Delta Apparel, Inc., parent of the Soffe, Delta and Salt Life brands, reported in a regulatory filing that it plans to formally suspend its manufacturing operations in Honduras due to ongoing liquidity challenges, impacting approximately 2,413 employees.

The suspension remains in effect for at least 120 days as strategic initiatives are explored, possibly including a sale or a permanent wind-down of all operations in the country.

Delta Apparel also reported that it expects to finalize plans with its offshore manufacturing operations and substantially complete its implementation within 120 days. Once all related activities are completed, the company will know the final costs and cash expenditures related to the plans. The company expects to incur restructuring charges attributable to net cash payments primarily for employee-related benefits, the amount of which will depend in part on the duration of the suspension of operations, potential facility closure costs and other restructuring costs and future cash expenditures the amounts of which the company is currently unable to estimate at the time. The restructuring charges are expected to be incurred beginning in the third quarter of fiscal year 2024. The third quarter ends June 30.

The move follows the wind-down of Delta’s manufacturing operations in Mexico earlier this year and its decision to no longer emphasize Delta’s Activewear Global Brands channel, as previously disclosed. Earlier this year, Delta reported that it would reduce the scope and complexity of that business and allocate available capital and resources to only two of its three primary customer channels.

As a result, Delta Activewear will no longer emphasize the Global Brands channel and instead re-organize around two key customer channels, Delta Direct and Retail Direct, that “are distinct in their go-to-market strategies and how their respective customer bases source their various apparel needs.”

The Delta Direct channel services the screen print, promotional and eRetailer markets and retail licensing customers that sell through to mid-tier and mass-market retailers.

Delta also said in its new regulatory filing that it continues to seek to sell its El Salvador manufacturing operations servicing that channel, as previously disclosed.

Delta further reiterated that as previously disclosed in its second quarter 10-Q filed with the SEC on May 9, the company “has been keenly focused on evaluating its business strategies and managing its working capital and costs in light of significant market, operational and liquidity challenges,” including, among others:

  • The company’s deteriorating liquidity position, including its limited cash and cash equivalents and its inability to raise additional capital or otherwise obtain necessary liquidity to have sufficient resources to fund its operations, which continues to prevent it from purchasing all of the yarn, dyes, chemicals and other production inputs required to supply its manufacturing facilities and allow them to run at the levels required to meet its business plans,
  • Significant reductions in demand across certain of the company’s business units during fiscal year 2023 and the beginning of fiscal year 2024, which has impacted the company’s operating results and financial position and
  • The company’s continued non-compliance with certain covenants in its U.S. asset-based revolving credit facility constitutes a breach of that agreement and an event of default that remains uncured when the regulatory filing is posted.

Delta concluded, “The plan to suspend the company’s manufacturing operations in Honduras was commenced as a result of the ongoing liquidity challenges discussed above, among other factors. The company’s deteriorating liquidity position and lack of funding has continued to prevent it from purchasing raw materials necessary to operate its offshore manufacturing facilities and to pay compensation and benefits due to offshore employees. As previously disclosed, the company also continues to explore the potential sale of its Salt Life business and continues to evaluate all strategic options and alternatives with its legal and financial advisors.”

Delta has posted losses for seven straight quarters as elevated inventory levels at the mass channel and related destocking efforts have impacted its Delta Direct vertical blank tee platform.

Delta also announced on May 31 that longtime Chairman and CEO Robert Humphreys will resign from his role with the company, effective June 29, at the request of Delta’s independent board directors. The company has since announced the resignations of Matt Miller, president of Delta Group, and Justin Grow, EVP and chief administrative officer.

Photo courtesy Delta Apparel