Superior Group of Companies Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Consolidated revenue grew 9% year-over-year driven by 14% growth in Branded Products and 6% in Healthcare Apparel, despite a 3% decline in Contact Centers.
  • Positive Sentiment: Net income per diluted share rose to $0.10 from $0.04 a year ago, reflecting stronger top-line performance, stable gross margins, and improved SG&A leverage, while management repurchased $4 million of common stock.
  • Positive Sentiment: The company's diversified global sourcing strategy and proactive vendor negotiations helped mitigate tariff impacts and maintain margin stability amid evolving trade policies.
  • Negative Sentiment: Contact Centers faced headwinds after a major solar-industry client filed Chapter 11, prompting a $1.8 million credit reserve and contributing to a 3% revenue decline in the segment.
  • Positive Sentiment: Record-high pipelines and order backlogs in both Branded Products and Contact Centers support management’s unchanged full-year revenue guidance of $550 million to $575 million.
AI Generated. May Contain Errors.
Earnings Conference Call
Superior Group of Companies Q2 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good afternoon, and welcome to the Superior Group of Companies Second Quarter twenty twenty five Conference Call. With us today are Michael Benstock, Chief Executive Officer and Mike Kempel, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward looking statements regarding the company plans, initiatives and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates and assumptions.

Operator

Words such as expect, believe, anticipate, think, outlook, hope and variations of such words and similar expressions identify such forward looking statements. Forward looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward looking statements. Such risks and uncertainties are further disclosed in the company's periodic filings with the Securities and Exchange Commission, including, but not limited to, the company's most recent annual report on Form 10 ks and the quarterly reports on Form 10 Q. 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 company does not undertake to update the forward looking statements except required by law.

Operator

And now I'll turn the call over to Michael Benstock. Please go ahead.

Speaker 1

Thank you, operator. We appreciate everyone joining us today. I'll start with an overview of current market conditions, and then I'll review our consolidated financial highlights for the quarter, along with a discussion around our three business segments. I'll then hand it over to Mike to take us through a more detailed review of our financial results. After that, Mike and Jake Himmelstein, President of our Branded Products business, and I will be happy to take your questions.

Speaker 1

We've seen modest improvement in the economic related customer hesitancy that I spoke about on our last call. While many customers still await better certainty around inflation, interest rates and tariffs, our Branded Products segment, in particular, has successfully managed the economic ambiguity by taking market share, negotiating cost relief with vendors and leveraging a diverse supply base in order to provide our customers and prospects with a compelling value. However, the administration's policies can occasionally be to the detriment of a particular segment of the economy, an an example being one of our larger call center customers in the solar business that filed Chapter 11 during the second quarter. This was the last of our customers benefiting from significant government subsidies. And I'll share in a moment, our contact center pipeline is full, suggesting these customers will be replaced.

Speaker 1

Our diversity across our three business units and the different industries in which we operate plays to our competitive advantage and acts as a significant cushion in the face of macro uncertainty. During this fluid period of both tariffs and duties, we derive a similar benefit on the cost side of the equation as our diversity of sourcing has long been a priority. This involves strategically positioning our sourcing in multiple countries across the world based on a redundant sourcing strategy, leveraging our own factories in Haiti, taking a multipronged approach to vendor negotiations and working with our customers to consider alternative product categories. In essence, this real time flexibility has served us well over the years, and SGC will remain nimble as international trade negotiations continue to evolve. Regardless of macro conditions, we remain hyper focused on expense management.

Speaker 1

As we mentioned on our last call, we launched our initiative to reduce budgeted expenses during the second quarter, and we are seeing the benefit of those cost reductions, which has and will continue to position us for stronger profitability. Turning to our second quarter results. We grew consolidated revenue more than 9% year over year even in this uncertain economic environment. Our largest business, Branded Products, significantly picked up over the past couple of months and generated 14% growth during the quarter, followed by Healthcare Apparel, which grew 6%. Revenues for our contact center business declined 3% versus the prior year period.

