<span style="color: #999999;">With growth returning in every business unit in the September quarter, Delta Apparel reported year-over-year sales growth of 8.1 percent and a 70 percent improvement in operating profit in the fiscal fourth quarter ended October 3.
On October 15, Delta projected fourth-quarter sales of $116 million, up about 8 percent, along with an expansion of operating income.
Sales reached $116.7 million, up from $108.0 million in the prior-year fourth quarter. Net sales in the Delta Group and Salt Life Group segments increased 7.6 percent and 12.5 percent, respectively, over the prior-year period. DTC sales increased over 60 percent, with growth on its branded e-commerce sites up 40 percent.
Gross margins improved 20 basis points to 21.4 percent driven by favorable product mix, lower raw material costs and manufacturing efficiencies and process improvements within the Delta Group segment. The improvement was better than anticipated as manufacturing productivity ramped up faster than originally expected, resulting in about $200,000 of manufacturing start-up costs incurred in the fourth quarter compared to the expected $2 million to $3 million range originally anticipated.
SG&A expenses decreased 6.5 percent due to cost controls across the company and integration efficiencies achieved within the Delta Group segment. As a percent of sales, SG&A expenses narrowed to 14.8 percent, compared to 17.1 percent in the prior-year fourth quarter.
Operating income for the quarter was $8.3 million compared to $4.8 million in the prior-year fourth quarter. The 70 percent improvement was primarily driven by income expansion of $3.4 million in the Delta Group segment year-over-year reflecting manufacturing efficiencies and operational improvements achieved with the strong sales results.
Net income climbed 42.9 percent to $5.0 million, or 71 cents, from $3.5 million, or 50 cents, in the prior-year period.
DTG2Go’s Revenues Climb Nearly 30 Percent
In the Delta Group segment, the 7.6 percent gain was led by growth of nearly 30 percent in its digital print business, DTG2Go. Activewear and Soffe business units also contributed to Delta Group’s growth.
Robert Humphreys, chairman and CEO, said COVID-19-related disruptions in supply chains and consumers’ limited ability to shop in traditional retail stores have elevated awareness of DTG2Go’s on-demand business model.
“We are the only digital print supplier in the world that can offer a seamless, vertically integrated solution utilizing our proprietary software and internal supply chain to offer a fully decorated on-demand product shipped directly to the consumer,” said Humphreys. “With fourth-quarter unit growth of 35 percent and new customers representing about one-third of the growth, we may have reached a tipping point in the adoption of digital print.”
DTG2GO customers also continue to gravitate to Delta Catalog blanks. A new Delta blank utilization record of approximately 40 percent was reached in the September quarter, up from 20 percent utilization in last year’s fourth quarter, and 30 percent during its June quarter.
Humphreys further said DTG2Go opened up a new avenue of growth with its announced collaboration with Hot Topic. Other specialty retailers and brands have inquired about the on-demand DTG2Go model since the Hot Topic announcement.
“We all know that consumer shopping behaviors have changed dramatically over the last six months, and the push to online shopping is here to stay,” added Humphreys. “This is certainly a positive trend for the on-demand DTG2Go model giving us confidence in the accelerated growth trends for the business.”
For the fourth quarter, DTG2Go is “more than prepared to have a solid holiday season.” Two additional facilities have opened since the year-ago period to bring DTG2Go’s total footprint to nine locations. Said Humphreys, “Overall, we have increased our daily print capacity by more than 25 percent. Of course, ensuring the safety and well-being of our employees is of utmost concern, and we have continued all of our COVID-19 protocols in our facilities to promote a safe working environment.”
Delta Group Activewear Sees Mid-Single Growth, Soffe Boosted By Soffe.com
Among its other businesses within its Delta Group segment, Activewear registered mid-single-digit fourth-quarter growth with a strong performance in sales of its Catalog and private label products. Private label, in particular, saw significant orders being placed and has a strong backlog for spring and summer deliveries.
