Delta Apparel Inc.’s sales declined 1. 3 percent in the first quarter ended January 2. A 1.5 percent decline at the Delta Group segment was partially offset by 2.3 percent growth in the Salt Life Group segment.  Earnings more than doubled on an adjusted basis due to higher margins and cost reductions.

Robert W. Humphreys, the company’s chairman and chief executive officer, commented, “Fiscal 2021 is off to a strong start with our first-quarter sales and profitability results well ahead of our internal expectations. Despite notable headwinds from inventory constraints, hurricane-related disruptions in Central America, and freight carrier limitations during the holiday season, our results were bolstered by strong order demand and impeccable manufacturing and operational execution at all levels.”

Humphreys continued, “We were particularly pleased with the accelerating success of our retail model within the DTG2Go digital print business. DTG2Go gained significant traction during the quarter with traditional retailers utilizing our on-demand, seamless supply chain to expand their business. We also capitalized on market opportunities that fueled growth and expanded profitability in our Activewear business, overcoming the challenges caused by inventory constraints. Within our Salt Life Group segment, revenue and improved margins were propelled by robust direct-to-consumer sales. Salt Life enthusiasts actively engaged with the brand through online channels as well as seeking out our branded stores, driving strong same-store sales growth as well as outsized performance in our recently opened Salt Life retail doors in Estero, Palm Beach Gardens and Destin, Florida.”

“Our business is firing on all cylinders as we continue to ramp our manufacturing output to record levels to keep up with the high demand we have in our pipeline. Our strong first-quarter results and solid balance sheet have positioned us well to deliver against our goals for the fiscal year, and I could not be more proud of our teams. It is their hard work and dedication to our company that continues to fuel our stellar results,” concluded Humphreys.

For First Quarter Wnded January 2, 2021
Net sales were $94.7 million compared to $95.9 million in the prior year, with Delta Group segment down 1.5 percent partially offset by 2.3 percent growth in the Salt Life Group segment. Sales orders in Activewear were strong for the quarter, but delivery was hindered by inventory shortages and the impacts of two major hurricanes in Central America. DTG2Go’s orders were down to begin the quarter, but quickly returned to strong growth in November, only to be hampered by freight carrier constraints during the holiday season. Salt Life Group sales growth was driven by a 60 percent increase in overall direct-to-consumer sales, with growth in both e-commerce and retail sales.

Gross margins improved 70 basis points from the prior year, increasing to 21.4 percent of sales. Gross margins expanded in both business segments driven by favorable product mix, lower raw material costs, and manufacturing efficiencies and process improvements within the Delta Group segment, and a stronger mix of direct-to-consumer sales in the Salt Life Group segment.

Selling, general and administrative (SG&A) expenses decreased $2.0 million, or 11.3 percent, from cost reductions implemented during the pandemic that has continued, including lower personnel costs, reduced travel expenses, and a more digitally-focused sales and marketing strategy.

Operating income for the quarter increased 16 percent to $3.1 million, or 3.2 percent of sales, compared to $2.6 million, or 2.8 percent of sales, in the prior year. Excluding the $1.3 million pre-tax expense related to the impact of two hurricanes that disrupted the company’s Honduran manufacturing facilities, adjusted operating income was $4.4 million, or 4.7 percent of sales, an increase of $1.8 million, or 67 percent, from the prior year.

Net income for the December quarter was $0.9 million, or $0.13 per diluted share, consistent with the same period in the prior year. Adjusting for the $0.15 per diluted share impact of hurricane-related disruptions, adjusted net income for the first quarter of fiscal 2021 was $2.0 million, or $0.28 per diluted share, a 115 percent improvement compared to the prior year.

Total inventory as of December 2020 was $148.5 million, down $48.8 million from a year ago. The stronger than anticipated December quarter sales along with the temporary hurricane disruptions slowed the normal seasonal build of inventory during the quarter. The company has already ramped up production at an accelerated pace in January and expects to be producing at all-time record levels in the back half of the year.

Total net debt, including capital lease financing and cash on hand, increased $7.6 million from September 2020 to $129.8 million at December 2020. Cash on hand and availability under the company’s U.S. revolving credit facility totaled $43.7 million at December 2020, a $3.4 million decrease from September 2020 due primarily to seasonal working capital build. The company spent approximately $6.9 million on capital expenditures during the first quarter of fiscal 2021 compared to $2.5 million a year ago.

Delta Apparel’s core activewear and lifestyle apparel products are sold under the primary brands of Salt Life, COAST, Soffe, and Delta.

Photo courtesy Delta Apparel