Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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, 2025.

The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Cautionary Note Regarding Forward-Looking Statements" below for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Business Outlook

Superior Group of Companies, Inc. (together with its subsidiaries, the "Company," "Superior," "we," "our," or "us") is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel and (3) Contact Centers.

Branded Products

In our Branded Products segment, we produce and sell customized merchandising solutions, promotional products and branded uniform programs to our customers. As a strategic branding partner, we offer our customers customized branding solutions and strategies that generate favorable brand impressions, bolster customer retention and enhance employee engagement. Our products are sold to customers in a wide range of industries, including retail chain, food service, entertainment, technology, transportation and other industries. Sales volumes in this segment are impacted by a number of factors, including marketing programs of our customers and turnover of our customers' employees, often driven by the opening and closing of locations. From a long-term perspective, we believe that synergies within this segment will create opportunities to cross-sell products to new and existing customers.

Healthcare Apparel

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 portfolio of brands Wink®, Fashion Seal Healthcare®, its trade name CID Resources and our license of Carhartt Medical, will continue to provide opportunities for growth and increased market share.

Contact Centers

In our Contact Centers segment (also known as "The Office Gurus"), which operates in El Salvador, Belize, Dominican Republic and, the United States and in Jamaica until its closure on June 15, 2025, we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. These services are also provided internally to the Company's other two operating segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The nearshore call-center market has grown as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators can provide comparable service to their U.S. counterparts at a fraction of the price. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.

Global Economic and Political Conditions

During 2025, the U.S. government imposed higher tariffs and/or new tariffs which impacted certain sources of the Company's materials and production. Additionally, the U.S.'s trade agreements and/or preferences with certain countries in Africa, through the African Growth and Opportunity Act (AGOA), and with Haiti, through the Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE) and the Haiti Economic Lift Program of 2010 (HELP), expired on September 30, 2025. In February 2026, these agreements were retroactively extended until December 2026. If not renewed and/or extended beyond December 2026, the cost of continuing to do business in these countries likely will negatively impact our results of operations and financial position, or result in us moving sourcing and manufacturing from these countries to countries with more favorable cost structures. We will continue to monitor the status of the trade agreements and preferences involving the U.S. government and the countries in which we source and/or manufacture products. See Item 1, "NOTE 6 - Contingencies and Geographic Supply Concentrations."

In February 2026, the United States Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs, effectively invalidating the tariffs imposed via that method. These IEEPA tariffs stopped being collected on February 24, 2026. The Supreme Court's ruling left open the questions of whether, how, and when payors of the tariffs might receive refunds; subsequently, the U.S. government created a system through which refunds of certain entries could be processed. A new 10% tariff has been implemented under Section 122 of the Trade Act of 1974, effective as of February 24, 2026. Although the United States Supreme Court ruling invalidated the tariffs paid prior to February 24, 2026, as of March 31, 2026, the Company has not recorded a tariff refund receivable due to the uncertainty of the amount and collection of a refund.

It is uncertain how inflation and interest rates will be impacted in 2026 by the imposition of tariffs and other trade-related actions or inactions. World events, such as the Russia-Ukraine War, the joint U.S.-Israeli War with Iran in 2026 and other conflicts in the Middle East, continue to negatively affect the global economy. Additionally, civil unrest in countries where we manufacture products, like Haiti, may result in our facilities incurring damage or destruction and could interrupt our manufacturing processes and adversely affect our reputation and our relationships with our customers.

Prolonged or recurring disruptions or instability in the United States and global political and economic environments, 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 our revenue and profitability, increased costs related to higher oil and natural gas prices and/or supply imbalances in the oil and natural gas markets, costs associated with complying with new or amended laws and regulations and mitigating the increased cost of the new tariffs and duties 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 and goodwill.

Results of Operations

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025 (in thousands)

