Delta Apparel Posts Steep Q2 Loss On Production Curtailment

Delta Apparel reported a net loss of $36.3 million in the fiscal second quarter ended March 30 due to significant production curtailments in the Delta Group segment. Sales were down 28.5 percent.

The Delta Group segment comprises the DTG2Go, Delta Activewear and Soffe businesses, primarily focused on core activewear styles.

Second quarter ended March 30, 2024
Net sales were $78.9 million compared to the prior year period net sales of $110.3 million. Salt Life Group segment net sales were $15.5 million compared to the prior year period net sales of $18.9 million, representing a decline of 18.0 percent. Net sales in the Delta Group segment were $63.4 million compared to $91.3 million in the prior year period, representing a decline of 30.6 percent.

Gross margins were 4.3 percent compared to 14.7 percent in the prior year period, driven primarily by production curtailments in the Delta Group segment. Adjusted for the cost impacts of these product curtailments, first-quarter gross margins were 14.4 percent. Delta Group segment gross margins were (6.3 percent) compared to 5.5 percent in the prior year period. Adjusted for the production curtailment costs, Delta Group segment gross margins were 6.3 percent. Salt Life Group segment gross margins were 47.5 percent versus 59 percent in the prior year period, driven primarily by price discounting activity and the timing of inventory receipts.

Selling, general and administrative expenses (SG&A) decreased from $19.3 million in the prior year period to $17.9 million, while SG&A as a percentage of sales increased over the prior year period to 22.8 percent.

Operating loss increased from $5.3 million in the prior year period to $24.4 million. Adjusting for the Production Curtailment Costs, the costs associated with strategic restructuring actions (Restructuring Costs), and an $8.8 million non-cash impairment charge on the goodwill in its DTG2Go business (Impairment Charge), operating loss was $6.0 million. 

Delta Group’s segment operating loss increased from $7.4 million to $22.4 million. Adjusted for the Production Curtailment Costs, Restructuring Costs and Impairment charges, Delta Group’s segment operating loss was $3.9 million. Operating income in the Salt Life Group segment was $197 thousand compared to $4.6 million in the prior year period.

Net interest expense was $3.5 million compared to $3.7 million in the prior year period, with the decrease driven by lower borrowings partially offset by the elevated interest rate environment.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) was a loss of $20.9 million. Adjusted for the Production Curtailment Costs, Restructuring Costs, and Impairment Charge, EBITDA was a loss of $2.4 million. Delta Group segment EBITDA was a loss of $19.4 million. Adjusted for the Production Curtailment Costs, Restructuring Costs and Impairment Charge, Delta Group segment EBITDA was a loss of $1.0 million. Salt Life Group’s segment EBITDA was $744,000.

Net loss increased to $36.3 million, or $5.15 per share, from a net loss of $7.0 million, or $1.00 per share. Adjusted for the Production Curtailment Costs, Restructuring Costs, and Impairment Charge, the net loss was $17.8 million, or $2.53 per share.

As of March 30, 2024, net inventory was $156.9 million, a year-over-year decrease of 35 percent from inventory of $243.2 million at March 2023 and a sequential decrease of almost 40 percent from inventory of $258.9 million in December 2022.

Debt outstanding under our U.S. revolving credit facility was $95.8 million at March 30, 2024, a year-over-year reduction of $57.4 million from March 2023. Total net debt, including capital lease financing and cash on hand, was $126.2 million as of March 30, 2024, an approximately 35 percent reduction from $194.3 million at March 2023.

Cash on hand and availability under our U.S. revolving credit facility totaled $11.8 million as of March 30, 2024, an increase of $4.4 million from December 2023 and a decrease of $2.4 million from September 2023.

Capital spending was $200,000 during the second quarter compared to $2 million during the prior year second quarter.

Delta Apparel, Inc., with its operating subsidiaries DTG2Go, LLC, Salt Life, LLC, and M.J. Soffe, LLC, is a vertically integrated apparel company that designs, manufactures, sources, and markets a portfolio of core activewear and lifestyle apparel under the primary brands of Salt Life, Soffe and Delta. The company also operates in the DTG2Go direct-to-garment digital print and fulfillment business.

Image courtesy Salt Life