Speaker 1

On the bottom line, net income per diluted share of the second quarter was $0.10 resulting in strong sequential improvement from the first quarter and up from $04 per diluted share in the second quarter of last year. Versus the year ago quarter, our higher profitability stemmed from the stronger top line results while maintaining a healthy gross margin and driving a slight improvement in SG and A as a percent of sales. As Mike will discuss more, we maintained a strong balance sheet during the quarter, which puts us in a position of strength to make strategic long term decisions around the use of capital. In fact, we actively repurchased our own common shares during the second quarter, which we consider a compelling value. I'll conclude my remarks today with a review of each of our business segments, beginning with Branded Products.

Speaker 1

As I mentioned, we saw a meaningful pickup later in the quarter. The good news is that for Branded Products, our pipeline of business opportunities and our order backlog both remain very strong. Looking ahead, our growing sales team is winning new accounts, growing our wallet share with existing customers and prospects, and therefore, we expect to continue expanding our still modest market share in this attractive highly fragmented market. As a reminder, we're in the top 10 largest branded product providers nationwide out of more than 25,000. Turning to healthcare apparel.

Speaker 1

Again, we were able to grow top line revenues despite the economic uncertainty felt by our customers, which impacted our institutional healthcare apparel and our wholesale related channels. We are carefully and strategically investing to grow both of our digital channels, that's wholesale and direct to consumer, and also to further spur demand for our Wink and Carhartt licensed brand products across all our channels. Similar to branded products, we have single digit market share in healthcare apparel that continues to expand in this attractive long term growth industry. Wrapping up our business segment discussion, our contact center segment has been more recently facing a couple of headwinds. First, as I mentioned a moment ago, one of PHP's largest customers who operates in the solar industry recently filed for bankruptcy, negatively impacting both second quarter results and future sales.

Speaker 1

Secondly, we are continuing to experience slower decision making from prospective customers. While our new sales team is making good progress with RFPs and generating a record pipeline, the pace of revenue from new customers has been historically slow. With that said, we are encouraged by the record pipeline of opportunities and the strong interest from a variety of companies and industries in nearshore outsourcing. Our opportunities are at various stages of customer diligence and negotiation, and we are working diligently to close those opportunities as quickly as possible. I'll now hand it over

Speaker 2

to Mike to take us through a detailed look at second quarter results, and then we'll open the lines for Q and A. Mike? Thank you, Michael, and thank you, everyone, for joining us today. On a consolidated basis, we grew top line revenues 9% in the second quarter, our strongest year over year growth since the third quarter of last year. Our largest business, Branded Products grew revenues by 14%, driven

Speaker 3

by

Speaker 2

the timing of orders delivered, organic expansion with existing large enterprise accounts, including higher tariffs and revenues generated by three point following its acquisition in December 2024. For healthcare apparel, we grew revenues by 6% over the second quarter of last year from volume increases in Wink and Carhartt products. Our contact center business saw a 3% decline in revenues versus the year ago quarter as continued macroeconomic headwinds resulted in customer downsizing and attrition outpacing new customer acquisitions. While our sales activity has picked up and our sales force drove the pipeline to a record high, we are experiencing a slower pace of new customer acquisition due to the delay in decision making from prospective customers that Michael previously mentioned. Our consolidated gross margin was about flat versus last year's second quarter at 38.4%, but up 160 basis points sequentially.

Speaker 2

SG and A at 36.3% of sales improved from 36.9% in the year ago quarter despite recognizing $1,800,000 in credit loss reserves across the Branded Products and contact center segment during the second quarter due to customer bankruptcies. The SG and A rate improvement was driven by leverage on the 9% sales increase as well as the benefit from cost reduction actions that we disclosed in the prior quarter. Putting together our stronger revenue with steady gross margin and improved SG and A performance, we generated EBITDA of $6,100,000 up from $5,600,000 in a year earlier period. Turning to performance by segment. For Branded Products, we saw a 100 basis point improvement in gross margin to 35.6%, driven by favorable customer sales mix.

