Delta Apparel, Inc. filed for Chapter 11 bankruptcy protection in Delaware on Sunday, June 30. The move comes after a series of reports from the company indicating worsening business conditions. Delta Apparel officials reported the filing was made necessary by weak demand and higher input costs, notably cotton.
Delta has posted losses for seven straight quarters as elevated inventory levels at the mass channel and related destocking efforts have impacted its Delta Direct vertical blank tee platform.
The parent of the Soffe, Salt Life and Delta brands based in Duluth, GA filed a motion for Joint Administration for pending bankruptcy cases for Culver City Clothing Company, DTG2Go, LLC, M.J. Soffe, LLC, Salt Life Beverage, LLC, Salt Life Beverage Management, LLC, and Salt Life, LLC in the District of Delaware.
As part of the filing, Delta indicated that it planned to sell certain Salt Life brand assets for approximately $28 million to FCM Saltwater Holdings, which has agreed to act as the stalking horse bidder that will set the price in a court-supervised auction for the assets. Delta said last October that it had received an unsolicited offer to purchase the Salt Life business unit from an unnamed party, and its Board had engaged Baird as its financial advisor.
The company listed assets of $337.8 million and debts of nearly $244.6 million. It listed its top creditor as Parkdale Mills, Inc., the Charlotte, NC-based owner of woven production facilities in the Carolinas, Virginia, Georgia, Tennessee, and Honduras, a yarn facility in Mexico, and distribution centers in El Salvador, Dominican Republic, Colombia, and Belmont, NC.
Delta is expected to continue operating in bankruptcy with a debtor-in-possession (DIP) financing package from Wells Fargo and others while it pursues a “structured sale of their assets pursuant to one or more competitive bidding processes or other strategic arrangements,” according to a regulatory filing.
In the first half of the current fiscal year, the company posted a net loss of $44.8 million as sales fell 27 percent to $158.9 million for the six-month period ended March 31, 2024.
Consolidated sales were down 28.5 percent in the second quarter, resulting in a net loss of $36.3 million. Salt Life Group segment net sales were down 18.0 percent in Q2 and net sales in the Delta Group segment declines 30.6 percent year-over-year.
The sales declines in H1 and Q2 2024 represented an acceleration from the last full fiscal year ended September 30, 2023 when the net loss was $33.2 million and sales fell 14.3 percent to $415.4 million.
As part of the warning signs leading to the bankruptcy filing:
- Delta. in mid-June, reported it planned to exit its DTG2Go business unit, impacting 115 employees. The company made the decision because DTG2Go’s largest customer indicated in May that it no longer intends to source production from the platform. As part of the DTG2Go Exit Plan, Delta announced that it has ceased production operations related to all DTG2Go manufacturing effective June 13.
- In connection with the plan, Delta Apparel will permanently close its DTG2Go facility in Storm Lake, IA, in addition to its printing facilities within distribution centers devoted to the Delta Group operating segment in Cranbury, NJ; Fayetteville, NC; Phoenix, AZ; LaVergne, TN; and Miami, FL.
- The company also reported in mid-June in a regulatory filing that it plans to formally suspend its manufacturing operations in Honduras due to ongoing liquidity challenges, impacting approximately 2,413 employees. The suspension remains in effect for at least 120 days as strategic initiatives are explored, possibly including a sale or a permanent wind-down of all operations in the country.
- Delta Apparel said in a mid-June regulatory filing that Matt Miller, president of Delta Group, the company’s largest segment, had submitted his resignation.
- Delta Apparel’s regulatory filing submitted on June 11 also noted that Justin Grow, the EVP and chief administrative officer, amended the effective date of his resignation to June 5. Grow previously submitted his resignation on May 3, with an effective date of July 2.
- The June 11 filing also noted that Elkay Partners, NY, LLC had exercised its right to terminate its planned purchase and long-term leaseback of the company’s approximately 35-acre campus in Fayetteville, NC. The purchase price for the Fayetteville campus contained in the agreement was $23.5 million.
- Delta confirmed that company Chairman and CEO Robert W. Humphreys resigned from his role with the company, effective June 29, 2024, at the request of the independent directors of the Delta Apparel Board of Directors.
- On May 31, Delta Apparel also said it had appointed Tim Pruban, the founder of Chicago-based Focus Management Group, as chief restructuring officer.
The company said it expects its shares to be delisted from NYSE American due to the bankruptcy filing.