SUPERIOR GROUP OF COMPANIES, INC. (SGC) stock intrinsic value fair value estimate & owner earnings analysis

Superior Group of Companies is a century-old (founded 1920) apparel and services company with three businesses. Branded Products (about 64% of 2025 sales of $566 million), sold mainly as BAMKO and HPI, designs and sources promotional merchandise and branded uniform programs for retail, restaurant, entertainment and technology customers; most of the goods and raw materials come from China and other Asian suppliers. Healthcare Apparel (about 20%) sells scrubs, lab coats and patient gowns under Fashion Seal Healthcare, Wink, CID Resources and a Carhartt Medical license to laundries, distributors and hospitals. Contact Centers (about 16%, $92.5 million of 2025 sales), The Office Gurus, runs nearshore call centers in El Salvador, Belize, the Dominican Republic and the United States; the Jamaica site closed in June 2025. Sales have been flat at roughly $537-579 million since 2021. How we measured earnings. We start from operating cash flow, strip out swings in receivables, inventory and payables, and charge stock compensation, inventory write-downs, bad-debt provisions, lease costs and the capital spending needed to stand still (about 1.8% of sales). Inventory write-downs and bad debts are charged as costs because they recur every year in a business that carries large inventories and receivables. Every year from 2016 to 2025 reconciles exactly to net income plus non-cash charges, with the small differences traced to pension and other long-term lines. Because the company carries bank debt, we value the business before interest and then subtract what it owes. On that basis, cash generated before interest was $28.8 million in 2021, $9.5 million in 2022 (the year of a $13.6 million inventory write-down and a goodwill write-off), $25.0 million in 2023, $25.3 million in 2024 and $19.6 million in 2025. The median of those five years, which cover the business at its current size through a boom and a slump, is $25 million. We left out 2020, when pandemic protective-equipment sales pushed earnings to a one-off $40 million. Amortization of acquired customer relationships (about $3.9 million a year) is added back. The acquired brands and accounts have held their sales, so we see no sign that this asset is wearing out. Recent results. In 2025, cash earnings fell 22% and profit fell in all three segments. Segment EBITDA was $33.3 million for Branded Products (down from $36.3 million), $6.1 million for Healthcare Apparel (down from $8.7 million) and $9.2 million for Contact Centers (down from $12.2 million), in a year that brought new U.S. tariffs and the closure of the Jamaica site. The first half of 2026 was better. Sales rose 2.7% to $288.7 million, pre-tax profit rose to $2.3 million from $0.9 million, and our measure of cash earnings rose by roughly $3 million from the first half of 2025, even after $4.7 million of inventory write-downs (more than double all of 2025). That improvement is why the base case starts year one slightly above the 2025 level ($21 million against $19.6 million) instead of carrying the 2025 decline forward. It recovers only part of the way to the 2023-2024 level, because the tariff costs that arrived in 2025 have not gone away. Growth. We credit no growth. Sales have not grown on their own since 2021. Past growth came from acquisitions, some large and debt-funded ($85.6 million spent in 2018, mainly on CID Resources), and the 2022 write-off of $45.9 million of goodwill shows they do not reliably create value. Buybacks (diluted shares fell from 16.5 million in 2024 to 14.9 million) are not counted either. Debt. Borrowings were about $82 million at June 30, 2026, under a PNC-led bank facility with a revolver and a term loan. Both mature in August 2027, and $52.5 million of the term loan is due then. The rate floats at SOFR plus 1.0-2.0%, about 5.1% at year-end 2025. The loan requires net leverage below 4.0 times EBITDA and fixed-charge coverage above 1.25 times; the company was in compliance at year-end 2025. Cash was $22.8 million. We treat $10 million of that as needed to run the overseas and domestic operations, which leaves net debt of about $69 million, or $4.64 per share, on 14.91 million diluted shares. Base case ($16.41). Cash earnings before interest of $21 million next year, $22 million the year after, then $23 million a year: between the 2025 trough and the 2023-2024 level. The story runs 30 years, supported by a century of continuous operation, established healthcare brands and long-standing uniform and promotional relationships. Nothing is credited beyond 30 years. The business is worth about $314 million; after $69 million of net debt, that leaves $245 million, or $16.41 per share. Bear case ($6.49). Promotional spending is one of the first budgets companies cut in a recession, and the company's own record shows how deep that goes: cash earnings fell from $28.8 million in 2021 to $9.5 million in 2022. The bear case runs $18 million next year, then two years at the 2022 trough of $9.5 million, then a recovery to $18 million by year five. After that, cash earnings shrink 2% a year as Contact Centers keeps eroding and tariffs on China-sourced goods persist, and the story stops at year 20. The August 2027 refinancing lands in the downturn, so we charge two points of extra interest for five years (about $6 million in present value). Trough cash flow of $9.5 million still covers about $6.4 million of interest at 8%. The business is worth about $172 million against $75 million of debt, leaving $97 million, or $6.49 per share. Bull case ($22.17). Branded Products margins and Contact Centers recover to their 2021-2024 performance. Cash earnings reach $25 million in year two and hold at $27 million, still below the $28.8 million of 2021, for 40 years. The business is worth about $400 million, less $69 million of net debt, or $22.17 per share. What would make this wrong. Three things matter most. (1) If 2025's $19.6 million is the new normal and never improves, the shares are worth about $13.45. (2) If Contact Centers faded away entirely, removing roughly $6 million a year, the base value would drop to about $10.90. (3) Tariffs or a break in China sourcing could hit Branded Products harder than in 2025, because most of its raw materials and goods come from China. Margin-of-safety price ($8.00). Our confidence in the earnings level is moderate. Cash earnings before interest have swung between $9.5 million and $28.8 million in five years, but on our measure the business has stayed cash-positive in every one of the last ten years, and its assets are mainly receivables and inventory that turn into cash in a downturn (2023 released $52 million of working capital). The worst plausible outcome is a recession that hits promotional budgets just as the August 2027 bank maturity arrives. With debt of about three to four times a normal year's cash earnings, the company would probably be refinanced at a higher cost, not wiped out, but the $0.56 dividend could be cut. The price assumes a three-to-five-year holding period. At $8, the dividend alone is about 7% a year. Over three years, the base case implies about 31% a year from $8, and a permanently flat 2025 level implies about 24%. Losing Contact Centers would imply about 16% a year, and the bear case implies roughly breaking even with dividends. Above $8, that 20% annual target would depend on the base case coming through. At $8, it holds even if earnings never improve from 2025.