Delta Apparel Inc. reported earnings per diluted share of 57 cents on net sales of $104.3 million for its fiscal third quarter ended July 1, 2017, compared with earnings of 32 cents per diluted share on net sales of $111.6 million in the prior-year third quarter.
Sales in the quarter increased $4 million, or approximately 4 percent, year over year after excluding sales in the recently-divested Junkfood Clothing Company business during the prior-year quarter. The prior-year third quarter included $11.3 million of sales in the Junkfood business divested by the company on March 31, 2017, as well as an 18 cents per share expense related to the company’s manufacturing realignment, both of which were non-recurring. Excluding the expense related to the manufacturing realignment, prior-year third quarter earnings were 50 cents per diluted share.
For the first nine months of fiscal 2017, which included two quarters of sales in the since-divested Junkfood business, net sales were $293.8 million compared with $310.9 million in the prior year period. Excluding Junkfood sales, net sales for the first nine months would have shown a slight increase over the prior year period. Net income in the 2017 nine-month period was $8.4 million, or $1.07 per diluted share, including the 11 cents per diluted share gain on the sale of Junkfood. This compares to $6.7 million, or 84 cents per diluted share, in the prior-year period including the above-referenced 18 cents charge to earnings related to the manufacturing realignment.
Basics Segment Review
Basics segment net sales in the 2017 third quarter were $79 million, a 9.6 percent increase over the $72.1 million reported in the prior year third quarter. Operating profit in the basics segment increased to $7.5 million, or 9.5 percent of sales, from $5.2 million, or 7.2 percent of sales, in the prior year period. Excluding the $1.8 million pre-tax expense related to the manufacturing realignment, prior year operating profit was $7 million, or 9.7 percent of sales.
Net sales in the Activewear business grew 11 percent from the prior year period, driven by single-digit sales growth in the Delta Catalog business and a 25 percent increase in the FunTees private label business. Delta Catalog sales benefited from improving conditions in the retail licensing channel coupled with continued growth in the ad-specialty and regional screenprint markets. The double-digit growth trend continued in Delta Catalog’s fashion basics, with sales up 60 percent from the prior-year third quarter. FunTees continues to benefit from its expanded program offerings and positioning as a versatile private label solution for brands and retailers.
Art Gun’s net sales in the quarter declined $0.7 million from the prior year due to the loss of a customer coupled with delayed new partner launches stemming from general market softness. Several new customers are currently being on-boarded that, along with geographic expansion, should return Art Gun to double-digit sales growth in fiscal 2018.
Branded Segment Review
Branded segment net sales for the quarter were $25.3 million, compared with $39.5 million in the prior year period, which included $11.3 million of sales in the since-divested Junkfood business. The decline is due primarily to the impact of retailer bankruptcies, partially offset by sales growth at Salt Life. Operating profit for the branded segment was $2.1 million compared to $2.7 million in the prior year third quarter.
Soffe is growing certain sales channels and continues to perform well with e-retailers. Sales on Soffe’s consumer eCommerce site increased 15 percent during the third quarter and are up 24 percent year-to-date. Soffe is further investing in its direct-to-consumer strategy with the planned opening of two new Soffe-branded retail stores.
Salt Life achieved 48 percent year-over-year sales growth in its eCommerce business during the quarter, but softness in the “big-box” retail sporting goods channel tempered overall growth, resulting in an aggregate sales increase of 2 percent. Despite the challenging retail environment, Salt Life’s sales growth and margin expansion drove record third quarter operating profit in this business. Salt Life continues to thrive in the independent channel and several new customer launches in the specialty retail channel are anticipated that should drive further growth.
Robert W. Humphreys, Delta Apparel Inc. chairman and chief executive officer, commented, “The company overall had a solid third quarter. Adjusting sales for the divestiture of Junkfood, our consolidated net sales increased 4 percent in the third quarter, with earnings per diluted share up approximately 14 percent over the prior year quarter. We continue to be pleased with our eCommerce business, which achieved year-over-year sales growth of 41 percent on our consumer sites during the quarter after excluding prior year Junkfood eCommerce sales, and 15 percent on our business-to-business sites during the quarter.
“Activewear performed well, with strong organic growth. We are realizing the incremental benefits of our manufacturing realignment and the manufacturing efficiencies have exceeded our expectations. We just launched a newly redesigned business-to-business website that we believe will greatly enhance the on-line experience for Activewear customers. The private label offerings in our FunTees business continue to garner customer interest and we are expecting record revenue in our FunTees business for the year.
“While we are disappointed that some of Art Gun’s new customer launches were delayed during the quarter, they remain in the pipeline and should be completed during the next two quarters. To capitalize on that growth and better serve our customers, we have ordered additional equipment that will increase Art Gun’s manufacturing capacity by more than 50 percent. Art Gun’s virtual inventory and fulfillment model continues to be an innovation focus for forward-looking businesses and creates exciting cross-selling opportunities across the Delta Apparel platform.
“Our Soffe business is achieving a level of sales stability and doing well with the military, e-retailers and on our Soffe-branded eCommerce sites. Many traditional retail channels remain challenging but we see opportunities for future growth with our made-in-America products. We continue to focus on cost and inventory reduction efforts and look forward to expanding Soffe’s brand awareness among consumers through the opening of additional retail stores in the upcoming quarters.
“Salt Life’s growth continues even with the loss of certain retail doors to bankruptcies. Consumers continue to seek our new performance products incorporating leading-edge fabrics. Salt Life’s consumer touch points now include a new retail store in Columbus, Georgia and the first Salt Life outlet store is scheduled to open soon in Daytona Beach, Florida. Sales on Salt Life’s branded eCommerce website have grown 47 percent in the first nine months of fiscal 2017. We are excited about the positive feedback we continue to receive from retailers and consumers on Salt Life’s product direction and brand identity.
“Although many retail channels remain challenging, Delta Apparel continues to improve its market position. Our omni-channel marketing strategy combined with our strong manufacturing base is driving growth in our basics and branded segments. We believe Delta Apparel is pointed toward a good fourth quarter and will continue to position itself for future success.”
