Delta Apparel Inc. reported earnings improved 6.5 percent in the fiscal third quarter ended June 29 as sales advanced 6.3 percent. The sales gains were led by the DTG2Go digital print business and the Salt Life lifestyle brand.
Robert W. Humphreys, the company’s chairman and chief executive officer, commented, “Our team delivered a strong quarter with accelerated sales growth and profitability, and we are pleased with the performance across both our Delta Group and Salt Life Group segments. Our DTG2Go digital print business continues to grow rapidly and our investments in that area are allowing us to capitalize on the disruption digital print technology is driving on graphic tees. Our Salt Life business also executed a great quarter, with strong performance across all of its major sales channels. We continue to be encouraged by the apparel growth we are seeing with regional and national retailers across multiple geographies.”
Humphreys continued, “The successes we are seeing across our business validate our focus on expanding our go-to-market strategies and sales channels as well as investing in manufacturing technology and distribution speed. We look forward to closing our fiscal year with more positive momentum.”
For the third quarter ended June 29, 2019:
- Net sales were $119.3 million, up 6.3 percent from $112.2 million in the prior year third quarter. Net sales in the Delta Group segment increased 5 percent over the prior year period and net sales in the Salt Life Group segment increased 18 percent from the prior year period.
- Gross profit was $24.8 million, an increase of 2.2 percent compared to $24.3 million in the prior year third quarter. As expected, gross margin sequentially improved 240 basis points from the second quarter to 20.8 percent in the third quarter.
- Selling, general and administrative (“SG&A”) expenses as a percentage of sales improved 100 basis points to 15 percent, compared to 16 percent in the prior year third quarter.
Other income included a $1.3 million discrete gain in the Salt Life Group segment realized from the settlement of a commercial litigation matter. Net of related expenses that are included in SG&A, the matter resulted in an improvement to operating income of $1.0 million, or approximately $0.10 diluted earnings per share.
- Operating income for the quarter was $8.4 million compared to $6.7 million in the prior year third quarter, with the increase driven by profitability growth in both segments along with the above-referenced discrete gain.
- Net income for the quarter was $4.9 million, or $0.70 per diluted share, compared to the prior year period of $4.6 million, or $0.62 per diluted share.
For the nine months ended June 29, 2019:
- Net sales were $323.8 million, up 7 percent from $302.5 million in the comparable period last year.
- Gross profit was $62.3 million compared to $62.9 million in the comparable period last year and gross margin was 19.2 percent compared to 20.8 percent in the prior year period.
- SG&A expenses as a percentage of sales improved 40 basis points to 16 percent, compared to 16.4 percent in the prior year period.
- Operating income was $11.3 million compared to $14.0 million in the comparable period last year, with the majority of the decrease attributable to a discrete expense of $2.5 million taken during the first quarter in connection with the resolution of a customer bankruptcy matter within the Delta Group segment.
- Net income for the period was $4.7 million, or $0.67 per diluted share, compared to the prior year period’s net loss of $1.8 million, or $0.25 per diluted share.
During the quarter, the company spent approximately $6.6 million on capital expenditures and $308 thousand to repurchase 14,000 shares of its stock. Total debt, including capital lease financing, as of the end of the first nine months of fiscal 2019 was $149 million, up approximately $33 million from the end of the prior year period. The majority of the increase was driven by debt of $18 million incurred in connection with the company’s recent digital print acquisitions, with the remainder attributable to higher working capital and investments in capacity to support the acquired businesses and other growth initiatives. Total inventory at the end of the first nine months of fiscal 2019 was $177.8 million compared with $169.6 million a year ago due primarily to increased units on hand from the recent digital print acquisitions as well as higher average cost per unit from the stronger mix of fashion basics, fleece and performance products in inventory to support the growth in these categories.
Delta Apparel, Inc., along with its operating subsidiaries, Salt Life, LLC, M. J. Soffe, LLC, and DTG2Go, LLC, offers a diverse portfolio of core activewear and lifestyle apparel and related accessory products.