Delta Apparel Inc. reported that for its fiscal 2017 second quarter ended April 1, 2017, net income increased nearly 33 percent to $4.5 million, or 58 cents per diluted share, compared with $3.4 million, or 43 cents per diluted share, for last year’s second quarter.
Approximately 11 cents per share of the 2017 second quarter earnings resulted from a gain on the sale of the company’s Junkfood business completed on March 31, 2017.
Net sales for the 2017 second quarter were $104.1 million, compared with $109.2 million in the prior year period. The decline was primarily due to considerably lower sales at Junkfood during the quarter and the lingering impact of The Sports Authority bankruptcy on Soffe revenue. While margins expanded in most of the company’s business units during the quarter, overall gross margins were 30 basis points lower year-over-year due to softness in the Junkfood business. On a sequential basis, however, gross margins expanded by 270 basis points. Operating profit for the quarter was $7.5 million, or 7.2 percent of sales, versus $5.9 million, or 5.4 percent of sales, in the prior year second quarter.
For the first six months of the 2017 fiscal year, net sales were $189.5 million compared with $199.3 million in the prior year period. Net income for the six-month period was $3.9 million, or 50 cents per diluted share, versus $4.1 million, or 52 cents per diluted share, in the comparable period last year.
Basics Segment Review
For the fiscal 2017 second quarter, basics segment revenue grew to $70.8 million from $69.8 million in the prior year quarter. Art Gun achieved record revenue for the quarter, an 11 percent increase over the comparable 2016 quarter, as well as a 480 basis point gross margin expansion. Delta Activewear sales grew 1 percent driven by strong sales growth with private label programs. Fashion basics also contributed to the Activewear growth with a 40 percent sales increase with significantly higher margins than basic tees. This year’s introduction of new fashion basics products continues to be well-received, particularly the new Delta Platinum line and its elevated fabrications in fashion silhouettes for both men and women. Delta Activewear gross margins improved 60 basis points in the 2017 second quarter from the prior year period due to a favorable mix of products sold along with the lower product costs resulting from the manufacturing realignment completed in the prior year.
Operating profit in the basics segment for the quarter was $7.6 million, or 10.7 percent of sales, compared with $6.7 million, or 9.6 percent of sales, in the prior year second quarter.
Branded Segment Review
Revenue in the branded segment for the 2017 second quarter was $33.3 million compared with $39.3 million in the 2016 second quarter. The decrease primarily resulted from a 40 percent decline in Junkfood sales and the unfavorable impact of The Sports Authority bankruptcy on Soffe’s sales during the quarter. The loss of The Sports Authority business notwithstanding, Soffe enjoyed a 150 basis point margin expansion during the quarter as it continued to strengthen its business with the military, e-retailers, and strategic and independent sporting goods retailers. Soffe also continued to grow its direct-to-consumer business, with its branded eCommerce revenue up 38 percent for the quarter, bringing its year-to-date growth to 34 percent. Salt Life achieved expanded gross margins on a 10 percent revenue increase, a new second-quarter record for that business. Salt Life’s growth continues to be driven by its expanded product line and broadened distribution. Operating profits in Salt Life were further enhanced by lower distribution expenses and leveraged administrative costs.
Operating profit in the branded segment, including the $1.3 million gain on the sale of Junkfood, was $2.8 million, or 8.3 percent of sales, compared with $2.6 million, or 6.5 percent of sales, in the prior year second quarter.
Robert W. Humphreys, Delta Apparel, Inc.’s chairman and chief executive officer, commented, “Our fiscal 2017 second quarter was productive and we completed a number of key initiatives to further improve our business results. Earnings were up nearly 10 percent even after adjusting for the 11 cents per share gain from the sale of Junkfood. As we indicated last quarter, we remain focused on strategies that will drive revenue growth and improved operating margins throughout our company.
“During the quarter, Salt Life experienced strong shipments for initial spring store sets and early indications point to good spring sell-through. We continue to focus on connecting directly with our consumers through our Salt Life YouTube channel, social media and digital strategies. Our Salt Life eCommerce business continues to grow, with sales up 42 percent in the 2017 second quarter and 46 percent year-to-date. We recently opened a new Salt Life retail store on Main Street in Huntington Beach, California and are on schedule to open two additional stores on the East Coast by the end of the fiscal year. Overall, we anticipate continued double-digit growth through Salt Life’s omni-channel model, with strong margins and operating profit.
“Art Gun’s second quarter growth has positioned it for yet another year of record revenue and profitability in 2017, and we are making arrangements to handle the increased volume as we head into the next holiday season. In addition, we are utilizing Activewear’s existing facilities to expand Art Gun’s geographical reach and to better serve customers through reduced shipping times. Activewear’s expanded go-to-market strategies and new product introductions continue to enhance our business. Solid demand continues for our specialized vertical manufacturing capabilities combined with our sensitivity to social and environmental compliance programs that are so important to major brands and retailers. We achieved our goals with the manufacturing realignment completed last year and saw the initial positive results in our March results, and we expect them to become increasingly apparent in the second half of the fiscal year.
“We had a good quarter in a challenging retail environment, and we believe those results are a preview of our anticipated second half performance. We expect Salt Life and Art Gun to achieve record revenue in 2017 and should see continued improvement in Activewear with its expanded product offerings. Our direct-to-consumer business should continue to improve profitability and expand its outreach. We anticipate a return to growth and improved profitability at Soffe driven by consumer demand for our branded products and strengths with our Made in America programs. In addition, our cost structure should continue to improve as we realize the full benefit of our manufacturing realignment over the next several quarters. We believe that the combination of all of these elements will result in a future of sales and earnings growth for Delta Apparel.”
Photo courtesy Soffe
