Delta Apparel, Inc. announced a 52.1% increase in sales to $45.6 million for the company's second fiscal quarter ended December 27, 2003. The $15.6 million sales increase over the prior year quarter was the result of the acquisition of M. J. Soffe Co., which accounted
for $17.1 million in sales in the quarter.
Gross margin for the quarter ended December 27, 2003 improved to 19.5% compared to 17.1% in the prior year quarter. The improvement in gross margin was primarily
the result of the higher gross margins associated with M. J. Soffe Co., offset partially by lower gross margins in the basic tee shirt business. The gross margin on basic tee shirts declined in the second fiscal quarter compared to the prior year quarter primarily due to lower average selling prices and higher raw material costs.
During the
quarter ended December 27, 2003, the Company was able to achieve an approximate 6% reduction in its converting costs through a series of process improvement programs in its manufacturing facilities. The improved converting results are expected to continue in the future.
The reduction in converting costs achieved during the second fiscal quarter was capitalized in inventory at December 27, 2003. During the third fiscal quarter, the effect of these improvements is expected to be partially offset by the higher raw material costs and the costs
associated with reduced production schedules.
Selling, general and administrative costs increased to $8.1
million, or 17.9% of sales, compared to $3.0 million, or 10.1% of
sales, in the prior year quarter primarily due to the addition of the
M. J. Soffe Co. Selling costs increased as a percentage of sales
primarily as a result of the higher selling costs associated with
branded apparel products. Operating income was $0.7 million for the
quarter ending December 27, 2003, a decrease of $1.3 million, or
64.5%, from $2.1 million in the second fiscal quarter of the prior
year.
Interest expense was $0.9 million for the quarter, compared to
$0.2 million in the prior year quarter. The increase in interest
expense resulted primarily from the increase in average debt
outstanding, resulting from the M. J. Soffe acquisition.
Net loss for the second fiscal quarter was $0.1 million compared to net income of $1.2 million in the prior year second fiscal quarter. Basic and diluted earnings per share for the quarter ended December 27, 2003 were a loss of $0.02 per share on 4.06 million and 4.19 million shares, respectively. Basic and diluted earnings per share for the quarter ended December 28, 2002 were $0.28 and $0.27 on 4.06 million and 4.22 million shares, respectively. On December 27, 2003 the Company had 4.06 million shares outstanding.
Sales for the first six months of fiscal year 2004 were $76.4
million, up $17.5 million, or 29.8%, from the first six months of the
prior year. For the six months ended December 27, 2003, operating
earnings were $1.8 million, down $3.3 million from the first six
months of the prior year. Net earnings for the first six months of
fiscal year 2004 were $0.5 million, down $2.4 million from the first
six months of the prior year. Basic and diluted earnings per share for
the six months ended December 27, 2003 were $0.12 per share. For the
six months ended December 28, 2002, basic and diluted earnings per
share were $0.73 and $0.70 per share, respectively.
Accounts receivable increased $6.0 million from December 28, 2002
to $23.7 million on December 27, 2003. The increase in accounts
receivable was primarily the result of the addition of the M. J. Soffe
Co., offset partially by lower accounts receivable due to lower sales
in basic tee shirts during the quarter.
The Company completed its purchase of the M. J. Soffe Co. on
October 3, 2003. A preliminary purchase price allocation indicates
that no value will be allocated to the property, plant and equipment
of M. J. Soffe for book and tax purposes. A tax loss was generated as
a result of no value being allocated to the property, plant and
equipment. The Company was able to take the tax loss and carry the
loss back to the pre-acquisition income for the M. J. Soffe Co.,
resulting in an $8.3 million federal tax refund.
Inventories increased $61.1 million from December 28, 2002 to
$111.3 million on December 27, 2003. The acquisition of M. J. Soffe Co
resulted in an increase of $54.7 million in inventory compared to the
prior year. The remaining increase in inventory was the result of
lower than expected sales of tee shirts during the quarter and a
strategy to build inventories to take advantage of lower cost raw
materials that were available during the previous quarters.
The Company purchased 7,853 shares of its stock through its Stock
Repurchase Program during the quarter ended December 27, 2003 for a
total cost of $0.1 million. Pursuant to its Stock Repurchase Program,
the Company has repurchased a total of 0.4 million shares of stock for
a total cost of $4.2 million. Including the shares repurchased
pursuant to the Company's Dutch Tender Offer, the Company has
repurchased a total of 1.0 million shares of stock for a total cost of
$11.8 million. The Company has authorization from its Board of
Directors to repurchase an additional $1.8 million of its common
stock.
Robert W. Humphreys, President and CEO, commented, “We completed
the acquisition of the M. J. Soffe Co. during the quarter and are
excited about the synergies we see developing between the two
businesses. The tax refund received through the acquisition reduced
our cash investment in the M. J. Soffe business by approximately 13%.
Since the acquisition of M. J. Soffe Co. in October, we have reduced
the debt in this business by $11.6 million. While we were disappointed
with our sales and operating results for the quarter, we believe the
steps we took during the quarter will improve our position for the
future. During the quarter we closed a domestic sewing plant and took
significant manufacturing downtime to start reducing inventories in
the M. J. Soffe business. We expect to reduce inventories in both of
our businesses in the second half of the year. The reduced operating
schedules had a short term negative impact on operating income but
will help improve the balance sheet by our fiscal year end. Price
increases have taken effect in the tee shirt market in January and
appear to be holding at this time. We look forward to the spring
selling season in both of our product lines.”
Delta Apparel also announces that its Board of Directors declared
a dividend of six cents per common share of stock. The dividend is
payable February 23, 2004 to shareholders of record as of the close of
business on February 11, 2004. This dividend is pursuant to the
Company's previously announced quarterly dividend program, which the
Company may amend or terminate at any time.
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
Dec 27, Dec 28, Dec 27, Dec 28,
2003 2002 2003 2002
-------- -------- -------- --------
Net Sales $ 45,623 30,002 $ 76,425 $ 58,885
Cost of Goods Sold 36,714 24,881 63,434 47,760
-------- -------- -------- --------
Gross Margin 8,909 5,121 12,991 11,125
SG&A 8,148 3,032 11,207 5,867
Other (Expense) Income (31) (34) 50 (142)
-------- -------- -------- --------
Operating Income 730 2,055 1,834 5,116
Interest Expense 892 171 1,046 319
Taxes (71) 729 290 1,851
-------- -------- -------- --------
Net (Loss) Income $ (91) $ 1,155 $ 498 $ 2,946
======== ======== ======== ========
Weighted Average Shares Outstanding
Basic 4,064 4,062 4,054 4,057
Diluted 4,187 4,220 4,176 4,213
Net Income per Common Share
Basic $ (0.02) $ 0.28 $ 0.12 $ 0.73
Diluted $ (0.02) $ 0.27 $ 0.12 $ 0.70