Speaker 2

The SG and A rate for branded products also improved to 27.5% versus 28.3% in the second quarter of last year, benefiting from leverage on the significant sales increase for the quarter. As a result, branded products drove strong improvement in quarterly EBITDA to $9,000,000 up from $6,700,000 a year earlier. As for healthcare apparel, our gross margin of 35.5% decreased from 38.4% a year earlier due to higher cost of goods, including the recently enacted higher tariff costs in advance of price increases to our customers. Conversely, we were able to hold the line on controllable expenses and SG and A came in at 35.7% of sales, which was 150 basis points better than the 2024, driven by higher sales during the quarter. Overall,

Speaker 4

our healthcare apparel EBITDA of $800,000 was down modestly from $1,300,000 the prior year.

Speaker 2

Moving on to contact centers, we drove a slightly higher gross margin of 52.6%, up 40 basis points year over year. However, the SG and A as a percentage of revenues increased to 48.4% as compared to 42.4% in the year ago quarter, primarily due to a $1,100,000 credit loss reserve resulting from the solar customer bankruptcy during the quarter. Therefore, contact centers EBITDA of $1,600,000 was down from $3,200,000 a year earlier. Turning to net interest expense, the second quarter was $1,300,000 which compares favorably to $1,500,000 in the second quarter a year ago, benefiting from a lower weighted average interest rate. Putting it all together, we returned to profitability this quarter with net income of $1,600,000 up from the prior year second quarter's net income of $600,000 basis, we produced earnings per diluted share of $0.10

Speaker 5

up from $04

Speaker 2

compared to the year ago quarter. Moving

Speaker 4

on

Speaker 2

to the balance sheet. At the June, we had $21,000,000 in cash and cash equivalents, up from $19,000,000 at the beginning of the year. We continue to actively buy back our own common shares during the quarter as an attractive use of capital, repurchasing about 390,000 shares for approximately $4,000,000 resulting in an average purchase price of $10.26 per share. We ended the quarter with $12,300,000 remaining under our current buyback authorization of $17,500,000 Taking into account our operating cash flow, share repurchases and consistent dividend, our net leverage ratio at the June was 2.2 times trailing 12 covenant EBITDA, consistent with the first quarter and up from 1.7 times at the start of the year. We have significant liquidity to execute on our growth plans, while continuing to return capital when possible to shareholders and we remain well within our covenant requirements.

Speaker 2

I'll wrap up with our full year outlook, which is unchanged from last quarter as we still expect revenues to be in the range of $550,000,000 to $575,000,000 suggesting year over year growth at the high end of about 2%. While our clients across all three business lines continue to face uncertainty regarding inflation, interest rates, tariff duties and other macro factors, we're well positioned to support their needs regardless of the economic environment, given our strong liquidity and the costs we've already removed from the business while continuing to invest in our own favorable growth prospects. And now operator, if you could please open the line, Michael, Jake and I would be happy to take questions.

Operator

Thank you. Your first question comes from David Marsh from Singular Research. Please go ahead.

Speaker 6

Taking the questions and nice to hear you guys a lot more upbeat than you were last quarter. So congrats on the quarter. So first question, Mike, guess this is for you. Just wanted to zero in on the SG and A a little bit. I see as a percentage of revenue that it is down nicely sequentially and year over year, but on a gross dollar basis, it's up and I'm guessing it's up driven by the higher revenues.

Speaker 6

So I was just wondering if you might be able to help us kind of quantify as a percentage like what percentage of SG and A is tied to increases and decreases in sales and kind of what percentage is more kind of fixed recurring type costs?

Speaker 2

Sure. I would just call out, Dave, from as we've mentioned in our prepared remarks, within SG and A for the quarter, so our SG and A is $52,200,000 for the quarter. That does include $1,800,000 of credit loss reserves charges. So more like one time charges. So if you were to take that out, our SG and A would have been about 35% of sales.

Speaker 2

So even better leverage for the quarter relative to those sales that we drove for the quarter. So again, we would have had a much, much better rate there. Commissions, particularly within the branded product segment are variable, and they are included within G and A. And we've got some other variable expenses related to sales, obviously. But again, by and large with that with those credit loss charges this quarter, that's what kind of impeded some of the otherwise strong improvement in G and A that we would have realized.

