Delta Apparel Ups Guidance After More than Doubling Q3 Earnings

Net sales for the three months ended March 27, 2010 were a record $107.9 million, an increase of $22.3 million from the prior year third quarter. Both of the companys business segments achieved double-digit sales growth compared to the prior year quarter.

 

Gross margins increased 370 basis points to 23.3% compared to 19.6% in the prior year third quarter. The gross margins in both business segments improved in the third quarter from the first half of fiscal year 2010. However, the higher mix of activewear segment sales in the third quarter lowered the overall gross margins by 60 basis points from the 23.9% gross margin in the first half of fiscal year 2010.

 

Net income for the quarter ended March 27, 2010 was $3.0 million, or $0.34 per diluted share, compared to $0.14 per diluted share in the prior year third quarter.

 

Fiscal 2010 Year to Date Results
Net sales for the nine months ended March 27, 2010 were $298.2 million, an increase of $47.8 million, or 19.1%, from the prior year nine month period. The sales expansion included organic growth of 11.2% and the net sales contributed by To The Game, LLC, the companys headwear business, which was acquired during the fourth quarter of fiscal year 2009.

 

Net income for the nine months ended March 27, 2010 was $6.5 million, or $0.76 per diluted share, a 162.0% increase from the earnings of $0.29 per diluted share in the first nine months of fiscal year 2009.

 

 We believe the ability to achieve 26.0% sales growth on top of a 13.7% sales gain in the prior year quarter, especially in todays marketplace, validates our strategy of having diversified distribution channels, broad product offerings, a portfolio of brands and extensive license agreements, said Chairman and CEO Robert W. Humphreys. Our flexible manufacturing platform supports our business growth by providing consistent, high quality products to our customers at competitive prices. We continue to improve our manufacturing process and have completed speed-to-market initiatives that allow us to fulfill retail orders with shorter lead times while continuing to lower our investments in inventory.

 

Fiscal 2010 Guidance
On March 2, 2010, the company raised its guidance for the 2010 fiscal year ending July 3, 2010, expecting net sales in the range of $395 to $400 million and earnings of $1.20 to $1.30 per diluted share. Based on the stronger than anticipated third quarter sales, the company now raises its expectations for net sales to be in the range of $400 million to $405 million for the 2010 fiscal year. This compares to fiscal year 2009 net sales of $355.2 million.

 

The company reiterates its expectations for earnings to be in the range of $1.20 to $1.30 per diluted share compared to $0.76 per diluted share in fiscal year 2009.

 

Mr. Humphreys added, Throughout fiscal year 2010 we have been successful in growing market share and improving our bottom line, despite less than ideal conditions. While there is still uncertainty and risk regarding the recovery of the general economy, we believe we are well positioned for continued sales growth and earnings expansion in the years ahead.

 

Retail-Ready Apparel
The retail-ready segment, comprised of the Soffe, Junkfood, To The Game and Art Gun businesses, had sales of $46.3 million, a 42.9% increase from the prior year third quarter. Excluding sales of the businesses the Company has owned for less than a year, sales grew organically by 17.9% in the third quarter of fiscal year 2010. The sales increase was driven by a 69.7% sales growth at Junkfood compared with the prior year quarter.

 

Soffe also had sales growth over the prior year third quarter, driven from strong sales in the department store channel as retailers stocked with expectations of a spring selling season stronger than in the prior year. Sales in the other businesses within the retail-ready segment totaled $8.1 million and were on target with the companys expectations.

Gross margins in the retail-ready segment increased 50 basis points compared to the prior year third quarter and increased 90 basis points from the first half of fiscal year 2010. Operating income in the retail-ready segment was $3.5 million for the third fiscal quarter of 2010, an increase of $0.7 million from the prior year third quarter.

 

Activewear Apparel
The activewear segment, comprised of Delta Catalog and FunTees, had sales of $61.7 million for the quarter ended March 27, 2010, an increase of 15.7% compared to the prior year third quarter. Sales growth in the Delta Catalog business was partially offset by sales declines at FunTees. Delta Catalog shipped approximately 32% more units in the third quarter compared to the prior year quarter. This compares to an overall tee shirt market that grew approximately 3.5%.

 

We believe the gains in market share were the result of Delta Catalogs new merchandising strategies and high service level to its customers. The sales decline at FunTees was driven from lower unit sales, partially offset by an increase in average revenue per unit.

 

Gross margins in the activewear segment in the third quarter improved 350 basis points from the prior year third quarter and improved 280 basis points from the first half of fiscal year 2010. The activewear segment returned to profitability in the third quarter with an operating profit of $1.4 million, an improvement of $1.9 million from the $0.5 million loss in the prior year third quarter. The Company now expects the activewear segment to be profitable both for the fourth fiscal quarter and the full fiscal year 2010.