Delta Apparel Inc. reported net sales for the third quarter were $112 million, up 8 percent from $104 million in the prior-year third quarter. Earnings increased 9 percent to 62 cents per diluted share from 57 cents per diluted share in the prior-year period. In addition, gross margins improved to 21.6 percent from 21.4 percent in the prior-year period driven largely by margin expansion in the basics segment.
For the first nine months of fiscal year 2018, net sales increased to $303 million from $294 million in the prior-year period, a 3 percent improvement. Sales for the first nine months were up 9 percent year-over-year after adjusting for $16 million in prior-year sales from the since-divested Junkfood Clothing business. A discrete provisional tax expense of $10.6 million in the first quarter stemming from the recent United States tax reform legislation resulted in a $0.25 loss per diluted share for the first nine months compared with earnings of $1.07 per diluted share in the prior-year period. Excluding the one-time tax expense, earnings for the first nine months were $1.18 per diluted share, up 10 percent year-over-year and up 23 percent year-over-year after excluding the prior year’s $0.11 per diluted share gain on the sale of the Junkfood Clothing business.
Basics Segment Review
Basics segment revenue for the quarter was $90 million, a 14 percent increase over the prior year. Growth at both Delta Catalog and FunTees drove a 7 percent increase in Activewear sales for the quarter. The sales growth in higher-margin fashion basics products seen in recent periods continued, with the premium Delta Platinum line gaining more customer interest and market share on the strength of its quality, styling and fabric sophistication. Sales on Activewear’s B2B eCommerce site also continued to escalate, with almost 30 percent growth for the quarter. Activewear gross margins improved to 18.0 percent from 16.6 percent in the prior-year quarter with higher selling prices helping to offset raw material and other cost pressures in the market.
The fiscal year 2018 third quarter was the first full quarter of combined operation for the company’s digital print and fulfillment business, DTG2Go (previously Art Gun), following its recent acquisition on March 9, 2018. The integrated DTG2Go business achieved third quarter sales growth of 167 percent over the prior-year period, with increased sales from existing customers and new customer launches contributing to the strong performance. DTG2Go opened its fourth manufacturing and fulfillment location during the quarter. The new facility, located on Soffe’s Fayetteville, NC, campus, further increased DTG2Go’s capacity as well as its consumer reach in the key northeastern market.
Branded Segment Review
Third quarter revenue in the branded segment was $23 million, compared with $25 million in the prior-year period. At Salt Life, incremental sales with new national retailers and a double-digit increase in eCommerce sales were offset by the impacts of unseasonably cool, wet weather on demand in the independent sales channel, especially in key southeastern markets. While these conditions resulted in a sales decline of 2 percent for the quarter, gross margins held strong and drove solid profitability at Salt Life.
Soffe sales declined about $1 million during the quarter, but are up 2 percent year-over-year through the first nine months. The third quarter decline resulted primarily from lower sales in the military channel, offsetting growth with strategic sporting goods retailers through improved floor placement and increased demand for Soffe shorts.
Robert W. Humphreys, Delta Apparel, Inc.’s chairman and chief executive officer, commented, “We had a solid third quarter with overall sales and earnings growth despite some headwinds associated with the inflationary cost environment and well-documented challenges at retail.
“Activewear sales were up a strong 7 percent for the third quarter, with multiple growth drivers at Delta Catalog including increased demand, momentum with fashion basics merchandise and higher selling prices. The private label market fundamentals remain strong and we continue to see brands emphasizing Western Hemisphere sourcing strategies. The FunTees platform is uniquely positioned to accommodate brands and retailers seeking more supply chain versatility along with improved speed-to-market.
“The third quarter was another exciting period of growth for our DTG2Go business as it integrated its recent acquisition and further expanded its national footprint. DTG2Go continues to solidify its market-leading position, and we believe the momentum we are seeing will continue as it moves toward its seasonally strong holiday quarter.
“We expect a return to growth at Salt Life with the temporary factors affecting third quarter sales now behind us. Salt Life continues to add doors and win floor space with national accounts, and its direct-to-consumer channels are growing at encouraging rates. The success of the brand’s recent craft beer launch, Salt Life Lager, and expansion into ladies’ swimwear, are exciting new developments that further solidify its positioning as a true “lifestyle” brand.
“Soffe’s third quarter performance was mixed. While sales declined in the military channel, we continue to see successes in the strategic sporting goods channel and expect further growth with dance, cheer and gymnastics programs. The new DTG2Go operation on the Soffe campus opens up exciting new customer opportunities for blended fulfillment solutions, including both digital and traditional printing. Soffe also added to its branded retail footprint during the quarter with a new store in Greenville, NC. We expect the new store to serve as another important touch point in a key consumer market for the brand.
“Overall we are excited about the growth opportunities at Delta Apparel Inc. driven by new products and category extensions, our broadening customer base and our investments in the dynamic digital print market. Our manufacturing investments have created scale efficiencies and platform flexibility that are allowing us to both reduce costs and internally produce merchandise that we previously sourced. In addition, the Salt Life brand offers tremendous growth opportunities for our company as it continues to expand both geographically and into additional lifestyle categories. All things considered, we believe we are positioned for a strong finish to fiscal year 2018 and good momentum going into the new fiscal year.”