Speaker 6

Got it. Got it. Thank you very much for that. That's helpful. A lot of talk this quarter on different conference calls and different industries about the impacts of AI on business.

Speaker 6

Trying to understand if there are any opportunities for Superior Group to take advantage of AI perhaps to reduce costs in some of the business lines. Could you just talk about what those opportunities might be?

Speaker 1

Yes. It's a long conversation. I'm going to try to get through it quickly. I'll speak to our contact centers in particular, but then jump over to some of the other businesses. We are employing AI in every facet of our contact centers, talent acquisition and development, onboarding people, enabling agents to build confidence, readiness before even reaching the production floor.

Speaker 1

In our sales and marketing enablement, we've in identifying high value prospects, optimizing outreach strategies, really contributing to a more target efficient go to market approach using AI. We have a product called Guru Assist that basically does real time next best action guidance to agents on the phone, improves their accuracy, the average handle times and customer satisfaction, which makes our customer particularly pleased because it's a much more efficient process for them. In addition to that, we've got insights from AI and reporting from AI that's enhanced our ability to really be a whole lot more effective in our business. Our clients are reporting measurable improvements in interaction quality, effectiveness of an overall customer experience. And we're seeing our satisfaction scores, which were already high, even higher than ever.

Speaker 1

Then you go and you jump into Jake's business. I'll let Jake jump in and since he's on the call and tell you what we're doing in our Branded Products business in AI.

Speaker 7

Yes. Thanks, Michael. And nice to meet you, Dave. So what I'd say is on the Branded Products side, the thing that takes the longest amount of time for us to do by far is product selection, right? Someone comes to us and says, we're having a trade show, we're having an event, we're doing a holiday party, go select items for us.

Speaker 7

That is by far the most time consuming and labor intensive aspect of the branded products business. We're putting AI agents into our technology to allow us to basically do product selection and mock ups using artificial intelligence rather than human beings. So you might ask, hey, I need a holiday gift for 500 employees and I spent $100 an employee. Rather than one of our people going and going to 10 websites and finding items and mocking them up, we can use an AI agent to do all of that for us and present ideas that quite honestly are gonna select better ideas than any human being can select because it's going through all the history of what you've ordered in the past, what's trending now in the marketplace. And that is better for us from an employee leverage perspective and also a better experience for the client.

Speaker 7

So that's a huge advantage for us that the rest of our industry doesn't have the technical wherewithal nor the financial capability of putting something like that in place.

Speaker 6

That's super helpful and sounds very positive for the outlook going forward. Just if I could sneak one more in before I turn it over, you guys reiterated some revenue guidance for the year. That range looks quite reasonable given where you are here halfway through. Are you feeling a little bit better about visibility in the back half of the year? And is that giving you the confidence to reiterate that range here?

Speaker 2

Sure. I think, Dave, the message I think you get from the prepared remarks is, we're seeing mixed results, mixed reactions to the current environment. Clearly, in our Branded Products segment, very strong quarter. Good growth in healthcare top line as well, but feeling some of the initial impacts of tariffs. So I think that I think we're feeling obviously very comfortable with the range that we have, which is why we reiterated the range.

Speaker 2

But there's still a level of uncertainty out there. China is still has the possibility of changing. Obviously, there was a tariff update given last week, which does provide a little bit more certainty in certain other countries. So still some uncertainty, but I would say that the performance of the second quarter being improved sequentially and up over last year gives us obviously a little bit more confidence as we head into the third and fourth quarter and we're certainly working very diligently to keep that momentum going into the back half of the year.

Speaker 6

Thanks, Mike. Appreciate those comments. I'm going to yield the floor. Thanks a lot for taking

Speaker 1

the questions guys. Appreciate it.

Operator

Thank you. Your next question comes from Keegan Cox from D. A. Davidson. Please go ahead.

Speaker 3

Nice quarter guys. My question is going to be on everyone's favorite topic, tariffs. I was wondering if you guys saw any customer pull forward related to tariffs this quarter? And then also what you're seeing in inventory because I see you had a little bit of a build?

