Delta Apparel, Inc. announced basic and diluted earnings per share of $1.50 and $1.45, respectively, for the fiscal year ended June 28, 2003, a two cent increase over the upper range of the previously announced expected basic earnings of $1.43 to $1.48 per share.
For the quarter ended June 28, 2003, the Company recorded sales of $36.8 million, a decrease of $6.6 million, or 15.3%, from the prior year quarter. During the quarter, pricing in the marketplace continued to decrease, causing Delta Apparel's average selling prices to decline 8.4% from the prior year quarter. The price declines were primarily in the basic white and colored tees. In the beginning of the quarter, the Company did not participate in many of the competitor price promotions causing unit volume to decrease by 7.5% from the prior year quarter. Delta Apparel's specialty tees and private label programs continued to generate good margins and helped offset declining margins on basic tees. Gross profit as a percentage of net sales decreased to 18.3% for the fourth fiscal quarter from 19.3% in the prior year quarter. The lower gross margin was the result of the lower selling prices, offset partially by lower cotton costs.
Selling, general and administrative costs were $3.9 million for the quarter ended June 28, 2003, an increase of $0.5 million from $3.4 million in the prior year quarter. Distribution expenses increased $0.3 million, primarily the result of the new Florida distribution center that opened in February. Bad debt expense increased $0.4 million primarily due to slower payments from customers attributed to the depressed retail climate. General and administrative expenses decreased $0.4 million primarily due to lower management incentives resulting from the lower operating earnings during the quarter.
Other expense for the quarter ended June 28, 2003 was $40 thousand compared to other income of $0.7 million in the prior year quarter. During the prior year quarter, the Company recognized a gain of $0.3 million on cotton options that were purchased in April 2002. In addition, the Company received final payment on an installment sale of a previously idle manufacturing facility, resulting in a gain of $0.3 million.
Operating earnings for the quarter were $2.8 million, down $2.8 million from the prior year quarter primarily from the decrease in gross margin and other income and increase in selling, general and administrative expenses.
Interest expense was $204 thousand for the quarter, compared to $153 thousand in the prior year quarter. The increase in interest expense resulted from an increase in the average debt outstanding, partially offset by a reduction in the average interest rates.
The effective tax rate on pretax income for the quarter ended June 28, 2003 was 37.7% compared to 30.0% in the prior year quarter. In the quarter ended June 29, 2002, the Company reversed a valuation allowance against $8.7 million in state net operating loss carryforwards. This reduced the effective tax rate for the quarter ended June 29, 2002 to 30.0%.
Net earnings for the quarter were $1.6 million, or 4.4% of sales, down from $3.9 million, or 8.9% of sales, for the prior year quarter. Basic and diluted earnings per share for the quarter ended June 28, 2003 were $0.41 and $0.39 per share on 4.01 million and 4.15 million shares, respectively. Basic and diluted earnings per share for the quarter ended June 29, 2002 were $0.97 and $0.92 on 3.98 million and 4.20 million shares, respectively. On June 28, 2003, the Company had 4.04 million shares outstanding.
Sales for the year ended June 28, 2003 were $129.5 million, down $2.1 million, or 1.6% from the prior year. Operating earnings for fiscal year 2003 were $10.6 million, up $0.2 million, or 2.1%, from the prior year.
The effective tax rate on pretax income for the year ended June 28, 2003 was 38.3% compared to 33.0% for the prior year. During the quarter ended June 29, 2002, the Company reversed the valuation allowance against $8.7 million in state net operating loss carryforwards, as the Company believed these state net operating losses would be used in the upcoming years. This reduced the effective tax rate for the year ended June 29, 2002 to 33.0%.
Net earnings for the year ended June 28, 2003 were $6.1 million, down $0.4 million from the prior year. Basic and diluted earnings per share for the year ended June 28, 2003 were $1.50 and $1.45 per share on 4.05 million and 4.18 million shares, respectively. Basic and diluted earnings per share for the year ended June 29, 2002 were $1.48 and $1.42 per share on 4.37 million and 4.56 million shares, respectively.
Inventories on June 28, 2003 were $47.2 million, an increase of $11.7 million from $35.5 million on June 29, 2002. The Company built higher levels of inventory in the first half of the fiscal year in expectation of increased sales over the prior year. The Company did not meet its sales volume expectations during the fourth quarter, resulting in an increase in finished goods of $7.4 million from June 29, 2002. In-process inventory at June 28, 2003 increased $6.1 million from June 29, 2002 as inventory levels were increased to support expected sales growth. The Company's raw material inventory decreased $3.0 million during the quarter ended June 28, 2003, and is $1.8 million lower than at June 29, 2002. Beginning in the fourth quarter of the prior year, the Company began increasing its raw material inventory to take advantage of lower cotton prices and to support its increased textile capacity. During the quarter ended June 28, 2003, the Company decreased its raw material inventory to levels that it expects to maintain during fiscal year 2004.
During the year ended June 28, 2003, the Company purchased 130,204 shares of its stock through its Stock Repurchase Program. The stock was purchased at an average cost of $14.74 per share. The Company did not purchase any shares in its fourth quarter.
Robert W. Humphreys, President and CEO, commented, “Our fourth fiscal quarter results were hurt by the lower pricing being driven by the higher inventory levels in the pipeline. Average selling prices for the quarter were down 8.4% from the prior year. We expect pricing to remain depressed until excess inventories are worked through the retail market. In response, we have escalated our emphasis on cost reductions in order to offset the impact of the lower pricing. We continue to decrease our participation in the distributor market, which accounted for approximately 10% of our sales in the quarter. New customer growth continued at a strong pace for the quarter and was up 49% for the year. New product sales continued to increase with good margins. We feel that our continued efforts to grow our non-commodity business and increase sales to our direct customers will serve us well in the future.”
Commenting on the Company's recently announced agreement to acquire the M.J. Soffe Company, Mr. Humphreys said, “We have made considerable progress related to the due diligence and financing arrangements for the acquisition of the Soffe Company. We expect to be able to close the acquisition in September 2003.”
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
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Net Sales $36,766 $43,390 $129,521 $131,601
Cost of Goods Sold 30,037 35,012 105,552 110,273
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Gross Margin 6,729 8,378 23,969 21,328
SG&A 3,867 3,391 13,220 11,807
Other Expense (Income) 40 (667) 194 (816)
----------- --------- ---------- ---------
Operating Income 2,822 5,654 10,555 10,337
Interest Expense 204 153 732 677
Taxes 986 1,648 3,760 3,188
----------- --------- ---------- ---------
Net Income $1,632 $3,853 $6,063 $6,472
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Weighted Average Shares Outstanding (1)
Basic 4,013 3,984 4,045 4,368
Diluted 4,149 4,196 4,176 4,562
Net Income per Common Share
Basic $0.41 $0.97 $1.50 $1.48
Diluted $0.39 $0.92 $1.45 $1.42
