Delta Apparel earned $3.6 million, or 46 cents a share, in its fiscal second quarter ended Mar. 28, boosted by the sale of The Game business in early March.
The sale of the collegiate headwear and apparel business – to David Peyser Sportswear Inc., the owner of MV Sport Inc., for approximately $14.5 million contributed to a pre-tax gain of $5.6 million, or 43 cents a share, in the quarter. The company earned 3 cents a share from ongoing operations, which still marked a turnaround from a net loss of $763,000, or 10 cents, in the same period a year ago.
Sales inched ahead 0.4 percent to $115.0 million. Adjusting for the sale of The Game, sales advanced approximately 2 percent. Growth came in all of its business units except Soffe.
In the company’s Basics segment, sales increased 8.0 percent to $71.4 million. A 28.5 percent increase in private label sales helped offset a minor decline in the catalog business. The private label growth came from new customers and expanding programs with existing ones.
The growth benefited from the expansion of its sales force dedicated to undecorated tees to provide better coverage to underserved areas of the country. Adding a greater variety of fashion basics is also supporting growth. The catalog business secured new print programs utilizing its garments, which should support growth in upcoming quarters.
Art Gun continues to outperform, with 43.5 percent sales growth.
In its Branded segment, sales dropped 9.5 percent to $43.7 million. Soffe’s sales declined $3 million, primarily within its sporting goods channel as cooler weather delayed replenishment orders on certain products. Soffe has seen “positive indicators” regarding spring sell-throughs. Along with nearly 70 percent growth in Soffe’s e-commerce sales, Delta believes Soffe “has stabilized and is positioned for future growth.”
Salt Life’s revenues grew 6 percent, which was below expectations and mainly attributable to shipment disruptions associated with the decoupling of Salt Life's systems from those of The Game business. Junkfood's sales increased 2.3 percent, but achieved strong quarter-over-quarter margin expansion with gross margin expansion resulting from an expanding customer base and strong e-commerce growth.
Robert W. Humphreys, chairman and CEO, said Delta is beginning to see the results of strategic initiatives it has been implementing over the past six months. He added, “The results of our second quarter are very encouraging and suggest to us a strong second half to the fiscal year.”
Those initiatives include the sale of The Game. The assets sold excluded the accounts receivable and certain undecorated apparel inventory from which, upon collection and sale, are expected to add an additional $6 million. Said Humphreys, “Aside from receiving more than a 60 percent premium over book value on these assets, the sale enables us to focus our resources on more strategic areas of our business and that can take advantage of our efficient manufacturing platform.”
Toward that end, Delta has expanded its screen-printing operations in El Salvador to service its growing private label and full package businesses. Its Honduran textile operations are likewise being expanded with new equipment to enable Delta to internally produce open-width fabrics used in many of its business units. The move will reduce Delta’s reliance on purchased fabric, which should result in cost savings beginning in fiscal 2016.
E-commerce, another focus for investment, grew almost 70 percent during the March quarter, with branded consumer sites for Salt Life, Soffe and Junkfood, each increasing sales over 60 percent, according to Humphreys.
E-commerce is particularly supporting its Art Gun operation and related systems investments are being made. Art Gun is particularly helping Junkfood gain flexibility for its direct-to-consumer business. Humphreys said that based upon its expanding customer base, new programs, ecommerce growth and fresh product lines, stronger sales growth is anticipated for Junkfood over the next several quarters.
Humphreys said that beyond the deferral of March quarter shipments to April in connection with the separation of Salt Life's systems from those of The Game business, Salt Life was challenged in the quarter by unusually cold weather in February and March. Humphreys added, “We are pleased that Salt Life's spring line has been well-received, and we anticipate a strong June quarter and return to Salt Life's previous growth rates as we go into the second half of the fiscal year.”
Humphreys concluded, “All of our business units have shown improvement during the quarter through sales growth, margin expansion, or both. During the remainder of the year we anticipate increased sales across the board and, due to lower cotton and energy prices along with further manufacturing cost reductions, we expect even stronger improvements in our profitability.”