Speaker 7

Yes. Keegan, this is Jay Kimmelstein. I'll start there with what I'm seeing in the Branded Products segment. Certainly, from a tariff perspective, there it puts some cost pressures and supply chain challenges around the business. I think that with some of the more recent deals that have happened from The U.

Speaker 7

S. With just like China and Vietnam, it's eased a little bit of that pressure. We've responded to these tariffs with very strategic inventory buys, leveraging long term supplier relationships, leaning on our suppliers to get better pricing in some cases. And the beauty of the branded products business is the vast majority of it is made to order, meaning the orders come in and we price them to order. And so if there are tariffs there, we will add in that tariff cost and for the most part, be able to pass it through to our clients.

Speaker 7

So while certainly tariffs are a headwind, we've been very proactive and we've been able to kind of use it as a competitive advantage in the environment. Our competition, shockingly, has basically buried their head in the sands last four or five months on the tariff side. And we've been very aggressive, doubling down, picking up new clients, picking up new sales reps from some of our competitors. And it's kind of been our MO throughout our history is that when things are challenging, when there's a difficult economic environment, we get more aggressive and it's been really beneficial for us.

Speaker 5

Add to And then,

Speaker 2

Ki Bin.

Speaker 1

We did encourage our customers to try to order early, particularly with merchandise that was sitting in The U. S. Already from some of our suppliers that would get low load and ship to them. I'd tell you, I would have expected more to have jumped on that opportunity and saved a boatload of money doing it. But you'd be surprised how few did.

Speaker 1

Enough did it that it definitely helped a little bit. I wouldn't say it was significant. And then in our Healthcare business, I don't think that happened at all. Think quite contrary on the institutional side of the business. I think everybody is just holding off, waiting to see what's going to happen.

Speaker 1

And I think they're waiting to see what's going to happen with Medicare and Medicaid reimbursements in Healthcare too as well. That's on the institutional side and how they're going to spend money and what hospital censuses are going to

Speaker 7

be and what's going to

Speaker 1

be covered and what's not. But on the consumer side, we're very encouraged by what we saw. Foot traffic in retail has improved with our Scrubs channel and our direct to consumer also was quite robust. So a little bit of a mixed bag. Obviously, the off skewers was not really impacted.

Speaker 1

There was no pull forward.

Speaker 3

Got it. And then,

Speaker 2

Tegan, did you have a question about inventory overall?

Speaker 3

Yes, just the build there this quarter.

Speaker 2

Yes. Okay, Ray, I'll hit that. So we did have a build in inventory primarily within our healthcare business. That's due as we're looking for a stronger back half pickup in trend in healthcare. And then last year, we did experience stock outs, particularly on the institutional side of our healthcare business.

Speaker 2

So filling in inventory where we felt necessary to support sales. Again, to some extent, is, call it, seasonal or cyclical. So again, we're building in preparation for an upward trend in the back half of the year consistent with our overall guidance. And then obviously, we would expect those inventories to normalize on the other side of those sales as we move forward.

Speaker 3

Got it. And then just a follow-up. I wanted to get your guys' thoughts on the outlook given the recent weaker employment report and job revisions. And then if there if you've noticed any changes in customer order patterns?

Speaker 1

I would make a comment that there hasn't been a great reduction in healthcare in hiring. As a matter of fact, there's still a huge shortage of healthcare workers. So healthcare really hasn't been impacted very much. It's quite contrary. As we've said on previous calls, a lot of our retail customers, particularly grocery, fast food are trying to automate as much as they can.

Speaker 1

So they've been doing very little hiring except to replace employees over the past year and a half. But yes, there's a little bit of an impact on that. No doubt that some of our customers are holding back because they're seeing things slow down a little bit. And but grocery is still doing well. But grocery, I mean, we've all been grocery stores where they're trying to get customers to do their own checkout now.

Speaker 1

And some are successful and some have actually gone away from that because the shrinkage was too great from theft. So kind of a mixed bag. It's I have not seen anything that indicates to me that our business has been significantly impacted by any kind of labor reductions in the work force.

