Delta Apparel, Inc. reported net sales of $93.4 million for its fiscal 2015 first quarter ended Dec. 27, 2014, versus $100.0 million for the comparable 2014 period. Continued solid growth in Salt Life and on all of the company’s e-commerce sites was offset by lower sales in other business units.
While the lower sales were mitigated somewhat by improved margins in all but one of the company’s business units and by overall lower general and administrative costs, the company experienced a net loss for the 2015 first quarter of $4.2 million, or 53 cent per diluted share, compared with a net loss for the prior year quarter of $1.6 million, or 20 cent per share.
Selling, general and administrative expenses for the fiscal 2015 first quarter were $18.5 million, a 6.6 percent decrease from $19.8 million in the prior year quarter. The improvement resulted from the strategic cost restructuring completed in the prior quarter and continued tight spending controls, being offset to some degree by higher marketing expense for the Soffe and Salt Life brands. Despite the lower sales in the 2015 first quarter, selling, general and administrative expenses were 19.9 percent of revenue, consistent with the prior year first quarter, providing further evidence of the lower fixed cost structure the company has implemented.
Basics Segment Review
Net sales for the company’s basics segment were $57.7 million in the 2015 first quarter, a decrease of approximately 8 percent percent from $62.5 million in the prior year period. The decline stemmed from lower prices on reduced unit sales in the undecorated tee business, which was impacted by continued price discounting resulting from weak demand in the marketplace. New programs were won in the private label business that should drive strong sales growth as the year unfolds. Art Gun, with the successful installation of state-of-the-art digital printing equipment in the September quarter, achieved 4 percent unit growth but revenue was hindered as customers transitioned to different price-point garments.
Branded Segment Review
Fiscal 2015 first quarter net sales in the branded segment were $35.7 million compared with $37.5 million in the prior year period, a 5 percent decline. Salt Life continued its excellent performance with 15 percent growth in what is typically its weakest quarter. Salt Life currently has a substantial Spring order backlog indicating stronger revenue growth rates in upcoming quarters. Our other branded product lines experienced lower sales, as the retail market continued to struggle with unsettled economic conditions and changing consumer shopping trends. Soffe’s net sales in the first quarter declined 10 percent from the prior year period. While Soffe still faces challenges from the soft retail market, the company believes that its fresh line of Spring merchandise along with upcoming marketing initiatives should result in sales growth for the year. The sluggish retail economy was also primarily responsible for a 5 percent decline in Junkfood sales for the quarter, but we believe that the success of several new programs with specialty retailers and the excitement generated among customers by our new Junkfood store in Venice, California bodes well for future sales.
Robert W. Humphreys, Delta Apparel, Inc.’s Chairman and Chief Executive Officer, commented that this first quarter decline in net sales should not be the yardstick by which the rest of the year is measured. “We believe that most areas of our business are pointing to growth in subsequent quarters, particularly in the second half of the fiscal year. Each of our eCommerce sites reported significant growth and had their best quarter ever. While this doesn’t make up for weak sales in traditional retail outlets, it tells us unequivocally that our brands are important and sought after by consumers.”
“Salt Life net sales grew 15 percent in the December quarter, which is traditionally its weakest quarter. The backlog of orders for Spring is encouraging and our recent consumer survey has confirmed a strong lifestyle brand affiliation among Salt Life customers. The Salt Life retail store and licensed Salt Life restaurants continue their success in making the Salt Life brand a larger part of people’s daily lives. We are looking forward to the launch of a new Salt Life internet channel and other digital media campaigns that will bring together consumers who all love to live the Salt Life.”
“We are using a similar marketing technique with Junkfood and the opening of our first Junkfood store in Venice, California where retailers are seeing the most effective ways of merchandising Junkfood products. The management team at Soffe has launched a new marketing campaign to support a refined brand position and build consumer demand. While it may be premature to provide the details, the program will involve highly targeted consumer media to drive engagement and loyalty with Soffe’s core consumers. Soffe has also completed its conversion to a new enterprise system, which lowers its technology and staffing costs and affords Soffe greater efficiency and improved customer service.”
“The recent investments in our manufacturing platform provide us with the capacity to meet current and future requirements as demand increases. As the year progresses, we should see benefits from efficiency improvements and lower input costs, with these lower costs improving our gross margins beginning in the second half of the fiscal year.”
“Delta Apparel took decisive action in recent quarters to improve profitability and the plan is working. Our administrative headcount has been reduced and our manufacturing platform has been improved. Equally important, most of the associated costs to complete these initiatives are behind us. We have made significant progress on the rationalization analysis of our products and sales channels and, as the year unfolds, we will be taking steps to redeploy assets to those areas that are more strategic to our long-term goals. This, along with our current backlog of orders, gives us a high degree of optimism that we will see solid overall sales growth and greater profitability as the year progresses.”
Delta Apparel, Inc., along with its operating subsidiaries, M. J. Soffe, LLC, Junkfood Clothing Company, To The Game, LLC and Art Gun, LLC produce lifestyle basic and branded activewear apparel and headwear.
