Superior Uniform Group (SGC) Q2 2019 Earnings Call Transcript

Superior Uniform Group (SGC 0.84%)
Q2 2019 Earnings Call
Jul 30, 2019, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone. Welcome to the Superior Group of Companies 2019 second quarter earnings conference call. With us today are Michael Benstock, the company's chief executive officer; Andy Demott, its chief operating officer; and Mike Attinella, chief financial officer and treasurer. [Operator instructions] This call is being recorded, and your participation implies that you agree to this.

If you do not, then simply drop off the line at this time. Now I will turn the call over to Hala Elsherbini, senior vice president of Halliburton investor relations, who will read the safe harbor statement. Please go ahead.

Hala Elsherbini -- Senior Vice President of Halliburton Investor Relations

Thank you. This conference call may contain forward-looking statements about Superior Group of Companies' business opportunities and its anticipated results of operations. Please bear in mind that forward-looking information is subject to risks and uncertainties, and actual results may differ from what you hear today. Many of these risks and uncertainties are described in Superior Group of Companies' quarterly report on Form 10-Q, in this morning's news release and the company's other filings with the SEC.

Forward-looking statements in this conference call are based on management's current expectations and beliefs. Management does not undertake any duty to update the forward-looking statements made during this conference call or elsewhere. Please note that all growth comparisons that management makes today will relate to the corresponding period in 2018 unless otherwise noted. With that, I'll turn the call over to Michael.

Michael Benstock -- Chief Executive Officer

Thank you, Hala, and good afternoon, everyone. Thank you for joining us to review our Q2 2019 results. My remarks will focus on performance highlights, progress against our strategic direction and brief remarks on our market environment. Andy will give an update on our operational improvement initiatives and our integration progress, followed by Mike's financial review.

We are pleased with our second quarter operational performance and encouraged to see early signs of positive gains from our ongoing integration efforts, realigned sales strategies and business process investments. For the second quarter, net sales increased by 12% led by a 24.9% gain in our BAMKO Promotional Products segment and steady growth from The Office Gurus, our multi-staffing solutions segment. Results for our total Uniform segment were mixed and came in slightly lower. As expected, earnings were impacted by pressure coming from several sources, largely from higher operating expenses as we invest for future growth and respond to increased RFP activity, for new customer acquisitions as well as for those we are already servicing.

Let's look at segment performance at a higher level. Our sales strategy shift is starting to take hold in our Uniform group with HPI, our employee ID business, securing a few new business wins in our sweet spot. Overall, our pipeline is growing with potential opportunities, and we are hard at work to turn these opportunities into new business wins. Additional strategies are forthcoming to accelerate and grow our pipeline even further.

Shifting to healthcare. Note that we benefited from a full quarter of our CID acquisition versus only two months of last year's second quarter. The division is now being fortified with a stronger operational structure and is on track to recapture sales and marketing momentum. To that end, and as part of our healthcare division integration strategy, Fashion Seal Healthcare has taken a stronger leadership role while we accelerate product development efforts under the design expertise of CID's founders to deliver more fashion-oriented healthcare uniforms to the marketplace.

We have some exciting things happening here from a product development perspective as well as continued progress with operational efficiencies and technology enhancements that should strengthen our competitive position and allow us to operate more efficiently. All this is further intended to give our customers a much enhanced experience in the near future. Looking more closely at Promotional Products. We are pleased to see continued improvement in their operating performance, coupled with higher sales volumes from a sales force we have nearly doubled.

As part of the natural progression of any business, we continue to look for ways to optimize profitability with a focus on the most accretive opportunities. We also are forgoing business when necessary that unfavorably impacts our profitability. Ultimately, this strategy enables us to improve bottom line results in the long run. As I mentioned, The Office Gurus delivered solid growth, though sales came in at a lighter double-digit rate than our historical growth trends.

But you should expect to see a strong finish to our year. We have made significant investments in additional capacity to support existing customer needs, stay ahead of expected growth and service a very robust pipeline. Of note, I recently visited our second Belize call center, which we opened just about a year ago. I was pleased to see how we have significantly matured and elevated the call center competency of that location in Belmopan.