Speaker 7

And Michael, one thing that I'll add to that is on the branded products side, do quite a bit with technology companies. And with AI, there's a lot of money flying around and there's a lot of hiring. And that has been very beneficial to us, where we've seen a lot of our technology clients come out of the tariff situation has maybe not fully resolved, but at least normalized. We've seen a lot more spend and decision making open back up, which has been very beneficial for us.

Speaker 3

Thank you.

Operator

Thank you. Your next question comes from Kevin Steinke from Barrington Research. Please go ahead.

Speaker 8

Great. Thank you. I just wanted to dig a little bit more into the strong growth in branded products and just kind of a portion, the drivers of that. You talked about market share gains. I think you also mentioned timing of orders, maybe an improvement in terms of customer sentiment.

Speaker 8

So I just if you could talk about really, is that most of that growth been driven by the market share gains, like you said, competitors really pulling back? Or have customers have become more comfortable with moving forward in this environment despite some of the uncertainties?

Speaker 7

Kevin. This is Jake. I have to talk about that. It is really a combination of all of those things. And last quarter, we talked about how pipeline and backlog were extremely strong.

Speaker 7

And so even in spite of the tariff environment, we saw that pipeline and backlog and knew that was going to pull through. And sure enough, it did. And we've been really happy with that with those gains. And our pipeline still remains very healthy, continue to see a lot of organic expansion with some of those key enterprise accounts, particularly on the tech side that I spoke about earlier. But yes, look, we

Speaker 2

did have some Q2 pull forward, some orders that we're maybe going to deliver later in the year that pulled forward. A lot

Speaker 7

of this was potentially looking at tariffs and trying to

Speaker 2

pull orders a little bit earlier. But really, that's, in my view,

Speaker 7

a testament to the strength of our operations team and being able to pull orders into the second quarter. But I still think we're going to have a really solid second half of the year. Things look very strong, pipeline backlog, both very, very encouraging. And yes, we're starting to see those decisions open up again, where people were very apprehensive in the second quarter because of the tariffs. Starting now into the third quarter, we've seen really encouraging signs of momentum from our clients across all industries.

Speaker 8

Okay. Yes. Thanks for the insight on that. And you mentioned when talking about Healthcare, expecting a stronger 2025. Again, I think you talked about better trends in, I guess, and direct to consumer.

Speaker 8

Is that where you're expecting the favorable trends to continue? It sounds like the institutional is still pretty slow and uncertain, but any more comment on that would be helpful.

Speaker 1

Yes. We expect the institutional side to pick up. There's only so long they can go and process the same uniforms in their laundry before they basically come to end of life and have to replace them, Kevin. So they brought down their inventories for sure. There's some of the shelf stock inventory.

Speaker 1

Maybe they haven't bought as much reserve inventory to feed that to feed what is really a huge need in their laundries. But we expect that to return. We expect consumer to the second half of the year generally is better. You have a lot of holidays. You've got all prime days and you've got all the Black Friday or Turkey twelve and all these other selling periods in the second half of the year that are always very helpful as well as holiday gifting and so on.

Speaker 1

So we expect that the second half of the year in healthcare to be better. I think there's it's no great secret that Amazon is a large customer of ours and Amazon has made some decisions with respect to how much inventory they're going to carry on the shelf. And so they're carrying less inventory on the shelf. I mean, that's been widely publicized. And as a result, they've been able to get by, by not ordering as much in the prior quarters.

Speaker 1

But that too will come to an end and we expect that to pick up as well. So all things look good for healthcare for second half of the year.

Speaker 8

Okay, good. And just also on contact centers, you mentioned the strong pipeline there, but kind of historically slow decision making. What do you think it takes to get that pipeline moving and converting again? Is that I mean, again, that something that your clients eventually need to do or they can kind of hold off on that? And then definitely, I think there would be some aspect of that perhaps being an efficiency player, cost savings play for them in some respects.

Speaker 8

But I don't know, any thoughts on that?

