Delta Apparel, Inc. fiscal quarter ended March 31, 2007 net sales increased 22.6% to a third quarter record of $85.0 million compared to $69.4 million in the prior year's third quarter. The increase was primarily due to the addition of FunTees and sales growth in the Soffe business, offset by lower sales in the Delta catalog and Junkfood businesses. Net income for the third quarter was $2.8 million, or 32 cents per diluted share, compared to the prior year's level of $2.7 million, or 31 cents per diluted share.
Gross margins for the fiscal third quarter were 24.4% compared to 27.7% in the prior year third quarter principally as a result of the inclusion of the FunTees business into the Company's overall results, as the private label business generally carries lower gross margins than the Company's branded businesses. Margins in the FunTees business are expected to increase in fiscal year 2008 as lower cost textile manufacturing is achieved from the integration into Delta's textile facility. SG&A expenses for the fiscal 2007 third quarter decreased to 18.2% of sales compared to 20.1% of sales in the prior year period due to the lower selling, general and administrative costs associated with FunTees.
Robert W. Humphreys, President and CEO, commented, “We are pleased to have met our revenue and earnings estimates for the third quarter and continue our focus on building a platform that will enhance our operating efficiencies and maximize segment growth. Looking at the performance in our two segments, sales in our retail ready segment were relatively flat compared to the prior year period. Sales growth was impacted by order reductions at Junkfood and slower than expected sell-through of the Soffe products at retail stemming from colder weather that lasted throughout the third quarter in many regions of the country. Despite this, Soffe continued to grow its revenue and is on pace to have another year of double digit sales growth. Many of our initiatives at Junkfood, including new licenses and enhanced products, are gaining traction with our customers and we expect to achieve revenue growth in the Junkfood business in the fourth quarter compared to the prior year period.”
Mr. Humphreys continued, “Our activewear segment did not achieve the results we were expecting in the third quarter due to lower pricing for basic t-shirts in the marketplace. We chose not to match the lower pricing which decreased our total unit volume but slightly improved our average selling price. We expect competitive pricing of basic t-shirts will continue into the fourth quarter. While our manufacturing efficiency with the integration of FunTees was below our expectations in the third quarter and is expected to negatively impact our fourth quarter earnings results, we are well underway to gaining greater operating leverage and achieving improved manufacturing efficiency in our activewear segment in the coming fiscal year.”
Mr. Humphreys concluded, “We continue to make steady progress on several major initiatives that we expect will improve our position as a quality branded and private label activewear apparel company. During the third quarter, we transitioned all the FunTees textile equipment into our existing Maiden, N.C. plant and began producing the FunTees' custom-knit products in that facility. Our Honduran textile initiative is on pace to begin production in the first half of fiscal year 2008 and achieve cost savings over our U.S. textile manufacturing in the second half of the year. These initiatives should improve our profitability and lower our working capital requirements in our activewear segment. We remain committed to enhancing shareholder value and believe our initiatives will improve our prospects for growth in all segments of our business in the upcoming fiscal year.”
Fiscal 2007 Guidance
For the fourth fiscal quarter ending June 30, 2007, the Company expects sales to be in the range of $100 to $106 million and diluted earnings to be in the range of $0.50 to $0.55 per share. This compares to sales of $82.5 million and diluted earnings of $0.73 per share in the prior year fourth fiscal quarter. For the 2007 fiscal year, the Company expects net sales to be in the range of $320 to $326 million and diluted earnings per share to be in the range of $1.15 to $1.20. This compares to previous fiscal 2007 guidance issued on February 2, 2007, of revenues in the range of $315 to $330 million and diluted earnings per share in the range of $1.33 to $1.46.
Retail-Ready Apparel
This segment, which includes the Soffe and Junkfood businesses, reported a slight sales decline of $0.1 million, or 0.4%, to $32.7 million for the third quarter of fiscal year 2007. The sales decline was driven by lower sales in the licensed t-shirt business, offset partially by increased sales in the Soffe business. While Junkfood sales declined from the prior year third quarter, they were above the Company's expectations for the quarter. Junkfood sales orders for the fourth fiscal quarter are showing improvement and management anticipates achieving fourth quarter sales growth over the prior year period in this business. The Soffe business continued to increase its sales, achieving a 3.6% increase in sales from its prior year third quarter, although the cold weather throughout the third fiscal quarter slowed the sales of spring merchandise. Operating income in the Retail-Ready segment for the third fiscal quarter of 2007 increased $0.2 million from the prior year quarter to $4.1 million due primarily to manufacturing improvements achieved in the Soffe business.
Activewear Apparel
The activewear segment, which includes the Delta Apparel business and the newly acquired FunTees business, reported sales of $52.3 million for the three months ended March 31, 2007 compared to $36.6 million in the prior year period. The increase in sales was primarily a result of the inclusion of FunTees sales of $19.0 million, offset by an 8.7% decline in sales in the Delta business. Sales of specialty and private label products continued to be solid and yielded healthy margins. Marketplace pricing of core basic t-shirts declined in the third quarter which Delta did not match, resulting in 9.4% lower volume than the prior year third quarter. The lower volume was offset slightly by higher average selling prices. Operating income declined $0.1 million to $1.1 million compared to $1.2 million in the prior year third quarter due to these factors.
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, April 1, March 31, April 1,
2007 2006 2007 2006
---------- -------- --------- ---------
Net Sales $85,013 $69,365 $220,642 $187,640
Cost of Goods Sold 64,294 50,149 166,494 131,461
---------- -------- --------- ---------
Gross Profit 20,719 19,216 54,148 56,179
Selling, General and
Administrative 15,471 13,953 42,984 40,421
---------- -------- --------- ---------
Operating Income 5,248 5,263 11,164 15,758
Other (Expense) Income, net (18) (128) 74 276
Interest Expense, net 1,384 1,056 3,813 2,738
---------- -------- --------- ---------
Income Before Provision for
Income Taxes and Extraordinary
Gain 3,846 4,079 7,425 13,296
Provision for Income Taxes 1,068 1,335 2,440 4,799
---------- -------- --------- ---------
Income before Extraordinary
Gain 2,778 2,744 4,985 8,497
Extraordinary Gain, Net of
Taxes - - 672 -
---------- -------- --------- ---------
Net Income $ 2,778 $ 2,744 $ 5,657 $ 8,497
========== ======== ========= =========
Weighted Average Shares
Outstanding
Basic 8,524 8,622 8,536 8,591
Diluted 8,686 8,730 8,701 8,645
Net Income per Common Share,
before Extraordinary Gain
Basic $ 0.33 $ 0.32 $ 0.58 $ 0.99
Diluted $ 0.32 $ 0.31 $ 0.57 $ 0.98
Net Income per Common Share,
after Extraordinary Gain
Basic $ 0.33 $ 0.32 $ 0.66 $ 0.99
Diluted $ 0.32 $ 0.31 $ 0.65 $ 0.98
