Delta Apparel, Inc. fiscal fourth quarter ended June 30, 2007, net sales increased 11.3% to $91.8 million compared to $82.5 million in the prior year's
fourth quarter. Net
income was $700,000, or eight cents per diluted share, in the fiscal
fourth quarter of 2007 compared to the prior year's level of $6.3
million, or 73 cents per diluted share. The Company's fourth quarter 2007
diluted earnings per share results include a restructuring related
charge of 51 cents.
Gross margins for the fiscal fourth quarter were 20.6%
compared to 28.7% in the prior year fourth quarter principally as a
result of the $5.4 million in restructuring related charges. In
addition, the inclusion of FunTees reduced overall gross margins for
the fourth quarter as sales from the FunTees private label business
carry lower margins than the Company's branded businesses. Selling,
general and administrative expenses for the fiscal 2007 fourth quarter
were 17.7% of sales compared to 15.9% of sales in the prior year period
due to the higher selling, general and administrative costs associated
with the higher Junkfood sales in the quarter, offset partially by
lower management incentive costs.
The Company also incurred a $1.5
million non-cash asset impairment charge in its fiscal fourth quarter
2007 related to the reduction of its U.S. textile operations. The Company's results are in-line with the preliminary results announced on July 18, 2007.
Textile Restructuring
On July 18, 2007, the Company announced its plans to restructure its U.S. textile operations by closing its manufacturing facility in Fayette, Alabama. As a part of the Company's overall restructuring of its textile manufacturing operations, the Company is also expensing its start-up and excess manufacturing costs associated with the integration of FunTees and the opening of its Honduran textile facility. The closing of the Alabama textile facility is expected to occur in the Company's fiscal first quarter of 2008, leaving the Company with two U.S. textile operations, one located in Maiden, North Carolina and the other in Fayetteville, North Carolina.
The Company expects to incur total costs of approximately $10.0 million, or $0.75 per diluted share, associated with the restructuring. The expenses impacted the Company's fiscal fourth quarter of 2007 and are expected to impact the first two quarters of fiscal 2008 as follows:
FY 07 FY 08 FY 08
Qtr 4 Qtr 1 Qtr 2 Total
---------------------------------- -------- -------- -------- --------
$5.4 $1.7 $1.4 $ 8.4
Cost of Sales million million million million
---------------------------------- -------- -------- -------- --------
$1.5 $0.1 -- $ 1.6
Restructuring Charges million million million
---------------------------------- -------- -------- -------- --------
$6.9 $1.8 $1.4 $10.0
Total million million million million
---------------------------------- -------- -------- -------- --------
Diluted EPS Impact $0.51 $0.13 $0.10 $0.75
---------------------------------- -------- -------- -------- --------
The Company expects its restructuring initiatives will result in costs savings per diluted share of approximately $0.26 in fiscal 2008, $0.62 in fiscal 2009, and $0.80 in fiscal 2010.
For the year ended June 30, 2007, net sales increased 15.7% to a record $312.4 million compared to $270.1 million in the prior year. Gross margins were 23.4% compared to 29.6% in the prior year due to the restructuring related charges, higher raw material pricing, lower sales in the higher margin Junkfood business, and the inclusion of the private label FunTees business that carries lower margins than the Company's branded businesses. Selling, general and administrative expenses were 18.9% of sales compared to 19.8% of sales in the prior year, primarily due to the lower selling, general and administrative expenses in the FunTees private label business. Net income for fiscal year 2007 was $6.3 million, or $0.73 per diluted share, compared to $14.8 million, or $1.71 per diluted share. Fiscal year 2007 net income includes $0.51 per diluted share of restructuring related charges.
Robert W. Humphreys, President and CEO, commented, “During fiscal year 2007 we achieved a 15.7% sales increase to reach a record $312.4 million in sales. Our Junkfood business experienced strong growth in our fiscal fourth quarter, with sales up over 40% from the prior year quarter. Junkfood has new licenses and customer opportunities that should allow us to build on this sales momentum into fiscal year 2008. Our Soffe business achieved record revenue for fiscal year 2007, up over 7% from the prior year. Although the slower retail environment will impact Soffe sales, we continue to see good sell-through of the Soffe products and expect to further grow this business in fiscal year 2008. While sales in the activewear segment, including the Delta catalog business and the FunTees private label business, were not what we anticipated in fiscal 2007, we expect to achieve strong sales in this segment in fiscal year 2008 due to the full year revenue contribution of FunTees. In addition, as our new lower cost production becomes available to our customers in the second half of the year, we will have more products to fully participate in the marketplace. We believe the demand for our off-shore decorating capabilities will be strong and should provide us with continued growth opportunities in our private label business.”