Speaker 1

Good question. We think we're there when you say, what can we do to improve the pipeline? We're spending more money on marketing ever to drive people to us organically. Our sales force is bringing us more opportunities than ever. We're using lots of technology to data mine, to be able to find new customers, both in the all the verticals that we're already in and even some new ones.

Speaker 1

We're not leaving the stone unturned. The good news is that we measure where things are in our pipeline in our and I can tell you that I'm not talking about opportunity pipeline, I'm talking about customers who we are at least 95% certain we're going to win their business because we've exchanged contracts, pricing has been agreed to at this point, we've redlined back and forth, and we are very, very close to consummating a lot of deals, which will impact mostly fourth quarter, but even more so first quarter of next year. But we're very encouraged by both our I would call that backlog and as well as opportunity pipeline, which is growing and as Mike said earlier, is the largest we've ever seen.

Speaker 8

Okay. Well, that's good to hear. Thanks for taking the questions. I'll turn it back over.

Speaker 1

Thank you, Kevin.

Operator

Thank you. Your next question comes from Jim Sidoti from Sidoti and Co. Please go ahead.

Speaker 4

Hi, good afternoon. Thanks for taking the questions. So Mike, you called out that $1,800,000 of credit loss reserve, which would bring your SG and A down to the around 35%. Is that a good that a good metric for the end of the year? Do you think SG and A right around 35% is realistic?

Speaker 2

I think that's a reasonable target, Jim. I mean, obviously, depends on where we fall into that range. But I think when you take into account the cost reductions that we talked about in the first quarter call that have begun to kick in during the second quarter, obviously, we'll see more of a benefit of that going forward. That should enable us to get overall a little bit of leverage for the full year.

Speaker 4

Right. And you also mentioned that the three point acquisition was starting to contribute to branded products. Are there other three points out there? And how aggressive are you at this point on the acquisition side?

Speaker 7

Jim. So there are quite a few other three points out there. I would say at this point, we're opportunistic. If there's a great opportunity out there, we'll certainly look

Speaker 2

at it. But we are going to kiss a lot

Speaker 7

of frogs. We're going talk to a lot of companies are not right fit. And we will be very selective to find the right ones. But the easy answer to question is that there are a lot of companies just like Three Point out there that have owners that are aging out that want to look for an exit. And we are a very appealing landing spot for them.

Speaker 5

Good. And then Let me add

Speaker 1

to that, Jim. This is Michael. We spoke about on the last couple of calls our reluctance to jump into any acquisitions, considering all the uncertainty around us. But I think you should get a sense from this call that we're past that now. And we're we had one bad quarter this year, first worst quarter we've had in a couple of years in many years, maybe decades, but having an operational loss the way we did.

Speaker 1

But now that we're on the right path, I think we are very serious about trying to partner with the right companies and find the right opportunities. But we're going to as Jake just said, we're going to be very selective. They have to be quickly accretive and they have not distract us from organic growth because we believe the as proven this quarter, we're able to organically grow. And obviously, that's the best thing we can do for our shareholders.

Speaker 4

Okay. And then last one for me is on tariffs. India has been in the news, I guess, the last day or so, potential tariffs there. Is India a supplier for any of your components? Could that be an issue for you?

Speaker 1

Very, very little. And they're not exclusive. In some cases, could, in a moment, switch to other countries, which we will. We do a little bit of mid shirts there and a couple of other products, but very, very little. We do have an office in India, as you know, with over 400 people and it's supporting particularly branded products, but from a programming standpoint, really supporting all of our businesses.

Speaker 1

But that has not been impacted at all.

Speaker 4

Okay. All right. Thank you.

Operator

Thank you. Your next question comes from Michael Kupinski from Noble Capital Markets. Please go ahead.

Speaker 5

Thank you and congratulations on your good quarter. A couple of questions. So in the last call, you indicated that there would be some mitigation efforts to offset tariffs. And I know we talked a lot about tariffs, including the prospect of manufacturers taking a portion of the tariff impact. Can you just add a little color on how those mitigation efforts went?

Speaker 5

Have all of those mitigation efforts been implemented at this point? And were there price increases already factored into the second quarter?

