climate. For the third quarter ended September 30, 2025, consolidated net sales decreased by 7% year-over-year to $138.47 million, falling short of consensus estimates. Net income for the quarter was $2.74 million, or $0.18 per diluted share, missing analyst forecasts. Despite these misses, the company's stock experienced a 5.67% increase in after-hours trading, suggesting investor confidence in its underlying strategy and future prospects.

The decline in net income was primarily attributed to lower net sales and gross margins across all segments, partially offset by a notable 7% reduction in selling and administrative (SG&A) expenses, totaling $3.9 million. This SG&A improvement was driven by lower employee-related costs and cost reduction initiatives implemented in the second quarter. Consolidated gross margin for Q3 2025 was 38.3%, down from 40.4% in the prior year, but sequentially consistent with the second quarter.

Segment-specific performance in Q3 2025 revealed varied dynamics:

• Branded Products: Net sales decreased by 8.1% to $85.10 million, primarily due to an $8 million impact from the timing of orders and lower sales volume and pricing from existing customers. This was partially offset by a $2.9 million increase from the acquisition of 3Point in December 2024. The gross margin rate for this segment was 34.8%, down from 36.2% in Q3 2024, attributed to customer sales mix.
• Healthcare Apparel: Net sales declined by 4.6% to $31.52 million, mainly due to volume decreases within existing customer accounts. The segment's gross margin rate was 38.5%, a decrease from 41.8% in the prior year, due to product cost reductions in the earlier period.
• Contact Centers: Net sales decreased by 9.5% to $22.66 million, reflecting persistent macroeconomic headwinds, client downsizing, and attrition outpacing new customer acquisitions. The gross margin rate for this segment was 52.9%, down from 54.9% in Q3 2024, impacted by higher agent costs and an unfavorable margin mix following the closure of its Jamaica center. The loss of a solar industry customer is expected to have an annualized impact of approximately $2 million on revenue.

For the nine months ended September 30, 2025, consolidated net sales were nearly flat year-over-year at $419.61 million. Branded Products saw a 1.3% increase in net sales, driven by a $9.1 million contribution from the 3Point acquisition. Net cash provided by operating activities for the nine-month period was $1.30 million, impacted by $10.50 million in cash outflows for inventory purchases, particularly in Healthcare Apparel, in anticipation of future demand.

Robust Liquidity and Capital Allocation

SGC maintains a strong balance sheet, providing ample liquidity to support its strategic initiatives and shareholder returns. As of September 30, 2025, the company held $16.65 million in cash and cash equivalents. Combined with available capacity under its revolving credit facility, SGC boasts over $100 million in liquidity. The company's credit facilities, including a $125 million revolving credit facility and a $75 million term loan, mature in August 2027.

SGC remains in compliance with its Credit Agreement covenants, with a net leverage ratio well below the 4 to 1 maximum. This robust financial position enables strategic capital allocation, including a $17.5 million share repurchase program authorized in March 2025, with approximately $12.3 million remaining as of September 30, 2025. Management believes its current cash levels, operating cash flows, and revolving credit facility are sufficient to meet both short-term and long-term capital requirements.

Competitive Landscape and Strategic Positioning

SGC operates in competitive markets, facing both large, diversified players and numerous niche specialists. In uniforms and related services, SGC competes with industry giants like Cintas Corporation (CTAS) and UniFirst Corporation (UNF). These larger competitors often benefit from economies of scale and extensive distribution networks. However, SGC differentiates itself through its focus on customization, specialized branding, and a more direct sales approach, particularly in healthcare apparel with brands like Wink and Fashion Seal Healthcare.

In the highly fragmented branded products market, SGC, as one of the top 10 largest providers among over 25,000 distributors, leverages its proactive stance and technological investments to gain market share. While some competitors have been slow to react to market shifts, SGC has aggressively recruited sales representatives and utilized AI for product selection, giving it a distinct advantage.

The Contact Centers segment competes with business process outsourcing (BPO) providers such as Concentrix Corporation (CNXC). SGC's "The Office Gurus" emphasizes nearshore solutions, offering comparable service to U.S. counterparts at a fraction of the cost, a key driver in the growing nearshore call-center market. SGC's ability to integrate its diverse offerings, for example, by linking staffing solutions with branded employee programs, provides a unique value proposition that larger, more specialized competitors may not easily replicate.

SGC's diversified sourcing strategy, including leveraging its own facilities in Haiti, provides duty advantages and mitigates tariff impacts, allowing the company to adjust pricing and protect margins. This proactive approach to supply chain management and pricing power, coupled with low customer attrition, positions SGC to expand its wallet share and acquire new accounts, even when market conditions are unsteady.

Outlook and Risks

SGC's management has adjusted its full-year 2025 revenue outlook, tightening the range to $560 million to $570 million, reflecting a higher midpoint. This updated guidance signals confidence in the company's ability to convert its strong pipeline of opportunities, particularly in the Branded Products segment, and to realize the benefits of its improved cost structure. Management anticipates a back-end weighted cadence to 2025, with sales building month-to-month and December expected to be the largest month, primarily driven by Branded Products. The company expects earnings to grow 25.97% next year, from $0.77 to $0.97 per share.

However, the outlook is not without its challenges. Michael Benstock, CEO, highlighted a "significant level of uncertainty and caution among our customers and potential new prospects across all of our business segments." Macroeconomic factors such as inflation, interest rates, and tariff volatility continue to influence customer behavior, leading to delayed ordering and slower decision-making.

The expiration of key trade agreements like AGOA, HOPE, and HELP on September 30, 2025, poses a risk, as non-renewal could negatively impact costs or necessitate a shift in sourcing and manufacturing. Furthermore, global conflicts and civil unrest in manufacturing regions like Haiti could disrupt operations. Supply chain disruptions, even if tariffs were to be removed, could take 6 to 9 months to normalize, potentially impacting businesses for the next year to year and a half. SGC's bottom line remains sensitive to these tariff and other developments, which led to the company refraining from providing an earnings per share outlook earlier in the year.

Conclusion

Superior Group of Companies stands at a pivotal juncture, demonstrating resilience and strategic acumen in a complex global economy. Its century-long history of adaptation, coupled with a diversified business model and a proactive approach to cost management and technological innovation, forms a compelling investment thesis. Despite recent earnings and revenue misses against consensus, the company's upward revision of its full-year revenue outlook and strong pipelines underscore management's confidence in its ability to capture market share and drive profitable growth.

SGC's technological leadership, particularly in AI-driven efficiencies within its Contact Centers and Branded Products segments, provides a distinct competitive advantage against rivals. While macroeconomic uncertainties and tariff-related risks persist, SGC's diversified sourcing and agile strategic responses position it to weather these challenges. Investors should recognize SGC's commitment to long-term value creation through disciplined execution, technological leadership, and a relentless pursuit of market share in its attractive business segments.