Delta Apparel, Inc. said sales for the three months ended Dec. 26, were a record $91.2 million, an increase of 24.3% from the prior year second quarter. The sales expansion was driven by organic growth of 16.6% and the net sales contributed by its headwear business.
Gross margins increased 200 basis points to 23.9% compared to 21.9% in the prior year second quarter. The company continues to improve the gross margins in its activewear segment, which increased 330 basis points, through more effective merchandising strategies and lower manufacturing costs.
Net income for the quarter ended December 26, 2009 was $1.0 million, or 11 cents per diluted share. This includes a charge of 3 cents per diluted share relating to the mediated settlement of the lawsuit filed against the company by the bankruptcy trustee for National Gas Distributors, LLC, which was settled in December 2009. The prior year second quarter earnings were 7 cents a share, which included a favorable tax adjustment of 4 cents per diluted share.
Fiscal 2010 Year to Date Results
Net sales for the six months ended December 26, 2009, were $190.3 million, an increase of $25.5 million, or 15.5%, from the prior year six month period. The sales increase was driven by organic growth of 8.4% and the net sales contributed by To The Game, LLC, which was acquired during the fourth quarter of fiscal year 2009. Net income for the six months ended December 26, 2009 was $3.6 million, or $0.42 per diluted share, a 180.0% increase from the $0.15 per diluted share in the first six months of fiscal year 2009.
Robert W. Humphreys, Chairman and Chief Executive Officer, commented, �â¬ï¿½We are very pleased with our strong double digit sales growth during the second quarter which comes on top of 7% sales growth in the year ago quarter and amidst a challenging consumer environment. We believe our ability to grow our business and gain market share in all operating divisions is a validation of our powerful brands, creative graphic talent, robust consumer appeal, and strong customer relationships. At the same time, the manufacturing initiatives we undertook a few years ago combined with our continued focus on manufacturing performance is enabling us to meet our fiscal 2010 gross margin target of 24% despite the pricing pressures in our activewear segment. As the spring selling season approaches, we believe our competitive position will allow further growth and improvement in profitability.�â¬ï¿½
Fiscal 2010 Guidance
On January 11, 2010, the company raised its expectations of net sales and earnings for the 2010 fiscal year ending July 3, 2010. The company reiterates its expectations for net sales to be in the range of $375 to $385 million and earnings to be in the range of $0.95 to $1.10 per diluted share. These projected results compare to fiscal year 2009 net sales of $355.2 million and earnings of $0.76 per diluted share. The improved outlook for fiscal 2010 reflects the stronger than anticipated sales and earnings achieved in the first half of the fiscal year.
The company is focused on continued growth and profitability improvement and has set forth three-year goals to grow sales to $500 million, increase gross margins to 30% and generate earnings of $3.00 per share in fiscal year 2013. The company believes these goals can be accomplished through its initiatives to expand sales of branded, licensed and decorated products, further develop marketing synergies across business units, grow its distribution channels, expand its manufacturing capacity, efficiencies and performance, and complete additional acquisitions. While the company believes it has initiatives in place that would allow it to achieve these goals, there are many risks and uncertainties that could negatively impact the company�â¬ï¿½s ability to achieve them.