The direct-to-retail channel growth benefited from its ability to deliver graphic-tee pallet displays to mass retailers. Said Humphreys, “These have performed very well for the retailers resulting in additional programs for us as we progress through fiscal 2021.”
The Delta Catalog business saw a solid fourth-quarter performance and reflected successful efforts to replenish inventory as catalog customers experienced strong demand. Demand continues to be paced by its fashion basic lines which include the Delta Platinum collections. The retail licensing channel is benefiting from continuing strength in orders from regional screen printers. Said Humphreys, “With enhanced business technology launched this year, we are now servicing online retailers selling blank wholesale apparel where we utilize our distribution network to fulfill their customer’s orders. This is an exciting new piece of business positioning us to further grow sales of our Delta and Soffe products as well as other nationally recognized brands that we distribute.”
To drive growth and efficiencies in the Soffe business, the Delta Catalog and sales teams have merged with Soffe, reducing redundant selling costs and bringing more visibility to its full line of products. Marketing, merchandising and e-commerce teams have also been consolidated, and soon Soffe products will be shipped out of Delta’s new Phoenix distribution center.
Said Humphreys on Soffe, “We achieved positive fourth-quarter sales growth at Soffe with strength in e-commerce channels, including our Soffe website, where sales were up over 80 percent.”
Looking ahead, Humphreys said market trends remain positive for its Delta Group business as T-shirt sales historically are strong through recessionary times. He added, “This, coupled with the fact that more consumers are wearing activewear apparel as they work from home, should drive demand in this business in future quarters. In the coming year, we will be sharply focused on executing our multiple growth and integration strategies. Importantly, we need to continue to replenish inventory levels to support current demand and stock our U.S. distribution centers ahead of the traditionally strong spring selling season.”
Salt Life’s Q4 Revenues Climb 12 Percent
Salt Life Group’s 12 percent gain reflects expansion across distribution channels. Said Humphreys, “The success we are experiencing is a true testament to the enthusiasm and emotional connection consumers have with the Salt Life brand.”
During the late summer months, Salt Life saw strength at its stores located in drivable vacation destinations. Growth at retail doors was over 125 percent driven both by double-digit same-store sales growth and contributions from new stores. During the last few months, two new Salt Life branded stores opened in Estero and Tom Beach Gardens, FL, bringing its total locations to 12 across Florida, Georgia, South Carolina, and California.
E-commerce for Salt Life was up over 50 percent in the full fiscal year and climbed over 80 percent in the back half. Said Humphreys, “We are seeing promising engagement metrics such as increased traffic to the site, duration and engagement once on the site and increased average order value.”
Looking ahead, Humphreys said Salt Life continues to see growth online with new stores and through expanded floor space at wholesale partners.
Inventory Constraints To Slow Near-Term Growth
Delta generated $9.8 million of operating cash flows and $5.2 million of free cash flow in the quarter even as inventory production was ramped up to support future sales growth. Total net debt as of September was $122.2 million, down about $13 million from a year ago.
Total inventory at the quarter’s end declined approximately 19 percent, driven by stronger than anticipated sales in the back half of the year following government-mandated closures that impacted manufacturing during the June quarter.
Deborah Merrill, CFO, VP and treasurer, said revenues in the first fiscal half of 2021 are expected to be constrained due to the short-term inventory constraints.
“Inventory availability should improve as the year progresses as we plan to increase manufacturing output in calendar 2021, ultimately expecting to reach record production levels for our company,” said Merrill. “We will continue to manage our spending tightly, but we’ll be incurring certain integration and ramp-up costs within our distribution and digital print networks with the new facilities to support our growth initiatives. Putting this all together, we do expect to operate profitably in the first half of fiscal 2021 with a sequential improvement by quarter, setting ourselves up for profitable growth in the back half of the year.”
Photos courtesy Delta Apparel/DTG2Go, Soffe
