Delta Apparel, Inc. reported a profit against a year-ago loss in the third quarter ended July 3 as sales jumped 65.3 percent.
Robert W. Humphreys, chairman and CEO, commented, “Our results reflect our strongest quarterly earnings performance on record. We surpassed our expectations as sales returned to pre-pandemic levels and gross margins continued to expand, highlighting the strength and resilience of our diversified business model.”
Humphreys continued, “While top-line growth has been hampered by inventory constraints and labor shortages in our Delta Group segment, customer demand remains robust as we continue to expand our reach with large retail and global brand partners seeking the products and value-added services we can uniquely provide. Salt Life delivered record quarterly sales with strong, double-digit growth across its sales channels including over 150 percent growth in our direct-to-consumer channels compared to the third quarter of the fiscal year 2019, highlighting the strength of the brand’s omnichannel marketing initiatives.
“We are thrilled with our performance during the quarter as it highlights the benefits of our broad channels of distribution, the demand in the market for the unique products and services we offer and the efficiencies we can achieve with our vertically integrated operations. We believe the momentum we are experiencing is just the beginning and, coupled with our ongoing strategic initiatives, positions us well for continued growth and profitability expansion,” Humphreys concluded.
For The June 2021 Quarter
Net sales were $118.7 million, an increase of 65.3 percent compared to the prior year’s third quarter when operations were significantly impacted by the pandemic. Compared to the fiscal 2019 third quarter, net sales were relatively flat driven by a 36 percent increase in net sales in the Salt Life Group partially offset by a 5 percent decline in the Delta Group segment. June quarter sales grew 9.2 percent from the March 2021 quarter, and sales in both segments exceeded internal expectations.
The strong sales performance in the Salt Life business was driven by double-digit year-over-year growth in its wholesale, e-commerce, and branded retail channels, with Salt Life retail doors driving sales growth of 250 percent from the third quarter of fiscal 2019. Delta Group’s net sales declined as inventory was not available to support the strong order demand, and labor shortages impacted U.S. production and distribution capacity.
Gross profit was $30.2 million compared to $3.0 million in the prior-year third quarter. Gross margin improved to 25.5 percent versus 4.2 percent in the prior year, and 20.8 percent in the June 2019 quarter, driven by higher DTC sales and the benefit of strategic pricing initiatives combined with lower product costs still flowing through the cost of sales.
Selling, general and administrative (“SG&A”) expenses were $19.9 million, or 16.8 percent of sales, in the June quarter compared to $15.2 million, or 21.2 percent of sales, in the prior-year third quarter, and $17.9 million, or 15.0 percent of sales, in the third quarter of fiscal 2019. The increase in SG&A compared to the third quarter of fiscal 2019 was driven by higher incentive compensation expenses, consistent with the improved profitability.
Operating income in the June 2021 quarter was $11.9 million compared to the prior year’s third-quarter loss of $21.6 million, which included $23.1 million of COVID-19-related adjustments. Third-quarter fiscal 2021 operating income increased 40 percent from the same quarter in fiscal 2019. The June 2021 quarter included a $1.2 million favorable adjustment to the contingent earnout liability from the DTG2Go acquisition. The June 2019 quarter included a $1.3 million gain related to the favorable settlement of a commercial litigation matter.
Net earnings for the June 2021 quarter were $8.2 million, or $1.14 per diluted share, compared to a net loss of $17.8 million, or $2.58 per share, in the June 2020 quarter, which included $17.7 million, or $2.57 per diluted share, of after-tax expenses associated with COVID-19. Net earnings per diluted share for the June 2021 quarter increased 60 percent compared to the same quarter in fiscal 2019. The June 2021 quarter included $0.9 million, or $0.13 per diluted share, of after-tax income related to the reduction of the fair value of the contingent earnout liability. The third quarter fiscal 2019 results included an after-tax gain of $0.7 million, or $0.10 per diluted share, related to the settlement of a commercial litigation matter.
Total inventory as of June 2021 was $152.3 million, down $5.7 million compared to $158.0 million from a year ago. Total inventory increased $3.8 million from March 2021 resulting from an increase in raw materials and in-process inventory, partially offset by a $2.9 million decrease in finished goods. Total net debt, including capital lease financing and cash on hand, was $132.3 million as of June 2021, representing a $4.8 million increase from net debt levels a year ago, and a $2.9 million decrease from net debt levels in March 2021. The decline in total net debt since the March quarter was due to improved profitability, partially offset an in-process inventory build, and $6.6 million paid for the Autoscale.ai technology announced on June 8, 2021. Cash on hand and availability under the company’s U.S. revolving credit facility totaled $43.4 million as of June 2021, a $2.3 million decrease from a year ago.
Photo courtesy Delta Apparel/Salt Life