Speaker 1

I'll start with the last portion of that. Price increases mostly kick in during the third quarter, the very end of second quarter, some of them most of them third quarter. As far as the mitigation activities, we were successful and what we contemplated we would be able to push back and adjusted our pricing to our customers accordingly, not trying to take unfair advantage of them. But we feel like we've landed in a really good place. And from a competitive standpoint, I don't want to get too specific about what we did.

Speaker 1

But I feel we're in very good stead. And really, I believe that going forward, we protected our margins pretty much.

Speaker 5

And it seems like you're pretty sanguine about the outlook. But obviously, given where the trend lines are, you're still a little cautious about the second half. Is that largely because it seems at least that the tariff impact largely would fall in the second half, right? Because most lead times and shipping things like that probably wouldn't affect the second quarter as much as it probably would like maybe the third quarter or the fourth quarter. Was just wondering if you can just discuss those mitigation efforts as it might impact the margins.

Speaker 5

And I know you talked a little bit about SG and A, but I was just wondering where's the sense of caution that you have? Is it on the margin? Or is it on the revenue side as we kind of look towards the second half?

Speaker 1

Yes. If you take the first half of the third quarter of this year, very little impact from margins, except in Jake's business, of course, on the branded merchandise side of his business, a lot of ad hoc orders there that we are pricing the tariffs into every single order as they come up. But remember, we're keeping for the most part six at least six months of inventory on the shelf. The impact to our most of our inventory is still sitting on the shelf at pre tariff ranges. And but we'll start seeing some impact in the fourth quarter, Although the fourth quarter is usually from the uniform side of the business is probably a slower quarter for us.

Speaker 1

Most retailers are more focused on driving their sales in the fourth quarter than spending money on new uniforms. So I don't think tariffs are going to play a huge part in the second half of this year. We have raised prices to the extent we thought they would and kind of spread it out over the second half of the year. And we'll look at it again next year to see if we need to raise prices yet again. It's a very fluid situation.

Speaker 1

Generally, we have to give ninety days notice to most of our customers on raising prices. And we get to the end of this year and we feel we need to do another price raise, we will.

Speaker 5

Got you. And then in terms of the call centers, what would and maybe you may have said this and I apologize. What was the impact from the solar company in terms of revenue? What was the revenue impact in the second quarter?

Speaker 2

The revenue impact in the second quarter was relatively small. We started to pull back on that particular customer. We'll be transitioning out of that customer over time, but the impact in Q2, the biggest impact was again the credit loss that we had to take on prior services. But we continue to service them post petition, albeit at a smaller scale. So again, some impact, but not major.

Speaker 2

The impact will be felt more significantly from a revenue standpoint as we move forward.

Speaker 5

Can you kind of quantify what that revenue impact might be going forward? And it seems like just from your commentary, you anticipate maybe the third quarter to still to be down maybe and the fourth quarter to be up given the pipeline that you have or maybe you can just clarify that?

Speaker 2

I mean, I can't give specific on specific revenue by customer, but I would say that as we look at the contact center forecast for the balance of the year, Certainly, there's a headwind, if you will, associated with the bankruptcy. But as Michael alluded to, the team's working to convert what's sitting in the pipeline as quickly as possible. Again, a lot of that might will generate revenues next year, but there's also certainly the possibility that the conversion of that pipeline could offset some of that softness here in the third and partially in the fourth quarter.

Speaker 5

Got you. All right. That's all I have. Thank you.

Operator

Thank you. That does conclude our time for questions. I'll now hand back to Michael Benstock for closing remarks.

Speaker 1

Thank you, operator. We certainly appreciate everyone being on the call. I want to thank our loyal customers and our dedicated employees for delivering an improved performance this quarter. Despite the ever changing macroeconomic and political conditions, we remain focused on what we can control and ultimately achieving our goal of delivering long term growth across our three businesses. We'll keep you updated as we move through the year.

Speaker 1

Please don't hesitate to reach out with any additional questions. Thanks again for your interest in SGC, and enjoy the evening.

Operator

Thank you. And that does conclude our conference for today. Thank you for participating. You may now disconnect.

Powered by Quartr