We had placed all acquisition initiatives, as we've said in the past, on a soft pause while we advance our operational efficiencies, optimize our sales strategies and execute our capex investments. As we've mentioned in the past, we continue to keep a finger on the market pulse and are ready to consider compelling acquisition opportunities should they arise. From a macro environment perspective, we continue to mitigate the effects of trade tariffs by taking cautionary measures to broaden our sourcing network in order to minimize the negative impact of any additional potential tariffs. We are maintaining pricing discipline in what has become an increasingly competitive pricing environment.

And suppliers in various parts of the supply chain are raising their cost impact. Customer demand for lower pricing are coming at unprecedented levels. We had done all that we can do to minimize our exposure. To summarize.

As always, we are investing to fortify our long-term growth prospects. This approach is reflected in our investments in sales and marketing to capture the most profitable business opportunities, in technology to enhance our core platform and extend our capabilities and in G&A to retain the right people, systems and processes to capitalize on our shared services model for future growth. I will now turn the call over to Andy, and then I'll return with my closing remarks after Mike provides the financial overview.

Andy Demott -- Chief Operating Officer

Thank you, Michael, and good afternoon, everyone. My comments today will focus on our key operational and integration highlights for the quarter. Let's take a look at our segment performance. Our Uniform segment, Superior Uniform Group, comprised of HPI, Fashion Seal Healthcare and CID, delivered a net sales gain.

As Michael mentioned, second-quarter results included the benefit of a full quarter of the CID acquisition, which we acquired May 2, 2018. Our integration efforts at CID are beginning to materialize with Fashion Seal Healthcare taking operational oversight. Capitalizing on their fashion innovation and design expertise, we introduced our first laundry-friendly fashion scrub, The Indie Line, in June with overwhelmingly positive response. This has caused us to reevaluate the timing and scope of our planned launch as we expect this to be even larger than our initial expectations.

This functional and fashion-oriented laundry scrub will fill a market void with the right product to withstand the harsh requirements of the healthcare laundry system. We're developing collaborative sales strategies among our healthcare uniform divisions and anticipate market delivery for this product later this year. As such, we anticipate a slow sale ramp beginning this year with significantly more sales opportunities in future years. CID went live July 1 on its new warehouse management system to provide better visibility and inventory controls, and we are tracking well on our SAP integration with expected completion by the end of Q1 2020.

Our second nearshore factory in Haiti is also progressing on schedule, and we expect the building to be complete in September. In anticipation of ramping up production quickly to improve profitability, we have already hired skilled managers and are progressing with their onboarding. We'll experience increases in our operating costs beginning in the third quarter associated with the ramp-up of this new facility. We do expect to see these higher costs associated with the Haiti facility through the first quarter of 2020.

We also expect to begin seeing cost benefits flowing through beginning in the second half of 2020. We're excited with the momentum in this building as we set up Haiti to more closely align with CID's supply chain to create more rapid fulfillment capabilities as well as improved working capital and inventory management. The ERP implementation in our employee ID uniform business through HPI is also tracking well but at an intentionally slower pace. As we mentioned last quarter, we are taking a customer-by-customer approach, and we are already realizing operational efficiencies from moving more than half of their customers to SAP.

Move implementation should be substantially completed in the next six months. As part of the integration process into a one customer-facing entity, we have recently implemented a small reduction in our domestic workforce. These positions will be eliminated on a staggered basis over the next six months, and we have accrued the related severance costs in the second quarter of approximately $0.4 million. We have eliminated our web development group in Costa Rica by utilizing our existing web development team in India.

We expect to realize a $2 million-plus savings benefit on an annual basis from these actions. We are making good progress on this organizational integration, and we feel good about the related improvement in HPI's competitive position as it becomes more nimble and is able to capture more deals in the mid-tier range of the market. And as Michael mentioned, we are responding to an increased level of RFP activity for new opportunities. Overall, we are strengthening both our healthcare and non-healthcare uniform businesses.

Turning to our Promotional Products segment. As Michael said, BAMKO reported a strong quarter of organic sales growth, and we are seeing nice improvement in our operating performance. We also are very focused on optimizing our profitability across our existing customers and as we sign on new customers. Our goal is to engage with those customers that meet our margin profile.

Additionally, we are still on a hiring mode, expanding our group of high-level sales associates who can execute on our profitable book of business. We are realizing synergies from BAMKO's recently completed ERP implementation and expect that to continue as we move through the balance of the year. Cross-selling is another element of our sales strategy with active engagement across our business segments. Overall, we are very pleased with the performance of the team.

