Delta Apparel, Inc. reported earnings more than doubled in the first quarter ended June 27. Revenues grew 1.7 percent after adjustment to exclude the recently sold The Game branded business. Without such adjustment, net sales for the fiscal 2015 third quarter were $120.5 million versus $123.5 million for the comparable 2014 period.
Net income for the 2015 third quarter doubled to $4.4 million, or 55 cents per diluted share, compared to third quarter 2014 net income of $2.2 million, or $0.27 per diluted share. Gross margins continued to strengthen both on a sequential basis from the 2015 second quarter and year-over-year. Selling, general and administrative expenses as a percentage of sales for the 2015 third quarter were reduced to 16.3 percent, versus 17.1 percent in the prior year period. Operating profit for the 2015 third quarter was 5.7 percent of sales, a $5.3 million improvement over the comparable 2014 period.
For the first nine months of fiscal 2015, net sales were $328.9 million compared with $338.0 million in the prior year period. The sale of The Game collegiate business in March contributed $6.4 million to the decline. Net income for the 2015 first nine months was $3.9 million, or $0.48 per diluted share, compared with a net loss of $195 thousand, or $0.02 per diluted share, in the comparable 2014 period.
Basics Segment Review
Net sales for the company's basics segment were $79.0 million in the 2015 third quarter, a 4.2 percent increase over the prior year's third quarter net sales of $75.8 million. Solid performances in both Activewear and Art Gun were the drivers of this improvement. Activewear sales increased 3.6 percent year-over-year, driven by 12.7 percent growth in the private label business. Delta Apparel's catalog business maintained stable pricing throughout the quarter and improved its product mix with a greater variety of fashion basics and more programs with value-added services that are fostering customer loyalty and establishing a differential advantage over competitors.
Art Gun, the company's eCommerce business specializing in customized apparel offerings through its proprietary software and state-of-the-art digital printing platform, increased sales 26.2 percent to $2.9 million. The basics segment achieved solid margin expansion, both sequentially from the March quarter and year-over-year, due to a stronger product mix, greater efficiencies in manufacturing and operations, and the benefit of balanced selling prices with lower cotton costs.
Branded Segment Review
The company's branded segment had net sales of $41.5 million compared with $47.7 million for the 2014 third quarter. The removal of approximately $5 million in revenue due to the sale of The Game branded business in March was the primary reason for the decline.
Junkfood sales for the 2015 third quarter were up slightly compared with the prior year quarter, with strong margin improvement both sequentially and over the 2014 third quarter. Continued double-digit sales growth at specialty retailers offset some weakness in other sales channels. The Junkfood website continued its strong growth, increasing sales 22 percent in the June quarter over the prior year, bringing year-to-date sales growth to 61 percent.
Soffe sales were generally flat with the prior year, with fewer closeout sales compared to the prior year driving the $0.6 million decline in revenue.
Sales of Salt Life products were lower than expected, with sales growth of 4.1 percent compared to the prior June quarter. While strong demand during the quarter suggested almost 30 percent growth, shipping was hindered by the transition of distribution operations to the Soffe facility in Fayetteville, NC. Salt Life expects to work through its order backlog during the fourth quarter and be in position to take full advantage of its new, more efficient and cost-effective distribution platform in Fayetteville by calendar year 2016.
Chairman and CEO commentary
“We are pleased that Delta Apparel not only turned the corner in terms of sales and net income growth, but showed vast improvement in other areas such as gross margin development, general and administrative cost reductions, and operating margin expansion,” said Delta Apparel's Chairman and CEO Robert W.
Humphreys. “The strategic initiatives that we began implementing 12 months ago have proven successful in regards to cost savings, efficiency, profit growth, and better service to our customers.
“We continue to invest in those areas that yield the highest return,” Humphreys continued.
As an example, he note that Delta Apparel purchased additional knitting equipment for its textile facilities and completed the move of additional screen-printing equipment to El Salvador to service the strong growth in private label programs. Art Gun purchased additional digital print equipment to service the high-growth eCommerce business providing customized products for consumers.
“Our eCommerce business, both direct-to-consumer and business-to-business, is also doing exceptionally well,” Humphreys said. “Overall growth for the third quarter was 56 percent compared to the prior year period, with sales on each of our direct-to-consumer sites up by double digits. We have added functionality to all of our sites to enhance the customer experience and stimulate repeat business.”
At Soffe, sales appear to have stabilized and the business is no longer losing money, Humphreys said. The core Soffe short in various colors and patterns is trending well with consumers, and a number of major retailers are adding doors with the short. Delta Apparel is encouraged that Soffe's fall line has been well-received by retailers and anticipates a good response from consumers once the products hit retail shelves.
“These few examples pulled from our third quarter performance point to continued improvement in each of our business units, but more importantly indicate to us that Delta Apparel is entering into another period of steady growth and prosperity,” Humphreys concluded.