	For the Three Months Ended March 31,
	2026			2025			$ Change			% Change
Net sales:
Branded Products	$	90,869		$	86,474		$	4,395			5.1	%
Healthcare Apparel		28,601			27,263			1,338			4.9	%
Contact Centers		22,253			24,225			(1,972	)		(8.1	%)
Net intersegment eliminations		(845	)		(865	)		20			(2.3	%)
Consolidated net sales		140,878			137,097			3,781			2.8	%
Gross margin:
Branded Products		30,987			27,687			3,300			11.9	%
Healthcare Apparel		10,181			10,133			48			0.5	%
Contact Centers		11,614			12,981			(1,367	)		(10.5	%)
Net intersegment eliminations		(448	)		(360	)		(88	)		24.4	%
Consolidated gross margin		52,334			50,441			1,893			3.8	%
Selling and administrative expenses:
Branded Products		24,746			23,420			1,326			5.7	%
Healthcare Apparel		10,778			9,526			1,252			13.1	%
Contact Centers		9,563			10,921			(1,358	)		(12.4	%)
Intersegment Eliminations		(448	)		(360	)		(88	)		24.4	%
Other		5,729			6,595			(866	)		(13.1	%)
Consolidated selling and administrative expenses		50,368			50,102			266			0.5	%
Interest expense, net		912			1,245			(333	)		(26.7	%)
Income (loss) before income tax expense		1,054			(906	)		1,960			(216.3	%)
Income tax expense (benefit)		220			(148	)		368			(248.6	%)
Net income (loss)	$	834		$	(758	)	$	1,592			(210.0	%)
EBITDA(1)	$	4,824		$	3,543		$	1,281			36.2	%

(1) Please refer to "Non-GAAP Financial Measure" below for a reconciliation of EBITDA to net (loss) income.

Net Income

The Company generated net income of $0.8 million and a net loss of ($0.8) million during the three months ended March 31, 2026 and 2025, respectively. The increase in net income for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 is inclusive of $1.0 million of severance payments in the Healthcare Apparel reportable segment, and was primarily due to an increase in consolidated gross margins across our Branded Products and Healthcare Apparel reportable segments, along with a decrease in consolidated interest expense, net.

EBITDA

EBITDA was $4.8 million and $3.5 million during the three months ended March 31, 2026 and 2025, respectively. The EBITDA increase was primarily due to increased earnings driven by the increase in consolidated gross margins. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), please read "Non-GAAP Financial Measure" below.

Net Sales

Net sales for the Company increased 2.8%, or $3.8 million, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The increase was attributable to increases in net sales in our Branded Products and Healthcare Apparel reportable segments, partially offset by a decline in our Contact Centers segment.

Branded Products net sales increased 5.1%, or $4.4 million, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The increase was primarily due to volume increases in branded uniform apparel within existing customer accounts.

Healthcare Apparel net sales increased 4.9%, or $1.3 million, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The increase was primarily due to volume increases within existing customer accounts.

Contact Centers net sales decreased 8.1% or $2.0 million, before intersegment eliminations for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The 8.1% decrease versus the year-ago quarter reflects prior year client attrition that exceeded growth from new customer acquisitions.

Gross Margin

Gross margin rate for the Company was 37.1% for the three months ended March 31, 2026 and 36.8% for the three months ended March 31, 2025. The rate increase was due to an improvement in gross margin rates in our Branded Products segment.

Gross margin rate for our Branded Products segment was 34.1% for the three months ended March 31, 2026 and 32.0% for the three months ended March 31, 2025. The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.

Gross margin rate for our Healthcare Apparel segment was 35.6% for the three months ended March 31, 2026 and 37.2% for the three months ended March 31, 2025. The rate decrease was primarily driven by higher costs compared to the prior year period driven by increased sales with lower margin existing customers.

Gross margin rate for our Contact Centers segment was 52.2% for the three months ended March 31, 2026 and 53.6% for the three months ended March 31, 2025. The decrease in the gross margin rate was primarily attributable to higher employee related costs as compared to the prior year period.

Selling and Administrative Expenses

Selling and administrative expenses were relatively flat for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. As a percentage of net sales, total selling and administrative expenses was 35.8% for the three months ended March 31, 2026 and 36.5% for the three months ended March 31, 2025. The rate decrease was due to an improvement in selling and administrative expenses as a percentage of net sales rates in our Contact Centers segment and a reduction in Other selling and administrative expenses.

Branded Products selling and administrative expense increased $1.3 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 primarily due to increased commission expense. As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 27.2% for the three months ended March 31, 2026,up slightly from 27.1% for the three months ended March 31, 2025.

Healthcare Apparel selling and administrative expense increased $1.3 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 due to $1.0 million employee severance costs and higher digital media costs. As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 37.7% for the three months ended March 31, 2026 and 34.9% for the three months ended March 31, 2025.

Contact Centers selling and administrative expense decreased $1.4 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 due to cost reductions implemented in 2025 related to closure of its Jamaica office and elimination of various administrative support costs. As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 43.0% for the three months ended March 31, 2026 and 45.1% for the three months ended March 31, 2025.

Selling and administrative expenses for Other, which represents Corporate costs, decreased $0.9 million primarily due to lower third party professional services related expenses and lower stock-based compensation expenses.