The Office Gurus performed well during the quarter with 11.6% sales improvement while working through capacity growth. The new Jamaica facility is online in a small incubator location, and in the next six months, we plan to move to a permanent space that should accommodate our capacity needs for at least the next couple of years. As we discussed in the past, TOG is investing to meet anticipated growth and to service strong customer demand. We are well positioned to meet both our expected targets for the year and our long-term goal.

Now I'll turn the call over to Mike for the financial highlights.

Mike Attinella -- Chief Financial Officer and Treasurer

Thank you, Andy. This morning, we filed our Form 10-Q for the second quarter ended June 30, 2019, so I'll limit my review to key income statement and balance sheet highlights. Net sales for the second quarter increased 12% to $92.3 million with the acquisition of CID contributing 6.4%; a decrease in our Uniform and Related Products segment, exclusive of CID, contributing 1.2%; an increase in our Promotional Products segment adding 5.7%; and our Remote Staffing Solutions segment contributing 1%. Uniforms and Related Products net sales increased 7.7% compared to Q2 of 2018 largely due to one-month benefit in 2019 from the acquisition of CID.

Overall, our Uniform segment performed well with strategic imperatives in place to drive sustainable, long-term growth. BAMKO's net sales were up 24.9%. BAMKO contributed 25.7% to our sales mix in the second quarter of 2019 compared to 23.1% in the same quarter of 2018. Sales at The Office Gurus were up 11.6%, and The Office Gurus contributed approximately 8.5% to our sales in both second quarters of 2019 and 2018.

Consolidated gross margin for the second quarter was 35.1% compared to 35.5% a year ago. This 40 basis point change primarily came from the higher volume of lower-margin business in our Promotional Products segment. And while margin rates in our Uniform segment remained constant between periods, pricing was very competitive for new and existing business. As a percentage of net sales, consolidated selling and administrative expenses increased to 29.1% from 28.3% a year ago.

These increases were the result of several items, including changes in sales mix, investments to support growth within all business segments, integration costs, shutdown costs at p3web, severance expense associated with reduction in force at HPI and SCG, amortization of intangibles relating to the CID acquisition and higher selling and administrative expenses in CID's business model compared to our other uniform businesses. During the period, we also recognized pension settlement losses of approximately $300,000, the result of making lump sum retirement payments to two long-term employees of the company. No similar costs were incurred during the second quarter of 2018. As a result, operating income decreased 8.3% to $5.5 million, and operating margins were 5.9% for the quarter compared to 7.2% in 2018.

Interest costs resulting from the CID acquisition contributed to the increase in interest expense to $1.3 million in the period compared to $800,000 a year ago. Our effective tax rate for the quarter was 23.8% compared to 25.1% a year ago. The change in the rate primarily came from reduced GILTI provision and nondeductible acquisition costs in the prior period, which were partially offset by a decrease in the benefit for foreign-sourced income. Overall, net income was $2.8 million or $0.18 per diluted share compared to $3.8 million or $0.25 in the year-ago quarters.

Earnings were benefited by higher sales but offset by lower gross margins, severance charges, pension settlement costs and investments made during the period to position us for growth within the business segments. Now turning to the balance sheet. During the six months ended June 30, 2019, cash and cash equivalents increased $2.9 million to $8.3 million. We've been successful in reducing the inventory during the period, posting a $5.6 million or 8.3% reduction in the invested capital therein.

During the six-month period ending June 30, we invested approximately $6 million in capital projects, the largest of which related to our Arkansas warehouse modernization initiative. Capital expenditures during the six months ended June 30 were 106% greater than those incurred during 2018. We expect our capital expenditures to approximate $10 million by the end of the year. Our outstanding borrowings increased by $5.8 million since December 31, principally used to fund these capital projects.

For the second quarter of 2019, we declared a cash dividend of $0.10 per share, which was consistent with dividends paid over the last three consecutive quarters and represents an increase of 5.3% over last year's second-quarter dividend. I'll now turn the call back to Michael for his closing remarks and a general outlook for the remainder of the year.

Michael Benstock -- Chief Executive Officer

Thanks, Mike. This quarter, we again demonstrated the agility of our exceptional team. We capitalized on the diversity of our business while preparing our business model and the infrastructure to capture significant synergies to deliver long-term operating performance and shareholder value. Our work to rightsize the company, streamline operations and elevate through enhanced automation will pay dividends in the future.

