Delta Apparel Inc. reported sales in the first quarter ended December 28 fell 5.7 percent due to declines at Delta Group segment and Salt Life Group. Net income was down slightly excluding non-recurring charges in the year-ago period.

On January 13, Delta Apparel said it expected sales for the first quarter of its 2020 fiscal year to be approximately $95 million compared to $101.7 million. The company said Delta Group and Salt Life Group businesses were impacted by the shorter holiday calendar combined with an earlier shipping cut-off for in-hand holiday receipts. Delta still said it expected a strong gross margin performance as the business benefitted from improved process efficiencies while further leveraging its integrated vertical manufacturing platform. The improved gross margin performance was expected to result in operating income and positive EPS in the period.

Robert W. Humphreys, the company’s chairman and chief executive officer, commented, “As we previously reported, our first-quarter sales results were impacted by the shortened holiday calendar combined with an earlier shipping cut-off for in-hand holiday receipts. With that said, we are pleased to have delivered strong gross margin performance from our Delta Group segment that more than offset our sales performance during the quarter. We continue to drive efficiencies throughout our business while scaling our integrated vertical manufacturing platform and believe we are well-positioned to capitalize on the great growth opportunities that lie ahead for Delta Apparel.”

For the first quarter ended December 28, 2019:

  • Net sales were $95.9 million, down 5.7 percent from $101.7 million in the prior-year first quarter. Net sales in the Delta Group segment and Salt Life Group segment decreased 5.8 percent and 4.7 percent, respectively, from the prior-year period.
  • Gross profit was $19.9 million, a 7.1 percent increase from $18.6 million in the prior-year first quarter. Gross margin improved 240 basis points to 20.7 percent driven by Delta Group’s improved process efficiencies further leveraging the segment’s integrated vertical manufacturing platform.
  • Selling, general and administrative (SG&A) expenses, as a percentage of sales, was 18.8 percent, compared to 16.5 percent in the prior-year first quarter. The increase in SG&A expenses principally resulted from investments in distribution expansion not yet fully leveraged against revenues, coupled with higher equity compensation costs.
  • Operating income for the quarter was $2.6 million compared to $41,ooo in the prior year first quarter, which included a $2.5 million discrete expense in connection with the resolution of litigation surrounding a 2016 customer bankruptcy.
  • Net income for the quarter was $0.9 million, or 13 cents per diluted share, compared to a net loss of $1.1 million, or 17 cents per share, in the prior-year period. When adjusted for the discrete $2.5 million pre-tax expense, or 31 cents per share, the impact of the litigation settlement, adjusted earnings for the first quarter of fiscal 2019 was 14 cents per diluted share.

During the quarter, the company spent approximately $2.5 million on capital expenditures. The company did not repurchase shares during the period and approximately $9.5 million remains available under the company’s authorized share repurchase program as of quarter-end. Total inventory at the end of first-quarter fiscal 2020 increased to $197.3 million compared to $179.1 million at fiscal 2019 year-end, primarily driven from the seasonal build of inventory as well as broader product offerings within Activewear and Salt Life. Total debt, including capital lease financing, as of the end of first-quarter fiscal 2020 was $147.4 million, up approximately 9 percent from fiscal 2019 year-end due primarily to the seasonal higher working capital along with investments in distribution facilities.

Delta Apparel’s operating subsidiaries include DTG2Go, Salt Life, and M.J. Soffe. The company makes activewear and lifestyle apparel products under the primary brands of Salt Life, Coast, Soffe, and Delta.

Photo courtesy Delta Apparel/Soffe