Delta Apparel, Inc. reported that sales for the fiscal fourth quarter ended July 3, 2004 increased 98.2% to $72.9 million from $36.8 million, due primarily to the acquisition of M.J. Soffe Co. The three months ended July 3, 2004 included 14 weeks of operations compared to the 13 weeks of operations in the fourth fiscal quarter of the prior year.
Gross margins for the quarter ended July 3, 2004 improved to 28.6% compared to 18.3% in the prior year quarter. The improvement in gross margin was primarily the result of the higher gross margins associated with the Soffe branded apparel business, offset partially by lower gross margins in the basic tee shirt business. The gross margin on basic tee shirts declined in the fourth fiscal quarter compared to the prior year quarter principally due to higher raw material costs, offset partially by lower conversion costs and improved mix. The Company achieved record operating income of $9.7 million for the quarter ended July 3, 2004, an increase of $6.8 million, or 242.3%, from $2.8 million in the fourth fiscal quarter of the prior year.
Basic and diluted earnings per share for the quarter ended July 3, 2004 were $1.32 and $1.28 per share, respectively, compared to basic and diluted earnings per share in the prior year quarter of $0.41 and $0.39, respectively.
Sales for twelve months ended July 3, 2004 were a record $208.1 million, an increase of $78.6 million, or 60.7%, from the prior year. Gross margins for the year ended July 3, 2004 improved to 23.2% compared to 18.5% in the prior year as a result of the higher gross margins associated with the Soffe business which was included in the results for the last nine months of the 2004 fiscal year. The gross margin on basic tee shirts declined during the year compared to the prior year principally due to lower average selling prices and higher raw material costs, offset partially by lower conversion costs. Fiscal year 2004 included 53 weeks of operations compared to the 52 weeks of operations in the prior fiscal year.
The Company achieved record operating income of $17.0 million for the twelve months ended July 3, 2004, an increase of $6.5 million, or 61.3%, from $10.6 million in the prior fiscal year. Basic and diluted earnings per share for the year ended July 3, 2004 were $2.39 and $2.32 per share, respectively, compared to basic and diluted earnings per share in the prior year of $1.50 and $1.45, respectively.
Robert W. Humphreys, President and CEO, commented, “The acquisition of Soffe, coupled with solid results in the Delta business, drove record sales and earnings for Delta Apparel during the year. In addition, the integration of the Soffe business with Delta has gone very well, and our combined financial results continue to exceed our expectations. Delta continued to grow its business by servicing new accounts in the catalog direct segment of our business while strong retail demand for Soffe branded products drove increased sales on the Soffe side of our business.
In addition to the strong sales and earnings achieved, we also exceeded our inventory and debt reduction goals during the fourth quarter. While we will continue to ship product with higher raw material cost during the first part of fiscal year 2005, we are looking forward to the year with great anticipation. We will have the Soffe business for the full fiscal year, the benefit of our cost reduction efforts should be more apparent and we should start shipping product with lower cost raw materials in the second half of the year. We also expect to expand our marketing efforts in both business segments during the upcoming year.”
Delta Apparel's financial results were positively impacted by the acquisition of Soffe in October 2003. The Soffe business contributed $32.2 million in sales during the fourth fiscal quarter and $71.8 million for the year ended July 3, 2004. Selling prices and gross margins in this branded apparel business continued to be robust and demand for the Soffe brand remained strong. Operating income in the Soffe business for the fourth fiscal quarter and fiscal year were $6.1 million and $9.6 million, respectively.
The Delta business reported sales of $42.3 million for the three months ended July 3, 2004, an increase of $5.5 million, or 15.0%, from sales in the prior year quarter. For the twelve months ended July 3, 2004, the Delta business contributed $138.0 million, an increase of $8.4 million, or 6.5%, from sales in the prior fiscal year. Operating income for the fourth fiscal quarter was $3.9 million, an increase of $1.1 million, or 38.0% from the prior year quarter as a result of lower selling, general and administrative expenses. Bad debt expense was lower in the three months ended July 3, 2004 due to improved accounts receivable agings. Operating income in the Delta business for the 2004 fiscal year was $7.6 million, a decrease of $2.9 million, or 27.6%, from fiscal year 2003.
Accounts receivable increased $16.4 million from June 28, 2003 to $38.6 million on July 3, 2004. The increase in accounts receivable was the result of the addition of Soffe. Through improved cash collections, the Delta business lowered its accounts receivable balance by $1.3 million while achieving an increase in sales of $5.5 million from the prior year quarter.
Inventories increased $58.7 million from June 28, 2003 to $105.9 million on July 3, 2004. The acquisition of M. J. Soffe Co. resulted in an increase of $52.0 million in inventory compared to the prior year. The increase in inventory in the Delta business is primarily the result of the higher raw material prices in inventory. The Company continues to focus on managing its inventory levels while maintaining the inventory necessary to achieve its expected sales growth in the upcoming fiscal year.
Delta Apparel also announces today that in a meeting held on August 19, 2004, the Board of Directors declared a dividend of seven cents per common share of stock payable September 13, 2004 to shareholders of record as of the close of business on September 1, 2004. This dividend was declared pursuant to the Company's previously announced quarterly dividend program, which the Company may amend or terminate at any time.
In other news, DLA has appointed Philip J. Mazzilli to the Board of Directors effective August 19, 2004.
Phil is currently an independent financial and business consultant, advising and mentoring business executives. Until 2003, Phil was the Executive Vice President and Chief Financial Officer of Equifax Corporation. Phil has over forty years of business experience in a broad range of industries. He holds an MBA in Finance and a BS in Industrial and Labor Relations from Cornell University. Phil is actively involved in the Kings Ridge Christian School in Alpharetta, Georgia. He is on the Board of Governors and is the Chairman of the Finance Committee at the school.
SELECTED FINANCIAL DATA: (In thousands, except per share amounts) Three Months Ended Twelve Months Ended July 3, June 28, July 3, June 28, 2004 2003 2004 2003 ----------- ---------- ---------- ---------- Net Sales $ 72,883 36,766 $ 208,113 $ 129,521 Cost of Goods Sold 52,044 30,037 159,852 105,552 ----------- ---------- ---------- ---------- Gross Margin 20,839 6,729 48,261 23,969 SG&A 10,959 3,867 31,043 13,220 Other Expense 221 40 192 194 ----------- ---------- ---------- ---------- Operating Income 9,659 2,822 17,026 10,555 Interest Expense 777 204 2,622 732 Taxes 3,463 986 4,674 3,760 ----------- ---------- ---------- ---------- Net Income $ 5,419 $ 1,632 $ 9,730 $ 6,063 =========== ========== ========== ========== Weighted Average Shares Outstanding Basic 4,112 4,013 4,078 4,045 Diluted 4,227 4,149 4,188 4,176 Net Income per Common Share Basic $ 1.32 $ 0.41 $ 2.39 $ 1.50 Diluted $ 1.28 $ 0.39 $ 2.32 $ 1.45