Delta Apparel, Inc. announced sales of $33.9 million for the third fiscal quarter of fiscal year 2003, a 3.1% increase from the prior year third fiscal quarter.

The sales increase of $1.0 million over the prior year quarter was the result of a 10.4% increase in volume, partially offset by a 6.6% decrease in average selling prices. Sales of heavyweight adult and youth short sleeve tees and private label programs drove the volume increase for the quarter. Lower average selling prices were primarily the result of price promotions on the basic adult short sleeve white and colored tees. Operating income was $2.6 million for the quarter, a decrease of $0.5 million, or 16.7%, from $3.1 million in the third fiscal quarter of the prior year. The decrease resulted primarily from the lower selling prices, partially offset by lower raw material costs, and higher distribution costs, driven from the February opening of the Florida distribution center. In addition, the Company began producing dyed fabric at its Fayette, Alabama plant during the quarter. This led to an increase in off-quality costs due to the initial trials of the dyeing equipment.

Interest expense was $0.2 million for the quarter, an increase of $51,000 from the prior year quarter. The increase in interest expense resulted from an increase of approximately $5.4 million in average debt outstanding, slightly offset by a reduction in the average interest rates. The higher average debt outstanding was the result of the higher accounts receivable and inventory levels during the quarter.

The effective income tax rate on pretax income for the three months ended March 29, 2003 was 38.3%, compared to 37.1% for the third fiscal quarter of the prior year and 33.0% for the fiscal year ended June 29, 2002. In fiscal year 2002, the Company reversed the valuation allowance against its net operating loss carryforwards, resulting in the effective tax rate of 33.0%. The Company expects its annualized effective tax rate to more closely approximate statutory rates for fiscal year 2003.

Net earnings for the quarter were $1.5 million, or 4.4% of sales, down $0.4 million from the prior year quarter. Basic and diluted earnings per share for the quarter ended March 29, 2003 were $0.37 and $0.35 per share on 4.05 million and 4.21 million shares, respectively. Basic and diluted earnings per share for the quarter ended March 30, 2002 were $0.46 and $0.43 on 4.08 million and 4.32 million shares, respectively (after giving effect to the 2-for-1 stock split effective as of September 20, 2002). On March 29, 2003, the Company had 4.01 million shares outstanding.

Sales for the first nine months of fiscal year 2003 were $92.8 million, up $4.5 million, or 5.2%, from the first nine months of the prior year. For the nine months ended March 29, 2003, operating earnings were $7.7 million, up $3.0 million from the first nine months of the prior year.

Interest expense was $0.5 million for the nine months ended March 29, 2003, which is consistent with the first nine months of last year. Higher average borrowings, offset by a decrease in average interest rates resulted in interest expense being consistent with the prior year.

Net earnings for the first nine months of fiscal year 2003 were $4.4 million, up $1.8 million from the first nine months of last year. Basic and diluted earnings per share for the nine months ended March 29, 2003 were $1.09 and $1.05 per share, respectively. For the nine months ended March 30, 3002, basic and diluted earnings per share were $0.58 and $0.55 per share, respectively.

Accounts receivable increased $2.9 million from March 30, 2002 to $20.2 million on March 29, 2003. The increase was a result of higher sales during the current year quarter and higher days sales outstanding.

Inventories on March 29, 2003 were $50.4 million, consistent with inventory levels on December 28, 2002. Inventory has increased $14.9 million from June 29, 2002 and has increased $11.0 million from the prior year quarter. The Company built higher levels of inventory in the first half of the year to prepare for the opening of its Florida distribution center which occurred during the current quarter, causing finished goods to increase by $2.8 million from the prior year quarter. Although in-process inventory continued to be higher than the prior year quarter and June 29, 2002, it remained consistent with the level at December 28, 2002. The Company expects in-process inventory to remain at current levels as it continues to produce more products to support the new distribution center and its anticipated sales growth for fiscal year 2003. The Company’s raw material inventory decreased $1.8 million during the quarter, although it remained higher than at June 29, 2002. The Company had increased its raw material inventory since June 29, 2002 to take advantage of lower cotton prices and to support its increased textile capacity. The Company expects raw material inventories to decrease significantly during the fourth fiscal quarter.

The Company purchased 81,500 shares of its stock through its Stock Repurchase Program during the quarter ended March 29, 2003 for a total cost of $1.2 million. For the nine months ended March 29, 2003, the Company purchased 130,204 shares for a total cost of $1.9 million.

Robert W. Humphreys, President and CEO, commented, “We are excited about the record sales achieved in the third quarter, particularly given the difficult retail environment. We expect to continue our growth in the final quarter of our fiscal year. Our new Florida distribution center opened in February and shipments were made to our customers the same month. The Florida distribution center should further contribute to our sales growth in the fourth quarter. We introduced dyeing in our Fayette, Alabama facility which will give us greater manufacturing flexibility in the future, though we did experience higher quality and yield costs during the quarter due to the startup.”

SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)


                          Three Months Ended      Nine Months Ended
                         Mar 29,     Mar 30,     Mar 29,     Mar 30,
                          2003        2002        2003        2002
                       -----------------------------------------------

Net Sales               $  33,870    $  32,860   $  92,755  $  88,211
Cost of Goods Sold         27,755       26,618      75,515     75,261
                         ---------    ---------   ---------  ---------
Gross Margin                6,115        6,242      17,240     12,950

SG&A                        3,486        3,076       9,354      8,416
Other Expense (Income)         12           25         154       (149)
                         ---------    ---------   ---------  ---------
Operating Income            2,617        3,141       7,732      4,683

Interest Expense              209          157         527        524
Taxes                         923        1,106       2,774      1,540

                         ---------    ---------   ---------  ---------
Net Income              $   1,485    $   1,878   $   4,431  $   2,619