And we're strengthening our growth prospects every day as we manage the transformative impact on our enterprise, elevate our customer experience and deliver our brand-building solutions to help our customers unlock the value of their brands. We remain optimistic about the second half of the year as we work to achieve our long-term growth objectives. As always, we appreciate all the contributions of our SGC team members and thank them for their hard work and continued commitment. With that, we'd like to open the call for your questions.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from Kevin Steinke of Barrington Research. Please go ahead.

Kevin Steinke -- Barrington Research -- Analyst

Good afternoon, everyone. So as I kind of look at this bigger picture, you enumerated quite a few investments going on in 2019 and in the second quarter specifically that are expected to yield benefits in the future, both in terms of growth and operational efficiencies. Just trying to get a sense, as you look at your business, how much those various investments -- you also called out some severance expense in the quarter -- are, how much all that is weighing on your margins in '19 versus what you see for longer potential margin. So yes, maybe I will just start off with that.

Mike Attinella -- Chief Financial Officer and Treasurer

Yes. Kevin, this is Mike. So from a gross margin standpoint, we don't see a lot of impact with respect to the investments that we're talking about. From a net margin standpoint, from an operating margin standpoint, there has been impact particularly in the areas of the growth initiatives that we're investing in.

Now we have invested in -- as was mentioned during the remarks, we have invested in the expansion of TOG, both in personnel and in our real estate and rentals and costs associated with expansion of our capabilities and footprint. We have vacancies with respect to seats from a call center standpoint, and that certainly gives rise to additional costs that we have within our operating margins -- our reductions of our operating margins associated with that business. On the BAMKO side, as we continue to invest in additional expansion in that area, we also have costs with respect to the growth of our personnel and process there. That said, though, a lot of our costs with respect to sales and growth that Michael talked about, most of that cost is variabilized as salespersons are typically on highly commissionable base pay.

So from an operating margin standpoint on the BAMKO side, we do see some increase in costs associated with that business but not as much because most of the people we're adding are on variable pay programs. In the other areas, we have continued to invest in personnel during the course of this past year that don't -- that haven't been anniversaried last year. For instance, as we look at some of our executive team, I wasn't here last year, we added some people within our human resources programs that weren't here last year. All of these areas we're investing in to improve our ability to grow on a go-forward basis.

Now as far as the overall costs associated with that and as far as what the impact is on margins, we haven't really quantified that in a way that we looked at -- look at it in aggregate, but there has been an impact associated with those costs, and we have those costs included in our -- in the operating margin impact. Now on a go-forward basis, though, the costs that we talked about with respect to the reduction in-force that we did both at p3web and here in the U.S. with respect to what we did with HPI and Superior Uniform Group, we do anticipate seeing benefits associated with those costs of -- in excess of $2 million. So the investments that we're making today and the benefits that we plan to get out of them on a go-forward basis are significant and substantial.

Michael Benstock -- Chief Executive Officer

And I'll jump in a second, just Kevin, this is Michael. A lot of the investments we're making are for things that we've already created efficiencies on, and we are able to do a small reduction to rightsize ourselves accordingly. But there's still plenty of efficiencies yet to be gained from the integrations of technology, from the bringing together of divisions together and having the best work together and create even more efficiencies. So I think this is -- it's always been ongoing with us, so -- maybe you have not been with us long enough to see.

Every couple years, we kind of rightsize ourselves. Sometimes, it's up. Sometimes, it's down. And sometimes, it's for our different levels of growth.

Right now, I think Mike just explained to you about TOG and BAMKO kind of ramping ahead of their growth. They've been doing that for some time, and they're doing quite well with it. I mean they are growing at greatly increased rates than they were before. They have to say ahead of that.

That is likely to happen also with CID and Fashion Seal healthcare working together, and it's likely to happen with HPI and SID working together. But there are still efficiencies that we will gain from a distribution standpoint. We know the investment we're making in the new factory in Haiti is going to produce some significant gross margin improvement for CID as well as lower inventories and lower interest costs associated with having lower inventories on it. So there's a lot ahead of us.

And I think I said in the last quarter that we've never had so many transformational projects going on at one time. But if we're going to accused of anything, it's a -- it's -- I guess maybe we should have spread these out over a lot of years. And some of us are probably wishing we had because it puts a lot of pressure on the organization. But it is what it is.

