Delta Apparel, Inc. saw net sales of $30.8 million for the quarter ended September 27, 2003, up 6.6% from $28.9 million net sales achieved in the prior year quarter. The higher sales were the result of a 21.3% increase in unit volume, partially offset by a 12.1% decrease in average selling prices.
The higher unit volume resulted primarily from increased sales in heavyweight and private label styles. In addition, unit sales increased in the Company's specialty tee products. Pricing in the marketplace continued to decrease during the quarter causing Delta Apparel's average selling prices to decline from the prior year quarter. The price declines were primarily in the basic white and colored tees. Delta Apparel's specialty tees continued to generate above average margins and helped offset declining margins on basic tees.
Gross profit as a percentage of net sales decreased to 13.3% for the quarter ended September 27, 2003 from 20.8% in the prior year quarter. The $1.9 million decrease in gross margin for the quarter was primarily the result of the decrease in selling prices, offset partially by increased sales volume, decreased depreciation expense and other textile manufacturing improvements. The lower sales prices had an unfavorable impact on the gross margin of $4.5 million. Additional sales volume contributed $1.3 million, lower depreciation expense contributed $0.5 million and other textile manufacturing improvements contributed $0.8 million to the gross margin for the quarter ended September 27, 2003.
Interest expense was $154 thousand for the quarter ended September 27, 2003, compared to $148 thousand in the prior year quarter. The increase in interest expense resulted from an increase in the average debt outstanding, partially offset by a reduction in the average interest rates.
The effective income tax rate on pretax income for the three months ended September 27, 2003 was 38.0%, compared to 38.5% for the first fiscal quarter of the prior year and 38.3% for the fiscal year ended June 28, 2003.
Net earnings for the quarter were $0.6 million, or 1.9% of sales, down $1.2 million from the prior year quarter. Basic and diluted earnings per share for the quarter ended September 27, 2003 were $0.15 and $0.14 per share on 4.04 million and 4.17 million shares, respectively. Basic and diluted earnings per share for the quarter ended September 28, 2002 were $0.44 and $0.43 on 4.05 million and 4.21 million shares, respectively (after giving effect to the 2-for-1 stock split effective as of September 20, 2002). On September 27, 2003, the Company had 4.06 million shares outstanding.
Accounts receivable increased $2.8 million from September 28, 2002 to $17.4 million on September 27, 2003. The increase was primarily the result of higher sales during the current year quarter.
Inventories on September 27, 2003 were $50.2 million, up $3.0 million from June 28, 2003 and up $1.8 million from the prior year quarter. The increase from June 28, 2003 was primarily the result of a $1.5 million increase in in-process inventory and a $1.6 million increase in finished goods. The increase in inventory was primarily the result of planned inventory increases in anticipation of increased unit volume sales. The increase in inventory from September 28, 2002 was the result of a $6.1 million decrease in raw materials, a $3.5 million increase in in-process inventory and a $4.5 million increase in finished goods. In the prior year, the Company began increasing its raw material inventory to take advantage of lower cotton prices and to support its increased textile capacity. The Company lowered its raw materials in the fourth fiscal quarter of 2003 and expects to maintain its current levels of raw materials during fiscal 2004. The Company increased its in-process and finished goods inventory from the prior year to support its new distribution centers and its anticipated sales growth.
Robert W. Humphreys, President and CEO, commented, “Pricing for commodity activewear products remained difficult; however, we are pleased with the sales growth that we achieved during the quarter and expect sales of our products to continue to grow in unit and total dollar sales in our second fiscal quarter. We made progress during the quarter on our cost reduction programs, including improvements in our production efficiencies, improvements in our material utilization and reductions in our off quality production. We feel we have good momentum and expect further cost improvements in the second quarter.”
Commenting on the Company's recently completed acquisition of M.J. Soffe Co., Mr. Humphreys said, “We are pleased to have completed the acquisition this month. M. J. Soffe Co. has a strong management team in place that will continue to direct this business. We welcome all of the Soffe employees to Delta Apparel and look forward to working with them in the coming years.”
On a pro forma basis after giving effect to the acquisition of M. J. Soffe Co., Delta Apparel's sales would have been approximately $223.3 million and net income would have been approximately $12.0 million for the twelve months ended June 28, 2003. Our fiscal year 2003 diluted earnings per share on a pro forma basis would have increased $1.43 to $2.88 per share.
M. J. Soffe was founded in 1946 and has a long history of profitability and growth in the branded activewear market. For the twelve months ended December 31, 2002 Soffe had sales of approximately $96 million and served four distinct channels of distribution. The Soffe brand is well recognized at specialty sporting goods stores and department stores. In addition to these retail channels, Soffe also supplies college bookstores and has a long history of producing activewear products for the U.S. Military. M. J. Soffe Co. employs about 1,400 in the United States.
SELECTED FINANCIAL DATA:
(In thousands, except per share
amounts)
Three Months Ended
Sept 27, Sept 28,
2003 2002
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Net Sales $ 30,802 $ 28,883
Cost of Goods Sold 26,720 22,879
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Gross Margin 4,082 6,004
SG&A 3,059 2,835
Other Income (Expense) 81 (108)
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Operating Income 1,104 3,061
Interest Expense 154 148
Taxes 361 1,122
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Net Income $ 589 $ 1,791
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Weighted Average Shares Outstanding
Basic 4,044 4,053
Diluted 4,168 4,209
Net Income per Common Share
Basic $ 0.15 $ 0.44
Diluted $ 0.14 $ 0.43
