Delta Apparel, Inc., parent company to M.J. Soffe, ended its fiscal year with promising positive movement on the sales line, but net income failed to follow the trend as restructuring costs, split between one-time fees and increases to cost of sales, forced the company to take a hit to the bottom line.


Fiscal fourth quarter net sales increased 11.3% to $91.8 million from $82.5 million last year.  Sales growth came from the addition of the FunTees business to the Activewear segment and strong growth in the Junkfood businesses in the Retail-Ready segment.


The Retail-Ready division reported an organic sales increase of 7.1% to $43.3 million, driven primarily by sales in the Junkfood business, which grew 40.2% to $9.1 million for the quarter.  Segment operating income was $8.6 million for the three months ended June 30, compared to $8.7 million in the prior year period.  For the full year, Soffe sales were up 7.3% as the Cheer short business grew 10%.


The Activewear segment benefited from the inclusion of FunTees, which drove a 15.4% jump in Q4 sales to $48.5 million. The FunTees gain was slightly offset by “lower sales in the Delta catalog products.” On a conference call with analysts, management said that sales at FunTees were $55.6 million for the nine months the company owned the business.  For the full year, sales in the Delta business decreased 10.2% to $122.7 million.  The division incurred restructuring-related expenses totaling $6.9 million in Q4.  This expense, along with higher priced raw materials, drove a segment operating loss of $7.5 million during the fourth quarter, compared to income of $2.1 million in the prior year quarter.


Overall gross margins decreased 810 basis points to 20.6% of sales in Q4, compared to 28.7% of sales in Q4 last year, largely due to the $5.4 million in restructuring-related charges. The margin decrease combined with an increase in expenses to cause the company’s net income to drop to $700,000 in the fourth quarter, or 8 cents per diluted share, from $6.3 million, or 73 cents per diluted share, last year. The company's fourth quarter 2007 diluted earnings per share results include a restructuring-related charge of 51 cents per share.


DLA expects to incur total costs of approximately $10.0 million, or 75 cents per diluted share, associated with the restructuring. The company expects its restructuring initiatives will result in costs savings per diluted share of approximately 26 cents in fiscal 2008, 62 cents in fiscal 2009, and 80 cents in fiscal 2010.


For the first fiscal quarter of 2008 DLA expects sales to be in the range of $74 to $78 million and a loss of between 4 cents per diluted share and zero cents per diluted share, including approximately 13 cents per share of restructuring-related expenses. This expectation compares to Q1 sales of $62.7 million and diluted earnings of 26 cents per share last year, inclusive of the extraordinary gain on the Soffe earnout payment of 8 cents per diluted share.


For the 2008 fiscal year, 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, including the $3.2 million, or 23 cents per diluted share, of anticipated expenses associated with the start-up of the company’s new Honduran textile facility and the shutdown of the Fayette, Ala. facility that will impact results in the first two quarters of fiscal 2008.