It's the right time for us to do it. We're glad we're doing it, and we're glad we're seeing the light at the end of the tunnel. It's not an oncoming train. It really is a light.

And a year from now, most of this will be behind us. Perhaps the Arkansas warehouse won't yet be behind us. We've had a few delays there only because there have been some opportunities to improve the financial payback of that warehouse, and so we've waited a couple of extra months right now, which we can talk more about sometime in the future. But everything -- all the other really transformational things that we are talking about, the factory in Haiti, the two SAP conversions at WMS and CID, which we got to tell you something, I was there last weekend and the week -- -- and the prior week to that, and those people are working really hard to give us the efficiencies that system is intended to give us.

And so I think you're going to see some very big improvements. Are you going to see it a month from now? No, as we write off some of these other costs and everything else. But you're going to see it down the road for sure.

Kevin Steinke -- Barrington Research -- Analyst

Yes. That's helpful. And the way I'm thinking about this, and I think your comments mirror this in terms of light at the end of the tunnel, etc., is that you're going to start to see more of the benefits of all these various projects and operational efficiency projects as well as the sales pipeline really starting to benefit 2020, it seems, just from the way the timing of ramping up the SAP integration and -- integrations and the Haiti facility, etc. It seems like you -- plus you talked about the Fashion Seal Healthcare project going on with CID and the positive momentum there.

It seems like you'd be set up for a pretty good 2020 based on all these things coming together, if that's the right way to think about it.

Michael Benstock -- Chief Executive Officer

I'd be very disappointed if you are wrong, Kevin. But yes, that is the right way to think about it. But I think some of these things will -- we talked about very, very carefully doing one customer at a time so we're not impacting people at HPI that carries us -- we wanted to be done with this project by October, November. It may carry into January, February.

So is that -- how's that going to impact HPI? It shouldn't really. I mean -- and we're still building our pipeline. Selling really has nothing to do with what's happening in SAP. And this -- you know how long the process is from the time you sell to the time you actually close business, having been around this quite a lot.

So it's a long cycle. So it's not impacting us in that respect. I don't disagree with you at all. In 2020, our expectation should be a good year.

All this will be behind us. I can tell you we have breath of fresh air we'll all take having not been involved with all these storage traditional Promotional Product -- projects. And I guess the organization will be able to bring itself back together from the stress of doing so many different things at one time but necessary.

Kevin Steinke -- Barrington Research -- Analyst

OK. That sounds great. Yes. And you specifically called out RFP expenses as having a margin impact in the quarter, which I don't know if you've ever called those out in the past.

You may have, but it just kind of jumped out at me that perhaps that's an indication of a good sales pipeline going on. And just -- so maybe if you can expand on that, the RFP activity that you are seeing.

Michael Benstock -- Chief Executive Officer

Sure. RFP activity is as high as it's ever been -- higher than it's ever been. As you do more RFPs, there's more travel expenses associated with that. There's more sales expenses, sample expenses.

It's just a fact of life. And so is it -- it's not to a point yet where we'd be willing to disclose it as a separate item in our financials, but I can tell you it is more than it has been in the past. And it will continue to be. So what you're seeing now isn't going to change -- I hope isn't going to change for quite some time.

We seem to be headed in the right direction in that respect. And as opposed we only have the one huge, big opportunity, we're going after five smaller ones. Well, that's 5x the amount of travel, 5x the amount of resources you'll need to do it.

Kevin Steinke -- Barrington Research -- Analyst

Right. Right. But -- and you said you're starting to see signs or you've closed some of those kind of mid-tier deals. So you're starting to see some fruits from that effort, it sounds like.

Michael Benstock -- Chief Executive Officer

That's true. And I think one of the things you'll see that's different, if you go back four or five years ago, we would speak more about the very large deal we won or the very large deal we lost, whatever. Yes, in this case, plus there's smaller deals that's going to have less of an impact. Even a rollout, an initial rollout, will have less of an impact.

So we'll be talking much about it. I mean you'll know it's happening when you see our numbers rising. And we'll certainly speak more about -- in the future about how we're doing with respect to that holistically but not specifically to an account.

Kevin Steinke -- Barrington Research -- Analyst

OK. Good. I guess on the Promotional Products side, you talked about continued investments there. Just to make sure I understand it correctly, you're -- are you just continuing to hire new sales people in line with your organic growth strategy to add people to drive the new business pipeline? And maybe they're also already bringing some business on that they already have, but just getting -- trying to get a sense of how much sales hiring is going on there and how much more you want to do in Promotional Products.

