Delta Apparel, Inc., parent company to M.J. Soffe, took the stage at both Cowen and ICR to highlight the progress of recent initiatives designed to bolster sales and improve profitability. The company also upped its sales guidance and lowered its estimate of losses for the fiscal second quarter ended December 29.
DLA now expects Q2 revenues to be approximately $68 million to $69 million, compared to its prior expectation of $64 million to $68 million. It expects to report a loss of approximately 33 cents to 34 cents per diluted share versus its prior guidance of a loss of 33 cents to 37 cents per share. Full year guidance remains unchanged, calling for earnings of 62 cents to 76 cents per diluted share on sales in the range of $315 million to $340 million.
At the conferences, Delta Apparel, Inc. said the Soffe line this spring will expand another approximately 400 more doors, mainly by exploring new geographic regions where the brand had been underutilized. The expanded account base comes after Soffe sales sunk 14.3% in the Q1 period ended September 29, driven by weak consumer demand, capacity constraints in decorating apparel, and delayed shipments on certain sourced product. Soffe also instituted an Internet campaign about 18 months ago and is now seeing healthy growth in online sales. The brand started the Soffe Fan Club, a consumer club that has over 60,000 members.
Soffe also was awarded a significant part of a new military training uniform program that could add $2 million to $3 million in H2. Lord & Taylor was added to Soffe's mid-tier channel, which also includes Kohl's, Penneys, Belk and Macy's. Sporting goods continues to be Soffe's largest channel, reaching 7,000 accounts.
In the activewear segment, which makes private label products for major brands such as Nike, Reebok and Quiksilver, Bob Humphreys, Delta Apparel's president and CEO said Delta is increasingly including screen printing and graphics and in some cases is shipping directly to the customer for their vendor partners. Many are asking for the decorating to be moved offshore. Humphries said the company is only starting to leverage the significant decorating capacity and expertise from Delta's FunTees acquisition.
“We will continue to provide our same customers services but add screen printing which can add $10 to $12 a dozen to the garments and then retail ready put-up which is further value added,” said Humphries. “We will also leverage this new textile production we have coming on-stream which will give us more capacity and just as important more competitive capacity to continue to compete in that basic tee-shirt market.”
“The competitors in mass retail are the same as the competitors that we've competed against in the screenprint channel,” said Laurence Sellyn, Gildan's CFO and CAO at the ICR XChange Conference. “The success factors are the same and we believe the business model is the same.”
Sellyn said Gildan's retail strategy began in July 2006, when it acquired a private label sock manufacturer based in the U.S. that provided distribution to mass retailers. Last year, its first national branded program for socks was launched at Dollar General and another private label program was reached with another major retailer. In October 2007, Gildan purchased VI Prewett & Son, the largest private label sock manufacturer for U.S. retail, to further build its foundation around basics.
“This makes us, we believe, the largest sock manufacturer to U.S. retail through these two acquisitions and significantly enhances our platform to be a supplier, not only of socks for this channel, but also for underwear and activewear for the full range of basic family apparel products,” said Sellyn.
Gildan will ship its first major underwear program with a national retailer in the spring, and so far expects at least 1.5 million dozens of retail programs in FY08.
Just like the screenprint business, Gildan expects success at retail will stem from its global low-cost production, which provides its retailer customers significantly higher margins and also offers low prices for consumers.
“We believe we have the potential for our retail sales to be as large as our wholesale sales over the next three years or so, and with similar margins and profitability,” said Sellyn.
In the screenprint channel, Sellyn said Gildan continues to see opportunities to “further maximize our penetration in this market.” Its share in 100% cotton t-shirts has grown from 10% when the company went public in 1998 to 55% in the first nine months of FY07. Its share is close to 30% in 50% cotton/polyester t-shirts, and in the mid-40s in fleece. Its target is to expand share to 60% in all three categories. Gildan is also a leader in sports shirts, but is coming out with a higher-end ring spun combed cotton sport shirt to increase its penetration in the category.
Overall, Gildan sold approximately 500 million shirts in FY07 to the screenprint channel, and expects to sell approximately 550 million shirts into the channel in FY08.