Mr. Humphreys concluded, “During fiscal year 2007 we launched several initiatives which we believe will provide significant future value for our shareholders. We expect that these initiatives will be completed in the first half of fiscal 2008 and should allow us to continue profitable growth and provide us with a platform to generate superior investment returns for our shareholders. We will continue to focus on maximizing our operating performance in all key areas of our business. We are optimistic with our growth opportunities and believe our current initiatives will further position Delta Apparel as a stronger, more competitive company in the years to come.”
Fiscal 2008 Guidance
For the first fiscal quarter ending September 29, 2007, the Company expects sales to be in the range of $74 to $78 million and diluted per share results to be in the range of ($0.04) to $0.00. The per share results include approximately $0.13 per diluted share of restructuring related expenses. This compares to prior year fiscal first quarter sales of $62.7 million and diluted earnings of $0.26 per diluted share, inclusive of the extraordinary gain on the Soffe earnout payment of $0.08 per diluted share.
For the 2008 fiscal year ending June 28, 2008, the Company expects net sales to be in the range of $335 to $350 million and diluted earnings per share to be in the range of $1.36 to $1.52. This includes the $3.2 million, or $0.23 per diluted share, of anticipated expenses associated with the start-up of the new Honduran textile facility and the shutdown of the Fayette, Alabama facility that will impact results in the first two quarters of fiscal 2008.
Retail-Ready Apparel
This segment, which includes the Soffe and Junkfood businesses, reported a sales increase of 7.1% to $43.3 million for the fourth quarter of fiscal year 2007 compared to $40.4 million in the prior year. The sales increase was driven primarily from sales in the Junkfood business, which achieved over a 40% sales growth from a year ago. While sales were softer than expected in the Soffe business for the fourth quarter, the business was up over 7% for the year. Operating income for the three months ended June 30, 2007 was $8.6 million compared to $8.7 million in the prior year. For the fiscal year ended June 30, 2007, sales in the Retail-Ready segment were $134.2 million compared to $133.4 million in the prior fiscal year. Operating income declined to $17.1 million from $19.1 in fiscal year 2006 due primarily to lower profitability in the Junkfood business stemming from lower sales levels during the first three quarters of fiscal year 2007.
Activewear Apparel
The Activewear segment, which includes the Delta business and the newly acquired FunTees business, reported sales of $48.5 million for the fourth quarter of fiscal 2007, a 15.4% increase from the prior year quarter. The increase in sales is primarily the result of the addition of the FunTees revenue, offset by lower sales in the Delta catalog products. During the integration of FunTees into the existing Maiden textile facility, the Company's fabric production was lower than originally anticipated. As such, some of the expected June deliveries were not met in the FunTees business and the Company did not meet its normal service levels in its Delta catalog business. Additionally, in anticipation of being slightly inventory constrained in the first half of fiscal 2008, the Company did not participate heavily in the competitive pricing levels of commodity t-shirts, which impacted total volume in the fourth quarter. During the fourth fiscal quarter of 2007, the Company incurred restructuring related expenses totaling $6.9 million. This expense, along with higher priced raw material prices, drove an operating loss of $7.5 million during the fourth quarter of 2007, compared to income of $2.1 million in the prior year fourth quarter.
For the fiscal year ended June 30, 2007, sales in the Activewear segment were $178.2 million, an increase of 30.4% from $136.7 million in the prior fiscal year due to the acquisition of FunTees on October 2, 2006. The Activewear segment had operating losses of $4.8 million in fiscal year 2007, due primarily to the restructuring related expenses and higher raw material pricing.
Share Repurchases
During fiscal year 2007, the Company purchased 196,770 shares of its stock through its Stock Repurchase Program for a total cost of $3.4 million. In a meeting held on Wednesday, August 15, 2007, the Board of Directors increased the Company's authorization to repurchase stock in open market transactions by an additional $4.0 million pursuant to the Company's Stock Repurchase Program, bringing the total amount authorized since inception of the program to $15.0 million. As of today, taking into account prior repurchases of Company stock pursuant to the program, the Company has Board authorization to repurchase up to an additional $5.9 million of its stock. The Company is committed to its stock repurchase program and believes it is a good use of capital and illustrates the Company's commitment to increasing shareholder value.