Mike Attinella -- Chief Financial Officer and Treasurer

Yes. Kevin, yes, so a lot of our investment in the BAMKO side of the business you can identify based on two factors. One is additional salespeople. So we mentioned during the comments that we doubled our sales staff in their -- in the BAMKO business.

And the sales force that we hired is largely commissioned. There was a lot of -- it's not a fixed-cost business. It's highly commissionable. The people we brought in from a sales standpoint -- sales force standpoint are very seasoned professionals in the area of promotional products.

They brought books of business with them, and that's why we've been able to capitalize and why you're -- you see such high growth numbers with respect to BAMKO's performance. That organic business model expansion plan that we have in place is really paying nice benefits for us. The other area that we've invested in BAMKO, however, is in some of the integration activities that we've undertaken. BAMKO has -- I think as you know, there's three separate businesses associated with BAMKO.

We've integrated the back-office operations within those three, and that's also an investment that we've made during the course of the -- actually the first six months of this year. And some -- there were some in the tail end of last year as well. So there have been investments in BAMKO associated with that as well that primarily is related to the expansion of the sales force we have in that market.

Michael Benstock -- Chief Executive Officer

Yes. There's another factor here that you can't ignore, and that's BAMKO is hiring people from the traditional Promotional Products business, the ad specialty business, who are more in line with our 22,000 competitors who are selling from catalogs, off-the-shelf product that's being logo-ed, which is generally lower-margin merchandise. And that's -- as you bring them on, they're bringing their book of business. That's what they're bringing with them.

Our goal is to transition them to more customized product, more of their book of business being the customized product that we can do for them in China and other countries now. And with that will come higher gross margins and higher operating profits. And that is -- as we put these people on, sure we want them to bring their book of business, it's good business, profitable. It's not as profitable as what we can do on a customized basis.

But that will come, too, as they become more fluid in selling and using the support that BAMKO gives them, some of which they've never had before in their previous positions.

Kevin Steinke -- Barrington Research -- Analyst

OK. No, that's very interesting. I mean is -- was that a factor at all in the gross margin in Promotional Products in the quarter? Or was that just mix? I may have missed the comments.

Michael Benstock -- Chief Executive Officer

Yes. Absolutely.

Kevin Steinke -- Barrington Research -- Analyst

Yes. OK.

Michael Benstock -- Chief Executive Officer

That wasn't -- we probably didn't -- I haven't done a good job explaining it. I hope we -- we have explained it well now. But yes. Yes, sure.

Kevin Steinke -- Barrington Research -- Analyst

Yes. That -- no, OK. OK, that's helpful. OK.

What about the overall backlog in Promotional Products, what you're seeing there? I mean how were -- did bookings trend in the quarter?

Andy Demott -- Chief Operating Officer

Yes. I think -- and Kevin, to say anything, as you look at the backlog in Promotional Products, it remains very strong. I mean we're seeing it really tied to the increased sales force as well as the backlog that BAMKO has put in place over the last several years. So the backlog in that business remains very strong.

Michael Benstock -- Chief Executive Officer

Yes. Our bookings have been big. As I've spoken about in previous quarters, nearly every quarter we've had for the last three quarters has been serious upticks from the prior year. But with that many more salespeople, it should be.

I would be surprised if it weren't. And we're continuing to put on additional salespeople, so that should be a fact of life and probably something in the future that we should be more transparent about reporting that at least on this call. We didn't say anything about it before this. Thanks for the question.

Kevin Steinke -- Barrington Research -- Analyst

Sure. You called out also just a lot of customer demand for lower pricing, a lot of price competition in -- for new and existing business in the Uniform segment. I don't know if it's intensified or if there's anything new we should be thinking about there. I know it's always competitive, but have you seen some sort of meaningful change in that regard in terms of pricing? Or was it just an overall comment on the industry condition?

Michael Benstock -- Chief Executive Officer

No. It's meaningful. It's meaningful. And Andy -- I think Andy mentioned it, Mike mentioned it and I mentioned it.

Competitive pressure is amazing. And I think what's -- were you -- if I -- the time I've been spending with customers or with our people who are in front of customers, our customers are seeing higher prices as a result of tariffs, as a result of minimum wage increases. I'm seeing even their own employees having to pay them more to keep them. We're in a dynamic market.

