Delta Apparel Inc. reported sales rose 6.7% in its second quarter ended December 27, to $73.4 million. The sales growth was driven by a 17% sales increase in the retail-ready segment with flat sales in the activewear segment.

Net income for the second quarter was $0.6 million, or 7 cents per
share. The company reversed a portion of its tax valuation allowance on
its state operating loss carryforwards, which contributed 4 cents
pershare to its earnings for the quarter ended December 27, 2008. In
the prior year second quarter, the company reported a net loss of $2.8
million, or 33 cents, inclusive of 15 cents per diluted share of
restructuring related expenses.

Gross margins increased 610 basis points to 21.9% compared to 15.8% in the prior year second quarter. The prior year second quarter included $2.0 million of restructuring related expenses, lowering the gross margin by approximately 290 basis points. The higher mix of retail-ready sales, along with higher prices and improved manufacturing costs increased the overall margins in the second quarter of fiscal 2009.

Robert W. Humphreys, president and chief executive officer, commented, “Overall we were pleased with our results in the second quarter. Our diversified channels of distribution and broad product offerings are resulting in sales and earnings growth in less than ideal market conditions. While there are many unknowns in the general economy and apparel marketplace, we believe the marketing and operational enhancements we have made will allow us to continue to grow our sales and profitability in the second half of our fiscal year.”

Retail-Ready Apparel

The retail-ready segment, comprised of the Soffe and Junkfood businesses, reported a 17.0% sales increase to $32.4 million for the second quarter of fiscal year 2009 compared to $27.7 million in the prior year second quarter. The Junkfood business had its seventh consecutive quarter of double-digit sales growth, increasing its sales in the second quarter by 43.5% compared to the prior year second quarter. Junkfood is driving growth through its new licenses and continued success with its co-branded products with GapKids and babyGap. In addition, Junkfood continues its international growth primarily in the United Kingdom and Japan. Second quarter revenue in the Soffe business increased 4.7% compared to the prior year second quarter, driven from growth in its military business partially offset by sales declines to smaller sporting goods stores. Operating income in the retail-ready segment was $3.0 million for the second fiscal quarter of 2009, an increase of $0.9 million, or 46%, from the prior year second quarter due primarily to increased sales and leveraged fixed costs in both businesses.

Activewear Apparel

The activewear segment, comprised of the Delta and FunTees businesses, reported sales of $41.0 million for the three months ended December 27, 2008, consistent sales in the prior year second quarter of $41.1 million. Sales in the FunTees business increased 2.8%, driven by increased orders and a higher percentage of decorated programs. As the quarter began, sales of the Delta basic tees were ahead of the prior year, but slowed considerably in December, driving the second quarter sales down 2.1% from the prior year second quarter. The activewear segment generated an operating loss of $1.5 million for the second quarter of 2009, compared to an operating loss of $4.6 million in the prior year second quarter, which included $2.0 million in restructuring related expenses. The improved results were due primarily to higher prices on products, reduced transportation expenses and lower manufacturing costs flowing through cost of sales.

Fiscal 2009 Year to Date Results

Net sales for the six months ended December 27, 2008, were $164.8 million, an increase of $23.4 million, or 16.6% from the prior year. The sales increase was driven from organic growth in each of the company’s four business units. Net income for the six months ended December 27, 2008 was $1.3 million, or $0.15 per diluted share, compared to the prior year’s net loss of $4.4 million, or 52 cents per diluted share, inclusive of 31 cents per diluted share of restructuring related expenses.

Fiscal 2009 Guidance

For the fiscal year ending June 27, 2009, the company reiterates its expectation for net sales to be in the range of $340 million to $360 million and earnings to be in the range of 70 cents to 90 cents per diluted share. This compares to fiscal year 2008 sales of $322.0 million and a loss of 6 cents per diluted share, inclusive of 39 cents of costs associated with the textile restructuring plan. The company remains concerned about the U.S. economy and slowing consumer demand for apparel. In determining its expectations for fiscal year 2009, the Company believes it has taken into consideration these heightened risk factors; however, significant further deterioration in the economy may negatively impact the company’s ability to achieve its expectations.

Humphreys concluded, “We are encouraged with our start to fiscal year 2009 and remain on track to achieve our sales and profitability goals for the year despite the current economic environment. We remain focused on our marketing initiatives, manufacturing improvements and cost savings that we believe put us in a strong position to increase shareholder value in the future.”