Humphreys added, �â¬ï¿½While there is still a lot of uncertainty regarding the general economy and apparel marketplace, we are currently growing market share, developing our brands and licenses, targeting new distribution channels, and creating new opportunities for growth. These initiatives should allow us to maintain our trend of sales growth and improved profitability in the second half of fiscal year 2010. We believe we have the strategies in place to achieve our longer term growth and profitability goals, creating excellent value for our shareholders.�â¬ï¿½
Retail-Ready Apparel
The retail-ready segment, comprised of the Soffe, Junkfood and To The Game businesses, had sales of $45.8 million, a 41.3% increase from the prior year second quarter. Excluding sales of the headwear business, sales grew organically by 23.9% in the second quarter of fiscal year 2010. Driven by its new license agreements and continued success with GAP, Inc., Junkfood sales increased 54.9% compared with the same quarter of the prior year. Second quarter sales at Soffe increased 4.2% compared to the prior year quarter, with revenue expansion in each of its distribution channels except military. Military sales declined from the prior year second quarter, which included increased revenue from the initial rollout of the Navy PT uniform. Gross margins in the retail-ready segment decreased 340 basis points compared to the prior year second quarter driven from the growth of product extensions in the Junkfood business which generate lower gross margins than Junkfood branded products. Operating income in the retail-ready segment was $2.9 million for the second fiscal quarter of 2010, a decrease of $0.1 million from the prior year second quarter.
Activewear Apparel
The activewear segment, comprised of Delta Catalog and FunTees, had sales of $45.4 million for the quarter ended December 26, 2009, an increase of 10.8% compared to the prior year second quarter. Delta Catalog sales increased 16.3% compared to the fiscal 2009 second quarter. Delta Catalog gained significant market share with a 22.7% increase in units sold compared to an overall tee shirt market that was down more than 10%. While average selling prices declined 5.2% from the prior year second quarter, pricing on basic tees increased from the first quarter of fiscal 2010 and currently remain firm. Sales increased 1.8% at FunTees, driven from higher selling prices, partially offset by a 3.6% decline in unit sales. Revenue per unit increased from a higher percentage of products being shipped decorated and ready for the retail shelf. In addition, price increases were obtained on certain programs to cover higher raw material costs. Gross margins improved 330 basis points from the prior year second quarter as a result of new merchandising strategies and improved manufacturing performance. The activewear segment improved its operating results by $0.8 million to an operating loss of $0.6 million compared to an operating loss of $1.4 million in the prior year second quarter.
Acquisition
Through its wholly-owned subsidiary, Art Gun, LLC, the company acquired substantially all of the net assets of Art Gun Technologies, LLC on December 28, 2009. Through its innovative technology, Art Gun provides shoppers the ability to choose a basic garment and design a unique graphic to create a one-of-a-kind customized product. The acquisition of Art Gun expands the company�â¬ï¿½s e-Commerce platform, offers a direct entrée into the customized apparel market, and provides the company with expertise in digital printing.
| SELECTED FINANCIAL DATA: | ||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||
| Dec 26, 2009 | Dec 27, 2008 | Dec 26, 2009 | Dec 27, 2008 | |||||||||||
| Net Sales | $ | 91,160 | $ | 73,361 | $ | 190,282 | $ | 164,773 | ||||||
| Cost of Goods Sold | 69,384 | 57,306 | 144,861 | 129,412 | ||||||||||
| Gross Profit | 21,776 | 16,055 | 45,421 | 35,361 | ||||||||||
| Selling, General and Administrative | 19,561 | 14,559 | 38,819 | 31,400 | ||||||||||
| Other Income (Expense), Net | 28 | 10 | 133 | (15 | ) | |||||||||
| Operating Income | 2,243 | 1,506 | 6,735 | 3,946 | ||||||||||
| Interest Expense, Net | 903 | 1,222 | 1,857 | 2,641 | ||||||||||
| Income Before Provision (Benefit) for Income Tax | 1,340 | 284 | 4,878 | 1,305 | ||||||||||
| Provision (Benefit) for Income Taxes | 361 | (311 | ) | 1,316 | 36 | |||||||||
| Net Income | $ | 979 | $ | 595 | $ | 3,562 | $ | 1,269 | ||||||
| Weighted Average Shares Outstanding | ||||||||||||||
| Basic | 8,516 | 8,503 | 8,512 | 8,500 | ||||||||||
| Diluted | 8,567 | 8,514 | 8,549 | 8,511 | ||||||||||
| Net Income per Common Share | ||||||||||||||
| Basic | $ | 0.11 | $ | |||||||||||