They're having to pay more. The health insurance is going up. Everything is going up. And the mandates for a lot of these companies, particularly the larger ones, is we want to cut costs by 10% or 5% or -- and we have a customer who actually has mentioned a multi, multi-billion dollar account who's cut all costs by 20%.

And so what did they do? They go to their vendors and said, "We want you to cut costs by 20%." "We can't cut costs 20%. We don't make 20% on your program." But I've seen more rational behavior from purchasing people. And all power to them. If they can -- if their other vendors have that kind of room to give them -- to give up -- in our case, we said in some cases no, go out to RFP.

Good luck. We can't give you the kind of decreases you're asking of us. Again, we feel confident that in an RFP situation, we'll prevail. And there's enough RFPs out there right now that if we just prevail on a good share of them, we will be just fine.

But it is a unique environment out there. And I'm not complaining about it because on one hand, maybe that's the behavior of our customers. But the fact is that is a matter -- that's the behavior of my competitors' customers, too. And so I'm having a -- we're having the opportunity actually to be in front of more customers than we've ever been in front of.

So I say let's keep it going like this.

Kevin Steinke -- Barrington Research -- Analyst

Right. I mean it doesn't -- I mean, you haven't really seen it in your margins yet, have you? Or what can you do to offset that? Or I guess just like you said, maybe you just don't bid on certain work if it's not going to be profitable enough, but...

Michael Benstock -- Chief Executive Officer

Yes. Well, it's kind of -- stuff flows downstream, right? So we're doing the same thing with vendors -- among our vendors. So a little pressure we're getting, within a couple percent. And so it's happening everywhere.

And I would imagine our vendors who are publicly traded and having to speak on this are probably speaking about the same thing we are because it's what we're hearing everywhere.

Kevin Steinke -- Barrington Research -- Analyst

Right. OK. And you sound really optimistic about the -- with the fashion-friendly laundry product launch that you're doing through CID. I mean just what does that -- you're already optimistic about that opportunity.

I mean what does it do in terms of the reception for that first launch in terms of what you think the opportunity might be going forward? Is it even larger or more significant than you thought?

Michael Benstock -- Chief Executive Officer

Yes. It is larger. It's more significant than we thought. It made us -- it humbled us a little bit because perhaps we were being too cautious in what we thought the initial rollout of this would be.

And then once we saw what the interest was, we basically have delayed the rollout just a few months to give us time to gear up so that we have a successful rollout where we don't have disappointed customers. And -- but, I mean, that's good news. A few months is not going to kill us. We've actually been working on this project since May of last year.

So a few months beyond October, which was the initial rollout of this, isn't really going to make a very big difference. We expect really the impact of this to be very favorable for 2020. Even more so as time goes on every year it should grow. It's the right product.

The reception we got out in the marketplace was fabulous.

Kevin Steinke -- Barrington Research -- Analyst

OK. Great. And then the more -- the direct retail CID business, I mean, it sounds like you're -- you like the direction of that in terms of product development, CID's ability to focus on product development since you're taking some of the operational load off of them. So how do you see growth trending in that side of the business.

Is that, again, more of kind of 2020 when we start to see the benefits of all those efforts on product development on the retail side?

Michael Benstock -- Chief Executive Officer

Yes. I think the product development has been strong. But as they've gotten bigger and now aligned with Fashion Seal Healthcare, it's clear that the product development has to be even stronger, quicker to market, broader, more choices. And the founders of the business, who are wonderful people, had to focus a lot of their time on operational issues, on sales issues.

Now the key people from Fashion Seal Healthcare and Superior Uniform Group have taken some of those responsibilities along with key people at CID who've been elevated to positions to be able to manage all of those. And the founders are spending nearly 100% of their time strategically and on product development. We should see fantastic results going forward. This year is pretty well set at this point.

There's not a lot we can do to impact this year, and you'll see more of an impact in 2020 and beyond and even more so 2021. But we expect favorable impacts next year. We are making a difference in the marketplace. We are telling a better story today than CID was telling before we bought them in their last years and certainly a better one than we've been able to tell the customers in the last year.

We are -- we've gained great momentum there. And I think from a culture standpoint and an esprit de corps of the organization itself, it's ready for their next level. And obviously, I think Andy spoke about their warehouse that just put in their WMS system. There are some things behind the curtain there that have to be fixed to make them a better organization, and they're working really hard to do that.

