Normally, we would consider our stock trade strategy on Superior Uniform Group Inc. (SGC) to be nearing an end and shares to be close to fairly valued at current levels, especially noting that the company faces some challenging financial comps over the next 3 quarters. A P/E of 25 on trailing non-GAAP EPS of $0.94 yields a price target of $23.50.   However, given that we believe SGC will complete at least one accretive acquisition this year and management’s solid track record of growing the business over the last few years, we still have a long-term affinity for this manufacturer of uniforms, career apparel and accessories.

SGC posted strong year over year growth for the first quarter ended March 31, 2015:

• 2015 revenues grew by $5.3 million to $46.3 million or 13% over Q 1 2014.
• Net income surged to $2.0 million ($.14 per diluted share) or 67.7% more than the $1.2 million ($.09 per diluted share) posted in 2014.
• Year over year non-GAAP eps was $0.20 vs. $0.15

We look forward to management’s conference call with investors later today but the most important take away from the Q 1 press release is that all of the 13% growth in revenues was organic. We alerted our premium investors on February 26, 2015 to pay special attention to SGC’s organic growth and in Q1 it was well ahead of the 8% guidance management had previously given. What we noted at the time is that we felt 8% organic growth was a particularly conservative estimate given that two important factors are currently driving growth:

• The continued roll out of (recently acquired) HPI’s selling and marketing strategies impacting all of SGC’s business lines.
• Increasingly favorable employment trends, including the voluntary turnover ratio that measures the number of workers quitting for better jobs. When an employee leaves the replacement worker needs new uniforms. The voluntary turnover ratio will no doubt increase with Wal-Mart, Target, T.J. Maxx and even McDonald’s increasing minimum wages for their workers. Look for far more mobility in the workforce than we’ve seen since the Great Recession began in 2008.

Our Portfolio Stock Trade Strategy on Superior Uniform Group

We first disclosed our long position in SGC on 10/30/2014 at $12.13. We then coded shares as a GeoBargain on 12/31/2014 at 14.75. Given the facts and until they change we plan to:

• Lighten up on our position around current prices and if shares push higher.
• Add shares if the stock experiences a meaningful pullback on earnings.
• Hold some shares long-term.

We will follow up with further updates based on the 2015 Q1 conference call and our review of the Form 10Q.

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