Interest Expense, Net

Interest expense, net decreased to $0.9 million for the three months ended March 31, 2026 from $1.2 million for the three months ended March 31, 2025. This decrease was due to a lower weighted average interest rate on those borrowings from 5.4% for the three months ended March 31, 2025 to 4.9% for the three months ended March 31, 2026.

Income Taxes

Income tax expense increased to $0.2 million for the three months ended March 31, 2026 from a benefit of $0.1 million for the three months ended March 31, 2025. The effective tax rate was 20.9% and 16.3% for the three months ended March 31, 2026 and 2025, respectively. Income tax expense and the effective tax rate for the three months ended March 31, 2026 and March 31, 2025 were 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 rate was further impacted by discrete items related to the Company's share-based compensation and long-term incentive plans during the current quarter. 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.

Liquidity and Capital Resources

Liquidity Analysis

Short-Term Liquidity

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 and operating leases and fund capital expenditures, dividends, stock repurchases, any potential merger and acquisition activity and other general corporate purposes. Management 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.

Long-Term Liquidity

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, long-term pension liability, operating leases, acquisition-related contingent liabilities 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.

Cash Requirements

Working Capital Needs

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.

Capital expenditures

Capital expenditures were $0.6 million and $1.1 million for the three months ended March 31, 2026 and 2025, respectively.

Sources of Capital and Liquidity

Cash Flows from Operations

Net cash provided by operating activities primarily results from cash collected from customers for our promotional products, branded uniforms, healthcare apparel and accessories, offset by cash payments made for raw materials, finished goods, salaries and payroll related benefits, leases and other general corporate expenditures

For the three months ended March 31, 2026, net cash provided by operating activities was $9.4 million. Cash collections from customers exceeded aggregate cash payments to vendors, lessors and employees primarily driven by the Company's collection of receivable balances.

For the three months ended March 31, 2025, net cash used in operating activities was $2.0 million. Lower net sales and cash collections, as well as higher costs of goods sold resulted in net cash used in operating activities. In addition, inventory increased resulting in a use of cash of $2.2 million.

Credit Facilities and Debt Activity

The Company's primary source of liquidity has been its net income and the use of credit facilities and term loans. The Company has access to a revolving credit facility with a maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions.

For the three months ended March 31, 2026, the Company had $10.0 million in borrowings and $15.0 million in payments on the revolving credit facility. For the three months ended March 31, 2026, the Company had $1.4 million in payments on the term loan.

For the three months ended March 31, 2025, the Company had $19.0 million in borrowings and $8.0 million in payments on the revolving credit facility. For the three months ended March 31, 2025, the Company had $1.4 million in payments on the term loan.

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.

Please refer to Note 5 to our 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.

Dividends and Share Repurchase Program

During the three months ended March 31, 2026 and 2025, the Company paid cash dividends of $2.2 million and $2.3 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

On March 20, 2026, the "Company entered into a 10b5-1 trading plan (the "Plan") for the purpose of repurchasing up to $2.5 million in shares of the Company's outstanding common stock (the "Repurchase Limit") in accordance with the $17.5 million share repurchase program previously authorized by the Company's Board of Directors, which was announced by the Company on March 11, 2025. The Plan is intended to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Plan allows the Company to repurchase shares up to the Repurchase Limit commencing March 21, 2026 and ending on the earlier of the date on which the Repurchase Limit is reached or other events specified in the Plan. Repurchases of common stock under the Plan will be administered through an independent broker and are subject to certain price, market, volume and timing constraints specified in the Plan.

Critical Accounting Estimates

See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2025.

Non-GAAP Financial Measure

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.

EBITDA is not a measure of financial performance under GAAP. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operating activities or any other measure determined in accordance with GAAP. The items excluded to calculate EBITDA are significant components in understanding and assessing the Company's results of operations. The Company's EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

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

		Three Months Ended March 31,
		2026				2025
Net income (loss)		$	834			$	(758	)
Interest expense, net			912				1,245
Income tax expense (benefit)			220				(148	)
Depreciation and amortization			2,858				3,204
EBITDA		$	4,824			$	3,543

Cautionary Note Regarding Forward Looking Statements

Certain matters discussed in this Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words "may," "will," "should," "could," "expect," "anticipate," "estimate," "believe," "intend," "project," "potential," or "plan" or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) projections of revenue, income, and other items relating to our financial position and results of operations, including short term and long term plans for cash, (2) statements of our plans, objectives, strategies, goals and intentions, (3) statements regarding the capabilities, capacities, market position and expected development of our business operations and (4) statements of expected industry and general economic trends.

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 tariffs, duties, trade wars and related matters, 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 (the "SEC"), including those risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 entitled "Risk Factors" and other disclosures contained therein and in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026. 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.