And I have no doubt that six months from now, 8 months from now, that's going to be a very different-looking organization that's going to be poised for whatever they want to do.

Kevin Steinke -- Barrington Research -- Analyst

All right. Great. Just a couple of numbers questions here. You didn't call it out, but did ASC 606 have any sort of impact on revenue in the quarter that was meaningful? Or...

Mike Attinella -- Chief Financial Officer and Treasurer

Yes. So for the quarter, it had a small impact. For the half of the year, it did have a continued negative impact between -- for the six months that it -- for the quarter -- there wasn't a significant impact, though, for the quarter.

Kevin Steinke -- Barrington Research -- Analyst

OK. And then the $2 million of cost benefits from the actions you took, that we should start to see that in the second half, I guess, of '19 or in the fourth quarter?

Mike Attinella -- Chief Financial Officer and Treasurer

Yes. Small amount. The $2 million is an annualized number. And as Andy mentioned, we're going to bleed those -- the folks that were impacted by the reduction in force.

They will be bled out over the course of the next six months. There will be a small impact, but nothing of any kind -- not a full half-year impact related to that $2 million benefit.

Michael Benstock -- Chief Executive Officer

About half of that's been done already, so you'll see the impact of about half of that except for the severance that was paid out in the third quarter.

Andy Demott -- Chief Operating Officer

But severance was already in there.

Michael Benstock -- Chief Executive Officer

Yes.

Mike Attinella -- Chief Financial Officer and Treasurer

Severance is in there, yes.

Andy Demott -- Chief Operating Officer

It's in there and was expensed in the second quarter.

Michael Benstock -- Chief Executive Officer

So you'll see half of the benefit of that mostly in the next -- in third quarter, fourth quarter.

Kevin Steinke -- Barrington Research -- Analyst

OK. And then just lastly, you have that $65 million term loan. I know you had the contractual principal payments every year. Is there any restriction for you paying that down faster if you wanted to? Or would you even want to if you could, if you had the excess cash flow? I mean what's -- what are your thoughts on reducing the debt balance?

Mike Attinella -- Chief Financial Officer and Treasurer

Well, there's no restrictions on us for paying it down early. We have an -- we have the ability to pay it down early based on the terms of the agreement. And to the extent that we can pay it down early, given other investments that we're planning to make during the course of this year, we can certainly make that a priority. We do, however, continue to -- in advance of that, rather than pay that down early, we are continuing to make investments in capex and other investments that we're talking about with respect to getting ourselves positioned for growth.

So I don't anticipate -- although we have the ability to contractually, I don't anticipate us making any advanced payments on that debt to get it reduced during the course of this year simply as a function of the priorities that we're doing with respect to payments. So we do have -- as I mentioned in the remarks, we do anticipate paying $10 million of capex this year, which will be in advance of what we're doing with respect to the -- with respect to what we -- we're doing from a debt pay-down standpoint.

Michael Benstock -- Chief Executive Officer

Go back on Kevin's question.

Mike Attinella -- Chief Financial Officer and Treasurer

And so Kevin, let me make a comment with respect to the 606. We did have a 606 impact this quarter of $3.5 million in the -- in total sales. So we did have uniform sales before 606 of -- that were in excess of the impact with 606 of $3.5 million.

Kevin Steinke -- Barrington Research -- Analyst

OK. That $3.5 million was all or primarily in uniforms?

Mike Attinella -- Chief Financial Officer and Treasurer

Primarily.

Kevin Steinke -- Barrington Research -- Analyst

And it was negative? OK. OK. All right. That's helpful.

Well thanks for the update as always. That's all I had.

Mike Attinella -- Chief Financial Officer and Treasurer

OK. Any more?

Operator

[Operator instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Michael Benstock for any closing remarks.

Michael Benstock -- Chief Executive Officer

Thank you. We appreciate all your time today. And of course, we look forward to updating you on our third-quarter 2019 results in October. Have a great day.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Hala Elsherbini -- Senior Vice President of Halliburton Investor Relations

Michael Benstock -- Chief Executive Officer

Andy Demott -- Chief Operating Officer

Mike Attinella -- Chief Financial Officer and Treasurer

Kevin Steinke -- Barrington Research -- Analyst

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