Delta Apparel, Inc. reported that while revenue continued to grow in its fiscal 2012 second quarter and first half, earnings were negatively impacted by a one-time second quarter inventory markdown of $16.2 million. The inventory markdown, previously announced, was necessitated by the unprecedented record high cotton costs combined with selling price discounts in the company's line of basic undecorated t-shirts. As a result of the markdown, the company's results for the remainder of fiscal 2012 in this business should be free from the effects of these high cotton prices flowing through cost of sales.

Sales for the second quarter ended December 31, 2011 totaled $105.5 million, up from the $104.7 million reported in the prior year's second quarter. The company had a net loss in the fiscal 2012 second quarter of $13.6 million, or $1.61 per share, compared with net income of $1.4 million, or $0.16 per diluted share, in the fiscal 2011 second quarter. The net loss was due primarily to the inventory markdown in the basics segment and lower than anticipated demand from retailers stemming from price increases on branded products necessitated by higher cotton costs.

For the first six months of fiscal 2012, sales increased approximately 8 percent to $229.0 million versus $212.6 million for the first six months of fiscal 2011. The company had a net loss in the fiscal 2012 six month period of $9.2 million, or $1.09 per share, stemming from the second quarter loss partially offset by the record earnings that the company reported in its 2012 first quarter. This compares to net income of $3.1 million, or $0.35 per diluted share, in the prior year six month period.

Branded Segment Review

Branded segment sales for the second quarter were $47.9 million, a slight decrease from prior year sales of $48.5 million. Vintage t-shirt sales were strong during the quarter, with double-digit sales growth over the prior year period, and Art Gun more than doubled sales during the quarter. The Salt Life(R) brand also experienced another good quarter with continuing geographic and sales-channel expansion. While increased pricing intended to offset higher cotton costs produced a greater than expected fall-off in volume for the branded segment and slightly lower margins overall, margins did improve in the company's Art Gun and Junkfood businesses.

Basics Segment Review

Second quarter 2012 sales in the basics segment increased to $57.6 million, a 2.4 percent increase over the prior year second quarter. The increase was due to a 36 percent improvement in the FunTees private label business driven by higher volume and pricing. The company's undecorated t-shirt business experienced lower volume on reduced selling prices, and elevated manufacturing costs due to the higher cotton prices. The second quarter inventory markdown should allow this business to operate in the third and fourth fiscal quarters without the negative effect of high cotton costs.

Robert W. Humphreys, Delta Apparel's chairman and chief executive officer, commented that the company is positioned for growth in the last half of fiscal 2012 due to the tough decisions that were made in the second quarter. He further commented, “Had we not taken the entire markdown in the second quarter, the company would have had to deal with the impact of high cotton prices throughout the remainder of the year. We now can focus on growing our operations with the effect of this unprecedented increase in cotton prices behind us. In the second half of fiscal 2012, we currently expect revenue and earnings growth over the prior year. This should allow us to end fiscal 2012 on a positive note and position us to resume annual sales and earnings growth in fiscal 2013.”

Fiscal 2012 Guidance

Due to the effect of the inventory markdown and selling price discounts on the second quarter and first six months, the company has reduced its fiscal year 2012 outlook for sales and earnings. For the fiscal year ending June 30, 2012, the company anticipates net sales to be in the $480 to $500 million range and earnings to be in the range of $0.50 to $0.60 per diluted share.

        (In thousands, except per share amounts)
                                                                                     Three Months Ended                        Six Months Ended
                                                                              Dec 31, 2011          Jan 1, 2011         Dec 31, 2011         Jan 1, 2011
                                                                           ------------------   ------------------   ------------------   ----------------
        Net Sales                                                             $ 105,486            $ 104,722            $ 229,009           $ 212,639
        Cost of Goods Sold                                                      105,345               82,844              197,613             164,851
                                                                                -------              -------              -------             -------
        Gross Profit                                                                141               21,878               31,396              47,788
        Selling, General and Administrative                                      20,182               20,076               44,744              42,971
        Change in Fair Value of Contingent Consideration                              -               (1,530)                  -              (1,530)
        Goodwill Impairment Charge                                                    -                  612                    -                 612
        Other (Income) Expense, Net                                                 (52)                 95                  (59)               152
                                                                                ------- ----         -------              ------- ----        -------
        Operating (Loss) Income                                                 (19,989)              2,625              (13,289)             5,583
        Interest Expense, Net                                                       992                  601                1,885               1,202
                                                                                -------              -------              -------             -------
        (Loss) Income Before (Benefit) Provision for Income Taxes               (20,981)              2,024              (15,174)             4,381
        (Benefit) Provision for Income Taxes                                     (7,389)                608               (5,996)             1,315
                                                                                ------- ----         -------              ------- ----        -------
        Net (Loss) Income                                                     $ (13,592)          $   1,416            $  (9,178)         $   3,066
                                                                           ==== ======= ====    ==== =======         ==== ======= ====    === =======
        Weighted Average Shares Outstanding
                                     Basic                                        8,465                8,500                8,458               8,512
                                     Diluted                                      8,465                8,756                8,458               8,769
        Net (Loss) Income per Common Share
                                     Basic                                    $   (1.61)          $    0.17            $   (1.09)         $    0.36
                                     Diluted                                  $   (1.61)          $    0.16            $   (1.09)         $    0.35