Delta Apparel Inc. said a number of extraordinary factors – including the liquidation of Sports Authority, Hurricane Matthew and unseasonably warm winter weather – led to a loss in its first quarter ended December 31. But expanding margins and momentum in some of its businesses are expected to lead to improving profitability for the rest of the year.
“While we have made Delta Apparel more agile and less vulnerable to this difficult retail environment, our sales in the first quarter were negatively impacted by circumstances that were out of our control,” said Bob Humphreys, chairman and CEO, on a conference call with analysts.
The loss of $607,000, or 8 cents a share, compared to a profit of $681,000, or 9 cents a year ago. Revenues slumped 5.4 percent to $85.3 million.
Net sales for the branded segment fell 14.6 percent to $24.5 million. Overall margins for the branded segment expanded 160 basis points for the quarter compared to the prior-year period.
Soffe’s sales were down approximately $1.5 million but would have generally tracked last year’s first quarter absent the negative impacts of Sports Authority’s closure and a winter product return. A highlight for Soffe is e-commerce, with B2C sales up 30 percent and B2B sales climbing 40 percent. The brand continues to focus on adding new e-retail customers as well independent sporting goods retailers while looking to capitalize on its domestic manufacturing capabilities with military accounts.
Said Humphreys, “The combination of the Soffe brand, domestic manufacturing and military heritage gives us a significant advantage in this growing market and should be a source of future growth for Soffe. Along with building sales volume, we expect to lower inventories and reduce costs to improve profitability.”
Junkfood, without the benefit of sales momentum generated in the prior-year first quarter from a large-scale movie release, also experienced comparatively lower sales due to declines at brick-and-mortar retailers.
Salt Life recorded a first-quarter profit on 3.8 percent quarter-over-quarter sales growth with expanded margins. The effects of Hurricane Matthew and the slow sell-through of long-sleeve products due to the unseasonably warm winter at the quarter’s start impeded Salt Life sales growth. Salt Life’s juniors and performance products continued to grow while sales at saltlife.com climbed nearly 50 percent over the prior-year first quarter. New stores soon opening in Huntington Beach and San Clemente are expected to boost spring and summer sales. Said Humphreys, “Salt Life ended the quarter with a strong order position that we believe points to double-digit sales growth in 2017 with improved profitability.”
Coast Apparel, a direct-to-consumer brand acquired last August, will open a flagship store in Greenville, SC this quarter and continues to see an expanding e-commerce business.
In the basics segment, revenues slipped 1.1 percent to $60.8 million. A 3.1 percent drop in Delta Activewear sales was driven by slower business with retail license accounts, as mass channel retailers destocked inventory during the quarter. Other Delta Activewear channels showed strong growth, with ad-specialty up 35 percent and sales into regional screen-printers up 4 percent. Sales of higher-margin fashion basics products expanded more than 50 percent and are expected to continue to expand this year as new fashion basics products are introduced.
The private label basics business was flat but on plan in the period. Private label demand is expected to rise as major brands increasingly require the specialized vertical manufacturing capabilities and compliance programs.
Art Gun, its customized graphics apparel business, was the highlight for the period, seeing sales climb 28 percent in dollars on 34 percent higher units. Operating profits at Art Gun expanded into double digits as a percent of sales for the quarter as the business leverages its state-of-the-art facility and the Delta catalog product base. With investments in equipment and adjustments to processes, Art Gun now has the capability to print more than 15,000 unique garments per day as well as the ability to ship more than 5 million unique garments per year on more than 6,000 different garment SKUs. Added Humphreys, “We believe Art Gun is poised for another year of record revenue and profitability in 2017.”
Gross margins in the basic segment declined slightly but are expected to increase significantly as the year progresses, with the benefits of lower product cost from the manufacturing realignment and continued process improvements in operations.
Looking ahead, Humphreys said while the company anticipates “a continuation of the current challenging retail environment, improved profitability and sales growth are still expected for Delta Apparel in its current fiscal year.
“We have entered the year with exciting new products. We have lowered our manufacturing and distribution cost and we are adopting innovative ways to service our customers,” said Humphreys. “We believe that Art Gun and our various e-commerce sites represent the wave of the future and we are developing synergies with them that will benefit all of our business units. We are nurturing our brands and expect to see continued strong growth from Salt Life. We believe the initiatives that we completed in fiscal 2015 and 2016 across all of our business units along with a leveraging a fix cost across higher volumes should expand gross margins and operating profit, building further value for our shareholders.”
Image courtesy Soffe
