Delta Apparel, Inc. fiscal third quarter ended April 1, 2006, net sales rose 19% to $69.4 million compared to $58.3 million in the prior year quarter. Gross margins improved 240 basis points to 27.7% compared to 25.3% in the prior year third quarter. Selling, general and administrative expenses were 20.1% of sales compared to 17.8% of sales in the prior year, primarily due to the increased selling costs associated with the Junkfood business. In addition, distribution costs remained higher than the prior year due to moving expenses and duplication of costs associated with consolidating the Company's West Coast distribution center to a new, expanded facility. The Company expects costs associated with the West Coast facility to decline in the fourth quarter of fiscal year 2006.
Net income was $2.7 million, or 32 cents per basic share, in the fiscal third quarter of 2006 compared to the prior year's level of $5.4 million, or 65 cents per basic share. In the prior year third quarter, the Company recorded a gain on the sale of its Edgefield, South Carolina yarn facility of approximately $3.6 million, or 26 cents per basic share, and an 8 cents per basic share gain related to the reversal of a foreign earnings tax liability. Excluding both of these items, basic earnings per share in the prior year period would have been 31 cents.
Robert W. Humphreys, President and CEO, commented, “We are proud that each of our business units achieved record sales in our third fiscal quarter. In our Retail-Ready segment, Soffe achieved a 13.1% sales growth over the prior year and is poised to have significant sales growth in the fourth quarter. Demand continues to be strong for Junkfood products, as evidenced by the record sales achieved for the third quarter. Our Delta business was also able to achieve sales growth during the quarter, reaching an all-time record for this segment.”
Mr. Humphreys continued, “Our product offerings are being well received by the marketplace. Demand for our core Soffe shorts is strong as our sales continue to exceed prior years. During the quarter we expanded our capacity, and consolidated our Soffe distribution into our new West Coast facility without any shipping disruptions. Junkfood continues to successfully grow its sales with the addition of new products and licenses, as well as the expansion into additional retail outlets. We continue to explore growth initiatives, diversify our product offering, increase our operating efficiencies and identify cost saving opportunities in each of our key business segments to expand margins and maximize our performance. These efforts have positioned us for significant growth in our fourth quarter.”
For the fourth fiscal quarter ending July 1, 2006, the Company expects sales to be in the range of $81 to $88 million and basic earnings to be in the range of $0.72 to $0.77 per share. This compares to prior year fiscal fourth quarter sales of $66.3 million and basic earnings of $0.38 per share.
For the year ending July 1, 2006, the Company narrowed its expectation of sales to be in the range of $268 to $275 million and basic earnings to be in the range of $1.71 to $1.77 per share. Sales for the prior fiscal year were $228.1 million. When comparing fiscal 2006 earnings estimates to fiscal 2005 results, the following chart highlights the Company's fiscal year 2005 basic earnings per share, adjusted for the impact of the sale of its Edgefield, South Carolina yarn spinning facility and the reversal of the tax liability associated with the Company's decision to permanently reinvest its foreign earnings in Honduras.
Actual FY05 Basic Earnings Per Share $ 1.35
Sale of Edgefield Plant (0.26)
Reversal of Foreign Earnings Tax Liability (0.08)
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Adjusted FY05 Basic Earnings per Share $ 1.01
This segment, which includes the Soffe and Junkfood businesses, reported a sales increase of 46.4% to $32.8 million for the third quarter of fiscal year 2006 compared to $22.4 million in the prior year. The sales increase was driven by both an increase in sales in the Soffe business of 13.1% and the acquisition of Junkfood Clothing Company. Operating income for the three months ended April 1, 2006 increased 97.4% to $3.9 million compared to $2.0 million in the prior year due primarily to the Junkfood business.
This segment, which includes the Delta Apparel business, reported all-time record sales of $36.6 million for the third quarter of fiscal 2006, a 1.9% increase from the prior year quarter. The increase in sales was due to an increase in basic tee shirt volume, offset slightly by a decrease in private label units. The change in sales mix, along with a slight decline in selling prices across the product categories, drove a decrease in average selling prices. The lower margins attributable to the basic tee shirt products, coupled with the higher energy and transportation costs, yielded a decrease in operating income to $1.3 million compared to $2.5 million in the prior year.
On April 20, 2006, the Board of Directors increased the Company's dividend payment by 25%, bringing the quarterly dividend payment to five cents per common share. The dividend is payable on May 30, 2006 to shareholders of record as of the close of business on May 17, 2006. This dividend was declared pursuant to the Company's previously announced quarterly dividend program, which the Company may amend or terminate at any time.
SELECTED FINANCIAL DATA:
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Apr 1, Apr 2, Apr 1, Apr 2,
2006 2005 2006 2005
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Net Sales $ 69,365 $ 58,272 $187,640 $161,767
Cost of Goods Sold 50,149 43,528 131,461 124,631
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Gross Profit 19,216 14,744 56,179 37,136
Selling, General and
Administrative 13,953 10,392 40,421 26,932
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Operating Income 5,263 4,352 15,758 10,204
Other (Expense) Income (128) 3,616 276 3,612
Interest Expense, net 1,056 679 2,738 2,217
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Income Before Income Taxes 4,079 7,289 13,296 11,599
Provision for Income Taxes 1,335 1,844 4,799 3,556
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Net Income $ 2,744 $ 5,445 $ 8,497 $ 8,043
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Weighted Average Shares
Outstanding
Basic 8,622 8,376 8,591 8,316
Diluted 8,730 8,558 8,645 8,480
Net Income per Common Share
Basic $ 0.32 $ 0.65 $ 0.99 $ 0.97
Diluted $ 0.31 $ 0.64 $ 0.98 $ 0.95
