Delta Apparel, Inc. reported that sales for the quarter ended March 27, 2004 increased 73.6% from the prior year quarter, due primarily to the acquisition of M. J. Soffe Co. Record sales of $36.3 million for the third quarter was achieved in the Delta business, an increase of 7.2% from the prior year quarter. Sales for M. J. Soffe Co. were $22.6 million for the third quarter, a record for M. J. Soffe Co. and an increase of $1.0 million, or 4.8%, from its sales as a stand alone business for the quarter ended March 31, 2003.
Gross margin for the quarter ended March 27, 2004 improved to 24.5% compared to 18.1% 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 third fiscal quarter compared to the prior year quarter principally due to lower average selling prices, higher raw material costs and lower absorption of fixed cost, offset partially by lower conversion costs.
Selling, general and administrative costs increased to $8.9 million, or 15.1% of sales, compared to $3.5 million, or 10.3% 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 mainly as a result of the higher selling costs associated with branded apparel products. Both business units increased their operating income over the prior year quarter. The Company achieved record operating income of $5.5 million for the quarter ended March 27, 2004, an increase of $2.9 million, or 111.4%, from $2.6 million in the third fiscal quarter of the prior year.
Interest expense was $0.8 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.
The effective income tax rate on pretax income for the three months ended March 27, 2004 was 19.4%, compared to 38.3% for the third fiscal quarter of the prior year and 38.3% for the fiscal year ended June 28, 2003. During the quarter ended March 27, 2004, the statute of limitations expired on the tax years covered by the tax sharing agreement between the Company and Delta Woodside Industries, Inc. As a result, the Company reversed its $0.9 million tax liability associated with the tax sharing agreement, resulting in the lower effective tax rate during the quarter.
Net income for the third fiscal quarter was $3.8 million compared to net income of $1.5 million in the prior year third fiscal quarter. Basic and diluted earnings per share for the quarter ended March 27, 2004 were $0.93 and $0.91 per share on 4.09 million and 4.19 million shares, respectively. Basic and diluted earnings per share for the quarter ended March 29, 2003 were $0.37 and $0.35 on 4.05 million and 4.21 million shares, respectively. The Company had 4.11 million shares outstanding on March 27, 2004.
Sales for the first nine months of fiscal year 2004 were $135.2 million, up $42.5 million, or 45.8%, from the first nine months of the prior year, due primarily to the acquisition of M. J. Soffe Co. For the nine months ended March 27, 2004, operating earnings were $7.4 million, down $0.4 million from the first nine months of the prior year. Net earnings for the first nine months of fiscal year 2004 were $4.3 million, down $0.1 million from the first nine months of the prior year. Basic and diluted earnings per share for the nine months ended March 27, 2004 were $1.06 and $1.04 per share, respectively. For the nine months ended March 29, 2003, basic and diluted earnings per share were $1.09 and $1.05 per share, respectively.
Accounts receivable increased $16.3 million from March 29, 2003 to $36.6 million on March 27, 2004. The increase in accounts receivable was primarily the result of the addition of the M. J. Soffe Co. Through improved cash collections, the Delta business maintained an accounts receivable balance consistent with the prior year while achieving an increase in sales of $2.5 million from the prior year quarter.
Inventories increased $59.4 million from March 29, 2003 to $109.8 million on March 27, 2004. The acquisition of M. J. Soffe Co resulted in an increase of $55.8 million in inventory compared to the prior year. Throughout the quarter, the Company adjusted its production schedules to optimize its inventory mix while achieving a decrease in inventory of $1.4 million from December 27, 2003. The Company is focusing on managing its inventory levels while maintaining the inventory necessary to achieve its expected sales growth.
Robert W. Humphreys, President and CEO, commented, “We are delighted to announce record sales and earnings for Delta Apparel in our first full quarter with M. J. Soffe. Both businesses enjoyed sales and earnings growth despite higher raw material costs and competitive market conditions. In the Delta business, selling prices increased from the December quarter in response to the increase in raw material prices. These price increases are continuing to hold in the current quarter. Sales in the Soffe business grew during the quarter driven by increased branded sales in the retail segment. Several new products were introduced in the marketplace and demand for the Soffe product line remains strong. We are encouraged with our third quarter results and expect these strong results to continue in the fourth quarter.”
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Mar 27, Mar 29, Mar 27, Mar 29,
2004 2003 2004 2003
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Net Sales $58,805 33,870 $135,230 $92,755
Cost of Goods Sold 44,374 27,755 107,807 75,515
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Gross Margin 14,431 6,115 27,423 17,240
SG&A 8,879 3,486 20,085 9,354
Other (Expense) Income (20) (12) 29 (154)
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Operating Income 5,532 2,617 7,367 7,732
Interest Expense 799 209 1,846 527
Taxes 920 923 1,211 2,774
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Net (Loss) Income $ 3,813 $ 1,485 $ 4,310 $ 4,431
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Weighted Average Shares Outstanding
Basic 4,089 4,053 4,065 4,056
Diluted 4,188 4,207 4,162 4,205
Net Income per Common Share
Basic $ 0.93 $ 0.37 $ 1.06 $ 1.09
Diluted $ 0.91 $ 0.35 $ 1.04 $ 1.05
