Delta Apparel Inc., the parent of MJ Soffe, reported sales for its fiscal third quarter ended March 31, 2012 increased
slightly to $125.5 million, from $125.0 million in its fiscal 2011 third
quarter. Net income for the fiscal 2012 third quarter was $1.9 million,
or 22 cents per diluted share, down from $5.7 million, or 65 cents, in third quarter 2011.
Slower third quarter revenue growth resulted primarily from lower sales volumes in the Delta Catalog and Soffe businesses. Customers purchasing basic blank t-shirts appeared to be de-stocking in anticipation of lower future prices as cotton costs continued to decline. This situation drove promotional pricing in the marketplace that negatively impacted revenue and gross margins. Sales of Soffe branded products were lower than expected due to soft retail demand early in the quarter. In addition, Soffe experienced lower military sales attributable to slower call-outs of military training gear, which have resumed to normal levels for the fourth fiscal quarter.
For the first nine months of fiscal 2012, net sales increased approximately 5 percent to $354.6 million from $337.6 million in the comparable period of 2011. The 2012 nine-month period, which includes the company's previously-reported second quarter $16.2 million inventory markdown in its basics segment, yielded a net loss of $7.3 million, or 86 cents per diluted share, compared with 2011 nine-month net income of $8.8 million, or $1.00 per diluted share.
Branded Segment Review
Branded segment sales for the fiscal 2012 third quarter were $58.5 million, a 7.7 percent increase over fiscal 2011 third quarter sales of $54.3 million. Business at To The Game, led by Salt Life products, was strong for the quarter with a 42 percent increase in net sales at expected gross margins. The Junkfood business continued its double-digit sales growth with a 15 percent increase over the prior year and Art Gun, while still relatively small, improved significantly both in revenue and margins. The exciting growth in these branded businesses was dampened somewhat by weakness in Soffe revenue and margins during the third quarter.
Basics Segment Review
The basics segment's net sales in the fiscal 2012 third quarter were $67.0 million, down approximately 5 percent from last year’s third quarter. The decline came from the Delta Catalog business, which continues to suffer from excess inventories in the marketplace. The FunTees business continued to grow in the 2012 third quarter with a 13 percent increase in net sales. The increased revenue, coupled with lower costs, improved profits in the company's private label business.
Robert W. Humphreys, Delta Apparel’s Chairman and Chief Executive Officer, said that while he is disappointed in the results for the quarter, economic and apparel marketplace improvements that are just beginning to happen warrant cautious optimism. He further stated, “The inordinate cotton price increases of 2011 that created so much turmoil in the marketplace are now moderating. As the higher inventories in the marketplace are worked through, sales volumes should return to a more normal growth pattern, pricing should stabilize, and we would envision a better business environment going forward.”
“In the meantime, we have taken several steps to reduce costs and better position Delta Apparel, Inc. for next year. We have completed our investment to bring all of our branded businesses under one enterprise system, providing service efficiencies and cost savings. We are adjusting our manufacturing output to manage inventory levels to market conditions. In addition, we are moving several functions in our private label business offshore to streamline operations which should enhance service levels to our customers and reduce costs. While some of these initiatives have short-term costs which will be incurred in fiscal 2012, they should provide long-term benefits that we will begin to recognize in fiscal 2013. We believe that these and other steps we have taken to strengthen our business will become apparent as the economic environment improves.”
Fiscal 2012 Guidance
Due to the effect of the lower than anticipated revenue as well as the additional costs incurred, the company has further adjusted its outlook for sales and earnings. For the fiscal year ending June 30, 2012, the company anticipates net sales to be in the $475 to $485 million range and a loss for the year of $0.15 to $0.20 per diluted share. While fiscal year 2012 results have been hindered by the turmoil in the marketplace resulting from the unprecedented high cost cotton in 2011, the company anticipates performance trends in fiscal year 2013 similar to those experienced prior to fiscal year 2012.
